CORPORATE GOVERNANCE 103 2.1 Directors, senior management and employees 104 2.2 Full disclosure on executive compensation and share ownership 122 2.3 Description of the Company’s share repurchase program 159 2.4 Major shareholders and related party transactions 161 2.5 The offer and listing 170
CERTAIN ADDITIONAL INFORMATION 405 5.2 Description of AXA’s share capital 410
Appendix II Management’s annual evaluation of internal control over fi nancial reporting 423
Appendix XI Commission regulation of April 29, 2004 - Correspondence table 518
Report as “ADS”. Since the delisting of AXA’s ADS from the
The Group does not, however, use the “carve out” option to avoid applying all the hedge accounting principles required by IAS 39. In addition, the adoption of IFRS 9 published by the IASB in November 2009, and subsequently amended in
The Company publishes its Consolidated Financial Statements in Euro (“Euro”, “euro” or “€”). Unless otherwise stated, all amounts in this Annual Report are expressed in Euro. The currency of the United States will be referred to as “U.S.
Cautionary Statements concerning the use of non-gaap measures and forward-looking statements
Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predictions of, or indicate, future events, trends, plans or objectives. Undue reliance should not be placed on such statements because they are by nature 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 weatherrelated catastrophic events or terrorist related incidents. Please refer to Part 3 – “Regulation, risk factors, certain disclosures about market risks and related matters” of this Annual Report for a description of certain important factors, risks and uncertainties that may affect AXA’s business and/or results of operations. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to refl ect new information, future events or circumstances or otherwise.
Table of principal subsidiaries with Group share of interests and voting rights percentages 9
You should read it in conjunction with the consolidated fi nancial statements and related notes for the years ended December 31, 2011 and 2010 included in Part 4 – “Consolidated Financial
IFRS Interpretations Committee, that are defi nitive and effective on December 31, 2011, as adopted by the European Union before the annual fi nancial statements date. However, the
Group does not use the “carve out” option to avoid applying all the hedge accounting principles required by IAS 39. In addition, the adoption of the new IFRS 9 standard published by the International Accounting Standards Board (IASB)
European Union. However, the Group would not have used the early adoption option of the standard as of today. As a consequence, the consolidated fi nancial statements also comply with IFRSs as issued by the IASB.
(in E uro million except per share data) 2011 2010 restated (b)
(a) As described in Notes 1.10, 1.12.2 and 1.13.2 of Part 4 – “Consolidated Financial Statements” of this Annual Report, these amounts take into account, in line with accounting FRS27, the reclassifi cation in the United Kingdom of some with-profi ts technical reserves to allow for all future terminal bonuses payable to with-profi ts policyholders within the allocated policyholder reserves, previously held in the unallocated policyholder bonus reserve, without any impact on earnings.
(b) As described in Note 1.10 of Part 4 – “Consolidated Financial Statements” of this Annual Report, the contribution of discontinued Canadian operations is reclassifi ed on a separate line of the income statement in order to present a comparable basis.
(d) The calculation of net income per share is based on the weighted average number of outstanding shares for each period presented. The calculation of net income per share from discontinued operations or not for the year ended December 31, 2011 is presented in Note 27 “Net Income per Ordinary Share” to AXA’s consolidated fi nancial statements.
(e) An annual dividend is generally paid each year in respect of the prior year after the Annual General Shareholders’ Meeting (customarily held in April or May) and before September of that year. Dividends are presented in this table in the year to which they relate and not in the year in which they are declared and paid. A dividend of €0.69 per share will be proposed at AXA’s Shareholders’ Meeting that will be held on April 25, 2012. The dividend will be payable on May 9, 2012, with an ex-dividend date of May 4, 2012.
(a) (i) Includes investment income net of investment management costs, impairment, net realized investment gains and losses and net unrealized investment gains and losses on assets with fi nancial risk borne by the policyholders and on assets designated as at fair value through profi t & loss. (ii) Shareholders’ equity per share is calculated based on the actual number of outstanding shares at each period-end presented. The calculations deduct shares held by AXA and its subsidiaries (i.e. treasury shares) in the calculation of weighted average number of outstanding shares (for net income per share) and outstanding shares (for shareholders’ equity per share).
The Company pays dividends in Euro. Future dividends will depend on AXA’s earnings, fi nancial condition as well as various other factors. Proposals for dividend payments are made at the discretion of the Board of Directors based upon the recommendation of its Finance Committee, and are submitted for fi nal approval to the Shareholders’ Meeting.
M anagement currently intends to maintain this dividend policy over the long-term, the dividend proposed by M anagement in any particular year depends on a variety of factors (including the Company’s performance, prevailing fi nancial market conditions and the general economic environment) and, consequently, may fall outside the target 40% to 50% range in certain years. In assessing the dividend to be paid in any given year, M anagement tries to strike the appropriate balance between (i) prudent capital management, (ii) reinvestment of previous results to support business development and (iii) an attractive dividend for shareholders.
A dividend of €0.69 for the 2011 fi scal year will be proposed to the Shareholders’ Meeting to be held on April 25, 2012.
The following table sets forth information on the dividends declared and paid during the last fi ve years: Fiscal year Distribution (in E uro million)
(c) Individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 40% on the dividend, i.e. €0.16 per share for fi scal year 2008.
(e) Individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 40% on the dividend, i.e. €0.28 per share for fi scal year 2010.
(f) Proposal to be submitted to the Shareholders’ Meeting to be held on April 25, 2012. Individual shareholders who are residents of France for tax purposes will be eligible for a tax relief of 40% on the dividend, i.e. €0.28 per share for fi scal year 2011.
Les Mutuelles Unies took control of the Groupe Drouot and, following this transaction, the new Group began operating under the name of AXA.
AXA transferred its insurance businesses to Compagnie du Midi which operated under the name of AXA Midi and subsequently changed its name to AXA.
Equitable Life. The Equitable Companies Incorporated, based in the United States, changed its name in 1999 to AXA
This transaction enabled AXA to signifi cantly increase its size and reinforce its strategic position in a number of important markets, particularly in Europe.
States by approximately 25%. In addition, AXA sold (i) its insurance activities in Uruguay (AXA Seguros Uruguay) thereby fi nalizing its disengagement from South America, (ii) its Dutch insurance broking operations (Unirobe), (iii) its Dutch Health insurance operations, and (iv) its mortgage lending activities in
FINAXA, a listed holding company that was AXA’s principal shareholder, merged into AXA. Prior to the merger, FINAXA
(subsequently renamed Thinc Group) in the United Kingdom, and (iii) MLC Hong Kong and Indonesia via its subsidiary AXA
Asia Pacifi c Holdings. In addition, in December, AXA completed the sale of AXA RE’s (now named “Colisée RE”) reinsurance business.
AXA (i) completed the acquisition of 36.7% of the share capital of RESO, Russia’s 2nd largest P&C insurer (June), (ii) completed the acquisition of Seguros ING (subsequently renamed “AXA
Seguros, SA de Compañia de Valores”), the 3rd largest Mexican insurer with leading positions in key markets such as Motor or
Health and also active on the Life market (July), and (iii) acquired
delisting, AXA’s ADS have been traded on the U.S. over-thecounter market and are quoted on the OTC QX platform under the symbol AXAHY. In April, AXA’s Shareholders’ Meeting approved the change of the Company’s corporate governance structure from a dual board structure (Supervisory Board and
Directors). Finally, in September, AXA UK sold to Resolution Ltd its traditional life and pensions businesses, its IFA protection and corporate pension businesses, and its annuity businesses for a consideration of £2.75 billion.
Holdings Limited (“AXA APH”) transaction pursuant to which, it disposed of its Australian & New Zealand operations and acquired the AXA APH Asia Life operations. In June, AXA’s senior management team presented “Ambition AXA”, the Group’s 5-year strategic plan defi ning the fi nancial and operational priorities for each of its business lines: Life & Savings, Property
For a description of signifi cant acquisitions and disposals undertaken by AXA during the fi scal year, please see
Part 1 – “The AXA Group: Our global business operations, recent fi nancial performance and fi nancial condition”, Section 1.3
The Company is the holding company for the AXA Group, a worldwide leader in fi nancial protection. Based on available information at December 31, 2011, the AXA Group was one of the world’s largest insurance groups, with consolidated gross revenues of €86 billion for the year ended December 31, 2011. The AXA Group was also one of the world’s largest asset managers, with total assets under management on
December 31, 2011 of €1,079 billion. Based on available information at December 31, 2010 and taking into account companies engaged in the asset management business, AXA
Pacifi c Region and, to a lesser extent, in other regions including the Middle East, Africa, and Latin America. AXA has fi ve operating business segments: Life & Savings, Property
Set forth below is a simplifi ed organization chart of AXA
(b) AXA also holds indirectly 100% of the general partner of AllianceBernstein L.P.
(g) The main branches of AXA Bank Europe include AXA Bank Hungary, AXA Bank Europe Czech Republic, AXA Bank Europe Slovakia.
(h) Holding company that owns AXA France Vie, AXA France IARD, AVANSSUR, Juridica, AXA Epargne Entreprise and Natio Assurance.
(j) Holding company that owns AXA Assicurazioni S.p.A. and AXA Interlife S.p.A.
(m) Holding company that owns AXA Assurances Luxembourg and AXA Assurances Vie Luxembourg.
(n) Holding company that owns Hilo Direct de Seguros y Reaseguros, AXA Seguros Generales, SA de Seguros y Reaseguros, AXA Vida, S.A. de Seguros y Reaseguros, AXA MedLa IT & Local Support Services, SA, AXA Aurora Vida, SA de Seguros y Reaseguros and AXA Pensiones, SA E.G.F.P.
(q) Holding company that owns directly AXA Sun Life Direct Limited, Sun Life Corporation plc, AXA Portfolio Services Limited, Winterthur UK Financial Services Group Limited, Guardian Royal Exchange plc, Bluefi n Group Limited, and indirectly AXA Insurance UK plc and AXA PPP healthcare Limited.
The Company and certain of its insurance subsidiaries are rated by recognized rating agencies. The signifi cance and the meaning of individual ratings vary from agency to agency.
The ratings set forth above may be subject to revision or withdrawal at any time by the assigning rating agency. None of these ratings is an indication of the historic or potential performance of AXA’s ordinary shares, ADS , ADR or debt securities and should not be relied upon for purpose of making an investment decision with respect to any of these securities.
Profi t or loss on fi nancial assets (under fair value option) & derivatives 114 212 210
(a) Annual Premium Equivalent (APE): Measure of new business volume which represents 100% of regular premiums + 10% of single premiums, in line with EEV methodology. APE is Group share.
(c) Underlying earnings correspond to adjusted earnings excluding net capital gains attributable to shareholders.
(ii) Integration and restructuring costs related to material newly acquired companies as well as restructuring and associated costs related to productivity improvement plans
(f) Restated: the contribution of discontinued Canadian operations is reclassifi ed on a separate line of the income statement to present a comparable basis.
(a) As described in Note 1.10 of Part 4 – “Consolidated Financial Statements”, the contribution of discontinued operations is stated in a separate line of the income statement.
(d) The contribution of Direct operations is stated in a separate line of the income statement for both 2011 and 2010.
AXA offers a broad range of Life & Savings products including
Gross revenues Years ended December 31, Gross insurance liabilities at December 31, 20112011 (e)
Of which: Fees and charges relating to investment contracts with no participating feature 350 518 518
(a) Mediterranean & Latin American Region includes Spain, Italy, Portugal, Turkey, Greece, Morocco and Mexico.
(d) Includes revenues from other activities (mainly commissions and related fees on Mutual funds sales).
(b) New Business Value (NBV): The value of new business issued during the current year consists of the Value In Force of new business at the end of the year plus the statutory profi t result of the business during the year. NBV is Group share.
(d) For APE and NBV: Mediterranean & Latin American Region includes Spain, Italy, Portugal, Turkey, Greece and Mexico.
In the Life & Savings segment, AXA operates primarily in Western
United States and Japan. In addition, AXA offers investment and saving products as well as life and Health products in a number of other jurisdictions including Asia (notably Hong
The table below presents the main Life & Savings insurance markets in which AXA operates ranked by worldwide gross revenues in 2010, along with AXA’s estimated ranking (by market share).
(c) AXA’s ranking and market share are based on updated September 2011 fi gures .
For additional information on markets, see Section “Insurance and Asset Management Markets” included in “Part 1.3 – Activity
The benefi t can be a lump sum, or a percentage of the income paid over a specifi ed period of time; ■ immediate annuity products, which are usually single premium products with no previous accumulation period, which promise regular payments for a fi xed period of time or over a benefi ciaries’ lifetime.
Health products(1) generally offer reimbursement of medical expenses or provide medical services.
AXA’s Life & Savings products may be distinguished between: ■ participating contracts, in which the policyholders participate in the excess assets over liabilities (the surplus) of – and therefore in the investment return and/or in part of the operating profi ts earned by – the insurance company issuing the contract by way of an interest or bonus payment; ■ contracts with the financial risk borne by the policyholders
Gross written premiums by main product lines Years ended December 31,
Life contracts (including endowment contracts) 20,097 39% 20,276 37% 20,338 156,460
(a) Includes revenues from other activities (mainly commissions and related fees on Mutual funds sales).
(c) Restated: the contribution of discontinued Canadian operations is reclassifi ed on a separate line of the net income to present a comparable basis.
Company’s products on an exclusive basis; ■ Direct sales relate to all sales made through mail, telephone, and internet; ■ Brokers are independent fi rms that negotiate with insurance companies on behalf of customers seeking coverage. As opposed to exclusive agents, brokers usually work with different insurance companies; ■ Independent Financial Advisors (IFAs) are individuals or fi rms that provide fi nancial advice to customers and negotiate related policies with insurance companies on behalf of customers. IFAs usually work with different insurance companies; ■ Aligned distributors are independent individuals or fi rms who have chosen AXA to provide them with a full range of dealership services. They negotiate, on behalf of customers, policies of various insurance companies among a range of products selected by AXA;
■ Distribution partnerships are generally structured as sales agreements between an insurance company and another company from the fi nancial services industry, especially banks, or from another industry. This may take the form of a joint venture between the insurance company and its partner or a pure contractual distribution arrangement.
The split of distribution channels used by AXA’s principal Life & Savings operations, based on consolidated gross revenues for the years ended December 31, 2011 and 2010, is presented below: BASED ON GROSS REVENUES IN 2011
(charges assessed in the case of early surrender). Both frontend charges and surrender charges are intended to offset a portion of the acquisition costs.
(d) Mediterranean & Latin American Region includes Spain, Italy, Portugal, Morocco, Greece, Turkey and Mexico.
Life & Savings Global Business line, as part of its role to defi ne a common strategy has set the following priorities: ■ focus on in force optimization; ■ increase productivity and effi ciency; ■ reshape the Savings business; ■ actively grow Protection and Health.
(1) Some countries classify health activity in the Property & Casualty segment, while other countries classify it in the Life & Savings segment. AXA
Germany, the United Kingdom, Belgium, Switzerland and the Mediterranean Region. AXA also offers personal and commercial Property & Casualty insurance products in other countries in Central and Eastern Europe as well as in Asia
■ changes in regulations, which may affect premium rates charged or claims settlement costs paid.
(e) Gulf Region: includes Saudi Arabia, United Arab Emirates, Bahrain, Qatar and Oman. Rankings are calculated with the agregation of these 5 countries.
(h) Considering all companies part of the Group of Public Insurers independently.
(i) AXA’s ranking and market share based on updated September 2011 fi gures.
For more details on market description, refer to Part 1.3 – “Activity Report”, Section “Insurance and Asset Management Markets”.
AXA’s Property & Casualty insurance operations offer a broad range of products including Motor, household, property and general liability insurance for both personal and commercial customers (targeting mainly small to medium sized companies) and, in certain countries, Health products. In addition, AXA offers engineering services to support prevention policies in companies.
The split of distribution channels used by AXA’s Property & Casualty operations (excluding Direct), based on gross revenues for the year ended December 31, 2011 and 2010, is presented below: Based on gross revenues in 2011 Proprietary network Non Proprietary network
Based on gross revenues in 2010 Proprietary network Non Proprietary network
Property & Casualty insurance exposures are ceded internally to AXA Global Property &Casualty (formerly AXA Cessions), which organizes external reinsurance programs. Total gross premiums ceded by AXA’s Property & Casualty operations to third party reinsurers in 2011 amounted to€1,462 million (2010: Since 2010, AXA Global P&C manages the Property & Casualty
Partner RE, with Colisée RE, however, retaining the risk of any deviation (positive or negative) as compared to the reserves constituted as at January 1, 2006 in respect of occurrence years 2005 and prior.
The businesses of the International Insurance activities are described below. The International Insurance segment accounted for €2.9 billion or 3% of AXA’s consolidated gross revenues for the year ended December 31, 2011 (2010: €2.8 billion or 3%).
are two intra-group reinsurance companies in charge of analysis, structure and placement of reinsurance treaties on behalf of AXA Group insurance companies after a selection of third party reinsurers. AXA Global P&C activity is mainly driven by its Property pool which provides AXA entities with cover on natural catastrophes; ■ AXA Assistance provides assistance services including medical aid for travelers, automobile-related road assistance, home assistance and health-related services mainly to banking and insurance companies, tour operators, telecommunications operators, gas, water and electricity utilities and automobiles manufacturers. AXA Assistance has also developed its expertise in the home services market;
■ AXA Liabilities Managers is the Group’s specialized unit in charge of managing the AXA Group’s Property & Casualty run-off portfolios. This entity manages the internal run-off portfolios of AXA UK, AXA Germany and AXA Belgium, as well as some Accident and Health run-off portfolios in the
International Insurance segment for the periods and at the dates indicated: INTERNATIONAL INSURANCE
AXA Global Life and Global P&C (a) 71 2% 50 2% 456 of which
AXA Assistance provides both emergency and daily services and health management through a new range of products and claims management. AXA Assistance has developed its expertise in managing crisis situations, whether they are of a political nature, health-related nature or linked to natural disasters.
AXA Assistance mainly operates as a business-to-business company although it also uses direct sales and marketing to sell its products. In countries in which AXA offers Property
Also, in 2011, approximately €856 million of premiums were placed externally by AXA Global Life and AXA Global Property
& Casualty (ex-AXA Cessions) on behalf of AXA’s insurance subsidiaries (2010: €815 million), mainly for Property & Casualty business but also for Life & Savings business.
For the years ended December 31, 2011 and 2010, the Asset m anagement segment accounted for €3.3 billion, or 4% of
Assets managed by AXA’s Assets m anagers at December 31, (a)
Assets backing contracts with fi nancial risk borne by policyholders 34,496 39,720
AllianceBernstein, a 64.6% subsidiary, is a leading global investment management fi rm based in the United States.
L.P.is listed on the New York Stock Exchange under the ticker symbol “AB”.
At December 31, 2011, AllianceBernstein had €335.0 billion of assets under management, including €242.2 billion of assets managed on behalf of third party clients (2010: €362.1 billion and €277.2 billion, respectively).
AXA Bank products and services in Belgium are mainly distributed by a network of 991 exclusive independent bank agents. The bank’s products and offers are linked with insurance business and are primarily focused on retail products. AXA
As announced on November 15, 2011, AXA Bank decided to close its Swiss operations as part of a cooperation agreement with bank zweiplus. The agreement will allow AXA to offer and distribute short and mid-term savings and investment products through its own distribution channel more effectively. AXA Bank has transferred its customer deposit portfolio to bank zweiplus.
Slovakia was launched in February 2010 and in April 2011 respectively. The bank’s product offer consists of savings accounts. These are distributed by existing AXA sales networks in Czech Republic and Slovakia and over the internet.
France (1). The Life & Savings market decreased by -12% in 2011, mainly due to a -14% drop in Savings. General account participating contracts representing 86% of the Savings market dropped by -15%, whereas unit-linked (14% of the Savings market) fell by -9%. The 2011 decrease was both in traditional distribution and in bancassurance channels. The market growth was +1% for Protection & Health. Overall, based on 2011 market data, AXA ranked 3rd with a market share of 8.5%.
In Savings, the level of surrenders increased signifi cantly, leading to net cash fl ows dropping by -78% but remained positive for the year.
In Life, AXA ranked 7th with a 3.8% market share. In Variable
Equivalent (APE) basis (2) following equity market gains in the fi rst half of 2011, whilst the Wealth Management market (3)
increased by 7% driven by Mutual funds sales volumes. Funds under management on platforms grew by 27% (4) helped by continuing asset infl ows.
Japan (6). The market grew by 1.7% in terms of premiums.
AXA ranked 7th in the Life market with a 5.0% market share and 5th in the Health market with a 6.9% market share (9).
Switzerland (10). The market increased by +3.3%, despite volatility in fi nancial markets with lasting record-low interest rates and continuing economic uncertainties. The increase is mainly resulting from substantial growth in Group Life (+5.3%)
achieved a growth rate of +9.3% in gross revenues compared to the previous year and confi rmed its leader position in Group
Life with a market share above 32.0%. The market volume in the Individual Life business decreased by -1.3% mainly as a result of declining single premiums. AXA’s decrease in Individual
Central and Eastern Europe (12). The Life & Savings market increased by 6% in Poland, by 6% in Czech Republic and
Slovakia and decreased by 1% in Hungary. AXA’s market share in the region increased to 3.3%. AXA ranked 10th in Hungary, 9th in Czech Republic, 8th in Slovakia and 12th in Poland. The
Pension Funds market - in term of assets under management increased by 8% in Czech Republic, by 19% in Slovakia, by 4%
in the region. AXA ranked 2nd in Czech Republic and Slovakia, and 5th in Poland and Hungary. The mandatory Pension
(1) Source: ABI/MSE© 2010 Association of British Insurers, nine months ended September 30, 2011 vs. nine months 2010 and Pridham reports to September 30, 2011.
(2) Annual Premium Equivalent (APE) is new regular premium plus 10% of single premiums.
(5) Source: ABI/MSE © 2010 Association of British Insurers, nine months to September 30,2011 versus nine months to September 30, 2010.
(6) Source: Insurance Research Institute (excluding Kampo Life), and fi nancial statements of the companies. Premiums are for the twelve months ended September 30, 2011.
(11) Source: Assuralia (Belgium Professional Union of Insurance companies). Based on September 30, 2011 fi gures (measured on gross written premiums).
(12) Source: estimate based on September 2011 data from Czech association of insurance companies, “Report of the Association of Hungarian
Insurance Companies (Mabisz)”, Hungarian Financial Supervisory Authority (PSZAF) website, Polish Financial Supervision Authority website and Statistics of Slovak Insurance Association.
(4) Source: Hellenic Association of Insurance Companies as of June 30, 2011.
(5) Source: Turkish Association of Insurance Companies as of September 30, 2011.
(6) Source: Moroccan Association of Insurance Companies as of December 31, 2010.
(8) Source: Offi ce of Commissioner statistics as of September 30, 2011 (measured on individual life in-force business).
(9) Source: AAJI statistics as of September 30, 2011 (measured on APE).
(10) Source: TLAA statistics report as of October 30, 2011 (measured on APE).
(11) Source: LIAstatistics as of September 30, 2011 (measured on APE).
market share. AXA ranked 5th with a market share of 8.5%.
■ Indonesia (9). The market was up 20% in terms of APE, of which over 60% came from unit-linked products. Such increase was mainly driven by the continuing expansion of the middle class and the increasing awareness to own a life insurance policy. AXA ranked 2nd in new business with an increasing market share at 15.3%; ■ Thailand (10). The market recorded a growth of 12% in terms of APE. While short-term traditional Savings products with guarantees continued to be the most popular, demand for
following a change in regulation pushing insurance players to move away from unit-linked Pension Plans. AXA ranked 18th amongst the private players with a market share of 0.9%; ■ China (2). The market saw a negative growth of 7.4% in total premium income, due to multiple external challenges including regulatory controls on bank distribution, high bank deposit rates providing competition for Savings. AXA ranked 10th among foreign players and 31st in the overall market.
whereas Construction was up by +1% and Liability was fl at.
■ The UK Personal lines market (5) grew by 8% (6). The Motor market continued to harden in 2011 and experienced high claims predominantly due to an increase in personal injury claims fuelled by increasing numbers of lawyers offering claims compensation services. Overall AXA ranked 4th in
Personal lines with a 6% market share. AXA ranked 5th in
Germany (10). In 2011, premiums increased by 2.5%, with Motor segment contributing strongly with 3.5% growth. Commercial lines continue to face strong competition in the market. AXA
ranked 4th in the Property & Casualty market with a market share of 5.8% (11).
Belgium. The market increased by +3.2% in line with infl ation (13). The Motor segment continued its upward trend and grew by 3.8% mainly as a result new car sales and tariff increases by main players. The Household & Property market segment reversed the downwards trend of 2010 and grew by 4.6% mainly due to the Belgian construction indexation (ABEX)
■ In Spain (14), the persistent economic conditions caused the market to remain fl at during the period: Motor (-2%) and
Health (+3%); ■ in Italy (15), the market grew by 3% driven by Motor (+3%); (1) Source: IRDA statistics as of November 30, 2011 (measured on APE).
(2) Source: CIRC statistics as of September 30, 2011 (new business measured on APE).
(8) Source: Laing & Buisson Health Care & Cover Report 2010.
(12) Source: SIA (Swiss Insurance Association) publication “Jahresmedienkonferenz 2012” as per February 3,2012.
(15) Source: Italian GAAP as of September 2011. Ranking as of December 2010, source: Associazione Nazionale Imprese Assicuratrici (ANIA).
■ in Portugal (1), the market remained stable with different performances by Line of Business: Motor (+1%), Health
Compensation (-3%) decreased; ■ in Greece (2), as a result of the downturn in the economy and the contraction in household income, the market decreased by 6% with a signifi cant decrease in Motor and in Marine; ■ in Turkey (3), the market experienced a signifi cant increase of 21% supported by a strong increase in car sales; ■ in the Gulf Region (4), the market grew by 12% in Saudi
Arabia driven by mandatory Health insurance, representing 50% of the whole market, growing by 52%, while the insurance market grew by 32% in United Arab Emirates; ■ in Morocco (5), the market increased by 7% driven by Motor
(+7%); ■ in Mexico (6), the market grew by 9% driven by Motor
(4) Sources: KSA Tadawul website, Dubai stock exchange (Abudhabi stock exchange), as of December 31, 2009.
(6) Source: AMIS: Asociacion Mexicana de instituciones de Seguros as of September 30, 2011.
Players in the global risks market are acting at a worldwide level with multinational clients placing their risks far beyond their countries of origin via international programs or in key global market places. In this market, AXA Corporate Solutions
& Casualty insurance of large national and multinational corporations, and to Aviation, Marine and Space insurance, is amongst the top fi ve players in Europe. After several years of soft underwriting conditions, corporate risks insurance pricing conditions continued to tighten in 2011.
In that context, most governments of the Euro zone began negotiations for the preparation of a new stricter budgetary pact. The ECB continued its Security Market Programs, in
lowered its key rate to 1%, in December 2011 and extended its three-year refi nancing operations.
The beginning of the reconstruction work sustained activity, in particular driving a turnaround in housing investments.
2011 was a challenging year for equity markets, notably as a result of uncertainties in the Euro zone as well as in Japan.
The global performance fi gure, -8% for the MSCI World Index over the year, hides substantial variations among countries.
Overall, the Dow Jones in New York increased by 6% in 2011 and the S&P 500 ended almost exactly fl at compared to
The MSCI G7 decreased by 6% and the MSCI emerging index depreciated by 15%. The S&P 500 implied volatility index increased from 17.8% to 23.4% between December 31, 2010 and December 31, 2011.
In this context, US and German treasury bonds continued to act as safe heavens whilst spreads in other Euro zone countries widened. The US 10-year T-bond ended the 2011 year at 1.88%, a decrease of 144 bps compared to December 31, 2010 whereas the 10-year German Bund yield decreased by 106 bps to 1.83%. The France 10-year government bond yield decreased by 21 bps to 3.15%. The 10-year Japanese government bond ended year at 0.99%, a decrease of 14 bps.
In Europe, the iTRAXX Main spreads increased by 68 bps and ended at 173 bps. The iTRAXX Crossover increased by 318 bps to 755 bps. In the United States, the CDX Main spread index increased by 35 bps to 120 bps.
Pound Sterling gained 2% against the Euro (closing exchange rate moved from £0.857 at the end of 2010 to £0.835 at the end of 2011). The Swiss Franc gained 3% against the Euro
(closing exchange rate moved from CHF 1.25 at the end of 2010 to CHF 1.21 at the end of 2011).
(from $1.34 over 2010 to $1.39 over 2011). The Yen gained 8%
September 2011). The Pound Sterling decreased by 1% (from £0.861 over 2010 to £0.866 over 2011) and the Swiss Franc gained 11% against the Euro (from CHF 1.39 over 2010 to CHF
AMP to AXA APH whereby AXA dispose of its 54% stake in
AXA acquired from AMP 100% of AXA APH’s Asian operations for AU$ 9.8 billion in cash. AXA APH’s Australia & New Zealand businesses price was AU$ 3.5 billion.
Limited (“RIIL”) (together, the Parties) announced entering into negotiations over a potential change in Bharti AXA Life
On November 25, 2011, the Parties announced that they have mutually agreed to terminate their negotiations on the proposed transaction.
(1) Due to a change in tax regulation in September 2011 in France, the positive impact of the transaction is €0.6 billion as of December 31, 2011 compared to the €0.7 billion announced in June 30, 2011.
Bharti AXA Life Insurance and Bharti AXA General Insurance will continue to develop their operations in India tapping the signifi cant growth potential offered by the Indian market.
This corresponds to implied 2010 multiples of 13x underlying earnings and 1.9x book value. On September 26, 2011,
€72 million) in contingent considerations based on profi tability metrics over a period of fi ve years.
AXA’s Canadian operations affected by this proposed transaction was treated as discontinued operations in
Impacts on AXA as of December, 31, 2011: ■ ca. +5 points on Solvency I ratio, which was 188% at
December 31, 2011; ■ ca. -3 points on debt gearing, which was 26% at
For several years, the AXA Group has been offering its employees in and outside France, the opportunity to subscribe to shares issued by way of a capital increase reserved for employees. In 2011, employees invested a total of €0.33 billion lead to a total of approximately 37 million newly issued shares.
As of December 31, 2011, AXA’s total share capital amounted to 2,357,197,520 shares.
Rosenberg clients. These suits made various allegations including breach of fi duciary duty, negligence/gross negligence in connection with the coding error and requested damages in an unspecifi ed amount to be determined at trial. In the fourth quarter of 2011, the parties entered into a settlement agreement following a nonbinding mediation process. On
On January 27, 2012, Standard & Poor’s affi rmed the ‘AA-’
On March 7th, 2012, AXA and HSBC announced they have entered into an agreement whereby AXA would acquire
The net upfront cash consideration for AXA is USD 494 million or ca. Euro 374 million, and will be funded through internal resources. The closing of the transaction is subject to regulatory approvals and is expected in the course of the second half of 2012.
of which Gross written premiums 50,918 54,962 54,834 of which Fees and revenues from investment contracts with no participating feature 350 518 518 -
(b) Excluding (i) net realized capital gains or loss and (ii) change in fair value option and derivatives, net banking revenues and total consolidated revenues would respectively amount to €479 and €86,101 million for full year 2011 and €444 and €90,964 million for full year 2010.
Total Life & Savings New Business APE amounted to €5,733 million, down 1%, both on reported and comparable basis. APE decrease was mainly due to Mediterranean & Latin
Mediterranean & Latin American Region APE decreased by €121 million (-22%) to €432 million mainly due to mature markets (€-110 million) experiencing (i) a signifi cant decrease in general account Savings products (€-150 million or -45%)
mainly at AXA MPS refl ecting a more favorable context in 2010 and lower activity within the bank distribution channel, slightly offset by (ii) an increased focus on unit-linked products
(-23%) to €213 million. The closing of new business in Pension
Funds following the new regulations in Hungary and Poland was partly compensated by the strategic shift towards Individual unit-linked business (+41%).
Belgium APE decreased by €45 million (-21%) to €173 million, mainly driven by lower sales of Crest general account Savings products refl ecting a conservative commercial policy in a highly competitive market.
As a consequence of the partial sale of the United Kingdom Life
(€-1,505 million or -1.6 points), the impact of AXA APH Asian entities minority interest buy-out and disposal of Australia and
New Zealand operations (€-1,551 million or -1.3 points) and the depreciation of Euro against most of major currencies
Savings mainly refl ecting market uncertainties leading to lower large contracts activity at AXA Wealth Management driving down general account Savings APE partly offset by (ii) a €6 million increase (+10%) in Group Retirement mainly driven by higher new business in unit-linked investment contracts and (iii) in €59 million increase in general account Protection
& Health (+12%) driven by signifi cant portfolio development in Group Protection & Health as well as Individual Protection stemming from “Protection Familiale”.
The United States APE increased by €69 million (+7%) to €1,018 million mainly driven by General account Protection
& Health (+52%) with the launch of the new Indexed Universal
Annuities (+5%) as strong sales of Retirement Cornestone and the roll-out of the new Structured Capital Strategies product were partly offset by lower sales of Accumulator.
Hong Kong APE increased by €48 million (+16%) to €330 million due to the successful launch of unit-linked products (+9%), higher sales in general account Protection & Health (+13%)
South-East Asia, India and China APE increased by €42 million (+15%) to €326 million mainly driven by (i) Indonesia
primarily from higher sales of general account Protection products through the bancassurance channel, (iii) Thailand
(€+10 million) mainly from higher sales of short term Savings products. These increases were partly offset by (iv) lower sales in India (€-9 million) mainly from unit-linked business following regulatory changes since September 2010.
(in E uro million) 2011 2010 published 2010 restated (a) 2011/2010 (b)
Property & Casualty gross revenues were up 4% to €27,046 million or up 3.5% on a comparable basis mainly driven by Personal lines (+4%) especially in Germany, the
Personal lines (60% of P&C gross revenues) were up by 4% on a comparable basis, stemming from both Motor (+5%)
in 2010, strong growth in Italy and Poland (+99% and +25%
respectively) as well as higher volumes in Japan (+7%); ■ Germany (+9%) as a result of higher volumes and price increases; ■ Asia (+10%) following strong sales increase in Malaysia
Non-Motor revenues were up by 3% refl ecting growth in: ■ the Mediterranean & Latin American Region (+6%) mainly driven by large accounts in high growth markets; ■ France (+3%) mainly following tariff increases; ■ the United Kingdom (+3%) due to primarily Health portfolio development in the UK and abroad; ■ these increases were partly offset by Switzerland (-1%) due to fi erce market competition with pressure on premiums.
AUM decreased by €27 billion or -7% from 2010 to €335 billion driven by (i) net outfl ows of €-28 billion mainly from Institutional clients, (ii) €-7 billion unfavorable market impact partly offset by
Net income from investments in affi liates and associates 85 71 70
Profi t or loss on fi nancial assets (under fair value option) & derivatives 114 210 212
Group underlying earnings amounted to €3,901 million. On a constant exchange rate basis, underlying earnings increased by €90 million (+2%) driven by Property & Casualty, Asset
On a constant exchange rate basis Life & Savings underlying earnings were down €213 million (-9%). On a comparable scope basis, restated for the partial sale of the UK Life & Savings operation and for the AXA APH Asian entities minority interest buy-out and disposal of Australia and New Zealand operations,
driven by both business mix and positive market effects, b. loadings on premiums and Mutual funds were up €192 million mainly driven by (i) the United States
(€+110 million) due to higher Unearned Revenue Reserve amortization (€+95 million) refl ecting lower projection of future loadings, (ii) Hong Kong (€+65 million) driven by higher new business and in-force growth, c. other fees were up €3 million; (iii) net technical margin was down €979 million mainly driven by (i) €-830 million deterioration of the Variable
(iv) expenses decreased by €954 million (or -13%). On a comparable basis, expenses decreased by €319 million or -5% as a result of: a. €179 million lower acquisition expenses, primarily driven by the United States (€+297 million) as a result of lower DAC amortization notably following the decrease in technical margin, partly offset by Hong Kong (€-51 million)
CMU levy in France, as well as productivity programs net of infl ation; (v) lower tax expenses and minority interests (down €221 million) driven by lower pre-tax underlying earnings, more favorable tax one-offs (€91 million in the United
States, €15 million in Japan and €37 million in Germany versus €89 million in 2010), and a favorable tax situation in the UK.
Property & Casualty underlying earnings amounted to €1,848 million. On a constant exchange rate basis, Property
International Insurance underlying earnings amounted to €276 million. On a constant exchange rate basis, underlying earnings decreased by €16 million (or -6%) notably due to
Asset Management underlying earnings amounted to €321 million. On a constant exchange rate basis, underlying earnings increased by €53 million (+20%) mainly driven by AXA
IM (€+87 million or +69%) refl ecting (i) the non repeat of AXA
(€-34 million or -23%) as a result of lower management fees following a decrease in assets under management and higher expenses due to promotion and services partly offset by lower variable compensations.
Bank Hungary, reclassifi ed to net income, following the discontinuation of lending activities.
Holdings and other companies underlying earnings amounted to €-843 million. On a constant exchange rate basis, holdings underlying earnings decreased by €-9 million
SA (€-8 million) mostly following lower fi nancial income, partly offset by (iii) UK Holdings (€+33 million) following higher investment margin and (iv) US Holdings (€+30 million) due to lower share-based compensation and lower fi nancial charges.
Group net capital gains attributable to shareholders amounted to €-312 million. On a constant exchange rate basis,
(€-190 million) and (ii) lower realized gains on equities (€179 million) partly offset by higher realized gains on real estate (€+85 million); (iii) €-47 million lower intrinsic value mainly related to equity derivatives premium amortization.
Net Income amounted to €4,324 million. On a constant exchange rate basis, net income increased by €1,360 million
Life, c. €+626 million in capital gain on the disposal of Australia and New Zealand operations, d. €-187 million due to the restructuring of the participation in Bharti AXA Life Insurance Co. Ltd. and Bharti AXA
States, €-943 million, attributable to the Accumulator book of business considering the present market environment deterioration, b. lower adjusted earnings (€-641 million), c. higher restructuring costs (€-210 million) mainly due to the accelerated vesting of AllianceBernstein deferred compensation plans.
As of December 31, 2011, consolidated shareholders’ equity totaled €48.6 billion. The movements in shareholders’ equity since
Weighted average number of shares 2,301.0 2,305.0 2,266.3 2,274.6 2,266.3 2,274.6
Net income (Euro per Ordinary Share) 1.75 1.75 1.08 1.08 1.08 1.08 62% 62%
(c) Restated in 2010 means the restatement of the Canadian activities as discontinued operations.
Profi t or loss on fi nancial assets (under FV option) & derivatives 273 347 347
Contribution to consolidated gross revenues 52,431 56,923 56,792 of which High growth markets 2,617 2,485 2,485 of which Mature markets 49,814 54,439 54,307
(c) Other countries correspond to Australia/New Zealand, Canada, Luxembourg, AXA Global Distributors, AXA L ife E urope, Architas and Family protect.
Net realized capital gains or losses attributable to shareholders (35) 279 276
Net capital gains or losses attributable to shareholders net of income tax 193 247
Individual Protection and Health mainly due to the success of the Family Protection product.
APE decreased by €44 million (-3%) to €1,340 million. On a comparable basis, APE decreased by €37 million (-3%): ■ Individual Savings decreased by €103 million (-13%) mainly refl ecting market uncertainties notably leading to lower large contracts at AXA Wealth Management driving lower general account APE (-17%) partly offset by higher unit-linked APE
(+4%); ■ Group Retirement increased by €6 million (+10%) driven by some new large contracts in 2011 especially in unit-linked investment contracts; ■ Protection and Health increased by €59 million (+12%) driven by Individual Protection (+31%) mainly due to the success of the Family Protection product and by Group Protection and
due to €-61 million following a change in “CMU” levy regulation
(offset in expenses), as well as a lower positive prior year reserve development and by (ii) Group Retirement (€-28 million)
Expenses decreased by €106 million (-5%) to €-2,190 million due to lower general expenses (€+128 million), driven by exceptional impacts on taxes (€+99 million of which €+61 million following a change in “CMU” levy regulation offset in technical margin) and lower staff costs.
Income tax expenses decreased by €73 million (-27%) to €-194 million, mostly due to higher non taxable revenues, lower taxes on prior year reserve developments and to a lesser extent, lower pre tax underlying earnings.
French tax regulation on the “réserve de capitalisation” partly offset by higher realized capital gains mainly on real estate and equities (€+195 million) as well as a more favorable change in intrinsic value of equity hedging positions (€+29 million).
increased by 5% refl ecting the impact of the new Retirement
driven by a decrease in Variable Life renewal premiums down 18% from Corporate Owned Life Insurance, partially offset by an increase in sales of the Indexed Universal Life (product launched in August 2010, and represented 37% of the full year 2011 Life sales); ■ Fees on Asset Management business (7% of gross revenues)
APE increased by €31 million (+3%) to €1,018 million. On a comparable basis, APE increased by €69 million (+7%): ■ Variable Annuity increased by 5% to €460 million refl ecting higher sales of Retirement Cornerstone, mainly through the retail channel and Structured Capital Strategies product, offsetting lower sales on former versions of Accumulator; ■ Life increased by 40% to €249 million refl ecting increased sales of Indexed Universal Life (product launched in
Fees & revenues increased by €126 million (+7%) to €1,931 million. On a constant exchange rate basis, fees
& revenues increased by €198 million (+11%) primarily driven by higher unit-linked management fees from higher average
Net technical margin decreased by €766 million to €-1,192 million. On a constant exchange rate basis, net technical margin decreased by €810 million primarily driven by higher GMxB losses refl ecting increased volatility and basis losses, and higher impact of GMxB reserve adjustment for lower lapse assumptions.
to €-1,005 million mainly due to productivity actions implemented in 2011, including a one-time change to employee benefi t plans (€+37 million) and overall reduced spending, partially offset by higher asset based commissions; ■ DAC amortization decreased by €276 million to €+96 million following higher GMxB losses (including revision of lapse assumptions) and a favorable change in expected mortality, offsetting recurring DAC amortization and lower projected future loadings (partly offset in URR).
Amortization of VBI decreased by €47 million (-91%) to €-5 million. On a constant exchange rate basis, amortization of VBI decreased by €47 million (-90%) following a change in assumption refl ecting higher expected margins on MONY inforce contracts partly offset by the annual amortization charge.
Income tax expense decreased by €88 million to a benefi t of €13 million. On a constant exchange rate basis, income tax expense decreased by €88 million which refl ects lower underlying earnings and higher favorable impact of tax settlements in 2011 (€91 million in 2011 vs. €76 million in 2010).
Adjusted earnings decreased by €39 million (-12%) to €301 million. On a constant exchange rate basis, adjusted earnings decreased by €28 million (-8%) mainly refl ecting the decrease in underlying earnings partly offset by lower impairments on fi xed income assets.
As a consequence of the partial sale of the Life & Savings business to Resolution in 2010, 2011 gross revenues, underlying earnings, adjusted earnings and net income do not include the business sold in 2010. For consistency, 2011 fi gures have been compared to the same scope for 2010, i.e. retained business as well as portfolios transferred in November 2011 to
Resolution. This is referred to as a comparable scope basis in the commentary below.
Gross revenues decreased by €1,389 million (-68%) to €651 million. On a constant exchange rate and comparable scope basis, gross revenues increased by €120 million (22%)
mainly attributable to €77 million from unit-linked business supported by the launch of the new Accumulator product in 2010, €22 million from bancassurance business and €19 million from Sun Life Direct Protection business.
Fees & revenues decreased by €130 million (-26%) to €375 million. On a constant exchange rate and on a comparable scope basis, fees & revenues increased by €32 million (9%)
Net technical margin decreased by €43 million (-65%) to €23 million. On a constant exchange rate and on a comparable scope basis, net technical margin increased by €20 million mainly due to a favorable change in reserve assumption for policyholder taxes on Sun Life Direct Protection business
On a constant exchange rate and a comparable scope basis, underlying earnings increased by €51 million.
On a constant exchange rate and comparable scope, adjusted earnings increased by €51 million due to the underlying earnings movement.
Excluding €1,642 million exceptional loss in 2010 arising from the partial sale of the Life & Savings business, on a constant exchange rate and on a comparable scope basis, net income decreased by €20 million. In addition to the changes in adjusted earnings, the year on year movement in net income included €-37 million adjustment related to the completion of the held for sale portfolios transferred in 2011 and €-38 million accelerated amortization related to customer intangibles.
Net capital gains or losses attributable to shareholders net of income tax 12 5
Gross revenues increased by €187 million (+3%) to €5,747 million. On a comparable basis, revenues decreased by €221 million (-4%): ■ Protection revenues (39% of gross revenues) decreased by €76 million (-4%) mainly resulting from the sales discontinuation of low margin products, notably Increasing
Fees & revenues increased by €100 million (+7%) to €1,456 million. On a constant exchange rate basis, fees
On a constant exchange rate basis, expenses increased by €16 million (2%) mainly due to (i) €7 million higher IT
infrastructure costs and (ii) €5 million additional expenses related to the earthquake.
As a result, the underlying cost income ratio deteriorated by 3.2 points to 63.9%.
Net capital gains or losses attributable to shareholders net of income tax (42) 11
Profi t or loss on fi nancial assets (under FV option) & derivatives 2 29
Investment margin increased by €29 million (+34%) to €113 million due to an increasing investment income from private equity and fi xed income assets, notably as a result of exceptional coupon distributions, combined with a lower share allocated to policyholder.
Reserves) amortization on Variable Annuity products (offset by higher amortization of deferred acquisition costs).
Net technical margin fell by €21 million (-22%) to €77 million due to a decrease in hedging margin on GMxB products (€33 million) partly compensated by improved claims experience in Health.
Expenses increased by €30 million (+13%) to €-255 million mainly due to higher amortization of deferred acquisition costs
Income tax expenses decreased by €40 million (-54%) to €-35 million mainly due to a positive tax one-off (€+37 million)
Adjusted earnings decreased by €34 million (-18%) to €151 million mainly due to higher fi xed income impairment charge mostly on Greek government bonds, partly offset by higher underlying earnings.
Net income decreased by €62 million (-29%) to €152 million mainly due to lower adjusted earnings and less favorable change in fair value of alternative investments.
Profi t or loss on fi nancial assets (under FV option) & derivatives 100 69
to €5,276 million as a result of a strong positioning in a context of lasting strong demand for full-protection schemes contracts from small and medium size enterprises, with higher single premiums (€+300 million) and higher regular premiums (€+72 million); ■ Individual Life revenues increased by €11 million (+2%) to €882 million as a consequence of higher single premiums
APE increased by €114 million (+40%) to €397 million. On a comparable basis, APE increased by €70 million (+25%): ■ Group Life increased by €62 million (+32%) driven by higher demand for full-protection schemes; (1) €6,151 million after intercompany eliminations.
Fees & revenues increased by €34 million (+15%) to €265 million. On a constant exchange rate basis, fees
Net technical margin increased by €100 million (+59%) to €270 million. On a constant exchange rate basis, net technical margin increased by €71 million (+42%) driven by a favorable development in mortality and disability margin in Individual Life as well as a €8 million gain from the cancellation of a large internal co-insurance contract (offset by a corresponding VBI
Underlying earnings increased by €80 million (+38%) to €293 million. On a constant exchange rate basis, underlying earnings increased by €48 million (+23%).
Net income increased by €811 million to €1,172 million. On a constant exchange rate basis, net income increased by €681 million mainly driven by the realized gain on the sale of the stake in Taikang Life (€798 million) partly offset by a nonrecurring positive tax impact included in 2010 (€-54 million).
Profi t or loss on fi nancial assets (under FV option) & derivatives (70) 33
APE decreased by €45 million (-21%) to €173 million: ■ Individual Life & Savings APE decreased by 25% (or €-48 million) mainly driven by mower sales of Crest products refl ecting a conservative commercial policy in a highly competitive market; ■ Group Life APE increased by 10% (or €3 million) to €27 million.
Profi t or loss on fi nancial assets (under FV option) & derivatives (0) (1)
Gross revenues decreased by €1 million to €514 million. On a comparable basis, gross revenues decreased by €4 million
(-1%), as the decrease in pension fund products sales in Poland and Hungary, due to the changes in regulation was partly offset by an increase in unit-linked sales (€+14 million or +7%).
Hungary partly offset by Life & Savings APE (€+20 million or
Pension Funds in Hungary and regulatory reform in Poland, underlying earnings were stable due to higher technical margin and lower administrative expenses offset by higher acquisition expenses.
Gross revenues decreased by €2,159 million (-31%) or €2,146 million (-31%) on a comparable basis to €4,796 million: ■ mature markets were down by €2,130 million or -33%, mainly driven by a signifi cant decrease of €2,320 million in general account savings products at AXA MPS refl ecting a more favorable context in 2010 in Italy due to a tax amnesty and 2011 lower activity from the bank distribution channel,
on a comparable basis to €432 million: ■ mature markets were down €110 million (-23%), mainly refl ecting a strong drop in general account savings products
and Individual Protection at AXA MPS (€4 million), in line with the strategy to focusing on improving the business mix; ■ high growth markets decreased by €10 million (-14%) mainly driven by Group Protection in Mexico (€-12 million) due to less large new contracts as a result of a stricter underwriting policy.
Investment margin increased by €11 million (+4%) or €12 million (+5%) on a comparable basis to €264 million, in both mature markets (€+9 million) and high growth markets
Fees & revenues decreased by €12 million (-4%) or €10 million
(-3%) on a comparable basis to €320 million: ■ mature markets were down €5 million (-2%), mainly as a result of lower volumes in general account savings at AXA
Profi t or loss on fi nancial assets (under FV option) & derivatives (49) 0
Investment margin decreased by €20 million (-83%) to €4 million. On a constant exchange rate basis, investment margin decreased by €20 million (-82%) mainly due to higher bonus allocated to policyholders, partially offset by higher investment income refl ecting a higher asset base.
Fees & revenues increased by €53 million (+16%) to €385 million. On a constant exchange rate basis, fees
& revenues increased by €68 million (+20%) primarily driven by an increase in loadings on premiums and Mutual funds stemming from new business and growing in-force, and to a lesser extent by higher unit-linked management fees.
Net technical margin decreased by €9 million (-16%) to €45 million. On a constant exchange rate basis, net technical margin decreased by €7 million (-13%) mainly due to the early termination of an internal co-insurance treaty (€-7 million, offset in amortization of VBI).
As a consequence, the underlying cost income ratio increased by 3.7 points to 37.0%.
Income tax expenses increased by €3 million (+24%) to €-17 million. On a constant exchange rate basis, income tax expenses increased by €4 million refl ecting a higher taxable income based on premium.
Underlying earnings increased by €81 million (+57%) to €224 million. On a constant exchange rate and scope basis, following the minority interests buy-out, underlying earnings remained stable.
Net income decreased by €1 million to €161 million. On a constant exchange rate and scope basis, net income decreased by €94 million (-36%) mainly refl ecting lower adjusted earnings and unfavorable change in fair value of interest rate derivatives and Mutual funds.
(+2%) mainly driven by unit-linked products in Indonesia and Singapore, partly offset by a slowdown in Protection in
APE increased by €160 million (+96%) to €326 million. On a comparable basis, APE increased by €42 million (+15%) mainly driven by: ■ Indonesia (€+29 million) with strong sales of unit-linked products through the bancassurance channel; ■ China (€+10 million) mainly from higher sales of general account Protection products through the bancassurance channel;
On a constant exchange rate and scope basis, following the minority-interests buy-out, underlying earnings increased by €39 million following lower losses in India (€+21 million)
Net income increased by €83 million to €39 million. On a constant exchange rate and scope basis, net income increased by €88 million mainly refl ecting growth in adjusted earnings and the non repeat of residual past losses in India.
Profi t or loss on fi nancial assets (under Fair Value option) & derivatives 5 0 1
Following the disposal of the Australia and New Zealand operations on Apr. 1st, 2011, Australia and New Zealand contributed only to the fi rst quarter of 2011.
AXA’s full year 2011 consolidated fi nancial statements, leading to a reclassifi cation of their earnings contribution in net income.
(1) AXA Global Distributors was formed in March 2009 and is 100% owned by AXA SA. The AXA Global Distributors’ initiative aim is to distribute variable annuity products through third party partnerships, specifi cally large banks. P&L excluding infrastructure costs are refl ected within AXA
P&C, this activity is now reported as a separate reporting unit and no longer included within countries or regions. Reported 2010 fi gures by country were modifi ed accordingly with this new presentation.
Net income from investments in affi liates and associates 38 33 32
Net capital gains or losses attributable to shareholders net of income tax (62) 111 96
Net technical result increased by €156 million (+11%) to €1,609 million: ■ current accident year loss ratio decreased by 2.6 points to 73.5% due to lower impact of Nat Cat events (-1.4 points,
as a result of the decrease in current accident year loss ratio, and broadly stable prior year reserve developments.
As a consequence, the combined ratio was down 3.2 points to 95.7%.
Adjusted earnings decreased by €14 million (-3%) to €445 million as a consequence of lower realized capital gains
(€-51 million) mostly on equities, and higher impairments (€36 million) driven by equities (€-23 million) and fi xed income assets (€-13 million), mostly on Greek government bonds, partly offset by higher underlying earnings.
Net income decreased by €21 million (-5%) to €431 million mainly due to the decrease in adjusted earnings and an unfavorable change in fair value of Mutual funds and derivatives
(€-22 million) mainly driven by credit spread widening partly offset by a less unfavorable foreign exchange impact
Travel and Warranty; ■ Commercial lines (46% of the total premiums) were up 5% to €1,681 million. Motor was up 17% to €320 million driven by increased retention and higher new business. Non-Motor was up 3%. Health was up 10% to €697 million mainly refl ecting growth in UK and International Corporate business. The 5%
On a constant exchange rate basis the net technical result increased by €59 million (+5%).
■ The current year loss ratio decreased by 4.9 points to 67.6% due to the absence of signifi cant Nat Cat events
(-4.0 points), tariff increases in the UK and Ireland mainly in
Personal Motor and Property, partly offset by increases in bodily injury claims in the UK; ■ The all accident year loss ratio decreased by 1.8 points to 68.0% refl ecting the positive movement in current year loss ratio partly offset by a negative prior year reserve development mainly due to bodily injury claims.
As a result the combined ratio was down 3.7 points to 98.4%
Income tax expenses increased by €53 million (+267%) to €-73 million. On a constant exchange rate basis, income tax expenses increased by €53 million refl ecting a combination of
Underlying earnings increased by €113 million (+115%) to €211 million. On a constant exchange rate basis, underlying earnings increased by €114 million (+116%).
Adjusted earnings increased by €95 million (+107%) to €184 million. On a constant exchange rate basis, adjusted earnings increased by €96 million (+107%) refl ecting the improvement in underlying earnings.
(€+53 million) in December 2011, partly offset by increased restructuring costs as well as an adverse movement in the fair value of interest rates derivatives (€-126 million) due to lower interest rates.
Expense ratio decreased by 1.1 point to 30.2% due to a decrease in general expenses resulting from productivity programs and non-recurring positive impact from release of provisions in 2011 (€5 million).
As a result, the combined ratio is down by 1.4 points to 103.2%.
to €1,251 million mainly resulting from a focus on profi tability and unfavorable prior year premiums development.
Net technical result increased by €84 million (+9%) to €976 million. On a constant exchange rate basis, net technical result decreased by €24 million (-3%): ■ current accident year loss ratio increased by 0.4 point to 68.9% mainly driven by higher Nat Cat charge (+2.1 points), partly offset by lower large claims and an improvement of attritional loss ratio in Commercial lines refl ecting selective underwriting; ■ all accident year loss ratio increased by 1.2 points to 63.1% as a consequence of the current accident year loss ratio development and lower positive prior year reserves development.
Net investment result increased by €21 million (+11%) to €217 million. On a constant exchange rate basis, net investment result decreased by €3 million (-1%) mainly from lower income on fi xed income assets.
Adjusted earnings increased by €3 million (+1%) to €402 million. On a constant exchange rate basis, adjusted earnings decreased by €42 million (-11%) driven by lower net realized capital gains (€-33 million) mainly on equities and lower underlying earnings.
On a constant exchange rate basis, net income decreased by €36 million (-10%) mainly driven by lower adjusted earnings.
Gross revenues increased by €51 million (+3%) to €2,100 million (1): ■ Personal lines (49% of the gross revenues) were up 2%
Net technical result decreased by €13 million (-2%) to €659 million: ■ current accident year loss ratio decreased by 4.1 points to 73.6% mainly driven by a lower Nat Cat charge (-2.0 points)
due to lower positive prior year reserve developments (mainly in Workers’ Compensation) partly offset by the improvement in current accident year loss ratio.
Net investment result decreased by €13 million (-7%) to €185 million mainly due to a lower asset base.
Net income increased by €88 million (+61%) to €233 million refl ecting higher adjusted earnings, partly offset by higher restructuring costs.
Underlying earnings increased by €6 million to €36 million on a constant exchange rate basis, driven by a strong portfolio growth (+21%) and higher investment income partly offset by a higher all accident year loss ratio and higher acquisition expenses. As a result, the combined ratio was up by 0.6 points to 97.7%.
Adjusted earnings decreased by €13 million to €17 million. On a constant exchange rate basis, adjusted earnings decreased by €17 million driven by higher net realized capital losses (€22 million) mainly on fi xed income assets partly offset by higher underlying earnings (€+6 million).
(+1%) benefi ting from the positive development in proprietary networks and tariff increases partly offset by lower premiums in bancassurance channels.
Underlying earnings increased by €1 million to €1 million on a constant exchange rate basis, due to 4.5 points improvement in combined ratio to 102.3%.
Adjusted earnings and net income remained stable at €1 million on a constant exchange rate basis.
Profi t or loss on fi nancial assets (under FV option) & derivatives 14 13
lines. Non-Motor was mainly driven by new large accounts in high growth markets. Motor was mainly driven by
Mexico (€+89 million) benefi ting from portfolio development combined with tariff increases, partly offset by negative volume and mix effects in mature markets (€-30 million).
(-2.2 points) while high growth markets remained stable. The improvement in mature markets was mainly driven by tariff increases, selective underwriting, partly offset by higher large claim sand higher NatCat charge (+0.3 point); ■ all accident year loss ratio increased by 0.3 point to 71.6%
driven by an increase in mature markets (+0.7 point) partly offset by a decrease in high growth markets (-0.6 point), as lower positive prior year reserve developments (€-98 million), mainly in mature markets, partly offset by the improvement of the current year loss ratio.
Underlying earnings decreased by €15 million (-4%) to €353 million. On a constant exchange rate basis, underlying earnings decreased by €13 million (-3%).
Profi t or loss on fi nancial assets (under FV option) & derivatives (15) 2
Property products launched in 2010 in the UK as well as in
Net technical result increased by €60 million (+23%) to €321 million. On a constant exchange rate basis, net technical result increased by €55 million (+21%): ■ current accident year loss ratio decreased by 2.5 points to 80.5% mainly driven by tariff increases in Motor and better weather conditions in the UK leading to a lower Nat Cat charge (-0.8 point); ■ all accident year loss ratio decreased by 1.1 points to 84.2%
As a result, the combined ratio was down by 2.8 points to 105.4%.
Net investment result increased by €15 million (+22%) to €86 million. On a constant exchange rate basis, net investment result increased by €15 million (+22%) mainly refl ecting a higher asset base.
Net income decreased by €2 million to €-63 million. On a constant exchange rate basis, net income decreased by €2 million as higher adjusted earnings were more than offset by an adverse movement in the fair value of interest rate derivatives in the UK due to lower interest rates and higher restructuring costs in Japan.
■ current accident year loss ratio increased by 1.0 point to 68.6% mainly due to Private Motor driven by higher average claim costs in Malaysia and large claims arising from fl oods in June in Singapore; ■ all accident year loss ratio decreased by 5.5 points to 68.4%
Enlarged expense ratio was up by 0.5 point to 31.8% mainly due to strengthening of claims handling costs reserves in
Net investment result remained stable at €10 million. On a constant exchange rate basis, net investment result increased by €1 million (+6%) resulting mainly from a higher asset base in Malaysia.
Net income increased by €7 million to €15 million. On a constant exchange rate basis, net income increased by €7 million, in line with higher adjusted earnings.
Net realized capital gains or losses attributable to shareholders 17 53
Profi t or loss on fi nancial assets (under Fair Value option) & derivatives (15) 32
Profi t or loss on fi nancial assets (under FV option) & derivatives (13) 26
Gross revenues increased by €52 million (+3%) to €2,003 million (1). On a comparable basis, gross revenues increased by €65 million (+3%) notably in Aviation and Space
On both current and constant exchange rate basis, net technical result decreased by €4 million (-1%) to €360 million.
■ current accident year loss ratio decreased by 0.9 point to 84.7%, explained by a change in cost allocation from claims handling costs to commissions (0.8 point). On a comparable basis, current accident year loss ratio decreased by 0.1 point mainly due to tariff increases and positive trend on large claims in all lines of business but Property notably in Japan; ■ prior year technical result decreased by 27 millions (from €91 million to €65 million) as a result of lower positive prior year reserve and premium developments.
Expense ratio increased by 0.4 point to 15.8%. On a constant exchange rate basis, expense ratio decreased by 0.3 point driven by cost containment measures impacting administrative expense ratio by -0.4 point.
On both current and constant exchange rate basis, underlying earnings decreased by €11 million (-7%) to €150 million.
On both current and constant exchange rate basis, net income decreased by €50 million (-26%) to €142 million mainly due to an unfavorable change in fair value of Mutual funds and derivatives (€-33 million) mainly driven by credit spread widening, lower adjusted earnings and a negative forex impact.
Underlying earnings increased by €38 million to €55 million mainly due to positive prior year developments on Nat Cat events including a €32 million reserve development due to favorable weather events as well as higher technical results in
Adjusted earnings increased by €36 million to €54 million mainly as a result of higher underlying earnings.
Gross revenues decreased by €18 million to €911 million (2 ). On a comparable basis, gross revenues decreased by €18 million
(-2%) mainly due to the end of a large contract partly offset by growth in the United States and Mexico.
On a constant exchange rate basis, net income decreased by €83 million (-58%) mainly as a result of lower adjusted earnings.
The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset
Profi t or loss on fi nancial assets (under Fair Value option) & derivatives (25) 21
Profi t or loss on fi nancial assets (under FV option) & derivatives (7) 0
Assets under Management (“AUM”) decreased by €27 billion from year-end 2010 to €335 billion at December 31, 2011 as a result of net outfl ows of €-28 billion (€-16 billion from
As a result, the underlying cost income ratio deteriorated by 4.0 points to 84.5%.
(-26%) to €106 million. On a constant exchange rate basis, underlying and adjusted earnings decreased by €34 million
On a constant exchange rate basis, net income decreased by €155 million (-133%) due to lower adjusted earnings and the restructuring of compensation plans in December 2011, leading to an accelerated vesting of AllianceBernstein deferred compensation plans ( €-136 million).
Assets under Management (“AUM”) decreased by €4 billion from year-end 2010 to €512 billion at the end of 2011 mainly as a result of €3 billion unfavorable market impact, €4 billion unfavorable change in scope related to the partial sale of the
Rosenberg products (€-5 billion) and the voluntary exit from unprofi table employee shareholding schemes (€-2 billion), partly offset by infl ows mainly on AXA Private Equity, AXA Real
Minority interests were €-10 million in 2011 compared to €+39 million in 2010. Excluding the €+53 million minority interests share in the compensation related to AXA Rosenberg coding error in 2010, minority interests decreased by €4 million due to AXA Rosenberg minority shareholders’ buyout in the second half of 2010.
Underlying earnings increased by €90 million (+72%) to €215 million, or by €87 million (+69%) on a constant exchange rate basis. Excluding the €66 million net compensation related to AXA Rosenberg coding error in 2010, underlying earnings increased by €21 million (+11%).
Excluding 2010 non-recurring tax benefi t (€+33 million), underlying earnings increased by €24 million mainly driven by retail activities thanks to a higher interest and commission margin (€+27 million) and lower administrative expenses
Net income decreased by €38 million to €28 million mainly driven by lower adjusted earnings, higher restructuring costs
(€-10 million) and negative changes in fair value of hedging derivatives.
Net income decreased by €8 million to €-6 million, mainly due to changes in fair value of hedging instruments stemming from interest rates changes (€-6 million in 2011 versus €+1 million in 2010).
September 2011 allowing customers to redeem foreign currency denominated mortgages at non-market rates. As a result, a provision of €-103 million was set up to face the related likely costs based on the number of submitted fi les by
Net banking revenues increased by €9 million (+58%) to €23 million before reclassifi cation of distribution commissions 2010 (€4 million). On a comparable basis, net banking revenues including the distribution commissions increased by €12 million mainly due to an improved interest margin stemming from higher interest received from policyholder loans as well as lower interest paid for deposit and term accounts.
Underlying earnings as well as adjusted earnings and net income increased by €4 million to €4 million mainly driven by higher net banking revenues.
Underlying earnings as well as adjusted earnings and net income increased by €6 million to €-8 million on a constant exchange rate basis mainly driven by higher commercial margin
Underlying earnings as well as adjusted earnings and net income decreased by €2 million to €-4 million on a constant exchange rate basis mainly driven by higher expenses following the launch of the banking activity in 2011.
Underlying earnings as well as adjusted earnings increased by €3 million to €-11 million. On a constant exchange rate basis, underlying earnings as well as adjusted earnings increased by €4 million mainly driven by higher commercial margin
Assurance, AXA Financial, AXA Asia Pacifi c Holdings, AXA United Kingdom Holdings, AXA Germany Holdings, AXA Belgian Holding,
Adjusted earnings decreased by €172 million to €-721 million mainly driven by a €-105 million premium amortization on equity call options, and by underlying earnings evolution.
Net income increased by €1.238 million to €547 million mainly driven by: ■ €+1,519 million exceptional gains of which €617 million related to the disposal of the Australia & New Zealand operations (€+626 million for the Group) and €+902 million related to the disposal of the Canadian operations; ■ €+163 million change of the mark to market on interest rate and foreign exchange derivatives instruments which are not eligible to hedge accounting partly offset by adjusted earnings evolution, a €84 million loss due to the sale of a tax receivable and a €125 million allowance due to the restructuring of the participation in Bharti AXA Life Insurance
The foreign currency hedging policy has been amended balancing various objectives between net asset value protection, fi nancial charge, liquidity and Solvency positions.
This new policy is implemented for US dollar hedging and is currently being implemented for other currencies hedging
(mainly CHF and Yen). The impact in 2011 was €-66 million after tax in net income.
Underlying earnings increased by €34 million (+21%) to €-131 million. On a constant exchange rate basis, underlying earnings increased by €30 million (+18%) driven by a €14 million decrease in share-based compensation and a €13 million decrease in interest fi nancial charges related to the repayment of public debt in the fi rst half of 2010.
Adjusted earnings increased by €34 million (+21%) to €-131 million. On a constant exchange rate basis, adjusted earnings increased by €30 million (+18%), in line with the underlying earnings evolution.
Adjusted earnings increased by €33 million (+99%) to €0 million. On a constant exchange rate basis, adjusted earnings increased by €33 million refl ecting the improvement in underlying earnings.
Adjusted earnings decreased by €94 million to €-77 million mainly driven by higher impairment charges and lower underlying earnings.
Net income decreased by €78 million to €-69 million due to lower adjusted earnings partly offset by more favorable change in fair value of derivatives.
Adjusted earnings decreased by €5 million (-9%) to €-68 million. On a constant exchange rate basis, adjusted earnings decreased by €5 million (-9%) refl ecting decrease in underlying earnings.
Underlying earnings, adjusted earnings and net income decreased by €7 million (-75%) to €2 million driven by less favorable run-off developments.
The Ambition AXA plan is well suited to the challenges of the current environment of low interest rates, uncertainty about the outcome of the Eurozone fi nancial crisis and slowdown of the world’s economic growth: selectivity in mature markets, acceleration in high growth markets and effi ciency everywhere, with a focus on mature markets. AXA’s focus remains on the execution of this strategy while maintaining the strength of its balance sheet.
Derivatives related to invested assets: ■ include all foreign exchange derivatives, except the ones related to currency options in earnings hedging strategies which are included in underlying earnings; ■ exclude derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy; ■ and also exclude derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’
Technical Margin”; (ii) policyholders’ interest in participating contracts is refl ected as a change in insurance benefi ts in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, i.e. primarily “Investment Margin” and “Net
“Fees and Revenues”; (iv) change in URR (Unearned Revenue Reserve –
“Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin analysis.
■ For investment contracts without DPF: (i) deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”.
Underlying Fees & Revenues include: (i) revenues derived from mutual fund sales (which are part of consolidated revenues); (ii) loading charged to policyholders on premiums/deposits and fees on funds under management for separate account (unit-linked) business; (iii) loading on (or contractual charges included in) premiums/
Underlying Expenses are: (i) acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g. Mutual funds sales); (ii) capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF; (iii) amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition
Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the in-force business
Over the past several years, AXA has expanded its core operations (insurance and asset management) through a combination of organic growth, direct investments and acquisitions. This expansion has been funded primarily through a combination of (i) dividends received from operating subsidiaries, (ii) proceeds from debt instruments issuance principally subordinated debt and borrowings (including debt issued by subsidiaries), (iii) the issuance of ordinary shares, and
Each of the major operating subsidiaries is responsible for managing its liquidity position, together with the Company if appropriate. The Company, as the holding company for the
AXA Group, coordinates funding and liquidity management of these activities and, in this role, participates in fi nancing the operations of certain subsidiaries. Certain of AXA’s subsidiaries, including AXA France Assurance, AXA Financial, AXA UK Plc.
and AXA Mediterranean Holding SA are also holding companies and, consequently, are dependent on dividends received from their own subsidiaries to meet their obligations. The Group’s operating insurance companies are required to meet multiple regulatory constraints, in particular, a minimum solvency ratio.
results may be signifi cantly impacted by unrealized gains and losses on derivatives used to hedge currency or other risks.
Insurance net cash fl ows are generally positive but can be negative in the case of exceptional events. A portion of these cash fl ows is invested in liquid, short-term bonds and other listed securities in order to manage the liquidity risk that may arise from such events.
(2) (Total net fi nancing debt)/(Shareholders’ equity excluding undated subordinated debt and excluding unrealized gains & losses recorded through shareholders’ equity + total net fi nancing debt).
On a consolidated basis, dated subordinated debt (including derivative instruments) totaled €7,108 million at December 31, 2011 after taking into account all intra-group eliminations and excluding undated subordinated debts (TSS/TSDI, which are included in shareholders’ equity, as described in Note 1.12.2 of Part 4 – “Consolidated Financial Statements”), compared to €7,066 million at December 31, 2010. The increase was €42 million, or €36 million on a constant exchange rate basis.
AXA of an ordinary share under the call option (which ordinary share AXA intends to cancel in order to avoid any increase of in the number of its outstanding shares and/or dilution).
On a consolidated basis, AXA’s total fi nancing debt outstanding amounted to €2,506 million at December 31, 2011, an increase of €6 million from €2,500 million at the end of 2010. On a constant exchange rate basis, the decrease was €12 million.
At December 31, 2011, other debt instruments issued totaled €3,407 million, down from €3,621 million at the end of 2010. The decrease of €214 million resulted mainly from reimbursement of debt in CDOs.
As a holding company, AXA is not subject to restrictions on dividend payments, provided that its accumulated profi ts are suffi cient to cover them and that the Group solvency ratio does not decrease below 100% after dividend payment in cash. However, many Group subsidiaries, particularly AXA’s insurance subsidiaries, are subject to restrictions on the amount of dividends they can pay to their shareholders. For more information on these restrictions, see Note 29.3 of Part 4
borrowings) and dividend payments during each of the next three years. AXA expects that anticipated investments in subsidiaries and existing operations, future acquisitions and strategic investments will be funded from available cash fl ow remaining after payments of dividends and operating expenses, proceeds from the sale of non-strategic assets and businesses as well as future issues of debt and equity instruments.
(€1,182 million in 2010) or €1,066 million after the impact of hedging derivative instruments (€1,271 million in 2010), of which undated subordinated debt of €446 million (€457 million in 2010).
Dividends paid to AXA SA’s shareholders in 2011 in respect of the 2010 fi nancial year totaled €1,601 million, or €0.69 per share, versus €0.55 per share paid in 2010 in respect of the 2009 fi nancial year (€1,259 million in total). All of these dividends were paid in cash.
The primary objective of the solvency margin requirements is to protect policyholders. AXA’s insurance subsidiaries monitor compliance with these requirements on a continuous basis and are in compliance with the applicable solvency requirements as of December 31, 2011.
In accordance with the methods of calculation implemented by AXA in line with existing regulations, AXA’s consolidated solvency ratio was estimated at 188% at December 31, 2011 compared to 182% at the end of 2010. This change resulted mainly from the 2011 Underlying Earnings and from the dividend proposed to the next Shareholder’s Meeting.
This 2011 solvency margin calculation will be reviewed by the Autorité de Contrôle Prudentiel (ACP), which controls the application of these directives in France.
In the event of a failure by the Company and/or any of its insurance subsidiaries to meet minimum regulatory capital requirements, insurance regulators have broad authority to require or take various regulatory actions. A failure of any of the Company’s insurance subsidiaries to meet their minimum regulatory capital requirements and/or a reduction in the level of their regulatory capital that may negatively impact their competitive position may also result in the Company having to inject signifi cant amounts of new capital into its insurance subsidiaries, which could adversely affect the Company’s liquidity position.
In January 2012, Standard & Poor’s affi rmed the AA- fi nancial strength rating on the core operating entities of the AXA Group, and the A long-term counterparty credit ratings on holding companies AXA SA and AXA Financial Inc., in each case, assigning a negative outlook, and removing the CreditWatch with negative implications under which AXA Group and other fi nancial institutions were placed on December 9, 2011 following rating actions taken on the Eurozone sovereigns. The negative outlook refl ects that Standard & Poor’s will continue to closely monitor these ratings and indicates an increased risk that Standard & Poor’s could lower AXA’s ratings over the next 12 to 24 months, notably in case of continued challenges of the fi nancial market conditions and economic prospects of the Eurozone countries. In February 2012, Moodys’ Investors
Shareholders’ Meeting that will be held on April 25, 2012. The dividend will be payable on May 9, 2012 with an ex-dividend date of May 4, 2012. For individuals whose fi scal residence is in
France, this dividend gives rise to a 40% tax relief equal to €0.28 per share. These individuals may, barring certain exceptions, opt to have a 21% fl at deduction at source, leading to the loss of the 40% tax relief mentioned earlier. The 13.5% welfare taxes (CSG, CRDS and welfare deduction) due by the persons who are deemed to be French residents for tax purposes are, in any case, paid at the date of the dividend payout.
Employee shareholders 158 2.3 DESCRIPTION OF THE COMPANY’S SHARE REPURCHASE PROGRAM 159 2.4 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 161
Special report of the Statutory Auditors on regulated agreements and commitments 166 2.5 THE OFFER AND LISTING 170
Board of Directors concluded that it was in the best interest of the Company and its shareholders for Mr. Henri de Castries to hold the position of Chairman in addition to his functions as
Vice-Chairman who acts as Lead Independent Director in all cases where the positions of Chairman & Chief Executive
Director has a number of specifi c powers including the capacity to convene meetings of the non-executive directors without the attendance of the Chairman & Chief Executive
Offi cers; ■ reviews and approves the Company’s half-year and annual results; ■ approves the report of its Chairman on the composition of the Board including gender balance, the conditions of preparation and organization of the Board of Directors’ works and the internal control and risks management procedures set up by the Company; ■ convenes Shareholders’ Meetings;
Periodically, Board members may meet among themselves without the attendance of the Executive M anagement. Prior to each meeting, Board members receive documentation concerning matters to be reviewed, generally eight days in advance. In accordance with the Board of Directors’ Bylaws, they are also informed by all means by the Chief Executive
To ensure that their interests and those of the Company are appropriately aligned, the Board’s Bylaws provide that each member of the Board of Directors must hold, within two years following his/her fi rst appointment, AXA shares with a value equal to the gross director’s fees earned in respect of the previous fi scal year. For this purpose AXA shares are valued using the closing price of the AXA share on December 31 of the preceding fi scal year.
Board members became members of the Company’s new unitary Board of Directors for the remaining duration of their term of offi ce, in order to allow a spreading of the terms within the Board of Directors.
On December 31, 2011, the Board of Directors was comprised of fi fteen members appointed by the shareholders. Currently, fi ve members of the Board of Directors are nationals of countries other than France and four members are women.
The proportion of women within the Board of Directors was 26.6%. The Board’s composition therefore already complies with the provisions of the law of January 27, 2011 as well as the recommendations contained in the AFEP/MEDEF Code regarding gender balance on Boards.
Each year the Board of Directors assesses the independence of all of its members on the basis of the recommendations contained in the AFEP/MEDEF Code. On February 15, 2012, the Board of Directors determined that, on December 31, 2011, eleven of the fi fteen Board members were independent after assessing the criteria of the AFEP/MEDEF Code: Mmes. Isabelle Kocher, Suet Fern Lee, Dominique Reiniche,
These meetings called “Executive Sessions” may be held at the Vice-Chairman’s discretion either before or after each meeting of the Board or at any other time the Vice-Chairman would deem appropriate. The Vice-Chairman chairs the
(regardless of whether he is a Committee member); ■ inform the Chairman and the Board of Directors about any potential confl icts of interests; ■ report to the Shareholders’ Meetings with respect to all corporate governance related matters.
Senior Vice President & Associate General Counsel of AXA Financial, Inc. (United States)
AXA Financial, Inc. 1290, Avenue of the Americas New York – NY10104 United States
Member of the Board of Directors Executive Vice-President, Chief Financial Offi cer of GDF SUEZ
The Coca-Cola Company 27, rue Camille Desmoulins 92784 Issy-les-Moulineaux Cedex 9 – France
Member of the Board of Directors Member of the Management Board and Chief Financial Offi cer of E.ON AG (Germany)
(c) Mr. Jacques de Chateauvieux resigned from his position of director of AXA as of February 17, 2012.
as well as on the appointment of two new members of the Board of Directors, one of them as member of the Board of Directors representing the employee shareholders. In this context, the
Board of Directors proposed, based on the recommendation of the Ethics & Governance Committee: ■ the re-appointment as director of Mr. François Martineau for a four-year term (his biography is presented below in this
Section 2.1); ■ the appointment of Mr. Stefan Lippe as director for a fouryear term. Mr. Stefan Lippe’s (56 years old) candidacy was selected due to his large experience of the insurance business acquired through thirty years within the Swiss
Group in Germany, France and India. Chief Executive Offi cer of AXA Business Services in India (2,500 employees), she was head of Group reinsurance from 2000 to 2010 within
Directors could benefi t from Mrs. Doina Palici-Chehab’s experience of the insurance business, her knowledge of the
The Board of Directors reviewed the situation of Mr. Stefan Lippe and Mrs. Doina Palici-Chehab in light of the AFEP/MEDEF
Board of Directors in accordance with the criteria of the AFEP/
In 2011, the Board met fourteen times and the average attendance rate was 85.24%. The Board reviewed the strategy of the Group during a full day dedicated session. Within the framework of its principal assignments such as described above, the Board focused, in particular, on the following matters during 2011: ■ review of the Group’s strategy; ■ examination of the 2010 fi nancial statements and the 2011 half-year fi nancial statements; ■ review of the Board Committee reports; ■ review of the signifi cant proposed acquisitions and disposals; ■ review of the Group’s portfolio of businesses, capital allocation and activities; ■ review of the composition of Board Committees; ■ approval of the modifi cations of the Bylaws of the Board of
Director or member of the Supervisory Board: ■ AXA Belgium SA (Belgium)
Norbert Dentressangle Group, a transportation and logistics services specialist, and served as Chairman until 1998.
(2) Mr. Henri de Castries only holds directorships within the AXA Group.
Columbia University (New York). In 1975, he joined l’Union des Transports Aériens as a management auditor. From 1977 to 1979, he worked as a consultant in business strategy and e xecutive management for the Boston Consulting Group in
Member of the AXA Board of Directors, representing the employee shareholders 61, American nationality
Board and the AXA Board of Directors (as of April 2010).
Mr. Jean-Martin Folz is a graduate of the École Polytechnique and ingénieur des Mines. Between 1975 and 1978, he has held various French government cabinet positions, his last position being head of cabinet of the Secretary of State for Industry.
Mr. Jean-Martin Folz joined PSA Peugeot Citroën in 1995 and became Chairman of the Management Board in 1997. He left PSA in February 2007. From June 2007 to March 2010, he was Chairman of the AFEP. Since November 8, 2011,
AXA UK plc – 5 Old Broad Street – London EC2N 1AD – United
University, a trustee for Nanyang Technological University as well as a Fellow of the Singapore Institute of Directors.
(Philosophy Degree), University Paris I (Law Master) and of l’Institut d’Études Politiques de Paris. Mr. François Martineau has been Attorney since 1976. In 1981, he was “Secrétaire de la Conférence”. In 1985, he was a lecturer at the University
BNP Paribas – 3, rue d’Antin – 75002 Paris – France
Offi cer from 1987 to 1993. In 1993, he became Chairman &
Main (Germany). In 2001, he became Managing Director and Partner in 2002. From 2005 to 2006, he was head of investment banking of the German speaking region. Since
December 2006, Dr. Marcus Schenck is Chief Financial Offi cer of E.ON AG (Germany) in charge of accounting, controlling, fi nance, risk, taxes and M&A and is also a member of the
The Chairman of the Ethics & Governance Committee collected, during individual interviews or through written answers to a questionnaire, the appreciations and suggestions of each director. The conclusions of this assessment and the principal areas identifi ed for improvement were discussed at the Board of Directors’ Meeting on February 15, 2012. During this Meeting, the members of the Board expressed their very favorable opinion regarding its membership and functioning in general, highlighting signifi cant progress since last year.
The main areas for improvement relate to the information provided to the directors in-between the Board meetings, the organisation of the Board sessions and the training programs of the d irectors.
In order to preserve a well balanced governance, the Board of
Each Committee issues opinions, proposals or recommendations to the Board of Directors on matters within the scope of its responsibilities but, under French law, Board
On December 31, 2011, the Audit Committee had four members: Messrs. Anthony Hamilton (Chairman),
The Audit Committee Terms of Reference are reviewed on a regular basis and are approved by the Board of Directors.
The review of fi nancial statements by the Audit Committee is accompanied by a presentation from the Statutory Auditors on the Group’s consolidated fi nancial position and results of operations which includes the Auditors’ views on the accounting choices adopted by Management. The Committee also receives a presentation from the Group Chief Risk Offi cer and Group Chief Financial Offi cer describing the Company’s principal risk exposures.
Offi cer, the Group Head of Audit as well as the Group Chief Risk
The Committee may request external consulting expertise in connection with matters falling within the scope of its responsibility.
Mmes. Wendy Cooper, Suet Fern Lee, Dominique Reiniche and Messrs. Jean-Martin Folz, Giuseppe Mussari and
Offi cer by the Board of Directors; ■ to examine and issue an opinion on any of the following plans: • to issue securities giving a claim, whether directly or indirectly, to the Company’s share capital,
• to propose distribution of the annual profi t and the payment of the dividend for the year ended to the Ordinary
• to set the dates of payment of the dividend and, if any, of interim dividends; ■ to examine any proposed signifi cant fi nancing transaction by the Company or its subsidiaries, management of the Group’s proprietary assets and, more generally, any issue involving the fi nancial management of the AXA Group; ■ to review the impact on capital and solvency at Group level of the main orientations and limits of the Asset-Liability
■ to review the risk appetite framework developed by the Executive M anagement for fi nancial, insurance and operational exposures.
Shareholders’ Meeting; ■ proposal for payments of dividends; ■ review of the proposed capital increase reserved for the employees of the AXA Group (“SharePlan 2011”).
On December 31, 2011, the Ethics & Governance Committee had four members: Messrs. Jean-Martin Folz (Chairman),
The Ethics & Governance Committee meets at least once a year.
It has the following principal assignments: ■ to formulate proposals to the Board of Directors, for the appointment of: • members of the Board of Directors, its Chairman and its
The Compensation & Human Resources Committee meets at least once a year.
It has the following principal assignments: ■ to issue proposals to the Board of Directors for the fi xing of: • the compensation of the Chairman & Chief Executive
Offi cer and the Deputy Chief Executive Offi cer and the preparation of their annual evaluation,
• the amount of the directors’ fees for the members of the
• the number of Company stock options or performance shares/units to be granted to the Chairman & Chief
Executive Offi cer); ■ to examine in more depth certain Group human resources issues.
The Compensation & Human Resources Committee met fi ve times in 2011. The average attendance rate was 96% and the Committee focused, in particular on the following matters: ■ compensation policy and principles; ■ compensation paid to the Company’s Chairman & Chief
Offi cer is the result of an analysis of the specifi c circumstances of the Group at this stage in its development, the unique experience and abilities of Mr. Henri de Castries and the desire to optimize the Group’s decision making processes and reactivity going forward.
Executive Offi cer and require prior Board approval for certain signifi cant transactions (sales or acquisitions over €500 million; signifi cant fi nancing operations or other type of transactions that are not in line with the Company’s announced strategy…).
Offi cer by the Board of Directors on April 29, 2010, for the duration of his term of offi ce as director, i.e. four years. His role is to second the Chairman & Chief Executive Offi cer. The Board of Directors determines the scope of the powers vested in the
Members of the Management Committee devote all of their professional time to the management of the Group and do not hold outside directorships or engage in any professional activity outside the AXA Group that would substantially interfere with or impede in any material way their availability to focus on the
(QBRs), during which the performance of the AXA Group is assessed. These QBRs were introduced in 2000 to provide a clear and consistent framework for: ■ reviewing operational performance and monitoring the progress of key projects using defi ned quantifi able standards of measurement; ■ assessing the status of Group transversal projects; and
AXA’s principal subsidiaries, whether publicly traded or not, are generally governed by: ■ a b oard of d irectors or a s upervisory b oard whose membership includes independent or non-executive directors; and
Terms of Reference require the Company’s Audit Committee to be composed entirely of independent directors and the a udit c ommittee’s of Group subsidiaries to have a signifi cant component of independent directors in order to ensure that this c ommittee is strongly independent towards the management.
The a udit c ommittees have a critical role in reviewing fi nancial results and other fi nancial information prepared by management, fi nancial reporting and control processes, critical accounting policies, particular accounting issues, key risks and systems of internal control, fraud and similar issues.
In addition, the Compensation Committee Standard requires that the c ompensation c ommittee have a minimum of one independent director to ensure a level of independent review and judgment on all senior executive compensation matters.
(c) Decrease by 144 in UK is due to (i) UK P&C (-499 FTE ) vs. FY10 refl ecting a decrease in AXA PPP (-282 FTE) mainly driven by the sale of Denplan in December 2011 (-310 FTE) as well as a restructuring plan in the UK at the end of the year and (ii) UK life (+322) mainly due to the growth from Elevate and recruitments at end of 2011 related to a Bancassurance transaction.
(g) Decrease by 492 in AllianceBernstein due to a global staff reduction plan.
(h) The increase is mainly due to AGS (+581). From 2011, fi gures include the staff outside of France for the entities which are look through .
The general principles of AXA’s executive compensation policy are regularly reviewed by the Compensation & Human
Resources Committee of the AXA Board of Directors. These principles apply to all executives of the Group and are adapted to local regulations, as appropriate, under the supervision of the b oards of d irectors and c ompensation c ommittees of the
Executive compensation includes a fi xed and a variable component. The fi xed component is targeted to beat the median of the market. The variable component is linked to
The AXA Board of Directors based on the recommendation of its Compensation & Human Resources Committee decided to maintain unchanged in 2011 the total cash compensation target of Mr. Henri de Castries at €3.3 million and of
Compensation & Human Resources Committee, then validated by the Board of Directors on the basis of specifi c strategic objectives set at the beginning of the year.
Mr. Henri de Castries since he was appointed Chairman of the
Management Board in May 2000 demonstrate the demanding objectives and the genuine variability of this compensation component: Executive compensation and director’s fees Target Actual % Target
For other members of the Management Committee, the variable compensation is also determined on the basis of an individually predefi ned target amount and is based on three metrics: ■ Group performance, as measured by the Underlying Earnings per share, Return on Equity, and customer scope index; ■ performance of the business unit or functional area of responsibility, measured against objectives set at the beginning of the year; ■ their individual performance, evaluated on the basis of predetermined strategic objectives.
For Management Committee members who have an operational responsibility (in 2011 Messrs. Peter Kraus, Nicolas Moreau,
Mark Pearson, François Pierson and Jacques de Vaucleroy), the proportion of their variable compensation linked to the
Committee and Deputy Chief Executive Offi cer of the Group, the proportion of his variable compensation linked to the AXA
The performance of operational entities is determined on the basis of the following performance indicators: ■ underlying earnings; ■ customer centricity index; ■ economic Expenses; ■ Life & Savings New Business Value; ■ Life & Savings Annual Premium Equivalent; ■ Life & Savings Operating return on European Embedded
The individual performance is assessed both on (i) the achievement of results for each predetermined individual objective (the “what”) and (ii) demonstrated leadership behaviors of the executive (the “how”).
Human Resources Committee and the Board of Directors took into account the following measures (1) the underlying earnings per share which are stable compared to 2010, (2) the return on equity (operating Solvency II return) which is higher than target, and (3) the improvement of the customer scope index.
The Committee and the Board also considered the level of individual performance of Messrs. de Castries and Duverne on the basis of predefi ned strategic objectives set at the beginning of 2011, as well as the level of performance of Mr. Duverne with respect to the performance of the areas for which he is responsible.
The variable compensation paid to other members of the Management Committee for 2009, 2010 and 2011 was: VARIABLE COMPENSATIONS PAID TO OTHER MEMBERS OF THE MANAGEMENT COMMITTEE
CEO for the Northern, Central and Eastern Europe business unit and Global Head of Life & Savings and Health Belgium - - €802,083 €786,000 €1,050,000 €849,123
All the amounts presented in this Section 2.2 are gross amounts and before taxation.
Deputy Chief Executive Offi cer in charge of Finance, Strategy and Operations France 1,966,075 443,520 909,792 - 3,319,387
Chief Executive Offi cer of AXA France France 1,416,985 244,934 - 379,080 2,040,999
Chief Executive Offi cer for the Northern, Central and Eastern Europe business unit and Global Head of Life & Savings and Health Belgium 1,646,714 183,700 - 284,310 2,114,724
(a) In addition, in 2011, Mr. Peter Kraus received distributions on the AllianceBernstein Holding units granted to him in 2008 in connection with his employment.
(b) Mr. François Pierson decided to retire as of January 1st, 2012.
IFRS standards. This is a historical value at the date of grant, calculated for accounting purposes as described in Note 26.3.1 of the 2011 “Consolidated Financial Statements” included in
Global Head of Property & Casualty France 652,000 1,005,803 - 17,774 7,305 1,682,882
Chairman & Chief Executive Offi cer France 833,333 2,061,087 - 82,054 4,150 2,980,624
Deputy Chief Executive Offi cer in charge of Finance, Strategy and Operations France 660,000 1,265,910 - 36,015 4,150 1,966,075
Directors’ fees paid for board memberships in AXA Group companies or in external companies when representing AXA, are deducted up to 70% from the variable compensation of the same year.
Directors’ fees During the fi scal year 2011, none of the members of the Board of Directors, except for its Chairman and the Deputy Chief
(Gross amounts, in E uro) Directors’ fees paid in 2012 for 2011 Directors’ fees paid in 2011 for 2010
Shareholders’ Meeting, in accordance with applicable laws, and apportioned by the Board of Directors to its members in accordance with its Bylaws: ■ half of the value of the directors’ fees is distributed evenly among the members of the Board of Directors as a fi xed fee, with the Vice-Chairman receiving a double fee; ■ a fi rst half of the remaining amount is distributed among the members of the Board of Directors in proportion to their actual attendance at the meetings of the Board, with the
Board of Directors to the various Board Committees and distributed among their members in proportion to the number of Committee meetings attended by each member, with the Chairmen of the Committees receiving a double fee.
Counsel. This compensation consists of USD 254,315 of fi xed compensation and USD 260,000 of variable compensation.
Oliveira received in 2011, as directors of several companies of the Group, director’s fees for a gross amount of GBP 250,000 as well as USD 84,619 for Mr. Hamilton, USD 77,000 for
Usually, annual grants are made during the fi rst half of the year, generally 20 trading days after the date the annual earnings of the Group are published. As such, in 2011, the annual consolidated earnings were published on February 17, 2011 and the option grant took place on March 18, 2011. The strike price, equal to the average of the share price during the 20 trading days before the grant date, was set at €14.73. Key executives and talents, including technical experts across all entities in the Group are selected to participate in the stock option program based on selection criteria that include: ■ importance of the position ➮ role
to (i) to the Company’s Executive Offi cers (members of the
Beginning in 2009, this condition was extended and applied to all options granted to the Company’s Executive Offi cers
(members of the Management Board until 2010) and in 2010 the Board decided to apply this same condition to all
In 2011, AXA stock options were granted as follows: 9,129,162 subscription or purchase options at a weighted average price of €14.73 granted to 6,965 employees, representing 0.39% of the share capital as of December 31, 2011(disregarding the dilution related to the exercise of these options).
The portion of options granted in 2011 to the Executive Offi cers
(Chairman & CEO and Deputy CEO) represented 6% of the total number of options granted.
On December 31, 2011, more than 11,800 AXA employees had a total of 79,103,348 outstanding options, representing 3.36% of the Company’s share capital on the same date, and 1,177 employees in the United States had a total of 7,817,037 outstanding purchase options on AXA ADS , representing 0.33% of the share capital.
Total number of shares to be subscribed (a) 10,311,692 892,889 10,321,827 8,405,543 or purchased, from which to be subscribed - - - -
Grant date (Board of Directors or Management Board) 06/06/2005 27/06/2005 01/07/2005 21/09/2005
03/05/2002 30/05/2001 (b) 03/05/2002 21/05/2002 (b) 03/05/2002 03/05/2002 14/03/2003 02/04/2003 26/03/2004 14/04/2004 29/03/2005 29/03/2005 14/03/2005 02/04/2005 26/03/2006 14/04/2006 29/03/2007 29/03/2007 14/03/2013 02/04/2013 26/03/2014 14/04/2014 29/03/2015 29/03/2015 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005 31/03/2006 31/03/2006 31/03/2006 25/09/2006 25/09/2006 13/11/2006 31/03/2008 31/03/2008 31/03/2010 25/09/2008 25/09/2010 13/11/2010 31/03/2016 31/03/2016 31/03/2016 25/09/2016 25/09/2016 13/11/2016
Grant date (Board of Directors or Management Board) 19/05/2008 22/09/2008 22/09/2008 24/11/2008
Total number of shares to be subscribed (a) 12,360 19,127 46,929 19,047 or purchased, from which to be subscribed - - - -
The fi rst 10 employees benefi ciaries (b ) 12,360 - 21,250 -
The fi rst 10 employees benefi ciaries (b ) 18,280 742,217 75,035 -
Subscription or purchase price of options (a) 16.60 15.43 15.43 13.89
Exercise schedule of options 100% after 4 y 33% after 2 y
22/04/2008 22/04/2008 22/04/2008 22/04/2008 22/04/2008 22/04/2008 22/04/2008 18/08/2010 13/10/2010 13/10/2010 22/12/2010 18/03/2011 18/03/2011 04/04/2011 18/08/2014 13/10/2012 13/10/2014 22/12/2014 18/03/2013 18/03/2015 04/04/2013 18/08/2020 13/10/2020 13/10/2020 22/12/2020 18/03/2021 18/03/2021 04/04/2021
STOCK OPTIONS GRANTED TO EXECUTIVE OFFICERS AND MANAGEMENT COMMITTEE MEMBERS DURING 2011
“President” & Chief Executive Offi cer of AXA Financial Inc. (United States)
Global Head of Property & Casualty 18/03/2011 subscription or purchase 18/03/2021 100% of options: EuroStoxx
CEO for the Northern, Central and Eastern Europe business unit and Global Head of Life & Savings and Health
STOCK OPTIONS GRANTED AND/OR EXERCISED BY THE TOP 10 BENEFICIARIES (OUTSIDE THE EXECUTIVE OFFICERS) DURING 2011
Peter Kraus Chairman & Chief Executive Offi cer of AllianceBernstein (United States) - -
Mark Pearson “President” & Chief Executive Offi cer of AXA Financial, Inc. (United States) 276,910 -
Wendy Cooper Representative of employee shareholders to the Board of Directors 49,242 54,435
From 2005 onwards, as a result of the new French law related to the grant of free shares, Performance Units have been replaced in France by Performance Shares. Performance Shares are free shares for which the fi nal acquisition is subject to performance conditions.
The rules regarding Performance Units/Shares are as follows: ■ each benefi ciary receives an initial grant of Performance
Group and the benefi ciary’s operational business unit/region, based on pre-determined targets; ■ for benefi ciaries in operating business units, the performance of the business unit/region weights 2/3 of the total performance while the AXA Group performance weights 1/3. For benefi ciaries in Group support functions, the performance is measured at AXA Group level only; ■ in 2006 and 2007, the performance indicators for both the AXA Group and the operational business units were: Underlying Earnings, P&C revenues and New Business Value in Life & Savings; ■ in 2008 and 2009, the performance indicators were: • for the operational business units performance: underlying earnings, P&C revenues and new business value in Life &
■ for the Performance Units granted in 2010, 50% of the units defi nitely granted at the end of the 2-year acquisition period will be subject to an additional 1-year acquisition period, and will be valued on the basis of the average closing price of the
Each year, the Board of Directors, acting upon recommendation of its Compensation & Human Resources Committee approves a global Performance Shares pool to be granted.
Shares and Performance Units are made by the business units Chief Executive Offi cers and by the Group functional department heads. These recommendations are reviewed by the Executive M anagement to ensure coherence and fairness.
Human Resources Committee, decided on December 22, 2010 that the total number of Performance Shares granted to the
The acquisition period of the Performance Unit plan launched on March 20, 2009 with 2,957,911 Performance Units initially granted to 3,608 benefi ciaries outside France, ended on
March 20, 2011 for 2,707,238 Performance Units granted initially and will end on March 20, 2013 for 250,673 Performance
(402,262 shares) which are subject to a 2-year restriction period until March 20, 2013.
At that date, a total of 122,361 units had been acquired by 182 employees. The settlement of these units was made partly in cash (€1.5 million) and partly in AXA shares (19,492 shares)
June 10, 2009 with 350,792 Performance Units initially granted to 28 benefi ciaries outside France ended on June 10, 2011 for 348,448 Performance Units initially granted and will end on
On June 10, 2011, a total of 304,926 units had been acquired by 8 employees. The settlement of these units was made partly in cash (€4 million) and partly in AXA shares (23,933 shares)
The acquisition period of the Performance Unit plan launched on March 19, 2010 with 3,924,244 Performance Units initially granted to 3,972 benefi ciaries outside France will end on
A new Performance Unit plan was launched on March 18, 2011 and 4,728,124 Performance Units were initially granted to 5,059 benefi ciaries outside France.
At this date, a total of 323,376 shares had been acquired by 6 employees. The shares are subject to a 2-year restriction period until June 10, 2013.
Shares initially granted to 1,774 benefi ciaries in France will end on March 19, 2012. The shares acquired will be subject to a 2-year restriction period until March 19, 2014.
(d) The acquisistion period for those units will end on March 20, 2013.
(g) The acquisition period for those units will end on June 10, 2013.
(h) 5,335 units of the March 19, 2010 plan acquired by anticipation related to deceased benefi ciaries.
(i) 1,170 units of the March 18, 2011 plan acquired by anticipation related to deceased benefi ciaries.
(c) From which 461 shares of the May 10, 2007 Plan and 506 shares of the April 1st, 2008 Plan acquired by anticipation related to deceased benefi ciaries.
(e) 780 shares of the March 18, 2011 acquired by anticipation related to deceased benefi ciaries.
PERFORMANCE SHARES ACQUIRED BY EXECUTIVE OFFICERS AND MANAGEMENT COMMITTEE MEMBERS DURING 2011
Nicolas Moreau Chief Executive Offi cer of AXA France - - -
Mark Pearson “President” & Chief Executive Offi cer of AXA Financial, Inc. (United States)
François Pierson (a) Global Head of Property & Casualty 10/05/2007 20,434 10/05/2011
Wendy Cooper Representative of employee shareholders to the Board of Directors earnings - net income per share * Paid in cash from March 18, 2014.
(fi xed salary plus annual variable compensation) received for his/her functions within the Group: ■ the Chairman & Chief Executive Offi cer is required to hold the equivalent of his total cash compensation multiplied by 3; ■ the Deputy Chief Executive Offi cer is required to hold the equivalent of his total cash compensation multiplied by 2; ■ Management Committee members are required to hold the equivalent of their total cash compensation multiplied by 1.5; ■ Executive Committee members are required to hold the equivalent of their total cash compensation multiplied by 1.
January 1, 2007 or the date of his/her fi rst appointment if after
Requirement, all stock options and Performance Shares granted to him/her after January 1, 2007 will be subject to the following restrictions: ■ upon each exercise of these stock options granted after
Executive Offi cer; ■ for Performance Shares granted after January 1, 2007, the
Executive Offi cers must, at every share acquisition date, hold in registered form at least 25% of the Performance Shares acquired during the entire term of offi ce of the Executive
These restrictions do not apply if an Executive Offi cer complies with his/her Minimum Shareholding Requirement.
Company’s Executive Offi cers already met their Minimum Shareholding Requirement such as described in the above Section “Share ownership policy for executives of the Group”. The following table summarizes the compensation granted to Executive Offi cers during the fi scal year 2011: Compensation paid in 2011 Shareholding requirement Shareholding on 31/12/2011
The transactions on AXA’s securities that will be engaged by Banque Degroof on behalf of the relevant executives in application of the annual instruction will be notifi ed pursuant to the provisions of Article L.621-18-2 of the French Monetary and
To the best of the company’s knowledge and based on information reported to it, each AXA Board of Directors member held, on
December 31, 2011, the number of AXA shares or ADS indicated in the table below.
To the best of the Company’s knowledge and based on the information reported to it, several members of the Board of Directors made the following disclosures in the course of 2011 concerning their transactions involving Company securities. Detailed information about all of these transactions, as well as individual disclosures fi led in accordance with Articles 223-22 and 223-25 of the AMF (Autorité des marchés financiers) General Regulations, are published on the Company’s website (www.axa.com) and on the AMF website (www.amf-france.org).
Automatic re-investment into the Company Savings Plan of dividends attached to shares held in the Company Savings Plan
* OTC. Transaction performed by an independent fi nancial intermediary pursuant to a discretionary mandate.
Subscription to units of AXA Group Mutual funds invested in AXA shares (Number)
Under this scheme, a supplementary pension is paid to executives who retire immediately upon leaving the AXA Group, and who have a minimum length of service of 10 years, of which at least 5 years as an executive. May also benefi t from the scheme, executives whose employment is terminated by the Company after the age of 55, under the condition that they do not resume any professional activity before retiring.
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 under mandatory schemes (Social
The amount of the supplementary pension aims, for a minimum executive seniority of 20 years within the AXA Group, at achieving a global pension equivalent to: ■ 40% of the average gross compensation of the past 5 years preceding the retirement date, if this average is superior to 12 annual Social Security ceilings (1); ■ 50% of the average gross compensation of the past 5 years preceding the retirement date, if this average is inferior to 8 annual Social Security ceilings; ■ 2.4 Social Security ceilings +20% of the average gross compensation of the past 5 years preceding the retirement date, if this average is between 8 and 12 annual Social
In case of departure from the AXA Group before retirement, no supplementary pension is paid.
The Company’s commitments as regard to pension or retirement to the aforementioned executives was €27.5 million on December 31, 2011.
The evolution of these commitments between December 31 , 2010 and December 31 , 2011 is due to the cost attributable to one year of additional service within the AXA Group and the cost of one year less discounting and the integration of social contributions in the commitments (such as required by the
Mr. Henri de Castries decided in 2010, on an individual and voluntary basis but in consultation with the Board of Directors, to limit the compensation to be taken into account in order to calculate his global pension. For information purposes, as of today considering his length of service within the Group (more than 22 years on the date of this Annual Report), the part of his global pension would be paid under the supplementary pension scheme would represent approximately 31.5% of his current annual target compensation.
Messrs. Henri de Castries and Denis Duverne have decided to renounce their respective employment contracts following
Notwithstanding the foregoing, if only 2 of the 3 performance conditions are met, the amount of severance benefi t will be reduced by 50% if the performance condition (1) is not met or if AXA’s consolidated net income for the preceding fi scal year was negative.
Meeting of April 27, 2011, the Board of Directors increased the
Company’s share capital through the issue of shares reserved to the Group employees under the SharePlan 2011 program.
• €313.5 million in the leveraged plan; ■ A total of approximately 37 million new shares were issued, each with a par value of €2.29. These shares began earning dividends on January 1st, 2011.
These shares are owned through Mutual funds or directly either in the form of ordinary shares or ADS .
TREASURY SHARES (HELD DIRECTLY BY THE COMPANY OR OWNED BY COMPANY SUBSIDIARIES) ON JANUARY 31, 2012
Number of shares % of the share capital (a) Par value
(a) Percentage calculated on the basis of the number of AXA’s outstanding ordinary shares as of January 31, 2012 (Source: Euronext Notice of January 27, 2012).
approval on April 25, 2012 are the following: a) (i) hedging stock options or other share allocations offered to some or all eligible employees or executive offi cers of the Company and/or affi liated entities or economic interest groups as defi ned in Article L.225-180 of the French
b) optimizing the liquidity of the AXA ordinary share through a liquidity contract that complies with the Association française des marchés financiers (AMAFI) Code of Conduct approved by the AMF, and entered into with an investment service provider, in accordance with the market practice accepted by the AMF; c) holding the shares for the purpose of subsequent payment or exchange in the context of potential external growth transactions, in accordance with the market practice accepted by the AMF; d) delivering the shares upon exercise of the rights attached to securities corresponding to debt instruments giving a claim to the Company’s share capital through repayment, conversion, exchange, presentation of a warrant or in any other manner; e) cancelling some or all of the repurchased shares, provided that the Board of Directors is duly authorized by the shareholders, under an extraordinary resolution, to reduce the capital through the cancellation of the shares acquired pursuant to a share repurchase program; or f) more generally, performing all operations relating to hedging operations or any other admissible operation or to be subsequently admissible, by the laws and regulations in force.
Share repurchase program submitted to the shareholders’ approval on April 25, 2012
18 months as of April 25, 2012, subject to the approval of the program by the Ordinary Shareholders’ Meeting.
announced the termination, as of February 18, 2011, of this liquidity contract.
130,000 shares were purchased under this liquidity contract for an average weighted gross unit price of €15.48 and 3,130,000 shares were sold for an average weighted gross unit price of €14.88. Related transaction fees incurred over the same period amounted to €39,720.
In addition, and in connection with the two share repurchase programs which were respectively approved by AXA’s shareholders at their General Meeting held on April 29, 2010
On December 31, 2011, AXA’s fully paid up and issued share capital amounted to €5,397,982,320.80 divided into 2,357,197,520 ordinary shares, each with a par value of €2.29 and eligible for dividends as of January 1st, 2011.
To the best of the Company’s knowledge, the table below summarizes the ownership of its issued outstanding ordinary shares and related voting rights as of December 31, 2011: Number of shares
Treasury shares held directly by the Company 979,168 0.04% [0.03%] (c)
Treasury shares held by Company subsidiaries (directly or indirectly) (d) 16,489,792 0.70% [1.03%] (c)
(d) Treasury shares as indicated in Note 13 to “Consolidated Financial Statements” included in Part 4 of this Annual Report.
de coordination stratégique) composed of certain directors from their respective Boards. The Strategy Committee elects a
To the best of the Company’s knowledge, no shareholder held more than 5% of the Company’s share capital or voting rights on December 31, 2011 except as indicated in the table above.
“Voting rights” Section of this Annual Report. Of the Company’s 2,357,197,520 outstanding ordinary shares on December 31, 2011, 570,139,811 shares entitled their holders to double voting rights as of that date.
Treasury shares held directly by the Company 979,168 0.04% [979,168] (c) [0.03%] (c)
Treasury shares held by Company subsidiaries (directly and indirectly) (d) 16,489,792 0.70% [30,258,184] (c) [1.03%] (c)
(a) AXA’s 2017 convertible bonds can still be converted, but any dilutive impact created by the issuance of new shares resulting from the conversion of the bonds is neutralized by the automatic exercise of call options on the AXA shares that were put in place in January 2007.
By virtue of the authorization granted by the shareholders at the Annual General Meeting of April 27, 2011 (19th resolution), the Board of Directors increased the Company’s share capital, through the issue of shares to Group employees under the SharePlan 2011 program. The shareholders waived their preferential subscription rights to facilitate this offering to employees. In the countries that met the legal and tax requirements for participation in SharePlan, two investment options were offered in 2011: ■ the traditional plan, offered in 41 countries; ■ the leveraged plan, offered in 38 countries.
SharePlan 2011, and participating employees invested a total of more than €332 million, as follows: ■ €19.1 million in the traditional plan; and
By virtue of the authorization granted by the shareholders at the
In 2011, the AXA Miles program resulted in a grant of more than 2 millions AXA shares to nearly 40,000 employees.
Paribas Group entered into an agreement that replace the prior agreement between them dated December 15, 2005.
■ the Agreement, entered into on November 16, 2011 then reiterated by deeds on December 14 and 23, 2011, was implemented in order for AXA to transfer, according to the contribution in kind system provided for in Articles L.225-147, R.225-136, R.225-7 and R.225-8 of the French Commercial Code, to its wholly-owned subsidiary AXA ASIA, participating interests in Life, Property and Casualty businesses of the Group in Asia; ■ in performance of the Agreement and after the relevant regulatory authorisations have been obtained, the contribution in kind has occurred on December 23, 2011, when AXA ASIA acquired ownership of 1,966,924,000 shares that represent a full ownership of AXA China Region Limited, 253,205,188 shares that represent a full ownership of AXA Financial Services (Singapore) Pte. Ltd., 14,365,317 shares that represent a 99.99% ownership of AXA General insurance Hong Kong Ltd., 151,500,000 shares that represent a full ownership of AXA Insurance Singapore Pte. Ltd. and 500,000 shares that represent a full ownership of AXA Asia
AGREEMENTS AND COMMITMENTS APPROVED DURING PRIOR FISCAL YEARS THAT REMAINED IN FORCE IN 2011
AXA and its subsidiaries) and the Schneider Group entered into an agreement that provided for the maintenance of minimal crossshareholdings. Under the terms of this agreement, the AXA Group undertook to hold at least 2,583,300 shares of Schneider stock and the Schneider Group undertook to hold at least 8,816,681 shares of AXA stock. The number of shares held under this crossshareholding agreement would be adjusted as needed in order to refl ect the impact of capital transactions, including but not limited to free allotments of stock or share tenders involving the same company (stock splits or regrouping, etc.). In addition, the parties had consented to a reciprocal repurchase option in the event of a hostile takeover on either AXA or Schneider.
With the following Executive Offi cers: Messrs. Henri de Castries and Denis Duverne Nature, purpose, terms and conditions: On October 7, 2009, the AXA Supervisory Board confi rmed that Messrs. Henri de Castries, Denis Duverne and François Pierson, then members of the Management Board, were entitled to the supplementary pension scheme under the same conditions that apply to director-level employees of the AXA Group in France.
Under this scheme, a supplementary pension is paid to Executives who retire immediately upon leaving the AXA Group, at age 60 or older and who have a minimum length of service of 10 years, of which at least 5 years as Executive. May also benefi t from this scheme, Executives whose employment is terminated by the Company after the age of 55, under the condition that they do not resume any professional activity before retiring.
The amount of the supplementary pension is calculated at the time of retirement and is added to the total amount of retirement pensions paid under mandatory schemes (Social Security, ARRCO, AGIRC…) and under any other retirement scheme to which the benefi ciary may have participated during his/her career, both within or outside the AXA Group.
Social Security ceilings; ■ 2.4 Social Security ceilings +20% of the average gross compensation of the past 5 years preceding the retirement date, if this average is between 8 and 12 annual Social Security ceilings.
In case of from the Group before retirement, no supplementary pension is paid.
During 2011, these commitments applied to Messrs. Henri de Castries and Denis Duverne (respectively Chairman & Chief Executive
A severance benefi t would be applicable, except in the case of gross or wilful misconduct, solely in the event of dismissal, nonrenewal or resignation within 12 months following a change in the Company’s control or strategy that has not been initiated by the benefi ciary.
The amount of the severance benefi t to be paid to the benefi ciary would be adjusted in accordance with the level of achievement against these performance conditions as follows: (1) 100% of the severance benefi t would be paid if at least 2 of the 3 performance conditions are met; (2) 40% of the severance benefi t would be paid if only 1 performance condition is met; and (3) no severance benefi t would be paid if none of the performance conditions are met. Notwithstanding the foregoing, if only 2 of the 3 performance conditions are met, the amount of severance benefi t will be reduced by 50% if the performance condition (1) is not met or if AXA’s consolidated net income for the preceding fi scal year was negative.
These commitments are in force upon the effective renunciation by Mr. Henri de Castries to his employment contract , i.e. on April 30, 2010 and will continue so long as he remains an executive offi cer of AXA (including under renewed mandates).
recommendations and the applicable laws and regulations, would be equivalent to that provided for in the collective agreement relative to director-level employees of insurance companies of 1993 and which was previously applicable to Mr. Denis Duverne as employee.
With the BNP Paribas Group – concerned director: Mr. Michel Pébereau Nature, purpose, terms and conditions: On August 3, 2010, the AXA Board of Directors authorized the signing of an agreement between AXA and BNP Paribas.
December 15, 2005; ■ this agreement contains provisions in terms of information requirements in case of change in the cross-shareholdings between the two Groups; ■ this agreement provides, specifi cally, a reciprocal repurchase option with BNP Paribas in the event of a hostile takeover by a third party of the share capital of AXA or BNP Paribas. In these circumstances, and pursuant to the agreement, AXA would be entitled to repurchase, partly or entirely, the outstanding shareholding of the BNP Paribas Group in AXA on the date it exercises its repurchase option. Reciprocally, BNP Paribas will enjoy the same repurchase option over the outstanding shareholding of the
March 26, 2010, the Company’s ADS are traded on the U.S.
Eurozone. In addition, the Company’s ordinary shares are also included in the EURO STOXX Insurance, the insurance related index for companies within the Eurozone.
(“AMF”), which is the French fi nancial market regulator, and the
French insurance regulator following the merger in 2010 of the Commission bancaire with the Comité des entreprises d’assurance and the Autorité de contrôle des assurances et des mutuelles (“ACAM”) to create ACP.
International Group in September 2008. These initiatives included government programs in France, the United States and most of the other principal markets where the Group does business.
Management expects the regulatory landscape to continue evolving during 2012 and beyond with further legislative and regulatory initiatives likely to grow out of the on going European sovereign debt crisis and other signifi cant economic and political events (including any structural reforms or other changes made to the Euro, the Eurozone or the European Union that may come out of the European sovereign debt crisis).
Frank Act will only be determined once extensive implementing regulations have been promulgated and become effective and the regulators are still in the process of promulgating and implementing those rules. While the focus of the Dodd-Frank
to engage in proprietary trading or to sponsor or invest in hedge funds and private equity funds, both in and even outside the United States, could, if applied to AXA as a non-
US non-bank fi nancial company, result in heightened capital requirements for such activities; ■ enhanced reporting and regulation of incentive-based compensation structures regarding certain regulated entities, including registered broker-dealers and investment advisers such as certain of the Group’s subsidiaries and affi liates; ■ elimination of the private adviser exemption from registration, thereby requiring advisers to hedge funds and private equity funds to register with the SEC, subject to certain exceptions; ■ additional levels of regulation over broker-dealers and investment advisers, including harmonizing broker-dealer and investment adviser regulation, and possibly appointing a self-regulatory organization to oversee investment advisers, much as the Financial Industry Regulatory Authority ( “FINRA”)
securities laws with respect to non-US issuers to actions brought by the United States or the SEC if they involve signifi cant US contacts.
Dodd-Frank also contains measures designed to enhance consumer protection for various types of fi nancial services, including by increasing SEC enforcement powers and antifraud provisions, and centralizing responsibility for consumer fi nancial protection by creating a new agency, the Bureau of
and non-US regulators, including law enforcement authorities, expands extraterritorial jurisdiction in actions brought by the
US Department of Justice or the SEC and extends the statute of limitations for securities fraud offenses. This expansion of enforcement power potentially includes conduct within the US
that constitutes signifi cant steps in furtherance of the violation, even if the securities transaction occurs outside the US and involves only foreign investors, as well as conduct occurring outside the United States that have a foreseeable substantial effect within the US.
French fi nancial sector include, but are not limited to: ■ the creation of the French prudential supervisory authority
(ACP ) , which, in addition to prudential supervision, has broad competence for implementing, examining and enforcing compliance with numerous aspects of consumer fi nancial laws; ■ additional prudential requirements on fi nancial institutions with respect to capital, liquidity, leverage and business activities; ■ increased restrictions on securitization transactions, in particular retention of risk by originators/sponsors; ■ enhanced regulation of, or recommendations with respect to, incentive-based compensation structures at certain fi nancial regulated entities; ■ increased restrictions as to counterparts of certain fi nancial institutions; ■ enhanced customer protection via higher thresholds of guaranty funds in the event of insolvent fi nancial institutions; ■ supervision and regulation of rating agencies; ■ temporary measures prohibiting net short positions on certain securities, including AXA shares; ■ proposed legislation (which remains under discussion in the French parliament) on the adoption in France of a fi nancial transactions tax that would be applicable to certain transfers of shares in French-listed companies with a market capitalization exceeding €1 billion. The tax, if enacted, is expected to be equal to 0.1% of the acquisition price of covered transactions; ■ the enactment of the French Banking and Financial
Dodd-Frank Act (where extensive rulemaking is expected with respect to many provisions), French law and regulation
(including in the French Financial and Banking Regulation Law), and European Union regulations. These areas and themes are likely to include: ■ potential reforms to regulatory structures and schemes: • various proposals designed to optimize regulatory structures and coordination with respect to supervision of the largest “systemically signifi cant” global fi nancial institutions including proposals to impose new/additional prudential requirements/restrictions on these institutions with respect to capital, liquidity, leverage and/or business activities,
• increased taxes, restrictions and/or disclosure requirements with respect to executive and employee compensation, including disclosure requirements and restrictions on compensation determined to encourage excessive risk-taking,
• greater regulation of auditors including with respect to provision of non-audit services to their audit clients as well as partner (and potentially audit fi rm) rotation requirements,
The full consequences and implications of being so designated are not yet clear but, if the AXA Group were to be so designated, it could have a variety of consequences (including imposition of new/additional prudential requirements and restrictions with respect to capital, liquidity, leverage and/or business activities) and could adversely affect the Group’s competitive position. See Section 3.2 “Risk Factors – Financial crisis related
legislative and regulatory initiatives designed to reform the regulation of fi nancial institutions, such as the Dodd-Frank Act and recent reforms in France and the European Union, may adversely impact AXA’s business, results of operations and fi nancial condition”.
The massive injection of government funds into a number of major fi nancial institutions during 2008 and 2009, and the stilldeveloping international response to the ongoing sovereign debt and Euro crises in Europe (which could potentially involve further capital injections for some institutions and rescue packages for certain sovereigns) have broad potential implications, the full extent of which is not yet clear, for those institutions (and for the fi nancial services sector more generally)
in terms of the extent and nature of continuing government infl uence and control.
Since 2008 there have been a variety of proposals with respect to executive compensation practices at fi nancial institutions including from the Financial Stability Board (FSB) and other regulatory bodies. Certain of these proposals have been embodied in regulation or legislation while others remain best practice recommendations.
In 2009, the FSB published implementation standards for its Principles of Sound Compensation Practices. Among the matters covered in these standards and principles are a variety of mechanisms (including minimum recommended deferrals of cash bonuses, greater use of long-term equity grants rather than cash as a form of compensation, minimum vesting/
operations and accounts and make requests for information from the insurer. Certain jurisdictions also require registration and periodic reporting by holding companies that control a licensed insurer. This holding company legislation typically requires periodic disclosure concerning the corporation that controls the licensed insurer and other affi liated companies, including prior approval of transactions between the insurer and other affi liates such as inter-Group transfers of assets and payment of dividends by the controlled insurer. In general, these regulatory regimes are designed to protect the interests of policyholders rather than shareholders.
to its required regulatory capital. Under applicable French regulations, 100% is the minimum required consolidated solvency margin for the Company. As at December 31, 2011 the Company’s consolidated solvency margin was 188%. The
Company’s year-end 2011 solvency margin stood at a higher level than its consolidated solvency margin at December 31,
Management monitors the Company’s consolidated solvency margin and the regulatory capital requirements of its insurance subsidiaries on an on going basis both for regulatory compliance purposes and to ensure that the Company and its subsidiaries are appropriately positioned from a competitive point of view. In the event of a failure by the Company and/or any of its insurance subsidiaries to meet minimum regulatory capital requirements, insurance regulators have broad authority to require or take various regulatory actions including limiting or prohibiting the issuance of new business, prohibiting payment of dividends, and/or, in extreme cases, putting a company into rehabilitation or insolvency proceedings. A failure of any of the Company’s insurance subsidiaries to meet their regulatory capital requirements may also result in the Company having to inject signifi cant amounts of new capital into its insurance subsidiaries which could adversely affect the Company’s liquidity position, results of operations and fi nancial position.
Within the European Union, AXA operates in most major markets, including France, Germany, the United Kingdom
European jurisdictions and are founded on the “home country control” principle, according to which the ongoing regulation of insurance companies, including their non-home country insurance operations (whether direct or through branches), is the responsibility of the home country insurance regulatory authority. The home country insurance regulator monitors compliance with applicable regulations, including regulations governing solvency, actuarial reserves, investment of assets, statutory accounting principles, internal governance and periodic reporting requirements. In France, ACP monitors compliance with applicable regulations, the insurer’s capital base and actuarial reserves, as well as the assets of the insurer that support such reserves. Selling activities of non-home country insurance operations are generally supervised by the regulator in the country in which the sale of the insurance product takes place. As a result of the implementation of these directives, an insurance company that has been licensed to conduct insurance business in one jurisdiction of the European
Group insurance subsidiaries in different European Union jurisdictions; ■ a 2002 European Union directive, implemented into French law in 2005, concerns the regulation and supervision of fi nancial conglomerates and provides for the assessment of fi nancial conglomerates capital requirements at the consolidated Group level, the supervision of risk concentration
and intra-group transactions, and the prevention of doubleleveraging of the capital of a parent holding company, i.e.
once at the holding parent level and a second time at the subsidiary level (“double gearing”). Although the AXA Group is not currently deemed a fi nancial conglomerate within the meaning of this legislation by the French insurance regulator, there can be no assurance that it will not become (or be deemed) a fi nancial conglomerate in the future, in particular within the framework of the current revision of the directive.
Due to the lack of uniform interpretation of this legislation by local insurance regulators throughout the various
European Union jurisdictions, AXA’s Belgian subsidiaries have been deemed a fi nancial conglomerate by the Belgian insurance regulator and it is possible that other European subsidiaries of the AXA Group may also be deemed fi nancial conglomerates by local regulators thereby subjecting them to the requirements of this law; ■ the European Commission (the “Commission”), jointly with
Its principal objective is to establish a solvency regime that is better matched to the underlying risks of insurers, enabling supervisors to protect policyholders’ interests as effectively as possible and with common principles across the European Union ensuring a level playing fi eld. The new approach will be based on three pillars (1) minimum solvency requirements, (2) supervisory review of fi rms’ assessment of risk, and (3) enhanced disclosure requirements – and will cover valuations, the treatment of insurance groups, the defi nition of capital and the overall level of capital requirements. Specifi cally, Pillar 1 covers the quantitative requirements around own funds, valuation rules for assets and liabilities and capital requirements. Pillar 2 provides the qualitative requirements for risk management, governance and controls, including the requirement for insurers to submit an Own Risk and Solvency Assessment (ORSA) which will be used by the Regulator as part of the supervisory review process. Pillar 3 deals with the enhanced requirements for reporting to supervisors and public disclosures.
Solvency II directive regarding the “taking-up and pursuit of the business of insurance and reinsurance” was adopted by the European Council in November 2009 and includes rules regarding, among other things, valuations, own funds, capital requirements and investments.
European Commission has initiated the development of detailed rules following the Lamfalussy process according to which Directives related to fi nancial institutions should be developed on the basis of a 4 level approach that will complement the Principles of the Directive, referred to as
“implementing measures” (Level 2), which are subject to a consultation process and have not yet been fi nalised.
Forums, the Pan-European Insurance Forum (PEIF), together with the Association of French Insurers (FFSA) and the
Directive (i.e. setting an economic framework) and end up more focus ed on prudence driven principles which could be adverse for the Group in many respects including potentially imposing a signifi cant increase in the capital required to support existing business. In addition, the application of
(likely until 2014 or 2015), and a European Parliament vote on this matter (“the Omnibus 2 directive” ) is currently expected in March of 2012. In case such voting is further delayed and the European Parliament does not approve a postponement of the implementation of Solvency II well in advance of
European Union and national levels, if not resolved in a timely fashion, will impact the insurance industry generally or our business and operations in particular.
(to the extent they are currently known), an implementation programme was initiated with dedicated teams at both the
Group level and in each relevant Group company. Over the coming months the Group will pursue its implementation plans and remains in regular contact with the ACP and local regulators to prepare the approval process for its internal economic capital models. While the Group currently expects to be able to obtain ACP’s approval for use of its internal economic capital models on a timely basis, discussions with
Switzerland pursuant to the new Insurance Supervision Act adopted in 2005 and associated regulations. This “Swiss
There have been a number of other initiatives in Europe with implications for AXA’s European insurance subsidiaries, and the European insurance sector more generally, including the following: ■ the regulatory reform initiatives referred to above; ■ a 2002 European Union directive, implemented into French law in 2005, concerns the regulation of I nsurance M ediation
(the “IMD”) and authorizes insurance intermediaries to conduct business throughout the European Union. This directive establishes a legal framework designed to ensure a high level of professionalism among insurance intermediaries and to safeguard the interests of customers. The European
As proposed, this tax could require the AXA Group to pay a tax on transactions in fi nancial instruments (including, with respect to the current European Union-wide proposal, on transactions with Group affi liates). Such a fi nancial transaction tax initiative or a similar proposal could affect our results of operations, fi nancial condition and liquidity, and could negatively impact the costs and profi tability of our transactions; ■ during 2011 the government of Hungary enacted a series of legislative measures that (i) effectively nationalized individual pension regimes and adversely impacted the pension businesses of insurers and other fi nancial institutions
(including AXA Hungary) operating in the Hungarian market, and (ii) required mortgage lenders to convert Swiss francs denominated mortgage loans to Hungarian forints at a statutory rate very favourable to consumers, thereby, causing signifi cant losses to a number of banks and other mortgage lenders (including AXA Bank Hungary) operating in the Hungarian market; ■ in 2010, the UK enacted the Bribery Act 2010 (the Act) which came into force in July 2011. The Act includes wide-ranging provisions with signifi cant extra-territorial reach aimed at the prosecution of corruption and bribery related offences. The
Act creates a new strict liability offence for corporations and partnerships of failing to prevent bribery occurring within the
with the Company where that person performs services for or on behalf of the C ompa ny ; ■ over the past several years, a number of European jurisdictions, have also introduced or are considering legislation or regulations designed to better “ring- fence”
(or strengthening existing restrictions) on intra-group transactions between local subsidiaries and foreign parent (or other affi liated) companies that may be in fi nancial diffi culty.
For example, in Germany, a 2009 law gave the German fi nancial supervisory authority (“BaFin”) power to (i) prohibit adverse payments between affi liated companies even prior to any identifi ed fi nancial diffi culties or other crisis situations and (ii) the ability to make such payments contingent on certain conditions. This provision is designed to permit
German authorities to prevent a non-German company from withdrawing liquid assets from a German affi liate during periods of fi nancial diffi culty; ■ on March 1, 2011, the European Court of Justice issued its judgment in the widely-followed “Test Achats” case.
The Test Achats decision, in effect, provides that the use of gender as a factor in the pricing of or benefi ts under life and non-life insurance coverage is incompatible with the principles of equal treatment of men and women under the
European Union Charter. The Test Achats decision provides for a transition period until December 21, 2012, after which the use of such gender-based factors will no longer be permissible. It is unclear whether this prohibition also applies to existing insurance contracts. While it is too early to assess the impacts of the Test Achats case on AXA’s insurance business, it is expected that the industry generally will incur potentially signifi cant compliance-related costs as policy forms, underwriting and pricing criteria, and related systems undergo required modifi cations. On December 22, 2011, the Commission issued guidelines to assist the insurance industry in implementing unisex pricing by December 21, 2012 (i.e., the end of the transition period specifi ed in the Test
Achats decision). AXA is unable at this stage to quantify the extent of any such costs or other impacts on its business but will be closely monitoring implementation of the Test Achats decision and the guidelines published by the Commission; ■ the German Federal Parliament (Bundestag) has adopted an amendment of the German Investment Act (“InvG”) that became effective on April 8, 2011 and which regulates, among other things, investments in and liquidity management of real estate investment funds. It provides for the possibility to specify certain redemption dates (as opposed to daily redemptions), a general 24-month lock-up period and a notice period of 12 months for the redemption of shares in real estate investment funds (if the redemption request exceeds a certain threshold). New rules on the suspension of redemptions and a possible termination of the investment
Act related to the privacy of information and the US Patriot Act of 2001 relating to, among other things, the establishment of anti-money laundering programs.
While the Dodd-Frank Act does not remove primary responsibility for the supervision and regulation of insurance from the states,
Certain of AXA’s US insurance, broker-dealer, investment adviser and investment management subsidiaries, including
AXA Equitable Life Insurance Company (“AXA Equitable”), and certain life insurance policies and annuity contracts offered by them are subject to regulation under the Federal securities laws administered by the SEC and under certain state securities laws. The SEC conducts regular examinations of the operations of these companies, and from time to time, makes requests for information from them. The SEC, other governmental and regulatory authorities, including state insurance and securities regulators, and the FINRA may institute administrative or judicial proceedings which may result in censures, fi nes, the issuance of cease-and-desist orders, the suspension or expulsion of a broker-dealer or member, its offi cers or employees, or other similar sanctions. Over time, AXA Financial’s brokerdealer subsidiaries and its other subsidiaries have provided and, in certain cases continue to provide, information and documents to the SEC, FINRA, state attorneys general and other regulators on a wide range of issues. Ongoing or future regulatory investigations could result in fi nes, other sanctions and/or other costs. Dodd-Frank also permits the SEC to promulgate rulemaking to limit or prohibit the use of mandatory arbitration clauses in standard broker-dealer customer agreements, which, if enacted could potentially lead to an increased number of customer complaints going into litigation rather than arbitration.
FINRA has recently proposed and, in some cases, fi nalized signifi cant additional rules of conduct affecting broker-dealers in a number of areas. The Department of Labor ( “DOL”) has also been active in rulemaking activities which may potentially affect broker-dealer and investment advisory business, including requiring increased compensation disclosure by qualifi ed plans and possible expansion of the defi nition of a “fi duciary” under the Employee Retirement Income Security Act (“ERISA”).
(statutory capital and surplus plus asset valuation allowance and other adjustments) that a life insurance company should have for regulatory purposes and that takes into account the risk characteristics of the Company’s investments and products. AXA Equitable and AXA’s other US life insurance subsidiaries expect that the statutory surplus will continue to be in excess of the minimum RBC levels required to avoid regulatory action.
US fi nancial institutions (broadly defi ned) that “fail” (or that have 50% affi liates which are also non-US fi nancial institutions that fail) to identify their US accountholders and/or certain
Service (the “IRS”). This US withholding tax will generally apply to such with holdable payment to the non US fi nancial institutions even if they would otherwise be entitled to an exemption under a tax treaty from US withholding tax. “Withholdable payments”
January 2014. In general, non-publicly traded debt and equity interests in investment vehicles (including some investment vehicles managed by the Group) will be treated as accounts and subject to these reporting requirements. In addition, proposed regulations have provided that cash value insurance and annuities shall be considered fi nancial accounts for these purposes. Therefore, members of the Group may need to report information in respect of certain US policyholders and annuitants.
The possibility of such withholding tax and the need for accountholders, policyholders, annuitants and investors to provide certain information may adversely affect the sales of certain of the Group’s products. In addition, entering into agreements with the IRS and compliance with the terms of such agreements and with the legislation and any regulations or other guidance promulgated hereunder may substantially increase the Group’s compliance costs. Even though proposed regulations have now been issued, the full fi nancial impact of the law on the G roup remains diffi cult to quantif y .
In addition, it is possible that the US Congress may adopt a form of “fi nancial crisis responsibility” fee or tax on banks and other fi nancial fi rms to mitigate costs to taxpayers of various government programs established to address the fi nancial crisis and to offset the costs of potential future crises. The
Obama Administration’s 2013 revenue proposals include such a fee. The potential enactment of this proposal or a similar tax could affect our results of operations, fi nancial condition and liquidity, and could negatively impact the costs and profi tability of our transactions.
Holocaust victims between 1920 and 1945 and settled thousands of claims fi led with the ICHEIC with respect to policies issued by the European insurers participating in ICHEIC.
Holocaust era insurance claims. This statement of interest is intended to protect AXA against future civil litigation in the US
by Holocaust claimants and to encourage judges handing this type of litigation to dismiss these claims. While this statement of interest provides AXA with a certain level of protection against future lawsuits of this type in the US, it does not offer complete protection and, consequently, AXA could still be subject to litigation in the US brought by Holocaust claimants. Legislation has been introduced in the US House of Representatives and the US Senate that may reopen certain of these issues and various aspects of the ICHEIC process.
AXA Financial Group is subject to various statutory and regulatory requirements concerning the payment of death benefi ts and the reporting and escheatment of unclaimed property, and is subject to audit and examination for compliance with these requirements. AXA Financial Group, along with other life insurance industry companies, has been the subject of various inquiries regarding its death claim, escheatment, and unclaimed property procedures and is cooperating with these inquiries. For example, in June 2011, the New York State Attorney General’s offi ce issued a subpoena to AXA Financial Group in connection with its investigation of industry escheatment and unclaimed property procedures. AXA Financial Group also has been contacted by a third party auditor acting on behalf of a number of US state jurisdictions reviewing compliance with unclaimed property laws of those jurisdictions. In July 2011, AXA Financial
Insurance Department, (the “NYSDFS”) to use data available on the US Social Security Administration’s Death Master File or similar database to identify instances where death benefi ts under life insurance policies, annuities and retained asset accounts are payable, to locate and pay benefi ciaries under such contracts, and to report the results of the use of the data.
The audits and related inquiries have resulted in the payment of death benefi ts and changes to AXA Financial Group’s relevant procedures. AXA Financial Group expects it will also result in the reporting and escheatment of unclaimed death benefi ts, including potential interest on such payments.
AXA’s life insurance products’ advantageous tax treatment may be eliminated or adversely impacted for certain products by changes in tax laws that are considered from time to time in various jurisdictions in which AXA operates including in the
Asia-Pacifi c. As in other regions of the world, regulators in the
Asia-Pacifi c Region have broad discretion in their application of regulation and to investigate licensed insurers, on an individual or sector basis, to examine specifi c issues. For example, the
AllianceBernstein and AXA Investment Managers are subject to extensive regulation in the various jurisdictions in which they operate. These regulations are generally designed to safeguard client assets and to ensure adequacy of disclosure concerning (i)
The Dodd-Frank Act has recently imposed a number of new requirements applicable to such investment advisers. These include a provision requiring registered investment advisers to take steps to safeguard client assets over which an adviser has custody, including verifi cation of the assets by an independent public accountant, as the SEC may prescribe by rule; a new
Section of the Advisers Act imposing aiding and abetting liability in certain actions brought by the SEC on any person that knowingly or recklessly has aided, abetted, counselled,
commanded, induced or procured a violation of any provision of the Advisers Act or rules thereunder; authorizing the SEC
to promulgate rules that would impose the same fi duciary duty on broker-dealers as currently exists between investment advisers and their clients; and, increased SEC enforcement powers. While the full impact of such requirements can only be evaluated in the context of implementing regulations, such new legislation could have a substantial impact on AXA’s regulated asset management business.
October 2010 and December 2011, has not yet been formally submitted to the European Union. However, the Group would not have used the earlier adoption option of the standard as of today.
International Accounting Standards Board (IASB). Note 1.2 to the Company’s Consolidated Financial Statements for the year ended December 31, 2011 included in Part 4 of this Annual Report summarizes the signifi cant amendments and interpretations of the Standards effective in 2011.
There are continuing discussions at the IASB concerning possible modifi cations to the Standards and certain of these modifi cations may have potentially signifi cant impacts on insurers and other fi nancial institutions, including AXA, that prepare their consolidated accounts in accordance with the
Union). The amendments, which relate to classifi cation and measurement of fi nancial assets and liabilities (IFRS 9 phase 1), impairment (IFRS 9 phase 2) and hedge accounting principles (IFRS 9 phase 3), may have potentially signifi cant impacts on the Company’s future fi nancial statements presentation, shareholders equity and earnings; ■ policyholders liabilities and related assets are currently accounted for according to IFRS 4 p hase I which generally allows the continuation of accounting policies applied prior to the conversion to IFRS. The IASB issued a Discussion
Paper in May 2007 and an Exposure Draft in July 2010 in order to defi ne principles to be applied for IFRS 4 p hase II.
This new IFRS 4 phase II standard which is scheduled to be fi nalized in 2012 at the earliest may signifi cantly affect policyholders’ liabilities and related assets at the date of fi rst application which is not expected to be before 2015.
These laws and regulations impose increasingly complex compliance requirements on international groups such as
Many of the risks described below are inherent to the nature of our business and the economic, competitive and regulatory environment in which we operate. Given the multiple contingencies and the inherent uncertainties involved with many of these risks, Management is not able to quantify the impact of many of these risks with any level of precision, however, it has put in place numerous risk management processes, procedures and controls to monitor and manage these risks on an on-going basis. These risk management processes, procedures and controls are described in detail in Section 3.3 of this Annual Report and this Section 3.2 should be read in conjunction with Section 3.3. In those cases where the risks described in this Section 3.2 have given rise to quantifi able and material fi nancial impacts and/or material contingent liabilities, those fi nancial impacts and/or contingent liabilities are refl ected in the Group’s consolidated fi nancial statements in accordance with applicable IFRS accounting standards. In presenting the risks set forth in this Section 3.2, Management has prioritized the four categories of risks presented and the individual risks within each of these categories in a manner that corresponds to Management’s current view as to the potential impact (from higher to lower) of the risk for the AXA Group. While Management devotes very substantial resources to risk management on an on-going basis as described in Section 3.3 of this Annual
Our results of operations are materially affected by conditions in the global fi nancial markets and the economy generally. We have been affected by the fi nancial crisis and its aftermath during each of our last four fi scal years. A wide variety of factors including concerns over sovereign debt issued, in particular, by certain European countries, the potential consequences on the Euro, the availability and cost of credit, the stability and solvency of fi nancial institutions and other companies, the risk of future infl ation as well as defl ation in certain markets, volatile energy costs, and geopolitical issues have contributed to increased volatility and diminished expectations for the economy in general and the markets going forward. These factors, combined with depressed real estate markets, volatile equity market values, declining business and consumer confi dence and the risks of increased future unemployment, have precipitated a signifi cant economic slowdown in many of the countries where we do business. Management believes that these conditions are likely to persist in many markets where we do business during 2012 and perhaps beyond. We are in a period of slow growth in mature countries and it is not yet certain whether the recovery is sustainable.
The global fi xed-income markets continue to experience both volatility and limited market liquidity conditions in certain markets, which have affected a broad range of asset classes and sectors. In addition, concerns over the quality of certain sovereign debt (including European sovereign debt, as discussed further below). The sustainability of certain sovereign credit ratings (including European sovereign credit ratings, as discussed further below) and the risk of a Eurozone breakup have become more pronounced over the past months. As a result of these and other factors, the market for fi xed income instruments (including government bonds and other forms of
In 2010, a fi nancial crisis emerged in Europe, triggered by high budget defi cits and rising direct and contingent sovereign debt in Greece, Ireland, Italy, Portugal and Spain, which created concerns about the ability of these European Union states to continue to service their sovereign debt obligations.
May 2010, and announced plans in 2011 to increase the size of the EFSF, to recapitalize certain European banks and to implement various other measures designed to alleviate these concerns, uncertainty over the outcome of the European
Risks and ongoing concerns about the debt crisis in Europe, as well as the possible exit from the Eurozone of one or more
actually defaulted on any of its obligations, on August 5, 2011,
AAA to AA+. Although other rating agencies have not similarly lowered the long-term sovereign credit rating of the United
There continues to be the perceived risk of a sovereign credit ratings downgrade of the US government, including the rating of US Treasury securities. It is foreseeable that the ratings and perceived creditworthiness of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the US government could also be correspondingly affected by any such downgrade. Instruments of this nature are important assets on the balance sheets of many fi nancial institutions and are widely used as collateral by fi nancial institutions to meet their day-to-day cash fl ows in the shortterm debt market. A downgrade of the sovereign credit ratings of the US government and the perceived creditworthiness of US government-related obligations could impact our ability to obtain funding that is collateralized by affected instruments, as well as affecting the pricing of that funding when it is available. A downgrade may also adversely affect the market value of such instruments. We cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic conditions. Such rating actions could result in a signifi cant adverse impact for the Group. Various Eurozone countries’
ratings have been downgraded by the main rating agencies due to political uncertainties regarding reform prospects of the
our investment assets and cash/cash-equivalents on our balance sheet. Sources of liquidity in normal markets also include a variety of short and long-term instruments, including repurchase agreements, commercial paper, medium and longterm debt, subordinated debt securities, capital securities and shareholders’ equity.
Group’s liquidity position and contingency plans for accessing liquidity, if our internal sources of liquidity prove to be insuffi cient or if our liquidity requirements change so as to require additional funding, we may not be able to successfully obtain additional fi nancing (whether on favorable terms or otherwise).
Our consolidated solvency margin and the regulatory capital requirements of our insurance subsidiaries may be negatively impacted by adverse capital market conditions, evolving regulatory interpretations and other factors, which could have a material adverse effect on our business, liquidity, credit ratings, results of operations and fi nancial position
December 31, 2009 (171%). The Company’s consolidated solvency margin ratio is sensitive to capital market conditions
(including the level of interest rates, the level of equity markets and foreign exchange impacts) as well as a variety of other factors. Adverse fi nancial market conditions would further negatively impact the Company’s consolidated solvency margin. The 2011 solvency margin calculation will be reviewed by the ACP (Autorité de Contrôle Prudentiel).
Company’s insurance subsidiaries to meet their regulatory capital requirements and/or a reduction in the level of their regulatory capital that may negatively impact their competitive position may also result in the Company having to inject signifi cant amounts of new capital into its insurance subsidiaries which could adversely affect the Company’s liquidity position, results of operations and fi nancial position. For example, in 2008, the Company provided signifi cant amounts to its subsidiaries
At this stage, signifi cant uncertainties with respect to some of the implementing measures remain. In particular, there is continuing risk that the effect of the fi nal measures adopted could depart from the initial objective of the Directive (i.e.
Level I Framework Directive and end up being more focussed on prudence driven principles which could be adverse for the
Financial, Inc., assigning a negative outlook in each case, and removing the CreditWatch with negative implications under which the AXA Group and other fi nancial institutions were placed on December 9, 2011 following the rating actions on the Eurozone sovereigns. The negative outlook refl ects that
Assets” (including Note 1.6.1 “Goodwill and impairment of goodwill”) and an analysis of the goodwill asset refl ected on our consolidated balance sheet is set forth in Note 5 “Goodwill”
Annual Report. Business and market conditions may impact the amount of goodwill we carry in our consolidated balance sheet as well as our pattern of DAC and VBI amortization and the value of our deferred tax assets and deferred participation assets. The value of certain of our businesses including, in particular, our US asset management and US Variable Life and Variable Annuity businesses, is signifi cantly impacted by such factors as the state of the fi nancial markets and ongoing operating performance. For the year ended December 31, 2011,
Management concluded that an impairment of €943 million to the carrying value of the goodwill asset on our US life insurance business, attributable to the Accumulator Variable Annuity book of business, was required considering the decrease in
US long term interest rates as well as the reduction in lapses.
While this impairment signifi cantly reduces carrying value of the total goodwill asset on our balance sheet from – at year-end 2010 to – at year-end 2011, to the extent that the operating performance of our businesses or market conditions falls below expectation we may be required to signifi cantly impair our goodwill, accelerate our amortization of DAC and
Losses due to defaults by fi nancial institution counterparties and other third parties including potential sovereign debt defaults or restructurings, impairment of our investment assets and unrealized losses could negatively affect the value of our investments and reduce our profi tability
Third parties that owe us money, securities or other assets may not pay or perform under their obligations. These parties include private sector and government (or government- backed) issuers whose securities we hold in our investment portfolios (including mortgage-backed, asset-backed, government bonds and other types of securities), borrowers under mortgages and other loans that we extend, reinsurers to which we have ceded insurance risks, customers, trading counterparties, counterparties under swap and other derivative contracts, other counterparties including brokers and dealers, commercial and investment banks, hedge funds, other investment funds, clearing agents, market exchanges, clearing houses and other fi nancial institutions. Many of our transactions with these third parties expose us to credit risk in the event of default of our counterparty. In secured transactions, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not suffi cient to cover the full amount of the loan, derivative or other secured obligation. We have also entered into contractual outsourcing arrangements with third party service providers for a wide variety of services required in connection with the day-to-day operation of our insurance and asset management businesses (including policy administration, claims related services, securities pricing and other services) which expose us to operational, fi nancial and reputational risk in the event of a default of our counterparty service providers. In addition, defaults by parties with which we have no direct contractual relation, such as a default by a credit insurer that has insured bonds, structured fi nance products or other securities we may hold in our investment portfolios, may adversely impact the value of those securities and potentially adversely affect the fi nancial markets more generally. The aforementioned parties may default on their obligations due to bankruptcy, lack of liquidity, downturns in the economy or real
Negative trends and investment climates in our major markets, such as those experienced in the course of the last four years and/or a sovereign debt default or restructuring (including the potential collateral consequences of such a default on the fi nancial markets and on other fi nancial institutions holding such sovereign debt) may result in an increase in impairments on our invested assets or other losses for us including through counterparty defaults or other failures to perform. There can be no assurance that any such losses or impairments of these assets would not materially and adversely affect our business and results of operations. For further risks relating to impairments taken on our investment assets, see “The determination of the amount of allowances and impairments taken on our investments requires use of signifi cant management judgment in certain cases, particularly for debt instruments, and could materially impact our results of operations or fi nancial position”.
(including sovereigns) could disrupt the securities markets or clearance and settlement systems in our major markets, which could in turn cause market declines or volatility. A failure of a major market participant could also cause some clearance and settlement systems to assess members of that system or could lead to a chain of defaults that could adversely affect us. Even in the absence of an actual default, a perceived lack of creditworthiness of a major market participant (sovereign or private) may result in market-wide illiquidity or other disruptions that may adversely impact us and the fi nancial intermediaries
In the normal course of business, AXA seeks to reduce losses that may arise from catastrophes or other events that cause unfavorable underwriting results through reinsurance. Under the reinsurance arrangements, other insurers assume a portion of the losses and related expenses; however, we remain liable as the direct insurer on all risks reinsured. Consequently, ceded reinsurance arrangements do not eliminate our obligation to pay claims and we are subject to our reinsurers’ credit risk with respect to our ability to recover amounts due from them. We evaluate periodically the fi nancial condition of our reinsurers to minimize our exposure to signifi cant losses from reinsurer insolvencies, our reinsurers may become fi nancially unsound by the time their fi nancial obligation becomes due. The reinsurance market has become increasingly concentrated following recent mergers and acquisitions, which have reduced the number of major reinsurance providers. The inability of any reinsurer to meet its fi nancial obligations to us could negatively impact our results of operations. In addition, the availability, amount and cost of reinsurance depend on general market conditions and may fl uctuate signifi cantly. Reinsurance may not be available to us in the future at commercially reasonable rates and any decrease in the amount of our reinsurance will increase our risk of loss. In certain cases, the price of reinsurance for business already insured may also increase, adversely affecting our results of operations.
In considering impairments, Management considers a wide range of factors including those described in Note 1.7.2 and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and the prospects for near-term recovery. For certain asset classes, particularly debt instruments, Management’s evaluation involves a variety of assumptions and estimates about the operations of the issuer and its future earnings potential. Management updates its evaluations regularly and refl ects changes in allowances and impairments as such evaluations are revised. There can be no assurance, however, that Management has accurately assessed the level of impairments taken and allowances refl ected in our fi nancial statements and additional impairments and/or allowances may have a material adverse effect on our consolidated results of operations and fi nancial position.
Interest rate and credit spread volatility may adversely affect our profi tability
During periods of declining interest rates, life insurance and annuity products may be relatively more attractive to consumers due to minimum guarantees with respect to such products that are frequently mandated by regulators, resulting in increased premium payments on products with fl exible premium features, and a higher percentage of insurance and annuity contracts remaining in force from year-to-year, creating asset liability duration mismatches. A decrease in interest rates or sustained low interest rate environment may also require an addition to provisions for guarantees included in life insurance and annuity contracts, as the guarantees become more valuable to policy holders and surrender assumptions require updating. During a period of decreasing interest rates, our investment earnings may decrease because the interest earnings on our fi xed income investments will likely have declined considering the market interest rates. In addition, mortgages and fi xed maturity securities in our investment portfolios will be more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates. Consequently, we may be required to reinvest the proceeds in securities bearing lower interest rates. Accordingly, during periods of declining interest rates, our profi tability may suffer as the result of a decrease in the spread between interest rates credited to policyholders and returns on our investment portfolios.
Our exposure to credit spreads primarily relates to market price and cash fl ow variability associated with changes in credit spreads. A widening of credit spreads will reduce the value of fi xed income securities we hold (including credit derivatives where we assume credit exposure) and increase our investment income associated with purchases of new fi xed income securities in our investment portfolios. Conversely, credit spread tightening will generally increase the value of fi xed income securities we hold and reduce our investment income associated with new purchases of fi xed income securities in our investment portfolios.
For the year ended December 31, 2011, a signifi cant portion of AXA’s insurance gross premiums and fi nancial services revenues, as well as AXA’s benefi ts, claims and other deductions were denominated in currencies other than the Euro, primarily
While AXA seeks to manage its exposure to foreign currency fl uctuations through hedging, fl uctuations in the exchange rates may have a signifi cant impact on AXA’s results of operations and cash fl ows. For example, a strengthening or weakening of the Euro against the US Dollar and/or certain other currencies in 2012 and future periods may adversely affect AXA’s results of operations and the price of its securities. In addition, the currency hedges used by AXA to manage foreign exchange rate risk may signifi cantly impact its cash position.
(iii) require us, as an issuer of securities, to pay higher interest rates on debt securities we issue in the fi nancial markets from time to time to fi nance our operations which would increase our interest expenses and reduce our results of operations. A signifi cant and sustained increase in infl ation has historically also been associated with decreased prices for equity securities and sluggish performance of equity markets generally. A sustained decline in equity markets may (i) result in impairment charges to equity securities that we hold in our investment portfolios and reduced levels of unrealized capital gains available to us which would reduce our net income and negatively impact our solvency position, (ii) negatively impact performance, future sales and surrenders of our unit-linked products where underlying investments are often allocated to equity funds, and (iii) negatively impact the ability of our asset management subsidiaries to retain and attract assets under management, as well as the value of assets they do manage, which may negatively impact their results of operations.
RISKS RELATING TO THE STRUCTURE OF OUR GROUP, THE SCOPE AND NATURE OF OUR BUSINESS, AND THE PRODUCTS WE OFFER
Germany, are also holding companies and are dependent on dividends from their respective subsidiaries for funds to meet their obligations. Regulatory and other legal restrictions may limit our ability to transfer funds freely, either to or from all our subsidiaries. In particular, our principal insurance subsidiaries are subject to restrictions on the amount of dividends and debt repayments that can be paid to us and our affi liates. Moreover, should we be designated as “systemically signifi cant” pursuant to the US Dodd-Frank Act or by European regulators under similar European regulatory initiatives, it is possible that the Board of Governors of the Federal Reserve System (the
See also “Risks relating to the fi nancial markets, our fi nancial strength ratings and fi nancial condition, the valuation of our assets and related matters – Our consolidated solvency margin and the regulatory capital requirements of our insurance subsidiaries may be negatively impacted by adverse capital market conditions, evolving regulatory interpretations and other factors, which could have a material adverse effect on our business, liquidity, credit ratings, results of operations and fi nancial position”.
anticipate the extreme levels of market volatility and the rapid decline of interest rates experienced in 2008 and early 2009; and (ii) indices used in our hedging program did not adequately refl ect the underlying separate account investment options available under these annuity contracts (basis risk). In 2011,
Certain risks under Accumulator guarantees and other under contracts and policies issued by AXA Equitable are reinsured by AXA Financial Bermuda Ltd. (“AXA Bermuda”) an indirect wholly owned subsidiary of the Company, which hedges these risks using the techniques described above. This reinsurance provides important capital management benefi ts to AXA
We use numerous assumptions to determine the appropriate level of insurance reserves, deferred acquisition costs (DAC), employee benefi ts reserves and to calculate certain widely used industry measures of value such as Life & Savings New Business Value (NBV) and European Embedded Value (EEV), which involve a signifi cant degree of management judgment and predictions about the future that are inherently uncertain; if these assumptions are not correct, it may have adverse impact on our results of operations and/or performance indicators, such as NBV, that may adversely affect the price of our securities
Variable Annuity products, the adequacy test performed on the reserves for life policies (which encompasses the recoverability of DAC, Value of Business In-force and deferred participations assets) and the establishment of DAC, NBV and EEV are inherently uncertain processes involving assumptions about factors such as policyholder behavior (e.g. lapses, persistency, etc.), court decisions, changes in laws and regulations, social, economic and demographic trends, infl ation, investment returns and other factors, and, in the life insurance business, assumptions concerning mortality and morbidity trends. The use of different assumptions about these factors could have a material effect on insurance reserves and underwriting expenses as well as on our DAC, NBV and EEV. In addition, insurance reserves for minimum guarantees contained within certain of our Variable Annuity products, DAC balances, EEV
and NBV may be signifi cantly impacted by the state of the fi nancial markets and signifi cant declines could have a material adverse effect on our consolidated results of operations and fi nancial position. Furthermore, certain of these assumptions can be volatile. While AXA’s NBV and EEV calculations are done on a market consistent basis which is more conservative in many respects than traditional NBV and EEV calculations, changes in assumptions used in calculating these measures may have a material adverse effect on the level of our NBV
and/or EEV. For example, our NBV is sensitive to interest rate movements and, consequently, incorrect assumptions about future interest rates may have a signifi cant impact on our
We continually review the adequacy of the established claims reserves, including emerging claims development, and actual claims compared to the original assumptions used to estimate gross claims reserves. Based on the current information available, we believe that our claims reserves are suffi cient; however, because the establishment of claims reserves is an inherently uncertain process involving numerous estimates, there can be no assurance that ultimate losses will not materially exceed our claims reserves and have a material adverse effect on our results of operations. For example, there is a high degree of uncertainty with respect to future exposure from asbestos claims because of signifi cant issues surrounding the liabilities of insurers, diverging legal interpretations and judgments in different jurisdictions and aggressive asbestos related litigation, particularly in the US and increasingly in the
UK and other European countries. These uncertainties include the extent of coverage under insurance policies, whether or not particular claims are subject to an aggregate limit, the number of occurrences involved in particular claims and new theories of insured and insurer liability. We have established reserves for insurance and reinsurance contracts related to environmental pollution and asbestos at December 31, 2011, which represent our best estimate of ultimate claims exposure at December 31, 2011, based on our current knowledge of facts and law.
However, given uncertainties surrounding the related claims, there can be no assurance that ultimate losses will not materially exceed our claims reserves and have a material adverse effect on our earnings. For additional information, see “Asbestos” in
In our Life & Savings businesses, our earnings depend signifi cantly upon the extent to which our actual claims experience is consistent with the assumptions we use in setting the prices for our products and establishing the liabilities for obligations for technical provisions and claims. AXA uses both its own experience and industry data to develop estimates of future policy benefi ts, including information used in pricing the insurance products and establishing the related actuarial liabilities. However, there can be no assurance that actual experience will match these estimates. To the extent that our actual benefi ts paid to policyholders are less favorable than the underlying assumptions used in initially establishing the future policy benefi t reserves, or events or trends cause us to change the underlying assumptions, we may be required to increase our liabilities, which may reduce our net income. For example, certain Variable Annuity products issued or reinsured by certain of our subsidiaries contain various types of minimum guaranteed benefi ts such as GMDB, GMIB and/or GMWB. The determination of GMDB, GMIB and GMWB liabilities is based on models that involve numerous estimates and management judgments, including those regarding expected market rates of return and volatility, GMIB election rates, contract surrender rates and mortality experience. Determination of liabilities for our other lines of Life & Savings business, such as our annuity business also involve numerous assumptions and subjective judgments as to mortality and morbidity experience, investment returns, expenses, policy surrender rates, policy lapse rates, and other matters. There can be no assurance that the actual experience on these products will not differ, upwards or downwards, from Management’s estimates. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on our balance sheet and are being amortized into income over time. If the assumptions relating to various factors, including the future profi tability of these policies (such as future claims, investment income and expenses) and policy lapses and surrenders are not realized, the amortization of these costs could be accelerated and may even require write-offs due to
unrecoverability. These factors could have a material adverse effect on our business, results of operations and fi nancial condition.
Our operating results may be materially adversely affected by the occurrence of natural or man-made disasters and by the consequences of emerging risks such as pandemic diseases and global warming that are unpredictable by nature
Unpredictable events, such as hurricanes, windstorms, hailstorms, earthquakes, fi res, explosions, freezes and fl oods, as well as other natural or man-made disasters, including acts of terrorism, have the potential to adversely affect our operating results. Over the past several years, changing weather patterns and climatic conditions, including global warming, have added to the unpredictability and frequency of natural disasters in certain parts of the world and created additional uncertainty as to future trends and exposures. While experts may disagree on its magnitude and projections, global warming is now proven beyond doubt and has broad potential implications for AXA
and the insurance sector generally. In addition to the immediate destruction caused by fl ooding (and to a lesser extent by drought), global warming will likely have major implications for many human activities (particularly agriculture, timber production, healthcare and water activities) and for the insurers that cover these risks (i.e. property, agricultural, business interruption, civil liability, marine & aviation, life, health, etc.).