Direction de la Communication et de la Marque 25, avenue Matignon – 75008 Paris – France
the AXA brand conveys our promise to customers: we will protect them and help them realize their projects at every stage of their lives.
In 1982, les Mutuelles Unies took control of Groupe Drouot and following this transaction the new Group began operating under the name of AXA.
In 1999, after getting an insurance licence from Chinese authorities, the Life joint-venture between AXA and Minmetals was launched in Shanghai.
In 2000, AXA acquired a majority ownership interest in “Nippon Dantaï Life Insurance Company”, resulting in a new company called “AXA Nichidan” (which became in 2001 “AXA Life Insurance Co.”). In addition, in July 2000, AXA increased its interest in SLPH from 56.3% to 100%. In August 2000, AXA sold its interest in Donaldson Lufkin & Jenrette to Credit Suisse Group. In October 2000, Alliance Capital, a subsidiary of AXA Financial, acquired the U.S. asset management company Sanford C. Bernstein. In December 2000, AXA acquired the remaining minority interests in AXA Financial, which is now a 100% owned subsidiary of AXA.
In 2001-2002, AXA acquired two financial advisory networks in Australia, Sterling Grace and Ipac Securities, as well as a banking platform in France, Banque Directe. AXA also continued to streamline its portfolio of businesses, selling its health business in Australia and insurance operations in Austria and Hungary, and reorganizing its reinsurance business. In 2002, the Group sold its bank and insurance businesses in Chile.
In 2003, AXA sold all its activities in Argentina and Brazil. In September 2003, the Group announced the acquisition of the American group Mony. This operation was subject to the approval of the shareholders of Mony and to the obtaining of various lawful authorizations.
In 2004, AXA purchased the American group Mony; this operation allowed AXA to reinforce for a total amount of approximately 25% the capacity of distribution of AXA
(1) In this annual report: – the “Company” refers to the holding company AXA, organized under the laws of France, – “AXA” refers to the Company and its direct and indirect subsidiaries.
In December 2005, AXA and FINAXA shareholders’ meetings voted in favour of the merger of FINAXA into AXA. FINAXA was a holding company listed on the Paris Stock Exchange and its main subsidiary was AXA. It also owned the “AXA” brand. This merger resulted in a simplification of AXA’s shareholder structure and in an increase in the proportion of publicly traded shares. In addition, AXA obtained ownership of the “AXA” brand.
n Insurance AXA Financial Inc. (a) 100% 100% MONY Holdings LLC (b) 100% 100%
(a) Holding Company that owns AXA Equitable Life Insurance Company. (b) Holding Company that owns MONY Life Insurance Company and MONY Life Insurance Company of America. (c) Holding Company that owns AXA Assurances Inc. and AXA Insurance (Canada). (d) Holding Company that owns AXA Assurance Maroc.
(e) Holding Company that owns AXA Versicherung AG, AXA Lebenversicherung AG and AXA ART Versicherung AG. (f) Holding Company that owns AXA Belgium.
n International Insurance AXA RE 100% 100% AXA Assistance SA 100% 100%
n Asset Management AXA Investment Managers 95% 100% AXA Real Estate Investment Managers 95% 100% Alliance Capital Management L.P. 61% 61% AXA Rosenberg 76% 100%
P Areas in dark green represent countries in which AXA offers at least one of its protection services.
(i) Holding Company that owns AXA Assicurazioni S.p.A. (j) Holding Company that owns AXA Assurance Luxembourg and AXA Assurance Vie Luxembourg. (k) Holding Company that owns AXA Leven N.V. and AXA Schade N.V. (l) Holding Company that owns AXA Sun Life Plc, AXA Insurance Plc and AXA PPP Healthcare Limited. (m) Holding Company that owns AXA Oyak Hayat Sigorta A.S. and AXA Oyak Sigorta A.S. (n) Holding Company that owns AXA Australia New Zealand.
(o) Holding d Company that owns AXA Life Insurance Co., Ltd and AXA non-life Insurance Co. Ltd. (p) Holding Company that owns AXA Life Insurance Singapore Pte Ltd.
AXA stock is listed on the Eurolist by Euronext, Euroclear France code: 12062 and, since June 25th 1996, on the New York stock exchange under
Shares created since January 1st 2006 by exercise of convertible bonds or subscription options are listed “au comptant” on the Eurolist until they are assimilated after the payment of the 2005 dividend planned on May 12, 2006.
+ 22% in 2005 * On a comparable basis. (a) Annual premiums equivalent (APE) is New regular premiums plus one tenth of single premiums, in line with Group EEV methodology.
Underlyings earnings (a) Net capital gains attributable to shareholders net of income tax
(a) Underlying earnings correspond to adjusted earnings excluding net realized capital gains attributable to shareholders. Net realized gains or losses attributable to shareholders include: – i) realized gains and losses (on assets not designated under fair value option or trading assets) ii)change in impairment valuation allowance, iii) foreign exchange rates impacts (including derivatives and except the ones mentioned above) net of tax, – related impact on policyholder participation net of tax (Life business), – DAC and VBI amortization or other reactivity to those elements if any (Life business).
(a) Please refer to page 13. (b) Following any significant capital increase with a stock price lower than the market price, such as ORAN conversion in July 2004, average number of shares and consequently earning per share over each period can be restated to take into account this event.
(h) Personnel of non-consolidated companies accounted for using the equity method are not included in the above graph. Personnel of companies proportionally consolidated are included, pro-rata, in accordance with the percentage of consolidation. Please refer to page 418 for further details.
The Company’s principal insurance subsidiaries Standard & Poor’s 4/10/05 AA- Positive
Date Rating Outlook 4/10/05 AA- Positive 14/02/05 Aa3 Stable 16/12/05 AA Stable 4/10/05 A
Internal control procedures / p. 40 Principal statutory information concerning the Company / p. 76 Other legal information / p. 88
Implementing sound corporate governance principles has been a priority at AXA for many years. Because its stock is publicly traded on the New York Stock Exchange, AXA is subject to the SarbanesOxley Act, which was adopted in the United States in 2002. Accordingly, AXA has made various adjustments necessary to bring the Company into compliance with the Act. AXA has also reviewed its rules of corporate governance in light of the recommendations contained in the Bouton Report and the relevant sections of the French Financial Security Act (Loi de Sécurité Financière) of August 1st, 2003.
An Executive Committee assists the Management Board in the performance of its duties. In addition, the Supervisory Board has established four specialpurpose Committees.
This documentation always includes information on: – the Group’s operations, as presented in the
Management Board’s quarterly report, a press review and a stock price performance report; – reports on committee meetings that have been held since the last Supervisory Board meeting.
Accordingly, the Group’s principal managers may be invited to take part in Board meetings from time to time to present their business area, their objectives and their results.
Training courses and special meetings are organized for members of the Supervisory Board as needed. Certain members of the Supervisory Board have requested and received training in the Group’s various business areas and have attended presentations on specific Group companies.
To ensure that their interests and those of the Group are aligned, members of the Supervisory Board are required to own shares in the Company, the value of which must be at least equal to the amount of directors ’ fees they receive in the course of any given year.
Léo Apotheker to fill the vacancy left by the death of Alfred von Oppenheim, for the remainder of the late Mr. von Oppenheim’s term (i.e. until April 2007); – elected Jacques de Chateauvieux for a term of four years, replacing Jacques Calvet, whose term had expired at the close of this meeting; – elected Ms. Dominique Reiniche for a term of four years, replacing Bruno Roger, whose term had expired at the close of this meeting.
Supervisory Board members are selected on the basis of their acknowledged competence and experience, as well as their ability to work together and become actively involved in the supervision of a company like AXA.
The Board makes a special effort to assess the independence of each Supervisory Board member with respect to the Management Board, and the Company.
On December 31, 2005, 9 of the 13 Supervisory Board members met the independence criteria based on the recommendations of the Bouton Report: Dominique Reiniche, Léo Apotheker Jacques de Chateauvieux, David Dautresme, Anthony Hamilton, Henri Hottinguer, Henri Lachmann, Gérard Mestrallet and Ezra Suleiman.
(United States); SAP Global Marketing Inc. (United States); 75008 Paris SAP Asia Pte. Ltd. (Singapore); SAP JAPAN Co., Ltd. (Japan); SAP FRANCE S.A.; S.A.P. ITALIA Sistemi, applicazioni, prodotti in data processing s.p.a., (Italy); SAP Hellas “Systems Application and Data Processing S.A.” (Greece); SAP (Beijing) Software System Co., Ltd., (China) and Ginger S.A.
Director or member of the Supervisory Board of Casino and Fimalac; 75008 Paris Non-voting member of the Board of Eurazeo
Anthony Hamilton Member of Non-executive Chairman of AXA UK Plc (United Kingdom) and AXA UK PLC January 1996 / (64) (1) (2) the Supervisory Board AXA Equity and Law (United Kingdom); Director or member of 5 Old Broad Street April 2009 the Supervisory Board of AXA Financial (United States); London EC2N 1AD Pinault-Printemps-Redoute, Swiss Re Capital Markets Limited UK (United Kingdom), Binley Limited (United Kingdom) and Tawa UK Limited (United Kingdom).
Name Office presently held Principal occupation or employment Principal First (and age) (as of December 31, 2005) business appointment /
Henri Lachmann Member of Chairman and CEO of Schneider Electric; Chairman of the Board Schneider Electric May 1996 / (67) (1) (2) the Supervisory Board of Directors of Centre Chirurgical Marie Lannelongue; Director or 43-45, bd Franklin April 2009 member of the Supervisory Board of AXA Assurances Vie Mutuelle, Roosevelt AXA Assurances IARD Mutuelle, AXA Courtage Assurance Mutuelle, 92500 Rueil Malmaison AXA-ONA (Morocco), Vivendi Universal, Groupe Norbert Dentressangle and ANSA; Non-voting member of the Board of Fimalac
Vice-Chairman of Sociedad General de Aguas de Barcelona (Spain) 75008 Paris and Hisusa (Spain); Director of Compagnie de Saint-Gobain and Pargesa Holding S.A (Switzerland)
Ezra Suleiman Member of Professor of Politics and Chair of the Committee for European EPS/PIIRS April 2003 / (64) (1) the Supervisory Board Studies, Princeton University (United States); Aaron Burr Hall April 2007
Associate Professor, Institut d’Etudes Politiques (Paris); Princeton University Member of the Management Committee of Institut Montaigne, Princeton, N.J. 08544 Centre Américain, Institut d’Etudes Politiques (Paris); USA Member of the Editorial Committee of Comparative Politics, La Revue des Deux Mondes and Politique Internationale.
Name First appointment Term of office 2005 2004 2003 2002 2001 Present principal occupation or employment
Jean-René Fourtou April 1990 2007 AG Vice-Chairman of the Supervisory Board Vice-Chairman of the Supervisory Board Vice-Chairman of the Supervisory Board Vice-Chairman of the Supervisory Board Vice-Chairman of the Supervisory Board Vice-Chairman of the Supervisory Board of AXA of AXA of AXA of AXA of AXA of AXA Chairman of the Supervisory Board of Vivendi Universal Chairman of the Supervisory Board Chairman and CEO of Vivendi Universal Chairman and CEO of Vivendi Universal Chairman and CEO of Vivendi Universal Vice-Chairman of the Management Board of Vivendi Universal Chairman of the Supervisory Board Chairman of the Supervisory Board Chairman of the Supervisory Board of Aventis Chairman of the Supervisory Board: of Groupe Canal+ of Groupe Canal+ of Vivendi Environnement, Groupe Canal+ Vice-Chairman of the Management Board Groupe Canal+ Director of Sanofi-Aventis and Cap Gemini Director of Aventis and Cap Gemini Vice-Chairman of the Management Board of AXA Assurances Conseil Vie Mutuelle, Director or member of the Supervisory of AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, Board or member of the Management AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, Committee: Maroc Telecom (Morocco), AXA Courtage Assurance Mutuelle AXA Courtage Assurance Mutuelle NBC Universal Inc, (USA), Sanofi-Aventis, CEO of USI Entertainment Inc. (USA) Director of Rhône-Poulenc Pharma, Cap Gemini; AXA Millésimes (SAS) Director of Aventis, Cap Gemini, Rhône-Poulenc AGCO Ltd,
Permanent representative of AXA Assurances IARD Mutuelle on the FINAXA Board of Directors
Vice-Chairman of the Supervisory Board Vice-Chairman of the Supervisory Board Vice-Chairman of the Supervisory Board Vice-Chairman of the Supervisory Board of AXA of AXA of AXA of AXA Chairman and CEO of Vivendi Universal Chairman and CEO of Vivendi Universal Chairman and CEO of Vivendi Universal Vice-Chairman of the Management Board Chairman of the Supervisory Board Chairman of the Supervisory Board Chairman of the Supervisory Board of Aventis of Groupe Canal+ of Groupe Canal+ of Vivendi Environnement, Groupe Canal+ Vice-Chairman of the Management Board Director of Sanofi-Aventis and Cap Gemini Director of Aventis and Cap Gemini Vice-Chairman of the Management Board of AXA Assurances Conseil Vie Mutuelle, of AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle AXA Courtage Assurance Mutuelle CEO of USI Entertainment Inc. (USA) Director of Rhône-Poulenc Pharma, Director of Aventis, Cap Gemini, Rhône-Poulenc AGCO Ltd, EADS (The Netherlands), Schneider Electric, Pernod-Ricard, La Poste, USA Interactive (USA) Rhodia, EADS (The Netherlands)
Chairman, Global Field Operations of SAP Chairman, Global Field Operations of SAP Chairman, Global Field Operations of SAP Director of SAP America, Inc. (US), Director of SAP FRANCE S.A, Director of SAP Systems Integration SAP Global Marketing Inc. (US), S.A.P. ITALIA Sistemi, applicazioni, AG (Germany), SAP FRANCE S.A, SAP Asia Pte. Ltd.(Singapore), prodotti in data processing s.p.a., (Italy), SAP Finland Oy (Finland), SAP Svenska SAP JAPAN Co., Ltd.(Japan), SAP Hellas Systems Application and Aktiebolag (Sweden), S.A.P. ITALIA Sistemi, SAP FRANCE S.A., S.A.P. ITALIA Sistemi, Data Processing S.A. (Greece), applicazioni, prodotti in data processing applicazioni, prodotti in data processing SAP America, Inc. (US), s.p.a., (Italy), SAP Hellas Systems s.p.a., (Italy), SAP Hellas Systems Application SAP JAPAN Co., Ltd.(Japan), Application and Data Processing S.A. and Data Processing S.A. (Greece), SAP Manage Ltd. (Israel), (Greece), SAP America, Inc. (US), SAP (Beijing) Software System Co., SAP Global Marketing Inc. (US) SAP JAPAN Co., Ltd. (Japan), Ltd., (China), Enigma Inc. (US) SAP Danmark A/S (Denmark),
Jacques de Chateauvieux April 2005 2009 AG Chairman and Chief Executive Officer Chairman and CEO of Groupe BOURBON Chairman and CEO of Groupe BOURBON Chairman and CEO of Groupe BOURBON Chairman and CEO of Groupe BOURBON Chairman and CEO of BOURBON of BOURBON Chairman of Sapmer, S.A., JACCAR, Chairman of Vindemia SAS Chairman of Vindemia SAS, Chairman of Vindemia SAS,
Anthony Hamilton January 1996 April 2009 Chairman non executive Chairman of AXA UK Plc (United Kingdom) Chairman of AXA UK Plc (United Kingdom) Chairman of AXA UK Plc (United Kingdom) Chairman of AXA UK Plc (United Kingdom) Chairman of AXA UK Plc (United Kingdom) of AXA UK PLC (United Kingdom) Director or member of the Supervisory Chairman of Fox-Pitt, Kelton Group Limited Chairman of Fox-Pitt, Kelton Group Limited Chairman of Fox-Pitt, Kelton Group Ltd and AXA Equity & Law (United Kingdom) Board, Pinault-Printemps-Redoute, (United Kingdom) (United Kingdom), Fox-Pitt, Kelton (United Kingdom), Fox-Pitt, Director or member of the Supervisory Swiss Re Capital Markets Limited Director or member of the Supervisory Nominees Limited (United Kingdom) Kelton Nominees Ltd (United Kingdom), Board of Pinault-Printemps-Redoute, (United Kingdom), Binley Limited Board, Pinault-Printemps-Redoute, Director or member of the Supervisory Eldon Capital Management Ltd (UK), Swiss Re Capital Markets Limited (United Kingdom), Tawa UK Limited Swiss Re Capital Markets Limited Board, Pinault-Printemps-Redoute, Eldon Capital Holdings Ltd (UK), Byas, (United Kingdom), Binley Limited (United Kingdom) (United Kingdom), Binley Limited Fox-Pitt,Kelton Limited (UK) Swiss Re Mosley Group Ltd (UK), Byas, Mosley (United Kingdom), Tawa UK Limited (United Kingdom), CX Reinsurance Capital Markets Limited (United Kingdom), & Co Ltd (UK) (United Kingdom) (United Kingdom) Binley Limited (United Kingdom) Director or member of the Supervisory
Henri Hottinguer June 1988 April 2007 Chairman and Chief Executive Officer Chairman and CEO of Sofibus Chairman and CEO of Sofibus Chairman and CEO of Sofibus Chairman and CEO of Sofibus Chairman and CEO of Sofibus of Sofibus Senior Chief Officer and Director Chairman of the Supervisory Board Chairman of the Supervisory Board Chairman of the Supervisory Board
Chief Executive Officer and Director: of Financière Hottinguer, Intercom, Profinor of Crédit Suisse Hottinguer, Emba N V of Crédit Suisse Hottinguer, Emba N V of Crédit Suisse Hottinguer, Emba N V Financière Hottinguer Chairman of the Board of Directors (Netherlands) (Netherlands) (Netherlands) Chairman of the Supervisory Board: of Emba N V (Netherlands) Chairman of Hottinguer Capital Corp. (US) Chairman of Hottinguer Capital Corp. (US) Chairman of Hottinguer Capital Corp. (US) Emba N V (Netherlands) Vice-Chairman of Gaspee (Switzerland) Vice-Chairman of Gaspee (Switzerland) Vice-Chairman of Gaspee (Switzerland) Vice-Chairman and director Chairman of the Board of Directors: Chief Officer of the Board of directors Managing Partner of Hottinguer & Managing Partner of Hottinguer & of Financière Hottinguer Hottinger Bank & Trust Limited of Hottinger Finanz & Treuhand (Switzerland) Cie (Zurich) Cie (Zurich) Vice-Chairman of Gaspee (Switzerland) (Nassau, Bahamas) Director or member of the Supervisory Senior Chief Officer and Director Senior Chief Officer and Director Managing Partner of Hottinguer & Chairman of Hottinger & Co., Bale Board, FINAXA, Hottinguer of Financière Hottinguer, Intercom of Intercom Cie (Zurich) (Switzerland) International Fund (Luxemburg), Director or member of the Supervisory Director or member of the Supervisory Senior Chief Officer and Director Vice-Chairman of Gaspee (Switzerland) Hottinguer International Asset Board, FINAXA, Hottinguer Board, FINAXA, Investissement of Intercom Chief Officer of the Board of Directors: Management (Luxemburg) International Fund (Luxemburg), Provence SA, Hottinguer International Fund Director or member of the Supervisory Hottinger Finanz & Treuhand (Switzerland) Non-voting member of the Board Hottinguer International Asset Management (Luxemburg), Hottinguer International Board, of FINAXA, Investissement Director or member of the Supervisory of Didot Bottin (Luxemburg), Swiss Helvetia Fund Inc., Asset Management (Luxemburg), Swiss Provence SA, Hottinguer International Fund Board: Intercom, Hottinger Hottinguer US, Inc. Helvetia Fund Inc., Hottinguer US, Inc. (Luxemburg), Hottinguer International International Fund (Luxemburg), Hottinger Non-voting member of the Board Non-voting member of the Board Asset Management (Luxemburg), Swiss International Asset Management (Luxemburg) of Didot Bottin of Didot Bottin Helvetia Fund Inc., Hottinguer US, Inc.
Centre Chirurgical Marie Lannelongue Board, AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, Board, AXA Assurances Vie Mutuelle, Board, AXA Assurances Vie Mutuelle, Director or member of the Supervisory AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, Board of AXA Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle, AXA Assurances IARD Mutuelle, FINAXA, Vivendi Universal, Director or member of the Supervisory FINAXA, Vivendi Universal, AXA Conseil Vie Assurance Mutuelle, AXA Courtage Assurance Mutuelle, Vivendi Groupe Norbert Dentressangle Board, FINAXA, Vivendi Universal, Groupe Norbert Dentressangle FINAXA, Vivendi Universal, Groupe Universal, Groupe Norbert Dentressangle Non-voting member of the Board Groupe Norbert Dentressangle Norbert Dentressangle, ANSA, CNRS and ANSA of Fimalac Non-voting member of the Board Non-voting member of the Board of Fimalac of Fimalac
Chairman and CEO of Groupe BOURBON Chairman and CEO of Groupe BOURBON Chairman and CEO of Groupe BOURBON Chairman and CEO of Groupe BOURBON Chairman of Sapmer, S.A., JACCAR, Chairman of Vindemia SAS Chairman of Vindemia SAS, Chairman of Vindemia SAS, SAS, Vindemia SAS Director of Sapmer, Antenne Réunion Télévision Antenne Réunion Télévision Director of Happy World Foods, Ltd Happy World Foods, Ltd Director of Sapmer, Director of Sapmer,
Chairman of AXA UK Plc (United Kingdom) Chairman of AXA UK Plc (United Kingdom) Chairman of AXA UK Plc (United Kingdom) Chairman of AXA UK Plc (United Kingdom) Director or member of the Supervisory Chairman of Fox-Pitt, Kelton Group Limited Chairman of Fox-Pitt, Kelton Group Limited Chairman of Fox-Pitt, Kelton Group Ltd Board, Pinault-Printemps-Redoute, (United Kingdom) (United Kingdom), Fox-Pitt, Kelton (United Kingdom), Fox-Pitt, Swiss Re Capital Markets Limited Director or member of the Supervisory Nominees Limited (United Kingdom) Kelton Nominees Ltd (United Kingdom), (United Kingdom), Binley Limited Board, Pinault-Printemps-Redoute, Director or member of the Supervisory Eldon Capital Management Ltd (UK), (United Kingdom), Tawa UK Limited Swiss Re Capital Markets Limited Board, Pinault-Printemps-Redoute, Eldon Capital Holdings Ltd (UK), Byas, (United Kingdom) (United Kingdom), Binley Limited Fox-Pitt,Kelton Limited (UK) Swiss Re Mosley Group Ltd (UK), Byas, Mosley
Chairman and CEO of Sofibus Chairman and CEO of Sofibus Chairman and CEO of Sofibus Chairman and CEO of Sofibus Senior Chief Officer and Director Chairman of the Supervisory Board Chairman of the Supervisory Board Chairman of the Supervisory Board of Financière Hottinguer, Intercom, Profinor of Crédit Suisse Hottinguer, Emba N V of Crédit Suisse Hottinguer, Emba N V of Crédit Suisse Hottinguer, Emba N V Chairman of the Board of Directors (Netherlands) (Netherlands) (Netherlands) of Emba N V (Netherlands) Chairman of Hottinguer Capital Corp. (US) Chairman of Hottinguer Capital Corp. (US) Chairman of Hottinguer Capital Corp. (US) Vice-Chairman of Gaspee (Switzerland) Vice-Chairman of Gaspee (Switzerland) Vice-Chairman of Gaspee (Switzerland) Vice-Chairman and director Chief Officer of the Board of directors Managing Partner of Hottinguer & Managing Partner of Hottinguer & of Financière Hottinguer of Hottinger Finanz & Treuhand (Switzerland) Cie (Zurich) Cie (Zurich) Vice-Chairman of Gaspee (Switzerland) Director or member of the Supervisory Senior Chief Officer and Director Senior Chief Officer and Director Managing Partner of Hottinguer & Board, FINAXA, Hottinguer of Financière Hottinguer, Intercom of Intercom Cie (Zurich) International Fund (Luxemburg), Director or member of the Supervisory Director or member of the Supervisory Senior Chief Officer and Director Hottinguer International Asset Board, FINAXA, Hottinguer Board, FINAXA, Investissement of Intercom Management (Luxemburg) International Fund (Luxemburg), Provence SA, Hottinguer International Fund Director or member of the Supervisory Non-voting member of the Board Hottinguer International Asset Management (Luxemburg), Hottinguer International Board, of FINAXA, Investissement of Didot Bottin (Luxemburg), Swiss Helvetia Fund Inc., Asset Management (Luxemburg), Swiss Provence SA, Hottinguer International Fund
Hottinguer US, Inc. Helvetia Fund Inc., Hottinguer US, Inc. (Luxemburg), Hottinguer International Non-voting member of the Board Non-voting member of the Board Asset Management (Luxemburg), Swiss of Didot Bottin of Didot Bottin Helvetia Fund Inc., Hottinguer US, Inc.
Chairman and CEO of Schneider Electric Chairman and CEO of Schneider Electric Chairman and CEO of Schneider Electric Chairman and CEO of Schneider Electric Director or member of the Supervisory Vice-Chairman of Director or member of the Supervisory Director or member of the Supervisory Board, AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, Board, AXA Assurances Vie Mutuelle, Board, AXA Assurances Vie Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle, FINAXA, Vivendi Universal, Director or member of the Supervisory FINAXA, Vivendi Universal, AXA Conseil Vie Assurance Mutuelle, Groupe Norbert Dentressangle Board, FINAXA, Vivendi Universal, Groupe Norbert Dentressangle FINAXA, Vivendi Universal, Groupe Non-voting member of the Board Groupe Norbert Dentressangle Norbert Dentressangle, ANSA, CNRS of Fimalac Non-voting member of the Board of Fimalac
Suez-Tractebel (Belgium), Electrabel (Belgium) Tractebel (Belgium), Electrabel (Belgium) Hisua (Spain) (Belgium), Tractebel (Belgium) (Belgium), Tractebel (Belgium) Vice-Chairman: Hisusa (Spain), Sociedad Vice-Chairman of Hisusa (Spain), Vice-Chairman of Sociedad General de Vice-Chairman of Hisusa (Spain), Vice-Chairman of Hisusa (Spain), General de Aguas de Barcelona (Spain) Sociedad General de Aguas de Barcelona Aguas de Barcelona (Spain) Sociedad General de Aguas de Barcelona Sociedad General de Aguas de Barcelona Director or member of the Supervisory (Spain) Director or member of the Supervisory (Spain) (Spain) Board: Compagnie de Saint-Gobain, Director or member of the Supervisory Board: dCrédit Agricole S.A., Director or member of the Supervisory Director or member of the Supervisory Pargesa Holding S.A. (Switzerland) Board: Crédit Agricole S.A., Compagnie de Saint-Gobain, Taittinger Board: Crédit Agricole S.A., Board: Crédit Agricole S.A., Compagnie de
Mme Dominique Reiniche Avril 2005 Avril 2009 Présidente Europe de The Coca-Cola Company Présidente de Coca-Cola Enterprises – Présidente de Coca-Cola Enterprises – Président-Directeur Général de Président-Directeur Général de Présidente Europe de The Coca-Cola Company Administrateur d’Essilor Groupe Europe Groupe Europe Coca-Cola Entreprise Coca-Cola Entreprise
Membre de l’Advisory Board d’ING Direct et Membre de l’Advisory Board de ING Direct Vice-Présidente de Coca-Cola du Comité Exécutif du MEDEF Enterprises-Groupe Europe
Jacques Tabourot April 2004 April 2008 Member of the Supervisory Board of AXA, representing the employee-shareholders
Chairman and CEO of Suez Chairman and CEO of Suez Chairman and CEO of Suez Chairman and CEO of Suez Chairman of Suez Environnement, de Suez- Chairman of Suez-Tractebel (Belgium), Chairman of Société Générale de Belgique Chairman of Société Générale de Belgique Tractebel (Belgium), Electrabel (Belgium) Hisua (Spain) (Belgium), Tractebel (Belgium) (Belgium), Tractebel (Belgium) Vice-Chairman of Hisusa (Spain), Vice-Chairman of Sociedad General de Vice-Chairman of Hisusa (Spain), Vice-Chairman of Hisusa (Spain), Sociedad General de Aguas de Barcelona Aguas de Barcelona (Spain) Sociedad General de Aguas de Barcelona Sociedad General de Aguas de Barcelona (Spain) Director or member of the Supervisory (Spain) (Spain) Director or member of the Supervisory Board: dCrédit Agricole S.A., Director or member of the Supervisory Director or member of the Supervisory Board: Crédit Agricole S.A., Compagnie de Saint-Gobain, Taittinger Board: Crédit Agricole S.A., Board: Crédit Agricole S.A., Compagnie de Compagnie de Saint-Gobain, Taittinger Pargesa Holding S.A. (Switzerland), Compagnie de Saint-Gobain, Taittinger, Saint-Gobain, Pargesa Holding S.A. Pargesa Holding S.A. (Switzerland) Electrabel (Belgium) Pargesa Holding S.A. (Switzerland) (Switzerland), Casino, Metropole
Television M6, Sagem, Société du Louvre Permanent representative of Fided at the Monde Entreprise’s board, of Sperans at the Fimalac’s board
Chairman of the Board of Directors Chairman of the Board of Directors Président-Directeur Général Président-Directeur Général of BNP Paribas of BNP Paribas de BNP Paribas de BNP Paribas Director of member of the Supervisory Director of member of the Supervisory Director of member of the Supervisory Director of member of the Supervisory Board: Saint Gobain, Total Lafarge, Board: Saint Gobain, Total Lafarge, Board: Saint Gobain, Total Fina Elf, Board: Galeries Lafayettes, BNP Paribas UK (United Kingdom), Dresdner Bank AG Francfort (Germany), Lafarge, Dresdner Bank AG (Germany), Compagnie Saint Gobain, Total Fina Elf, Banque Marocaine pour le Commerce et BNP Paribas UK (United Kingdom) BNP Paribas UK (United Kingdom) Lafarge l’Industrie (BMCI) Non-voting member of the Board: Non-voting member of the Board: Permanent representative of BNP Paribas Non-voting member of the Board: Galeries Lafayettes Galeries Lafayettes at Renault and Dresdner Bank AG’s Galeries Lafayettes boards (Germany)
Claude Bébéar 1958: Joined Anciennes Mutuelles, an insurance company in Rouen where he remained until 1975 working his way through various divisions of the company.
1964 – 1966: Was sent on assignment to Canada where he created the life insurance division Provinces Unies, a Canadian subsidiary of the Anciennes Mutuelles group.
Jean-René Fourtou 1963: Management Consultant of Organization Bossard & Michel. 1972: Chief Executive Officer of Bossard Consultants. 1977: Chairman and Chief Executive Officer of Groupe Bossard. 1986 – 1999: Chairman and Chief Executive Officer of RhônePoulenc Group which became Aventis.
Léo Apotheker 1978 – 1980: Senior Controller, Finance Department – Hebrew University.
1980 – 1981: Operations Director – Altex GmbH. 1981 – 1984: Finance Manager – S.W.F.T. s.c. 1984 – 1987: European Operations Director – Mc Cormack & Dodge. 1988 – 1991: Chairman and Chief Executive Officer of SAP France & Belgium.
1995 – 1997: Chairman, France. 1997 – 1998: Chief Executive Officer– South West Europe. 1999 – 2000: Chairman EMEA (except Germany). 2000: Chairman EMEA (Europe, Middle East and Africa). Member of the Extended Management Board of SAP AG. April 2002: Chairman, Global Field Operations of SAP AG. Since July 2002: President, Customer Solutions & Operations. Member of the Executive Committee of SAP AG.
David Dautresme 1982 – 1986: Chairman and Chief Executive Officer of Crédit du Nord. 1986 – 1999: General Partner of Lazard Frères. Since 1979: Senior Advisor of Lazard Frères.
Jacques de Chateauvieux 1975 – 1977: Management auditor – Union des Transports Aériens. 1977 – 1979: Consultant – Boston Consulting Group. Since 1979: Chairman and Chief Executive Officer of Groupe Bourbon, then BOURBON (2005).
Since 1969: Chairman and Chief Executive Officer of Sofibus (Société Financière pour le Financement de Bureaux et d’Usines).
Henri Lachmann 1963: Began his carreer with the international consulting firm Arthur Andersen.
1970: Joined the Compagnie Industrielle et Financière de Pompey. 1976: Chief Executive Officer of the Compagnie Industrielle et Financière de Pompey.
Since May 4, 2001: Chairman and Chief Executive Officer of Suez.
1987 – 1993: Chairman and Chief Executive Officer of Crédit Commercial de France.
2000 – 2003: Chairman and Chief Executive Officer of BNP Paribas. Since 2004: Chairman of the Board of Directors of de BNP Paribas.
Mrs Dominique Reiniche 1978 – 1981: Assistant Product Manager - Procter & Gamble. 1981 – 1983: Product Manager - Procter & Gamble. 1983 – 1986: Associate Advertising Manager - Procter & Gamble. 1986 – 1992: Marketing & Strategy Manager – Kraft Jacobs Suchard.
1998 – 2002: Chairman and Chief Executive Officer – Coca-Cola Entreprise.
In addition to the ongoing dialogue between members concerning Supervisory Board operations, the Supervisory Board conducted its first annual selfreview in late 2002. This process involves individual interviews and a specially devised questionnaire.
An analysis by the Supervisory Board of the results of the first self-review had highlighted the quality of the dialogue and debates between Supervisory Board members, the Group’s executive officers and the Management Board. The efficiency of Supervisory Board and Committee meetings had also emerged as a strong point. Areas for improvement had also been noted, and these were addressed in 2003 and 2004. In particular, it was felt that the Supervisory Board needed to broaden its profile in terms of member nationality and recruit younger members.
In early 2006, the Supervisory Board once again started a new self-review process, asking its members to complete a questionnaire on the following subjects: – the Board’s structure and composition; – the Board’s relationship with the Management
Finance Committee, of the Audit Committee, of the Selection, Governance and Human Resources Committee and of the Compensation Committee (in terms of the quality of the information received, discussion and issues covered); – the Supervisory Board’s internal regulations; – the process and level of Board compensation.
In their responses to the questionnaire, the Supervisory Board members stressed the following points: the Supervisory Board functions well, formal discussions among members of the Board are of high quality and a spirit of professionalism and teamwork reigns.
Supervisory Board Committees The Board benefits from the work of the Audit Committee, the Finance Committee, the Selection, Governance and Human Resources Committee as well as the Compensation Committee.
Audit Committee On December 31, 2005, the Audit Committee had five members, all of whom would be considered independent according to the criteria contained in the Bouton report and in the Sarbanes-Oxley Act. They were David Dautresme (Chairman), Jacques de Chateauvieux, Henri Lachmann, Gérard Mestrallet and Ezra Suleiman.
On February 27, 2006, Anthony Hamilton was appointed to this committee while Gérard Mestrallet left it.
Under the rules of procedure (“Règlement Intérieur”) of the Supervisory Board and the Charter of the Audit Committee approved by the Supervisory Board, the Committee’s missions are as follows: – To review the Company’s interim and annual financial statements before they are presented to the Supervisory Board, as well as examine some of the financial disclosures released by the Company at the end of each reporting period.
– To consider any matter it deems necessary, and report the findings to the Supervisory Board.
The Committee met 3 times in 2005. The global attendance rate was 62%.
Selection, Governance and Human Resources Committee The Selection, Governance and Human Resources Committee had four members on December 31, 2005, including two independent members: Jean-René Fourtou (Chairman), Gérard Mestrallet, Michel Pébereau and Ezra Suleiman.
Compensation Committee The Compensation Committee had five members on December 31, 2005, including four independent members: Henri Hottinguer (Chairman), David Dautresme, JeanRené Fourtou, Anthony Hamilton and Gérard Mestrallet.
Acting on the recommendation of its Selection, Governance and Human Resources Committee, the Supervisory Board voted on December 21, 2005 to reappoint the members of the Management Board to a three-year term of office, effective January 14, 2006.
States and AllianceBernstein. – Denis Duverne (52), Finance, Control and Strategy. – François Pierson (58), Insurance in France, Large
Each Management Board member is assigned responsibility for a specific aspect of Company management.
Henri de Castries - Chairman Chairman of the Board of Directors: AXA Assurances IARD Mutuelle AXA Assurances Vie Mutuelle AXA Courtage Assurance Mutuelle AXA Financial Inc. (United States) Director or member of the Supervisory Board: AXA France IARD AXA France Vie AXA Konzern AG (Germany) AXA UK Plc (United Kingdom) AllianceBernstein Corporation (United States) AXA Equitable Life Insurance Company (United States) AXA Belgium (Belgium) AXA Holdings Belgium (Belgium) AXA America Holdings Inc. (United States) MONY Life Insurance Company (United States) MONY Life Insurance Company of America (United States)
Claude Brunet Chairman: AXA Technology Services (SAS) Chairman of the Management Board: GIE AXA Université Director or member of the Supervisory Board: AXA Group Solutions AXA RE GIE AXA Group Solutions AXA Konzern AG (Germany) AXA Japan Holding Co., Ltd (Japan) AXA Aurora Ibérica S.A. de Seguros y Reaseguros (Spain) AXA Aurora Vida S.A. de Seguros y Reaseguros (Spain) AXA Aurora S.A. (Spain) AXA Business Services (India) Permanent representative of AXA to the board of AXA Cessions
Christopher Condron Director, President and CEO of AXA Financial Inc. (United States) Director, Chairman of the Board, President & Chief Executive Officer: AXA Equitable Life Insurance Company (United States) AXA Financial Services, LLC (United States) MONY Life Insurance Company (United States) MONY Life Insurance Company of America (United States) Director, Chairman of the Board & Chief Executive Officer: AXA Life and Annuity Company (United States) AXA Distribution Holding Corporation (United States) MONY Financial Services, Inc. (United States) Chairman of the Board and Chief Executive Officer: MONY Holdings, LLC (United States) Director and President: AXA America Holdings Inc. (United States) Director: AllianceBernstein Corporation (United States) ACMC, Inc. (United States) AXA Art Insurance Corporation Central Supply Corp Financial Services Roundtable Member of the Management Committee: AXA Technology Services Director and Treasurer: The American Ireland Fund
1984 – 1989: French Treasury Department where he played an active role in several privatizations.
1989: Joined AXA’s corporate finance division. 1991: AXA’s Corporate Secretary, responsible for dealing with the legal aspects of the reorganization and merger of Compagnie du Midi with and into the AXA Group.
Christopher Condron 1989: Head of the Private Client Group of The Boston Company, now Mellon Private Asset Management. 1993: Executive Vice President of Mellon. 1994: Vice-Chairman of Mellon.
Denis Duverne Chairman and Chief Executive Officer: AXA America Holdings Inc. (United States) Director or member of the Supervisory Board: AXA France IARD AXA France Vie AXA UK Plc (United Kingdom) AXA Financial Inc (United States) AXA Equitable Life Insurance Company (United States) AllianceBernstein Corporation (United States) AXA Assicurazioni (Italy) AXA Italia S.p.A. (Italy) AXA Belgium (Belgium) AXA Holdings Belgium (Belgium) MONY Life Insurance Company (United States) MONY Life Insurance Company of America (United States)
François Pierson Chairman and Chief Executive Officer: AXA France IARD AXA France Vie Chairman: AXA France Assurance (SAS) Chairman of the Board of Directors: AXA Corporate Solutions Assurance Director: AXA Assurances IARD Mutuelle AXA Assurances Vie Mutuelle AXA Courtage Assurance Mutuelle AXA Canada Inc. (Canada) AXA Japan Holdings Ltd (Japan) AXA-ONA (Morocco)
Since May 2001: President and CEO of AXA Financial Inc. Chairman of the Board, President (since May 2002) and Chief Executive Officer of AXA Equitable Life Insurance Company. Since July 2001: Member of the AXA Management Board.
1986 – 1988: Director fo the Corporate Taxes Department for the French Ministry of Finance.
1988 – 1991: Deputy Assistant Secretary for Tax Policy for the French Ministry of Finance.
1991 – 1992: General Secretary of Compagnie Financière IBI. 1992 – 1995: Member of the Executive Committee of Banque Colbert, in charge of operations.
Since February 2003: Member of the AXA Management Board, in charge of Finance, Control and Strategy.
1990: General Manager of the South-East Region of AXA Assurances and Director of Distribution in that company. 1995: Deputy Chief Executive of AXA Assurances. 1997: Chief Executive Officer of UAP Vie and of Alpha Assurances. 1998: Chief Executive Officer of AXA Conseil. 1999: Chief Executive Officer of AXA Assurances. Since November 2001: Member of the AXA Management Board. Chief Executive Officer of AXA France, responsible of the large risks activities, of the Assistance and of AXA Canada.
Service contracts between the AXA Group and members of the Management Board The French members of the AXA Management Board (Henri de Castries, Claude Brunet, Denis Duverne, François Pierson), corporate officers, are employed by AXA under contract.
Absence of any conflicts of interests AXA’s Management organs are the Supervisory and Management Boards. The members of the Management Board do not currently hold any mandates outside the AXA group. Certain members of the Supervisory Board, however, are executive officers and/or directors of companies that may have dealings from time to time with the AXA group which dealings may include extensions of credit, purchases of securities (for their own account or for third parties ), underwriting of securities and/or furnishing of other types of services or goods. These dealings are generally fully negotiated and effected on arm-length terms and conditions, and consequently AXA does not believe they give rise to any potential conflicts of interests between the duties to AXA of the Supervisory and Management Boards’ members and their private interests and/or other duties.
Aside from regulated agreements, no arrangement or understanding have been entered into with major shareholders, customers, suppliers or others pursuant to which a member of the Management Board or Supervisory Board was selected.
Absence of any conviction in relation to fraudulent offences, any official public incrimination and/or sanctions, or any responsibility in a bankruptcy for the last 5 years To the best of the Company’s knowledge, none of the members of its Management Board or Supervisory Board has been during the last 5 years (i) subject to any conviction in relation to fraudulent offences or to any official public incrimination and/or sanction by statutory or regulatory authorities, (ii) disqualified by a court from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer, or (iii) associated as a member of the administrative, management or supervisory bodies with any company that has declared bankruptcy or been put into receivership or liquidation, provided, however, that AXA has from time to time sold, discontinued and/or restructured certain business operations and voluntarily liquidated affiliated companies in connection with these or similar transactions and certain members of AXA’s
Management Board and/or Supervisory Board may have been associated with other companies that have undertaken similar solvent liquidations.
The 14 members of the Executive Committee, including 7 non French, conduct quarterly business reviews (QBR), during which performance is reviewed. These reviews were introduced in 2000 to provide a clear and consistent framework for: – reviewing operational performance and monitoring the progress of key projects using quantifiable standards of measurement defined in collaboration with the Management Board; – assessing the status of Group transversal projects; – exchanging ideas and information on key’s Group strategic orientations.
Jean-Raymond Abat Chairman of AXA Seguros (Spain) and head of the Mediterranean region
Alfred Bouckaert Managing Director of AXA Belgium (Belgium) and head of the Northern Europe region
Denis Duverne Member of the Management Board in charge of Finance, Control and Strategy
Gerald Lieberman President and Chief Operating Officer of Alliance Capital (United States)
Les Owen Group Chief Executive of AXA Asia Pacific Holdings (Australia), Head of the Asia Pacific region (excluding Japan)
The Group Governance Standards require the Boards of AXA Group companies to establish an Audit Committee and a Compensation Committee in addition to any other Board committees that they consider necessary or appropriate for their specific businesses. The role, duties, and composition of these Committees (including the requirements for participation of independent directors) are specified in a detailed Audit Committee Standard and Compensation Committee Standard. The Audit Committee Standard requires the Audit Committee to have a significant component of independent directors in order to ensure that this Committee is strongly independent of management given its critical role in reviewing financial results and other financial information prepared by management, financial reporting and control processes, critical accounting policies, particular accounting issues, fraud and similar issues. In addition, the Group’s Compensation Committee Standard requires that the Compensation Committee have a minimum of one independent director to ensure a level of independent review and judgment on all senior executive compensation matters.
(a) Dennis Holt has retired from his executive role as Group Chief Executive of AXA UK as of June 30, 2006.
Subsidiaries AXA’s main subsidiaries, whether publicly traded or not, are governed: – by a board whose membership includes independent or non-executive directors; – by an audit committee, whose membership also includes independent or non-executive directors.
AXA promotes the establishment of a disciplined internal control environment throughout the Group, ensuring in particular that: – Group strategy, operational objectives, reporting lines with subsidiaries and accountability for executing objectives are clear.
– The organizational structure in place is effective. AXA’s principal subsidiaries, whether traded on a public stock market or not, have appointed independent (non-executive) directors to their boards of directors and audit committees.
The aim of AXA’s strategic planning process is to exert upstream control over major trends and the three-year forecasts developed by the Group’s main subsidiaries. Subject to various analyses and adjustments, this procedure results in a consolidated forecast that is used as the Group’s budget and forms the basis of the objectives contained in each operating unit’s annual target letter.
(threats, opportunities and strategy), – quantitative targets (revenues, expenses, profitability, productivity and quality indicators) based on a central set of economic forecasts; Internal control procedures
This procedure enables Group Management to exercise upstream control over the strategies, action plans and resources of its main subsidiaries, and to set targets that are consistent with its ambitions.
BSD officers also attend local boards of directors and are involved in major BU projects, such as acquisitions, partnerships and restructuring.
The Executive Committee meets quarterly as part of the QBR process set in 2000.
– the results of employee satisfaction surveys, – the preparation and the progress of the “2012
In addition, members of the Executive Committee share their local achievements during these daylong meetings, and efforts are made to encourage the reuse of winning practices and success stories in areas touching on the business as well as on its people.
Risk Management Department The role of Risk Management is to identify, measure and monitor the main risks to which AXA is exposed. To this end, the Risk Management Department develops and deploys a number of risk measurement, monitoring instruments and methods, including a set of standardized stochastic modeling tools.
– the central Risk Management Department conducts a decentralized review of risk-adjusted pricing and profitability for new products prior to launch,
– economic capital is estimated annually for each product line and operating unit and then aggregated at the Group level. This is one of the main uses of the stochastic modeling tools developed and implemented by the Risk Management Department. This work enables asset, liability and operational risks to be modeled together,
ORGANIZATION AND RESOURCES AXA’s internal audit organization is structured around a central Internal Audit Department that coordinates and supervises the Group’s overall internal audit system, and internal audit teams set up within Group subsidiaries. The central department operates mainly through: – functional management of internal audit teams within operating units, - strategic internal audit assignments.
The head of the Group’s internal audit team reports to the Management Board and, more specifically for the current operations, to the Management Board member in charge of finance. In addition, strategic internal audit assignments are carried out exclusively in accordance with the written instructions of the Management Board Chairman. The director of the Group Internal Audit Department also has a direct link with AXA’s Audit Committee, serving as its Secretary, and has a direct and regular contact with the Chairman of the Committee.
Local internal audit teams are placed under the responsibility of a Director, who reports directly to the local CEO or CFO, and also to the local internal audit committee. These local teams have functional reporting ties to the Group’s Internal Audit Department.
Determining the main risks faced by a business is a crucial part of the internal audit planning process, it ensures that internal audit assignments focus on those most at-risk areas.
Internal and external auditors hold meetings to exchange views on the risks facing the Group and on the conclusions made in drawing up action plans.
Group Program Department The Group Program Department is responsible for monitoring and reducing business continuity risks. It defines continuity standards for both operations and IT systems, and monitors their implementation at operating unit level. It’s now putting in place a crisis management structure designed to cope with major discontinuity incidents. The Management Board approves the Business Continuity Management policy, and is kept informed of implementation status.
Group Customer Care and Distribution Department The Customer Care and Distribution Department works closely with subsidiaries of the AXA Group in three areas: marketing, quality of service and distribution. Its three priority missions are described below: – support Group strategy and develop a set of shared methods, such as the program conducted with AXA subsidiaries on service quality, the deployment of a methodology known as Customer Value Management, and the identification of significant sources of growth; – develop a set of key performance indicators for use at the Group level and define local benchmarks, with the aim of measuring Group performance in terms of customer and distributor satisfaction, as well as customer retention and distribution network performance; – capitalize on local best practices, knowledge and expertise in marketing, service and distribution quality to step up the pace of their broader adoption within the Group.
Group Procurement Department In order to reduce procurement costs and achieve better control over its major outside suppliers and vendors, the AXA Group set up a Group Procurement Department to (i) build procurement expertise within AXA’s principal operating units so that procurements are made almost exclusively by professional buyers, (ii) negotiate global agreements with suppliers and vendors, and (iii) reduce the overall risk by establishing contractual and ethical standards.
The Group’s main operating units have their own legal departments. Their role is to ensure the security of operations at the local level as well as compliance with local law. The DJC coordinates local legal departments and does preliminary work on decisions that impact or concern the Group.
Finance and Control Department (“DCFG”) The role of the DCFG is described in detail in paragraph 3.3.4.
Planning, Budgets, Results and Central Department (“PBRC”) The role of the Group’s PBRC Department is described in detail in paragraph 6 of this document.
Compliance Guide In 1990, AXA introduced a compliance and ethics guide, mainly involving bans on trading in AXA shares.
In order to comply with the Sarbanes-Oxley Act, a new Group compliance and ethics guide was adopted in February 2004 and updated in March 2006. This guide deals with conflicts of interest, trading in the AXA shares and listed subsidiaries, confidentiality rules and the control of sensitive information, the policy for protecting and safeguarding the company’s data, and the process for dealing with employees complaints.
AXA’s compliance and ethics guide merely complements the codes in force within the Business Units. In particular, and in accordance with local regulations, these codes cover the methods used to market the Group’s products and services and its selling practices.
Anti-fraud and anti-money laundering procedures AXA is strongly committed to the fight against money laundering in all of its business locations. The Group’s anti-money laundering strategy is set out in a set of guidelines that has been approved by the Management Board and Supervisory Board and distributed widely within the Group.
In accordance with these guidelines, each operating unit has developed procedures based on certain general principles in addition to the applicable local regulations. The “know your customer” principle is crucial, and underlies all transactions. Particular attention is paid to transactions made in cash or any equivalent monetary instrument. Procedures are regularly reviewed and adjusted on the basis of acquired experience.
As far as the fight against internal fraud is concerned, a formal policy has been put into place and a network
of correspondents dedicated to this task has been set up. Internal fraud has been divided up into four specific categories: Fraudulent Financial Reporting; Misappropriation of Assets; Improper or Fraudulent Financial Activity; Fraudulent Conduct by the Management.
DERIVATIVE INSTRUMENTS In managing interest rate and exchange rate risk, the DCFG is authorized to use derivative instruments, mainly interest rate and currency swaps, currency futures, options, caps and floors. These instruments, which may be either standard or structured, are used as part of strategies described and authorized by the Supervisory Board’s Finance Committee. Persons authorized to commit the company and carry out such transactions are listed on an approval form which is distributed to the banking counterparts.
Management of the Group financial structure The Supervisory Board’s Finance Committee and the Management Board are regularly informed by the CFO of all major projects and changes relating to the management of the Group’s consolidated financial position, and examine reports and three-year forecasts periodically. These forecasts, which factor in extreme financial market swing scenarios, are also updated monthly and presented as part of the Group Management performance indicators.
Working in close collaboration with local finance teams, the DCFG (i) defines and manages subsidiaries ’ capital adequacy; (ii) defines and manages the Group’s liquidity policy; and (iii) coordinates and centralizes the Group’s financing policy.
Consolidated solvency The AXA Group is subject to regulations that require additional monitoring for insurance companies. Consequently, the PBRC Department calculates an adjusted solvency margin on the basis of the Group’s consolidated financial statements. This information is transmitted to the CCA (the French insurance industry supervisory Commission).
– “GIE AXA Trésorerie Europe”, an inter-company partnership (GIE), carries out centralized cash management for AXA operating units in the eurozone, using Group standards designed to ensure liquidity due to the profile of invested assets, particularly through the ownership of a significant portfolio of assets defined as eligible by the European Central Bank (ECB).
– A liquidity back-up plan at the Group level also provides AXA with the ability to withstand a liquidity crisis.
GROUP FINANCING POLICY AND MANAGEMENT OF CONSOLIDATED DEBT To ensure that the Group has ample financial flexibility, the DCFG liaises with AXA subsidiaries to coordinate consolidated debt, and also manages this debt in terms of interest rate and exchange rate risk. The DCFG has devised formal principles for managing and measuring resources in terms of interest rate and exchange rate risk, with the aim of maintaining a standardized consolidated position. To this end, it relies on information transmitted by subsidiaries. An accounting reconciliation is carried out at six-month intervals.
Debt ratios are managed to ensure that they remain compatible with the Group’s financial strength rating targets, even in adverse circumstances of rising interest rates and falling profits. These ratios, as well as the repayment schedule and debt service costs, are managed on the basis of a threeyear plan.
Evaluation and Testing of Internal Controls Each year the Group conducts a [review] of its internal controls over financial reporting and its disclosure controls and procedures as part of an internal due diligence process designed to support annual certifications required to be filed with the United States Securities and Exchange Commission (“SEC”) by AXA’s Chief Executive Officer and Chief Financial Officer under Section 302 of the US Sarbanes Oxley Act (“Sarbanes”). AXA is subject to Sarbanes as a result of its listing on the New York Stock Exchange. In addition to this [review], the Group has been engaged over the last several months in a comprehensive exercise of evaluating, documenting and testing its internal controls over financial reporting in preparation for a formal audit of its internal controls that will be required for year-end 2006 under Section 404 of Sarbanes.
Financial and accounting information is monitored in different ways depending on the medium used, with the aim of enhancing disclosures in both qualitative and quantitative terms: Financial communication media (press releases, press and financial market presentations, etc.) Information issued via these media is produced by the Investor Relations, and is intended to give a clear and intelligible overview of the Company’s business and operations (merger and acquisition, financing…) during a given period. It is reviewed and validated by the Finance Department and the Legal Department prior to submission for approval to the Management Board. Press releases concerning financial statements are reviewed by the Supervisory Board. The outside auditors also review press releases concerning annual and half-year accounts closings. The Group Financial Communications Department coordinates relations with analysts and with AXA Group investors.
Legal documents (Document de Référence) Several departments within AXA (Investor Relations, Internal Communication and Legal Departments) are involved in preparing these documents. PBRC Department coordinates their preparation and ensures the overall consistency of the information contained in them. Each contributor works to ensure that documents comply with standards and are clear. They are submitted for approval to the Management Board.
All information contained in these legal documents is also audited by the outside Auditors in accordance with professional standards applicable in France.
AXA Way In 2002, AXA launched AXA Way, its continuous process improvement program designed to optimize customer service quality, increase market share and develop distribution. A common method for selecting, monitoring and measuring projects has
been defined by a central unit, which is also responsible for training local AXA Way teams. Local operating units develop AXA Way projects with the support of an AXA Way Leader, and the local CEO (who is also a member of the Executive Committee) always serves as project sponsor. While these projects are carried out on the basis of the aforementioned Group method, it is sufficiently flexible and can be adapted to take local issues into account.
Self-assessment (scorecards) Self-assessments (scorecards) are carried out regularly in areas that are keys to the Group’s business (IT security, IT governance, property-casualty insurance, life insurance, distribution, etc.).
“Scope” survey to the Group’s employees Since 1993, AXA has conducted periodic surveys that encourage its employees to express their views on issues such as their work environment and the way their company treats them. Survey findings are communicated to all AXA employees, and serve as the basis of a formal dialogue with management that leads to the development of targeted action plans. A summary of the process and resulting plans are reviewed by the Management Board. Since 2002, the Scope survey process has become an annual event.
Major incident reporting system In accordance with the AXA Compliance and Ethics Guide, all AXA employees may anonymously submit any concerns they may have regarding issues related to accounting, internal control, auditing or fraud. All AXA employees have the option of speaking with their supervisor, or with a representative of their HR, Legal or Compliance Department or the AXA Group Legal Department. Alternatively, they may wish to submit their complaint directly to the Chairman of the Audit Committee via a dedicated fax number.
The PBRC’s role encompasses: – establishing and distributing consolidation standards and Group reporting standards, and managing the worldwide network of PBR teams,
– managing the IFRS (International Financial Reporting Standards) conversion process for the Group,
Financial and accounting information is consolidated within the PBRC Department in accordance with
Respective responsibilities of the local and central PBR Departments The subsidiaries are responsible with the consolidation and the control the financial information produced in their consolidation sub-group whereas the PBRC reviews this information and produces the Group’s consolidated financial statements and related summaries.
The role of the PBRC in this process is as follows: – Upstream of the consolidation and control process, it is responsible for the information transmission system – comprised of the consolidation system, consolidation guidelines, reporting guidelines and guidelines for measuring embedded value – and for issuing instructions to subsidiaries.
– Downstream of the consolidation and audit process, it is responsible for reviewing financial and accounting information produced by subsidiaries, and for reviewing and checking the various finished products, including the Document de Référence.
– It is also responsible for monitoring and resolving technical issues specific to the holding company or relating to the IFRS conversion.
In all cases, the procedures are those described above, along with close collaboration with the outside auditors, which generally work as follows: – All changes in accounting standards are anticipated in collaboration with AXA’s accountants and its independent auditors. Rule changes are implemented after approval of the accounting approach adopted by the internal accountants as well as the independent auditors.
– The auditing of financial and accounting data is finalized at the accounts closing stage in meetings attended by local and central auditors and local and central finance teams. All of these meetings give rise to a detailed audit report.
In addition, the production of Group financial statements involves a process of transmitting information to Group subsidiaries. This allows for an assessment of the validity of financial data, through the transmission of subsidiary-related data that has been approved by the subsidiary’s CEO and CFO. Through this process, the Group CFO is apprised of the specific conditions under which the work has been carried out.
It should be noted that due to the high number of mergers and acquisitions to which the Group has been party in recent years, financial information is produced by several different information systems, which are gradually becoming more integrated.
The guidelines for applying the IFRS standards had been adopted by the Management Board and presented to the Audit Committee in December of
By implementing the aforementioned structures of corporate governance, as well as the internal departments and procedures described above, AXA has acquired an internal control system that is adapted to the risks of its business.
We performed our procedures in accordance with professional standards applicable in France. These require us to perform procedures to assess the fairness of the information set out in the Chairman’s report on the internal control procedures relating to the preparation and processing of financial and accounting information to prepare for the first time the consolidated financial statements in accordance with IFRSs, as adopted by the European Union. These procedures notably consisted of: – Review the aims and general organization of internal control, as well as the internal control procedures, as presented in the Chairman’s report, pertaining to the preparation and treatment of accounting and financial information used to
establish, for the first time, the consolidated financial statements in accordance with IFRSs, as adopted by the European Union; – Review the work serving as the basis for the information and data provided in this report.
The executive compensation policy aims at: – attracting, retaining and motivating the best talents,
Executive compensation is therefore structured as to foster and reward performance: – both at individual level and collective level (local business entity and AXA Group), – both with a short-term, medium-term and longterm focus.
Full disclosure on executive and employees compensation and share in capital
Fixed Salary Present Short-term Meduim-term Long term Future 1 year 2-4 years 4-10 years
The variable component of his pay is calculated on the basis of a predefined target amount (€2,000,000) and includes three components: – Group performance, as measured by adjusted earnings per share and underlying earnings, – AXA stock performance, measured in comparison to that of its competitors, – individual performance, which is evaluated by the
The amounts awarded to the Chairman of the Management Board as variable compensation demonstrate the genuine variability of this pay component: – Variable compensation for the year 2000 paid in 2001: €1,381,373 – Variable compensation for the year 2001 paid in 2002: €719,967 – Variable compensation for the year 2002 paid in 2003: €1,419,277 – Variable compensation for the year 2003 paid in 2004: €1,824,728 – Variable compensation for the year 2004 paid in 2005: €2,304,277 – Variable compensation for the year 2005 paid in
For the other members of the Executive Committee, the variable component of pay also depends on Group performance, the performance of their business unit, and their individual performance.
The table below provides the following information: – gross compensation paid in respect of 2005 (e), i.e.
the fixed component paid in 2005 (a), the variable component earned in 2005 and paid in 2006 (including expatriation allowances paid in 2005) (b), any directors’ fees paid in 2005 (c) and benefits in kind for the year 2005 (d); – gross compensation paid in 2005 (g), i.e. the fixed component paid in 2005 (a), the variable component earned in respect of 2004 and paid in 2005 (including expatriation allowances paid in 2005) (f), any directors’ fees paid in 2005 (c) and benefits in kind for the year 2005 (d); – and gross compensation paid in 2004, i.e. fixed compensation paid in 2004, the variable component earned in respect of 2003 and paid in 2004 (including expatriation allowances paid in 2004), any directors’ fees paid in 2004 and benefits in kind for the year 2004.
This table also enables comparisons between compensation earned in respect of 2005 and that paid in 2004 and 2005.
Fixed Variable Director’s Benefits Total Variable Total Variable Total component component fees paid in kind compensation component compensation component compensation for 2005 (€) for 2005 (€) in 2005 (€) 2005 (€) paid in paid in paid in paid in paid in
Directors’ fees paid to Supervisory Board members The members of the Supervisory Board do not receive compensation, with the exception of a fee for attending meetings. The amount of directors’ fees paid to AXA’s Supervisory Board members is indicated in the table below.
Directors fees earned in 2006 for 2005 Directors fees earned in 2005 for 2004
The amount of directors’ fees to be paid is determined by the shareholders, in accordance with the Company’s articles of incorporation and bylaws, and apportioned by the Supervisory Board to its members for their Board and Committee duties as follows: – half of the amount of directors’ fees is distributed evenly among the members of the Supervisory Board as the fixed component; – a portion of the remainder is distributed among the members of the Supervisory Board in proportion to their actual attendance at the meetings of the Supervisory Board; – the remainder is allocated by the Supervisory Board to the various specialized Committees and distributed among their members in proportion to their actual attendance at Committee meetings.
In consideration for the increase in the amount of work accomplished by the Supervisory Board and its special-purpose committees, the shareholders have been asked at the Annual General Meeting of April 20, 2005 to increase the total annual amount of directors’ fees allocated to the Supervisory Board to €1 million. The previous gross amount of 660,000 euros had been approved by the shareholders at in the Annual General Meeting of May 1999.
Pension The French members of the Management Board of AXA (Henri de Castries, François Pierson, Denis Duverne, Claude Brunet), and the representative of the employee-shareholders at the Supervisory Board (Jacques Tabourot) participate, as all other executives of AXA Group companies in France, to a supplementary pension scheme pursuant to article 39 of the Code Général des Impôts.
The amount of the supplementary pension is calculated at the time of retirement and is in addition to the total amount of retirement pensions paid by the mandatory schemes (Social Security, ARRCO, AGIRC) and by any other retirement scheme to which the beneficiary may have participated during his/her career, both within or outside the AXA Group.
The amount of the supplementary pension aims, for a minimum executive seniority of 20 years, at achieving a global pension equivalent to: – 40% of the average remuneration of the past 5 years preceding the retirement date, if this
average is superior to 12 annual Social Security ceilings; – 50% of the average remuneration of the past 5 years preceding the retirement date, if this average is inferior to 8 annual Social Security ceilings; – 2.4 Social Security ceilings + 20% of the average remuneration of the past 5 years preceding the retirement date, if this average is between 8 and 12 annual Social Security ceilings.
Christopher Condron, member of the Management Board and employee of AXA Equitable in the United States, benefits from a contractual clause stating that in case of termination by the Company for any other reason than cause, he would continue to receive during a period of 2 years after his departure a remuneration equivalent to his fixed salary plus target annual bonus, i.e. currently $5m. Payment of this remuneration would cease as soon as he would resume a professional activity during the 2 year period.
Within the global cap approved by the shareholders, the Supervisory Board approves all stock option programs prior to their implementation.
Annual grants are made during the first quarter of the year. In 2005, grants were made on March 29, 2005 and the strike price was determined based on the 20 trading days before the attribution.
The pool of options allocated to each business unit is essentially determined on the basis of their contribution to Group performance the previous year.
Individual option grants are decided by the Management Board, Grants to members of the Management Board, are submitted to the Supervisory Board (acting on the recommendation of its Compensation Committee) for prior approval.
AXA Date of Date of the Total options Number of Total options Number of Starting date Expiry date Vesting schedule Exercise price Discount Number of options Options cancelled, Balance as at grant Shareholders granted beneficiaries granted to beneficiaries of the exercize euros (adjusted exercized as forfeited and 31/12/2005
Vesting schedule Exercise price Discount Number of options Options cancelled, Balance as at euros (adjusted exercized as forfeited and 31/12/2005 price) at 31/12/2005 not granted as at 31/12/2005 50.00% – 10/07/1999 75.00% – 10/07/2000 100.00% – 10/07/2001 50.00% – 10/07/1999 75.00% – 10/07/2000 100.00% – 10/07/2001 50.00% – 22/01/2000 75.00% – 22/01/2001 100.00% – 22/01/2002 50.00% – 22/01/2000 75.00% – 22/01/2001 100.00% – 22/01/2002 50.00% – 10/09/2000 75.00% – 10/09/2001 100.00% – 10/09/2002 50.00% – 30/09/2000 75.00% – 30/09/2001 100.00% – 30/09/2002 50.00% – 20/04/2001 75.00% – 20/04/2002 100.00% – 20/04/2003 50.00% – 20/04/2001 75.00% – 20/04/2002 100.00% – 20/04/2003 50.00% – 09/06/2002 75.00% – 09/06/2003 100.00% – 09/06/2004 50.00% – 09/06/2002 75.00% – 09/06/2003 100.00% – 09/06/2004 50.00% – 18/11/2002 75.00% – 18/11/2003 100.00% – 18/11/2004 66.67% – 05/07/2003 100.00% – 05/07/2004
AXA ex-FINAXA Date of Date of the Total options Number of Total options Number of Starting date Expiry date Vesting schedule Exercise price Discount Number of options Options cancelled, Balance as at grant Shareholders granted beneficiaries granted to beneficiaries of the exercize euros (adjusted exercized as forfeited and 31/12/2005
MOFIPAR Date of Date of the Total options Number of Total options Number of Starting date Expiry date Vesting schedule Exercise price Discount Number of options Options cancelled, Balance as at grant Shareholders granted beneficiaries granted to beneficiaries of the exercize euros (adjusted exercized as forfeited and 31/12/2005
Meeting (adjusted Executive Executive of options price) at 31/12/2005 not granted as numbers) Committee Committee at 31/12/2005
Vesting schedule Exercise price Discount Number of options Options cancelled, Balance as at euros (adjusted exercized as forfeited and 31/12/2005 price) at 31/12/2005 not granted as at 31/12/2005
Stock options exercised by Claude Bébéar and Jacques Tabourot are options acquired during their past activity in 1995, 1996 and 1997.
Stock options granted and/or exercised by the top 10 beneficiaries (outside the management board) during 2005
Beneficiaries Number Expiry date Price Number Price Number Expiry date Price Number Price (Euros) (Euros) (USD) (USD)
Stocks options held by Management Board members and Executive Committee members (options granted but not exercised on December 31, 2005)
period (3 years for the 2004 performance unit plan), under the condition that the beneficiary is still employed by the AXA Group at that date.
– During each year of the acquisition period, half of the performance units/shares initially granted (one third for the 2004 performance unit plan) is subject to collective performance conditions measuring both the AXA Group performance and the beneficiary’s operational business unit performance, based on pre-determined targets.
– As far as performance units are concerned: • Each unit is valued based on the average opening price of the AXA SA share during the past 20 trading days of the acquisition period.
– As far as performance shares are concerned: • Shares that are definitely acquired at the end of the acquisition period are restricted from sale during a 2-year period.
The first performance unit plan was launched on March 26, 2004 and 1,017,012 performance units have been initially granted to 2,554 beneficiaries.
The first performance share plan was launched on April 21, 2005, after approval having been obtained at the Annual General Meeting of April 20, 2005. A total of 727,945 performance shares have been granted to 1,154 beneficiaries in France.
Units Initial Units Units Units Units Units Units at 31/12/05 Number Date Initially Grant at stake Actually at stake Actually at stake Actually of units Granted Date Granted Granted Granted
(a) 180 Performance units have been definitely acquired further to a beneficiary’s decease in 2005.
Initial Actual grant based on performance criterias Shares Definitive Grant Period 2005 Period 2006 cancelled Acquisition
Conversion Perf. units 245,073 21/04/05 122,537 – – – 1,292 – 21/04/07
Performance units/shares initially granted to the top 10 beneficiaries (outside the Management Board) during 2005
Performance units/shares grants for the Management Board members are: 2004 Performance units
Initial Grant Actual grant based on performance criterias Units cancelled Definitive Acquisition Period 2004 Period 2005 Period 2006 at 31/12/05
Initially Grant Initially Grant at stake Actually at stake Actually Units / Shares Granted Date Granted Date Granted Granted 23,000 21/04/05 – – – – – – 21/07/07 6,325 21/04/05 – – – – – – 21/04/07 8,970 21/04/05 – – – – – – 21/04/07 10,660 21/04/05 – – – – – – 21/04/07
Actual Grant based on performance criterias Units/Shares Definitive Acquisition Period 2005 Period 2006 cancelled at 31/12/05 Units / Shares Units / Shares Units / Shares Units / Shares Number of Date at stake Actually at stake Actually Units / Shares Granted Granted
Number of shares owned as of December 31, 2005 (excluding AXA Actionnariat mutual funds and other shareholding mutual funds)
By virtue of the authorization granted by the shareholders at of the Annual General Meeting of April 20, 2005, the Management Board increased share capital, as provided for by the French Ordonnance of October 21, 1986, in one offering, through the issue of shares to employees of the Group under the Shareplan 2005 program. The shareholders waived their preferential subscription rights so that this offering could be made to employees.
In the countries that met the legal and tax requirements, two investment options were proposed in 2005: – the traditional plan, available in 27 countries, – the investment leverage plan, offered in 28 countries.
The Shareplan 2005 program was carried out through a share issue that took place in December and was open to all Group employees through voluntary contributions.
More than 23,000 employees in 28 countries took part in Shareplan 2005, and participating employees invested a total of 304.3 million euros (up 29.8% compared with the 234.4 million euros invested in December 2004), as follows: – 33.7 million euros in the traditional plan (versus 21 million euros in December 2004); – 270.6 million euros in the investment leverage plan
Corporate purpose (Article 3 of the articles of incorporation and bylaws): – to acquire, manage and/or dispose of equity interests in French or foreign companies or businesses, regardless of their legal form; – to perform any and all transactions directly or indirectly related to the foregoing or in furtherance thereof; – in particular, to acquire and manage equity interests in any form, directly or indirectly, in any French or foreign company engaged in the insurance business.
Distribution of profits Net profits for the fiscal year and any retained earnings, less any prior losses and amounts appropriated to reserves in accordance with applicable law, constitute the distributable profit. Shareholders have control over this profit, and may decide at the annual general meeting on its appropriation as well as on the distribution of sums drawn from the reserves under its control. In such case, the shareholders’ decision expressly indicates the reserve accounts from which amounts are to be drawn.
meeting of May 26, 1977, Article 23 of the Company bylaws provides that holders of shares that are fully paid up and registered in the name of their owner for at least two years at the end of the calendar year preceding the scheduled date of a shareholders’ meeting enjoy double voting rights with respect to these shares. In the event of a share capital increase through capitalization of reserves, profits, share or issue premiums, registered shares that are freely allotted to shareholders on the basis of existing shares granting a double voting right shall also grant a double voting right to their holders.
The relevant paragraphs of the French Commercial Code provide that the right to a double vote ceases automatically when the share to which it is attached is converted to bearer status. This right also ceases automatically in the event that shares are transferred, with the proviso that the transfer is one of ownership. Accordingly, this right stands in the event of a transfer in the form of collaterals or a transfer of use rights. Moreover, a transfer of ownership that occurs in connection with succession, liquidation of an estate between spouses, or donation to a relative does not lead to the loss of acquired double voting rights. Moreover, the French Commercial Code provides that the shareholders may not revoke this right to a double vote unless a special meeting of the holders of such rights has been held to authorize this revocation.
Notification of statutory thresholds (Article 7 of the articles of incorporation and bylaws) Any person or entity that directly or indirectly becomes the owner of at least 0.5% of the share capital and/or voting power must notify the Company of the total number of shares held. Notification must be made by certified letter, return receipt requested, within five days of the date on which the shares that allowed the holder to reach or pass said threshold were registered.
Failure to comply with the requirement to disclose the passing of statutory thresholds may entail the forfeiture of the voting rights attached to any shares that exceed the aforementioned thresholds if ownership of these shares has not been duly disclosed to AXA. This period of forfeiture may last for two years as of the date on which the holder complies with these disclosure requirements.
On January 9, 2006, the AXA Management Board duly noted that, as a result of the merger of FINAXA into AXA,
On January 16, 2006, the AXA Management Board duly noted that, as a result of the exercise of stock options, stock warrants and the conversion of bonds into shares, the Company’s share capital was raised to €4,285,975,459.16 divided into 1,871,605,004 shares with a par value of €2.29 and eligible for dividends as of January 1, 2005.
Exercise of stock subscription warrants (employees in Germany) 368 3,278 1,778,103,135 4,071,856,179
Date Operations Number of Issue premium Number of shares Amount of share shares issued after the operation capital after the operation (in euros)
Exercise of stock subscription warrants (employees in Germany) 13,766 141,851 1,778,733,203 4,073,299,035
Share capital increase following the definitive completion of the merger of FINAXA into AXA 299,012,355 4,308,368,615 2,209,756,141 5,060,341,563
Share capital reduction by cancellation of shares (19,809,693) (466,353,090) 2,190,434,266 5,016,094,469
Jan. 9, Share capital reduction (through 2006 the cancellation of shares) following the merger of FINAXA into AXA (337,490,816) (5,379,990,858) 1,869,195,640 4,280,458,016
Feb. 28, Exercise of stock options 342,060 4,372,946 1,871,947,064 4,286,758,777 2006 Exercise of stock subscription warrants 14,525 152,438 1,871,961,589 4,286,792,038
The following table indicates the Company’s fully diluted share capital, assuming that the maximum number of new shares is issued following conversion of all outstanding convertible bonds and the exercise of all outstanding stock options.
Subordinated convertible bonds Subordinated convertible bonds from February 8, 1999 from February 17, 2000
Maturity of the bonds Redemption on January 1st, 2014 at Redemption on January 1st, 2017 at 230.88 euros per bond, i.e. 139.93% of 269.16 euros per bond, i.e. 162.63% of the nominal amount the nominal amount
– at the option of the issuer, in cash, from – at the option of the issuer, in cash, from January 1st, 2005 at a price with a gross January 1st, 2007 at a price with a gross 4.45 % actuarial yield, if the Company’s 6.00 % actuarial yield, if the Company’s share average over 10 consecutive days share average over 10 consecutive days is above 125% of the anticipated is above 125% of the anticipated repayment price, repayment price,
In addition, following the merger of FINAXA into AXA, AXA has assumed FINAXA’s liabilities in respect of convertible bonds issued in 1997. Although the maturity date is January 2006, bondholders have until March 2006 to present them for redemption. As of February 28, 2006, 6,933 bonds were still outstanding. If converted, they would result in the issuance of 26,276 new AXA shares.
Analysis of self-held shares in terms of objectives as of February 28, 2006
Type of securities Maximum % of share capital Maximum number of shares Maximum purchase price as of February 28, 2006 (per share)
(a) 10% of share capital less the % of shares owned by subsidiaries.
Number of shares purchased since the beginning of the program 44,143,087
(a) Through the exercise of options, the conversion of debt instruments with a claim on share capital, etc.
To the best of the Company’s knowledge, the table below summarizes its capital ownership and voting power as of February 28, 2006: Number of shares Capital ownership Voting power
As of February 28, 2006, Mutuelles AXA1, directly and indirectly owned 14.30% of the share capital and 23.29% of the voting power at AXA shareholders’ meetings.
To the best of the Company’s knowledge, subsidiaries of the AXA Group do not hold any AXA shares that are pledged. In addition, to the best of the Company’s knowledge, a very small number of individual registered shareholders hold AXA shares that are pledged.
The changes in the Company’s share capital between December 31, 2003 and December 31, 2005, are described in the table below: December 16, 2005, set forth the preferential terms and conditions governing the acquisition or disposal of AXA and BNP Paribas shares, and provide for the maintenance of stable cross-shareholdings between the two groups as follows: – the AXA Group agrees to hold at least 43,412,598
BNP Paribas shares. – the BNP Paribas Group agrees to hold at least 61,587,465 AXA shares.
As of December 31, 2005 As of December 31, 2004 As of December 31, 2003
Number Capital Number Voting Number Capital Number Voting Number Capital Number Voting of shares ownership (%) of votes power (%) of shares ownership (%) of votes power (%) of shares ownership (%) of votes power (%)
The clauses of the Agreement which was filed with the AMF (Autorité des Marchés Financiers) on
Fiscal year Distribution Number of Net dividend Tax credit Dividend eligible Gross dividend (in euro millions) shares (as of per share per share for abatement per share
December 31) in euros in euros in euros in euros * As of January 1, 2005 individual shareholders who had elected tax domicile in France were eligible for an abatement of 50% on the dividend, i.e 0.305 euro per share for fiscal ** As of January 1, 2006 individual shareholders who have elected tax domicile in France are eligible for an abatement of 40% on the dividend, i.e 0.35 euro per share for fiscal year 2005.
AXA determines its dividend policy on the basis of its adjusted earnings, and currently intends to distribute 40 to 50% of that sum on a recurrent basis. The dividend presented to the approval of the shareholders of AXA is proposed by the Management Board and Supervisory Board, which have the discretion to adjust this dividend at each year-end closing.
Ordinary shares or securities granting a claim to shares of the Company at maturity through subscription, conversion, exchange, redemption, presentation of a warrant or other (d) 6 billion (b) 1 billion (c) 26 months June 20, 2007
Performance shares – 0.5% of the share 38 months June 20, 2008 capital (e)
(a) Independent ceiling. (b) The face value of debt instruments associated with the issue of securities may not exceed the global upper limit of 6 billion euros. This upper limit is separate and distinct from the amount of the securities that give the right to grant debt securities (ceiling of 2 billion euros). (c) The face value of the capital increase may not exceed the global upper limit of 1.5 billion euros. (d) Including the issue of ordinary shares or securities for up to 10% of the share capital in accordance with the terms and conditions determined by the shareholder meeting, in the event of a public offer initiated by the Company, in consideration for contributions in kind for up to 10% of the share capital, or as result of a securities issue by subsidiaries of AXA. (e) At the date of the Shareholders meeting of April 20, 2005. (f) At the date of attribution of the options by the Management Board.
Pursuant to Article 221-1-1 of the AMF General Regulation, the Annual Information Document below mentions all the information published by the Company or otherwise publicly disclosed in the course of the last 12 months, in one or more states that are party to the Agreement on the European Economic Area (EEA) or in one or more countries outside the EEA for the purpose of abiding by its legal or regulatory disclosure obligations pertaining to financial instruments.
AXA reports 2004 IFRS results – Principles and results are in line with our January Indicators – Balance sheet strength and earnings capacity are confirmed (June 21, 2005)
Update on the merger of FINAXA into AXA (June 29, 2005)
AXA announces that it has acquired 98.6% of the bonds exchangeable into AXA shares issued by FINAXA (November 16, 2005)
AXA et FINAXA have filed an E document with the AMF related to the AXA-FINAXA merger (November 21, 2005)
AXA announces that it has acquired 99.62% of the bonds exchangeable into AXA shares issued by FINAXA (November 21, 2005)
AXA closes the first securization of a motor insurance porfolio (December 9, 2005)
AXA launches an offer to acquire shares from minority shareholders of its German subsidiary AXA Konzern AG (January 9, 2006)
Strong 2005 activity performance with further acceleration in all of our businesses in 4Q05 (January 26, 2006)
AXA sponsors launch of the 4th annual “Carbon Disclosure Project” (February 2, 2006)
AXA has reached the 95% threshold of the share capital in its German subsidiary AXA Konzern AG
Notice of Meeting (Extraordinary General Meeting – December 16, 2005) (October 26, 2005)
Notice to the holders of bonds of the preferential subscription rights 2.75% September 1997 /
Notice of meeting (Shareholder’s meeting of May 4, 2006) (April 07, 2006)
Information published for the last 12 months Sources of Information (Internet links etc...)
Extract of the minutes of the Supervisory Board of February 23, 2005 regarding the cooptation of a member of the Supervisory Board (April 6, 2005)
Extract of the minutes of the Shareholders’ Meeting of April 20, 2005 regarding the financial authorisations (May 16, 2005)
Extract of the minutes of the Management Board of April 20, 2005 regarding the statutory modifications
Extract of the minutes of the Management Board of October 17, 2005 regarding the increase of the share capital (October 27, 2005)
A copy of the “BALO” dated March 18, 2005 containing the Notice of Meeting
A copy of the “BALO” dated October 26, 2005 containing the Notice of Meeting
Copies and acknowlegement of receipts of the recorded delivery letters sent to the auditors
A copy of the amendment to the treaty of merger signed on October 18, 2005
March 24, 2005 to April 6, 2005 As of November 21, 2005
December 5 to December 9, 2005 March 27 to March 30, 2006
December 12 to December 15, 2005 April 3 to April 6, 2006
Free translation of AXA’s French “Document de Référence” for the year ended December 31, 2004 filed with the AMF (the French stock exchange regulatory authority) on February 24, 2005
Form 6-K for July 2005: Press Release issued on July 28, 2005 by AXA announcing its half year 2005 activity indicators.
Forms 6-K for September 2005: Press Release issued on September 6, 2005 by AXA, announcing its half year 2005 performance
Press Release issued on December 16, 2005 by AXA, announcing that the AXA and FINAXA Shareholders’ meetings voted in favour of the merger of FINAXA into AXA
Form 6-K for April 2006: Press Release issued on April 7, 2006 by AXA, announcing its receipt of a binding offer from Stone Point Capital for AXA RE’s business
Anticipated sources of funds needed to finance the principal investments in progress or future
Investments under way or to come will be financed by the Group’s usual and recurrent means of funding.
We performed our work in accordance with the professional standards applicable in France: those standards require that we plan and perform the review to obtain reasonable assurance about whether the evidence supporting the information in our possession is consistent with that information.
Agreement approved in prior fiscal years that remained in force in 2005: Pursuant to the French Decree of March 23, 1967, we were informed that the following agreements, approved in prior fiscal years, remained in force in 2005: With BNP Paribas. The agreement signed on December 15, 2005 which is detailed in the section entitled “Agreements authorized during the 2005 fiscal year”, replaces the agreement dated September 12, 2001 and amended on October 26, 2004.
AXA earned 7,061,501 euros excluding taxes in annual fees for the year ended December 31, 2005. Under the terms of the license, AXA owed 80% of this amount to FINAXA, i.e. 5,649,201 euros excluding taxes.
In light of the merger of FINAXA with and into AXA, which was ratified by the shareholders of the two companies in separate meetings held on December 16, 2005, effective as of January 1, 2005 (for tax and accounting purposes), FINAXA did not issue invoices to AXA in respect of these fees for the amount of 6,286,530 euros excluding taxes. It corresponds to 80% of the global amount received from its subsidiaries (5,649,201 euros excluding taxes) and the fixed annual license fee (637,329 euros excluding taxes).
Introduction / p. 100 Life & Savings Segment / p. 102 Property & Casualty Segment / p. 111 International Insurance Segment / p. 115
The Company is the holding company for AXA, a worldwide leader in financial protection. Based on available information at December 31, 2005, AXA was one of the world’s largest insurance groups, with consolidated gross revenues of €71.7 billion for the year ended December 31, 2005. AXA is also one of the world’s largest asset managers, with total assets under management as at December 31, 2005 of €1,063.8 billion, including assets managed on behalf of third party clients in an aggregate amount of €568.6 billion. Based on available information at December 31, 2004 and taking into account banking companies engaged in the asset management business, AXA was the world’s 6th largest asset manager1, with total assets under management of €871.5 billion.
(1) Source AXA from Pensions & Investments, Watson Wyatt Global 500 survey.
Total gross revenues (in euro millions) 71,671 67,030 Life & Savings 63% 63%
International Insurance 5% 5% AXA RE 38% 31% AXA Corporate Solutions Assurance 42% 45% AXA Cessions 2% 3% AXA Assistance 14% 14%
AXA’s Life & Savings segment offers a broad range of life insurance products including retirement and health insurance products for both individuals and group, with an emphasis on savings-related products including assets backing contracts with financial risk borne by policyholders (unit-linked) products. The Life & Savings segment accounted for €45.1 billion or 63% of AXA’s consolidated gross revenues for the year ended December 31, 2005 (2004: €42.3 billion or 63% respectively).
Fees and charges relating to investment contrats with no participating feature 509 – 417 –
(a) MONY was acquired on July 8,2004, and represent respectively €980 million in 2004 and €1,381 million in 2005 of the revenue recorded. (b) Proforma 2004 take into account the impacts of the following change in scope: – As of January 2005, Turkey was fully consolidated instead of being accounted for under the equity method. If full consolidation had been applied in 2004, revenues would have been €61 million higher.
– As of December 1, 2004, in the Netherlands, sale of the Health portfolio (€149 million), transfer of the Disability activity from Life & Savings to Property & Casualty activity (€76 million). 2004 revenues would have been €225 million lower if Health and Disability activity had been excluded.
United States. In the annuity market, industry sales of variable annuities were up 3%, driven by strong equity markets and the continued popularity of guaranteed living benefit riders. Industry fixed annuity sales decreased 10% as a result of the low interest rate environment and competition. In the life insurance market, total life industry sales were up 2% with continued weakness in variable life market, down 10% from 2004. The variable life business generally lags the movement in the equity market. Sales of life insurance products with fixed returns, such as universal life, continued their strong traction in 2005 with industry universal life sales up 13%.
Insurance, especially for products with a one-time pay-out option. This led to a run for these old products in Q4 2004 and decl ining premium volumes in 2005. Also in the future, an ongoing need to replace defined benefit systems is expected to push group life pension products in general. As expected, there was not much demand for the core products of the Retirement Earnings Law (“Alterseinkünftegesetz”), the “Rürup” pensions, as they are inflexible. In contrast, the also highly regulated “Riester”-products profited from simplification and increased flexibility. The year 2005 proved to be the second strongest year since their introduction in 2002. This was also spurred mainly in Q4 by the announced introduction of uni-sex tariffs; the influence on absolute premium volumes will mainly come into effect in 2006.
In Belgium, the market benefited from a strong growth in 2005 (+18.5% compared to +13.4% in 2004). The upturn of the Unit-Linked market has been confirmed and even accelerated (+47%) while the Non UnitLinked market has grown substantially (+11.3%).
Australia / New Zealand. The savings related investment sector continued to be a growth area in Australia for 2005. Strong local investment returns have translated into high net flows in the mutual fund and advice market. The pension market experienced funds growth of 20.8%1 over the year, driven by the strong investment market and the mandatory pension scheme in Australia. Continued government support for self-funded retirement has driven two major changes in pension funds during 2005 – the abolition of the surcharge (a tax on contributions) from 30 June 2005 and the allowance of spouse co-contributions from 1 January 2006. The risk insurance market continued to record strong growth, climbing a further 11.9%2 over the year.
Hong Kong. The economy continued to grow in 2005 assisted in part by the Closer Economic Partnership Agreement (CEPA) with more than 12.5 million Mainland Chinese visiting Hong Kong in 2005, up 2.4% on 2004. The Hang Seng Index grew 4.5% during 2005. The life insurance market has showed growth, for the 9 months to September 2005, with the individual life market new business sales increasing by 5.3%. Increasing affluence and investor sophistication is now starting to drive growth in more sophisticated financial planning models. Now at the end of its fifth year, the Mandatory Provident Fund (MPF) is increasingly important to Hong Kong residents and there is growing awareness that MPF alone will not provide sufficient assets to fund post-retirement lifestyles. This along with the significant level of bank savings, has increased the awareness of a need for wealth management and financial advice products.
In each of its principal markets, AXA operates through well-established life insurance companies. AXA’s principal life insurance subsidiaries are set out below: – Europe: France: AXA France Vie United Kingdom: AXA Sun Life Plc Germany: AXA Lebensversicherung AG
– Asia / Pacific region: Japan: AXA Group Life Insurance and
The table below presents the life insurance markets in which AXA operates ranked by worldwide gross revenues in 2004, along with AXA’s ranking (by market share): BASED ON WORLDWIDE GROSS LIFE INSURANCE REVENUES Country Statistics (a) AXA (b)
In addition to the principal markets mentioned above, AXA offers l i fe, health and retirement products in other countries in Europe (Netherlands, Luxembourg, Switzerland and Turkey), in Canada, in Australia and New Zealand, in Asia (notably Hong Kong, Singapore, and China), in the Middle East and in Africa (including Morocco). The products in these markets are offered through various distribution channels, including general agents, salaried sales forces, bank networks, financial advisers and brokers.
AXA’s Life & Savings products include a broad range of l i fe, health, retirement and savings-related products marketed to individuals and corporate clients, the latter in the form of group contracts. The Life and Savings-related products offered by AXA include term life, whole life, universal life, mortgage endowment, deferred annuities, variable annuities, immediate annuit ies, variable l i fe and other investment-based products. The health products offered include critical illness and permanent health insurance products. The nature of the products offered by AXA varies from market to market.
In Germany the new legal framework that came into effect on January 1, 2005, accelerated the trend in favor of pension products. Among those pension products that benefit from a special tax treatment the “Riester-Rente” products met significantly higher demand, while the new “Rürup-Rente” products early performance was disappointing.
Certain of AXA’s Life & Savings products are participating contracts, which enable the policyholders to participate in the excess assets over liabilities (the surplus) of life company issuing the contract through an interest or bonus payment. AXA offers this type of participating contracts in most of its principal Life & Savings operations. The policyholder may participate in the investment return and/or in part of the operating profits earned by the issuing company. The nature and extent of such participation vary from country to country. Therefore, such participations, including policyholder participations on UK “With-Profit” business (explained below), are treated as dividends that may either increase the present value of future policy benefits or be paid in cash to the policyholder in the year the bonus is credited.
UK “With-profit” business A participating contract, specific to United Kingdom and known as the “With-Profit” contract, is offered by many life insurance companies in the United Kingdom including AXA Sun Life. In 2002, AXA decided to cease the marketing of new On Shore “With-Profit” contracts. Under “With-Profit” contracts, policyholders’ premiums are paid into a fund and are invested in a range of assets, including fixed maturity and equity securities, real estate and loans. The policyholders are entitled to receive a share of the profits arising from these investments which includes regular bonuses and terminal bonuses. The regular bonuses are designed to provide a return to the policyholder through a periodic increase in benefits and are credited to the policyholder. Periodically, they do not reflect the return earned by the issuing company over period. Once credited, regular bonuses are guaranteed to be paid at maturity, death or as otherwise specified in the policy. Terminal bonuses, which are not guaranteed in advance of payment are designed to provide policyholders with their share of total investment performance (including investment income and realized and unrealized investment gains or losses) and other experience of the fund ( including
Contracts with financial risk born by policyholder’s products (Unit-Linked) In 2005, AXA’s Life & Savings operations continued to experience growth in savings-related asset backing contracts with financial risk borne by policyholders. This growth has been significant in Europe and is mainly attributable to (i) an increase in consumer appetite of such products, (ii) government initiatives to move away from state funded pensions to private funded pensions and (iii) favorable financial market performance in 2004 and 2005. Gross premiums on such business have increased from €7.7 bil l ion in 2004 to €13.2 bil l ion in 2005, representing 30% of total Life & Savings gross revenues compared to 19% in 2004.
AXA distributes its Life & Savings products through a number of channels that vary from country to country including notably exclusive agents, independent brokers, salaried sales forces, direct marketing (mail, telephone, or internet sales) and specialized networks (including banks and other financial services providers).
For most Life & Savings products, costs to the issuing company in the first year are higher than costs in subsequent years due to f irst year commissions and the costs of underwriting and issuing a contract. Consequently, the rate of policies remaining in-force and not lapsing, also known as the “persistency rate”, plays an important role in profitability. The majority of individual Life & Savings products issued by AXA may be surrendered for a cash surrender value. Most of the individual Life and Saving products issued by AXA have front-end charges to the policyholder (or subscription fees), which are assessed at the inception date of the contract and/or surrender charges (charges assessed in the case of early surrender). Both frontend charges and surrender charges are intended to offset a portion of the acquisition costs.
BASED ON GROSS WRITTEN PREMIUMS Agents, direct Intermediaries / Other networks, including IN 2005 sales force, salaried sales independent advisers / brokers corporate partnerships force and Marketing and bank networks
BASED ON GROSS WRITTEN PREMIUMS Agents, direct Intermediaries / Other networks, including IN 2004 sales force, salaried sales independent advisers / brokers corporate partnerships force and Marketing and bank networks
(a) Gross written premiums are splited based on the APE by channel. (b) Gross written premiums under IFRS overweight the share of agents, direct sales, salaried sales force and marketing direct in United Kingdom.
Total surrenders & lapses Surrenders & lapses ratio (in euro millions) % %
Total surrenders and lapses for 2005 and 2004, and the ratio of surrenders and lapses to gross surrenderable insurance reserves at the beginning of the periods indicated are presented below:
AXA’s Property & Casualty segment offers a range of personal and commercial insurance products. The Property & Casualty segment accounted for €18.9 billion, or 26% of AXA’s consolidated gross revenues for the year ended December 31, 2005 (2004: €17.9 billion or 27% respectively).
The table below summarizes AXA’s consolidated gross premiums and financial services revenues (after inter-segment eliminations) and insurance liabilities for the Property & Casualty segment for the periods and as at the dates indicated.
(a) Proforma 2004 take into account the impacts of the following change in scope: (b) In United Kingdom, the right to renew our UK Personal Direct business was sold to RAC in October 2004. In 2004, revenues from this activity amounted to €110 million. (c) In Others countries, as of January 2005, Turkey, Hong-Kong and Singapore are fully consolidated instead of being accounted for under the equity method. If full consolidation had been applied in 2004, other countries 2004 revenues would have been €487 million higher. In addition, the Netherlands disability activity has been transferred from Life & Savings to Property & Casualty. Other countries 2004 P&C revenues would have been €76 million higher if disability had been included.
In each of its principal markets, AXA operates through well-established Property & Casualty insurance companies.
AXA’s principal Property & Casualty insurance subsidiaries are set out below: France: AXA France IARD, AVANSSUR
Information on the 2005 market conditions in the geographical markets in which AXA operates is provided in the introduction of the Activity Report.
The table below presents the Property and Casualty markets in which AXA operates ranked by worldwide gross revenues in 2004, along with AXA’s ranking (by market share).
AXA’s principal markets is highly competitive, and tends to be cyclical with surplus underwriting capacity leading to lower premium rates. The principal competitive factors are as follows: – Price, – Quality of service, – Distribution network, – Brand recognition, – Ratings for financial strength and claims-paying ability and – Changes in regulations, which may affect premium rates charged or claims settlement costs paid.
In France, Germany and Belgium, markets are fragmented. In the United Kingdom, industry-wide consolidation across the sector has affected both major insurance companies and brokers, resulting in
AXA’s Property & Casualty insurance operations offer a broad range of products including automobile, homeowners / household, property and general liability insurance for both personal and commercial customers, the latter specifically focusing on small to medium-sized companies, and permanent health insurance.
AXA distributes its Property & Casualty insurance products through a number of channels that vary from country to country, including exclusive agents, independent brokers, salaried sales forces, direct marketing (mail, telephone or internet sales) and specializes networks (corporate partnerships and bank networks). In Europe, the same distribution channels are used by both AXA’s Life & Savings operations and Property & Casualty operations. The split by distribution channels used by AXA’s Property & Casualty operations, based on gross revenues for the year ended December 31, 2005, is presented below.
AXA’s International Insurance segment is primarily comprised of AXA RE for the reinsurance activities and AXA Corporate Solutions Assurance for large risks insurance activities.
AXA Cessions is an intra-group reinsurance company. Certain companies within the AXA Group cede internally some of their exposure to AXA Cessions which analyses, structures and places reinsurance programs for such risk with third-party reinsurers. It also provides advice in risk management and purchases of reinsurance cover to AXA group subsidiaries.
AXA Liabilities Managers (classified below in other international activities), manages the internal Property & Casualty run off portfolios either located in AXA RE, AXA Belgium, and AXA UK or corresponding to stand-alone run-off companies of the “Other transnational activities” segment (inclusive of the Property & Casualty entities formerly managed by AXA RE in the United States).
The table below summarizes AXA’s consolidated gross revenues and gross insurance liabilities for the International Insurance Segment for the periods and at the dates indicated: International Insurance Segment
INTERNATIONAL INSURANCE SEGMENT Gross revenues Gross insurance Years ended December 31, liabilities
On the Large Risks Insurance market, after several years of rate increases and restructuring of large Corporate Insurance programs, underwriting conditions reflected a general softening of the market affecting rates. However the occurrence of several natural events, especially in the US, led to a stabilization of the rates towards the end of the year.
AXA RE - Reinsurance activity These operations rely mostly on treaties (about 90% in both proportional and non proportional reinsurance)
AXA CORPORATE SOLUTIONS ASSURANCE – Large risk insurance activity AXA Corporate Solutions Assurance underwrites large insurance r isks for large national and international corporations. The products cover property damage, third party liability, marine, aviation and transport, construction risk, financial risk, and directors and officer’s liability. It also offers lossprevention and risk management services.
The table below presents the International Insurance segment’s gross revenues and gross insurance liabilities by major product for the periods and as at the dates indicated.
In 2005, AXA Corporate Solutions Assurance ceded €653 million premiums (2004: €588 million) to thirdparty reinsurers.
Specifically, stock and hybrid fund net inflows decreased by 24% and 41% respectively, as net inflows for long-term bonds largely offset net inflows in equity funds, partially reflecting the continued demand for life-style funds, asset allocation funds, and target maturity funds. The demographics changes in the United States and other developed economies have increased the pool of savings available for private investment and created substantial demand for investment products and services.
Asset Management is important to AXA, from both a strategic and profitability perspective. The development of Asset Management activities is a key part of AXA’s financial services strategy, which seeks to capitalize on existing strengths and expand its client base. This strategy is based on the belief that its Asset Management expertise will enable AXA to benefit in the future from the expected growth in savingsrelated products in the markets in which it operates. The Asset Management segment accounted for €3.4 billion of AXA’s consolidated gross revenues for the year-ended December 31, 2005 (2004: €3.1 billion ).
AXA has Asset Management specialist’s teams in each of its major markets: Western Europe, the United States and the Asia / Pacific region.
Assets backing contracts with financial risk borne by policyholders 76,714 66,138
In the 4th Quarter 2005, AXA IM finalized the acquisition of Framlington, a UK-based asset management company specialized in retail market segment. This acquisition gives AXA IM critical mass and visibility on the UK market.
As at December 31, 2005, AXA IM had €432 billion of assets under management, including €137 billion of assets managed on behalf of third party clients (2004: €345 billion, €88 billion respectively).
AXA Bank Belgium, a subsidiary of AXA Belgium, offers a comprehensive range of financial services to individuals and to small businesses. It has a network of a thousand of independent bank agents that support the sale of products offered by AXA Belgium and AXA Investment Managers. The historical low level of long term interest rates resulted in a large increase of the gross production in mortgage loans. AXA Bank Belgium has a market share of 11%1. The low interest rates also generated a high level of prepayments. The growth in deposit accounts is lower than previous year following the decrease of the base rate and the success of structured mutual funds with capital guarantee and Life Insurance products.
Based in Paris, AXA Banque delivers banking services and loans to retail customers of AXA France insurance businesses and to other customers mainly through Internet. AXA Banque managed 516 000 customers at year-end 2005, corresponding to an increase of 21% higher compared to 2004. Its main activities include bank accounts services and sale and servicing of savings instruments and loans.
At December 31, 2005, based on total invested assets1, the net book value of the insurance-related invested assets supporting the general account Life & Savings operations primarily consisted of fixed maturity investments and equity investments of 72% and 11%, respectively (71% and 10% in 2004). At such date, the insurance-related invested assets supporting the Property & Casualty operations primarily consisted of fixed maturity investments and equity investments of 64% and 20%, respectively
INSURANCE – RELATED INVESTED ASSETS Life & Savings Property & Casualty
Of which allocated to UK with-profits 18,306 18,306 – – Held for trading 142 142 – – Non quoted fixed maturities (amortized cost) 17 17 – – Total fixed maturities 197,692 197,692 27,713 27,713 by issuers
– French government 25,536 25,536 3,070 3,070 – Foreign government 62,026 62,026 12,654 12,654 – Local administration 1,845 1,845 199 199 – Public and semi public sectors 31,545 31,545 4,442 4,442 – Private sector 68,921 68,921 5,995 5,995 – Guaranteed by a mortgage 5,647 5,647 168 168 – Other 2,112 2,112 1,163 1,163
Equity securities Available-for-sale 18,834 18,834 8,172 8,172 At fair value through P&L 18,150 18,150 621 621
Of which allocated to UK with-profits 10,620 10,620 – – Held for trading 101 101 – – Total equity securities 37,085 37,084 8,792 8,792 Non controlled investment funds Available-for-sale 1,540 1,540 637 637 At fair value through P&L 1,876 1,876 36 36
Of which allocated to UK with-profits 114 114 – – Held for trading 185 185 10 10 Total Non controlled investment funds 3,601 3,601 683 683 Total Other assets held by consolidated investment funds designated as at fair value through P&L 1,778 1,778 131 131 Total Macro hedge and speculative derivatives (209) (209) – – Real Estate
Net carrying Market Net carrying Market Net carrying Market value value value value value value
AXA’s fixed maturity, equity investments and non controlled investment funds are predominantly publicly traded (85% compared to 86% in 2004). These investments are held by AXA’s principal insurance operations in France (32%), the United Kingdom (including Ireland) (14%) the United States and Southern Europe (4%).
Derivatives. AXA uses derivative instruments to minimize adverse fluctuations in equity prices, interest rates, foreign exchange rates. The basis for which AXA manages these risks, the sensitivities associated with managing these types of risks, and the potential impact on the AXA consolidated financial results are set out in further detail in note 20 to the consolidated financial statements included in this annual report.
On July 8, 2004, following the receipt of all required regulatory approvals and the satisfaction of all conditions to the merger agreement, AXA Financial, Inc. has finalized the acquisition of the MONY Group, Inc. (“MONY”), including MONY Life, MONY Life of
America, Enterprise Capital Management, Advest and MONY Partner. This acquisition reinforce AXA Financial Life & Savings and asset management activities and will enable AXA to greatly expand its presence and influence in the U.S. market for financial advice, by increasing its multi-channel distribution networks and client bases. Following this acquisition, AXA Financial, Inc. holds 100% of the MONY Group, Inc.
On December 2, 2005, AXA Financial Group sold Advest to Merrill Lynch. Advest was a wholly owned subsidiary of AXA Financial Group and part of its Financial Advisory/Insurance segment. In accordance with the terms of the agreement, Merrill Lynch purchased all of the issued and outstanding capital stock of Advest for $400 mill ion in cash. This transaction reduced AXA Financial Group’s goodwill by an estimated €152 million. Total net income impact of the transaction is €–71 million, post tax.
In recent years, AXA has expanded its Insurance and Asset Management operations through a combination of acquisitions, joint ventures, direct investments and organic growth. This expansion has been funded primarily through a combination of (i) proceeds from the sale of non-core businesses and assets, ( i i ) dividends received from operating subsidiaries, (iii) proceeds from the issuance of subordinated convertible debt securities, other subordinated debt securit ies and borrowings (including debt issued by subsidiaries), and (iv) the issuance of ordinary shares.
The Company and each of its major operating subsidiaries are responsible for financing their operations. The Company, as the holding company for the AXA Group, co-ordinates these activities and, in this role, participates in financing the operations of certain subsidiaries. Certain of AXA’s subsidiaries, including AXA France Assurance, AXA Financial Inc., AXA Asia Pacific Holdings and AXA UK Plc. are also holding companies and are dependent on dividends received from their own subsidiaries to meet their obligations. Operating entities have to meet multiple regulatory constraints, in particular a minimum solvency ratio. The size of dividends paid by entities to the AXA parent company take into consideration these constraints as well as potential future regulatory changes. However, based on the information currently available, AXA does not believe that such restrictions constitute a material limitation on its ability to meet its obligations or pay dividends.
Asset Management and Other Financial Services The principal sources of liquidity relating to these operations are operating cash flows, but also, if necessary, proceeds from the issuance of ordinary shares, drawings on credit facilities and other borrowings from credit institutions.
At December 31, 2005, AXA’s cash and cash equivalents stand at €19.5 billion (2004: €19.8 billion), excluding bank overdrafts of €0.8 billion, (2004: €0.7 billion). Cash and cash equivalents at the parent company fell by €685 million from €1,005 million to €320 million. Most of the decline arose from AXA’s November 2005 purchase of FINAXA bonds exchangeable into AXA shares, along with the share purchase programme intended to control dilution resulting from share-based compensations and employees Shareplan program.
As part of its risk control system, AXA has for a number of years paid constant attention to contractual clauses, particularly those that may lead to early redemption. A large proportion of AXA’s debts consist of subordinated bonds with no early redemption clauses, except in the event of liquidation. Early redemption clauses (puts, default triggers, rating triggers) are in general avoided by AXA. However, when market practice makes them unavoidable, AXA has a centralised method of monitoring these clauses. AXA is not currently exposed to early redemption clauses that could have a significant impact on its financial structure.
Subordinated debt At December 31, 2005, the parent company had outstanding subordinated debt (excluding accrued interest) of €8,974 million, or €7,837 million taking into account a €1,137 million reduction due to the impact of foreign exchange hedging derivative instruments.
At 31 December, 2005, the number of shares that could be issued as a result of bond conversions was 64.4 million, compared to 64.3 million at end-2004. This increase is due to convertible bonds issued by FINAXA in 1997, and now located in AXA, following the AXA – FINAXA merger.
On a consolidated basis, AXA’s total financing debt instruments issued amounted to €2,817 million at December 31, 2005, a decrease of €86 million from €2,903 million in 2004. At constant exchange rates, the decline was €327 mil l ion (exchange rate movements had an adverse impact of €241 million, mainly on the foreign currency-denominated financing debt instruments issued by US and UK entities). The decline arose mainly from: – €210 million bonds MONY Group Inc. maturing in 2005; – the redemption of EMTNs (Euro Medium Term Notes)
and BMTNs (Bons à Moyen Terme Négociables) by the parent company (€332 million).
Financing debt owed to credit institutions At December 31, 2005, amounts owed by AXA and its subsidiaries to credit institutions were stable at
Other debts by issuance At December 31, 2005, other debts by issuance (including €0.8 billion of bank overdrafts), totalled €6,000 million of the total amount of debt owed to credit institutions, increasing by €413 million or €380 million at constant exchange rates. The rise was attributable primarily to the following items: – a €435 million increase at AXA Bank Belgium as part of liquidity management in banking activities; – a €68 million increase in bank overdrafts across the whole Group.
These movements were partly offset by: – lower debts at CDO Jazz 1 (€–119 million), in line with lower volume of managed assets backing these credit lines; – an €86 million decrease in German operating debts further to the transfer of the mortgage business to AXA Leben.
Issuance of ordinary shares Since 1994, AXA has regularly offered employees in France and abroad the opportunity to subscribe to reserved share issues. Through these issues, employees invested €304 million in 2005, leading to the issue of 16.3 million new shares. At December 31, 2005, AXA employees held approximately
In 2005, AXA initiated a program to purchase its own shares in order to control dilution resulting from share-based compensations and employees Shareplan program. Under this program, AXA bought around 20 million AXA shares for a total of €512 million, which were cancelled thereafter.
In extraordinary shareholders’ meetings held on December 16, 2005, AXA and Finaxa shareholders approved the merger between the two companies, with a majority voting in favour of the transaction. The integration of Finaxa within AXA has retroactive effect from January 1, 2005 in accounting and tax terms for the AXA SA parent company. The transaction resulted in the creation of 299 million AXA shares on December 16, 2005, and the cancellation of 337.5 million AXA shares owned by Finaxa and its subsidiaries, effective January 9, 2006 at the end of the creditor opposition deadline.
Dividends received Dividends paid to the Company were €1,420 million in 2004 (2004: €970 million, 2003: €1,109 million), of which €74 million were in currencies other than the euro (2004: €121 million, 2003: €250 million).
The €450 million increase in dividends in 2005 was mainly due to the following factors: (i) Dividends received from European companies rose by €592 million to €1,309 million, including €901 million from AXA France Assurance, €146 million from Belgium and €142 million from Southern European companies. This increase reflects these subsidiaries’ greater payout capacity resulting from improved earnings and surplus capital relative to solvency positions. The main increase was from AXA France Assurance, which raised dividends by €321 million (including an interim dividend of €236 million). Belgium increased dividends by €118 million, Southern Europe by €80 million and AXA RE by €53 million.
The Company is not subject to restrictions on dividend payments, provided that its accumulated profits are sufficient to cover them. However, some subsidiaries, particularly insurance companies, are subject to restrictions on the amount of dividends they can pay to shareholders. For more information on these restr ict ions, see Note 29.3 to the consolidated financial statements.
Dividends paid to AXA shareholders in 2005 totalled €1,164 million in respect of the 2004 financial year, or €0.61 per ordinary share, versus €0.38 per share paid in respect of the 2003 financial year (€676 million in 2003). All of these dividends were paid in cash.
The solvency and capital adequacy margin are calculated mainly based on a formula that contains variables linked to economic, financial and technical parameters and the matching of specific categories of assets and liabilities.
This directive was transposed into French law by an ordinance dated December 12, 2004, which introduced the notion of a “financial conglomerate” into the insurance code. Article 20 of this ordinance states that it shall apply for the first time to accounts opened as of January 1, 2005.
AXA is not regarded as a financial conglomerate. However, in accordance with the decree of September 19, 2005, if a company is not subject to additional supervision in this respect, the solvency margin is however reduced to the extent of any equity stakes that the company holds in credit institutions, investment companies and financial institutions.
The application of directives is regulated in France by the Autorité de Contrôles des Assurances et des Mutuelles (ACAM).
The Management Board is proposing to pay a dividend of €0.88 per share on May 12, 2006. This dividend wil l give rise to a 40% tax credit for individuals whose fiscal residence is in France as of January 1, 2006, equal to €0.35 per share.
In 2006, AXA has continued its program to buy AXA shares, in order to control dilution resulting from share-based compensations and employees Shareplan program. AXA bought 9.4 million AXA shares in January 2006 for a total of €0.25 billion.
The Risk Management organization / p. 134 Market risks / p. 136 Controlling exposure and insurance risk / p. 146 Credit risks / p. 150
Risk Management has five main priorities: – Co-ordinating and monitoring asset-liability management (ALM) and carrying out Economic Capital work.
– Approving new products prior to launch and promoting product innovation.
Local Risk Management teams are in charge of applying AXA risk management standards and implementing the minimum requirements set by GRM.
The Risk Management departments of operational entities are managed by local Chief Risk Officers, who
– Reviewing local technical reserves and optimizing entities’ reinsurance strategy (see section “Monitoring of Property & Casualty reserves”).
– Working with local internal audit teams to identify and quantify the main operational risks (see section “General principles”).
Primary responsibility for risk management, including market risk, rests with the Group’s local subsidiaries, which have the best knowledge of their products, policyholders and risk profile. This approach allows subsidiaries to react in an accurate and targeted manner to changes in financial markets, insurance cycles and the political and economic environment in which they operate.
– Reinsurance is also used GMIB (Guaranteed Minimum Income Benefit) products, to mitigate financial risks.
AXA’s exposure to market risk is reduced by its broad range of operations and geographical positions, which provides good risk diversification. Furthermore, a large portion of AXA’s Life & Savings operations involve separate-account products, in which most of the financial risk is borne directly by policyholders.
ALM figures and information on the AXA Group’s main implementation, co-ordination and control processes are set out below.
The policies put in place to manage these risks are tailored to each product type and the risks relating to it. The percentages provided below, relating to the allocation of life insurance reserves by product type and thus AXA’s obligations to its policyholders, are derived from management data: – 29% of AXA’s life insurance mathematical reserves cover separate-account (unit-linked) products that do not affect AXA’s risk exposure. This category includes products that provide a guarantee on invested capital in the event of death. On these products, the underlying f inancial market performance is passed on to policyholders in full. In cases where these products include interest-rate guarantees, they are usually managed by a financial partner within the separate account. Consequently, they do not present any market risk.
– 9% of AXA’s life insurance mathematical reserves cover separate-account products with related interest-rate guarantees provided by the insurance company. Suitable risk management policies have been put in place.
– 7% of AXA’s life insurance reserves are related to products offering one-year guaranteed rates that are updated every year. The risks in event of a sustained fall in interest rates are limited for these types of products, which mainly concern policies in France and collective policies in Japan. Hedging derivatives programmes are often implemented to cover longterm bonds from the risk of an increase of interest rates.
– Foreign-exchange rate risk is relatively limited as commitments in foreign currencies are largely backed by assets in the same currencies.
The investments of Property & Casualty insurance companies are therefore managed so as to optimize the return on assets while bearing in mind both the aforementioned risks and the requirements in terms of regulatory solvency and commitments. A large portion of investments is made in liquid bonds, to ensure the payment of exceptional benefits and claims that may arise.
The obligations of Property & Casualty insurance companies are much less dependent on asset values than those of Life & Savings companies. Consequently, market fluctuations are fully reflected in their net asset value and fully borne by the shareholder. However, long-tail activities are more sensitive to movements in financial markets. The principal market risks are as follows: – A rise in bond yields reduces the value of bond portfolios, which may lead to a liquidity risk in these portfolios or a real loss of value if the rise in yields is related to a rise in inflation.
– Stock-picking by asset management companies as part of management contracts.
– The present value of future margins generated by insurance portfolios.
This information is compiled for AXA’s insurance operations and for the Group, which allows strategic asset allocation to be monitored and adjusted if necessary.
– in addition, as part of an ongoing capital allocation process, subsidiaries perform simulations on the various regulatory constraints that they have to meet using extreme scenarios for assets (in terms of both the market value of equity securities and interest rate trends). Every six months, the Group Central Finance Department consolidates these models, enabling it to assess the extent of each subsidiary’s financial flexibility. The results are presented to the Finance Committee of AXA’s Supervisory Board on a regular basis,
– ALM constraints are also taken into account when new products are being designed as part of the product approval process (see section “Pre-launch product approval and exposure monitoring”).
The investment committees of significant entities systematically include representatives of the AXA Group, and of Group Risk Management (GRM) in particular.
These investment processes are part of a broader Group-level framework, which includes: – defining standards for managing investments and assessing asset-liability mismatch risk (see section above),
This work is carried out by local teams and then consolidated by GRM to give an overview for the whole Group and to allow any required action to be taken.
The main financial risks relating to the management of equity and debt are as follows: – Interest-rate risk. – Foreign exchange-rate risk. – Liquidity risk.
The Group Central Finance Department produces monthly reporting data that consolidate interest rate, foreign exchange and liquidity exposures, as well as the interest expenses of holding companies. It bases this information on reports submitted by subsidiaries, which are responsible for the quality of the data. This consolidated reporting includes medium-term forecasts.
Interest-rate risk DEFINITION: interest-rate risk results from a potential increase of interest rates on floating rate debt.
ASSESSMENT: – Variability analyses assess the change in interest expenses over the duration of the strategic plan resulting from a 1% rise in short-term interest rates.
– Interest rate sensitivity analyses assess changes in the value of interest-rate positions by currency and by maturity following a 1% upward shift in the yield curve.
POLICY: the objective is to limit changes in net foreign currency-denominated assets resulting from movements in foreign exchange rates. The purpose of the policy is therefore to protect the value of AXA’s net foreign-currency investments in its subsidiaries and thus Group consolidated shareholders’ equity against currency fluctuations. It is also designed to protect other key indicators such as the gearing ratio, adjusted net asset value, European Embedded Value and solvency ratios against such fluctuations.
Furthermore, the Group’s liquidity profile is strengthened by the following factors: – The Group’s financial strength gives it broad access to various different markets via standardized debt programs: for example a €3 billion commercial paper programme and an €8 billion EMTN program.
– AXA holds significant liquidity, amounting to €20.6 billion at December 30, 2005. More than half of this liquidity is managed within the AXA Treasury, European economic interest grouping (GIE), which
was specifically set up to centralize management of the liquidity held by units operating within the euro zone. AXA Treasury reflects the solid liquidity position of the Group, since it had an average cash balance of around €12.3 billion in 2005, which was mainly invested in a highly liquid portfolio with a very short maturity (55 days at end-2005).
Within the insurance companies, that accounted for 90% of Group assets at December 31, 2005, assets and liabilities with foreign currency exposure are globally matched or hedged.
– Life & Savings business (79% of Group assets): In France, AXA France Vie is exposed to exchangerate risk through the shares it owns in certain investment funds partly invested in foreign currencies (particularly US dollar, pound sterling and Japanese yen). It owns these shares in order to diversify its investments and enable policyholders to benefit from the performance of international financial markets. AXA France Vie controls and limits its exposure to exchange-rate risk by using foreign exchange derivatives (forwards).
Companies in the German Life & Savings segment hold some investments denominated in foreign currencies, both directly and indirectly through investment funds, with the aim of diversifying their investments and taking advantage of foreign markets’ performance. These investments are mainly in US dollars, but also in pound sterling and Japanese yen, and account for a small proportion of assets. Exchange-rate risk exposure is also controlled using forwards.
– International insurance (3% of Group assets): In the course of its business, AXA Corporate Solutions Assurance carries insurance liabilities, some of which are denominated in foreign currencies, particularly the US dollar and, to a lesser extent, pound sterling. The congruence between the company’s foreign-currency assets and liabilities is regularly adjusted, but is subject to unpredictable loss occurrence and the corresponding movements in reserves. At end-2004 and end-2005, the company’s balance sheet showed a slight surplus of US dollar-denominated assets. AXA Corporate Solutions Assurance also has some Swiss francdenominated investments.
A large portion of AXA Re’s insurance liabilities is denominated in foreign currencies, mainly the US dollar. The congruence between the company’s foreign-currency assets and liabilities is regularly adjusted, and is also limited by using exchange-rate derivatives, but remains subject to unpredictable loss occurrence and the corresponding movements in reserves. At year end 2004 and year end 2005, the company’s balance sheet showed a surplus of US dollar-denominated liabilities, mainly due to natural catastrophes occurred in the USA in the second half of both years.
These two companies account for 81% of the international insurance companies’ assets.
– As regards the holding companies, the Company has since 2001 adopted a hedging policy on net investments denominated in foreign currencies, aiming at protecting the Group’s consolidated shareholders’ equity against currency fluctuations, via cross-currency swaps and foreigncurrency debt. At December 31, 2005, the main hedging positions were as follows: • $9.1 billion in respect of the US Life & Savings business, including $7 billion via cross-currency swaps,
• £358 million in respect of the UK business, including £325 million in the form of debt,
Analysis of sensitivity to interest rates, equity prices and exchange rates
In the event of a 50-basis-point upward shift in the risk-free bond yield curve, the overall positive impact would be €0.6 billion. This breaks down into a positive €0.59 billion effect the Life & Savings business and a €0.25 billion reduction in Group debt, partly offset by a €0.24 billion fall in the fair value in the Property & Casualty business.
In the event of a 10% fall in the equity markets, calculations suggest a negative €1.77 billion impact on EEV in the Life & Savings business.
The same decline would cause a €0.49 billion fall in economic value in the Property & Casualty business, since liabilities in this business are regarded as insensitive to movements in equity markets. As a result, a 10% fall in the equity markets would have an overall negative impact estimated at €2.26 billion.
In the event of a 10% rise in the equity markets and a 50-basis-point upward shift in the risk-free bond yield curve, the overall positive impact would be €2.42 billion. This breaks down into a positive €1.63 billion effect on EEV in the Life & Savings business and a positive €0.79 billion impact on fair value in the Property & Casualty business.
Sensitivity to exchange-rate fluctuations As mentioned in section “Exchange-rate risk related to the operating activities of Group subsidiaries”, each operational entity has the task of ensuring the congruence between foreign-currency-denominated assets and liabilities. In many countries, this congruence is covered by specific standards issued and monitored by the regulatory authorities.
The Group’s insurance activities expose it to various risks with a wide range of time horizons. Natural risks arising from climate change, particularly global warming, are long-term risks to which AXA Group pays close attention. On a more short-term view, insurance risks are covered mainly through procedures governing pre-launch product approval, exposure analyses, the use of reinsurance and reviews of technical reserves.
Global warming is now proven beyond doubt, although experts disagree on its scale, causes and pace. Greenhouse gas emissions are the principal human cause. Very broadly, global warming leads to higher maximum and minimum temperatures, with more hot days (heatwaves) and heavier and more frequent cyclone-like precipitation episodes. These phenomena have already been observed and could become more prevalent, albeit to different extents, across almost all land surfaces on the planet. Projections made by the IPCC (Intergovernmental Panel on Climate Change) point in the same direction. However, it remains very difficult to estimate the local effect of climate change, due to the large number of local geographical factors to be taken into account (sea currents, reliefs etc.). It is also very difficult to estimate the consequences of extreme events (heatwaves, droughts and floods, high winds and intense precipitation caused by cyclones), which are of particular concern to insurance companies.
Aside from immediate destruction, caused mainly by flooding and to a lesser extent by drought, climate change will have major implications for most human activities and therefore for the insurance used to protect them, particularly agriculture, timber production, healthcare and water activities.
Gradual premium rate adjustments will be required to reflect these risk factors, but are not likely to be sufficient on their own. Furthermore, the increasingly substantial damage caused by meteorological events is likely to increase the use of tools such as catastrophe bonds to transfer some of these sophisticated types of risk to the capital markets.
Product approval In its Individual Life & Savings activities, the AXA Group has set up pre-launch product approval procedures in each of its principal subsidiaries. These procedures are defined and implemented locally, and are structured and harmonized using the minimum requirements defined by Group Risk Management. The main characteristics of these procedures are as follows: – Although the decision to launch a new product is taken locally, it must be the result of a documented approval process that complies with local governance practices.
– Guarantees and options embedded in the product must be quantified using stochastic methods defined by Group Risk Management in order to ensure that they are correctly reflected in pricing. This work also gives a better understanding of any asset-liability mismatch risk and of the actual economic capital requirement at the product design stage.
– Pricing reports are sent to GRM on a quarterly basis.
Similar methods have been developed for the underwriting of specific Property & Casualty risks, while maintaining the principle of local decisionmaking based on a documented approval procedure. The profitability analysis framework has been adapted to the Property & Casualty business, and special efforts have been made to formalize the quantitative requirements.
Reinsurance purchasing is an important part of the Group’s insurance activities and risk management. For Property & Casualty operations, reinsurance programmes are set up as follows: – Reinsurance placement is handled centrally for AXA’s main Property & Casualty portfolios through AXA Cessions, an AXA subsidiary. Prior to ceding risks, indepth actuarial analyses and modelling are conducted on each portfolio by AXA Cessions and GRM to optimize the quality and cost of reinsurance cover. These analyses are performed in collaboration with the technical and reinsurance departments of Group operational entities. They measure frequency risks as well as specific severity risks (natural catastrophe, storms, flooding, earthquakes). They provide guidance for determining the most appropriate reinsurance cover (retention levels and scope of cover) for each portfolio and for each type of risk in accordance with objectives and capital allocation constraints.
In 2006, this work will be extended to the Life & Savings business.
After analysis work, the Group’s various operating subsidiaries place their reinsurance requirements with AXA Cessions. However, only a small part of most treaties is placed directly in the reinsurance market. Most risk is combined at the AXA Cessions level to form an internal Group reinsurance pool.
In addition to controlling upstream risks through prior product approval, and analyzing the reinsurance strategy, the non-life businesses specifically monitor reserve risks. Reserves have to be booked for claims as they are incurred or reported. These reserves are evaluated by the claims departments for each individual claim.
Counterparty credit risk is defined as the risk that a third party in a transaction will default on its commitments. Given the nature of its core business activities, AXA monitors two major types of counterparties, using methods suitable to each type: – Investment portfolios held by the Group’s insurance operations (excluding assets backing separateaccount products where risk is transferred to policyholders) as well as by banks and holding companies. These portfolios give rise to counterparty risk through the bonds and derivative products held within them.
AXA has a database consolidating the Group’s listed assets and analyzing them by issuer, by credit rating, sector and geographic region, in order to assess the risk of concentration in its equity and bond portfolios. This database allows AXA to monitor exposure to the default risk of a given issuer, particularly through holding its bonds. It also allows the monitoring of equity exposure, which is not subject to issuer-specific limits at Group level.
These tools also enable co-ordinated contingency measures to be taken for the most sensitive counterparties.
Breakdown of underlying bond portfolio by rating at December 31, 2005
The AXA Group, as part of its investment and credit risk management activities, may use strategies that involve credit derivatives. AXA is exposed to credit
derivatives through its investments in structured products such as CDOs (collateralised debt obligations), which use credit derivatives to build their portfolio of collateral.
At December 31, 2005, the nominal amount of positions taken through credit derivatives was €9.8 billion including €4.6 billion via CDOs. Credit risk relating to CDOs is monitored separately, depending on the tranches held, and regardless of the type of collateral (bonds or credit derivatives).
For other credit derivatives positions (nominal amount of €5.2 billion), the credit risk taken by the AXA Group through these instruments is included in analyses of bond portfolios as described in the previous section. Limits applied to issuers take into account these credit derivative positions.
The breakdown of underlying bonds by rating is as follows: GRM’s authority and is run by AXA Cessions, which is the AXA entity in charge of placing the Group’s property and casualty insurance with external reinsurers (see section “Implementation of the reinsurance strategy. Role of AXA Cessions”). This risk is monitored by comparing the various financial strength ratings available on various reinsurers as well as by conducting in-depth analyses of the recoverability of receivables in the event of reinsurer insolvency. The teams in charge of the Group reinsurance programme analyze this information to add a credit risk dimension to their work in placing insurance and transferring risk to the reinsurers. The security committee meets monthly – and more frequently during renewal periods – and decides on any action to be taken with the aim of limiting AXA’s exposure to the risk of default by any of its reinsurers.
Breakdown of reserves ceded to reinsurers by reinsurer rating at December 31, 2005
Guided by the principles set forth by the Basel Committee on banking supervision, AXA defines operational risk as the risk of a direct or indirect loss resulting from inadequate or failed internal processes, people and systems, or from external events.
– IT. – Risks specifically related to the outsourcing of certain activities to external suppliers. – Organization and processes.
Concurrently, GRM is implementing a review and assessment of the main insurance processes (pricing, underwriting, claims management, etc.)
implemented by operational subsidiaries, with the aim of conducting a comparative assessment of their scoring practices. The scope of the review and assessment includes product development and pricing, underwriting, claims management and calculation of reserves. Based on the scores obtained, AXA defines minimum requirements. All subsidiaries are then expected to comply with these requirements by undertaking any remedial actions that may be necessary.
relations. This commitment is enshrined in a charter drawn up in 2002, which was approved by the Management and Supervisory Boards. In line with this charter, each entity has introduced procedures based on certain general principles, on top of applicable local regulations, and has appointed an anti-money laundering officer. The “know your customer” principle is crucial in this respect, and is fundamental to all transactions. The principle also covers intermediaries. Special attention is paid to transactions involving cash or other equivalent instruments. Procedures are reviewed and adjusted regularly based on experience. In France, a specific organisation has been set up to ensure effective cooperation with TRACFIN.
Risk related to the US stockmarket listing AXA is listed on the Paris stock exchange and, since August 1996, on the New York Stock Exchange (NYSE). Because AXA, as all other non-US issuers, is listed on two different exchanges, it is subject to two sets of securities laws, and to accounting standards and corporate governance rules that may differ in certain respects. AXA prepares its consolidated financial statements in accordance with IFRS, and then reconciles this information with accounting principles generally accepted in the United States (US GAAP). The application of these two methods may lead to some differences. In addition, non-US issuers listed on the NYSE (like US issuers) are subject to the Sarbanes Oxley Act, which was adopted in the USA in July 2002. In particular, the Sarbanes Oxley Act requires that both the CEO and the CFO certify AXA’s consolidated financial statements. It also contains requirements concerning corporate governance and, as of 2006, the annual audit of internal controls on financial reporting. Specialist teams at AXA ensure that the Group complies with these regulations through specific and targeted analyses and reports.
Holocaust Since 1998, AXA has continued its efforts to identify unpaid life insurance policies taken out by Holocaust victims in France, Germany and Belgium, and alongside five other European insurers has signed a Memorandum of Understanding with certain US insurance regulators and non-governmental Jewish organizations agreeing to the establishment of the International Commission on Holocaust Era Insurance Claims (ICHEIC). AXA continues to take part in the International Commission, which has completed its work and will be wound down in 2006.
Armenia In February 2002, descendants of some Armenians killed during events in 1915 filed a class-action suit against AXA and certain of its subsidiaries in the Federal Court of Los Angeles (in the US state of California). In their suit, the descendants allege that insurance companies currently owned by AXA issued life insurance policies between 1880 and 1930 and did not pay out the related benefits. They are seeking damages. In October 2005, AXA and the plaintiffs signed an agreement to end the litigation. Under the agreement, AXA will pay the plaintiffs $12.5 million.
Litigation in the USA In addition to the foregoing, AXA and its subsidiaries face a certain number of lawsuits in the USA arising from their ordinary business activities. In particular, AXA Financial, AXA Equitable and AllianceBernstein are involved in several lawsuits, including class-action suits. This litigation relates to various matters including, among others, the sale of these companies’ products in the US market, their investments, their real estate and asset management activities, their employees and their agents. Among the more significant of these lawsuits, AllianceBernstein is the target of several lawsuits relating to the bankruptcy of Enron. Some of these lawsuits expose these companies to a risk of punitive damages, which bear no relation to the real damage suffered by the plaintiffs. In addition, certain US regulatory authorities regularly investigate the markets they supervise. These investigations may result in lawsuits from time to time. For example, the US insurance regulators, the SEC and certain state attorney generals – and, in particular, the New York state attorney general – have continued to examine practices in the insurance market. As a result, AXA and its subsidiaries may be investigated by these authorities. It is difficult to estimate with any certainty the damages or compensation that AXA and its subsidiaries may be subjected to as a result of these lawsuits and investigations.
To the best of the Company’s knowledge and at the current stage of the various lawsuits, none of the lawsuits described above is likely to have a material adverse effect on the business or consolidated financial position of AXA and its subsidiaries taken as a whole.
With respect to its employment practices, AXA’s key challenge is to retain employees and position itself as an employer that is able to attract top talent. Environmental risks are limited because AXA’s core business activities are generally non-polluting.
The AXA Group’s general policy concerning the insurance of transferable risks The AXA Group’s general policy on buying insurance is guided as much as possible by the decentralisation principle. Group solutions are used wherever practical. Subsidiaries are responsible for identifying risks and buying their own insurance, for example property damage and civil liability cover for their local exposures.
Exposure to common risks and group-wide insurance programmes Group-wide insurance programmes cover all Group entities with the exception of AXA Asia Pacific Holdings and AXA Financial and their subsidiaries, which have traditionally bought cover in their local markets.
For 2006, the total cost of Group coverage for directors and officers liability, civil liability and fraud was around €10.5 million, including all taxes and commissions.
Events subsequent to 2005 / p. 167 Consolidated Operating results / p. 168 Life & Savings Segment / p. 177 Property & Casualty Segment / p. 198 International Insurance Segment / p. 213
Asset Management Segment / p. 218 Other Financial Services Segment / p. 221 Holding Company Activities / p. 223 Outlook / p. 226 Glossary / p. 227
Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and AXA’s plans and objectives to differ materially from those expressed or implied in the forward looking statements (or from past results). These risks and uncertainties include, without limitation, the risk of future catastrophic events including possible future weather-related catastrophic events or terrorist related incidents. Please refer to AXA’s Annual Report on Form 20-F and AXA’s Document de Reference for the year ended December 31, 2004, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise.
France. In 2005, the increase in gross premium has been estimated to 14% explained by a strong increase in gross premium on unit-linked contract estimated to +49% and by an estimated increase of 7% in general account premiums. According to the FFSA, the French Life & Savings market growth amounted to +13% at the end of full year 2004, especially driven by a 35% increase on unit-linked contracts.
Hong Kong: The economy continued to grow in 2005 assisted in part by the Closer Economic Partnership Agreement (CEPA) with more than 12.5 million Mainland Chinese visiting Hong Kong in 2005, up 2.4% on 2004. The Hang Seng Index grew 4.5% during 2005. The life insurance market has showed growth, for the 9 months to September 2005, with the individual life market new business sales increasing by 5.3%. Increasing affluence and investor sophistication is now starting to drive growth in more sophisticated financial planning models. Now at the end of its fifth year, the Mandatory Provident Fund (MPF) is increasingly important to Hong Kong residents and there is growing awareness that MPF alone will not provide sufficient assets to fund postretirement lifestyles. This along with the significant level of bank savings, has increased the awareness of a need for wealth management and financial advice products.
(1) Source: Plan For Life (Superannuation & Rollovers) September 2005 quarter. (2) Source: Plan For Life (Life Insurance media release) September 2005 quarter.
proved to be the second strongest year since their introduction in 2002 (1.3 million contracts sold). This was also spurred - mainly in Q4 - by the announced introduction of uni-sex tariffs; the influence on absolute premium volumes will mainly come into effect in 2006.
The development of private health insurance is marked by two influences: On one hand, ongoing difficulties in the public health insurance system continue to push private health insurance. On the other hand, the increases of the income threshold in 2003, fixed by the health reform, complicated the switch from public to private. This lowered the market potential for full coverage and resulted in a strong decline of net new inflow for this type in 2005. Supplementary insurance, however, increasingly meets demand. But the increase in gross written premiums by 3.7% mainly reflects rising premiums per contract, that are outpaced by payments, which incremented by 4.3%.
United Kingdom. In the UK, a general market softening has caused difficult underwriting conditions throughout the market. This has made rating increases and the retention of business difficult. Within Personal Lines, Household and Healthcare have shown significant growth largely due to new business deals. Commercial Lines has seen limited growth due to the competitiveness in acquiring new business contracts. Renewals for Liability have been under severe pressure, particularly large cases, resulting in renewals at level terms or sub inflation increases. In Ireland, competitiveness in Motor has significantly increased and led to a fall in average premium.
Germany. In 2005, total business2 decreased by 0.5% (to € 55.1 billion). In motor lines, an intensive price competition started, initiated by the big players to keep or regain market share. Therefore, in these lines, gross written premiums decreased by 2.8% to €21.9 billion. Despite partially high claims ratio increases in industrial property lines (but still keeping combined ratios clearly below 100%) the gross written premiums decreased by 5.4% while the number of contracts was stable. Regarding private nonmotor lines, volume according to number of contracts remained flat (e.g. in private property lines) or even slightly declined (e.g. in accident: –0.5%) as penetration is already high. However, the gross written premiums for these lines increased in a range
(1) Source: APS, provisional figures. (2) Source: association of German insurers (GDV): estimation.
Southern Europe. In 2005, the Spanish market grew by 7.0% in the first 9 months of the year. 2005 was impacted by the increasing motor market aggressiveness already started in 2002. Thus, motor market grew by 3.8%. However, multi-risk and health maintained in 2005 their strong growth (10.7% and 9.6%, respectively) already shown in 2004. In Italy, market grew by 1.9%, strongly impacted by the low increase in the motor market (+0.6%, where the increase in fleet is almost offset by the decreasing average premium), which still holds a large portion (62%) of the total volume of the P&C market. In Portugal, market increased by 2.4% driven mainly by the growth in the motor market1, whereas workmen’s compensation (+0.8%) and property (+2.0%) show lower increases.
On the Large Risks Insurance market, following several years of rate increases and restructuring of large Corporate Insurance programs, underwriting conditions reflected a general softening of the market affecting rates. However the occurrence of several natural events, especially in the US, led to a stabilization of the rates towards the end of the year.
Asset management earnings continued their positive trend aided by strong global market performances and higher net inflows.
Global equity markets got off to a solid start with major indices in positive territory boosted by economic growth prospects, robust corporate earnings, M&A speculation and positive investor sentiment partially offset by continued high energy prices, geopolitical problems, the challenge of low interest rates and inverted yield curves in the U.S. and the UK. The European Central Bank and the U.S. Federal Reserve continued to raise their benchmark rates in early 2006 while the Bank of Japan announced the end of its decade long loose monetary policy. Bond markets continued to be unnerved by signs of stronger global growth and the speculation of further interest rate hikes. In addition, early 2006 brought the first increases in long-term rates for all major economies as measured by the benchmark 10 year Government bonds.
The insurance sector had an encouraging start to the year with most large companies releasing better than expected 2005 earnings on the back of strong equity markets partially offset by the continued low interest
In 2005, the world’s major equity indices showed a rise on the year and fixed income investments posted positive returns.
Against this backdrop, after nearly three years of historically low key interest rates, the central banks began a round of rate tightening, led by the Federal Reserve. Other central banks, including the ECB, joined the move in order to counter the inflation risk.
Bond Markets Overall, all government bonds turned in positive performances in 2005, but Europe clearly outperformed its peers (+8.6%, +7.5% and +2% for the United Kingdom, the Euro area and the United States, respectively). 10-year interest rates on government bonds decreased from 4.53% to 4.08% in the UK, and from 3.67% to 3.30% in Europe, while the US showed a slight increase from 4.23% to 4.36%.
As for the corporate bonds market, credit spreads were relatively stable over the year. Globally, sustained growth, low volatility, good credit quality and positive technical factors all supported good return on corporate bonds (+5% on average for the year).
Exchange Rates In 2005, as short-term rate differentials widened, the euro lost close to 15% against the dollar (from 1.36$ at the end of 2004 to 1.18$ at the end of 2005). The same was true of the yen but to a lesser proportion (from 139.7 yen at the end of 2004 to 138.9 yen at the end of 2005).
On October 18th, 2005, AXA acquired from the group Caixa Geral de Depósitos the insurance company Seguro Directo which operates in the direct insurance market in Portugal (by telephone and Internet). The purchase price amounted to €42 million, and the related goodwill to €31 million.
Disposals On December 2, 2005, AXA Financial Group sold Advest to Merrill Lynch. Advest was a wholly owned subsidiary of AXA Financial Group and part of its Financial Advisory/Insurance segment. In accordance with the terms of the agreement, Merrill Lynch purchased all of the issued and outstanding capital stock of Advest for $400 million in cash. This transaction reduced AXA Financial Group’s goodwill by an estimated €152 million. Total net income impact of the transaction is €–71 million, post tax.
In November and December 2005, AXA acquired a total number of 12.399.075 bonds issued by Finaxa on June 10, 1998 and exchangeable into AXA shares with a maturity date of January 1, 2007, i.e. 99.62% of the outstanding exchangeable bonds. For AXA shareholder’s, this buy back allows the Group to neutralize the potential dilution that might have resulted from the issuance of new AXA shares. The total consideration paid was €1,464 million.
Following the merger and the cancellation of the repurchased Finaxa bonds, AXA’s consolidated shareholders equity is reduced by €940 million. This decrease is mainly due to: (i) impact of the Finaxa exchangeable bonds for €–1,470 million financing AXA shares in prior years and at the opposite, operating highlights
(ii) the valuation of the trademark at €307 million as mentioned in the agreement and plan of merger and
(iii) the cancellation of the dividend paid by AXA to Finaxa for €205 million.
For several years, the AXA Group has been offering to its employees in and outside of France, the opportunity to subscribe for shares issued by way of a capital increase reserved for employees. In 2005, employees invested a total of €304.3 million leading to a total issuance of 16.3 million newly issued shares. As of December 31, 2005, the total number of shares in issue amounted to 1,872 million. Employee shareholders represented approximately 4.76% of the outstanding share capital (versus 5.11% as at December 31, 2004) or 5.6% after taking into account the cancellation of AXA’s shares following the merger of AXA and Finaxa.
In 2005, AXA entered in a share purchase program to control dilution arising from share-based compensations and employees Shareplan program and, as a consequence, purchased approximately 20 million AXA shares for a total amount of €0.5 billion.
On January 9, 2006, AXA published the offer document regarding the voluntary public offer to the holders of shares in AXA Konzern AG to acquire their ordinary non-par value bearer shares (“Ordinary Shares”) as well as the preferred non-voting non-par value bearer shares (“Preferred Shares”) in AXA Konzern AG, against payment of cash consideration of €129.30 per Ordinary Share and per Preferred Share. On February 13, 2006, AXA informed the Management Board of AXA Konzern AG that AXA reached directly and indirectly, more than 95% ownership of the shares (owned and tendered) in AXA Konzern AG.
Consolidated gross revenues for Full year 2005 reached €71,671 million, up 6.9% compared to previous period.
Excluding the impact of the appreciation of the euro against other currencies (–0.1 point, mainly from the Japanese Yen, British pound and US Dollar), and scopes differences, notably (i) additional revenues stemming from Mony integration (€895 million or –1.3 point) and (ii) the change in consolidation method of Turkey, Hong-Kong and Singapore P&C operations (€548 million, or –0.9 point)1, gross consolidated revenues were up 5.2% on a comparable basis.
Group New Business APE2 reached €5,476 million, up +13.9% compared to Full-Year 2004. On a proforma basis3, Group New Business APE increased by +11%. This growth was attributable to all significant countries except Germany and The Netherlands.
Japan APE increased by 20%, as Individual business APE grew by 15%, driven by Term Life products and riders (following the launch of new products in
(1) Fully consolidated starting January 1, 2005 (previously accounted for under the equity method). (2) Annual premiums equivalent is New regular premiums plus one tenth of Single premiums, in line with Group EEV methodology. (3) Excluding Mony in the United States. (4) As MONY was acquired on July 8, 2004, the constant scope in the US includes the contribution of MONY only for 2H 2004 and 2H
Motor revenues were up 1%, mainly as positive evolution in France (+4%), Southern Europe (+6%) and Belgium (+2%), offset by the decrease of UK & Ireland revenues (–7%), in a context of intense competition in Ireland.
Other Lines1 (1% of P&C premiums) revenues decreased by 13% driven by the planned reduction of assumed business in Germany.
Asset management revenues increased by 11.5% or 13.7% on a comparable basis to €3,440 million, driven by higher average Assets under Management (+16% compared to 2004) and strong net inflows (€+56 billion).
AUM increased by €87 billion from year-end 2004 to €432 billion at the end of 2005 primarily driven by (i) €34 billion of net inflows mainly from institutional and retail third party clients especially on AXA Rosenberg’s products as well as real estate, structured finance and fixed income products, (ii) a €38 billion favorable market impact, (iii) a €6 billion positive foreign exchange rate impact, and (iv) €7 billion following the acquisition of Framlington effective beginning of November 2005.
Net banking revenues in Other Financial Services were up +10.5% or +13% on a comparable basis to €428 million, mainly attributable to AXA Bank Belgium (+30.1% to €336 million), as a result of higher revenues on mortgage and investment loans and lower interest paid for certificates of deposits and deposit accounts, partly offset by lower income from inter-bank operations and trading.
Change in unearned premium reserves net of unearned revenues and fees (502) (104)
NET INCOME 4,173 3,738 (a) For the periods ended December 31, 2005 and December 31, 2004, the change in fair value of assets backing contracts with financial risk borne by policyholders had impacted the net investment result for respectively €+13,978 million and €+10,543 million and benefits and claims by the offsetting amounts respectively.
Pre tax operating income increased by €+141 million, mainly resulting from: (i) An improved investment margin (€+46 million), primarily in France (higher yields and increased asset base) and the US (higher distribution from private equity funds and higher asset base in general account partly offset by lower yields on fixed income), partly compensated by Japan (following the fixed income portfolio restructuring), Belgium and Germany.
(ii) Higher Fees and Revenues (€+548 million) pulled up by France (increase sales in Life Health business and Unit-Linked), the US (higher fees on Separate Account business and higher account balances), the UK (increase in sales of offshore bonds and higher fees earned (including fees on Creditor business offset in expenses for €+56 million ), and Japan (launch of new Term products and sales of high margin health products).
As a consequence, Group combined ratio improved by 0.8 point to 97.7%. (iii) Higher investment income overall (€+153 million to €1,451 million) (iv) Higher income tax expense (€–50 million to €–493 million) in line with higher pre-tax earnings
(ii) CFP (€+18 million to €18 million) following positive impact of run-off development in 2005.
(iv) Germany holdings (€+30 million to €–19 million) due to the implementation of a tax grouping with AXA Versicherung.
mainly on equities, (ii) UK Life (€+92 million to €7 million) due to the non recurrence of the transfer of ownership of the Isle of Man and the transfer of rights to write future annuity business between with profit and non profit fund in 2004 (€+86 million)
(iii) Germany P&C (€+64 million to €87 million) notably due to some impairments on equities in
(iv) Holdings Companies (€+42 million to €42 million ) mainly in AXA SA (€+22 million) and Germany holdings (€18 million mainly linked to €36 million pre-tax following the final settlement in 2005 of the cologne RE JV announced in 2003).
partly offset by: (v) Japan Life (€–142 million to €5 million) mainly due to higher capital gains in 2005 more than offset by an insurance reserve strengthening following change in future investment assumptions and higher interest credited
(vi) US (€–44 million to €5 million) due to significant gains in 2004
– An additional €+115 million release of valuation allowance on tax losses carried forward in Japan.
As a result of higher underlying earnings and higher net capital gains, adjusted earnings were up €+766 million or €+769 million at constant exchange rate to €4,108 million.
The Full Year 2005 net income reached €4,173 million, up €+435 million or €+438 million at constant exchange rate (+12% in both current and constant exchange rates).
This growth was the result of: (i) Higher adjusted earnings (+23% or €+766 million to €4,108 million) (ii) Lower result on financial assets accounted for under Fair Value Option and derivatives (€–278 million to €149 million) mainly due to higher profit and loss on change in fair value of consolidated Mutual funds and on assets under fair value option (€+31 million to €222 million) more than offset by lower positive change in fair value of derivatives (€–281 million to €–18 million) mainly coming from AXA SA (€–296 million).
(iv) Partly offset by lower result of exceptional operations (€–81 million to €–72 million).
Full-Year 2005 exceptional operations (€–72 million ) related to: – the realized capital gains on the sale of AXA
Bausparkasse in Germany (€–25 million, net group share, of which €–10 million in the Life company)
– An exceptional profit in the AXA Financial holding (pre-tax gain on disposal of the discontinued
Investment Banking and Brokerage segment of €67 million, or €43 million net of Federal income taxes). The gain resulted from the reduction of state tax liabilities related to the 2000 sale of DLJ
– The realized capital gain on the disposal of Crealux in the Belgium Holding (€+17 million)
– The realized capital gain on the disposal of the Health portfolio of AXA Zorg in The Netherlands Life (€+3 million).
- Super subordinated debt (including accrued interests) 217 - Fair value recorded in shareholders’ equity 2,415 - Impact of currency fluctuations 1,431 - Net Income for the period 4,173 - Actuarial gains and losses on pension benefits (415)
At December 31, 2005 33,847 (a) Of which €–88 million related to AXA / Finaxa merger. (b) Of which €–852 million related to AXA / Finaxa merger
Net income Per Ordinary Share 2.22 2.19 2.07 1.99 7.1% 10.2%
The following tables present the consolidated gross revenues, adjusted earnings and net income
Change in unearned premium reserves net of unearned revenues and fees (197) (131)
Contribution to consolidated gross revenues 45,116 42,344 (a) Gross written premiums including intercompany eliminations.
Gross revenues increased by €1,692 million or +15% to €13,237 million. Net of intercompany transactions, gross revenues amounted to €13,228 million as a result of a steady growth in all lines of business: – Investments & Savings (67% of gross revenues)
APE grew by 13% (€+124 million) to €1,075 million mainly driven by increased single premiums in unit linked Investments and Savings.
Underlying investment margin increased by €50 million or +5,6% to €938 million, as investment income increased by €214 million to €3,374 million mainly benefiting from the increase in dividend yields on the European equity market and from an increased asset base. Amounts credited to policyholders increased by €163 million to €2,438 million as a consequence of increased investment income and increased average general account reserves partly compensated by a slight decrease in main products distribution rate (to 4.42%).
Technical margin was up €+7 million to €70 million as the improvement of technical results in Group disability was offset by the negative impact of a 0.5 point
decrease in Group annuity reserves discount rates (to 2.50%), in line with lower interest rates in France.
VBI amortization decreased by €6 million to €–48 million mostly due to maturing contracts in the run-off of the UAP block of business purchased in 1997.
As a consequence, underlying earnings improved by €37 million to €387 million.
Adjusted earnings were up €+85 million to €540 million, resulting from higher underlying earnings (€+37 million) and a €+49 million increase in capital gains attributable to shareholders to €154 millions, reflecting higher net capital gains (€+103 million to €191 million) mainly on equities, partly offset by a 2005 negative impact of foreign exchange on currency macro hedge (€–55 million to €–38 million).
Fees & revenues increased by €312 million to €1,404 million, or by €314 million on a constant exchange rate basis. On a comparable basis, fees and revenues increased by €201 million. This increase was mainly due to higher fees earned on separate account business resulting from positive net cash flows and higher average account balances.
Net technical margin increased by €149 million to €632 million, or by €150 million on a constant exchange rate basis. On a comparable basis, the net technical margin increased by €63 million. This increase was notably attributable to (i) €67 million higher life mortality margin to €401 million, (ii) €38 million positive impact of the settlement of outstanding issues with one life reinsurer in 2005 partly offset by (iii) higher benefits and reserves in the reinsurance assumed (€–34 million) and individual health (€-10 million) product lines and (iv) €–11 million decrease of “GMDB/GMIB” margins primarily due to the impact of non recurring gains from the active financial risk management program in 2004.
Expenses increased by €243 million to €–1,572 million and by €245 million on a constant exchange rate basis. On a comparable basis, expenses increased by €122 million, principally due to (i) greater commission expenses (€–76 million), (ii) an increase in other miscellaneous expenses primarily within variable expenses (€–30 million) and all other expenses (€–7 million), (iii) higher DAC amortization (€–122 million) reflecting reactivity to higher margins in products which are DAC reactive and lower favorable DAC unlocking for expected higher emerging margins on variable and interest sensitive life products, partly offset by (iv) higher DAC capitalization (€+113 million). The combined pro-forma annualized expense savings related to the MONY integration were € 190 million, €50 million higher than the original target.
Underlying cost income ratio improved to 74.2% versus 79.1% in 2004, notably reflecting the strong improvement in fees & revenues.
• Margins on Investments Products (19% of gross revenues) increased by 20% reflecting higher fund management fees driven by net new money growth and improved stock market levels during 2005.
– €19 million increase in loadings on other premiums driven mainly by increased sales of offshore bonds.
Net capital gains attributable to shareholders net of income tax 14 (88)
Profit or loss (excluding change) on financial assets (under FV option) & derivatives (54) (26)
Net technical margin increased by €96 million in 2005 compared to 2004 or €97 million on a constant exchange rate basis mainly due to €67 million of non recurring positive impacts in 2005 versus €31 million reserve strengthening in 2004.
– €48 million non recurring increase in the provision for deferred policyholder tax relating to deferred acquisition costs on non profit business.
– €38 million increase in other expenses including pension benefits, recruitment costs and Information Technology.
The underlying cost income ratio improved from 123% to 109% in 2005, with increased expenses more than offset by increased revenues, due to improved stock market and non-recurring technical factors.
Adjusted earnings increased by €101 million to €98 million in 2005 on constant exchange rate basis. This was mainly due to the non recurrence of the €65 million negative impact in 2004 adjusted earnings of the transfer of ownership of the Isle of Man subsidiary at January 1, 2004 to a wholly owned shareholder fund, and the transfer of rights to write future annuity business between with-profit fund and non-profit fund in July 2004 (€–21 million).
(1) Part of these expenses is located in the With-Profit funds and therefore are borne by policyholders. (2) Mismatch where undiscounted deferred tax provided on unit linked assets but the unit liability reflects the expected timing of the payment of future tax.
APE increased by 20% to €589 million, as Individual business APE grew by 15%, driven by Term Life products and riders (following the launch of new products in October 2004 and March 2005), and Group Life APE was up 311%, primarily due to the New Mutual Aid product, a Group Term Life product featuring new cancer and disability riders.
Net capital gains attributable to shareholders net of income tax 120 146
Profit or loss (excluding change) on financial assets (under FV option) & derivatives 6 (18)
In addition, AXA Japan sold its headquarter during the second half of the year, leading to a €151 million pre-tax realized gain.
The overall combined impact net of tax of these items, was €+67 million on underlying earnings.
– Higher interest credited (€21million) to €587 million, mainly due to increased contract in-force, which were funded by €144 million capital gains in the adjusted earnings.
Net technical margin increased by €85 million, or by €90 million at constant exchange rate, to €175 million. The mortality margin improved mainly due to (i) better morbidity on Health products (especially Medical Whole Life and Medical Riders €+11 million) and better mortality on Life products (especially Term and Whole Life €+23 million), (ii) lower accrued dividends on Group Life because of a change in methodology (€+16 million) and (iii) a €3 million insurance reserve release (notably benefiting from the change in actuarial assumptions for €26 million) versus €–48 million insurance reserve strengthening in 2004 on annuity portfolio. The surrender margin decreased mainly due to lower B-policy conversions and surrenders (€–69 million), partly offset by improved retention on Medical Term policies (€+29 million).
VBI amortization increased by €192 million or €203 million at a constant exchange rate, to €–351 million resulting mainly from a change in future investment assumptions and reactivity from excess capital gains (€219 million in total).
Income tax expense reduced significantly compared to last year by €304 million, or €310 million at constant exchange rate to a tax benefit of €195 million. A €302 million release of valuation allowance was recorded in 2005 reflecting the improvement in
Underlying earnings increased by €120 million or €128 million at constant exchange rate, to €266 million and benefited from the significant items mentioned above for a total €67 million. Adjusted for those items, underlying earnings increased by €61 million at constant exchange rate or +41% mainly driven by better technical margin and better fees and revenues.
Adjusted earnings increased by €94 million or €105 million at constant exchange rate, to €385 million following the improvement in underlying earnings by €+128 million partly offset by €23 million decrease due to: – Lower net contribution of capital gains which decreased by €–141 million as a result of (i) €185 million higher capital gains (including the sale of headquarter) from €300 million to €471 million more than offset by the insurance reserve strengthening in 2005 for €331 million (change in future investment assumptions) and higher interest credited for €144 million and (ii) related positive tax DAC and VBI reactivity effects for €150 million.
– A positive impact of €118 million resulting from the release of valuation allowance on tax losses carried forward.
– Health (25% of gross written premiums) increased by 1% to €904 million due to the last step of legal premium adjustment, partly offset by higher cancellations at the end of 2004.
Underlying Investment Margin decreased by €10 million to €66 million as the increase in net investment income (€+29 million mainly driven by a
Profit or loss (excluding change) on financial assets (under FV option) & derivatives 4 4
higher proportion of fixed income securities in the asset mix) was more than offset by increased policyholders participations (€–39 million).
Underlying Fees & revenues amounted to €88 million, down by €1 million in line with decrease in both Life and health new business partly offset by higher loadings on in force unit-linked products.
Net Technical margin increased by €19 million to €44 million mainly due to the non recurrence of 2004 reserves strengthening on annuity portfolios, partly released in 2005, and lower policyholder participation.
Underlying Tax expenses improved by €21million to €–72 million in 2005, mainly explained by nonrecurring negative tax items in 2004.
Adjusted Earnings increased by €29 million to €32 million benefiting from the increase in underlying earnings (€+17 million) and €12 million higher net capital gains attributable to shareholder notably due to the high level of one off tax expenses which impacted 2004.
Net capital gains attributable to shareholders net of income tax 85 99
Adjusted earnings decreased by €31 million to €141 million driven by lower underlying earnings and reduced net capital gains (€–14 million to €85 million).
Net capital gains attributable to shareholders net of income tax 10 7
Profit or loss (excluding change) on financial assets (under FV option) & derivatives 3 2
Fees & revenues were down by €10 million to €88 million, driven by the switch of the new production towards less loaded products, including the impact of the termination of a distribution agreement on traditional life products. This reduction of fees was offset by a corresponding decrease in commission.
Net technical margin decreased by €2 million to €33 million, reflecting a €10 million lower release of insurance reserve on an old-generation guaranteed index-linked product in Italy; partly offset by (i) €6 million positive impact on policyholder bonus reserve following the termination of a distribution agreement on traditional life products as well as (ii) €3 million increase in surrender margin as a result of higher penalties applied on new generation of products.
Expenses decreased by €5 million to €–105 million as a result of the switch of the new sales towards products with lower commissions (€9 million) as well as the reduction in general expenses. This drop was partly offset by a higher DAC amortization (€5 million) following the review of the amortization plan.
Income tax expenses increased by €1 million to €–20 million mainly as a result of higher pre-tax underlying earnings.
Adjusted earnings were up €6 million to €54 million driven by net capital gains increase by €4 million to
The following tables present the operating results for the other Life & Savings operations of AXA, which include Australia/New Zealand, Hong Kong, The
NET INCOME 242 230 (a) Change in consolidation method in Turkey (from equity method to full consolidation) as at January 1st, 2005.
– Gross written premiums including fees from investment contracts without discretionary participating features of €1,036 million remain in line with last year. The improvement in individual life sales following the launch of “Market Offer” was offset by a reduction in retirement income business following local legislative changes.
Adjusted Earnings of €66 million were €12 million higher than last year, reflecting the increase in underlying earnings.
New individual life regular premiums were up 17% due primarily to “Maxx” sales, a new traditional participating product launched in October with a greater savings focus, and strong sales from “Dimensions”, a unit linked regular premium product.
Single premiums were up 90% driven by strong inflows into investment and retirement products, particularly into the multi manager investment platform and “Evolution”, a new investment linked product offered through broker channels.
Underlying earnings of €84 million were €23 million higher than last year. Last year’s result included €15 million of non-recurring reserve strengthening as a result of model refinements. Excluding this, underlying earnings were €8 million higher than last year, mainly due to a €9 million positive volume effect on the underlying investment margin and fees and revenues.
Both Adjusted earnings and Net Income of €93 million increased by €27 million compared to last year, driven by the €23 million increase in underlying earnings mentioned above and a €3 million increase in realized gains attributable to shareholders.
Gross revenues decreased by € 9 million (–2%) to €531 million on a comparable basis. Lower single premiums in Investments & Savings non Unit-Linked were partly compensated by higher Unit-Linked single premiums.
APE decreased by € 4 million (–9%) to €45 million, mainly due to lower production on mortgage universal life products.
Underlying earnings decreased by €22 million or increased by €2 million on a comparable basis to €44 million, driven by positive development on financial markets.
Adjusted earnings increased by €2 million to €71 million and net income increased by €1 million to €72 million on a comparable basis in line with underlying earnings.
Canada Gross revenues were up by 7.5% on a constant exchange rate basis to €71 million mainly in Investment and Savings business.
Gross revenues were up by 6% at constant exchange rate basis to €68 million driven by the development of Investment and Savings business.
Underlying earnings, adjusted earnings and net income increased by €1 million to €3 million as a result of close risk selection policy implementation in group health line.
Fees and revenues from investment contracts with no participating feature – –
Income arising from investment in associates - Equity method 3 34
Contribution to consolidated gross revenues 18,874 17,852 (a) Gross written premiums including intercompany eliminations. (b) Change in consolidation method in Turkey, Hong-Kong and Singapore (from equity method to full consolidation) as at January 1st, 2005.
increased by €+73 million (+2.4%) to €3,160 million net of intercompany operations, reflecting (i) positive net inflows in Motor with +100,000 (of which +77,600 four wheels contracts) and in Household with +38,400 new contracts, and (ii) price increase in Household.
– Commercial lines premiums (38% of gross revenues ) increased by €+102 million (+5.7%) to €1,910 million net of intercompany operations due to (i) rate increases mainly in Construction, Property and Liability, and (ii) a global positive net inflow in a context of a continuing strict underwriting policy.
Net technical result improved by €+150 million to €1,345 million resulting from (i) a volume effect and
(ii) the improvement of the all accident year loss ratio by 1.9 point to 73.5%: – The current net technical result increased by €+80 million to €1,323 million resulting from increased activity as well as a slight improvement of the current accident year loss ratio by 0.4 point to 74.0% notably due to a lower reinsurance cost in individual business.
Net capital gains attributable to shareholders net of income tax 57 77
Net underlying investment result increased by €40 million to €464 million resulting from (i) higher income on fixed maturities investments due to an increased average asset base and (ii) higher dividend yield.
Adjusted earnings increased by €38 million to €419 million resulting from increased underlying earnings partly offset by €20 million lower capital gains to €57 million due to (i) a strong negative impact of foreign exchange on currency macro hedge (€–35 million to €–28 million) and (ii) increased realized capital gains (€+15 million to €85 million).
Net income increased by €57 million to €464 million resulting from (i) increased adjusted earnings, (ii) favorable change in fair value of consolidated mutual funds (€+36 million to €53 million), (iii) favorable change in fair value of assets under fair value option (€+12 million to €10 million) partly offset by (iv) an unfavorable change in fair value of derivatives (€–28 million to €–18 million) following a lower interest rate decrease in 2005 compared to 2004.
– Commercial Lines (51% of the P&C premiums) were down 1%. This reflected lower new business in public liability (–7%) and worker’s compensation (–5%) due to market conditions and driven by focus on profitable business, whilst both Property and Health improved by +2% reflecting additional investment in Property Owners and higher average premiums with the launch of new products in Small Corporate Lines in health. Motor performance (–7%) was mainly explained by lower average premiums in Ireland.
Net technical result increased by €108 million to €1,610 million, or by €121 million on a constant exchange rate basis.
– The all accident year loss ratio improved by 3.3 points to 63.1% as a result of better current accident year loss ratio and the net positive impact of the prior year reserves review, for the second year in a row. As a consequence, the prior years technical result improved by €28 million to €90 million or by €29 million on a constant exchange rate basis.
Net capital gains attributable to shareholders net of income tax 64 57
Profit or loss (excluding change) on financial assets (under FV option) & derivatives – –
Net underlying investment result (on equities and fixed maturities) remained flat at €283 million, both on current and constant exchange rate basis.
Compared to adjusted earnings, net income only increased by €92 million or €94 million on a constant exchange rate basis to €464 million due to the non recurrence of the €12 million exceptional operation related to the realized capital gain on the sale by AXA Insurance UK of the right to renew of its direct business to RAC plc in October 2004.
Gross written premiums increased by 4% to €3,019 million. – Personal lines (76% of business, €2,302 million)
grew by 5%. In motor (56% of business, € 1,693 million), the 4% rise was driven by positive net inflows (+125,000 policies; +4%) primarily coming from (i) direct distribution network in Spain, (ii) agencies acquisition program in Italy and (iii) a sustained growth in tied agent network in all countries. Motor average premium grew by 0.4% in a very competitive market. Non-motor lines (20% of business, €609 million) were up by 6%, mainly driven by Property and Health which benefited from the launch of new attractive products.
Most of the growth was concentrated on proprietary distribution networks (70% of business, +5%)
– The current net technical result increased by €43 million to €634 million resulting from increased activity as well as an improvement of the current accident year loss ratio by –0.2 point to 78.3%. The observed softening of the motor cycle was offset by (i) the favourable evolution of bodily injury claim frequency, (ii) improvements in claims management processes, and (iii) some improvement in nonmotor lines.
– The prior years net technical result slightly improved by €9 million to €79 million.
Profit or loss (excluding change) on financial assets (under FV option) & derivatives 1 8
(+0.2 point to 4,5%) ratios, combined together, slightly decreased despite higher marketing costs to further develop direct distribution sales.
Income tax expense increased by €16 million to €–68 million mainly due to higher pre-tax underlying earnings and the non-recurrence of a tax gain accounted for in 2004 following the sale of real estate.
– Commercial lines (32% of total gross revenues) decreased by 0.6% due to the reduction in Aviation partly offset by tariff increases in Industrial Liability and new business in Engineering.
Net technical result increased by €100 million to €958 million: – The current net technical result increased by €89 million to €779 million (Current accident year loss ratio improved by 3.4 points to 72.2%) mainly driven by lower claims handling costs due to a change in cost allocation (–2.1 points offset in expenses) and lower claim charge in Property; – All accident year loss ratio improved by 3.9 points to 65.8% in line with current accident year loss ratio evolution. The Net technical result on previous years amounted to €180 million in 2005 (as compared to €169 million in 2004) mainly driven by boni on Property (both in personal and commercial) and assumed business.
Expense ratio increased by 3.3 points to 32.5% mainly explained by the change in cost allocation mentioned above. Restated from this new allocation, expense ratio would have deteriorated by 1.2 point, partly due to lower earned premiums and non recurring amortization of capitalized acquisition expenses.
Profit or loss (excluding change) on financial assets (under FV option) & derivatives 37 34