The ARCC reports back to the Management Committee on a regular basis. The ARCC also reviews and discusses the proposed agenda items for the Audit Committee and Finance
Financial Offi cer and the Group Chief Transformation Offi cer (2 ).
(1) This information is not required under IFRS and as such i s not part of the Consolidated Financial Statements. Therefore, it is not covered by the report of the Statutory Auditors on the Consolidated Financial Statements.
(2 ) As of end of Q1 2017, the Operational Audit Risk & Compliance Committee is co-chaired by the Group Chief Risk Offi cer and the Group Chief
GRM is headed by the Group Chief Risk Offi cer, who reports to the Chief Executive Offi cer.
Extensive use of Internal Model based on a robust economic capital metric
The Risk Management function at Group level is also reinforced by AXA Global P&C and AXA Global Life, which as global business lines, advise and support local entities in their reinsurance strategy (Property & Casualty, Health and Life &
For additional information on the reinsurance strategy, please see Section 4.6 “Insurance r isks” of this Annual Report (1).
In 2016, AXA Group Compliance has reviewed and submitted to the Audit Committee and the Board of Directors a new
Compliance Risk Assessment exercise via which entities are required to identify the most signifi cant compliance risks to which they are exposed. Based on this assessment, an Annual
On a regular basis, the Group Compliance function reports to the Group ARCC, the Audit Committee, and to the Board of Directors (as required) on signifi cant compliance matters.
(“ICOFR”); ■ the effi ciency of internal control framework over Solvency II to contribute to the Internal Model validation process.
(1) Only information contained in Section 4.6 “Insurance r isks” of this Annual Report and referred to in Note 4 “Financial and insurance r isk management” in Part 5 – “Consolidated Financial Statements” of this Annual Report is covered by the report of the Statutory Auditors on the Consolidated Financial Statements.
This approach is defi ned and formalized in the “AXA Group IFC
For more information on ICOFR and on Solvency II, please refer to paragraphs “Financial r eporting, d isclosure, c ontrols and p rocedures” and “Internal Model v alidation” below.
The Global Head of Internal Audit reports to the Chairman of the
AXA Group Audit Committee with an administrative reporting line to the Group Chief Executive Offi cer.
Head of Internal Audit whilst also having a direct and unfettered reporting line to their local Audit Committee Chairman and an administrative reporting line within their local management structure.
A report is issued at the conclusion of each audit assignment to the relevant senior management. The results of the audits and resolution status of internal audit issues are presented to the relevant Audit Committee and Executive Management
Risk management: Risk Management is a local responsibility, in accordance with GRM standards and guidelines. The roles and responsibilities of local r isk m anagement teams are validated jointly by the e xecutive c ommittees of local entities and the
Group’s Chief Risk Offi cer to ensure a better alignment of central and local interests.
The minimum missions required for local r isk m anagement teams are: ■ coordinating the second line of defense locally (which covers among others Compliance, Security) through a specific system of governance framework; ■ ensuring that the risk appetite is implemented with respect to all risks consistently with the Group’s risk appetite, with enhanced reporting, risk limits and decision processes; ■ providing a second opinion on key processes, such as the defi nition of characteristics for new products before launch, reserves, ALM studies & asset allocation and reinsurance strategies; ■ with respect to the Internal Model, local r isk m anagement teams are responsible for checking the adequacy of the local risk profi le, and for implementing, testing and validating the
Local Chief Risk Offi cers regularly report to the local Board of
Compliance: The local Compliance functions are expected to undertake an annual Compliance Risk Assessment to identify the major compliance risks to which the business is exposed.
The local PBR units are responsible for producing their respective contribution to the Group consolidated fi nancial statements.
PBRC’s role encompasses the following principal activities: ■ development of both accounting and reporting standards; ■ managing instructions to process with the subsidiaries for the various exercises; ■ managing the Group’s fi nancial consolidation and reporting systems; ■ producing the Consolidated Financial Statements in accordance with International Financial Reporting Standards
(IFRS) and analyzing key performance indicators; ■ managing the Internal Financial Control (IFC) program; ■ developing and using management control tools; ■ managing and consolidating the European Embedded Value and Available Financial Resources processes, related actuarial indicators and the economic balance sheet; ■ coordinating the production of the Group’s Annual Reports fi led with the AMF; ■ coordinating the production of reports fi led with the ACPR
PBRC has defined and implemented a set of policies and procedures to ensure that the consolidation process leading to the consolidated fi nancial statements is timely and accurate.
Group accounting standards, which are consistent with accounting and regulatory principles, are set forth in the “AXA
The information system is based on “Magnitude”, a consolidation tool managed and updated by a dedicated team. This system is also used to deliver management reporting information and the economic balance sheet. The process through which this management reporting information and the economic balance sheet are produced and validated is the same as the one used to prepare consolidated fi nancial information.
Group Accounting Manual and instructions in all frameworks produced (IFRS, Embedded Value, actuarial indicators and economic balance sheet) within the internal fi nancial control program.
The AXA Group’s ICOFR is a process designed under the supervision of the Group Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Consolidated Financial
The Group’s ICOFR includes policies and procedures that provide reasonable assurance that: ■ the maintenance of records accurately and fairly refl ects the transactions and dispositions of Group assets; ■ the transactions are recorded as necessary to permit the preparation of financial statements in accordance with applicable generally accepted accounting principles; ■ the receipts and expenditures are being made only in accordance with an authorization of executives of the Group; and
■ any unauthorized acquisition, use or disposition of Group assets that could have a material effect on the Group’s fi nancial statements would be prevented or detected in a timely manner.
The Group has implemented a comprehensive program, managed by PBRC, entitled Internal Financial Control, designed to ensure that the Group Chief Executive Offi cer has a reasonable basis to conclude that AXA Group’s ICOFR is effective as of the end of each fi nancial year.
These tests form part of a continuous improvement process in internal control over fi nancial reporting. Areas for improvement are identifi ed by specifi c test plans designed by management with insight into the risks covered. These processes then help remediate the identified potential control deficiencies and maintain high standards of internal control within the Group.
The Group has implemented a formal internal review and sign-off process pursuant to which all Management Committee members, Chief Financial Officers and certain other senior executives are required to certify various matters covered in
This process is based on the following four pillars: 1. Chief Financial Offi cer Signs-Off Certifi cates, which are required to be submitted by all local Chief Financial Offi cers to PBRC, together with the required subsidiary fi nancial reporting and consolidation information; 2. IFC Management reports are required to be submitted by the Chief Financial Offi cer or another senior executive of every in-scope entity, as part of the IFC program dedicated to ICOFR; 3. Disclosure Controls & Procedures Certifi cates, which are required to be submitted by AXA’s Management Committee members, regional Chief Financial Officers and certain other senior executives pursuant to which each of these executives is required to review the Group’s registration document and formally certify (i) the accuracy and completeness of the information in the Annual Report with respect to the companies under his/her responsibility, and
(ii) the effectiveness of disclosure controls and procedures and ICOFR at companies under his/her responsibility (with specifi c disclosure of any signifi cant defi ciencies or material weaknesses). In addition, as part of this “sub-certifi cation”
process, these executives are required to review and comment on a number of cross-sectional disclosures in the registration document relating to risk and other matters; 4. Chief Financial Offi cer Signs-Off Certifi cates on notes to the Consolidated Financial Statements: PBRC provided regional Chief Financial Offi cers with the contribution of the entities under their responsibility to the Consolidated
Financial Statements in order to facilitate their certifi cation on the accuracy and completeness of the information in the registration document of the Group.
However, all internal control systems, no matter how well designed, have inherent limitations and cannot provide absolute certainty or guarantee against the materialization of risks and control failures. Even systems determined to be effective by the management may not prevent or detect all human errors, all system malfunctions, all fraud or all misstatements and can provide only reasonable assurance.
The Group ORSA report is reviewed annually by the Solvency II
The ORSA report provides an assessment on: ■ the overall solvency needs through the measurement of quantifiable risks considering risk mitigation actions implemented in current economic context and approved business strategy detailed in the 2017-2020 strategic plan and within approved risk appetite limits. Stress scenario analyses are performed to ensure adequacy of the economic capital assessed. This is supported by the ERM, including the identifi cation and monitoring of non-quantifi able risks; ■ the compliance, on a continuous basis, with regulatory capital requirements, through the assessment of the ability to meet capital requirements using the approved Internal Model, in compliance with the Solvency II regulatory standard. Stress scenario analyses are performed to ensure adequacy of the economic capital assessed. Also, the extensive use of the
Limitations of the Internal Model and evolution plan resulting from the validation activities are presented.
For more information on regulatory and capital requirements applicable to the Group, including the Solvency II regime, please refer to Section 6.3 “General Information – Regulation and
The Group has developed a robust economic capital model since 2007. This model has been used since 2009 in its
On November 17, 2015, the Group received approval from the ACPR to use its Internal Model to calculate its Solvency
Capital Requirement under Solvency II. The Internal Model encompasses the use of AXA Group economic capital model on all material entities, except AXA US which is considered in equivalence. The Group continues to review regularly the scope, underlying methodologies and assumptions of its Internal Model and will adjust its Solvency Capital Requirement accordingly.
Any signifi cant changes to the model will have to be approved by the ACPR who may require further adjustments to the level of Solvency Capital Requirement. In addition, the Group monitors the work programme of the European Insurance and Occupational Pensions Authority (EIOPA) which, through its objectives, is also expected to carry out a review of the consistency of European insurer’s models and any such review may lead to regulatory changes to increase convergence and to strengthen oversight of cross-border groups.
Based on its expertise, the Group can improve on the approach of the standard formula, which is naturally constrained by its general scope, and have models more appropriate to the scope of the Group; and
■ allowing for better evolution of the model over time – As the Group’s experience increases, business expands to new markets and product innovations create different risks to consider, the flexibility of an internal model allows the specifi cities of these developments to be refl ected.
The Internal Model is based on a common defi nition of risks used consistently throughout the Group. It aims to ensure that the Company risk mapping is comprehensive and is followed in a consistent way across the Company and that effi cient procedures and reporting are in place so that roles and responsibilities are allocated to identify, measure, monitor, manage and report key risks.
Financial Resources at the 99.5th percentile over a one-year horizon. In other words, the Solvency Capital requirement is the capital needed to sustain a 1-in-200-year shock. It strives to include all measurable risks (market, credit, insurance and operational) and refl ects the Group’s diversifi ed profi le.
In addition to the risks that result in a Solvency Capital
In addition to the Solvency Capital Requirement assessment, which intends to cover all quantifi able risks to which the Group is exposed (insurance, fi nancial, and operational risks), AXA Group performs sensitivity analyses of its solvency ratio to material risks and events.
The Solvency II ratio as of December 31, 2016, published on
February 23, 2017 was estimated at 197% (1) which remains within AXA’s target range set at 170-230%.
Model governance are as follows: ■ the Board of Directors reviews the Internal Model, and authorizes the application for ACPR’s approval of major changes to the Internal Model; ■ the Audit, Risk and Compliance Committee; and
At Group level, the Internal Model is reviewed, tested and approved on an ongoing basis by the Solvency II Committee.
The Solvency II Committee is supported by risk technical working groups reviewing changes proposed to the Internal
The Group’s results are presented quarterly to the Audit, Risk and Compliance Committee.
These validation procedures are complemented by independent challenge and validation of assumptions, key parameters and results through Committees (including assumptions Committees, calibration Committees and clearance Committees) intended to provide an adequate level of expertise and seniority.
Directors that the model and its outputs meet a “fi t for purpose”
The independent reviews are performed by the following two internal teams: ■ IFC teams, at local and Group level, responsible for assessing the effectiveness of internal control framework over Solvency II, on the basis of the testing of processes and controls over the
The AXA Group, as an insurance group, follows an investment strategy mainly driven by Asset Liability Management (“ALM”).
■ the Asset Liability Management Supervisory Committee is cochaired by the Group Chief Financial Offi cer and the Group
Investment and ALM Committee whose terms of reference are approved by the local Executive Committees.
These Committees are responsible for, inter alia, defi ning the entity’s Strategic Asset Allocation, approving and monitoring investments, meeting local compliance obligations and reviewing the participation in investment proposals syndicated by the
ALM studies are performed by the Investment & ALM Department with the support of internal asset managers when appropriate and a second opinion is provided by the r isk m anagement d epartment. They use methodologies and modelling tools that develop deterministic and stochastic scenarios, embedding policyholders’ behavior considerations for the liabilities, fi nancial market evolution for the assets and taking into account existing interaction between the two. This process aims at maximizing expected returns given a defi ned level of risk. Furthermore, a series of additional constraints are taken into account, such as
ALM constraints are also taken into account when new insurance products are being designed as part of the product approval process (see Section 4.6 “Insurance risks – Product approval”
I 4.2.4 Governance of investment strategy and asset & liability management (ALM)
Approval Process (“IAP”) in line with the third pillar of the Group risk management principles which provides for a systematic second opinion on key processes . The IAP ensures key characteristics of the investment are analyzed, such as risk and return expectations, experience and expertise of the investment management teams, as well as accounting, tax, legal and reputational issues.
The IAP is completed at Group level for any significant investment, notably if several local entities are participating in the same investment. In that case, the successful completion of an IAP is done after the production of a second independent opinion by Group Risk Management. The IAP is used and completed at local level to cover local regulatory characteristics
Products involving hedging programs based on derivative instruments are designed with the support of dedicated teams at AXA Bank Europe, AXA Investment Managers, AB, AXA US
and AXA SA. In a similar way, this set-up ensures that all entities benefit from technical expertise, legal protection and good execution of such transactions within the following governance framework for derivatives.
Legal risk is addressed by defining a standardized master agreement. The Group’s business units may trade derivatives only if they are covered by legal documentation which complies with the requirements set out in the Group standard. Any change to certain mandatory provisions defi ned in the Group standards must be approved by GRM.
The operational risk related to derivatives is measured and managed in the context of the Group’s global operational risk framework. Furthermore, execution and management of derivatives are centralized within dedicated teams, reducing the
They independently counter-valuate the derivatives positions so as to achieve appropriate accounting, payment and collateral management. They also challenge the prices proposed by counterparties in the event that the applicable AXA entity wishes to initiate, terminate or restructure derivatives. Such capacity in pricing requires high-level expertise, which relies on rigorous market analysis and the ability to follow the most up-to-date market developments for new derivatives instruments.
■ in order to benefit from a more asset- specific and/or geographical expertise, the Group may also decide to invest through external asset managers. In such event, thorough due diligence analyses are performed by the Investment and the r isk m anagement communities and a continuous monitoring is implemented at both Group and Local levels.
Group’s solvency position, as well as available surplus; ■ a rise in fi nancial market volatility may increase the cost of hedging the guarantees associated with certain products such as Unit-Linked and Variable Annuities and decrease the
The main market risks to which the AXA Group is exposed are the following: ■ interest-rate risk, spread risk and equity risk related to the operating activities of Group subsidiaries; ■ exchange-rate risk related to the operating activities of Group subsidiaries; and
For more information on the AXA Group’s risk controls and Risk
In addition, AXA Group’s investment strategy, which is mainly driven by Asset Liability Management, aims to ensure that the
Group’s obligations and commitments to policyholders are met at all time, and to protect the solvency of the Group and of its entities (please refer to paragraph “Governance of investment strategy and Asset & Liability Management (ALM)” in Section 4.2
Local operating units have the primary responsibility for managing their market-related risks, while abiding by the risk framework defi ned at Group-level, in terms of limits/thresholds and standards. This approach aims to allow reacting swiftly in an accurate and targeted manner to changes in fi nancial markets, political and economic environments in which the
A wide variety of Risk Management techniques are used to control and mitigate the market risks to which the Group is exposed. These techniques, used primarily in all operating subsidiaries, include: ■ local risk appetite governance and processes, including functional limits on market risks defi ned locally and approved by the local Board or Executive Committee; ■ Asset Liability Management (ALM), i.e. defi ning an optimal strategic asset allocation with respect to the liabilities’
■ reinsurance which also offers solutions to mitigate certain fi nancial risks.
(1) Only information contained in Section 4.2 “Internal control and risk management” of this Annual Report and referred to in Note 4 “Financial and insurance r isks management” in Part 5 – “Consolidated Financial Statements” of this Annual Report is covered by the report of the Statutory
Reconciliation ifrs shareholders’ equity to Group AFR (in Euro billion) 2016
are as follows: ■ addition of €4.2 billion of net unrealized gains and losses on assets not refl ected in IFRS shareholders’ equity; ■ deduction of €-8.1 billion of undated deeply subordinated notes (TSS) and of undated subordinated notes (TSDI)
included in IFRS shareholders’ equity; ■ elimination of €-33 billion of intangible assets net of unearned revenues and fee reserves, taxes and policyholder bonuses.
The main elements of the reconciliation from the IFRS TNAV to
(TSS) and undated subordinated notes (TSDI), as well as €9.0 billion of dated subordinated debts; ■ addition of €6.5 billion refl ecting the Solvency II technical provision adjustments corresponding to the adjustment from
IFRS reserves to best estimate liabilities (€+16.4 billion) and the market value margin (€-9.9 billion) and; ■ other adjustments between IFRS TNAV and Group AFR
valuation (€3.5 billion), mainly refl ecting the inclusion of minority interests and the treatment of US insurance subsidiaries under the equivalence regime.
The sensitivities of the AFR to changes in major economic assumptions were calculated as follows for the 2016 values: ■ upward shift of 50 basis points in reference rates simulates a sudden shock to the initial conditions. This means changes to: 1) the current market values of fi xed-interest assets, with related possible changes to projected capital gains/losses and/or fee revenues, 2) future reinvestment rates for all asset classes, and 3) discount rates. The change is applied to the reference interest rates, including the volatility adjuster where applied in the base case. Infl ation rates, the volatility on interest rates and the Ultimate Forward Rates are not changed; ■ downward shift of 50 basis points in reference rates is the same as above but with a shift downward. Where the shift of 50 basis points would drop rates below 0%, they are fl oored at zero; ■ 10% higher value of equity markets simulates a shock to the initial conditions for equities only. Listed equities and private equity values including the impact of equity hedges are shocked. This means changes to current market values of all these equities excluding hedge funds, with related possible changes to projected capital gains/losses and/or fee revenues; ■ 10% lower value of equity markets: same methodology as mentioned above assuming a decrease.
(% of L&S AFR) of 0% to upward 50 bps and -2% to downward 50 bps show an asymmetry mainly driven by guaranteed interest rates having higher value when interest rates decrease, while higher reinvestment returns would need to be shared with policyholders limiting shareholders’ gains in a higher rate environment. However this classical pattern is not followed everywhere, as for certain type of business with signifi cantly low interest rate guarantees, the AFR behaves more like a portfolio of fi xed-income assets. In addition, higher interest rates affect the value both positively through higher investment rate and negatively through lower starting value of fi xed income assets and higher discount rates for future profi ts. For different product types these interactions produce different results.
2016 interest rate sensitivities for Property & Casualty business (% of P&C AFR) of -1% to upward 50 bps and 1% to downward 50 bps refl ect mainly the impacts on fi xed-income assets, partly offset by discount on liabilities.
Group assets at December 31, 2016 (90% in 2015), assets and liabilities with foreign currency exposure are generally naturally matched or hedged.
In Japan, AXA entities may invest when relevant outside the Japanese market in order to diversify and optimize investments and enhance returns. At the end of 2016, the total assets denominated in foreign currencies held both directly and indirectly through investment funds (mainly US Dollar)
In Germany, AXA entities held €8,304 million investments denominated in foreign currencies at the end of 2016
(€8,299 million in 2015) both directly and indirectly through investment funds, with the aim of diversifying its investments and taking advantage of foreign markets’ performance.
In Switzerland, AXA entities are exposed to exchange-rate risk through their investments in foreign currencies (mainly Euro and US Dollar) due to limited investment possibilities in the
Swiss market. A major portion of the exposure is hedged back into Swiss Francs with foreign exchange swaps, options and forwards. At the end of 2016, Switzerland foreign exchange exposure amounted to €33,074 million (€30,706 million in 2015) which represented circa 41% of total assets (circa 39%
of total assets in 2015), of which €30,873 million were hedged
(€9,592 million in 2015), in order to take advantage of the US
In Belgium and the United States, the Group’s Life & Savings companies do not have any signifi cant exposure to exchangerate risk.
At the end of 2016, these countries accounted for 99% of the
Group’s Life & Savings companies’ assets (95% at the end of 2015).
In Germany, AXA held €2,133 million investments denominated in foreign currencies at the end of 2016 (€2,437 million in 2015)
both directly and indirectly through investment funds with the aim of diversifying its investments and taking advantage of foreign markets’ performance. These investments were mainly denominated in US Dollar (€1,845 million versus €2,109 million in 2015) including the US Short Duration High Yield Fund
(€3,141 million in 2015) mainly in US Dollar (€2,410 million), with further UK exposure to the Euro (€645 million) and exposure to
In EMEA-LATAM Region, AXA entities held investments denominated in foreign currencies for €463 million in 2016
In Spain, AXA entities held investments in foreign currency for €408 million in 2016 (€389 million in 2015), directly and indirectly through physical assets. These investments are mainly in US
Dollar €349 million (€272 million in 2015). Exchange-rate risk exposure is hedged for a notional amount of €284 million using mainly foreign exchange forwards and currency swaps.
In addition to the foreign exchange rate management performed locally (hedged through Foreign Exchange forward and currency swaps), the Group Corporate Finance and Treasury Department steers the global exposure to foreign exchange risk and reports the position fi ve times a year to the Finance Committee of the
Information in this section should be read in conjunction with the paragraph “Credit and l iquidity-related r isks” in the Section 4.1
Credit risk is defi ned as the risk that a third party in a transaction will default on its commitments. Given the nature of its core business activities, AXA Group monitors two major types of counterparties, using methods suitable to each type: ■ investment portfolios held by the Group’s insurance operations
AXA Group’s exposure to credit risk is covered by AXA Group’s
AXA Group concentration risk is monitored by different analyses performed at Group level by issuer and ultimate shareholder, in addition to local procedures and by a set of Group and local issuer limits.
Compliance with the limits is ensured by the Group through defi ned governance. The Group Credit Risk Committee handles, on a monthly basis, the issuer exposure breaches to the Group’s limits and determines coordinated actions for excessive credit concentrations. A Group Credit Team reporting to the Group
CIO teams. The Group ALM Supervisory Committee is regularly kept informed of the work performed.
At December 31, 2016, the breakdown of the debt security portfolio (€450 billion) by credit rating category was as follows: Others
Government related bonds fair values (€236 billion) by country was as follows: Spain
The AXA Group, as part of its investment and credit r isk m anagement activities, uses strategies that involve credit derivatives (mostly Credit Default Swaps or CDS), which are mainly used as an alternative to debt security portfolios, when coupled with government debt securities, but also as a protection on single corporate names or specifi c portfolios.
Kong (€0.2 billion)and Switzerland (€0.1 billion); ■ €14.0 billion of CDS protections sold as an alternative to the direct purchase of a corporate bond mainly by holding government bonds and at the same time selling protection on very good quality names. This type of ALM strategy is often implemented to compensate for the lack of depth or liquidity in some markets in order to take synthetic credit risk.
OTC derivatives through a specifi c Group-wide policy. This policy includes: ■ Rules on derivative contracts (ISDA, CSA); ■ Mandatory collateralization; ■ a list of authorized counterparties; ■ a limit framework and an exposure monitoring process.
(1) This fi gure represents an accounting view i.e.100% of assets held directly and in consolidated investment funds “Core Investment Portfolios”, and excluding credit derivatives in n on consolidated investment funds, in line with Note 20 to the Consolidated Financial Statements. The Group holds €28.3 billion (notional amount) of credit derivatives as total exposure including consolidated investment funds “Satellite Investment Portfolios”
Committee is in charge of assessing reinsurers’ quality and acceptable commitments. The Committee is under joint authority of GRM and AXA Global P&C. This risk is monitored to avoid any excessive exposure to any specifi c reinsurer. The Group
The breakdown of all reserves ceded to reinsurers by reinsurer rating as of December 31, 2016 (€15.0 billion) was as follows: BB & lower
At December 31, 2015, the breakdown of reserves ceded to reinsurers (€19.7 billion) by reinsurer rating was: 69% in AA, 12% in A, 0% in BBB, 6% in BB and lower and 14% in others.
As such, AXA banks Risk Management policies are based on their stated risk appetite, with the following key principles: ■ dedicated counterparty and credit risk functions with appropriate Committees; ■ quality sovereign, international institutions and bank counterparties portfolio closely monitored; ■ adequacy to Group risk standards; and
Credit risk in the banks encompasses: ■ retail credit risk, resulting from the commercial activity – sales of mortgages and other type of loans to retail clients and small enterprises. Credit Risk Management is done through careful risk selection (e.g. in Belgium “Internal Rating Based”
Risk Management teams; ■ other than retail credit risk, resulting from investment activity.
AXA SA and/or an AXA entity will have the ability to meet payment obligations in a full and timely manner, in current or stressed environments. Liquidity risk concerns assets and liabilities as well as their interplay.
For each time horizon, the post-stress liquidity resources available and the post-stress liquidity needs (i.e. net outfl ows)
In the context of its Property & Casualty (P&C) and Protection &
“Business activities” of this Annual Report , the AXA Group is exposed to the following main insurance risks, which include: ■ premium risk resulting from fluctuations in the timing, frequency and severity of insured events, and relating to: • unexpired risks on existing contracts (insuffi cient premium reserves),
• fl uctuation of payments around their statistical average; ■ catastrophe risks embedding both natural disasters such as climatic events (including windstorms, hurricanes, fl ood or earthquakes), and man-made ones, such as terrorist attacks.
Group’s Solvency Capital Requirement metric, as detailed in the paragraph “Internal Model” in Section 4.2 “Internal control and risk management ” of this Annual Report and is taken into account in AXA’s liquidity Risk Management framework (please refer to Section 4.5 “Liquidity r isk” of this Annual Report).
Management processes, please refer to Section 4.2 “Internal control and risk management ” of this Annual Report.
Group level but performed jointly by central and local teams: ■ implementing a product approval process, which entails risk controls on new products that complement underwriting rules and product profi tability analyses;
Group Risk Management (GRM) has defi ned a set of procedures to approve new products launches. These procedures are adapted and implemented locally, and aim to foster product innovation across the Group while maintaining risks under control. The validation framework relies among others on the results of the Solvency Capital Requirement’s assessments, based on the AXA Group’s Internal Model, to ensure that new products undergo a thorough approval process before they are brought to market
In Life & Savings, the Product Approval Process is managed at local level for all traditional products, which allows maintaining time-to-market product launches. For sophisticated products, local entities require Group’s approval before launch to ensure all long-term commitments are monitored at Group level and benefi t from the Group expertise on enhanced or specifi c guarantees.
has developed and deployed common models and metrics to consistently measure risks throughout the Group (in particular via its economic capital framework as detailed in Section 4.2 of the Annual Report. This enables the Group to verify that its exposure complies with consolidated risk appetite limits along the dimensions of earnings, Available Financial Resources (AFR), solvency and liquidity. These tools also contribute substantially to monitoring the major risks (claims frequency deviation, claims severity, reinsurance, pricing consistency and natural catastrophes).
Group regularly monitors its exposure to these risks (including mortality, longevity and morbidity) and uses the results of this work to optimize its product design and its reinsurance coverage. These exposure analyses are supported by expert risk models in Life & Savings.
For the Property & Casualty and Life & Savings operations, reinsurance programs are set up as follows: ■ Group’s operating entities reinsurance capacity are set in alignment with Group Standards and with their local risk appetite limits; ■ their risks are modeled through in-depth actuarial analyses conducted on each portfolio; specifically for Property &
(storms, fl oods, earthquake…). Major Natural Catastrophes perils are modeled to a very large extent within the AXA
otherwise liable) for these losses. This is considered as an emerging risk at this stage given the paucity of relevant judicial precedent and the many open questions surrounding potential liability including the applicable duty of care, standards of proof and causality.
Centralization and harmonization of reinsurance purchase is based on the same procedures for both the Life & Savings business as for the Property & Casualty activities.
In Life & Savings, reinsurance is used to support local innovation policy for new risks or to cover mass risks (pandemic, earthquake or terrorism).
for Property & Casualty risks and AXA Global Life for Life and
AXA Global Life through the pools and the remaining part is ceded to external reinsurers.
In order to protect these pools, specifi c covers are arranged through either the traditional reinsurance market or the fi nancial one through securitization (cat bonds).
The additional reserves’ calculations are initially carried out locally through a two-opinion process, one given by the Technical
■ the Best Estimate Liabilities have been calculated in accordance with Articles 75 to 86 of the Solvency II Directive and Group guidelines.
The Group Actuarial Function Holder has been set with a specifi c role to defi ne and coordinate the tasks undertaken by the Group actuarial function stakeholders (notably GRM, PBRC, Global
Group’s Property & Casualty reserves cover Motor insurance business; ■ 13% at the end of 2016 (13% at the end of 2015) of the
• biometric risks (e.g. longevity/mortality) and policyholder behaviours (notably lapses and annuity election rates), are regularly monitored. The hedging programmes embed dynamic policyholder behaviours to a range of possible market situations; ■ 15% at the end of 2016 (14% at the end of 2015) cover savings products without guaranteed cash values upon surrender; ■ 21% at the end of 2016 (20% at the end of 2015) are related to savings products offering one-year guaranteed rates that are updated every year. The risks arising from a sustained fall in interest rates in the fi nancial markets are limited for these types of products. Hedging programs have been implemented to cover long-term fi xed maturities from the risk of an increase in interest rates; ■ 32% at the end of 2016 (31% at the end of 2015) cover other products like Protection & Health. These reserves cover surrender guarantees and, in some cases, a guaranteed longterm rate. Related risks are managed in the following ways: • products that are not surrender-sensitive are usually backed by fi xed-income investments with maturities and interest rates generally suffi cient to cover guaranteed benefi ts, so as to reduce as much as possible the reinvestment risk,
AXA Group’s Operational risk framework provides for the deployment of a common system, dedicated operational risk teams and a common operational risk typology classifying operational risks into seven risk categories: internal fraud, external fraud, employment practices and workplace safety, clients, products and business practices, damages to physical assets, business disruption and system failures and execution, delivery and process management. Its implementation is not limited to insurance activities. It encompasses all AXA entities, including insurance companies, banking activities, AXA asset managers and internal service providers consistent with AXA
A key objective of the AXA Group’s operational risk economic capital model is to understand and reduce losses resulting from operational failures and to defi ne an appropriate risk response strategy for major Operational risk scenarios. Entities and Group
Report; ■ compliance Risk due to changes in legislation and regulation remains a top concern; ■ business disruption mainly related to IT events: increased digitalization and technological innovation is increasing the dependency to IT.
AXA Group’s Solvency Capital Requirement as detailed in the paragraph “Internal Model” in Section 4.2 “Internal control and risk management ” of this Annual Report.
Specifi c actions are identifi ed at Group and local levels to mitigate these risks. Also, as regards Information and IT risks, AXA Group has decided to strengthen the management of information and technology risks within the second line of defense with the creation of an Information and Technology Risk team reporting to the Group Chief Risk Offi cer.
A strategic risk is the risk that a negative impact (current or prospective) on earnings or capital, material at the Group level, arises from a lack of responsiveness to industry changes or adverse business decisions regarding: signifi cant changes in footprint, including through mergers and acquisitions; ■ product offering and client segmentation; ■ distribution model (channel mix including all iances/
Given the nature of strategic risks, there is no capital charge assessment but a strong strategic Risk Management framework to anticipate and mitigate these risks.
AXA Group has defi ned a global framework with a two-fold approach to reactively protect and proactively identify, monitor, manage and mitigate reputational issues in order to not only minimize value destruction, but also to build and maintain brand equity and trust among stakeholders.
AXA Group has a Global Reputation Network whose purpose is to implement locally a reputation Risk Management framework.
(Marketing, HR, Finance/Investors Relations, etc.), at Group and local levels; ■ implement a common reputation Risk Management framework throughout the organization.
AXA Group has established processes to qualify and quantify emerging risks which could develop over-time and become significant. The emerging risk framework encompasses a network of circa 50 people within AXA Group (based in insurance, bank, Asset Management and supporting entities such as AXA Technology Services) which allows expertise to be shared within the business (including underwriting) and risk communities and ensures adequate underwriting policies are defi ned.
Emerging risks surveillance is organized through a detection process including watch on scientific publications, court decisions, etc. Risks are monitored and classifi ed within a risk mapping constituted of six sub-groups (regulatory & legal, environmental, socio & political, economic & fi nancial, medical and technological). After prioritization of the monitored risks or after a warning from an entity, a working group is launched on a yearly basis by GRM to review a specifi c risk and its potential impact in terms of insurance.
By developing relationships with researchers and supporting innovative projects in environmental, socio-economic and life risks, the AXA Research Fund (see Part 7 “Corporate
Responsibility”) is a key contributor to AXA Group’s commitment to better understand the evolution of these risks.
CONSOLIDATED FINANCIAL STATEMENTS5 5.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 224 5.2 CONSOLIDATED STATEMENT OF INCOME 226 5.3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 227 5.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 228 5.5 CONSOLIDATED STATEMENT OF CASH FLOWS 232 5.6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 234
NOTE 29 Contingent assets and liabilities and unrecognized contractual commitments 361
NOTE 32 Subsequent events 369 5.7 REPORT OF THE STATUTORY AUDITORS ON THE CONSOLIDATED FINANCIAL STATEMENTS 370
Notes 6 Value of purchased business in force (a) 2,209 2,364 7 Deferred acquisition costs and equivalent 24,132 24,028 8 Other intangible assets 3,266 3,277
(b) Includes assets backing contracts where the fi nancial risk is borne by policyholders with Guaranteed Minimum features.
Other debt instruments issued, notes and bank overdrafts (a) 3,194 3,692
Payables arising from direct insurance and inward reinsurance operations 10,356 9,760
Collateral debts relating to investments under a lending agreement or equivalent 30,402 25,635
(c) As of December 31, 2016, amounts include the liabilities of discontinued AXA Life Europe UK & Ireland operations for which the disposal process was not fi nalized at year-end. As of December 31, 2015, amounts include the liabilities of Portuguese operations and AXA Bank Hungary for which the disposal process was not fi nalized at year-end.
Fees and charges relating to investment contracts with no participating features 219 236
Change in unearned premiums net of unearned revenues and fees (346) (268)
Net realized gains and losses relating to investments at cost and at fair value through shareholders’ equity (d) 4,410 2,518
Change in goodwill impairment and other intangible assets impairment and amortization (114) (115)
Income from operating activities before tax 9,149 7,992 10 Income (net of impairment) from investment accounted for using the equity method 218 214 24 Financing debts expenses (h) (296) (488)
(f) Change in fair value of assets with fi nancial risk borne by policyholders is offset by a balancing entry in technical charges relating to insurance activities.
CONSOLIDATED FINANCIAL STATEMENTS 5 5.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in Euro million, except for number of shares and nominal value)
Capital in excess of nominal value - - - (148) -
(b) Reso Garantia is accounted for using the equity method in 2014 in the Group consolidated fi nancial statements on the basis of a closing at September 30. In 2014, given signifi cant movements in the Russian ruble exchange rate between September 30, 2014 and December 31,2014, the balance sheet used as a basis of the equity method has been translated using December 31 exchange rate.
Net increase / (write back) in impairment on investments, tangible and other intangible assets 780 725
Net increase / (write back) in other provisions (d) 196 (248)
Income (net of impairment) from investment accounted for using the equity method (218) (214)
Adjustment for reclassifi cation to investing or fi nancing activities (3,306) (1,444)
Net cash provided by other assets and liabilities (f) (533) 611
Net cash impact of transactions with cash impact not included in the operating income before tax 16,153 20,043
Sales of equity instruments and non consolidated investment funds (f) (g) 32,903 27,654
Purchases of investment properties held direct or not (f) (3,269) (1,837)
Purchases and/or issues of loans and other assets (g) (h) (13,534) (43,490)
Net cash related to sales and purchases of tangible and intangible assets (428) (422)
Increase in collateral payable / Decrease in collateral receivable 131,913 139,605
Decrease in collateral payable / Increase in collateral receivable (127,863) (136,669)
Net cash impact of assets lending / borrowing collateral receivables and payables 4,050 2,936
Acquisition / sale of interests in subsidiaries without change in control (214) (132)
Impact of change in consolidation method and of reclassifi cations as held for sale (k) (12) (72)
CASH AND CASH EQUIVALENT AS OF DECEMBER 31 (j ) 25,734 25,630
(d) Mainly includes change in provisions for risks & charges, for bad debts/doubtful receivables and change in impairment of assets held for sale.
(k) In 2016, amounts include the assets and liabilities related to discontinued United Kingdom Life & Savings operations for which the disposal process was not fi nalized at year-end.
In 2015, amounts include the assets and liabilities of Portuguese operations and AXA Bank Hungary for which the disposal process was not fi nalized at year-end.
The list of the main entities included in the scope of AXA’s consolidated fi nancial statements is provided in Note 2 of the notes to the consolidated fi nancial statements.
The application of the amendments below as of January 1, 2016 had no material impact on the Group’s consolidated fi nancial statements.
The published effective date of IFRS 9 is January 1, 2018.
However amendments to IFRS 4 – Insurance Contracts: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
IFRS 9 before the IASB’s new insurance contracts standard (also referred to as IFRS 17, Insurance Contracts) becomes effective.
The Group has determined that it is eligible for the temporary exemption option (1). The eligibility conclusion is based on an analysis of the percentage of the total consolidated carrying amount of liabilities connected with insurance activities relative to the total consolidated carrying amount of all liabilities, which indicates AXA’s activities are predominately connected with insurance. Consequently, the Group has decided to defer the implementation of IFRS 9 until the effective date of a new insurance contracts standard, however, no later than
IFRS 15 – Revenue from Contracts with Customers, published on May 28, 2014, amended on September 11, 2015 and on April 12, 2016, provides a principles-based approach for revenue recognition. The new model applies to all revenue arising from contracts with customers except those that are within the scope of other IFRS such as: insurance contracts, lease contracts, and fi nancial instruments. IFRS 15 is effective for annual periods beginning on or after January 1, 2018. The amendments to the standard issued on April 12, 2016 have not yet been endorsed by the European Union. The potential impact of the new standard and its amendments on the Group’s consolidated fi nancial statements is currently being assessed.
IFRS 16 – Leases, published on January 13, 2016 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e.
The following amendments and interpretation are not expected to have a material impact on the Group’s consolidated fi nancial statements: Amendments and interpretation Publication date
IAS 12 – Income Taxes January 19, 2016 January 1, 2017* Guidance on how to account for deferred tax assets related to debt instruments measured at fair value in particular for the assessment of future taxable profi t.
December 8, 2016 January 1, 2018* Clarifi cation on transfer to, or from, investment properties: the transfer to, or from, investment properties must result from a change in use of the asset.
requires the use of estimates and assumptions. It requires a degree of judgment in the application of Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in paragraph 1.7.1), intangible assets acquired in a business combination, the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted at fair value, deferred tax assets, liabilities relating to the insurance business, pension benefit obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful.
post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”.
Other identifiable intangible assets such as the value of customer relationships should be recognized. The value of customer relationships intangible represents the value of future cash fl ows expected from renewals and the cross-selling of new products to customers known and identifi ed at the time of the acquisition. These projections include assumptions regarding claims, expenses and fi nancial revenues, or they can be estimated on the basis of the New Business Value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, future premiums relating to acquired business may be recognized in the “Value of acquired business in force” item.
for a put granted after January 1, 2009, to the extent there is no immediate transfer of risks and rewards. Similarly, subsequent changes in the liability are recorded against goodwill for puts existing before January 1, 2009 and against equity (Group share)
The effect on net income of transactions between consolidated entities is always eliminated. However, in case of a loss, an impairment test is performed, in order to assess whether an impairment has to be booked.
participation recorded in connection to the transaction, which are maintained in the consolidated fi nancial statements. These transfers also have an impact on Group shareholders’ equity
Financial Statements refl ects operating business segments; it is based on four business lines: Life & Savings, Property &
Mediterranean & Latin American Region, are now reported on a standalone basis; ■ the former Mediterranean & Latin American Region has been renamed the Europe, Middle East, Africa & Latin America
Liabilities Managers and AXA Global P&C are now part of the Property & Casualty segment,
The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value models or similar calculations for other activities. Fair values less costs to sell are based on the IFRS 13 fair value as described in paragraph 1.5 using various valuation multiples.
1.7.2. Value of purchased life insurance business in force (VBI )
The incremental direct costs of acquiring a portfolio of insurance contracts and investment contracts with discretionary participating features, primarily related to the selling, underwriting and initiating the insurance contracts in a portfolio, are deferred by recognizing an asset. In Property and Casualty, DAC are amortized over the terms of the policies, as premium is earned.
For Life business, the asset is amortized based on the estimated gross profi ts emerging over the life of the contracts. This asset is tested for recoverability and any amount above future estimated gross profi ts is expensed. DAC are also tested through the liability adequacy test (see paragraph 1.14.2).
For investment contracts with no discretionary participating features, a similar asset is recognized, i.e. rights to future management fees, also known as Deferred origination costs
Group; ■ portfolios of managed fi nancial investments whose profi tability is valued on a fair value basis: mainly securities held by consolidated investment funds, managed according to the Group Risk Management policy (“Satellite Investment
Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value. Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i) hedging of the fair value of recognized assets or liabilities or of a fi rm commitment (fair value hedge); or (ii) hedging of highly probable expected future transactions (cash fl ow hedge); or
1.11. ASSETS / LIABILITIES HELD FOR SALE AND ASSETS / LIABILITIES INCLUDING DISCONTINUED OPERATIONS
Any fi nancial instrument issued by the Group with an equity component (for example certain options granted to convert the debt instrument into an equity instrument of the Company) and a liability component (a contractual obligation to deliver cash) is classifi ed separately on the liability side of the balance sheet with the equity component reported in Group shareholders’ equity
However, treasury shares held by controlled investment funds backing contracts where the fi nancial risk is borne by policyholders are not deducted as all risks and income resulting from holding these shares are attributable to policyholders.
Insurance contracts, including assumed reinsurance contracts, are contracts that carry significant insurance risks. Such contracts may also transfer fi nancial risk from the policyholders to the insurer. Investment contracts are contracts that carry fi nancial risk with no signifi cant insurance risk.
■ their amount or timing is contractually at the discretion of the
The Group classifi es its insurance and investment contracts into six categories: ■ liabilities arising from insurance contracts; ■ liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders; ■ liabilities arising from investment contracts with discretionary participating features; ■ l iabil it ies arising from investment contracts with no discretionary participating features; ■ liabilities arising from investment contracts with discretionary participating features where the fi nancial risk is borne by policyholders; these relate to Unit-Linked contracts or multifunds contracts containing a non-Unit-Linked fund with discretionary participating features; ■ l iabil it ies arising from investment contracts with no discretionary participating features where the fi nancial risk is borne by policyholders.
(insurance contracts because they include such guarantees or investment contracts with discretionary participating features), are built over the life of the contract based on a prospective approach: the present value of future benefi t obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns, volatility, surrender and mortality rates. This present value of future benefi t obligations is reserved as fees are collected over the life of the contracts.
Some guaranteed benefi ts such as Guaranteed Minimum Death or Income Benefi ts (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a Risk
Management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee
Unrealized gains and losses on assets classifi ed as trading or designated at fair value through profi t and loss, along with any other entry impacting the income statement and generating a timing difference, are accounted for through the income statement with a corresponding shadow entry adjustment also in the statement of income. The shadow accounting adjustments relating to unrealized gains and losses on assets available-forsale (for which change in fair value is taken to shareholders’
When a net deferred participation asset is recognized, the Group uses liquidity analyses performed by the entities to assess the capacity to hold assets showing unrealized loss position, if any, generating such debits. The Group then performs projections to compare the value of assets backing policyholders’ contracts with expected payments to be made to policyholders.
VBI assets and deferred policyholders’ participation asset. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profi tability measured. Entities use current best estimates of all future contractual cash fl ows as well as claims handling and administration expenses, and take into account guarantees and investment yields relating to assets backing these contracts.
Depending on the type of business, the future investment cash fl ows and discounting may be based on a deterministic best estimate rate, with corresponding participation, or in the case of Guaranteed Minimum Benefi ts, stochastic scenarios. Testing is performed either by a comparison of the reserve booked net of related assets (DAC, VBI, etc.) directly with discounted cash fl ows, or by ensuring that the discounted profi t net of participation from release of the technical provisions exceeds net related assets.
if they are not considered as closely related to the host insurance contract and/or do not meet the definition of an insurance contract.
Embedded derivatives meeting the defi nition of an insurance contract are described in Note 14.11.
Fees received at inception of an investment contract with no discretionary participating features to cover future services are recognized as liabilities and accounted in the income statement based on the same amortization pattern as the one used for deferred origination costs.
The Group assumes and cedes reinsurance in the normal course of business. Assumed reinsurance refers to the Group’s acceptance of certain insurance risks that other companies have underwritten. Ceded reinsurance refers to the transfer of insurance risk, along with the related premiums, to other reinsurers who will share in the risks. When these contracts meet the insurance contracts classification requirements, transactions relating to reinsurance are accounted for in the balance sheet and income statement in a similar way to direct business transactions in agreement with contractual clauses.
If the Group determines that reinsurance contracts do not meet the insurance contracts classifi cation contract and/or principally transfers fi nancial risk, the agreement is recorded using the deposit method of accounting. Deposits received are included in payables and deposits made are included within receivables. As amounts are paid or received, consistent with the underlying contracts, the deposit assets or liabilities are adjusted as appropriate.
Deferred tax assets are recognized to the extent that it is probable that future taxable profi t will be available to offset the temporary differences taking into account the existence of tax groups and any legal or regulatory requirements on the limits
In particular, a deferred tax liability is recognized for any taxable temporary difference relating to the value of shares in a consolidated company held, unless the Group controls at what date the temporary difference will reverse and it is probable that the temporary difference will not reverse in the foreseeable future. If a group company decides to sell its stake in another consolidated entity, the difference between the carrying value and the tax value of these shares for the Company that holds them leads to the recognition of deferred tax (including as part of a business combination when the Group as the buyer intends to sell or carry out internal restructuring of the shares following the acquisition). The same approach applies to dividend payments that have been voted or deemed likely, to the extent that a tax on dividends will be due.
It should be noted that, all cumulative past actuarial gains and losses on all employee benefi t plans were recognized in retained earnings as of January 1, 2004, AXA Group’s transition date.
sheet date with any change in fair value recognized in the statement of income.
Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: ■ the Group directly recognizes the consideration received as a deposit fi nancial liability rather than as revenues; ■ claims paid are recognized as withdrawals with no posting in the income statement apart from potential fees.
No such situation currently exists within the Group. In accordance with IFRS 4, the Group continues to use the accounting principles previously applied by AXA to insurance contracts and investment contracts with discretionary participating features.
Changes in unearned premium reserves net of unearned revenues and fees include both the change in the unearned premiums reserve reported as a liability (see “Unearned premiums reserves” in paragraph 1.14.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see “Unearned revenues reserves” in paragraph 1.14.2) and investment contracts with no discretionary participating features (see paragraph 1.14.3
Revenues from other activities mainly include: ■ commissions received and fees for services relating to Asset
AXA Portugal Companhia de Seguros de Vida SA Disposal - - 95.09 94.89
Report for the year ended December 31, 2016, which is fi led with the SEC; ■ summarized fi nancial information for AXA MPS is as follows
(including AXA and external share but excluding goodwill related to AXA’s holdings and before intercompany eliminations with other companies of the Group): (in Euro million) December 31, 2016 December 31, 2015
Excluding minority interests related to consolidated investment funds and real estate companies that are classified in shareholder’s equity, these minority interests represent 80% of minority interests of the Group as of December 31, 2016 (80%
Companies accounted for using the equity method listed below exclude investment funds and real estate entities: Life & Savings and Property & Casualty Change in scope
AXA Investment Managers Asia Holdings Private Limited Relution 49.00 47.52 49.00 47.15
Kyobo AXA Investment Managers Company Limited Relution 50.00 48.49 50.00 48.12
As investor, AXA interests in unconsolidated funds are limited to the investments held. These ones are fully recognised in the consolidated balance sheet. Depending on the nature of its investment, AXA receives interests or dividends and can realize capital gains or losses in case of sale. These investments are subject to impairment testing as usual fi nancial assets.
■ Section 5.6. Notes to the consolidated fi nancial statements: • Note 9 - Investments with the breakdown of investments and detail on non-consolidated investment funds in
AXA’s Chief Executive Officer is a member of the Board of
Directors. He is assisted by a Management Committee in the operational management of the Group and by a group of senior executives, the so-called Partners’ Group, in developing and implementing any strategic initiatives. The fi nancial information related to AXA’s business segments and Holding Companies reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated fi nancial statements.
Health products offered include critical illness and permanent health insurance products. The types and specifi cities of the products offered by AXA vary from market to market. The Life &
Management (including investment fund management) and related services offered by AXA Investment Managers and AB, which are provided to a number of institutional investors and individuals, including AXA’s insurance companies.
In this document, “Insurance” covers the two insurance segments: Life & Savings and Property & Casualty.
Net revenues from banking activities - - - 550 - 40 590
Net realized gains and losses relating to investments at cost and at fair value through shareholders’ equity 2,265 460 1 (50) 1,623 112 4,410
Net realized gains and losses and change in fair value of other investments at fair value through profi t or loss (b) 8,950 19 73 - (396) (16) 8,629 of which change in fair value of assets with fi nancial risk borne by policyholders 9,125 - - - - (1) 9,124
Net investment result excluding fi nancing expenses 23,458 2,567 96 26 1,265 (229) 27,184
Technical charges relating to insurance activities (71,680) (23,866) - - - 196 (95,350)
Amortization of the value of purchased business in force (170) - - - - - (170)
Change in goodwill impairment and other intangible assets impairment (21) (88) (5) - - - (114)
Income from operating activities before tax 4,407 3,296 1,073 129 708 (465) 9,149
Income (net of impairment) from investment accounted for using the equity method 153 52 11 - 2 - 218
(c) Relates to the discontinued United Kingdom Life & Savings operations.
Net income from operating activities before tax 4,520 3,330 1,043 120 58 0 9,071
Result from discontinued operations net of tax (c) (439) - - - - (0) (439)
(a) Includes gains/losses from derivatives hedging variable annuities within the Life & Savings segment.
Net revenues from banking activities - - - 581 - 35 616
Change in unearned premiums net of unearned revenues and fees 38 (287) - - - (20) (268)
Net realized gains and losses and change in fair value of other investments at fair value through profi t or loss (c) (187) (81) (33) - (151) 11 (442)
Technical charges relating to insurance activities (62,313) (23,386) - - - 132 (85,567)
Net result from outward reinsurance (262) (975) - - - 356 (881)
Amortization of the value of purchased business in force (156) - - - - - (156)
Change in goodwill impairment and other intangible assets impairment (20) (90) (4) - - - (115)
Other operating income and expenses (69,895) (33,922) (3,315) (417) (760) 842 (107,467)
Split between: Net consolidated income - Group share 3,753 2,414 482 49 (1,081) - 5,617
Net consolidated income - Minority interests 107 50 211 2 0 - 370
(a) The contribution of the discontinued United Kingdom Life & Savings operations is reclassifi ed on a separate line of the statement of income and the International Insurance segment is reclassifi ed in the Life & Savings and Property & Casualty segments in order to present a comparable basis.
All of the following paragraphs form an integral part of the Group fi nancial statements. They appear in Section 4, “Risk Factors and Risk Management” and Section 2.4, “Liquidity and Capital
Please refer to pages 193 to 197 of Section 4.2, “Internal c ontrol and r isk m anagement” subsections “Risk m anagement o rganization”, “Financial r eporting, d isclosure, c ontrols and p rocedures” and “Conclusions”.
Please refer to pages 211 to 213 of Section 4.4, “Credit r isk ” subsections “Invested assets: A c entral m onitoring of c ounterparty e xposure”, “Credit d erivatives”, “Counterparty r isk a rising f rom o ver-the-c ounter (OTC) d erivatives”, “Receivables f rom r einsurers r ating p rocesses and f actors” and “Bank c redit a ctivities”.
Please refer to pages 216 to 218 of section 4.6, “Insurance r isk”, sub sections “Product a pproval”, “Exposure Analysis”,
EMEA-LATAM Region (MedLA and CEE in 2015) 451 - 451 478 - 478
(a) Reclassifi cation of the International Insurance activity in Life & Savings and Property & Casualty segments. The allocation of goodwill to Italy, Spain and EMEA-LATAM Region as of December 31, 2015, results from the restatement of the goodwill of the MedLA Region following the change in operating segments in 2016.
The total goodwill Group share amounted to €15,402 million as of December 31, 2016 and €15,795 mill ion as of
(b) Property & Casualty: acquisition of GIM and Asian entities by AXA Assistance (€+39 million), AXA CS Seguros (€+32 million), Liberty by Direct (€+32 million) and Aid call in the UK (€+9 million).
Asset Management: acquisition of Ramius Alternative Solutions by AB (€+20 million) and Eureka Funds Management by AXA IM (€+16 million).
(c) Mainly disposal of the United Kingdom Life & Savings business.
Banking: includes the classifi cation as held for sale of the Hungarian banking operations.
(a) Reclassifi cation of the International Insurance activity to Life & Savings and Property & Casualty.
Banking: includes the classifi cation as held for sale of the AXA Bank Hungary.
Major assumptions include expected growth, expenses, cost of capital, future investment margins, fi nancial market volatility, fi rst assessed on a risk free basis (basic test) and then on the basis of illustrative investment assumptions suitable for a traditional embedded value approach if the previous recoverable value is lower than the carrying amount.
For each CGU, sensitivity analyses were performed with regards to the discount rate: an increase of 0.5% in the discount rate would not lead to an impairment loss for any of the CGUs as
the recoverable amount for each CGU would still exceed its carrying value.
AXA COMPLETED THE SALE OF ITS UK OFFSHORE INVESTMENT BONDS BUSINESS BASED IN THE ISLE OF MAN TO LIFE COMPANY CONSOLIDATION GROUP
Isle of Man (“AXA Isle of Man”) to Life Company Consolidation
AXA also announced that it had signed an agreement with LCCG
for the disposal of AXA Life Europe Limited’s offshore investment bonds business (€2.2 million revenues in 2015), which was distributed and administrated by AXA Isle of Man. Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approvals, and is expected to occur in 2017.
On November 1, 2016, AXA announced that it had completed the sale of its UK wrap platform business “Elevate” to Standard
The fi nal overall consideration for the sale of the UK Life & Savings businesses amounted to GBP 0.6 billion (or €0.7 billion (1)). AXA
As of December 31, 2016, the major classes of assets and liabilities of the discontinued United Kingdom Life & Savings for which the disposal process was not fi nalized as of December 31, 2016, included the following (amounts are presented net of intercompany balances with other AXA entities): (in Euro million) December 31, 2016
Change in unearned premiums net of unearned revenues and fees 22 34
On November 2, 2016, AXA announced that it had completed the sale of its Hungarian banking operations to OTP bank plc.
(Property & Casualty Business), AXA Portugal Companhia de Seguros de Vida SA (Life & Savings Business) as well as
AXA Global Direct Seguros y Reaseguros, the Portuguese branch of its direct operations (Direct Business) (1). The total cash consideration amounted to €189 million. AXA recorded an exceptional positive impact of €41 million, accounted for in net income in 2016.
(1) AXA owned 99.7% of the P&C Business, 95.1% of the Life Business and 100.0% of the Direct Business.
The change in Value of Business In-force (“VBI”) in the Life & Savings segment was as follows: (in Euro million) 2016 2015
Deferred acquisition costs and equivalent relating to Life & Savings 22,151 22,093
Deferred acquisition costs and equivalent relating to Property & Casualty 1,981 1,934
Life & Savings deferred acquisition costs and equivalent net carrying value as of January 1 20,870 1,223 18,174 1,125
DAC and similar costs capitalization for the period 2,251 38 2,080 116
(a) The contribution of discontinued United Kingdom Life & Savings operation is reclassifi ed on a separate line of Statement of Income in order to present a comparable basis.
Debt instruments designated as at fair value through profi t or loss (c) 42,340 42,340 5.82%
Equity instruments designated as at fair value through profi t or loss (b) 8,975 8,975 1.23%
Non consolidated investment funds designated as at fair value through profi t or loss (b) 4,545 4,545 0.62%
Loans designated as at fair value through profi t or loss (b) - - -
Investments (excluding those backing contracts where the fi nancial risk is borne by policyholders) 562,341 552,110 75.90%
Debt instruments designated as at fair value through profi t or loss (b) 39,861 39,861 5.57%
Debt instruments (at cost) that are not quoted in an active market (c) 6,044 5,829 0.81%
(e) Reclassifi cation from International Insurance segment to Life & Savings and Property & Casualty segments.
Breakdown of the carrying value and fair value of investment in real estate properties at amortized cost, including the impact of all derivatives, except derivatives related to macro-hedges which are shown separately: (in Euro million)
Including the effect of derivatives, unrealized capital gains and losses on fi nancial investments, when not already refl ected in the income statement, are allocated as follows: Insurance
Non consolidated investment funds available for sale 8,094 9,030 9,030 1,028 91 6,534 7,424 7,424 964 74
Debt instruments available for sale 5,399 5,413 5,413 211 197 8,828 8,835 8,835 298 290
Equity instruments available for sale 903 1,117 1,117 243 28 1,144 1,486 1,486 343 0
Debt instruments (at cost) that are not quoted in an active market 6,892 7,091 6,872 274 75 7,019 7,235 7,020 228 12
Non consolidated investment funds available for sale 8,170 9,122 9,122 1,043 91 6,652 7,549 7,549 973 76
The table below sets out the debt instruments portfolio by issuer type, excluding macro-hedging derivatives but including the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges). Details of the effect of derivatives are also provided in Note 20.3.
(a) Includes debt instruments issued by companies in which a State holds interests.
Total - Financial investments exposed to fair value interest rate risk 37,308 117,902 317,386 472,596 32,374 121,787 293,405 447,566
Total Financial investments exposed to interest rate risk 40,305 132,873 338,967 512,145 (3,795) 508,350 34,518 133,997 314,085 482,600 (2,788) 479,812
Including the effect of derivatives (also detailed in Note 20.3) and equity instruments of real estate companies, the breakdown by industry of equity instruments owned across the Group is as follows: (in Euro million)
Debt instruments designated at fair value through profi t or loss
Non consolidated investment funds mainly holding debt instruments 4,269 127 4,397 5,145 225 5,370
Other non consolidated investment funds 7,485 110 7,595 5,926 142 6,068
Derivatives related to non consolidated investment funds (77) - (77) (83) - (83)
Debt instruments available for sale 349,616 (529) 349,087 47,147 396,234 334,558 (632) 333,926 43,921 377,846
Debt instruments (at cost) that are not quoted in an active market (c) 6,893 (0) 6,892 (20) 6,872 7,019 (0) 7,019 1 7,020
Non consolidated investment funds available for sale 9,296 (1,126) 8,170 952 9,122 7,705 (1,054) 6,652 897 7,549
(c) Revaluation to fair value for instruments at cost related to the application of hedge accounting.
Impairment - Non consolidated investment funds 1,054 132 (69) - 10 1,126
Fair value determined directly by reference to active market excluding derivatives (level 1)
Fair value mainly based on observable market data excluding derivatives (level 2)
Investments in real estate properties - 1,256 - 1,256 1,256 - 1,107 - 1,107 1,107
Financial investments and loans held for trading 702 1,160 2 1,863 1,703 792 932 2 1,726 1,693
TOTAL FINANCIAL INVESTMENTS AND LOANS ACCOUNTED FOR AT FAIR VALUE 328,183 156,486 15,682 500,351 496,985 309,374 152,762 13,918 476,054 473,854
Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. Such assets are categorized in the
Level 2 and 3 assets are investments which are not quoted in an active market or for which there is no active market. Fair values for level 2 and 3 assets include: ■ values provided by external parties which: • are readily available including last transaction prices but relate to assets for which the market is not always active or; • values provided at the request of the Group by pricing services and which are not readily publicly available; ■ assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data.
As of December 31, 2016, the net transfers between Level 1 and Level 2 was €8,739 million. This amount was comprised of €13,337 million transferred investments from Level 2 to Level 1 and €4,598 million transferred from Level 1 to Level 2, primarily in corporate bonds.
From January 1, 2016 to December 31, 2016, the amount of
Level 3 assets increased to €15.7 billion, representing 3.1% of the total assets at fair value (2.9% in 2015 i.e. €13.9 billion).
Fair value determined directly by reference to active market (level 1)
Debt instruments held to maturity - - - - - - - - - -
Debt instruments at cost (loans & receivables) 345 4,916 1,851 7,111 7,091 407 4,950 1,875 7,232 7,235
Financial investments and loans at amortized cost 393 61,427 41,248 103,069 102,589 451 56,006 39,387 95,844 95,186
Generally fair values of investments in real estate properties cannot be determined via reference to quotes of an active market from an exchange market or service provider and no property is therefore categorized in level 1. However, AXA’s investments in real estate properties are mostly physically located within liquid markets with identical or comparable asset sales. Given the regulatory environment, some real estate properties located in markets like France are valued by experts using very similar approaches leading to very limited dispersion in prices, with a majority of market inputs themselves homogeneous in terms of sources and values. Hence, the Group, consistently with the policy described in Note 1.5 which notably considers, for assets not quoted in an active market, the weight of observable inputs in the valuation, concludes that the fair value calculations, which are based on valuations performed by qualifi ed property appraisers mainly based on market observable inputs, are considered as level 2 fair values. However, as noted in
(b) Decrease mainly due to the disposal of United Kingdom Life & Savings business (€27,387 million as of December 31, 2015).
Philippine AXA Life Insurance Corporation 56 - 18 (1) (0) 72
ICBC-AXA Assurance Co Ltd (previously AXA Minmetals Assurance Co Ltd) 401 - 19 (15) (59) 346
Philippine AXA Life Insurance Corporation 38 - 15 2 (0) 56
ICBC-AXA Assurance Co Ltd (previously AXA Minmetals Assurance Co Ltd) 307 - 27 19 48 401
AXA Mansard Insurance plc (P&C including Assur African Holding) (b) - 158 7 4 7 176
(c) Thaigi AXA insurance Public Company Limited (Thailand) has been accounted for using the full consolidation method since January 1, 2015.
Total liabilities (including fi nancing debts but excluding shareholders’ equity) 5,064 1,228 4,095 1,217
Change in unearned premiums net of unearned revenues and fees (11) (61) (5) (32)
Dividends received by AXA from the joint venture 48 - 55 -
A reconciliation of the summarized fi nancial information to the carrying amount of the associates is as follows: (in Euro million)
Premiums earned not yet written 4,511 - 4,511 4,511 4,002 - 4,002 4,002
Receivables arising from direct insurance and inward reinsurance operations 16,787 (369) 16,418 16,418 16,921 (355) 16,566 16,566
Receivables arising from outward reinsurance operations 1,070 (70) 1,000 1,000 953 (75) 878 878
(b) including €836 million deposits in the central banks in 2016 and €424 million in 2015.
Cash and cash equivalent as of December 31 (b) 25,734 25,630
The tables above exclude cash held by consolidated investment funds in the “Satellite Investment Portfolio”, as defined in
As of December 31, 2016, total consolidated net cash and cash equivalents amounted to €25,734 million, net of €580 million bank overdrafts classifi ed under “Other debt instrument issued and bank overdrafts” in the consolidated statement of fi nancial position.
Regarding the consolidated statement of cash fl ows presented together with the primary fi nancial statements, net cash provided by operating activities totaled €13,124 million in 2016, compared to €18,226 million in 2015.
Net cash used in investing activities was €-9,528 million in 2015, mainly refl ecting: ■ €-12,115 million of net cash used in purchases and sales of fi nancial invested assets; ■ €+2,936 million of net cash impact of assets lending /
Net cash relating to fi nancing activities totalled €-2,878 million in 2016 mainly driven by: ■ Financing debt and subordinated debt issued €+2,306 million and €+500 million respectively and repayment of undated subordinated debt €1,260 million in 2016; ■ Dividends payments of €-2,923 million.
Net cash relating to fi nancing activities totalled €-5,808 million in 2015 mainly driven by: ■ Financing debt with a repayment of €1,165 mill ion subordinated debt in 2015 (€1,000 million by AXA SA and €165 million by AXA Financial); ■ Dividends payments of €-2,637 million.
As of December 31, 2016 and December 31, 2015, undated subordinated debt recognized in shareholders’ equity broke down as follows: (in Euro million)
Undated notes - 375 MUS$, variables rates 375 356 375 344
equity included net accumulated fi nancial expenses of: ■ €-3,288 million as of December 31, 2016; ■ €-3,021 million as of December 31, 2015.
In 2015, the change in other reserves was driven by: ■ €-305 million from interest expense related to the undated subordinated debt (net of tax); ■ €+398 million from foreign exchange rate fl uctuations.
The following table shows the reconciliation between gross unrealized gains and losses on available for sale fi nancial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro million)
Unrealized gains and losses (net of tax) - Assets available for sale 15,317 13,142
UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 15,376 13,352
Less unrealized gains and losses attributable to: Shadow accounting on policyholders’ participation and other obligations (14,290) (7,879) (2,572) (3,406)
Shadow accounting on Value of purchased Business In force - - (103) (11)
Unallocated unrealized gains and losses before tax 4,348 1,357 1,113 2,631
Unrealized gains and losses (net of tax) - Equity accounted companies 37 - - -
Minority interests’ share in unrealized gains and losses (c) (7) 0 - (1)
The change in reserves related to changes in fair value of available for sale fi nancial instruments included in shareholders’ equity as of December 31, 2016 and December 31, 2015 broke down as follows: (in Euro million)
Transfer in the income statement on the period (a) (771) (809)
Unrealized gains and losses (net of tax) 100%, closing 15,376 13,352
(€+193 million), partly offset by change in fair value of derivatives and debt hedging net investments in foreign operations (€288 million).
The negative impact in equity of actuarial losses arising from employee defi ned benefi ts obligation was mainly explained by: ■ the effect of the decrease in the discount rates in Switzerland; ■ the underperformance of assets covering employee’s Defi ned
Benefi t Pension plans (mainly in the UK) compared to the discount rate; ■ the increase in the infl ation rate and pension growth rates
The €1,117 million increase in minority interests to €5,283 million was driven by comprehensive income and transactions with minority interests’ holders: ■ the comprehensive income for the period notably included the following: • net income attr ibutable to minority interests for €+364 million,
• foreign exchange movements for €+77 million; ■ transactions with minority interests’ holders, mainly included: • Dividend payout to minority interests’ holders for €-270 million; • Minority interest qualified as equity resulting from the consolidation of two new investment funds and capital additon to an existing consolidated investment fund for €+914 million.
I Note 14 Liabilities arising from insurance and investment contracts 14.1. BREAKDOWN OF LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS (GROSS AND REINSURERS’ SHARE)
Liabilities arising from insurance contracts where risk is borne by policyholders 160,222 - 160,222 152,079 - 152,079
Liabilities arising from investment contracts with discretionary participating features 32,466 - 32,466 33,142 - 33,142
Liabilities arising from investment contracts with no discretionary participating features 2,382 - 2,382 538 - 538
Unearned revenue and unearned fee reserves 2,565 - 2,565 3,066 18 3,084
Reinsurers’ share in insurance contracts liabilities 9,483 5,274 14,756 14,812 4,665 19,477
Reinsurer’s share in insurance contract liabilities relating to policy holders’ participation 136 2 138 154 1 155
Total Reinsurers’ share in insurance and investment contracts liabilities (E) 9,712 5,276 14,988 15,067 4,666 19,734
TOTAL INSURANCE AND INVESTMENT LIABILITIES NET OF REINSURER’S SHARE (F = D-E) 598,607 61,704 660,312 594,445 60,948 655,393
Liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders (B) 160,222 - 160,222 152,079 - 152,079
Reinsurers’ share in unearned premiums reserves 43 817 859 46 753 799
Reinsurers’ share in claim reserves (b) 1,602 4,475 6,077 1,496 3,889 5,385
Reinsurers’ share in other reserves 398 (18) 380 379 (3) 377
Reinsurers share in liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders (E) 0 - 0 0 - 0
Sub-total Reinsurer’s share in liabilities (F = D+E) 9,483 5,274 14,757 14,812 4,665 19,478
TOTAL LIABILITIES ARISING FROM INSURANCE CONTRACTS, NET OF REINSURANCE CEDED (G = C-F) 498,613 61,421 560,034 470,747 60,630 531,378
Note: Liabilities relating to unearned revenues and fees (see Note 7.3.), policyholders participation (see Note 14.9.) and derivative instruments (see Note 20.4.) are excluded from the table above.
The following table shows a breakdown by segment of liabilities arising from investment contracts including those where the fi nancial risk is borne by policyholders, as disclosed in the sub total (B) of Note 14.1: (in Euro million)
Liabilities arising from investment contracts with discretionary participating features (A) 32,466 33,142 of which measured at current assumptions (b) - -
Liabilities arising from investment contracts with no discretionary participating features (B) 2,382 538
Reinsurers’ share in liabilities arising from investment contracts with discretionary participating features (E) 89 97
TOTAL LIABILITIES ARISING FROM INVESTMENT CONTRACTS - NET OF REINSURANCE CEDED (I = D-H) 50,265 76,505
14.4. CHANGE IN CLAIM RESERVES FOR PROPERTY & CASUALTY (INSURANCE CONTRACTS)
The table below gives detailed information on claim reserves in Property & Casualty segment presented in Note 14.2: (in Euro million)
Reinsurers’ share in claim reserves as of January 1 3,889 3,539
Reinsurers’ share in claim reserves as of December 31 4,475 3,889
14.5.1. Change in liabilities arising from insurance and investment contracts – gross of reinsurance
Collected premiums net of loadings on premiums (+) 49,611 5,542 55,153 48,644 7,019 55,664
Unit-Linked technical reserves value adjustment (+/-) 8,860 423 9,283 1,372 168 1,540
Change in reserves relating to technical and actuarial items (+/-) (c) 5,248 2,794 8,042 5,436 645 6,081
Technical reserves as of December 31 (b) 508,096 50,358 558,454 485,560 76,606 562,166
(b) Includes: future policy benefi ts reserves (including shadow accounting reserves), unearned premiums reserves, unexpired risk reserves, claims reserves, claims expense reserves, other policy benefi ts reserves. Excludes: unearned revenues and unearned fees reserves, liabilities from policyholders’ participation.
Reinsurers’ share in surrenders, maturities and other claims and benefi ts paid net of charges and penalties (-) (7,464) (20) (7,484) (1,200) (15) (1,214)
Reinsurers’ share in change in reserves relating to technical and actuarial items (+/-) (c) (138) 5 (133) (430) 7 (423)
Reinsurers’ share technical reserves as of December 31 (b) 9,483 93 9,576 14,812 101 14,914
(c) Notably includes interests credited and policyholders’ participation credited to reserves, fees on account balance and investment management fees and change in reserves relating to other technical and actuarial items.
Note: This information is presented net of the impact of derivatives, which is described in Note 20.4.1. (a) In accordance with IFRS 4 standard which allows, under certain conditions, to continue to use a previous accounting policy to liabilities arising from contracts with discretionary participating features. (b) See Note 1.14.2. – Reserves measured according to IFRS 4.24 option which allows to evaluate certain portfolios with current assumptions.
(e) Decrease mainly due to the disposal of United Kingdom Life & Savings business (€27,403 million as of December 31, 2015).
Therefore, too many uncertainties remain outstanding to defi ne how to determine the fair value of participating contracts. As a result, fair value or value ranges for investment contracts with a discretionary participating features cannot be reliably disclosed.
The loss reserves development table shows movements in loss reserves between 2006 and 2016, based on previously applied accounting standards. All contracts concerned are insurance contracts as defi ned by IFRS.
The second line entitled “Gross reserves for unpaid claims and claim expenses developed in 2016 adjusted for changes in exchange rates and scope of consolidation” indicates the amount that would have been developed initially at the booking date, had the exchange rates for the current year been used
shows, for a given column N, an estimate of the fi nal cost of liabilities carried as of December 31 of year N in respect of all years of occurrence prior to and including N, at each future period end. The final cost estimate varies year on year as information relating to losses still outstanding becomes more reliable.
The surplus (shortfall) of the initial reserve with respect to the re-estimated (gross) fi nal cost for each year represents, for a given year N, the difference between the amount shown in the second line (gross reserves for unpaid claims and claims expenses developed in 2016 adjusted for changes in exchange rates and scope of consolidation) and the amount shown in the fi nal diagonal under “Reserve re-estimated”.
The table below gives reconciliation between developed reserves and total recognized claim reserves for the Claim reserves and other reserves arising from insurance contract as disclosed in Note 14.3.
(c) Following the disposal of Canadian operations, amounts in its respect were not reported for the current year while previously disclosed amounts were unchanged.
(e) Amounts prior to 2015 contains the Life & Savings entities historically reported in the International Insurance segment.
(f) It is not appropriate to extrapolate future redundancies or future defi ciencies based on the loss reserves 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 or defi ciency disclosed includes forex impact between one year and the next.
Property & Casualty (excluding Colisée RE (ex AXA RE)) (b) 53,286 51,965
TOTAL GROSS CLAIM RESERVES AND OTHER RESERVES FOR PROPERTY & CASUALTY 55,641 54,339
(a) Reclassifi cation of the International Insurance activity in Life & Savings and Property & Casualty segments.
There is considerable uncertainty as to the future cost of asbestos claims. The ultimate cost of claims is very much dependent on legal factors that are diffi cult to predict with any certainty. It is common to have issues of allocation of responsibility among parties, as well as involvement of multiple insurers and multiple policy periods. This causes considerable coverage issues.
Due to the uncertainty surrounding asbestos claims, it is not possible to determine their future cost with the same degree of certainty as for other types of claims. Although AXA considers its reserves for asbestos claims to be adequate, it is possible that, under some adverse scenarios, they may turn out to be insuffi cient to cover future losses.
At year-end 2016, key data relating to asbestos claims were as follows: (in Euro million)
Claims reserves at end of year 998 944 1,136 1,077 of which Reported claims 144 130 165 153 of which IBNR claims 854 814 971 924
Cumulative Payments to date / Projected Ultimate Cost 49% 47% 46% 45%
14.9. LIABILITIES AND ASSETS ARISING FROM POLICYHOLDERS’ PARTICIPATION AND OTHER OBLIGATIONS
The following table shows liabilities and assets arising from policyholders’ participation and other obligations as of December 31, 2016: (in Euro million) December 31, 2016 December 31, 2015
Total Liabilities arising from policyholders’ participation and other obligations 49,488 46,222
The deferred policyholders’ participation and other obligations liabilities and deferred policyholders’ participation assets include the impact of shadow accounting (see definition in
(excluding contracts where the financial risk is borne by policyholders) of Life & Savings and Property & Casualty.
Property & Casualty and Health claims, net of premiums due from policyholders under contracts in-force. These cash fl ows are based on assumptions regarding mortality, incapacity and disability, surrender and settlement frequency for Property &
Life & Savings – locked-in discount rate (b) 282,712 2.11% 277,573 2.17%
Life & Savings – unlocked discount rate 53,587 2.81% 42,811 3.19%
Liabilities arising from insurance contracts (as per Note 14.2) 414,569 398,776
Liabilities arising from insurance contracts with discretionary participating features (as per Note 14.3) 32,466 33,142
The estimated impact of the unlocking of discount rates relating to Life & Savings reserves was €231 million reserve de crease for 2016 (compared to €525 million reserve de crease for 2015)
GMDB and GMIB liabilities is based on models which involve numerous estimates and subjective judgments, including those regarding expected market rates of return and volatility, policyholder behaviour assumptions and GMIB election rates.
Banking liabilities issued at fair value - Retail customers 2,810 2,810 2,829 2,829
The fair value option is used to measure the fair value through profi t or loss of certain banking liabilities issued at fair value
(€2,810 million as of December 31, 2016 and €2,829 million as of December 31, 2015), including the Euro Medium Term Notes.
Corporate customers (€2,951 million as of December 31, 2016), and Interbanking refinancing (€1,701 million as of
December 31, 2016), are not traded in active markets and quoted prices are not available. Given the short maturities of main liabilities arising from banking activities (see Note 15.2), the carrying amounts may be considered as reasonable proxies for fair values. Thus, the fair value of amounts displayed above for these instruments are considered to be
Level 3 fair values; ■ other liabilities arising from banking activities relate to bonds issued with fair values mainly based on observable market data inputs. As such, the fair values of these liabilities are considered as Level 2 instruments.
As of December 31, 2016, debt relating to investments under lending agreements and equivalent in banking activities amounted to €1,031 million (€4,083 million as of December 31, 2015).
Refi nancing with central banks 51 942 - 993 180 464 - 644
Other liabilities arising from banking activities 917 1,104 743 2,765 442 2,043 0 2,485
TOTAL LIABILITIES ARISING FROM BANKING ACTIVITIES 23,130 5,747 2,867 31,743 25,864 4,773 2,002 32,639
Provisions for risks and charges included the following items: (in Euro million) December 31, 2016 December 31, 2015
As of December 31, 2016, the “Other provisions for risks and charges” mainly included provisions for tax liability
Changes in provisions for risks and charges (excluding employee benefi ts and share-based compensation) are set out below: (in Euro million) 2016 2015
Debt component of subordinated convertible notes, 3.75% due 2017 (€) 1,783 1,701
Derivatives relating to other fi nancing debt instruments issued (a) (30) (39)
Derivative instruments hedging fi nancing debt (included in the table above) are commented in Note 20.
Derivatives on fi nancing debt instruments issued (a) (30) (30) (39) (39)
The Group applies the IFRS 13 fair value hierarchy as described in Note 1.5. The fair value amounts are mainly based on observable market data inputs and are therefore considered as level 2 fair value amounts.
Other debt instrument issued, notes and bank overdraft excluding TRS (a) 2,081 3,539
Debt relating to investments under lending agreements and equivalent (b) 30,402 25,635
Minority interests in funds under this caption totaled €11,503 million as of December 31, 2016, an increase of €978 million compared with December 31, 2015, mainly coming from Belgium Life & Savings and Property & Casualty businesses, Japan Life & Savings, AXA Life Europe; partially offset by France Life & Savings.
“Debt relating to investments under lending agreements and equivalent” totaled €30,402 million as of December 31, 2016, an increase of €4,767 million compared with December 31, 2015, or €4,187 million at constant exchange rate, mainly due to France
Other debt instruments issued, notes and bank overdrafts (other than fi nancing debt) by issuance are described below: (in Euro million)
OTHER DEBT INSTRUMENTS ISSUED, NOTES AND BANK OVERDRAFTS EXCLUDING TRS 2,081 3,539
As of December 31, 2016, other debt instruments issued and bank overdrafts excluding TRS totaled €2,081 million, a decrease of €1,458 million compared to December 31, 2015, mainly due to decrease in other debt instruments issued.
The fair value of other debt instruments issued and bank overdrafts excluding TRS was €2,081 million as of December 31, 2016. Among the elements included in the preceding table, fair value is only calculated for other debt instruments issued.
Such fair values are mainly based on observable market data input (see Note 1.5. for a description of observable data) and are therefore classifi ed as level 2 instruments.
As of December 31, 2016, payables arising from direct outward reinsurance operations totaled €6,628 million, a decrease of €6,289 million compared to December 31, 2015, mainly coming from France Life & Savings.
The table below sets out the contractual maturities of other debt instruments (excluding the impact of derivatives which is detailed in Note 20.1). Effective maturities may differ from those presented, mainly because some instruments include clauses allowing early redemption, with or without penalty.
Debts relating to investments under total return swap (“TRS”) - 153 - 153
Other debts instruments issued, notes and bank overdrafts excluding TRS - Carrying value 3,256 64 219 3,539
Collateral debts relating to investments under a lending agreement or equivalent 25,635 - - 25,635
The income tax charge was split as follows: (in Euro million) December 31, 2016
The reconciliation between the theoretical tax charge (pre-tax profi t multiplied by the applicable tax rate in France for the period concerned) and the effective tax charge was as follows: (in Euro million) December 31, 2016
Income from operating activities, gross of tax expenses (excluding result from investments consolidated using equity method) 8,853 7,504
Impact of differences in tax rate and impact of taxes not linked to pre-tax income 179 57
Impact of differences in tax rates and tax bases (161) (612)
Deferred tax assets recognized on tax losses of prior years (28) (17)
The impact of rate differences on notional tax charge represents the difference between the expected tax calculated at each entity level with the applicable standard rate and the tax calculated using the 34.43% (38% in 2015) French tax rate applicable to the Company. This tax rate is composed of the following items: a basic tax rate (33.3%), a social contribution (1.1%) and in 2015, a temporary exceptional contribution (3.6%). The blended standard rate was 30% in 2016 and 29% in 2015.
IAS 12. Net deferred tax balances broke down as follows: (in Euro million)
The €23,764 million DTA included €1,558 million of DTA on tax losses carried forward as of December 31, 2016.
DTA recognised on tax losses carried forward 298 221 245 251 163 93 248 40 - 1,558
DTA recognised on tax losses carried forward 10 8 4 1 9 - 99 306 1,120 1,558
The amount of the potential DTA which has not been recorded in the accounts at the end of the year as considered unrecoverable represented €272 million (€582 million in 2015) of which: ■ €199 million concerned unrecognized DTA on €1,041 million tax losses carried forward (€497 million DTA on €2,512 million tax losses carried forward in 2015). The major part of these losses has no maturity date (€818 million in 2016 and €2,257 million in 2015); the significant decrease of nonrecognised DTA mainly came from the disposal of the remaining UK life portfolio and changes in the assumption of Genworth group integrated on December 1, 2015 for the fi rst time; ■ €73 million related to other unrecognized deferred tax assets
Maturity of notional amount as of December 31, 2016 (a) Notional amount Positive fair value Negative fair value Net fair value
As of December 31, 2016, the notional amount of all derivative instruments totalled €430.3 billion (€444.9 billion at the end of 2015). Their net fair value as of December 31, 2016 totalled €-139 million (€-628 million at the end of 2015).
Another example is the combination of government bonds and credit default swaps (CDS) as a synthetic position and an alternative to the direct purchase of a corporate bond. These schemes do not add any specifi c risks compared with other investment assets.
The notional amount of derivatives which is used to express the volume of instruments outstanding and to provide a basis for comparison with other fi nancial instruments most certainly overstates the level of activity and does not directly measure risk as it greatly exceeds the possible credit and market loss that could arise from such transactions. It does not represent the amounts that are effectively exchanged by the parties, and thus is not a measure of the Group’s exposure to derivative instruments. For example, the Group is exposed to credit risk in respect of its counterparties to the derivative instruments, but is not exposed to credit risk on the entire notional amounts.
(see Note 1.8.2) was €2.1 billion as of December 31, 2016
In 2016, the use of derivatives within the Group decreased overall by €-14.6 billion in terms of notional amount for the main reasons listed below (see also details in Note 20.2.1.): ■ notional amount of currency derivatives increased by €+8.5 billion compared to 2015 mainly due to an increased fair value of foreign currency portfolios driven by market conditions notably denominated in the United States dollar and the Great Britain sterling pound; ■ notional amount of interest rates derivatives decreased by €-28.4 billion, mainly due to (i) the decrease of interest rate hedging assets mainly in the Company hedging debts, (ii) the expiry of interest rate swaptions associated with guaranteed minimum benefi ts on Variable Annuity products in the United
Life & Savings; ■ notional amount of credit derivatives increased by €+0.6 billion in order to increase exposure to the corporate spread risk.
In the tables above, the fourth column includes derivatives that do not qualify for hedge accounting under IAS 39, but whose objective is nevertheless to provide economic hedging of a risk, with the exception notably of certain credit derivatives. They also include “macro-hedging” derivatives as defi ned by the IASB in
mainly uses (i) interest rate swaps (61% of total notional amount of interest rate derivative instruments), (ii) interest rate options
As of December 31, 2016, the notional amount of equity derivative instruments totalled €26.9 billion (€28.3 billion at the end of 2015). Their net fair value as of December 31, 2016 totalled €1,151 million (€511 million at the end of 2015). AXA
mainly uses (i) equity option contracts (60% of total notional amount of equity derivative instruments) and (ii) equity futures and forwards (32%).
As of December 31, 2016, the notional amount of currency derivative amounted to €135.4 billion versus €126.9 billion in 2015. Their market value was €-2,643 million versus €-1,909 million in 2015. AXA mainly uses (i) currency future and forward contracts (68% of total notional amount of currency derivative instruments), (ii) currency swaps (24%) and
Euro and US Dollar) with a total notional amount of €53.0 billion in 2016 versus €50.4 billion in 2015, and (ii) Japan Life & Savings using future and forward foreign currency contracts to hedge exchange-rate risk arising from its investments in fi xed-maturity debt instruments denominated in non JPY currencies with a total notional amount of €15.4 billion in 2016 versus €13.9 billion in 2015.
The Group, as part of its investment and credit Risk Management activities, uses strategies that involve credit derivatives, which consist mainly of Credit Default Swaps (CDS). These instruments are used as an alternative to corporate bonds portfolios, when coupled with government debt instruments, but also as a protection on single names or specifi c portfolios.
As of December 31, 2016, the notional amount of credit derivatives held by the Group was €24.5 billion compared to €23.9 billion in 2015 (excluding the instruments held within investment funds of the “Satellite Investment Portfolio”
ALM strategy is implemented to compensate for the lack of depth or liquidity in some markets by taking a synthetic credit risk (notional amount of €13.9 billion in 2016 versus €12.2 billion in 2015).
Macro-hedge and other derivatives (199) 548 349 (3) (200) (203) (202) 348 146
Assets backing contracts where the fi nancial risk is borne by policyholders 175,292 (0) 175,292 - - - 175,292 (0) 175,292
(c) Carrying value (see (a)), including effect of hedging instruments (IAS 39), economic hedging instruments not acting as hedging under IAS 39, macro-hedge and other derivatives.
Assets backing contracts where the fi nancial risk is borne by policyholders 194,601 (0) 194,601 - - - 194,601 (0) 194,601
Liabilities arising from insurance contracts 414,569 (1,489) 413,080 398,776 (654) 398,123
TOTAL LIABILITIES ARISING FROM INSURANCE CONTRACT 574,791 (1,489) 573,302 550,856 (653) 550,202
TOTAL LIABILITIES ARISING FROM INVESTMENT CONTRACTS 50,358 (95) 50,263 76,606 (114) 76,492
As of December 31, 2016, derivatives related to banking liabilities shown in Note 15 are used to hedge interest rate risk exposures in the context of ordinary banking activities, in order to achieve an appropriate interest rate spread between its interest earning assets and interest bearing liabilities.
The impact of derivative instruments is presented in the balance sheet within their related underlying fi nancial liabilities (and assets see Note 20.3). The tables below set out the impact of derivative instruments on the related underlying liabilities.
Net value of derivative instruments - assets (A) (1,177) (2,294) - (3,471) (412) (1,365) - (1,777)
Derivative instruments relating to insurance and investment contracts 15 (1,917) - (1,903) (9) (1,632) - (1,641)
Net value of derivative instruments - liabilities (B) 19 (3,334) (17) (3,332) 14 (1,151) (12) (1,149)
The Group mitigates counterparty credit risk of derivative instruments by contractually requiring collateral for the majority of derivative contracts. As of December 31, 2016, the adjustment to the fair value of derivatives for non-performance risk was not material.
LIFE & SAVINGS 60,282 58,862 of which direct premiums 55,179 53,892 of which reinsurance assumed 3,507 3,324 of which fees and charges on investment contracts with no participation features 219 236 of which revenues from other activities 1,378 1,410
Fees, commissions and other revenues 1,378 - - 1,410 - -
21.3.3. Liabilities arising from insurance contracts in the Property & Casualty
Net realized gains and losses relating to investments at cost and at fair value through shareholders’
Investment in real estate properties as at fair value through profi t or loss 41 - 6 - 47
Non consolidated investment funds available for sale 270 141 21 (134) 298
Non consolidated investment funds designated as at fair value through profi t or loss 242 - (48) - 194
Other assets held by consolidated investment funds designated as at fair value through profi t or loss 89 - 9 - 99
Debt instruments designated as at fair value through profi t or loss (c) 1,010 - (523) - 486
Non consolidated investment funds available for sale 345 175 (85) (74) 361
Non consolidated investment funds designated as at fair value through profi t or loss 332 - (124) - 208
Loans designated as at fair value through profi t or loss - - - - -
Assets backing contracts where the fi nancial risk is borne by policyholders - - 784 - 784
(a) Restatement of discontinued United Kingdom Life & Savings operations on a separate line of statement of Income.
Commissions received from / paid to reinsurers 26 480 (30) 476
(a) The International Insurance segment is reclassifi ed in Life & Savings and Property & Casualty segments.
Change in deferred acquisition expenses and equivalents (c) (584) (111) (695) - - - (0) (695) (1,279)
France as a consequence of the integration of Genworth, as well as in Germany mainly due to higher restructuring costs; ■ higher expenses in Direct business (€+41 million) mainly in Poland following the acquisition of Liberty and business growth, as well as in the United Kingdom refl ecting investments in IT systems; ■ higher expenses in Emerging markets (€+22 million) mainly driven by higher commissions in Mexico P&C and Turkey
Kong due to higher other income following portfolio growth of coinsured business; partly offset by: ■ lower expenses in Asset Management (€-124 million) mainly in AB due to lower compensation expenses in line with lower revenues as well as lower promotion and servicing expenses.
The cost of the contributions paid was recognized as an expense in the income statement, and amounted to €166 million as of
Benefi t payments in the United Kingdom, the United States and
Switzerland are from trustee-administered funds and plan assets held in trusts are governed by local regulations and practices.
The Board of Trustees, generally composed of representatives of the company and plan participants in accordance with the plan’s regulations is responsible for governance of the plans including investment decisions and contribution schedules in order to meet the existing minimum funding requirement or funding regime objective, jointly with AXA at local level.
In Ireland, the defi ned benefi t pension plan was amended (with effect from July 31, 2015) so that the scheme was closed to future accrual and a new defi ned contribution pension plan was established from this date.
The assumptions for each of the liabilities are consistent with the economic features of the corresponding countries’ plans. The weighted-average fi nancial assumptions used by AXA for pension plans in the principal r egions in which AXA operates were as follows: DECEMBER 2016 ASSUMPTIONS
Pension benefi t obligation - assumptions as of December 31, 2016
Signifi cant demographic assumptions used by AXA are mortality tables in the measurement of the Group’s obligations under its defi ned benefi t schemes. These assumptions are often set based on actuarial advice in accordance with published statistics and experience in each country. Translated into averages remaining life expectancy at retirement age (between 60 and 65 in average), the mortality assumptions would give: ■ 22.89 years for male and 25.43 years for female retiring at end of December 2016; ■ 25.38 years for male and 27.95 years for female retiring at end of December 2026 (i.e. 10 years after the reporting date).
The table below presents the change in benefi t obligation and the change in plan assets associated with pension plans and other benefi t plans sponsored by AXA, together with an analysis of Separate Assets and the balance sheet position.
Net transfer In/(Out) (including acquisitions, disposals and reclassifi cations) (b) (26) 93 1 - (25) 93
Cumulative impact of asset ceiling (18) (19) - - (18) (19) Liability and asset recognized in the statement of fi nancial position (excluding separate assets) Net position (excluding separate assets) (9,713) (9,415) (639) (618) (10,352) (10,033) Fair value of separate assets at the end of the year 1,204 1,276 - - 1,204 1,276 Net balance sheet position (including separate assets) (8,509) (8,139) (639) (618) (9,148) (8,757) (a) In 2016, this amount mainly included plan amendments or curtailments effect in France and Germany. In 2015, this amount mainly included plan amendments or curtailments effect in Ireland and France.
(b) In 2016, this amount mainly included AXA Portugal disposal effect. In 2015, the amount mainly included the variation in the scope of plans reported under IAS 19 (contribution-based plan with a promised return in Belgium and Genworth acquisition in 2015).
Interest cost on asset ceiling 1 1 - - 1 1
The calculation of the periodic pension cost is based on a “spot rate approach” or “full yield approach” that involves the use of separate discount rates of the yield curve (retained for the valuation of the Defi ned Benefi t Obligation), to determine the related service cost, interest cost and interest income on assets associated to each discounted cashfl ow or segregated subsets of plan’s obligation.
Assets and assets within the insurance General Accounts that are backing employee benefi ts.
Similarly in some other countries (mainly in Switzerland), although non-transferable insurance policies related to Defi ned Benefi ts
The presentation required by IAS 19 seems to imply that such
Statement of fi nancial position liability at the beginning of the year (9,415) (9,140) (618) (660) (10,033) (9,800)
Pension and other benefi ts expense (288) (393) (26) (14) (313) (407)
Benefi ts directly paid by the employer 312 334 39 36 352 370
Statement of fi nancial position liability at the end of the year (9,713) (9,415) (639) (618) (10,352) (10,033)
One year increase in the life expectancy (derived from adjusted mortality rates) would result in an increase of 3.9% of the Defi ned
The sensitivity analysis are performed plan by plan using the projected unit credit method (same than the method applied when calculating the defi ned benefi t liability recognized in the statement of fi nancial position) and are based on a change in an assumption while holding all other assumptions constant.
(SFO) is met. The contributions for the recovery plan are based on the actuarial valuation performed every three years. However the schedule of contributions may change more frequently if signifi cant events occur in the year.
In Switzerland and Belgium, entities should fund the cost of the entitlements expected to be earned on at least a yearly basis where contributions are determined as a percentage of pensionable salaries depending on the age-class of the benefi ciaries.
In France, voluntary regular employer annual contributions are made to Separate Assets, with an objective of the coverage ratio remaining within a targeted range of the total Defi ned Benefi t
In summary, considering both the Swiss case (and other entities in a similar case) and Separate Assets, the net economic situation of the funding for Defi ned Benefi t plans is the following: (in Euro million)
Statement of fi nancial position liability (a) (9,713) (9,415) (639) (618) (10,352) (10,033)
(a) This amount represents the Defi ned Benefi t Obligation less plan assets adjusted for any assets not recoverable.
From year N+11 until the last benefi t payments is paid 25,390 632
The following tables disclose the fair values of Plan Assets and their level within the fair value hierarchy for the Defi ned Benefi t plans of
26.2.10. Management of risks specifi c to the Group arising from defi ned benefi t plans
Local operating entities and trustees have the primary responsibility for managing the risks that plans are exposed to through a defined benefit plan, in accordance with local legislation if any and the risk framework defi ned at local level.
Defi ned benefi t plans expose AXA mainly to market investment risk, interest rate risk, infl ationary risk and longevity risk: ■ a decline in asset market value (equity, real estate, alternatives etc.) will immediately increase the balance sheet liability and the near-term cash flows for countries where there is a minimum funding requirements; ■ a decrease in corporate bond yields will result in an increase in plan liabilities even if this effect will be partially offset by an increase in the value of the plans’ bonds; ■ and an increase in infl ation rate or an increase in life expectancy will result in higher plan liabilities.
Moreover, caps on infl ationary increases are in place to protect the plan against extreme infl ation in the United Kingdom and in the United States.
All fi gures are gross of tax (in Euro million) 2016 2015
Units and International Performance Shares amounted to €82.9 million in 2015.
Weighted average fair value per option at grant date in Euro (b) (c) 1.80 1.42 1.88 1.36
The effect of expected early exercise was taken into account through the use of an expected life assumption based on historical data. AXA ADR volatility was based on AXA SA ordinary shares volatility, adjusted for the US$/€ exchange rate volatility.
receive the value of their investment in the form of AXA shares; or (3) transfer their assets invested in the leveraged plan into the traditional plan.
Normes Comptables). The ANC approach values the restricted shares through a replication strategy whereby the employee would sell the restricted shares forward at the end of the lockup period, borrow enough money to buy unrestricted shares immediately, and uses the proceeds of the forward sale together with dividends paid during the lock-up period to fi nance the loan.
for the traditional plan and 8.57% for the leveraged plan (due to different discounts). In addition to the lock-up cost, the opportunity gain offered to the employees under the leveraged plan was measured at 1.91 %.
The table below shows the main features of the plan, the amounts subscribed, valuation assumptions, and the cost of the plan for 2015 and 2016: Traditional Leveraged Traditional Leveraged
Amount subscribed by employee (in Euro million) 34.2 39.6 30.1 34.5
Total number of shares subscribed (in million shares) 2.2 22.3 1.7 17.0
TOTAL COST FOR AXA (IN EURO MILLION) 0.55 8.53 0.10 7.70
AXA Miles was granted without any condition. The second tranche was subject to the fulfi lment of a performance condition determined by AXA’s Board of Directors. This condition required the achievement of at least one of two indicators related to
The free shares are valued using the ANC (“Autorité des Normes
Comptables”) approach described in the AXA Group Sharep lan section using assumptions adapted to the structure of the plan
The total cost of the AXA Miles is amortized over the vesting period (i.e. over 2 years for the 2+2 plan and over 4 years for the 4+0 plan) starting from the grand date. On that basis, the expense recognized in the profi t or loss for the year ended
Performance Shares are granted to executive officers and other key employees in France. These Performance Shares plans are equity-settled award plans subjected to a nonmarket performance criteria and have a specifi ed vesting period
(between two and three years) followed by a two-year postvesting restriction to transfer period..
The total cost of Performance Shares recognized was €32.4 million as December 31, 2016 (€25.7 million as of
Since 2013, AXA has established common terms and conditions for the attribution of “International Performance Shares” to eligible employees. Under the International Performance
Shares (PSi) plan, benefi ciaries of Performance Shares have the right to receive at the settlement date, a certain number of AXA shares based on the achievement of performance criteria defi ned by AXA and vesting period. The performance’s period and measurement is between two and three years. The vesting period (service condition) is between three and four years. However, as opposed to Performance Units granted in 2011 and 2012, under the International Performance Shares plan, the settlement will be made in shares rather than in cash
For 2016 grants, after the three years performance period, the performance shares defi nitively acquired are subject to (i) an additional restriction on transfer period of at least two years following the performance period and (ii) an obligation to hold the shares until retirement, provided that the benefi ciaries may sell their shares for diversifi cation purposes (following the three-year performance period and two-year restriction on transfer period), as long as the sale proceeds are invested in a long-term savings plan until the benefi ciary’s retirement.
AXA Investment Managers grants Performance Shares to certain key employees as part of its overall LTI policy that also includes DIP (Deferred Incentive Plan). The Investment
Managers Performance Shares incentive plan is a long term award plan in which participants are allocated AXA Investment
Managers shares or, more specifi cally rights to acquire shares upon completion of a specifi ed vesting period depending on applicable local regulations, and subject to fulfi lment of certain performance conditions. The performance condition is based on the achievement of Actual AXA Investment Managers Underlying
Plan are in the form of restricted AB Holding Units or cash which are granted to certain key employees.
During the fourth quarter of 2011, AB amended all outstanding year-end long-term incentive compensation awards of active employees, so that employees who terminate their employment or are terminated without cause may retain their award, subject to compliance with certain agreements and restrictive covenants set forth in the applicable award agreement, including restrictions on competition, employee and client solicitation, and a clawback for failing to follow existing Risk Management policies. This amendment eliminated employee service requirement but did not modify delivery dates contained in the original award agreements.
The 2016 total cost amounted to €118.9 million (€137.0 million in 2015), gross of tax.
(€20.6 million in 2015), including fixed salary, bonuses, directors’ fees, benefi ts in kind and other short-term benefi ts; ■ share-based compensation: the expense recognized in 2016 in respect of share-based compensation granted by AXA SA
At December 31, 2016, the Group employed 97,707 salaried people on a full-time equivalent basis (97,074 at the end of
The increase of salaried employees by 633 in 2016 was mainly driven by: ■ Direct (+621) mainly driven by the acquisition of operations in
Poland and business growth across countries, partly offset by the sale of the Portuguese operations; ■ AXA Assistance (+575) mainly driven by the acquisition of two entities; ■ France (+326) driven by the integration of Genworth, partly offset by effi ciency programs and early retirements; ■ Asia (+232) mainly driven by business growth across
Net income per ordinary share takes into account interest payments related to undated subordinated debt classifi ed in shareholders’ equity.
BASIC NET INCOME PER ORDINARY SHARE C = A / B 2.30 2.19
Fully diluted - weighted average number of shares (c) D 2,423 2,441
In 2016, net income per ordinary share stood at €2.30 on a basic calculation, of which € 2.48 attributable to continuing operations and €-0.18 from discontinued operations, and €2.30 on a fully diluted basis, of which € 2.48 attributable to continuing operations and €-0.18 from discontinued operations.
In 2016, the Company was party to the following transactions with related parties which may be deemed to have been material to AXA or the related party in question or unusual in their nature or conditions.
The Mutuelles AXA and certain of the Company’s French insurance subsidiaries, AXA France IARD and AXA France Vie
(the “Subsidiaries”), are parties to an agreement pursuant to which they provide a full range of management services to manage the insurance operations and portfolios of the Mutuelles
Mutuelle 11%. Aggregate written premiums recorded in this coinsurance agreement amounted to €1,902 million in 2016
Company was party during 2016 covered a variety of common services including services performed by the Group’s central functions (GIE AXA) for the benefi t of AXA Group companies
Commitments granted by the Company to its subsidiaries are disclosed in Appendix IV of this Annual Report “AXA parent
and letter of credits (€514 million), partly offset by the decrease in fi nancing commitments (€130 million). These commitments broke down as follows: Financing commitments received totalled €14,309 million at the end of 2016, and mainly consisted of: ■ Credit facilities received from banks for €12,732 million mainly in AXA SA (€12,385 million) for stand-by credit lines; ■ €1,375 million at AB including €1,138 million commitment lines with various banks and other lenders and €237 million stand-by credit lines; ■ €439 million commitment lines granted to Japan Life &
Savings as part of its operations; ■ €80 million stand-by credit lines at AXA Banque France.
Guarantee commitments received totalled €23,241 million at the end of 2016, and mainly consisted of (i) guarantees from customers related to mortgage loans (€17,115 million) received mainly by Switzerland Life & Savings (€9,750 million), AXA
(iii) €4,525 million guarantees received from credit institutions mainly by AXA Banque France (€3,807 million) and Spain Life &
(€22,565 million); ■ Collaterals for reinsurance operations €6,119 million mainly from the United States Life & Savings (€3,003 million), France
Other commitments received totaled €4,475 million at the end of 2016, and mainly consisted of: ■ €2,744 million mainly received by France Life & Savings
related to mortgages as guarantees to debt instruments; ■ €852 million mainly received by AB (€846 million) related to lease commitments; ■ €689 million mainly received by Switzerland Life & Savings
Commitments given totaled €73,922 million at the end of 2016, increasing by €5,892 million compared to the end of 2015, mainly due to increase of €1,582 million in pledged securities and collateralized commitments for repurchase and similar transactions, €1,176 million in pledged securities and collateralized commitments mainly in relation with reinsurance operations, €1,386 million in other pledged securities and collateralized commitments, €1,383 million increase in fi nancing commitments majorly owed to credit institutions and €1,694 million increase in other commitments, partly offset by decrease in pledged securities and collateralized commitments in relation with loans €1,666 million and €360 million pledged securities and collateralized commitments in relation to derivatives (see below).
German Banks (€208 million) to their customers and fi nancing commitments given to credit institutions (€1,377 million) notably comprising at AB with commitment lines (€1,138 million) and unused credit lines (€237 million) with various banks and lenders.
Guarantee commitments given totaled €8,545 million at the end of 2016, and mainly consisted of guarantee commitments given to credit institutions related to loans (€4,497 million)
Europe (€1,518 million) and AB (€752 million) and guarantees in case of insolvency and defaults (€1,448 million) notably from
Pledged securities and collateralized commitments given totalled €41,211 million at the end of 2016, and mainly consisted of: ■ security repurchase agreements and similar operations totaled €30,466 million mainly in France Life & Savings
Solutions Assurance (€748 million); ■ pledged assets and collaterals for derivatives instruments totaled €4,762 million mainly in Japan Life & Savings
(€1,126 million); ■ other pledged assets / collaterals totaled €4,725 million mainly in AXA Banque France (€2,051 million), Switzerland Life &
Letters of credit given totalled €158 million at the end of 2016 and were mainly from Colisée RE (€66 million) and from
and Germany Life & Savings (€350 million); ■ €2,795 million as lease commitment given mainly by AB
AXA subsidiaries are required to indemnify their employees and directors against certain liabilities and costs that they may incur from time to time in performing activities within the scope of their duties. These activities may include, for example, service as a director, offi cer, agent, general partner, or in a similar capacity for (i) an AXA Group company other than the employee’s principal employer or (ii) a company outside the AXA Group where service is at the request of (or for the benefi t of) the Group
Certain AXA subsidiaries and joint ventures, principally insurance companies, are subject to restrictions on the amount of funds they may transfer in the form of cash dividends or otherwise.
63, rue de Villiers – 92208 Neuilly-sur-Seine Cedex, represented by Mr. Xavier Crépon, fi rst appointed on February 28, 1989. The current appointment is for a term of 6 years, until the General
Shareholders’ Meeting called to approve the fi nancial statements for the fi scal year 2017.
Messrs. Jean-Claude Pauly and Maxime Simoe n, fi rst appointed on June 8, 1994. The current appointment is for a term of 6 years, until the General Shareholders’ Meeting called to approve the fi nancial statements for the fi scal year 2021.
Mr. Yves Nicolas: 63, rue de Villiers – 92208 Neuilly-sur-Seine, fi rst appointed on April 25, 2012. The current appointment is for a period of 6 years, until the Annual General Meeting of the shareholders called to approve the fi nancial statements for the fi scal year 2017.
Statutory audit and certifi cation of local and consolidated fi nancial statements 25 ,795 28,025 66% 67% 9 ,958 10, 067 75% 76%
shareholders brought proceedings in Germany alleging that the cash compensation offered by AXA SA was not adequate.
German minority buy-out transactions and recommending a signifi cant increase in the cash compensation to be paid to minority shareholders. In addition, interest will be payable on any additional amount fi nally decided. AXA SA has appointed an independent expert to challenge this report and submitted its statement in February 2017. A fi nal decision is not expected before 2018. Consequently, the fi nancial impact of this matter cannot be estimated with any certainty at this time.
“Subsidiary SEC Reports”). The Subsidiary SEC Reports are publicly available and Management encourages readers of the
(“Sanford Litigation”). These lawsuits were fi led on behalf of a total of twelve m utual funds and, among other things, seek recovery under (i) Section 36(b) of the Investment Company
Act of 1940, as amended (the “Investment Company Act”), for alleged excessive fees paid to AXA Equitable and FMG LLC for investment management services and administrative services and (ii) a variety of other theories including unjust enrichment.
New York statutory annual statement or elsewhere that certain reinsurance transactions with affi liated reinsurance companies were collateralized using “contractual parental guarantees”, and thereby AXA Equitable allegedly misrepresented its “fi nancial condition” and “legal reserve system”. These lawsuits seek recovery under Section 4226 of the New York Insurance Law of the equivalent of all premiums paid by the class for life insurance policies and annuity contracts during the relevant period. In the second half of 2015, the court granted AXA Equitable’s motion to dismiss the Yale/Ross lawsuit for lack of subject matter jurisdiction and the court, on its own, dismissed the Yarbrough litigation on similar grounds as the Yale/Ross litigation. Plaintiffs have appealed. In November 2015, plaintiffs fi led a motion to consolidate the appeals which was denied by the court; however the court ordered that the appeals be heard together before a single panel of judges. In February 2017, the court found in favor of AXA Equitable.
York and dismissed on grounds that the claims are precluded by federal law (the Securities Litigation Uniform Standards Act).
York in November 2015, and AXA Equitable’s motion to dismiss is pending. AXA Equitable believes that it has strong defenses to these claims and will defend them vigorously.
Equitable in New York Federal Court and Florida State Court with virtually identical allegations. Both these lawsuits challenge
AXA Equitable’s decision to increase the cost of insurance for a specifi c block of life insurance policies (AUL II) with issue ages over 70 and face amounts in excess of $1 million (“COI”). This decision was based on the actuarial experience on this block of policies and was done in accordance with the terms of the policies and after review by relevant state insurance regulators and an outside actuarial consultant. These lawsuits allege breach of contract and, in New York, seek recovery under Section 4226 of New York Insurance law, and seek various remedies (including refund of premiums paid or cancellation of the increase in the cost of insurance, interest and costs). Many of these policies are owned or fi nanced, directly or indirectly, by hedge funds or other institutional investors. The Florida action has now been voluntarily dismissed but may be refi led. Additionally, a separate putative class action and fi ve individual actions challenging the COI increase have been fi led against AXA Equitable. AXA
Equitable believes that it has strong defenses to these claims and will defend them vigorously.
During the fourth quarter of 2012, a lawsuit was fi led against AXA
in Madrid by a real estate development company, Sistema KLEC, alleging breach of contract in connection with an arrangement entered into by AXA Spain in 2008 for the development of up to 125 agencies. The plaintiff claims damages on alternative theories for amounts ranging from approximately €149 million
(damages are currently being assessed). In the context of another similar case, however, the Court of Appeal of Versailles referred to the question as to the legality of the Decrees to the European
Court of Justice (“ECJ”) following which a signifi cant number of courts stayed proceedings in similar cases. On March 15, 2017, the ECJ rendered its decision in favor of the arguments raised by AXA CS regarding the illegality of the Decrees and each court will now be asked to make a fi nal decision on this basis. AXA
CS believes that this decision of the ECJ substantially limits any claims for damages by the plaintiffs and in addition that certain policy exclusions and defenses would apply.
NatWest succeeded in having this case dismissed in March 2013 on a summary judgment motion but, during 2014, this was overturned and the case was remanded to the court of fi rst instance. AXA CS is not a party to this litigation. The exposure of
In addition to the various matters noted above, AXA and certain of its subsidiaries are also involved in numerous legal actions and proceedings arising out of transactions involving the acquisition or sale of businesses or assets, mergers or other business combination transactions, the establishment or dissolution of joint ventures or other partnerships, public exchange or tender offers, buy-outs of minority interests or similar types of transactions (“M&A Transactions”). In connection with M&A
France and Belgium, have enacted legislation that permits corporate entities to be charged with criminal offences. The standard for attributing criminal conduct by corporate offi cers and employees to corporate entities is not clearly defi ned in many of these jurisdictions and government prosecutors and judges have broad discretion in this area. In recent years, complaints against or indictments of corporate entities for alleged criminal offences have become increasingly common and certain AXA Group companies have been the subject of penal complaints and/or indictments from time to time including in Belgium and France. While a criminal complaint against or indictment of a corporate entity may not pose material fi nancial risk, it has broad potential implications for a regulated fi nancial institution like AXA both from a reputation point of view and from a regulatory perspective because a criminal conviction can have potentially far reaching negative implications for AXA Group companies engaged in regulated businesses around the world
In addition to the matters noted above, AXA and its subsidiaries are also involved in various legal actions and proceedings of a character normally incident to their business including claims litigation arising in connection with the Group’s insurance business and litigation arising from the Group’s a sset m anagement business.
On January 11, 2017, AXA announced the successful placement of $1 billion of Reg S subordinated notes due 2047 to institutional investors to refi nance, in advance, part of its outstanding debt.
Change in the bodily injury discount rate in the United Kingdom
December 31, 2016, on: ■ the audit of the accompanying consolidated fi nancial statements of AXA; ■ the justifi cation of our assessments; ■ the specifi c verifi cation required by law.
In our opinion, the consolidated fi nancial statements give a true and fair view of the assets and liabilities and of the fi nancial position of the Group at December 31, 2016 and of the results of its operations for the year then ended in accordance with International
■ Your Company describes in Notes 1.8.2 and 9 to the consolidated fi nancial statements the valuation methods it applies to fi nancial assets.
We have assessed the appropriateness of the fi nancial asset valuation process, as well as the information disclosed in the above mentioned notes; ■ Certain consolidated statement of fi nancial position items that are specifi c to the insurance and reinsurance business are estimated on the basis of statistical and actuarial data, such as technical reserves, policyholders’ deferred participation, deferred acquisition costs and their amortization, and the value of business in force. The methods and assumptions used to calculate the carrying values of these items are described in Notes 1.14, 1.7.3 and 1.7.2 to the consolidated fi nancial statements.
■ Deferred tax assets and liabilities are recorded and measured using the methods described in Note 1.17.1 to the consolidated fi nancial statements.
Xavier Crépon Jean-Claude Pauly – Maxime Simoen * This document is the English translation of the original legal statutory audit report which is, by law, prepared in French. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information therein, the original language version takes precedence over this translation. This English version should be read in conjunction with, and construed in accordance with French law and professional auditing standards applicable in France.
Euronext Paris: Calendar Period Intraday High (in Euro) Intraday Low (in Euro)
To the best of the Company’s knowledge, the table below summarizes the ownership of its issued outstanding ordinary shares and related voting rights on December 31, 2016: Number of shares
Treasury shares held directly by the Company 5,463,201 0.23% [0.19%] (c)
Treasury shares held by Company subsidiaries (d) 450,272 0.02% [0.02%] (c)
(b) AXA Assurances IARD Mutuelle (11.26% of capital ownership and 19.06% of voting rights) and AXA Assurances Vie Mutuelle (2.88% of capital ownership and 4.87% of voting rights).
BlackRock Inc., acting on behalf of its clients and funds that it manages, held more than 5% of the Company’s share capital or voting rights on December 31, 2016.
Certain of the Company’s shares are entitled to double voting rights as described in Section 6.3 “ General information
Capital ownership (%) Number of voting rights Voting rights (%) Number of shares
Treasury shares held directly by the Company 5,463,201 0.23% [5,463,201] (c) [0.19%] (c) 1,491,713 0.06% [1,491,713] (c) [0.05%] (c) 49,719 0.00% [49,719] (c) [0.00]% (c)
On December 31, 2016, to the best of the Company’s knowledge based on the information available to it, the Company had 10,963 total registered holders of its ordinary shares (i.e.
As a result, on December 31, 2016, following the delivery of AXA
AXA’s share capital at that date). These shares were acquired for an aggregate purchase price of €125,259,667 (with a par value of €2.29 per share).
Since 1993, the AXA Group has promoted employee shareholding by offering each year to its employees an opportunity to become shareholders through a share capital increase reserved exclusively to them (“Sharep lan”).
Company’s share capital through the issue of shares reserved to the Group employees under the Sharep lan 2016 program.
In countries that met the legal, regulatory and tax requirements to participate in Sharep lan, two investment options were offered to the Group employees in 2016: ■ the traditional plan, offered in 34 countries; ■ the leveraged plan, offered in 32 countries.
At the end of the 5 year holding period, the employees can, depending on their country of residence, do any one of the following: (1) receive the cash value of their investment; (2) receive the value of their investment in the form of AXA
Company Savings Plans and are restricted from sale during a period of approximately 5 years (except specifi c early exit cases allowed by applicable law). Employees’ personal investment is guaranteed by a bank, and employees also benefi t from a portion of the share appreciation, calculated on the basis of the non-discounted reference price.
Mutual funds (FCPE) with direct voting rights have been created since 2005 to allow benefi ciaries, in most cases, to directly exercise their voting rights during the Company’s Shareholders’
• €396.1 million in the leveraged plan; ■ a total of over 24 million new shares were issued, each with a par value of €2.29. These shares began earning dividends on January 1, 2016.
of the share capital and 7.40% of the voting rights. These shares are owned through Mutual funds (FCPE) or directly either in the form of ordinary shares or ADS.
On December 31, 2016, AXA’s share capital was comprised of 2,425,149,130 ordinary shares, each with a par value of €2.29. All these shares were fully paid up and non-assessable and began earning dividends on January 1, 2016. The following table sets forth changes in the number of shares from January 1, 2014 to December 31, 2016: Date Transaction
2014 New equity issue related to the AXA Miles Program (2 + 2 plan) 1,521,950 - 2,419,387,421 5,540,397,194
New equity issue reserved for employees of AXA (Sharep lan 2016) 24,546,959 368,403,757 2,448,766,155 5,607,674,495
Ordinary shares or securities giving access to the capital, reserved for employees – 135 million (f) 18 months October 27, 2017
Ordinary shares reserved for a specifi c category of benefi ciaries in connection with offerings for employees – 135 million (f) 18 months October 26, 2018
Shares issued in connection with the exercise of stock options – 1% (g) 38 months June 26, 2020
(b) Including the issue of ordinary shares as result of securities issued by subsidiaries of AXA.
(c) Including the issue of ordinary shares or securities (i) in the event of private investments or through public offers, (ii) in the event of public exchange offers initiated by the Company, (iii) in consideration for contributions-in-kind for up to 10% of the Company’s share capital, or (iv) as result of securities issued by subsidiaries of AXA.
In 2016, by virtue of the authorizations granted by the shareholders at the Shareholders’ Meeting of April 27, 2016 (resolutions 19 and 20) respectively 2,358,236 performance shares and 509,345 performance shares dedicated to retirement were granted by the AXA Board of Directors.
Ordinary shares and other securities giving a claim to ordinary shares of the Company through subscription, conversion, exchange, redemption, presentation of a warrant or otherwise (b) 6 billion (d) 2 billion (e) 26 months June 26, 2019
until the fi ling of AXA’s next registration document with the AMF : (i) the Bylaws of the Company, (ii) the reports or other documents prepared by any expert at the Company’s request which are (in whole or in part) included or referred to in this Annual Report, and (iii) AXA SA’s fi nancial statements and Consolidated Financial
Statements for each of the two fi nancial years preceding the publication of this Annual Report.
AXA is engaged in regulated business activities on a global scale through numerous operating subsidiaries. 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.
Group, is also subject to extensive regulation as a result of its listing on Euronext Paris and its direct and indirect shareholding in numerous regulated insurance and asset management subsidiaries. Given that the AXA Group is headquartered in
AMF , which is the financial markets regulator, and the Autorité
de contrôle prudentiel et de résolution (“ACPR”), which is the insurance regulator. Since 2013, AXA has been identifi ed by the Financial Stability Board (“FSB”) as a Global Systemically
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 distribution practices, standards of solvency, levels of capital and reserves, permitted types and concentrations of investments, and business conduct to be maintained by insurance companies as well as agent licensing, approval of policy forms and, for certain lines of insurance, approval or fi ling of rates. In certain jurisdictions, regulations limit sales commissions, fees and certain other marketing expenses that may be incurred by the insurer and impose product suitability and disclosure requirements. In general, insurers are required to fi le detailed annual financial statements with their supervisory agencies in each of the jurisdictions in which they do business. Such agencies may conduct regular or unexpected examinations of the insurers’ operations and accounts and request additional 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, reporting concerning the corporation that controls the licensed insurer and other affi liated companies, including prior approval (or notice) of transactions between the insurer and other affi liates such as intra-group transfers of assets and payment of dividends by the controlled insurer. In general, these regulatory schemes are designed to protect the interests of policyholders rather than shareholders.
In recent years, the European Union has developed a new regulatory regime for European insurers which became effective on January 1, 2016, following the adoption of the 2009 Solvency II Directive on the taking-up and pursuit of the business of insurance and reinsurance, as amended in 2014 and implemented into French law in April 2015. The Solvency II
regime is designed to implement solvency requirements that better refl ect the risks that insurance companies face and build a supervisory system that is consistent across all European member States. The Solvency II framework is based on three pillars: (1) Pillar 1 consists of the quantitative requirements around own funds, valuation rules for assets and liabilities and solvency capital requirements, (2) Pillar 2 sets out qualitative requirements for the governance and risk management of insurers, as well as for the effective supervision of insurers including the requirement for insurers to submit an Own Risk and Solvency Assessment
The Solvency II regime provides for two separate levels of solvency capital requirements: (i) the Minimum Capital
Internal Model will have to be approved by the ACPR who may require adjustments to the level of SCR.
Internal Model, please refer to Section 4.2 “Internal control and r isk management – Internal Model” of this Annual Report.
For further information on the risks related to regulatory capital requirements, please see the paragraph “The failure of the
GSIIs, which included the AXA Group. The GSII list is updated annually following consultation with the IAIS and relevant national supervisory authorities. The AXA Group remained on the GSII
(1) The Solvency II ratio is estimated based on the Internal Model calibrated based on adverse 1/200 year shock and assuming US equivalence. The
Solvency II ratio will be fi nalised prior to the publication of the SFCR expected by July 1, 2017.
Group interdependencies including restrictions on intra-group fi nancing and other arrangements, and (4) in general, a greater level of regulatory scrutiny for GSIIs, including a requirement to establish a Systemic Risk Management Plan (“SRMP”), a
Resolution Plan (“RRP”) which have entailed signifi cant new processes, reporting and compliance burdens and costs.
AB 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 ensure adequacy of disclosures 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 qualifi cations of the investment manager. These regulations generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on 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 specifi c periods, the revocation of the registration as an investment adviser, censures and/or fi nes.
Act) set several prescriptive guidelines for derivatives which impact operations, liquidity and credit risk management for derivatives. AXA’s asset managers and banks, which manage derivatives on behalf of various AXA Group affi liates (including on behalf of AXA), are currently operating in conformity with these new rules (or preparing for their implementation) and the
In addition, the Directive 2014/65/EU on markets in fi nancial instruments (“MiFID II”) and the Regulation (EU) No 600/2014 on markets in fi nancial instruments, both adopted in May 2014, are expected to apply from January 3, 2018. The MiFID II package, which is designed to better integrate the European Union’s financial markets and increase cross-border investments, market transparency and investor protection, imposes a wide variety of new requirements including with respect to trading/
clearing of certain derivatives on organized platforms, regular reporting with respect to derivatives positions and certain other types of fi nancial instruments, restrictions and/or prohibitions on certain types of compensation arrangements or other monetary inducements to fi rms providing independent investment advice and greater regulation of structured products and other complex fi nancial instruments.
While the full impact of such requirements can only be evaluated in the context of implementing regulations and national transposition laws, such new legislation could have a substantial impact on AXA’s regulated a sset m anagement business.
institutions on one side and the US authorities on the other, a safe harbor scheme concerning the transfer of personal information for commercial purposes from companies in the EU to companies in the United States was adopted in
Shield” framework, sets forth a broad range of conditions for and restrictions on the ability of US companies (including US
EU-US Privacy Shield would not apply to transfers of personal data from the Company or its EU-based affi liates to its banking and insurance affi liates based in the US. Accordingly, at the present time it remains unclear whether and to what extent these developments could hinder our ability to transfer customer or other personal data into the United States.
The Solvency II regulation set out the remuneration policy principles and governance requirements to be implemented by
Delegated Regulation of October 2014 which promotes sound and effective risk management and does not encourage risktaking that exceeds the risk tolerance limits of the Company. In this context, AXA has reviewed and formalized its existing Group remuneration policy, identifi ed the individuals responsible for managing and having an impact on the Group’s overall risk profi le and defi ned a consistent approach to manage remuneration of individuals in charge of control functions. AXA’s Compensation
& Governance Committee is in charge of overseeing the design of the remuneration policy and remuneration practices, their implementation and operation.
Group has largely aligned its global executive compensation practices with these standards and principles and conducts regular reviews of its compensation practices and policies in light of these standards as well as applicable legal and regulatory requirements. The application of these principles and standards may vary among the different actors in the financial sector (such as banks, insurers, asset managers, private equity funds, hedge funds) and across the various jurisdictions where the Group does business, which may give rise to certain competitive issues for the Group, including by affecting the Group’s ability to attract and retain top-rate talents.
Policyholders’ liabilities are currently accounted for according to IFRS 4 Phase I which generally allows the continuation of accounting policies applied prior to the conversion to IFRS. On
June 20, 2013, the IASB issued an Exposure Draft defi ning new principles to be applied including a new standard (IFRS 17)
which will replace IFRS 4. These new principles may, inter alia, signifi cantly affect the accounting of policyholders’ liabilities when implemented, which is expected to be on January 1, 2021.
Management cannot predict with any certainty at this time the potential impact of these proposed changes. In parallel, the
issued Amendments to IFRS 4 on September 12, 2016, which in particular allow entities issuing insurance contracts within the scope of IFRS 4 to defer the implementation of IFRS 9 until the effective date of IFRS 17, but no later than January 1, 2021. The
Group is eligible to this temporary exemption and will apply it.
The Group’s insurance and asset management operations are subject to an increasing number of legislative and regulatory initiatives designed to increase consumer protection in the sector of fi nancial services. In the European Union, initiatives related to the fi nancial sector include in particular the Insurance Distribution
The IDD, which entered into force on February 23, 2016, supersedes the Insurance Mediation Directive and is designed to improve consumer protection by ensuring that all distributors of insurance products operate on a level playing field. The main provisions of the IDD relate to enhanced professional requirements (e.g. continuing training and development for distributors), conduct of business rules, confl icts of interest
In light of this and other initiatives in respect of compliance requirements, Management believes that the complexity and risks for international fi nancial institutions like AXA in this area will likely continue to increase and that compliance costs will also increase accordingly.
For additional information, please see “Our businesses are subject to extensive regulation and regulatory supervision in the various jurisdictions in which we operate” in Section 4.1
“Risk f actors” and Section 4.8 “Other m aterial r isks” of this
Both as a multinational company and as a provider of investments and savings products, the AXA Group follows a responsible and transparent approach on tax issues.
The taxes AXA pays is an important part of its wider economic and social impact and plays a key role in the development of countries where it operates (1). AXA regards it as a critical element of its commitment to grow in a sustainable, responsible and socially inclusive way.
In the countries where it operates, AXA is both a taxpayer and a tax collector, given that many specifi c taxes are levied on insurance policies and collected from our customers as part of the insurance and asset management revenues while others are remitted to the various state and federal administrations around the world.
Group is subject to various tax regimes and regulations and takes into account any changes in tax law. AXA is specifi cally vigilant about the changes that could result in higher tax expenses and payments, higher compliance costs or that may affect the AXA Group’s tax liability, return on investments and business operations.
The Group’s policies and procedures with respect to business in or with countries that are “tax havens”, subject to international sanctions or embargoes, or are otherwise identifi ed as high corruption or high political risk are formalized in an internal policy drafted by the Group Compliance Department (entitled “AXA
AXA has no licensed insurance or operating business activities in the countries specifically identified as non-cooperative jurisdictions under French domestic tax rules. In Panama which has been recently identifi ed as such, AXA has been acting locally through two operating companies providing assistance services to local customers or travellers insured by AXA for several years.
The consolidated financial statements are prepared in compliance with IFRS standards (as disclosed in Note 1
(1) The list of the Group’s main subsidiaries and participating interests are available in Appendix IV “AXA parent c ompany fi nancial s tatements” of this
The Group’s activities are subject to strict regulations and rigorous control in each territory in which AXA operates. In addition to these regulations, AXA has developed a set of detailed internal standards that applies to all Group entities that are managed or controlled by AXA, regardless of the activities undertaken by the entity or its ownership structure.
While all Group entities must in any case comply with local regulation, the Group Tax Department can veto a product if this product is not compliant with internal rules.
Bylaws are summarized below. You may obtain copies of the Company’s Bylaws in French from the Paris Trade and
Under Article 3 of its Bylaws, AXA’s corporate purpose is generally to: ■ acquire all types of ownership interests in any French or foreign company or business, including insurance companies; ■ acquire, manage and sell all listed or unlisted shares and securities, as well as personal or real estate properties, rights, shares or securities, whether listed or unlisted, that are related to such properties; and
Board’s Terms of Reference include a number of specific provisions concerning members of the Board of Directors, including the following: Compensation
Committee. Members of the Board of Directors receive a fi xed annual directors’ fee, the maximum overall amount of which is determined by the Shareholders’ Meeting and apportioned by the Board of Directors among its members. Notwithstanding the above, the Board’s Terms of Reference provide that no directors’
In accordance with the Afep-Medef Code and regardless of any statutory obligation of holding shares, the directors shall be shareholders of the Company and own a signifi cant number of shares in the Company; if they do not own such shares at the time they are fi rst appointed, they shall use their directors’ fees to acquire AXA shares. Accordingly, the Board of Directors has set for each Board member, whether an individual or a permanent representative of a legal entity to whom directors’ fees were paid, the objective of holding, within two years after fi rst being appointed, a number of shares in the Company, which value on the basis of the closing price of the AXA share on December 31 of the preceding fi scal year shall correspond to an amount at least equivalent to the gross director’s fees earned in respect of the previous fi scal year. The shares purchased for the purpose of this holding objective will be held in registered form.
AXA shareholders, AXA must obtain the approval of a twothirds majority of voting rights at an Extraordinary Shareholders’
(société anonyme) have the power to amend AXA’s Bylaws. Such an amendment generally requires the approval of two-thirds of the shareholders attending or represented at an Extraordinary
Shareholders’ Meetings may decide (i) to increase the liability of the shareholders in respect of the Company or a third-party; or (ii) to reduce the individual rights vested in each shareholder
(Paris time), either in the registered share accounts kept by the
There are no French anti-takeover statutes similar to the antitakeover statutes enacted by certain states in the United
Meeting. However, Shareholders’ Meetings of the respective shareholders of the merged and surviving companies are not required in the case of a merger by a parent company of its subsidiary when owning at least 90% of its voting rights.
Pursuant to Article 7 of AXA’s Bylaws, any person, acting alone or jointly, who comes to hold, directly or indirectly through companies it controls within the meaning of Article L.233-3 of the French Commercial Code, a number of shares representing 0.5% of the Company’s share capital or voting rights, shall notify the Company by registered letter with acknowledgment of receipt within fi ve days from the threshold crossing. This notifi cation shall detail the total number of shares and voting rights held as well as the total number of securities giving a differed claim to the share capital and the potential voting rights attached thereto.
Community involvement: social & cultural activities, philanthropy, education, employee volunteering 411
“Integrated Report”, in the “Social Data Report” and on the AXA
The following pages describe both our broader CR strategy and, in accordance with the provisions of the Articles L.225-102-1 and
Auditors, appointed as an independent third party, presents in their assurance report attached at the end of this chapter, their attestation of completeness on the consolidated social, environmental and societal information disclosed in the
The Group generally ranks close to the top in its industry and is also included in the main international sustainability indices.
(promoting corporate adoption of 10 universal principles on human rights, labor, the environment and the fight against corruption. AXA also joined two major business-related initiatives in the area of corporate responsibility: the UN Principles for
Sustainable Insurance (UN PSI), a voluntary framework to integrate environmental, social and governance (ESG) criteria into the insurance business; and (2) the UN Principles for
Responsible Investment (UN PRI), a voluntary framework to integrate ESG criteria into the investment value chain.
AXA is a vice-chair of the FSB Task Force on Climate-related
(1) Methodology note: The social data communicated here are collected through a reporting process defi ned by procedures associated with a list of indicators shared with all the entities of the AXA Group. This process is updated and communicated to each entity on a yearly basis. These indicators represent the data of 312 entities of the AXA Group (few entities may pre-consolidate data on a local level). The perimeter is updated annually following potential acquisitions/mergers or business disposals. These indicators are reported for the period between 01/01/2016 and 31/12/2016, unless mentioned otherwise. Evolutions are measured with ratios between 2015 and 2016 end-of-year data. The data are provided by local correspondents into an IT tool dedicated to the social data reporting process and accessible to all the entities since 2009. Consistency checks and quality controls are carried out before and during the data collect process. There are no estimations nor extrapolations made on the data provided. Regarding data published in ratios and percentages: numerator and denominator are realigned for each calculation to exclude entities with empty data points.
AXA strives to be a responsible employer, placing employee engagement at the heart of its business strategy. Achieving this has meant creating a workplace built on AXA’s values which foster diversity and equal opportunities for all, promote employee participation, encourage professional development and support employee wellbeing. For additional and more comprehensive information, refer to the 2016 “Social Data Report”.
AXA’s overall salaried workforce on December 31, 2016, was 118,366 employees (open-ended and fi xed-term contracts), which represents a decrease of 1.8% compared to 2015.
As a result, the footprint of AXA’s salaried workforce in 2016 was: 59.9% in Europe (vs. 61.2% in 2015), 21.4% in Asia-Pacifi c-
Middle East (vs. 20.5% in 2015), 14.3% in the Americas (vs.
14.2% in 2015) and 4.4% in Africa (vs. 4.1% in 2015). AXA
■ Non salaried temporary staff and contingent workers 4,859.2 fte 4,845.2 fte
Number of employees with disabilities – concerns entities operating in France only 750 emp. 752 emp.
The majority of the Group’s employees are covered by the EWC’s framework agreement. Other affi liates outside the scope of the
AXA employees affected by possible employment issues; ■ AXA will do its utmost to prevent compulsory redundancies and other collective transfers, by pursuing other approaches whenever possible; ■ when geographic mobility is necessary, it must be offered as a matter of priority to employees who volunteer to move, with the process managed with a view to enabling their integration into a new environment under the best possible conditions; ■ AXA pledges to acknowledge certain individuals as staff representatives and uphold their liberty, rights and purpose, in line with national legislation and, where relevant, agreements in force in local business units; ■ aware that training represents a major investment both for the Group and for its employees, AXA commits to embrace a continuous-learning culture; ■ AXA condemns discrimination of any kind on the basis of gender, color, ethnic origin, genetic form of difference, disability, sexual orientation, language, religion, personal conviction, union membership or political opinion.
In addition, AXA, UNI Europe Finance and all French trade unions signed a major European agreement on anticipating change.
EWC, this agreement is unique in the insurance sector. It offers signifi cant means to secure employment in Europe.
(aged 30 and under) with professional experience over fi ve years in Europe in the form of 10,000 paid apprenticeships and/or internship positions and 10,000 employment opportunities
With the aim of establishing a globally consistent and cost controlled international mobility framework, the CEMI (AXA’s
■ Number of fi xed-term contracts transformed into open-ended contracts 98 emp. 87 emp.
Net headcount evolution of salaried non-sales force (entries versus departures) 1,468 emp. 2,265 emp.
■ Number of fi xed-term contracts ended 3,495 emp. 3,439 emp.
Internal mobility rate of salaried workforce 8.6 % -0.3 pt 8.9 %
Turnover rate of salaried workforce 14.9 % +0.3 pt 14.6 %
Turnover rate of salaried non-sales force 13.2 % +0.3 pt 12.9 %
Entities have identifi ed their workforce challenges and needs in terms of headcount evolution, emerging jobs and skills becoming increasingly important for AXA’s future success. Globally, the
Strategic Workforce Planning is now a sustainable strategic annual process, fully synchronized with the business and fi nancial strategic planning cycles.
One of the Group’s priorities over the recent years was to create the foundations for an agile working culture. In 2015,
■ Proportion of part-time salaried sales force 3.5 % 3.0 %
■ Proportion of absences linked to maternity/paternity leave 27.4 % 31.8 %
■ Proportion of absences linked to maternity/paternity leave 27.7 % 31.1 %
■ Proportion of absences due to work related accidents 3.6 % 2.4 %
recognizes achievement of defi ned fi nancial and operational targets aligned with AXA’s business plan, (ii) promotes longterm sustainable performance by incorporating risk adjustment measures in performance metrics (such as cash Return-On-
In this context, AXA has undertaken a comprehensive review of its existing remuneration policies and practices against the requirements of Solvency II and has adopted a new Group
Corporate Responsibility considerations. The criterion used is based on AXA’s Dow Jones Sustainability Index percentile ranking (with research conducted by RobecoSAM).The DJSI
Through its Sharep lan program, the Group encourages employees to become AXA shareholders. Offered internationally for the first time in 1994, each year Sharep lan gives AXA
The aggregate proceeds from the offering amount to over €430 million, for a total of over 24 million newly-issued shares.
■ Proportion of variable pay (related to wages) 54.6 % 54.4 %
(a) As per the defi nition of compensation, it includes the individual fi xed pay, the individual variable pay, employer social contribution and collective profi t sharing (if any) and excludes equity based compensation (stocks options, performance shares, AXA Miles). On a comparable Foreign Exchange basis, total compensation cost increased by 1.1%.
AXA promotes diversity & inclusion (D&I) by creating a working environment where all employees are treated with dignity and respect and where individual differences are valued. In all aspects of employment, AXA offers equal opportunities to all employees.
AXA in 2016. The “Sponsorship Tandems” program, leveraging senior executives to act as advocates and using their infl uence to help strengthen the development of female talent, has formed 17 new Sponsorship pairings with the Group top management members. Furthermore, local roll-outs are in operation across 16 AXA entities. The fourth AXA Women’s Conference was held in September 2016, aiming to foster networking among senior executive women and men. 2016’s focus was on the topics
Dividends for Gender Equality (EDGE) certification, for its global headquarters (GIE AXA Paris), its principal business in France (AXA France) and within the 16 countries of a key worldwide center of excellence (“AXA Technology Services”), and representing near 16,400 employees. This certifi cation recognizes AXA’s global commitments and actions in achieving and sustaining gender diversity and equality in the workplace.
Global Parent Policy was announced on December 2016 to be implemented from January 1, 2017 across the 64 countries where AXA operates. With this global employee benefi t, offering 16 weeks of maternity paid leave and 4 weeks of paternity paid leave, AXA is supporting all working parents in balancing work and their parental duty.
AXA also continued to further encourage and support the integration of employees with disabilities. After signing the
Conference gathering 100 representatives from corporations and associations to discuss about disability inclusion. AXA
also continues to be actively involved in the ILO Mental Health working group to support healthy working environments. In
France, the number of employees with disabilities was 750 in 2016.
Group level, describing a set of rules which every local entity is expected to adhere to and to implement in order to ensure a consistent management of the Group, its risks and ethics. In 2017, AXA will implement additional health and safety monitoring processes, to warrant the compliance of all AXA entities with the guidelines at Group level. In Europe, health and safety commitments are covered by the European Works Council agreement, which was signed with the labor organizations in
The sick absence rate in 2016 remained stable at 3.2%. As AXA
Management”). The Big Data Learning Journey has been reinforced with two major programs: ■ the launch of the Data Science “Corporate Open Online
Course“ (COOC) with more than 1,400 people invited and with a completion rate of 39% for the whole COOC as of
Following AXA’s vision to create a virtual global learning offer to provide employees with the ability to access knowledge anywhere, at any time, and on any device, the majority of learning programs are distributed in the “Global Learning Management
Online Open Course” format (MOOC). As of today, 44 business units implemented and deployed the GLMS. As of December 31, 2016, more than 92,000 employees had access to the GLMS
Percentage of salaried workforce having received at least one training course 85.4 % +4.1 pts 81.3 %
In 2016, the OTR was specifi cally leveraged to accompany the changes within the organization, that have resulted from the implementation of a new governance model for the Group .
“Discover AXA” (over 170,800 fans and followers at the end of
In 2016, AXA hired 179 individuals across 16 countries on its
AXA Global Graduate Program. With the purpose of accelerating leadership development, AXA believes it can prepare the next generation of leaders by giving them challenging experiences that are tied to its strategy for the future.
Graduates are given both local and global experiences. Globally in 2016, 32 graduates were selected to rotate into another AXA
AXA is conscious of the role it can play in raising awareness about environmental protection amongst its stakeholders, contributing to improve the understanding of global and local environmental risks, and committing to address climate change.
(further described below) and operational drivers, such as reducing our internal environmental footprint. Notably, AXA is committed to actively managing its energy, paper and water consumption, as well as carbon emissions and waste.
With regards to Grenelle 2 legislation, AXA Group emphasizes that its direct operations, focusing on fi nancial services, do not generate major impacts on the environment. AXA has some sites classifi ed for environmental protection but they do not produce any signifi cant emissions into air, water and soil, CO2 emissions being AXA’s main environmental concern. Activities and facilities are not likely to generate noise and odor emissions.
No complaints, to AXA’s knowledge, related to this type of pollution were fi led against the Group. AXA’s operations and land use do not signifi cantly threaten biodiversity, nor water resource, as water consumption is mainly limited to building usage. Land use is limited to the space where AXA built its buildings (representing approximately 28% of the total area occupied). In 2016, 545,116 m2 of green space used by AXA
Electronic waste is AXA’s most signifi cant hazardous type of waste. Paper is the most signifi cant raw material consumed by
AXA has implemented an environmental reporting process since 2002. Managing our environmental footprint, in line with Grenelle 2 standards has become one of the pillars of our Corporate
procurement, IT, marketing, HR). AXA has a target to reduce its carbon emissions covering all greenhouse gas emissions
AXA’s Global Key Performance Indicator (KPI) target for the 2012-2020 period is to reduce its carbon emissions per Full-
Time Employee (FTE) by 25%. This target is broken-down into the following targets: ■ -35% power consumption (kwh/FTE) – Scopes 1&2; ■ -15% business travel: vehicle fl eet (km/FTE) – Scope 1; ■ -5% business travel: air and train (km/FTE) – Scope 3; ■ -45% offi ce paper (kg/FTE) – Scope 3; ■ -50% marketing and distribution paper consumption
Corporate Responsibility, the “CR Week” which is rolled out by all local entities. Environmental awareness is one of the key topics addressed during this event.
of fl oor space). The proportion of renewable energy consumed by AXA’s premises in 2016 is almost 53%. Major improvements have been accomplished by the end of 2016, as all French entities (AXA France, AXA Corporate Solutions France) have switched their electricity mix to 100% renewable.
AXA’s CO2 emissions per FTE related to energy, paper and business travel (air, rail and car fl eet) decreased by 2% between 2016 and 2015. 50% of Group CO2 emissions are related to energy consumption, 29% from business travel (air and train), 14% from AXA’s vehicle fl eet and 7% from paper.
program offering an innovative and environment-friendly way of mobility. Employees are free to use the car-sharing vehicles for their business and private rides, which helps reduce the entity’s car-fl eet size. To promote switch to electric mobility, AXA
Switzerland has launched “e-Mobility” program and started to install charging stations for employees. To encourage employees to reduce travel, the Group has also installed 50 videoconferencing rooms . However, employee commuting-related
Forests act as a natural carbon sink, as well as a key biodiversity habitat. Certain unsustainable paper production processes threaten many natural forests. AXA signed the pledge on the
AXA implemented a policy to procure 95% of its paper from sustainable and recycled sources.
AXA strives to increase the volume of paper originating from recycled sources or sustainably managed forests. In 2016, AXA
between 2015 and 2016. A significant number of entities have implemented a printing policy to help decrease office paper consumption, which includes reducing the number of printers, and installing an employee badging system to collect all printed documents (e.g. AXA UK). In 2016, AXA’s marketing and distribution paper consumption per customer decreased also by 4% compared to 2015, partly owing to a more accurate measurement process in some entities. For example, in Asia
GI (61%) on account of “Transformation project” to increase awareness on green environment and AXA Malaysia Life (42%)
Food waste is sorted in 75 canteens in the Group. Since 2014, 4 sites in Paris Region (Terrasses 1 and 5 at Nanterre, Val-de-
AXA have worked together to tailor the insurance product written by AXA especially to long-distance ridesharing in Europe.
N umerous offers with environmental added-value have been developed by various AXA entities in the Property & Casualty business segment: ■ initiatives include Motor and car fleet insurance policies encouraging low CO2 emission vehicles (e.g. promoting electric, hybrid and low emissions vehicles), home insurance policies encouraging energy effi ciency (e.g. environmental appliances upgrades), renewable energy installations (e.g.
wind and solar power), and environmentally friendly claims strategies (e.g. repair rather than replace automotive spare parts). In addition to specifi c products, AXA France developed
Assurance Citoyenne, a screening methodology and label encouraging environmental considerations (see Businessrelated societal initiatives section);
■ in the corporate business segment, AXA Corporate Solutions launched an Energy Line of Business reinforcing AXA’s expertise and capacity for insuring clients in the energy industry. This includes insurance products supporting renewable energy production facilities, for which AXA aims to double its footprint by 2020, as well as fossil fuel energy. AXA also designed coal mining and thermal coal plants underwriting guidelines addressing sustainable “energy transition” concerns. AXA
offers parametric insurance products which, for example, help insured communities facing the consequences of climaterelated disasters on agricultural crops (notably drought or fl ooding).
In addition to P&C products, further information regarding AXA’s integration of environmental factors in its investment strategy is described under Section 7.5 “Responsible Investment,
More examples of business-related environmental initiatives are disclosed on: I AXA’s position regarding climate change
AXA was an active supporter of the 2015 COP21 and 2016
High Level Export Group on Sustainable Finance (developed in the «Responsible Investment» section below).
Habitat, focusing on disaster risk reduction. The partnership aims to strengthen building codes and their implementation in countries vulnerable to natural disasters, to encourage countries to “build back better”, and to reduce fatalities and limit economic losses as a result of disasters. The partnership also supports
AXA’s work on resilience and on the overall objectives of the
The AXA Research Fund has funded a new chair in African
AXA is also part of the African Risk Capacity, a regional pooling mechanism providing coverage to African governments in the event of natural disasters or extreme weather events.
Furthermore, in 2016, 50 sites were reported to have some form of environmental certifi cation.
Business travel: AXA vehicle fl eet Thousands of km 268,938 253,986
KPI: CO2 emissions resulting from onsite power consumption, paper and business travel (airplane, train, AXA vehicle fl eet) per person T. eq CO2/FTE 2.01 1.96
Stable reporting perimeter compared to 2015, representing the 41 most signifi cant countries where the AXA Group is present. Key Performance Indicators (KPIs) highlighted in bold.
(a) In 2016, environmental indicators were collected for sites representing 92,553 FTEs working on AXA sites (unless otherwise indicated in these footnotes) and were then extrapolated, continent by continent, to cover all 115,819 salaried FTEs (all types of contracts) working at the AXA Group in average in 2016.
(b) Includes electricity, natural gas, heating oil, steam, chilled water and covers 92,553 FTEs.
(d) Home/workplace commute estimations are based on an annual online transportation survey, issued to every AXA salaried employee. This data has been collected from 17,259 FTEs and then extrapolated. Sites whose response rate was below 5% have been excluded from the data consolidation process.
In addition to this broad macroeconomic role, AXA supports various stakeholders by identifying and underwriting risk, managing claims, and acting as a signifi cant long-term investor.
Recent examples of business developments addressing societal needs include the following: INTEGRATING SOCIETAL ISSUES IN PRODUCT RANGE
These criteria are based on “Trust” considerations (e.g. clear communications to customers and dedicated claims handlers),
France products offer, above traditional coverage, extra features and services supporting the sustainability and business ethics dimensions. In 2016 the label was granted to 43 products representing almost half of AXA France’s P&C turnover.
17% of global insurance premiums come from emerging markets, although their contribution to global GDP is 40%. This discrepancy is driven, in great part, by the underinsurance of lower-income populations. The causes of this global protection gap ranges from a lack of understanding of risk and absence of accessible and affordable solutions, due to both technical challenges and fragmented regulatory frameworks. In 2016, the AXA Group announced a business initiative to contribute to fi nancial inclusion and better serve the middle class of tomorrow by accelerating the development of its Emerging Customer insurance offer across high-growth markets. Current initiatives include: ■ ASIA – India: Bharti AXA General Insurance (BAGI) is partnering since November 2016 with Airtel Payment Bank (APB) to insure all APB account openers with personal accident insurance, covering 100,000 lives by end of 2016 (over 2 millions lives covered by February 2017; Indonesia: To address the lower middle class customers asking for a loan, Mandiri-AXA General
Thai government, AXA GI is also insuring 2.6 million farmers; Malaysia: In partnership with the Malaysian Post Office,
AXA Malaysia is providing P&C insurance to over 120 ,000 customers; Philippines: AXA Philippines is working with a leading MFI, as well as several digital players to distribute insurance to emerging customers.
Mansard distributes micro-insurance products through partnerships with Microfinance institutions (MFIs); Egypt: AXA Egypt is partnering with 2 microfi nance institutions to distribute Life products; Lebanon: AXA is partnering with a value added services provider to distribute mobile microinsurance products; Brazil: In 2016 AXA Brazil signed an agreement with a leading retailer, to offer several microinsurance products through this channel.
Liability offer. The average premiums are less than €1 per day.
When appropriate, the Group’s underwriters and portfolio managers integrate environmental and social risks, including human rights concerns, as well as more generally ethical concerns in their product development processes and policies.
“Policy on business relationships involving sanctioned countries and countries identifi ed as having high levels of corruption or political risk”. The latter policy formalizes the Group policies and procedures with respect to business in or with countries that are subject to international sanctions or embargoes or otherwise identifi ed as high corruption, high political risk and/or tax haven jurisdictions.
(please see below). AXA also has a Stakeholder Advisory Panel, which meets twice a year and provides high-level input to the
Group’s strategy and its approach to corporate responsibility, and in December 2016 launched a global stakeholder survey to encourage greater engagement with local civil society and community groups.
is also guided in its stakeholder engagement by the Group’s own internal rules and procedures, as well as by its external commitments – to the UN Global Compact, for example, and the UN Principles for Sustainable Insurance. Engaging with stakeholders, AXA believes, improves the Group’s understanding of key social, environmental, and governance issues. It is also used to strengthen the Group’s decision-making, helping identify risks and opportunities for the business and improve the products and services AXA offers. By engaging, AXA can also help strengthen society – by making the Group’s knowledge, expertise and resources more widely available. Stakeholder engagement is a key part of AXA’s Corporate Responsibility strategy .
Protecting customers from risk and unexpected events is at the core of AXA’s mission. This is why AXA is committed to using its skills, resources and expertise to build a better understanding of the risks faced by both individuals and society as a whole.
To support this, AXA’s Community Investment program promotes risk research and risk education. This approach is included in the Company’s Community Investment Guidelines, introduced in 2011 and updated on a regular basis requiring AXA entities to devote at least 50% of their community investment budget to risk research and education each year. This objective has been almost achieved in 2016 as 49% of €18.8 million (1) donated by AXA entities to community projects, were dedicated to risk education and research. In addition, AXA provided support for other good causes, including healthcare, youth employment and humanitarian aid. Specifi c guidelines on Humanitarian Aid have also been drawn up in 2015.
(see section above); ■ support for arts and heritage, including AXA’s support to the
Louvre (until the end of 2016) and to the Château de Versailles and the Archives Nationales in Paris; ■ response to refugee crisis: AXA has set aside an amount of €1 million to support relief efforts during the current refugee crisis, equally divided between “emergency relief” and “longerterm support” for refugee communities.
Action volunteers around the world made their skills and time available to help underprivileged people. AXA donated around 110,000 working hours (1) to allow employees to volunteer, which is up 24% compared with 2015. This increase is due to new skillbased programs involving AXA employees launched in several
(1) In 2016, this data is drawn from almost 76% of the Group’s total number of FTEs.
(up to €130 thousand); ■ promote discussions between the academic world and society: Joint Research Initiatives (up to €225 thousand),
More information is available on the ARF institutional website: I Compliance with International Labour Organization recommendations and Business Ethics
“responsible” lobbying practices when AXA engages with public authorities. Our public commitment is detailed in our “Public
This section describes our Responsible Investment (RI) initiatives in the context of the French “Article 173 VI” decree related to the Law n° 2015-992 of August 17 2015 on Energy Transition for Green Growth, following the structure of the decree: overview of environmental, social, and corporate governance
(ESG) integration processes, analysis of climate-related risks and testing portfolio alignment with low-carbon scenarios.
“Supplemental Guidance” for Insurance companies and Asset owners, as developed in the final draft recommendations published in December 2016 (which may evolve in the fi nal recommendations to be published in 2017). As a result, a correspondence table has been added at the end of this section in order to cross-reference content.
AXA defi nes RI as the integration of ESG considerations into investment processes and ownership practices. Our conviction is that ESG integration may impact long-term investment performance by offering an enhanced understanding of risk drivers. This conviction is derived from academic and market research. It is also a way to strive for alignment between our investments and broader Corporate Responsibility commitments.
(RIC) in 2010, chaired by the Group’s Chief Investment Offi cer, and including representatives from AXA Asset Management entities, Corporate Responsibility, Risk Management and
Committee, which meets in the presence of AXA’s senior management, including the Group Chief Financial Offi cer. In addition, AXA’s climate change strategy, integrated into our broader Corporate Responsibility strategy framework, is formally reviewed twice a year by the Group Management Committee and annually by the Board of Directors. The Compensation &
integrating ESG and “carbon” performance scores and factors into investment processes and decision-making; 2) excluding sectors or companies that face acute social, human rights, ethical or environmental challenges; 3) developing “impact investments” delivering positive environmental or social as well as fi nancial returns which are actively tracked; and 4) active stewardship through voting and engagement on a range of ESG
or sustainability issues. The content below focuses on the fi rst of these pillars.
PRI). The Group’s 2016 UN PRI score reached A+, confi rming the maturity of our RI strategy.
Specifi c measurement tools ensure that ESG performance is tracked accurately. This process leverages AXA IM’s “RI Search tool”, which aggregates external research into composite ESG
Group’s proprietary General Account assets, this tool and research are also used to develop dedicated Responsible
Investment funds. Our fund range includes innovative products such as the AXA World Fund “Human Capital”
The divestment concerns electric utilities and mining sectors deriving over 50% of their turnover from coal combustion/
coal mining. The €500 million divestment covered both equity and corporate Fixed Income and was fi nalized by year-end 2015 (fi xed income assets divested long before maturity).
These investments will principally be in renewable energy infrastructure debt and equity, as well as green bonds. The
(equities, corporate Fixed Income and Sovereign Debt), shows a decreasing average carbon intensity (247T CO2/$m of revenue vs 284T CO2/$m of revenue). This footprinting highlights our portfolio’s largest carbon emitters, which may be an interesting “carbon asset risk” proxy. It also reveals that broad asset-class data do not provide useful insights, but that sub-sectors breakdowns may for example inform shareholder engagement efforts. However, some limitations remain regarding benchmarks, data coverage, and the fact that this data is a snapshot of current emissions, but is not forward-looking. It highlights today’s carbon emitters, but not tomorrow’s low carbon solutions providers. A more sophisticated work is required to understand “energy transition” risks, as described in the following section;
The reports cover the average ESG score vs benchmarks, main holdings, carbon footprint, water, diversity, etc. AXA
In addition to the above “transition” risks, climate change is likely to increase the frequency and severity of extreme weather events, which may impact our most exposed investments, notably Real
Estate holdings. This hypothesis is worth exploring considering the size of AXA’s Real Estate assets under management. In 2016, AXA decided to analyse such “physical risks” for some of its real assets and infrastructure assets, focusing on a total of €15 billion across a Property portfolio and an Infrastructure debt portfolio, with assets essentially based in Europe.
energy mix targets) into quantitative investment targets is a new and complex risk modelling exercise which AXA initiated in 2016. AXA’s approach is two-fold: 1) testing the alignment of our investments with the International Energy Agency’s “2°C”
This analysis was tested on representative (diversified and large) portfolios: one AXA France Corporate Bonds and one equity portfolio. AXA focused on three sectors for which “energy transition” as well as “stranded assets” scenarios can be applied with reasonable relevance and data availability: Oil & Gas,
Automotive and Electric Utilities, and also taking into account national/regional scenarios and constraints.
2°C scenario for utilities. Oil & gas companies are matched with their current and forecasted production levels, based on a ratio of their current production to future proven reserves
Automotive players are matched with their current and planned fl eet production ratio by powertrain technology (electric, hybrid, diesel, etc.) and compared to the technology shift outlined under the IEA 2°C Scenario.
The results of this extensive analysis are described in far more detail (by sector and by asset class) in our public submission to the French Government’s 2016 award on “Best Investor
won the fi rst prize in this contest designed to foster innovative
The results of these tests may also be used to inform engagement on sector-specific issues. However, AXA’s shareholder engagement activities pre-date the above analysis. Indeed AXA
uses its infl uence as a large asset owner to encourage ESG
This committee’s decisions range from “No concerns” (the company remains eligible for investments), “Concerns”
(divestment). Several companies have already been engaged via this Committee ; ■ AXA Investment Managers has a dedicated shareholder engagement team, with over ten years of stewardship experience. AXA Investment Managers tracks i ts engagements and progress against established objectives which are publicly disclosed online. In 2016, AXA Investment
www.axa.com ). AXA also conducts active outreach on climate risks towards public authorities, regulators, experts and market actors. AXA believes it has a responsibility to inform public policy on the importance of tackling and adapting to climate change.
Its objective is to help develop an overarching and comprehensive EU strategy on sustainable fi nance and to integrate sustainability in EU fi nancial policy and regulation, in the context of the Capital Markets Union. It will identify for example the current bottlenecks hampering sustainable finance, the regulatory instruments to be leveraged for effective implementation, as well as the main risks for the EU
Commission by end of 2017; ■ AXA also co-chairs the Global Steering Committee of the
December 2016. While these recommendations are not yet fi nalized, AXA nonetheless strives to proactively address many of the items recommended for disclosure in the “Supplemental
Guidance” (both Insurance companies and Asset owners), owing to our active role within the TCFD throughout 2016. The overlap amongst referenced sections refl ects both a broad cross-referencing approach and the differences in reporting frameworks.
Governance Board oversight ■ Chapter 7.5 Responsible Investment > ESG and climate-related governance
Strategy Identifi cation and business impact of climate-related risks and opportunities, including products