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across the globe trust in the AXA Group billion euros (1)
On December 22, 2006, 30,000 people from Winterthur joined AXA, bringing the Group’s total workforce to 150,000 47countries (1)
• Full disclosure on executive and employees compensation and share in capital 57
AXA1 originated from several French regional mutual insurance companies, known collectively as “les Mutuelles Unies”.
In 1992, AXA took control of Equitable Companies Incorporated following the demutualization of Equitable Life. The Equitable Companies Incorporated changed its name in 1999 to AXA Financial, Inc. (“AXA Financial”).
In 1998, AXA purchased the minority interests of AXA Royale Belge and, in 1999, acquired
In 2000, AXA acquired a majority ownership interest in “Nippon Dantaï Life Insurance Company”, resulting in a new company called “AXA Nichidan” (which became in 2001 “AXA Life Insurance Co.”). In addition, in July 2000, AXA increased its interest in SLPH from 56.3% to 100%. In August 2000, AXA sold its interest in Donaldson Lufkin & Jenrette to Credit Suisse Group. In October 2000, Alliance Capital, a subsidiary of AXA Financial, acquired the U.S. asset management company Sanford C. Bernstein giving rise to a Company named “AllianceBernstein”. In December 2000, AXA acquired the remaining minority interests in AXA Financial, which is now a 100% owned subsidiary of AXA.
In December 2006, AXA completed the sale of AXA RE’s business to Paris Re Holdings and has taken a 3.4% stake in Paris Re Holdings, a newly created company sponsored by a consortium of international investors led by Stone Point Capital.
* Following the acquisition by AXA of Winterthur on December 22, 2006, most subsidiaries of Winterthur, with the notable exception of its US subsidiaries which are in the process of being sold, today owned by Winterthur Swiss Insurance Company or Winterthur Leben are intended to be integrated in the course of 2007 with the corresponding subsidiaries of the AXA Group.
(a) Holding Company that owns fully AXA Equitable Life Insurance Company and MONY Life Insurance Company of America, and partly AllianceBernstein L.P. (b) Holding Company that owns AXA Assurances Inc. and AXA Insurance (Canada) (c) Holding Company that owns AXA Assurance Maroc.
(d) Holding Company that owns AXA Versicherung AG, AXA Lebenversicherung AG and AXA ART Versicherung AG. (e) Holding Company that owns AXA Belgium.
AXA Aurora S.A. (f) 100% 100% Hilo Direct S.A. de 100% 100% Seguros y Reaseguros
AXA Investment Managers 95% 95% AXA Real Estate Investment 95% 100% Managers
(i) Holding Company that owns AXA Assurance Luxembourg and AXA Assurance Vie Luxembourg. (j) Holding Company that owns AXA Leven N.V. and AXA Schade N.V.
(m) Holding Company that owns National Mutual Life Association of Australasia Limited, National Mutual Funds Management (Global) Limited and National Mutual International Pty Limited. AXA ownership
Interest in AXA Asia Pacific Group is 52.7% broken down into 51.6% direct interest holding and an additional 1.1% owned by the AAPH Executive plan trust. AXA voting right in AXA Asia Pacific Group is 53.7% broken down into 51.6% direct interest holding and an additional 2.1% owned by the AAPH Executive plan trust.
Areas in dark red represent countries in which AXA offers at least one of its protection services.
(a) Intraday share price. Following the issue of new shares with preferential subscription rights made by AXA (see Euronext notice n° 2006-1670 published on June 14, 2006), historical share price adjusted on the basis of the theoretical value of the right (see Euronext notice n° 2006-1719 published on June 16, 2006).
TOTAL €1,315 billion in 2006 * On a comparable basis. (a) Annual premiums equivalent is New regular premiums plus one tenth of Single premiums. APE is group share.
Profitability indicators Underlying Earnings (a) by segment (in Euro million and restated (c) in 2005)
Adjusted earnings (a) 5,140 4,281 4,108 3,409 3,342 Profit or loss on financial assets
– Goodwill and other related intangible impacts, and – Profit and loss on financial assets accounted for under fair value option (excluding assets backing contract liabilities for which the financial risk is borne by the policyholder) and derivatives related to invested assets (including all impacts of foreign exchange in particular the ones related to currency options in earnings hedging strategies, but excluding derivatives related to insurance contracts evaluated according to the “selective unlocking “accounting policy”).
(b) On a constant change basis. (c) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, and (ii) following clarification of IFRIC
agenda committee following IASB decision, AXA has reclassified TSDI instruments (perpetual subordinated debts) into shareholders’ equity for all periods presented in the 2006 financial statements with impact on net income.
Net capital gains attributable to shareholders net of income tax 96.997.798.5
(e) To be proposed at the May 14, 2007 Shareholders’ Meeting. (f) Exlcuding treasury shares which are not considered as outstanding shares under IFRS. (g) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, and (ii) following clarification of IFRIC agenda committee following IASB decision, AXA has reclassified TSDI
Date Rating Outlook 26/01/2007 AA- Stable 11/09/2006 Aa3 Stable 22/12/2006 AA Stable 26/01/2007 A
Operating procedures and activity The guidelines governing the operation, organization and compensation of the Supervisory Board and its Committees are contained in its Rules of Procedures.
In addition to the agenda, this documentation may also include information on issues pertaining to the Group’s operations (e.g. a presentation on a particular operating Company’s strategy and priorities) or a presentation on a particular subject (e.g. the brand, a transversal project...).
Members of the Supervisory Board are required to own at least the number of shares called for in the Bylaws of the Company (100 shares). In addition, to ensure that their interests and those of the Group are aligned, members of the Supervisory Board are required to own shares in the Company, the value of which must be at least equal to the amount of directors’ fees they receive in the course of any given year.
At the Company’s Annual General Meeting on May 4, 2006, the shareholders elected Mr. Norbert Dentressangle as a member of the Supervisory Board for a term of four years.
Supervisory Board members are selected on the basis of their acknowledged competence and experience, as well as their ability to work together and become actively involved in the supervision of a Group like AXA.
assessed the independence of all of its members on the basis of the recommendations contained in the Bouton Report on corporate governance in publicly traded companies and, for the members of the Audit Committee, on the basis of the criteria set forth in the SarbanesOxley Act.
On December 31, 2006, 10 out of the 14 Supervisory Board members met the independence criteria based on the recommendations of the Bouton Report: Messrs Léo Apotheker, Jacques de Chateauvieux, David Dautresme, Norbert Dentressangle, Anthony Hamilton, Henri Hottinguer,
At the date of this Report, the Supervisory Board has taken the required measures to ensure that all the members of the Audit Committee would meet the independence criteria set forth in the Sarbanes-Oxley Act.
In the following pages of the document, in the absence of precision, the notion of independence will be interpreted on the basis of the recommendations contained in the Bouton Report.
term of office Claude Bébéar Chairman of the Supervisory Board of AXA AXA June 1988 / (71) 25, avenue Matignon 2008 AGM (Chairman of the Supervisory Board) 75008 Paris
Jean-René Fourtou Chairman of the Supervisory Board of Vivendi Vivendi April 1990 / (67) 42, avenue de Friedland 2007 AGM (Vice-Chairman of the Supervisory 75008 Paris Board)
Léo Apotheker President Customer Solutions & Operations, SAP February 2005 / (53) (1) Member of the Executive Committee of SAP AG. 141, bd Haussmann 2007 AGM (Member of the Supervisory Board) 75008 Paris
Henri Hottinguer Chairman and Chief Executive Officer of Sofibus Financière Hottinguer June 1988 / (72) (1) 43, rue Taitbout 2007 AGM (Member of the Supervisory Board) 75009 Paris
Gérard Mestrallet Chairman and Chief Executive Officer of Suez Suez January 1997 / (58) (1) 16, rue de la Ville-l’Evêque 2007 AGM (Member of the Supervisory Board) 75008 Paris
Mr. Giuseppe Mussari (44) is also expected to be elected for a 4-year term at the Annual
Mrs Dominique Reiniche Chairman Europe of The Coca-Cola Company The Coca-Cola Company, April 2005 / (51) (1) Groupe Europe 2009 AGM (Member of the Supervisory Board) 27, rue Camille Desmoulins 92784 Issy-les-Moulineaux Cedex 9
Jacques Tabourot Member of the Supervisory Board, AXA April 2004 / (61) representing the employee shareholders 25, avenue Matignon 2008 AGM (Member of the Supervisory Board, 75008 Paris representing the employee shareholders)
Claude Bébéar June 1988 2008 AGM Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board of AXA AXA AXA AXA AXA AXA
Léo Apotheker February 2005 2007 AGM President Customer Solutions & President Customer Solutions & Chairman, Global Field Operations: Chairman, Global Field Operations: Chairman, Global Field Operations: President Customer Solutions & Operations Operations, Member of the Executive Operations, Member of the Executive SAP SAP SAP Member of the Executive Committee of SAP AG Committee: SAP AG Committee: SAP AG Director: Director: Director: Director or member of the Supervisory Directors: SAP America, Inc. (United States), SAP FRANCE S.A., S.A.P. ITALIA Sistemi, SAP Systems Integration AG (Germany), Board: SAP America, Inc. (United States), SAP Global Marketing Inc. (United States), applicazioni, prodotti in data processing SAP FRANCE S.A., AXA, SAP America, Inc. (United States), SAP Global Marketing Inc. (United States), SAP Asia Pte. Ltd (Singapore), s.p.a. (Italy), SAP Hellas Systems SAP Finland Oy (Finland), SAP Global Marketing Inc. (United States), SAP Asia Pte. Ltd (Singapore), SAP JAPAN Co., Ltd (Japan), Application and Data Processing S.A. SAP Svenska Aktiebolag (Sweden), SAP Asia Pte. Ltd (Singapore), SAP JAPAN Co., Ltd (Japan), SAP FRANCE S.A., S.A.P. ITALIA Sistemi, (Greece), SAP America, Inc. (United States), S.A.P. ITALIA Sistemi, applicazioni JAPAN Co., Ltd (Japan), SAP FRANCE S.A., S.A.P. ITALIA Sistemi, applicazioni, prodotti in data processing SAP JAPAN Co., Ltd (Japan), prodotti in data processing s.p.a. (Italy), SAP FRANCE S.A., S.A.P. ITALIA Sistemi, applicazioni, prodotti in data processing s.p.a. (Italy), SAP Hellas Systems SAP Manage Ltd (Israel), SAP Hellas Systems Application applicazioni, prodotti in data processing s.p.a. (Italy), SAP Hellas “Systems Application and Data Processing S.A. SAP Global Marketing Inc. (United States) and Data Processing S.A. (Greece), s.p.a. (Italy), SAP Hellas “Systems Application and Data Processing S.A.” (Greece), SAP (Beijing) Software SAP America, Inc. (United States), Application and Data Processing S.A.” (Greece), SAP (Beijing) Software System Co., Ltd (China), SAP JAPAN Co., Ltd (Japan), (Greece) and SAP (Beijing) Software System Co., Ltd (China), Ginger S.A. Enigma Inc. (United States) SAP Danmark A/S (Denmark), System Co., Ltd (China) SAP Manage Ltd (Israel)
Norbert Dentressangle May 2006 2010 AGM Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer Financière Norbert Dentressangle Financière Norbert Dentressangle Financière Norbert Dentressangle Financière Norbert Dentressangle Financière Norbert Dentressangle of Financière Norbert Dentressangle Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Groupe Norbert Dentressangle Groupe Norbert Dentressangle, FINAIXAM Groupe Norbert Dentressangle, FINAIXAM Groupe Norbert Dentressangle, FINAIXAM Groupe Norbert Dentressangle, FINAIXAM Chairman: Financière de Cuzieu (SAS) Chief Executive Officer: Sofade (SAS) Chief Executive Officer: Sofade (SAS) Chief Executive Officer: Sofade (SAS) Chief Executive Officer: Sofade (SAS) Chief Executive Officer: SOFADE (SAS) Director or member of the Supervisory Director or member of the Supervisory Director or member of the Supervisory Director or member of the Supervisory Director or member of the Supervisory Board: Board: Board: Board: Board: SEB, Sogebail, Emin-Leydier (SAS), SEB, Sogebail, Emin-Leydier (SAS), SEB, Sogebail, Emin-Leydier (SAS), SEB, Sogebail, Emin-Leydier (SAS), AXA, SEB, SOGEBAIL, FINAIXAM Siparex Croissance, Egnatia, Siparex Croissance, Egnatia, Siparex Croissance, Egnatia, Siparex Croissance, Egnatia, Permanent Representative: Michaux Gestion SA, Lafuma, Michaux Gestion SA, Lafuma, Michaux Gestion SA, Lafuma, Michaux Gestion SA, Lafuma, Financière Norbert Dentressangle to Société Nouvelle d’Alimentation Société Nouvelle d’Alimentation Société Nouvelle d’Alimentation Société Nouvelle d’Alimentation the Board of Financière Egnatia Philippe Potin - SNAPP Philippe Potin - SNAPP Philippe Potin - SNAPP Philippe Potin - SNAPP
Positions held by members of the Supervisory Board over the last 5 years
Vice-Chairman of the Supervisory Vice-Chairman of the Supervisory Vice-Chairman of the Supervisory Vice-Chairman of the Supervisory Board: AXA Board: AXA Board: AXA Board: AXA Chairman of the Supervisory Board: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Vivendi Universal and Groupe Canal+ Vivendi Universal Vivendi Universal Vivendi Universal Director or member of the Supervisory Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Board or member of the Management Groupe Canal+ Groupe Canal+ Vivendi Environnement and Groupe Canal+ Committee: Director: Sanofi-Aventis and Director: Aventis and Vice-Chairman of the Management Maroc Telecom (Morocco), Cap Gemini Cap Gemini Board: AXA Assurances IARD Mutuelle, NBC Universal Inc. (USA), AXA Assurances Vie Mutuelle, Sanofi-Aventis, Cap Gemini AXA Courtage Assurance Mutuelle
Chief Executive Officer: USI Entertainment Inc. (United States) Director: Aventis, Cap Gemini, EADS (The Netherlands), USA Interactive (United States)
Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Financière Norbert Dentressangle Financière Norbert Dentressangle Financière Norbert Dentressangle Financière Norbert Dentressangle Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Groupe Norbert Dentressangle, FINAIXAM Groupe Norbert Dentressangle, FINAIXAM Groupe Norbert Dentressangle, FINAIXAM Groupe Norbert Dentressangle, FINAIXAM Chief Executive Officer: Sofade (SAS) Chief Executive Officer: Sofade (SAS) Chief Executive Officer: Sofade (SAS) Chief Executive Officer: Sofade (SAS) Director or member of the Supervisory Director or member of the Supervisory Director or member of the Supervisory Director or member of the Supervisory Board: Board: Board: Board: SEB, Sogebail, Emin-Leydier (SAS), SEB, Sogebail, Emin-Leydier (SAS), SEB, Sogebail, Emin-Leydier (SAS), SEB, Sogebail, Emin-Leydier (SAS), Siparex Croissance, Egnatia, Siparex Croissance, Egnatia, Siparex Croissance, Egnatia, Siparex Croissance, Egnatia, Michaux Gestion SA, Lafuma, Michaux Gestion SA, Lafuma, Michaux Gestion SA, Lafuma, Michaux Gestion SA, Lafuma, Société Nouvelle d’Alimentation Société Nouvelle d’Alimentation Société Nouvelle d’Alimentation Société Nouvelle d’Alimentation Philippe Potin - SNAPP Philippe Potin - SNAPP Philippe Potin - SNAPP Philippe Potin - SNAPP Permanent Representative: Permanent Representative: Permanent Representative: Permanent Representative: Financière Norbert Dentressangle to Financière Norbert Dentressangle to Financière Norbert Dentressangle to Financière Norbert Dentressangle to the board of Financière Egnatia and the board of Financière Egnatia and the board of Financière Egnatia and the board of Financière Egnatia and to the board of Via Location to the board of Via Location to the board of Via Location to the board of Via Location
Jacques de Chateauvieux April 2005 2009 AGM Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer of BOURBON BOURBON BOURBON Groupe BOURBON Groupe BOURBON Groupe BOURBON
Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman: Sapmer S.A., Chairman: Vindemia SAS Chairman: Vindemia SAS, SAPMER, CBo Territoria, JACCAR SAPMER S.A., Cbo Territoria, JACCAR SAS JACCAR SAS, Vindemia SAS Director: Sapmer, Antenne Réunion Télévision Director or member of the Supervisory Director: Director: Happy World Foods, Ltd Director: Sapmer, Board: VINDEMIA SAS, Happy World Foods, Ltd Happy World Foods, Ltd AXA, VINDEMIA, INNODIS, HAPPY WORLD FOODS, Ltd SINOPACIFIC Shipbuilding Group
Anthony Hamilton January 1996 2009 AGM Non-executive Chairman: Chairman non executive: Chairman: Chairman: Chairman: Chairman of AXA UK Plc (United Kingdom) AXA UK Plc (United Kingdom) and AXA UK PLC (United Kingdom) and AXA UK Plc (United Kingdom) AXA UK Plc (United Kingdom) AXA UK Plc (United Kingdom)
Henri Hottinguer June 1988 2007 AGM Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer of Sofibus Sofibus Sofibus Sofibus Sofibus Sofibus (Société Financière pour le Financement de Bureaux et d’Usines) Chairman of the Supervisory Board: Chief Executive Officer and Director: Chief Executive Officer and Director: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Emba NV (The Netherlands) Financière Hottinguer Financière Hottinguer, Crédit Suisse Hottinguer, Crédit Suisse Hottinguer, Chairman of the Board of Directors: Chairman of the Supervisory Board: Intercom, Profinor Emba NV (Netherlands) Emba NV (Netherlands) Hottinger Bank & Trust Limited Emba NV (Netherlands) Chairman of the Supervisory Board: Chairman: Chairman: (Nassau, Bahamas) Chairman of the Board of Directors: Emba NV (Netherlands) Hottinguer Capital Corp. (US) Hottinguer Capital Corp. (US) Chairman: Mofipar (SAS) and Hottinger Bank & Trust Limited Vice-Chairman: Gaspee (Switzerland) Vice-Chairman: Gaspee (Switzerland) Vice-Chairman: Gaspee (Switzerland) Hottinger & Co. Bale (Switzerland) (Nassau, Bahamas) Chief Officer of the Board of Directors: Managing Partner: Managing Partner: Vice-Chairman: Gaspee (Switzerland) Chairman: Hottinger & Co., Bale Hottinger Finanz & Treuhand (Switzerland) Hottinguer & Cie (Zurich) Hottinguer & Cie (Zurich) Senior Chief Officer and Director: (Switzerland) Director or member of the Supervisory Senior Chief Officer and Director: Senior Chief Officer and Director: Financière Hottinguer Vice-Chairman: Gaspee (Switzerland) Board: FINAXA, Hottinguer Financière Hottinguer, Intercom Intercom Chief Officer of the Board of Director: Chief Officer of the Board of Directors: International Fund (Luxemburg), Director or member of the Supervisory Director or member of the Supervisory Hottinger Finanz & Treuhand (Switzerland) Hottinger Finanz & Treuhand (Switzerland) Hottinguer International Asset Board: FINAXA, Hottinguer Board: FINAXA, Director or member of the Supervisory Director or member of the Supervisory Management (Luxemburg) International Fund (Luxemburg), Investissement Provence SA, Hottinguer Board: Board: Intercom, Hottinger Non-voting member of the Board: Hottinguer International Asset International Fund (Luxemburg), AXA, AXA France IARD, International Fund (Luxemburg), Didot Bottin Management (Luxemburg), Hottinguer International Asset AXA France Vie, Intercom, Hottinger International Asset Swiss Helvetia Fund Inc., Management (Luxemburg), Hottinger International Fund (Luxemburg) Management (Luxemburg) Hottinguer US, Inc. Swiss Helvetia Fund Inc., and Hottinger International Asset Non-voting member of the Board: Non-voting member of the Board: Hottinguer US, Inc.
Henri Lachmann May 1996 2009 AGM Chairman of the Supervisory Board: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman of the Supervisory Board of Schneider Electric Schneider Electric Schneider Electric Schneider Electric Schneider Electric Schneider Electric
Chairman of the Board of Directors: Chairman of the Board of Directors: Director or member of the Supervisory Vice-Chairman: Director or member of the Supervisory Centre Chirurgical Marie Lannelongue Centre Chirurgical Marie Lannelongue Board: AXA Assurances Vie Mutuelle, Board: Vice-Chairman and member of Director or member of the Supervisory AXA Assurances Vie Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances Vie Mutuelle, the Supervisory Board: Vivendi Board: AXA Assurances IARD Mutuelle, AXA Courtage Assurance Mutuelle AXA Assurances IARD Mutuelle, Director or member of the Supervisory AXA Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle, Director or member of the Supervisory AXA Courtage Assurance Mutuelle, Board: AXA, AXA Assurances IARD Mutuelle, FINAXA, Vivendi Universal, Board: FINAXA, Vivendi Universal, AXA Assurances IARD Mutuelle, AXA Courtage Assurance Mutuelle, Groupe Norbert Dentressangle FINAXA, Vivendi Universal, Groupe Norbert Dentressangle AXA-ONA (Morocco), Vivendi Universal, Non-voting member of the Board: Groupe Norbert Dentressangle Groupe Norbert Dentressangle and l’ANSA Groupe Norbert Dentressangle Fimalac Non-voting member of the Board: Non voting member of the Board: Non-voting member of the Board: Fimalac Fimalac and Tajan Fimalac
Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: BOURBON Groupe BOURBON Groupe BOURBON Groupe BOURBON Chairman of the Supervisory Board: Chairman: Sapmer S.A., Chairman: Vindemia SAS Chairman: Vindemia SAS, SAPMER S.A., Cbo Territoria, JACCAR SAS JACCAR SAS, Vindemia SAS Director: Sapmer, Antenne Réunion Télévision Director: Director: Happy World Foods, Ltd Director: Sapmer, VINDEMIA SAS, Happy World Foods, Ltd Happy World Foods, Ltd HAPPY WORLD FOODS, Ltd
Didot Bottin Didot Bottin Non-voting member of the Board: Didot Bottin
Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Schneider Electric Schneider Electric Schneider Electric Schneider Electric Chairman of the Board of Directors: Director or member of the Supervisory Vice-Chairman: Director or member of the Supervisory Centre Chirurgical Marie Lannelongue Board: AXA Assurances Vie Mutuelle, Board: Director or member of the Supervisory AXA Assurances Vie Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances Vie Mutuelle, Board: AXA Assurances IARD Mutuelle, AXA Courtage Assurance Mutuelle AXA Assurances IARD Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle, Director or member of the Supervisory AXA Courtage Assurance Mutuelle, AXA Assurances IARD Mutuelle, FINAXA, Vivendi Universal, Board: FINAXA, Vivendi Universal, AXA Courtage Assurance Mutuelle, Groupe Norbert Dentressangle FINAXA, Vivendi Universal, Groupe Norbert Dentressangle Vivendi Universal, Non-voting member of the Board: Groupe Norbert Dentressangle Groupe Norbert Dentressangle Fimalac Non-voting member of the Board: Non-voting member of the Board: Fimalac Fimalac
Gérard Mestrallet January 1997 2007 AGM Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer of Suez Suez Suez Suez Suez Suez
Director or member of the Supervisory Director of member of the Supervisory Director of member of the Supervisory Director of member of the Supervisory Director or member of the Supervisory Board: AXA, Saint Gobain, Total, Board: Board: Board: Board: Lafarge, de Banque Marocaine pour Saint Gobain, Total, Lafarge, Saint Gobain, Total, Lafarge, Saint Gobain, Total, Lafarge, Saint Gobain, Total Fina Elf, Lafarge, le Commerce et l’Industrie (BMCI) et BNP Paribas UK (United Kingdom), BNP Paribas UK (United Kingdom), Dresdner Bank AG Francfort (Germany), Dresdner Bank AG (Germany), de Pargesa Holding SA (Switzerland) Banque Marocaine pour le Commerce et Banque Marocaine pour le Commerce et BNP Paribas UK (United Kingdom) BNP Paribas UK (United Kingdom) Non-voting member of the Board: l’Industrie (BMCI) l’Industrie (BMCI) Non-voting member of the Board: Non-voting member of the Board: Galeries Lafayette Non-voting member of the Board: Non-voting member of the Board: Galeries Lafayette Galeries Lafayette
Mrs Dominique Reiniche April 2005 2009 AGM Chairman Europe: Chairman Europe: Chairman: Chairman: Chairman and Chief Executive Officer: Chairman Europe of The Coca-Cola Company The Coca-Cola Company The Coca-Cola Company Coca-Cola Enterprises – Groupe Europe Coca-Cola Enterprises – Groupe Europe Coca-Cola Enterprise
Ezra Suleiman April 2003 2007 AGM Professor of Politics and Chair of Professor of Politics and Chair of Professor of Politics and Chair of the Committee the Committee: the Committee: for European Studies, Princeton University (United States) Université de Princeton (United States) European Studies,
Director or member of the Supervisory Princeton University (United States) Board: Associate Professor: AXA, AXA Financial, Inc. (United States), Institut d’Etudes Politiques (Paris) AXA Equitable Life Insurance Company Member of the Management Committee: (United States), MONY Life Insurance Institut Montaigne, Centre Américain, Company (United States), Institut d’Etudes Politiques (Paris) MONY Life Insurance Company Member of the Editorial Committee: of America (United States) Comparative Politics, La Revue Associate Professor: des Deux Mondes, Politique International Institut d’Etudes Politiques (Paris) Member: Member of the Management Committee: Council on Foreign Relations (New-York), Institut Montaigne et du Centre Américain, HEC International Advisory Institut d’Etudes Politiques (Paris) Member of the Editorial Committee: Rédaction de Comparative Politics, La Revue des Deux Mondes et Politique International Member: Council on Foreign Relations (New York), HEC International Advisory Board
Chairman Europe: Chairman: Chairman: Chairman and Chief Executive Officer: The Coca-Cola Company Coca-Cola Enterprises – Groupe Europe Coca-Cola Enterprises – Groupe Europe Coca-Cola Enterprise Director: Essilor Member: Advisory Board de ING Direct Vice-Chairman: Member: Advisory Board of ING Direct and Coca-Cola Enterprises – Groupe Europe of the Executive Committee of the MEDEF
Canadian subsidiary of the Anciennes Mutuelles group 1975: Was appointed Chief Executive Officer of Anciennes
Groupe Drouot 1985: Chairman of GIE AXA at its founding 1990 – 2000: Chairman and Chief Executive Officer and
Michel 1972: Chief Executive Officer of Bossard Consultants 1977: Chairman and Chief Executive Officer of Groupe
Mc Cormack & Dodge 1988 – 1991: Chairman and Chief Executive Officer of
1995 – 1997: Chairman, France 1997 – 1998: Chief Executive Officer– South West Europe 1999 – 2000: Chairman EMEA (except Germany)
Crédit Lyonnais 1982 – 1986: Chairman and Chief Executive Officer of Crédit du Nord 1986 – 2000: General Partner of Lazard Frères
Henri Hottinguer 1962: Joined the Banque Hottinguer 1965: Was appointed Associé-Gérant of the bank then was appointed Chairman or director of various companies
March 1990: Chairman and Chief Executive Officer of the banque Hottinguer
Henri Lachmann 1963: Began his carreer with the international consulting firm Arthur Andersen 1970: Joined the Compagnie Industrielle et Financière de
Since May 4, 2001: Chairman and Chief Executive Officer of Suez
Department of the Finance Ministry 1978 – 1981: Head of the Finance Minister’s Cabinet
(René Monory) then Project leader to the Minister 1982 – 1987: Chief Executive Officer of Crédit Commercial de France 1987 – 1993: Chairman and Chief Executive Officer of
Mrs Dominique Reiniche 1978 – 1981: Assistant Product Manager – Procter &
Cola Entreprise 1998 – 2002: Chairman and Chief Executive Officer –
Coca-Cola Entreprise 2002 – 2003: Vice-Chairman of Coca Cola Enterprises –
Since September 1979: Professor of Political Sciences at the University of Princeton (IBM chair)
Accountant Manager of Secours 1986 – 2003: In charge of the AXA consolidation then the
Since April 2004: Member of the AXA Supervisory Board, representing the employee shareholders
In addition to the ongoing dialogue between members concerning Supervisory Board operations, the Supervisory Board has conducted each year since 2002 its annual selfreview. This process involves individual interviews and a specially devised questionnaire. Every year, the results of these assessments highlight the high quality of dialogue and discussion, both between members of the Board and with Group executives, in particular those who serve on the Management Board, as well as the efficiency of meetings of the Board and its sub-Committees.
In early 2007, the members of the Supervisory Board once again stressed, in their responses to the questionnaire, how well the Supervisory Board functioned in 2006 and its continuous improvement. They also stated that the subjects discussed were relevant and of strategic interest, and noted the quality of the presentations, the clarity of communications with the Management Board and the constructive nature of discussions.
Supervisory Board Committees The Board benefits from the work of the Audit Committee, the Finance Committee, the Selection, Ethics, Governance and Human Resources Committee as well as the Compensation Committee.
The role, organization and operating procedures of each Committee are set forth in the Supervisory Board’s Rules of Procedures.
The Audit Committee met 8 times in 2006. The overall attendance rate was 71%.
financial statement audits (in particular support for the implementation of new accountings standards); it reviews the appointment and replacement of Statutory Auditors for Group subsidiaries; and the Audit Committee also may be asked by the Management Board or the Statutory Auditors to examine matters or events that expose the AXA Group to a significant risk.
– To review the program and aims of AXA’s Internal Audit Department, as well any findings or reports issued by this Department or by outside audit firms. It may commission internal or external audits as needed and monitors the execution of internal controls.
– To notify Company management and, if it deems necessary, the shareholders, of any issue likely to have a material impact on the Group’s net worth or financial condition.
For the fulfilment of its missions, the Committee may request external consulting expertise as required.
The Committee met 4 times in 2006. The global attendance rate was 88%.
Compensation Committee The Compensation Committee had four independent members on December 31, 2006: Messrs Henri Hottinguer (Chairman), David Dautresme, Anthony Hamilton and Gérard Mestrallet.
Board on compensation levels for Management Board members, on the amount of directors’ fees to be submitted to a vote by the shareholders, and on proposed stock options grants to members of the Management Board; – examines the performance of the Management Board members and gives an account of his conclusions to the Supervisory Board; – issues an opinion on Management Board recommendations related to the policies and procedures governing executive pay and the Company’s proposed stock option grants to employees; – is informed by the Management Board of compensation levels set by the boards of AXA Group subsidiaries.
Management Board Composition and operating procedures The Management Board is the Company’s collegial decision-making body.
The Management Board holds weekly meetings to discuss Group strategy and operations.
It operates in accordance with a set of Rules of Procedures.
Acting on the recommendation of its Selection, Ethics, Governance and Human Resources Committee, the Supervisory Board appointed, during its October 11, 2006 meeting, Mr. Alfred Bouckaert as a member of the AXA Management Board.
The members of the Management Board are: – Henri de Castries (52), Chairman.
Executive Officer of AXA France, responsible for Large Risks, Assistance and AXA Canada.
Member of the Management Board Position within Group Subsidiaries Henri de Castries - Chairman Chairman of the Management Board: AXA *
Director or member of the Supervisory Board: Servis (Belgium) Servis-Life (Belgium) Contere (Luxembourg) AXA Nederland BV (Netherlands) AXA Verzekeringen (Netherlands) AXA Konzern AG (Germany) AXA Bank AG (Germany) AXA ART Versicherung AG (Germany) Consuco (Belgium) De Waere (Belgium)
Director or member of the Supervisory Board: AXA Group Solutions GIE AXA Group Solutions AXA Japan Holding Co., Ltd (Japan) AXA Aurora Ibérica S.A. de Seguros y Reaseguros (Spain) AXA Aurora Vida S.A. de Seguros y Reaseguros (Spain) AXA Aurora S.A. (Spain) AXA Business Services (India)
Member of the Management Board Position within Group Subsidiaries Christopher Condron Member of the Management Board: AXA *
Director, Chairman of the Board, “President” and Chief Executive Officer: AXA Equitable Life Insurance Company (United States) AXA Financial Services, LLC (United States) MONY Life Insurance Company (United States) MONY Life Insurance Company of America (United States) MONY Financial Services, Inc. (United States) AXA Life and Annuity Company (United States) AXA Distribution Holding Corporation (United States)
Director and Chairman: U.S. Financial Life Insurance Company (United States) Financial Marketing, Inc. (United States)
Director or member of the Supervisory Board: AXA France IARD AXA France Vie AXA UK Plc (United Kingdom) AXA Financial, Inc. (United States) AXA Equitable Life Insurance Company (United States) AllianceBernstein Corporation (United States) AXA Assicurazioni (Italy) AXA Italia S.p.A. (Italy) AXA Belgium (Belgium) AXA Holdings Belgium (Belgium) MONY Life Insurance Company (United States) MONY Life Insurance Company of America (United States)
Chairman and Chief Executive Officer: AXA France IARD * AXA France Vie *
* Mandates concerned by the accumulaion rules (pursuant to the provisions of the French Company Code).
Expertise and experience of the Management Board members Henri de Castries 1980 – 1984: French Finance Ministry Inspection Office where he audited government agencies 1984 – 1989: French Treasury Department where he played an active role in several privatizations 1989: Joined AXA’s corporate finance division 1991: AXA’s Corporate Secretary, responsible for dealing with the legal reorganization and merger of Compagnie du
Group’s asset management, financial and real-estate businesses. In 1994, he assumed the additional role of overseeing North American and UK operations. In 1996, he played an active role in preparing for the UAP Merger.
Bank where he held various commercial and credit posts before he became Chase’s Manager of Commercial
Banking for Belgium 1984: General Manager of Chase in Copenhagen 1986: General Manager and Country Manager of Chase in
Manhattan Bank to Crédit Lyonnais France 1994: Head the bank’s European Operations of the bank
Christopher Condron 1989: Head of the Private Client Group of The Boston
Company, now Mellon Private Asset Management 1993: Executive Vice-President of Mellon 1994: Vice-Chairman of Mellon 1995: Assumed responsibility for The Dreyfus Corporation as Chairman and Chief Executive Officer 1998: President and Chief Operating Officer of Mellon
Denis Duverne 1979 – 1984: The French Ministry of Finance, IT service of the General Taxes Department (“Direction Générale des Impôts”) 1984 – 1986: Commercial counselor for the French
Embassy in New-York 1986 – 1988: Director fo the Corporate Taxes Department for the French Ministry of Finance 1988 – 1991: Deputy Assistant Secretary for Tax Policy for the French Ministry of Finance 1991 – 1992: General Secretary of Compagnie Financière IBI
Assurances 1998: Chief Executive Officer of AXA Conseil 1999: Chief Executive Officer of AXA Assurances
Absence of any conflicts of interests AXA’s Management organs are the Supervisory and Management Boards. The members of the Management Board do not currently hold any mandates outside the AXA Group. Certain members of the Supervisory Board, however, are executive officers and/or directors of companies that may have dealings from time to time with the AXA Group which dealings may include extensions of credit, purchases of securities (for their own account or for third parties), underwriting of securities and/or furnishing of other types of services or goods. These dealings are generally fully negotiated and effected on armlength terms and conditions, and consequently AXA does not believe they give rise to any potential conflicts of interests between the duties to AXA of the Supervisory and Management Boards’ members and their private interests and/or other duties.
The Executive Committee’s principal mission is to review and execute AXA Group’s strategy.
The Committee’s composition reflects the structure of the AXA Group. It includes, mainly, members of the Management Board and the CEOs of the Group’s principal business units.
Alfred Bouckaert Member of the Management Board, Chief Executive Officer for the Northern, Central and Eastern Europe
(a) John R. Dacey has been appointed Chief Executive Officer for the Japan Asia-Pacific since April 11, 2007. He has replaced Philippe Donnet, Chairman of the AXA Japan Holding’s Board since March 2006.
They are listed below: Name Business unit Jean-Raymond Abat Mediterranean region
François Pierson France / Canada / AXA Corporate Solutions / AXA Assistance
(b) Nicolas Moreau has been appointed Group Chief Executive of AXA UK. He has replaced Dennis Holt. Nicolas Moreau has become Non-Executive Chairman of the Board of AXA Investment Managers since June 30, 2006. Dominique CarrelBilliard, formerly Senior Vice-President in charge of Business Support & Development for the asset management, the U.S. insurance activities and the reinsurance activities of the AXA Group will has become Chief Executive of AXA Investment Managers since June 30, 2006.
The Group Governance Standards require the Boards of AXA Group companies to establish an Audit Committee and a Compensation Committee in addition to any other Board committees that they consider necessary or appropriate for their specific businesses. The
This standard took effect January 1st, 2006, with a 1 year transition period to provide Group companies with sufficient time to implement any necessary changes.
AXA’s core Financial Protection business is about helping people manage financial risk and wealth. Making effective risk management solutions available to clients presupposes AXA’s ability to effectively control its own risks. Implementing and monitoring stringent internal control policies and procedures throughout the Group is critical to AXA’s daily operations and long-term survival.
AXA promotes the establishment of a disciplined internal control environment throughout the Group, ensuring in particular that: – Group strategy, operational objectives, reporting lines with subsidiaries and accountability for executing objectives are clear,
– Formal guidelines are in place for its businesses and operations (the Compliance
– AXA employees have the resources they need to operate. The corporate Human Resources Department has implemented processes for assessing and monitoring AXA employees, as well as providing training and development opportunities.
Each year, the Group’s principal operating business units present the following information for each of their business segments (property/casualty insurance, life insurance, asset management, banking), with a rolling three-year outlook: – analysis of business strategies and entity positioning, – quantitative targets (revenues, expenses, profitability, productivity and quality indicators) based on a central set of economic forecasts,
– description of corresponding action plans, including HR and IT systems aspects,
– specific information depending on the Group’s priorities – Ambition 2012.
AXA’s Management Board maintains ongoing relationships with all of these BUs through its BSD (Business Support Development) organization, which reports back to Group management on key projects being considered or under way at business unit level.
BSD officers also sit on local boards of directors and are involved in major BU projects, such as acquisitions, partnerships and restructuring.
Executive Committee In carrying out its duties, the Management Board is assisted by an Executive Committee, whose composition reflects the Group’s structure. It consists of: – the members of the Management Board, – the major executives of the Group’s business unit.
In 2006, the following transversal issues were examined in detail: – the status of Ambition 2012 initiative, – the new businesses and their contributions to the profitability of life activities, – the “accumulator” type business’
During the actual review meeting, the Management Board compares the actual business and performance of each business unit with the targets set out in the budget and in the annual target letter. The business unit’s performance is also assessed based on the market trends, the competitive environment and regulatory issues. In this way, quarterly business reviews enable the Management Board to monitor operations on a regular basis.
Finally, the Executive Committee meeting is the venue for discussion on actions that need to be taken to optimize Group operations.
By internal departments Risk Management Department The role of Risk Management is to identify, quantify and manage the main risks to which AXA is exposed. To this end, the Risk Management Department develops and deploys a number of risk measurement, monitoring instruments and methods, including a set of standardized stochastic modeling tools.
When appropriate, this work leads to the implementation of decisions that affect the Group’s risk profile, helping to reduce the volatility of AXA’s earnings through improved understanding of the risks taken and to optimize capital allocation.
A central team, Group Risk Management (GRM), supported by local risk management teams within each operating unit, coordinates Risk Management for the Group. The types of risk covered include operating risks, asset and liability risks, and asset/ liability mismatch risks. The principal control processes that fall under the responsibility of the Risk Management unit are described below: – the local Risk Management Department carries out regular reviews of the technical reserves established by property-casualty and reinsurance operating units. The GRM performs regular reviews of models followed throughout the Group in order to ensure the consistency between actuarial and financial standards,
– the central Risk Management Department conducts a decentralized review of riskadjusted pricing and profitability for new products prior to launch,
– the asset/liability management policy in place at operating unit level is monitored and controlled through an annual detailed analysis of asset/liability matching. This work is undertaken to validate the strategic allocations of invested assets. In addition, a quarterly reporting process is used to monitor portfolio developments and detect deviations from strategic asset allocations as well as with respect to benchmarks determined with asset managers,
– economic capital is estimated annually for each product line and operating unit and then aggregated at the Group level. This is one of the main uses of the stochastic modeling tools developed and implemented by the Group Risk Management Department. This work enables asset, liability and operational risks to be modeled together,
The involvement of AXA Cessions in the Life reinsurance of AXA operating units is growing. As of today a minority part of the Group’s Life reinsurance cessions are handled through AXA Cessions as per the Property & Casualty process described above.
Internal Audit Several years ago, the Group Internal Audit Department set up a risk-based planning system for local internal audit teams based on the RAM (Risk Assessment Model) system. The aim of the RAM system is to identify each company’s risk exposure and evaluate the internal audit systems that have been adopted in order to prevent and/or limit the risks impact.
Determining the main risks faced by a business is a crucial part of the internal audit planning process. It ensures that internal audit assignments focus on those most at-risk areas.
– AXA Group Solutions offers AXA subsidiaries shared IT support application solutions that are consistent with the Group’s general strategy,
– the IT departments of local operating companies develop and maintain the software used in the business. 20% of them also manage their own IT infrastructures.
Group IT works through the Transversal Officers (TOs) to ensure adequate reporting at Group Management level on strategic or large-scale projects. The TOs report on implementation status of Group IT strategy as well as the status of large projects to the Group COO and CFO and maintain ongoing relationships with all key operating units.
Group Program Department The Group Program Department is responsible for monitoring and reducing business continuity risks. It defines continuity standards for both operations and IT systems, and monitors their implementation at operating unit level. It has put in place a crisis management structure designed to cope with major discontinuity threats and incidents. The Management Board approves the Business Continuity Management policy, and is kept informed of the implementation status.
Group Customer Care and Distribution Department The Customer Care and Distribution Department works closely with subsidiaries of the Group in three areas: marketing, quality of service and distribution. Its three priority missions are described below: – support Group strategy and develop a set of shared methods, such as the program conducted with AXA subsidiaries on service quality, the deployment of a methodology known as Customer Value Management, and the identification of significant sources of growth,
– develop a set of key performance indicators for use at the group level and define local benchmarks, with the aim of measuring Group performance in terms of customer and distributor satisfaction, as well as customer retention and distribution network performance,
Group Legal Department (DJC - Direction Juridique Centrale) The Group Legal Department is responsible for identifying and managing the legal risks to which the Group is exposed. It provides expertise on all significant corporate legal issues at the Group level and ensures the legal security of operations undertaken by the Group or its executives. The DJC monitors significant litigation and regulatory procedures, and directly manages some of them involving AXA or its executives. The DJC also helps draft business critical standards and procedures, some of which being described below (anti-money laundering, Compliance Guide, off-balance sheet commitments monitoring, Group corporate governance standards, Group beneficial ownership policy).
The Group’s main operating units have their own legal departments. Their role is to ensure the security of operations at the local level as well as its compliance with local law. The DJC coordinates local legal
departments and does preliminary work on decisions that impact or concern the Group.
Anti-money laundering and Anti-fraud procedures AXA is strongly committed to the fight against money laundering in all of its business locations. The Group’s anti-money laundering strategy is set out in a set of guidelines that has been approved by the Management Board and Supervisory Board and distributed widely within the Group.
The Group monitors internal frauds reported by entities on a semi-annual basis. The Group Internal Fraud Officer organizes annual training days for local Fraud Officers. In 2006, a group led fraud review was conducted in the group’s major entities.
Monitoring of financial commitments Financial commitments are monitored as part of the consolidation process, under which each subsidiary transmits information to the PBRC (Plan Budgets Résultats Centrale).
COLLATERAL, SECURITIES, PLEDGES AND GUARANTEES These commitments are governed by the Supervisory Board’s internal regulations, which set an authorized annual limit, along with limits for each type of commitment.
They are also subject to a specific procedure. The DJC and the DCFG are responsible for supervising these commitments and in particular for analyzing their legal nature, arranging their prior validation by management, and monitoring their execution. Most of these commitments are granted to subsidiaries and relate to loan guarantees on behalf of other Group entities or third parties.
The DCFG is organized in such a way as to separate the responsibilities of the team in charge of initiating derivatives transactions from those of the team in charge of controlling related risks. This team is in charge of publishing detailed set of reports, allowing consolidating and controlling interest rate and foreign exchange exposures. Furthermore, derivative transactions are valued on a daily basis by the Group, through an integrated trading, risk and operations management software.
Whenever a hedging strategy is implemented, the DCFG is in charge, if needed, of establishing the necessary documentation and efficiency testing for the hedging instruments’ classification.
AXA remains constantly vigilant regarding contractual documentation clauses that may be binding on the Group. This helps monitor that the Group is not exposed to default or early repayment clauses that may have a material adverse effect on its consolidated financial position.
In addition, the Finance Committee validates the risk analysis methods, measurement standards and action plans that allow the Group to maintain a solid financial position. It also determines the scope of action of the Management.
MONITORING GROUP AND SUBSIDIARY CAPITAL ADEQUACY Local solvency regulations Each subsidiary’s Finance Department is responsible for producing regulatory information and for liaising with local regulators.
Consolidated solvency The Group is subject to regulations that require additional monitoring for insurance companies. Consequently, the PBRC Department calculates an adjusted solvency margin on the basis of the Group’s consolidated financial statements. This information is transmitted to the ACAM (the French insurance industry supervisory Commission).
LIQUIDITY RISK MONITORING AND MANAGEMENT The liquidity risk is managed by AXA’s various operating units. The DCFG monitors this risk at the consolidated level, carrying out standardized measurements of the maturity of resources available to each local operating unit that may carry a significant risk. To this end, the DCFG has devised formal principles for monitoring and measuring resources, along with liquidity risk management standards.
The Group Financial Communications Department coordinates relations with analysts and with AXA Group investors.
Communications and Sustainable Development The Communications and Sustainable Development Department defines the Group policy and monitors its roll out worldwide in terms of internal communications, press relations (policy, tools and support), sustainable development, communications to individual shareholders and corporate philanthropy. It has the needed resources to release accurate, time sensitive and reliable information and to manage the image impairment risk. In addition, it ensures that information flows smoothly and is shared throughout the Group. To achieve this aim, it uses a variety of media, including but not limited to, a global electronic messaging system, internet and intranet, document databases, periodic in-house publications, and relies on its internal correspondent network and information processes.
The Group’s scale, along with its focus on sustainable development, the increasing interest shown by governments in selling practices, and the fact that inadequacies have been revealed on several occasions, has prompted the Group to increase the resources it allocates to controlling the quality of its marketing methods and selling practices.
Evaluating corporate governance structures The Supervisory Board and some of its specialized Sub-Committees use regular self-assessment as a means to improve performance. The procedures used to evaluate the Supervisory Board and its Committees are described in the first section of this report. The Supervisory Board evaluates the Management Board through its ongoing supervision of the latter’s management of the Group.
Organization and resources AXA’s internal audit organization is structured around a central Internal Audit Department that coordinates and supervises the Group’s overall internal audit system, and internal audit teams set up within Group subsidiaries. The central department operates mainly through: – functional management of internal audit teams within operating units, – strategic internal audit assignments.
Audit Department also has a direct link with AXA’s Audit Committee, serving as its Secretary, and has a direct and regular contact with the Chairman of the Committee.
Local internal audit teams are placed under the responsibility of a Director, who reports directly to the local Chief Executive Officer or CFO, and also to the local internal audit committee. These local teams have functional reporting ties to the Group’s Internal Audit Department.
Scope of operations The Group Internal Audit team fulfills its responsibilities in two ways: – It coordinates internal audit teams, which entails establishing internal audit directives and standards, planning the work done by local teams, evaluating that the relevant riskbased approach is used, monitoring the quality of work and compliance with recommendations, ensuring that adequate resources are made available to internal audit teams. The Group Internal Audit Department monitors on an annual basis the internal audit teams’ performance indicators and also periodically reviews the quality of the work done,
– It carries out strategic internal audits, which are intended to determine whether the local unit management is effectively fulfilling their planning, organizational, governance and supervisory roles.
Administration and management The Group Internal Audit Department complies with a set of guidelines approved by AXA’s Management Board and Audit Committee. Group Audit is working with certain teams to establish a regional approach to audit coverage, in line with business structures. In selected regions Group Audit is sponsoring the development of more centralized audit management tools.
AXA Way In 2002, AXA launched AXA Way, its continuous process improvement program designed to optimize customer service quality, increase market share and develop distribution. A central unit, at Group level, is in charge of managing a common methodology, defining standards, setting up global targets, tracking and monitoring the projects. This unit is also responsible for training local AXA Way teams.
Local operating units develop AXA Way projects with the support of an AXA Way Leader, and the sponsoring of a local Chief AXA Way Officer (who is also a member of the Executive Committee). While these projects are carried out on the basis of the aforementioned Group method, it is sufficiently flexible and can be adapted to take local issues into account.
Self-assessment (scorecards) Self-assessments (scorecards) are carried out regularly in areas that are keys to the Group’s business (IT security, IT governance, property-casualty insurance, distribution, etc.).
“Scope” survey to the Group’s employees Since 1993, AXA has conducted periodic surveys that encourage employees to express their views on what it is like to work for AXA. Survey findings are communicated to all AXA employees, and serve as the basis of a formal dialogue with management that leads to the development of targeted action plans. A summary of the process and action plans are reviewed by the Management Board. In 2002, the Scope survey process became an annual event.
Major incident reporting system In accordance with the AXA Compliance Guide, all AXA employees may anonymously submit any concerns they may have regarding issues related to accounting, internal control, auditing or fraud. All AXA employees have the option of speaking with their supervisor, or with a representative of their HR, Legal or Compliance Department or the Group Legal Department. Alternatively, they may wish to submit their complaint directly to the Chairman of the Audit Committee via a dedicated fax number.
Monitoring audit recommendations All audit assignments generally culminate in a report with a set of recommendations for the audited unit or business. All Internal Audit teams in the Group report the major findings and action plans to their local executive management and their local Audit Committee.
The Audit Committees in the Group play a strong role in monitoring the plans, staffing
Principles The PBRC (Planning, Budgets, Resultats Centrale) Department within the Group Finance Department is responsible for consolidation, management reporting and control over financial and accounting information. It works with local PBR units within the finance departments of Group subsidiaries. PBRC Policies and procedures exist to ensure that adequate monitoring and supervision take place at the decentralized locations.
– Downstream of the consolidation and audit process, it is responsible for reviewing financial and accounting information produced by subsidiaries, and for reviewing and checking the various outputs, including the Document de Référence,
– It is also responsible for monitoring and resolving technical issues specific to the holding company and the entities.
The consolidation system is managed and updated by a dedicated team. Financial accounting data that comply with the Group’s accounting standards and that reflect consolidation rules under IFRS accounting standards are entered into the system locally.
Group accounting standards, which are consistent with accounting and regulatory principles for consolidated financial statements, are set forth in the Group Consolidation Guidelines. Updated regularly by PBRC experts,
these guidelines are submitted to AXA’s statutory auditors for review and validation before being made available to AXA subsidiaries.
• all additional information to the notes and published in the Group’s interim and annual report,
– the analysis of results, shareholders’ equity and the main balance sheet items,
In all cases, the procedures are those described above, along with close collaboration with the External Auditors, which generally work as follows: – All changes in accounting standards are anticipated in collaboration with AXA’s accountants and its statutory auditors and implemented after approval adopted by the internal accountants as well as the statutory auditors,
– The main audit issues are addressed and resolved in the phase prior to accounts closing through closing meetings with local and central auditors and local and central finance teams,
Other information Along with work relating to the preparation of financial statements, the PBRC Department produces monthly activity reports, quarterly profitability reports and one half-year and two full-year sets of forecasts for internal use, and consolidates the financial data contained in the budget and the strategic plan. The PBRC team and the independant auditors identify risks and validate the proposed accounting principles and accounts closing options, working on both annual and half-year financial statements.
By implementing the aforementioned structures of corporate governance and human resources, as well as the internal departments, procedures and standards described above, AXA has acquired an internal control system that is adapted to the risks of its business.
Report of the Statutory Auditors, prepared in compliance with the Article L.225-235 of the French Commercial Code, on the report prepared by the Chairman of the AXA Supervisory Board pertaining to the internal control procedures relating to the preparation and treatment of financial and accounting information
This is a free translation into English of the statutory auditors' report issued in the French language and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
The executive compensation policy aims at: – attracting, retaining and motivating the best talents, – driving superior performance,
It follows 3 guiding principles: – compensation competitiveness on international markets, – internal equity, based on individual and collective performance, – financial ability to pay.
Executive compensation includes a fixed and a variable component. The fixed component is targeted to fall within the lower quartile of the market. The variable component is tied to AXA’s global performance, local performance, and the attainment of the executive’s individual objectives, weighted to reflect his or her level of responsibility. The variable portion is
Present Short-term Medium-term Long term Future 1 year 2-4 years 4-10 years
designed to represent the principal component of the executive’s annual global compensation such that, in the case of successful attainment of the objectives, the compensation levels of AXA executives will be in the top two quartiles of the going market rate.
(€2,500,000 in 2006) and includes three components: – Group performance, as measured by underlying earnings, P&C revenue and new business contribution in Life,
The amounts awarded to the Chairman of the Management Board as variable compensation demonstrate the genuine variability of this pay component: Real Target Variable compensation for the year 2000 paid in 2001 €1,381,373 €1,750,000
Variable compensation for the year 2006 paid in 2007 €3,064,149 €2,500,000
(e), i.e. the fixed component paid in 2006 (a), the variable component earned in 2006 and paid in 2007 (including expatriation allowances paid in 2006) (b), any directors’ fees paid in 2006 (c) and benefits in kind for the year 2006 (d);
This table also enables comparisons between compensation earned in respect of 2006 and that paid in 2005 and 2006.
Compensation of the Supervisory Board members Directors’ fees paid to Supervisory Board members The members of the Supervisory Board do not receive compensation, with the exception of a fee for attending meetings. The amount of directors’ fees paid to AXA’s Supervisory Board members is indicated in the table below on Supervisory Board members.
Retirement and pre-retirement pension payments The Chairman of the Supervisory Board (Mr. Claude Bébéar) has received during the year 2006 a total amount of retirement pension of €433,766.
Claude Brunet), and the representative of the employee shareholders at the Supervisory Board (Mr. Jacques Tabourot) participate, as all other executives of AXA Group companies in France, to a supplementary pension scheme pursuant to article 39 of the Code Général des Impôts.
This scheme, which exists since January 1st, 1992, has been modified with effect from January 1st, 2005.
The new scheme has been approved by the Supervisory Board on December 22, 2004, after having been presented for advice to all work councils and central work councils during the last quarter of 2004.
The amount of the supplementary pension aims, for a minimum executive seniority of 20 years, at achieving a global pension equivalent to: – 40% of the average remuneration of the past 5 years preceding the retirement date, if this average is superior to 12 annual Social Security ceilings; – 50% of the average remuneration of the past 5 years preceding the retirement date, if this average is inferior to 8 annual Social Security ceilings; – 2.4 Social Security ceilings + 20% of the average remuneration of the past 5 years preceding the retirement date, if this average is between 8 and 12 annual Social Security ceilings.
Reduced rates apply for an executive seniority of less than 20 years. As an example, with 10 years executive seniority, the supplementary pension allows to reach a global pension equivalent to 34% instead of 40%. This rate is reduced to 20% for an executive seniority of 5 years, and no supplementary pension is paid for an executive seniority of less than 5 years.
Mr. Christopher Condron, member of the Management Board and employee of AXA Equitable in the United States, benefits from a contractual supplementary pension arrangement providing for a payment at the age of 65 of an annual pension equivalent to 2% of his annual gross remuneration per year of service within the AXA Group.
The financing of this scheme is ensured by an employee contribution of 4% of fixed salary, and a contribution by AXA Belgium in order to guarantee the capital due at age 65.
Termination provisions The French members of the Management Board of AXA (Messrs Henri de Castries, François Pierson, Denis Duverne, Claude Brunet) benefit, as all other executives of AXA Group companies in France, from the regulations provided for under the Agreement of March 3, 1993 signed by the Fédération Française des Sociétés d’Assurances (F.F.S.A.), the Syndicat National des Cadres de Direction de l’Assurance (CFE-CGC) and the Syndicat du Personnel de Direction des Sociétés d’Assurances et de Capitalisation (S.D.A.C.).
Mr. Christopher Condron, member of the Management Board and employee of AXA Equitable in the United States, benefits from a contractual clause stating that in case of termination by the Company for any other reason than cause, he would continue to receive during a period of 2 years after his departure a remuneration equivalent to his fixed salary plus target annual bonus, i.e. currently $5m. Payment of this remuneration would cease as soon as he would resume a professional activity during the 2 year period.
Mr. Alfred Bouckaert, member of the Management Board, benefits from a contractual clause with AXA Belgium stating that in case of termination by the Company for any other reason than cause, he would be given a 24 month notice period. If the notice period is not served, he would receive an indemnity equivalent to 24 month remuneration, calculated on the basis of his fixed salary and variable compensation received during the past 12 months preceding the cancellation of the contract.
For many years, AXA has promoted a stock option program, for its directors, officers and employees in France and abroad, aimed at rewarding their performance and aligning their interests with those of the Group by linking them to AXA’s stock performance over the long term.
To date, AXA has opted to grant subscription options, with the exception of options granted by AXA Financial to certain of its employees, which are purchase options on ADRs.
Individual option grants are approved by the Management Board, with the exception of grants to members of the Management Board, which are approved by the Supervisory Board (acting on the recommendation of its Compensation Committee).
In 2006, options granted to Management Board and Executive Committee members are associated with a performance condition: the last tranche, i.e. 1/3 of the options granted, will be exercisable only if the AXA share price has out-performed the EuroStoxxInsurance index.
The evolution of the AXA share and of the index is measured between the grant date of the options and the exercise date of the last tranche.
– 7,868 purchase options on ADRs granted by AXA Financial at an average price of $34.23 to 7 beneficiaries in the United States.
On December 31, 2006, 6,643 AXA employees outside the United States and 18,827 employees in the United States1 had been granted stock options.
(1) In light of an AXA Financial all-employee stock option program in 2001.
Stock option plans summary AXA Date Date of Total options Number Total options Number of Starting date Expiry date Vesting schedule Exercise Discount Number of options Options cancelled, Balance as of grant the Shareholders granted of beneficiaries granted to beneficiaries of the exercise price euros exercised as forfeited and at 31/12/2006
50% – 22/01/2000 75% – 22/01/2001 100% – 22/01/2002 50% – 22/01/2000 75% – 22/01/2001 100% – 22/01/2002 50% – 10/09/2000 75% – 10/09/2001 100% – 10/09/2002 50% – 30/09/2000 75% – 30/09/2001 100% – 30/09/2002 50% – 20/04/2001 75% – 20/04/2002 100% – 20/04/2003 50% – 20/04/2001 75% – 20/04/2002 100% – 20/04/2003 50% – 07/05/2001 75% – 07/05/2002 100% – 07/05/2003 50% – 26/05/2002 75% – 26/05/2003 100% – 26/05/2004 50% – 26/05/2002 75% – 26/05/2003 100% – 26/05/2004 50% – 09/06/2002 75% – 09/06/2003 100% – 09/06/2004 50% – 09/06/2002 75% – 09/06/2003 100% – 09/06/2004 50% – 18/11/2002 75% – 18/11/2003 100% – 18/11/2004 66% – 05/07/2003 100% – 05/07/2004 50% – 05/07/2003 75% – 05/07/2004 100% – 05/07/2005 50% – 12/07/2003 75% – 12/07/2004 100% – 12/07/2005 66% – 13/11/2003 100% – 13/11/2004
Date Date of Total options Number Total options Number of Starting date Expiry date Vesting schedule Exercise Discount Number of options Options cancelled, Balance as of grant the Shareholders granted of beneficiaries granted to beneficiaries of the exercise price euros exercised as forfeited and at 31/12/2006
NB: the number of options and the exercise prices have been adjusted for the rights issues in relation with the capital increase realised to finance part of the Winterthur acquisition.
Supervisory Board members C. BEBEAR (Chairman) n/a n/a n/a 38,310 11.79 n/a n/a n/a – –
Stocks options granted or exercised by the top 10 beneficiaries Number of options Weighted average price (outside the Management Board) during 2005 granted or exercised (euro)
(a) As part of AXA’s buyout of minority interests in AXA Financial, the outstanding options on AXA Financial ordinary shares were converted into AXA American Depository Shares (ADR) on January 2, 2001.
Grant criterias for performance units are similar to those used for stock options.
The principle of performance units/shares is as follows: – Each beneficiary receives an initial grant of performance units/shares which will be used to calculate the actual number of units/shares that will be definitely acquired at the end of a 2-year acquisition period (3 years for the 2004 performance unit plan), under the condition that the beneficiary is still employed by the AXA Group at that date.
– During each year of the acquisition period, half of the performance units/shares initially granted (one third for the 2004 performance unit plan) is subject to collective performance conditions measuring both the AXA Group performance and the beneficiary’s operational business unit performance, based on predetermined targets.
– The performance targets in 2006 have been for both the AXA Group and the operational business unit: • underlying earnings, P&C revenue and New
As far as performance shares are concerned: – Shares that are definitely acquired at the end of the acquisition period are restricted from sale during a 2-year period.
The amounts corresponding to Performance units are charged to expenses each year under the variable accounting method, but do not create any dilution for shareholders since no new shares are issued.
The first performance unit plan was launched on March 26, 2004 and 1,037,116 performance units have been initially granted to 2,554 beneficiaries in and outside France.
A second performance share plan was launched on March 31, 2006. A total of 892,958 performance shares have been granted to 1,186 beneficiaries in France.
(a) Performance shares granted as a replacement for 250,306 Performance Units 2004 cancelled. (b) Restricted shares granted as a replacement for 143,630 Performance Units 2004 cancelled.
NB: 1,206 shares have been acquired further to the decease of beneficiaries in 2005 and 2006.
Performance units/shares initially granted to the top 10 beneficiaries (outside the Management Board) during 2006
Performance units/shares grants for the Management Board members are: Performance Units Plan 2004
Initial grant Units Units Units Units Balance at Acquisition Date Units actually at stake at cancelled at acquired at 31/12/2006 Date Units granted granted 31/12/2006 31/12/2006 31/12/2006 acquired
Initial grant Shares / Units Shares / Units Shares / Units Shares / Units Balance at Acquisition Date Shares / Units actually at stake at cancelled at acquired at 31/12/2006 Date Shares / Units granted granted 31/12/2006 31/12/2006 31/12/2006 acquired
– – 108,255 21/04/2007 – – – 43,304 21/04/2007 – – – 23,489 21/04/2007 –
Shares / Units Shares / Units Balance at Acquisition cancelled at acquired at 31/12/2006 Date Shares / Units 31/12/2006 31/12/2006 acquired
Number of shares and number of units of mutual funds owned as of December 31, 2006
At the Supervisory Board meeting on February 21, 2007, acting on the recommendation of the Compensation Committee meeting of February 20, 2007, set forth guidelines for share ownership applicable to members of the Management Board.
Each member of the Management Board is required to hold a certain number of shares based on his annual compensation (fixed + target variable).
– For the other members of the Management Board: ownership of shares worth at least twice their total annual compensation.
Management Board have five years from their nomination date, to achieve compliance with these levels.
By virtue of the authorization granted by the shareholders at of the Annual General Meeting of April 20, 2005, the Management Board increased share capital, as provided for by the French Ordonnance of October 21, 1986, in one offering, through the issue of shares to employees of the Group under the Shareplan 2006 program. The shareholders waived their preferential subscription rights so that this offering could be made to employees.
In the countries that met the legal and tax requirements, two investment options were proposed in 2006: – the traditional plan, available in 31 countries, – the investment leverage plan, offered in 32 countries.
(versus 33.7 million euros in December 2005); – 323.7 million euros in the investment leverage plan (versus 270.6 million euros in December 2005).
A total of 15.5 million new ordinary shares were issued, each with a par value of 2.29 euros. These shares began earning dividends on January 1st, 2006.
As of December 31, 2006, AXA employees held 4.98% of the Group’s outstanding ordinary shares and 6.41% of the voting rights. These shares are owned through mutual funds or directly, in the form of shares or ADRs.
Corporate Name AXA Registered principal offices: 25, avenue Matignon – 75008 Paris
All shareholders are entitled to attend these meetings, either in person or by proxy, provided that they show valid proof of ID and share ownership.
If a shareholder has already voted by mail, sent a proxy card or requested his or her admission card or certificate of attendance, he or she may no longer opt for another way of participating in the meeting.
No sale or transfer or ownership completed after the third business day prior to the meeting at midnight (Paris time), nor any other transaction completed after this same date and time, regardless of the means by which it is completed, shall be notified by the qualified intermediary or otherwise taken into account by the company, notwithstanding any agreement to the contrary.
As a consequence of the new measures which have been enforced on January 1, 2007, the bylaws of the Company will be modified during the Shareholder meeting on May 14, 2007.
voting rights in shareholder meetings, as well as the number of shares held by each individual or legal entity.
Notification of statutory thresholds (Article 7 of the articles of incorporation and Bylaws) Any person or entity that directly or indirectly becomes the owner of at least 0.5% of the share capital and/or voting power must notify the Company of the total number of shares held. Notification must be made by certified letter, return receipt requested, within five days of the date on which the shares that allowed the holder to reach or pass said threshold were registered.
This notification must be made whenever an additional 0.5% threshold is reached.
New equity issue reserved for employees of AXA (ABSA) 691,167 10,077,215 1,908,250,088 4,369,892,702
Share capital reduction by cancellation of shares – 19,809,693 – 466,353,090 2,190,434,266 5,016,094,469
New equity issue reserved for employees of AXA 1,866,614 29,455,181 2,192,300,880 5,020,369,015
New equity issue reserved for employees of AXA (ABSA) 656,862 13,327,733 2,206,686,456 5,053,311,984
New equity issue reserved for employees of AXA 15,472,458 339,536,543 2,090,061,928 4,786,241,815
The following table indicates the Company’s fully diluted share capital, assuming that the maximum number of new shares is issued following the exercise of all outstanding stock options, warrants and the free allotment of shares.
Outstanding number Fully diluted capital Ordinary shares issued on February 28, 2007 (a) 2,093,544,381 2,093,544,381
The meeting of holders of the 2014 convertible bonds approved the amendment. Consequently, holders who did not convert their bonds by January 26, 2007, received €16.23 per bond on January 31, 2007. The 2014 convertible bonds are not convertible anymore since January 26, 2007.
Consequently, to fully neutralize the dilutive impact of the 2017 convertible bonds, AXA has purchased from a banking counterparty, for a total cash amount equivalent to the payment proposed to bondholders, call options on the AXA share with an automatic exercise feature. This feature is such that one option is automatically exercised upon each conversion of a convertible bond. Consequently, each issuance of a new share resulting from the conversion of the bond will be offset by the delivery by the bank to AXA (and subsequent cancellation) of an AXA share; The issuance of a share in respect of the conversion of the bond and the cancellation by AXA of the AXA share received will offset each other. As a result of this transaction, there will no longer be a change to the outstanding number of AXA shares created by the convertible bond conversion.
Subordinated convertible bonds from February 17, 2000 Number of bonds 6,646,524
– at the option of the issuer, in cash, from January 1st, 2007 at a price with a gross 6.00% actuarial yield, if the Company’s share average over 10 consecutive days is above 125% of the anticipated repayment price,
– at any time, at the option of the issuer, at 269.16 euros if the number of bonds in circulation is below 10% of the number of bonds issued.
Description of the company’s own shares buyback program to be submitted to shareholders’ approval on May 14, 2007
defined in Article L.225-197-2 of the French Commercial Code, in connection with the provisions of Articles L.225-197-1 et seq of the French Commercial Code, c) holding or tendering such shares later in payment or in exchange, especially in connection with potential external growth acquisitions, in compliance with the market practices accepted by the AMF, d) remitting shares during the exercise of rights attached to bonds with an immediate or future claim on shares of the Company, e) cancelling some or all of these shares for the purpose of optimizing cash management, return on equity and earnings per share, subject to shareholders approval of the thirteenth extraordinary resolution hereinafter, which authorizes this cancellation, and/or, more generally, f) performing all operations in compliance with the laws and regulations in force.
Share buyback program submitted to shareholders approval on May 14, 2007
Type of securities Maximum % of share capital Maximum number Maximum purchase price as of February 28, 2007 of shares (per share)
(a) 10% of share capital less the % of shares held by subsidiaries and self-held shares.
AXA will not go above the 10% maximum threshold of its share capital directly and/or indirectly owned.
Number of shares purchased since the beginning of the program 20,544,447
To the best of the Company’s knowledge, the table below summarizes its capital ownership and voting power as of February 28, 2007: Number of shares Capital ownership Voting power (a)
As of February 28, 2007, Mutuelles AXA (AXA Assurances IARD Mutuelle and AXA Assurances Vie Mutuelle), owned 14.26% of the share capital and 20.66% of the voting power.
To the best of the Company’s knowledge, the only other shareholder owning, as of February 28, 2007, more than 5% of the share capital is BNP Paribas, with 5.78% of AXA’s share capital.
In addition, the Company decided to disclose whenever any of its shareholders surpasses the 2% equity ownership threshold. To the best of the Company’s knowledge, none of its shareholders owned more than 2% of AXA’s equity capital on February 28, 2007.
Number Capital Number Voting power Number Capital Number Voting power Number Capital Number Voting power of shares ownership (%) of votes (%) of shares ownership (%) of votes (%) of shares ownership (%) of votes (%)
Agreement with BNP Paribas On December 15, 2005 and after authorization on June 29, 2005 by the AXA Supervisory Board, the AXA Group (AXA and its subsidiaries) and the BNP Paribas Group entered into an agreement that replaces the one in force since September 12, 2001 (and amended on October 26, 2004).
Agreement with Schneider On May 15, 2006, and after authorization on December 21, 2005 by the AXA Supervisory Board, the AXA Group (the AXA Mutuelles, AXA and its subsidiaries) and the Schneider Group entered into an agreement that provides for the maintenance of minimal cross-shareholdings. Under the terms of this agreement, the AXA Group undertakes to hold at least 2,583,300 shares of Schneider stock and the Schneider Group undertakes to hold at least 8,816,681 shares of AXA stock. The number of shares held under this cross-shareholding agreement will be adjusted as needed to reflect the impact of capital transactions, including but not limited to free allotments of stock or share tenders involving the same company (stock splits, business re-combinations, etc.). In addition, the parties have consented to a reciprocal repurchase option in the event of a hostile takeover attempt on either AXA or Schneider.
In force for a period of one year as of the date of signature, this agreement is renewable automatically for successive periods of one year thereafter, unless one of the two parties decides to terminate beforehand, in which case it is required to give three months notice prior to the next renewal date.
The details of these agreements are available on the internet site of the AMF (“Autorité des Marchés Financiers”): www.amf-france.org
Fiscal year Distribution Number of Net dividend Tax credit Dividend Gross dividend (in euro shares (as per share per share eligible for per share millions) of December 31) abatement in euros in euros in euros in euros
(a) Proposal submitted to the Extraordinary and Ordinary Shareholders’ Meeting to be held on May 14, 2007. (b) As of January 1, 2005 individual shareholders who had elected tax domicile in France were eligible for an abatement of 50% on the dividend, i.e 0.305 euro per share for fiscal year 2004.
AXA determines its dividend policy on the basis of its adjusted earnings, and currently intends to distribute 40 to 50% of that sum on a recurrent basis. The dividend presented to the approval of the shareholders of AXA is proposed by the Management Board and Supervisory Board, which have the discretion to propose this dividend at each year-end closing.
The authorizations to issue securities that were valid at December 31, 2006 are summarized in the tables below: Issues with preferential subscription rights
Capitalization of reserves, earnings or premiums – 1 billion (a) 26 months June 20, 2007
Shares reserved for employees – 150 million 26 months June 20, 2007
(e) At the date of the Shareholder Meeting of 04/20/2005. (f) At the date of attribution of the options by the Management Board.
They will be submitted to the shareholders on May 14, 2007: Issues with preferential subscription rights
Ordinary shares and other securities granting a claim to shares of the Company at maturity through subscription, conversion, exchange, redemption, presentation of a warrant or other (d) 6 billion (b) 1.5 billion (c) 26 months July 14, 2009
Restricted shares / Ambition 2012 Plan (e) – 0.7% of share capital (f) 38 months July 14, 2010
(a) Independant ceiling. (b) The face value of debt instruments associated with the issue of securities may not exceed the global upper limit of 6 billion euros. This upper limit is separate and distinct from the amount of the securities that give the right to grant debt securities (ceiling of 2 billion euros). (c) The face value of the capital increase may not exceed the global upper limit of 1.5 billion euros. (d) Including the issue of ordinary shares or securities for up to 10% of the share capital in accordance with the terms and conditions determined by the shareholder meeting, in the event of a public offer initiated by the Company, in consideration for contributions in kind for up to 10% of the share capital, or as result of a securities issue by subsidiaries of AXA.
(e) Existing shares and/or issued shares. (f) At the date on which restricted shares are granted by the Management Board.
Pursuant to Article 222-7 of the AMF General Regulation, the Annual Information Document below mentions all the information published by the Company or otherwise publicly disclosed in the course of the last 12 months, in one or more states that are party to the Agreement on the European Economic Area (EEA) or in one or more countries outside the EEA for the purpose of abiding by its legal or regulatory disclosure obligations pertaining to financial instruments.
Information published for the last 12 months Sources of Information (Internet links etc…)
AXA announces the successful completion of its euro 4.1 billion capital increase to finance part of the Winterthur acquisition (07/11/2006)
Philippe Donnet is appointed Group regional Chief Executive Officer of the AXA Japan & Asia-Pacific region (08/16/2006)
AXA to acquire Alpha Insurance – Long term bancassurance agreement with Alpha Bank (10/16/2006)
AXA to hold today an investor conference “On the road to Ambition 2012” (10/18/2006)
AXA announces the successful completion of its first mortality risk securitization transaction (11/13/2006)
AXA calls meetings of holders of each of its 2014 and 2017 convertible bonds to insert in their terms and conditions a final conversion date (12/27/2006)
AXA has eliminated the dilutive impacts of its 2014 and 2017 convertible bonds (01/12/2007)
AXA: very strong full year 2006 performance – Winterthur Group: results for the year 2006 (US Gaap) (02/22/2007)
AXA and BMPS join forces in the Italian bancassurance and pensions market (03/23/2007)
Notice to the Shareholders. Increase of the share capital in cash with preferential subscription rights maintained (06/16/2006)
Notice to the holders of convertible bonds 2.5% 2014 and 3.75% 2017 (les “Convertibles bonds”). Increase of the share capital with preferential subscription rights maintained (06/19/2006)
Extract of the minutes of the Management Board of 06/12/2006 regarding the increase of the share capital (06/19/2006)
Decision of 07/07/2006 regarding the increase of the share capital (08/04/2006)
Extract of the minutes of the Supervisory Board of 10/11/2006 regarding the new Management Board (11/09/2006)
Ordinary and Extraordinary General Meeting – May 4, 2006 A copy of the “BALO” dated March 17, 2006 containing the Notice of Meeting
A copy of the convening file sent to the shareholders as well as all documents at the disposal of the shareholders (D133 and D135)
Disclosure of trading in own shares by the Company April 10 to April 13, 2006
Documents published abroad (20-F / 6-K) www.sec.gov Form 6-K for April 2006: Press release issued on May 11, 2006 by AXA, announcing its activity indicators for the first quarter 2006
Free Translation of AXA’s French Document de Reference for the year ended December 31, 2005 filed with the AMF (the French stock exchange regulatory authority) on April 13th, 2006
Press release issued on June 14, 2006 by AXA announcing the signing of a definitive agreement to acquire Winterthur
Notice issued on June 21, 2006 by AXA to all U.S. holders of AXA ordinary share options and AXA ADR options describing the effect on such U.S. holders of the recently announced capital increase and suspension of the right to exercise AXA ordinary share options
Form 6-K for October 2006: Press Release issued on October 12, 2006 by AXA, announcing the appointment of Alfred Bouckaert to the AXA Management Board
Form 6-K for January 2007: Press Release issued on January 4, 2007 by AXA, announcing its sale of Winterthur US Property and Casualty Operations to QBE Insurance Group
Form 6-K for February 2007: Press Release issued on February 1, 2007 by AXA, announcing its 2006 activity indicators
Documents pertaining to the Company may be consulted at: AXA Legal Department 21, avenue Matignon – 75008 Paris (France): – The articles of association; – The reports and other documents prepared by any expert at the Company’s request, any part of which is included onto or referred to in this Annual Report (Document de Référence); – The parent company financial statements as well as the consolidated financial statements for each of the two financial years preceding the publication of this Annual report (Document de Référence).
Special report of the Statutory Auditors on regulated agreements and commitments
Agreements and commitments authorized during the 2006 fiscal year: In accordance with Article L.225-88 of the French Company Code, we were informed of the agreements and commitments that were subject to the prior approval of your Supervisory Board.
to terminate beforehand, in which case it is required to give three months notice prior to the next renewal date.
Agreements and commitments approved in prior fiscal years that remained in force in 2006: Pursuant to the Article R-225-31, we were informed that the following agreements, approved in prior fiscal years, remained in force in 2006: With France Telecom AXA Technology Services (as the Principal), AXA (as the Guarantor) and France Telecom entered into an agreement on December 15, 2003, after the Supervisory Board granted its authorization on December 10, 2003. This agreement entrusts the management of all AXA Group communications networks worldwide to a single global provider, and contains a clause committing to expenditures totaling approximately 280 million euros over the term of the agreement (six and a half years starting from July 1, 2003). It also provides for a contract performance guarantee from AXA to France Telecom on behalf of AXA Technology Services, the amount of which is capped at 50 million euros, and the term of which is the term of the aforementioned agreement.
With the BNP Paribas Group On December 15, 2005 and after authorization on June 29, 2005 by the AXA Supervisory Board, the AXA Group (AXA and its subsidiaries) and the BNP Paribas Group entered into an agreement that replaces the one in force since September 12, 2001 (and amended on
The new agreement maintains the existing provisions in terms of minimal and stable crossshareholdings (the AXA Group undertakes initially to hold at least 43,412,598 shares of BNP Paribas stock; the BNP Paribas Group undertakes initially to hold at least 61,587,465 shares of AXA stock; these amounts will be adjusted thereafter to reflect the impact of capital transactions, including but not limited to free allotments of stock or share tenders involving the same company (stock splits, business re-combinations, etc.), and capital increases involving either BNP Paribas or AXA), and also provides for a reciprocal repurchase option in the event of a hostile takeover attempt on either AXA or BNP Paribas.
The Company is the holding company for AXA, a worldwide leader in financial protection. Based on available information at December 31, 2006, AXA was one of the world’s largest insurance groups, with consolidated gross revenues of €78.8 billion for the year ended December 31, 2006. AXA is also one of the world’s largest asset managers, with total assets under management as at December 31, 2006 of €1,315 billion, including assets managed on behalf of third party clients in an aggregate amount of €689 billion. Based on available information at December 31, 2005 and taking into account banking companies engaged in the asset management business, AXA was the world’s 5th largest asset manager1.
In today’s globalized and complex world, AXA believes that people feel a greater need for protection against the risks they face. This is why AXA describes its business as “Financial Protection” and seeks to provide customers with advice and solutions to accompany them throughout their lives.
The business of Financial Protection covers all of the Group’s activities and includes life and savings insurance, property and casualty insurance, asset management, assistance and liability. It also includes AXA’s personalized approach to its customers: AXA seeks to accompany clients throughout their lives, managing their risks, both personal and business-related, and assets.
AXA believes that improvement in service quality will increase customer satisfaction. AXA considers that in-depth knowledge of its customers needs at key stages of their relationship with AXA will foster quality of service.
AXA’s sustainability and profitability are related to its expertise in three areas: risk underwriting, claims handling and asset and capital management. These skills allow AXA to offer adapted-priced products to its customers while generating adequate returns.
To improve quality while keeping a firm control of costs, AXA is trying to simplify and adapt its processes and organization. In claims handling, costs are limited by tight control over information technology expenditure, measures to reduce claims leakage and anti-fraud initiatives. Going forward, AXA plans to develop its procurement policy to leverage its size to reduce costs and improve customer service through its service partners.
AXA’s strategy focuses on Financial Protection, the development of three core business lines, Life & Savings insurance, Property & Casualty insurance and Asset Management, and a targeted presence in the world’s main markets. In fulfilling this strategy, the Group favors a balance between acquisitions and organic growth.
Goodwill and other related intangible impacts (24) (13) (13) (41) (41)
(d) Underlying earnings correspond to adjusted earnings excluding net realized capital gains attributable to shareholders. (e) Adjusted earnings represent the net income (group share) before: (i) The impact of exceptional operations (primarily change in scope, including restructuring costs related to a newly acquired company during the considered accounting period), ii) Goodwill and other related intangible impacts, and (iii) Profit and loss on financial assets accounted for under fair value option (excluding assets backing contract liabilities for which the financial risk is borne by the policyholder) and derivatives related to invested assets (including all impacts of foreign exchange including the ones related to currency options in earnings hedging strategies, but excluding derivatives related to insurance contracts evaluated according to the “selective unlocking” accounting policy).
(a) Transfer (in 2006 only) of reinsurance activities formerly led by AXA RE to AXA Liabilities Managers (recorded in “Others”), following the sale of AXA RE activities to Stone Point Capital.
(c) Includes revenues from other activities (mainly commissions and fees on mutual funds sales). (d) Winterthur represents €87,328 million of total gross insurance liabilities, of which €34,800 million in Switzerland.
In the Life & Savings segment, AXA operates primarily in Western Europe (including France, the United Kingdom, Germany, Belgium and Southern Europe), the United States and Japan. In addition, AXA offers investments and savings, and life and health products in other countries, such as Australia and New Zealand, but also in Asia (notably Hong Kong, Singapore, and China), in Europe (including the Netherlands, Luxembourg, Switzerland and Turkey) and in the Middle East. The products in these markets are offered through various distribution channels, including exclusive agents, salaried sales forces, brokers and independent financial advisers, and bank networks. See the “Distribution channels” section below.
– changes in regulations that may affect the policy charge structure relating to commission and administrative charges.
(a) Annual Premium Equivalent (APE): Measure of new business volume. Represents 100% of regular premiums + 10% of single premiums, in line with EEV methodology. APE is group share. (b) New Business Value: The value of new business issued during the current year consists of the Value In Force of new business at the end of the year plus the statutory profit result of the business during the year.
products and the need for advisory related services. In addition, the global economic growth fuelled the demand for wealth management services.
The integration of the European markets, the opening of emerging markets in Asia and Central and Eastern Europe, and regulatory changes in certain countries toward more transparent tariffs and fees, intensified the competition level, reduced development prospects and hindered profitability.
The table below presents the main Life & Savings insurance markets in which AXA operates ranked by worldwide gross revenues in 2005, along with AXA’s estimated ranking (by market share).
LIFE & SAVINGS Based on worldwide gross revenues in 2005 Country Statistics (a) AXA (b)
For more detail on markets please refer to the “activity report” section.
In France, AXA organization is driven by clients: individual customers on the one hand (approximately 8 million customers), and commercial clients on the other hand, (approximately 200,000 companies). AXA has developed a segmented approach to customer relationship based on the category of clients, using specific scoring tools to retain clients with high added value as well as to enhance crossselling.
In the United States, AXA targets primarily affluent and emerging affluent individuals such as professionals and business owners, as well
as employees of public schools, universities, not-for-profit entities and certain other taxexempt organizations.
In the Belgian market, in 2006, approximately 50% of the households had at least one insurance or banking product with AXA1.
In 2006, various initiatives were implemented throughout the AXA Group to improve retention and increase value of AXA customer base. These initiatives include a cross-selling strategy, pro-active direct marketing campaigns and dedicated call centre teams.
In France, scoring tools have been developed in order to have specific marketing approaches based on the category of clients to meet the customer expectations. As a consequence, AXA, in France, has strongly committed itself toward its distribution channels to help them improve customer relationship and enhance their client service level, increasing for instance exclusive agent support with dedicated customer service platform.
Quality of Service stands at the core of AXA Belgium strategy; concrete actions to become “best in class” have been initiated in 2006 and will be pursued to become the “Preferred Company”.
In Germany, AXA’s redesign of the underwriting process aimed at establishing a cycle time within AXA underwriting departments of maximum 4 days for 93% of all application forms1. AXA believes this improvement was perceived positively by AXA clients.
Targeting mass affluent customers and retirees As a result of the market opportunities opened by regulatory changes, the ageing population, increasing risk aversion, and economic expansion, AXA has decided to focus more specifically on certain segments of individual customers, including mass affluent individuals and retirees. In addition, specific approaches to markets were pursued depending on local and historical context wherever it was seen as opening opportunities.
In Germany, within life and health, AXA has identified the medical sector as a strategic target with a profitable and affluent customer group. Special tariffs and product features are designed according to the particularities of this target. Moreover, a specialized tied agent organization with a separate label “Deutsche Ärzteversicherung” gives AXA a preferred access to this customer group.
AXA’s Life & Savings products include a broad range of investments and savings, and life and health products marketed to individuals and commercial clients, the latter in the form of group contracts. The Life & Savings products offered by AXA include term life, whole life, universal life, endowment, deferred annuities, immediate annuities, and other investment-based products. The health products offered include critical illness and permanent health insurance products. The types and specificities of the products offered by AXA vary from market to market.
– Universal savings, which is the same as universal life but has no significant death benefit component. See below for a description of universal life products.
Life products include: – Term assurance, which provides a death benefit for a limited period of time.
– Universal life products, which are all unbundled products that include a significant death benefit component. Funds can be invested in unit linked and / or general accounts.
– Immediate annuity products, which are usually single premium products with no previous accumulation period, which promise regular payments for a fixed period of time or over someone’s lifetime.
Mutual funds offered by insurance companies are open-ended funds operated by an investment company, which raises money from its shareholders and invests in a group of assets, in accordance with a stated set of objectives.
Contracts with financial risk borne by the policyholders (unit linked) In general, for contracts with financial risk borne by the policyholders, the investment risk (and reward) is transferred to the policyholder while the issuing company earns fee income from managing the underlying assets. However, there may be certain types of unit linked products that offer guarantees, such as guarantees of minimum living benefits or death benefits.
In the United States, AXA is among the country’s leading issuers of variable annuity and variable life insurance products. Variable annuity and variable life insurance products offer customers the opportunity to invest some or all of their account values in various separate account investment options. A significant portion of the variable annuities sold by AXA offer one or more enhanced guarantee features in addition to the standard return of principal death benefit guarantee. Such enhanced guarantee features may include an enhanced guaranteed minimum living benefits such as GMIB and GMWB. GMIB is the predominant guaranteed minimum living benefit elected by AXA’s customers.
AXA Japan has a long established and leading share of the profitable medical insurance market, through a wide range of products such as Medical Term, Medical Whole Life and Medical Rider. Similarly, in life business, a wide range of term products are purchased by AXA SME clients. Over the past few years AXA’s savings product range has expanded to include a number of new and innovative variable annuities to support AXA’s expansion into the bancassurance market. These products have been developed in collaboration with other companies within the AXA Group (for example, AXA Financial for the “Accumulator” variable annuity).
Fees and charges relating to investment contracts with no participating feature 608 509 417 57,243
TOTAL REVENUES AND LIABILITIES 50,479 45,116 42,344 501,886 Of which: Contracts with financial risk borne
UK “With-Profit” business A participating contract, specific to the United Kingdom and known as the “With-Profit” contract, was offered by AXA Sun Life until 2002. Under “With-Profit” contracts, the policyholders are entitled to receive a share of the profits arising from the invested policyholders’ premiums which includes regular bonuses and terminal bonuses. The regular bonuses are designed to provide a return to the policyholder through a periodic increase in benefits and are credited to the policyholder. Once credited, regular bonuses are guaranteed to be paid at maturity, death or as otherwise specified in the policy. Terminal bonuses, which are not guaranteed in advance of payment are designed to provide policyholders with their share of total investment performance and other experience of the fund (including expenses, mortality experience and income taxes) over several periods. Terminal bonuses can represent a significant portion of the total amount paid at maturity or upon surrender prior to maturity and are at the discretion of the board of directors.
Following policyholder and court approvals, in 2001 AXA Equity & Law underwent a financial reorganization whereby the life insurance funds were transferred to AXA Sun Life and fundamentally restructured. A portion of the assets that accumulated over the years (which we refer to in this Annual Report as the “inherited estate”) were attributed to AXA as the shareholder, less a portion allocated to the “With-Profit” policyholders in the form of a reorganization bonus, based on the number of eligible policyholders that elected in favor of this plan.
AXA distributes its products through exclusive and non-exclusive channels that vary from country to country. Exclusive channels include exclusive agents, salaried sales forces and direct sales including mail, telephone and internet. Non-exclusive channels include brokers, independent financial advisors, aligned or wholesale distributors and partnerships including financial, especially banks, and non financial such as car dealers.
Exclusive agents are individuals or firms commissioned by a single insurance company to exclusively sell its products on its behalf. Tied agents are a typical example of exclusive agents.
Direct marketing relates to all sales made through mail, telephone, and internet.
Partnerships are sales agreements between an insurance company and another company from the financial services industry, especially banks, or from another industry such as car dealers. The insurance company and its partners might be involved in a jointventure.
AXA also takes into account the characteristics of each local market. For instance, the Belgian market is dominated by bank-insurers. As a result, AXA has developed a multi-channel distribution strategy relying mainly on three distribution channels: its own network of bank agents acting as brokers, brokerages and its small exclusive insurance agent’s network. AXA also diversifies its distribution through partnerships.
In France, the salaried sales force is the main contributor to the individual business, whereas brokers are mainly distributing group products. In 2006, to attract professionals and mass affluent customers, AXA reinforced its dedicated life specialist tied agents sales force. This channel continued to grow at a fast pace in 2006 and contributed to approximately 10% of individual savings premiums. AXA increased agent support with dedicated customer service platform. AXA continues to reinforce its links with independent financial advisors whose development outperforms the market. This channel contributed to 10% of individual savings premiums.
In the United States, AXA distributes products directly to the public through financial professionals associated with AXA Advisors and AXA Network. These financial professionals also have access to and can offer a broad array of products and services from unaffiliated insurers and other financial service providers. AXA also distributes its annuity and life insurance on a wholesale basis through AXA Distributors to third-party national and regional securities firms, independent financial planning and other broker-dealers and banks. In the past few years, AXA has focused on the expansion of the planner channel, a fast growing independent financial advisor distribution channel. AXA continues to implement a comprehensive approach toward this channel through increasing staff, continued product innovation, enhancing services and increased frequency and quality of the contact.
In Australia, AXA has developed a diversified distribution capability, including owned advice practices (ipac, Tynan Mackenzie and Monitor
In July 2006, AXA Hong Kong launched a pilot of the new “Network” distribution channel.
“Network” is a semi aligned channel targeting middle tier advisers. It represents a first step for AXA Hong Kong toward introducing a dealership practice model alongside its existing agency force. AXA Advisers, a leading non-bank salaried channel in Hong Kong, continued to be one of the highest productivity salaried channels in Hong Kong. AXA is now building AXA Financial Planning, a salaried financial planning team targeting the wealth management needs of local small and medium-sized enterprises.
BASED ON GROSS WRITTEN PREMIUMS Agents, salaried Intermediaries / Other networks, IN 2006 salesforce, direct sales independent advisers / including, corporate and marketing brokers partnerships and bank networks
(a) Based on APE. (b) Gross written premiums under IFRS overweight the share of agents, salaried salesforce and direct sales and marketing in the United Kingdom.
BASED ON GROSS WRITTEN PREMIUMS Agents, salaried Intermediaries / Other networks, IN 2005 salesforce, direct sales independent advisers / including, corporate and marketing brokers partnerships and bank networks
(a) Amounts reported for the US operations exclude lapses and institutional assets backing contracts with financial risk borne by the policyholders (Unit-Linked) (€347 million in 2006).
Changes induced by the Fourgous law in France have led to a marginal increase in the surrender and lapse rate as it gave the opportunity to policyholders to switch their Life & Savings contract backed by the general account to a unit-linked contract while retaining the fiscal benefits of their previous contract.
In the United Kingdom, the simplification of pension legislation (A day) in 2006 encouraged policyholders to take the opportunity to review their product holdings. This led to an increase in surrender rates in pension products, resulting in an increase in the total surrender and lapse rate from 8.9% in 2005 to 12.0% in 2006.
The in force portfolio in the Western European markets where AXA operates is mainly composed of investment and savings products with discretionary participation features, generating an investment margin linked to the spread, expressed in basis points, between investment returns and returns credited to policyholders.
Due to its strategic orientation toward mass affluent customers, fee-based business represents a growing share of the new business, especially with the development of unit-linked products. AXA believes that the profitability of this business is mainly dependent on the levels of reserves that are driven by sales volumes and returns on financial markets.
The level of costs is an additional factor that drives value. AXA considers that enhancing operational efficiency is key in order to deliver value to shareholders and to be able to offer price competitive products to its customers. Procurement is actively contributing to the overall level of savings, while controlling supplier risks and securing quality of service. For instance, in Germany, various initiatives were launched in 2006, aimed at continuously improving operational efficiency, ranging from tighter procurement policy, smoother and more stable operational processes through reengineering, and improvements in efficiency for information technology (IT) resources usage. AXA Germany was distinguished by an external benchmark1 as a top 5 best practitioner in the IT cost control. In Japan, AXA’s earnings are strongly driven by fees and revenues notably due to the strong presence in the profitable medical insurance market. Reinsurance, predominantly internal, is being increasingly used to manage the innovative guarantees developed as part of the variable annuity products. In Australia / New Zealand, by operating across the value chain, AXA aims to capture margin at each stage. For financial advice, clients pay either a fee for service or a product-based commission. For wealth management products, platforms and asset management, clients pay fees based on asset values, along with some fixed administration charges. Aligned advisers pay for support services provided by AXA through a combination of fixed and variable dealer service fees. A range of initiatives was implemented to improve business process efficiency, notably through migrating processes to AXA Business Services (offshore facilities in India). For instance, on-going IT costs are being reduced through a phased migration to lower cost infrastructure and through software vendor rationalization.
In the Swiss market, AXA should gain a leading position (Winterthur was # 2 in Life & Savings in 20052), supported by a network of approximately 1,500 tied agents.
The acquisition of Winterthur should reinforce AXA # 4 Belgium market position in a concentrated market, the 5 major players accounting for 75% of the market1.
In the United Kingdom, AXA expects to benefit from Winterthur’s access to the growing high net worth market and a range of retirement and investment solutions with an innovative open charging structure distributed via top tier advisers. AXA believes that Winterthur’s commercial benefits’ business provides an industry-leading solution for the employee benefits’ market. In total, AXA believes that Winterthur could increase AXA’s new business market share. The aggregation of Winterthur and
AXA also expects to gain access to Winterthur’s high growth pension operating platforms in Central and Eastern Europe, in particular in Poland, the Czech Republic, Hungary and Slovakia.
(1) Source : AXA, estimate based on 2005 data. (2) Source : AXA, estimate based on 2005 NBI data. (3) Source: “Statistics of Life Insurance Business in Japan, 2005” published by Insurance Research Institute (April 2005 to March 2006).
AXA’s Property & Casualty segment offers a broad range of products including motor, household property and general liability insurance for both personal and commercial customers, targeting mainly small to medium sized companies, and in certain countries health products1. The Property & Casualty segment accounted for €19.8 billion, or 25% of AXA’s consolidated gross revenues for the year ended December 31, 2006 (2005: €18.9 billion or 26% respectively).
(1) For historical reasons, some countries classified health insurance in the Property & Casualty segment, while other countries classified it in the Life & Savings segment. AXA chose to comply with local classification.
(b) Winterthur represents €9,525 million of total gross insurance liabilities, of which €4,760 million in Switzerland.
For the ten-year loss development of the Property & Casualty claims reserves, see Note 14 included in the consolidated financial statements. Key ratios for Property & Casualty operations are presented in the activity report.
In the Property & Casualty segment, AXA operates mainly in the main Western European markets, including France, Germany, the United Kingdom, Belgium and Southern Europe (Italy,
The nature and level of competition vary among the countries in which AXA operates. AXA competes in each of its Property & Casualty products and geographic markets with other insurers. In Western European countries, a large proportion of customers hold one or more Property & Casualty products. Overall, the Property & Casualty insurance industry tends to be cyclical with surplus underwriting capacity leading to lower premium rates. Throughout 2006, the market cycle softened, which means that competition tends to increase pressure on insurance price. Many customers became very price-oriented when looking for a new insurer.
– Changes in regulations, which may affect premium rates charged or claims settlement costs paid.
PROPERTY & CASUALTY Based on worldwide gross revenues in 2005 Country statistics (a) AXA (b)
(a) Source: Swiss Re, Sigma report 2006 “World insurance in 2005”. (b) Source AXA, mainly based on national insurance association data for each specific country. (c) United Kingdom, including Health, but excluding Ireland. (d) Portugal, including health.
For a description of the customer base in the Property & Casualty segment, please refer to the “Customer relationship” section in the Life & Savings segment.
In the Property & Casualty segment, AXA believes that development of value should take three directions: development of individual offers that build on objective socio-demographic characteristics and recorded behavior, crossselling to enhance customer loyalty and added value, and growth in the SME market.
In Germany, AXA concentrates on special initiatives for customers with low risk profiles and offers a number of targeted group products. In 2006, AXA introduced rebates for motor customers which have no records of traffic infringements. Besides an innovative product offer, AXA benefits from a good service quality in terms of claims handling as well as widespread local organization with competent contact persons for sales partners leading to strong customer satisfaction1.
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 table below sets forth consolidated gross revenues and gross insurance liabilities by major product for the periods and as at the dates indicated.
PROPERTY & CASUALTY INSURANCE Gross revenues Gross insurance SEGMENT Years ended December 31, liabilities 2006 (a)
8 year-old cars and household insurance products for renters. In commercial lines, development is focused on the liability and construction business, as well as some niche products, relying on the expertise of teams and quality of processes. Priority is also put on services enabling AXA to strengthen client loyalty such as prevention pacts in motor and liability, through, for instance, AXA Prévention, a non profit organization, which encourages more responsible driving manners and other concrete actions to contribute to lowering the car accident frequency. AXA France pursued the development of service offerings to small and medium-sized enterprises such as crisis management, and developed service commitments such as claims payments in less than 72 hours.
In Germany, AXA launched, in retail motor, a dual product offer in 2002 focusing on both price sensitive and service-oriented customers, which has allowed AXA to grow steadily since then. Targeting SME customers, AXA introduced, in 2006, a flexible product, Profischutz, a combined property and liability product that adapts to the needs of the client company by choosing the appropriate components. AXA has also launched a new combined accident and care annuity product solutions, a unique market mix.
In Southern Europe, AXA believes that it should distinguish itself in the market by developing innovative services and products such as: in Spain, access to best European surgeons for a car accident victim and launch of a new motorbike product combined with an affinity club membership, based on the Club 14 offer in France. In motor, a “pay as you drive” offer, which is based on GPS technology, has been developed in Italy. AXA spurs cross-selling initiatives such as in Spain, aiming at taking advantage of its strong motor portfolio by increasing the proportion of clients with comprehensive motor coverage, at an improved tariff and with lower commissions. In Portugal, insurance prices are frozen during 3 years for clients without claims, aiming at improving client retention.
AXA distributes its Property & Casualty insurance products through a number of channels that vary from country to country, including exclusive agents, brokers, salaried sales forces, direct marketing (mail, telephone or internet sales) and banks and other partnerships including car dealers. In Europe, the same distribution channels are used by both AXA’s Life & Savings operations and Property & Casualty operations. For a description of the distribution channels, please refer to the “Distribution channels” section in the Life & Savings segment.
In Southern Europe, exclusive networks are strongly developing, owing to organic growth initiatives including mass training of agents and advertisement for the direct channel, as well as external growth such as acquisition of new agencies.
AXA’s Property & Casualty operations use various types of reinsurance, primarily to limit their maximum exposure to catastrophic events, environmental pollution risks and certain other types of risks. A growing portion of AXA’s Property & Casualty insurance exposures are ceded internally to AXA Cessions, which organizes external reinsurance programs. Total gross premiums ceded by AXA’s Property & Casualty operations to third party reinsurers in 2006 was €1,004 million (2005: €935 million).
AXA believes that long term profitability of the main Property & Casualty businesses including motor – individual and commercial – and household, which are “short tail” businesses, is driven by the difference between premium income for assumed risk and the actual cost of claims, reflected by the loss ratio. In addition to loss experience, AXA considers that profitability is sensitive to the expenses related to contract acquisition and policy management.
On these mass markets, price evolutions are mainly driven by the demand side. Besides, AXA believes that the ability to transfer risks to an external capacity reduces the volatility of the earnings and improves the overall profitability of the business. Therefore, AXA’s ability to share the volatility of its portfolio with the financial markets through securitization should be profitable in the long run.
In the United Kingdom, AXA’s 24.5% share in the healthcare market1 gives it purchasing power for claims settlement to achieve higher profitability. Claims restructuring has continued, focusing on process and system improvements, delivering a reduction in leakage rates. The United Kingdom branch transformation program has better aligned distribution capacity to the existing geographical market spread, and has eased efficiencies.
In the Property & Casualty segment, AXA expects that the acquisition of Winterthur will give AXA a leading and profitable position in the Swiss market (in 2005, Winterthur was # 1 in Property & Casualty with a market share of
In addition, AXA believes that the Winterthur acquisition will enable it to consolidate its position in three key European countries: In Germany, the aggregation of Winterthur and AXA’s market positions would have placed the combined company in the fourth position with a market share of 5.6%2. AXA expects also to gain access to the Civil Servants market via Winterthur’s DBV brand. For the targeted group of medical practitioners, AXA believes that Winterthur will help AXA to reach the leading position in the Property & Casualty market.
In Spain, The aggregation of Winterthur and AXA’s market positions would have placed the combined company in the # 2 position2 (versus # 3 for AXA alone).
(1) Source: AXA. (2) Source: AXA, estimate based on 2005 data.
The businesses of the International Insurance segment at the end of 2006 are described below. The International Insurance segment accounted for €3.7 billion, or 5% of AXA’s consolidated gross revenues for the year ended respectively).
AXA Assistance provides assistance services including medical aid for travellers, automobile-related road assistance, home assistance and health-related services mainly to banking and insurance companies, tour operators, telecommunication operators, gas, water and electricity utilities and automobile manufacturers. AXA Assistance has also developed its expertise in the market of home services and, in France, distributes “Chèque Emploi Service Universel” (CESU) to businesses, local authorities and unions.
AXA Corporate Solutions Assurance. After several years of rate increases and restructuring of large corporate insurance programs, underwriting conditions in the large risk insurance market softened in 2005 and 2006. In 2006, this trend was also assisted by lack of a major natural disaster. In Property & Casualty insurance, AXA Corporate Solutions Assurance revenues grew significantly in 2006, pursuing its development in the property insurance business by targeting risk managed accounts in selected trade sectors. Growth in revenues was also due to the development of construction business. In the marine and aviation markets, despite pressure on price, growth outlook remained positive in 2006 considering the ongoing increase in air traffic worldwide and the booming shipping industry. AXA believes that AXA Corporate Solutions Assurance ranks among the top 5 large European insurance companies.
AXA Assistance has enjoyed a steady profitable growth since 2003 and has outperformed its traditional competitors. However, new businessto -consumer players specialized in specific markets with different competitive advantages were gaining ground on traditional assisters. As a consequence, AXA Assistance chose to diversify in home services, a fast growing market due to a variety of factors including an ageing population, a higher standard of living, an increasing proportion of working women and tax incentives.
AXA Assistance applies its know-how to both emergency and daily services and health management through a new range of health products and health claims management. AXA Assistance has developed its expertise in managing crisis situations, whether they are of a political nature, health-related or linked to natural disasters. In July 2006, AXA Assistance repatriated 1,103 people from Lebanon to Paris in less than 24 hours.
Also, in 2006, approximately €664 million were placed externally by AXA Cessions on behalf of AXA’s insurance subsidiaries (2005: €717 million).
AXA Corporate Solutions Assurance. Profitability of the written business is driven by the difference between premium income for assumed risk and the actual cost of claims, which is measured by the loss ratio. The loss ratio is sensitive to the occurrence of large claims, especially in the property and aviation lines of business. Thus, the ability to partly transfer risks to an external capacity reduces the volatility of AXA Corporate Solutions Assurance earnings. To a lesser extent, the loss ratio is also dependent upon price cycles which can be of higher amplitude than in personal insurance markets. In addition to loss experience, profitability is also driven by the level of expenses related to contract acquisition, as well as policy and claims management. Long tail business (i.e. liability and construction) is sensitive to asset yields, and its contribution to earnings depends partly on the pace of growth.
The table below sets forth the total assets managed by AllianceBernstein and AXA Investment Managers, including assets managed on behalf of third parties, and the fees earned by these companies on these assets for the indicated dates and periods.
AXA ASSET MANAGEMENT SEGMENT 2006 2005 2004 Assets managed by AXA’s asset managers at December 31, (a)
AllianceBernstein provides diversified Asset Management and related services globally to a broad range of clients including: – Management of assets backing contracts with financial risk borne by policyholders (unitlinked ), hedge funds and other investment vehicles for private clients (such as high net worth individuals, trusts and estates and charitable foundations),
– Management of mutual funds sponsored by AllianceBernstein, its subsidiaries and affiliates for individual investors,
AXA Investment Managers (“AXA IM”) AXA IM is a key player in the international Asset Management business. AXA IM provides its clients with a wide range of global products and expertise via mutual funds and dedicated portfolios. AXA IM’s clients include (i) institutional investors, (ii) individual investors to whom products are distributed through AXA and external distribution networks, and (iii) AXA’s insurance subsidiaries both for main fund and unit-linked fund backing insurance products.
AXA IM’s worldwide growth is reflected in the set up of new subsidiaries in 2006 in Qatar, the Netherlands and Japan.
Revenues of asset managers stem from fees on assets under management. The revenue growth is driven by, on the one hand, the volume growth through client attraction and retention, market performance, optimal expertise scalability and higher net inflow and, on the other hand, by margins through innovation, value added performance products that sustain the overall margin and optimal focus on key markets and regions as well as value added client segments.
AXA Bank Belgium, a subsidiary of AXA Belgium, offers a comprehensive range of financial services to individuals and small businesses and has a network of approximately 950 exclusive independent bank agents, who also support the sale of products offered by AXA Investment Managers and of insurance products offered by AXA Belgium. AXA Bank is the sixth largest bank in Belgium where the four largest banks represent 90% of the market1.
The number of active current accounts, which is a strong element in linking a customer to the bank, increased by 7.1% in 2006 (CAGR of 9.2% over the period 2003-2006).
AXA Banque’s strategy is to maximize client retention, develop cross-selling and acquire new clients, mainly through product innovation, convenience and service quality of the combined insurance and retail banking offer.
AXA Bank targets private customers, in retail bank, and is an important element of pensions and asset management of AXA Germany. The Bank had approximately 70,000 clients at yearend 2006, representing an increase of 15% compared to 2005. The major activities of AXA Bank are mortgage loans and mutual funds (funds based asset management or safe custody services only). These products are sold exclusively through the tied agent network of AXA Germany.
On May 8, 2006, AXA Asia Pacific Holdings announced it had completed the acquisition of MLC Hong Kong and MLC Indonesia. Each of the two purchases was subject to regulatory approval. Approvals were obtained for both purchases and completion occurred on terms consistent with AXA APH’s February 21, 2006 announcement of the proposed purchase. The purchase price amounted to €340 million.
AXA announced on June 14, 2006, that it had entered into a definitive agreement with Credit Suisse Group under which AXA would acquire 100% of Winterthur for CHF12.3 billion (€7.9 billion) to be paid in cash.
In addition, AXA refinanced CHF1.1 billion (€0.7 billion) of internal loans redeemed to Credit Suisse as of the closing date.
Winterthur’s operations complement and strengthen AXA’s distribution channels and product range, while further increasing AXA’s geographic diversification, by both strengthening its European franchise and increasing its presence in high growth markets.
On December 22, 2006, AXA Asia Pacific Holdings (AXA APH) reached an agreement with AXA SA to acquire Winterthur Life Hong Kong Limited (WLHK). This followed the announcement of the completion of AXA SA’s acquisition of the Winterthur Group from Credit Suisse. AXA APH will acquire WLHK for consideration in the range of HK$1.7 billion to HK$2.4 billion ($AUD 278 million to $AUD 393 million). HK$1.9 billion will be payable on completion. This amount will be subject to an adjustment based on the future performance of the business measured in 2009. AXA APH will be seeking shareholder approval for this acquisition at the Annual General Meeting in 2007. In addition, AXA APH has declined the opportunity to acquire Winterthur’s Indonesian life insurance operations and Japanese operations.
100% of its share capital and will be financed locally. This agreement is an opportunity for AXA Assurance Maroc to reinforce its integration in the AXA Group. Closing of this transaction is subject to regulatory approvals. Upon its completion, AXA Assurance Maroc will be 100% controlled by AXA. As at December 31, 2006, AXA’s ownership interest and voting right percentages in AXA Assurance Maroc were both 51%.
In 2005 On October 31, 2005, AXA Investment Managers (AXA IM) completed the purchase of the Framlington Group Limited. Framlington is an investment management boutique with an emphasis on specialist, high-performance and high-value-added equity investments, and has a significant market position within the UK retail market segment. The purchase price amounted to €303 million, with a related goodwill of €142 million and an intangible asset of €132 million (net of tax).
In 2006 AXA initiated in 2006 a strategic review regarding the future of its reinsurance activity, currently underwritten by AXA RE and reported in the “International Insurance” segment. Following the receipt of a binding offer on April 6, 2006 and consultation with the relevant workers’ councils, AXA announced on June 6, 2006 the signing of a definitive agreement to cede the business of AXA RE to Paris Re Holdings Limited.
On December 21, 2006, AXA completed the sale of AXA RE’s business to Paris Re Holdings, in which AXA had taken a 3.4% stake. Under the terms of the agreement, the business of AXA RE has been ceded to Paris Re Holdings, with the risks and corresponding net income related to AXA RE’s 2006 claims experience accruing to Paris Re Holdings. This transaction generated a capital gain of €66 million net of tax on the business ceded. AXA guarantees the reserves pertaining to losses incurred on or before December 31, 2005. Starting with the 2006 accounts, the accounting results of AXA RE accruing to the AXA Group will mainly comprise the impact of the loss reserve developments on the corresponding run-off portfolio and will be reported in the Other International Insurance segment.
In 2005 On December 2, 2005, AXA Financial Group sold Advest to Merrill Lynch. Advest was a wholly owned subsidiary of AXA Financial Group and part of its Financial Advisory/Insurance segment. In accordance with the terms of the agreement, Merrill Lynch purchased all of the issued and outstanding capital stock of Advest for $400 million in cash. This transaction reduced AXA Financial Group’s goodwill by an estimated €152 million. Total net income impact of the transaction was €–71 million, post tax.
The principal sources of funds for AXA’s insurance operations are premiums, investment income and proceeds from sales of invested assets. These funds are mainly used to pay policyholder benefits, claims and claim expenses, policy surrenders and other operating expenses, and to purchase invested assets. The liquidity of insurance operations is affected by, among other things, the overall quality of AXA’s investments and AXA’s ability to cash out on its investments to meet policyholder benefits and insurance claims as they fall due.
Life & Savings Liquidity needs can also be affected by fluctuations in the level of surrenders, withdrawals and guarantees to policyholders in the form of minimum income benefits or death benefits, particularly on variable annuity business (see “Description of Business – Life & Savings – Surrenders”).
The investment strategy of AXA’s Life & Savings subsidiaries is designed to match the investment returns and estimated maturity of its investments with expected payments on insurance contracts. AXA regularly monitors the valuation and maturity of its investments and the performance of its financial assets. Financial market performance may affect the level of surrenders and withdrawals on life insurance policies, as well as projected immediate and long-term cash needs. AXA adjusts its investment portfolios to reflect such considerations.
Property & Casualty and International Insurance Liquidity needs can be affected by actual claims experience if significantly different from the estimated claims experience (see Note 14.6 to the consolidated financial statements).
Asset Management and Other Financial Services These subsidiaries’ principal sources of liquidity are operating cash flows, proceeds from the issuance of ordinary shares (where applicable), drawings on credit facilities and other borrowings from credit institutions.
At December 31, 2006, AXA’s consolidated balance sheet included cash and cash equivalents of €17.5 billion (2005: €19.5 billion), excluding bank overdrafts of €1.3 billion (2005: €0.8 billion). At December 31, 2006, the parent company’s cash and cash equivalents amounted to €317 million excluding bank overdrafts (€130 million in 2006) versus €320 million as at December 31, 2005.
However, when market practice makes them unavoidable, AXA has a centralized method of monitoring these clauses. AXA is not currently exposed to early redemption clauses that could have a significant impact on its financial structure.
At December 31, 2006, the parent company had outstanding subordinated debt (excluding accrued interests) of €7,862 million, or €7,257 million taking into account a €605 million reduction due to the impact of foreign exchange hedging derivative instruments.
The increase of €490 million, or €609 million increase at constant exchange rates (€119 million favorable exchange rate impact, mainly stemming from dollar-denominated subordinated debt), was mainly due to the fall in the market value of interest-rate swaps, attributable principally to the rise in eurozone variable interest rates.
Movements in these items are described in Note 16 to the consolidated financial statements.
On a consolidated basis, AXA’s total financing debt instruments issued amounted to €3,688 million at December 31, 2006, an increase of €872 million from €2,817 million at the end of 2005. At constant exchange rates, the increase was €1,023 million (exchange rate movements had an impact of €151 million), mainly due to €1,350 million of commercial paper issued by AXA SA, partly offset by AXA Equitable’s early redemption of all of its ClosedBlock Mony debt (€254 million) and associated derivatives (€15 million).
Movements in this item are described in Note 16 to the consolidated financial statements.
Financing debt owed to credit institutions At December 31, 2006, the amount of debt owed by AXA and its subsidiaries to credit institutions totaled €95 million versus €17 million at the end of 2005. The increase of €79 million at constant exchange rates was mainly due to €85 million related to the integration of Winterthur (€75 million at Winterthur Leven NV in the Netherlands and €10 million at Winterthur Life in Switzerland).
Other debt (other than financing debt) Other debt instruments issued At December 31, 2006, other debt instruments issued, excluding Winterthur’s contribution
Other debts by issuance At December 31, 2006 and excluding Winterthur’s contribution (€262 million of bank overdrafts), other debts by issuance (including €1.1 billion of bank overdrafts) totaled €3,734 million of the total amount of debt owed to credit institutions, down €2,443 million compared to end-2005. The decrease was €2,427 million at constant exchange rates, and was attributable primarily to the following items: – A change in the classification of debts relating to securities sold under repurchase agreements at AXA Bank Belgium. As of January 1, 2006, these debts are presented as payables resulting from banking operations instead of debt instruments issued (other than financing debts) and bank overdrafts, resulting in a reduction of €3,242 million.
In the first half of 2006, AXA pursued its share purchase program to control dilution arising from 2005 share-based compensation and the employee Shareplan program and purchased 12.7 million shares for a total amount of €0.35 billion.
The Company is not subject to restrictions on dividend payments, provided that its accumulated profits are sufficient to cover them. However, some subsidiaries, particularly insurance companies, are subject to restrictions on the amount of dividends they can pay to shareholders. For more information on these restrictions, see Note 28.3 to the consolidated financial statements.
In accordance with the practical methods of calculation implemented by AXA by reference to these tests, AXA’s adjusted solvency ratio was estimated at 186% at December 31, 2006 compared to 216% at the end of 2005. The decline resulted mainly from the Winterthur acquisition. The solvency ratio takes into account part of the future profits from life business in force, as allowed by the Directive
The application of these directives in France is governed by the Autorité de Contrôle des Assurances et des Mutuelles (ACAM).
The meeting of holders of the 2014 convertible bonds approved the amendment. Consequently, holders who did not convert their bonds by January 26, 2007, received €16.23 per bond on January 31, 2007. The meeting of holders of the 2017 convertible bonds did not approve the amendment. Consequently, to fully neutralize the dilutive impact of the 2017 convertible bonds AXA has purchased from a banking counterparty, for a total cash amount equivalent to the payment proposed to bondholders, call options on the AXA share with an automatic exercise feature. This feature is such that one option is automatically exercised upon each conversion of a convertible bond. Consequently, each issuance of a new share resulting from the conversion of the bond will be offset by the
The Management Board is proposing a dividend payment of €1.06 per share on May 21, 2007. As of January 1, 2006, this dividend gives rise to a 40% tax credit for individuals whose fiscal residence is in France, equal to €0.424 per share.
In order to make a tangible and measurable contribution to the Group’s activities, Risk Management has three key characteristics: – Pragmatic: focusing on clearly identified priorities.
– Controlling insurance exposures, in particular reviewing Property & Casualty reserves and optimizing reinsurance strategies.
– Identifying and assessing operational risk. – Managing information systems: projection, simulation, risk assessment, consolidation and reporting.
The AXA Group’s Risk Management entities: AXA Cessions and Group Risk Management
GRM, under the authority of the Group Chief Risk Officer, is responsible for defining AXA’s standards as regards risk. This includes developing and deploying tools for assessing and managing risk.
The Risk Management departments of operational entities are managed by local Chief Risk Officers, who report directly to local CFOs. The roles and responsibilities of local Risk Management departments are formally approved by the executive committees of Group entities. These roles and responsibilities comply with the Group’s Risk Management priorities (see section i above) and consist of: – Leading efforts to determine the Economic
Capital of local entities and developing the necessary tools. The Risk Management department performs these tasks using a uniform set of techniques including stochastic models. These modelling techniques allow an assessment of AXA’s risk exposure based on the large number of scenarios examined in this type of approach. These tools complement more traditional deterministic forecasting tools, such as stress scenarios. Besides the specific conclusions for each product line and each unit, these analyses measure the level of assets with respect to the economic capital required to cover a level of assumed risks consistent with an AA credit rating.
– Implementing pre-launch product approval procedures, and in particular reviewing riskadjusted profitability analyses (see section “Pandemic / extreme mortality risk”).
– Reviewing local technical reserves and optimizing entities’ reinsurance strategy (see section “Implementation of the reinsurance strategy Role of AXA Cessions”).
– Hedging of financial risks when they exceed the tolerance levels set by the Group.
All products needed to set up hedging programs involving derivative instruments are designed with the assistance of the Group’s specialist asset management teams (AXA Investment Managers and AllianceBernstein).
– Reinsurance is also used in GMIB (Guaranteed Minimum Income Benefit) products, to mitigate financial risks.
– Exposure analyses are carried out to monitor certain specifically identified risks.
AXA’s exposure to market risk is reduced by its broad range of operations and geographical positions, which provides good risk diversification. Furthermore, a large portion of AXA’s Life & Savings operations involve unit-linked products, in which most of the financial risk is borne directly by policyholders.
could reduce the investment margin if the return on new invested assets is not sufficient to cover contractual interest rates payable to life insurance policyholders.
– 18% of the Group’s life insurance technical reserves cover products without guaranteed cash values upon surrender. • The in-force “With-Profit” policies of
– 12% of the Group’s life insurance technical reserves are related to products offering oneyear guaranteed rates that are updated every year. The risks arising from a sustained fall in interest rates in the financial markets are limited for these types of products, which mainly concern policies in France and collective policies in Japan. Hedging derivatives programs are often implemented to cover long-term bonds from the risk of an increase of interest rates.
Description of Property & Casualty insurance reserves Property & Casualty technical reserves break down as follows.
The obligations of Property & Casualty insurance companies are much less dependent on asset values than those of Life & Savings companies. Consequently, market fluctuations are fully reflected in their net asset value and fully borne by the shareholder. However, longtail activities are more sensitive to movements in financial markets. The principal market risks are as follows: – A rise in bond yields reduces the value of bond portfolios and may lead to a liquidity risk in these portfolios or a real loss of value if the rise in yields is related to a rise in inflation.
– Lower yields on fixed-income investments increase the value of bond portfolios, and therefore generally do not present a material risk, with the exception of certain contracts (disability and worker’s compensation income) that provide guaranteed rates. On the other hand, a prolonged period of low yields would have an impact on the pricing of these products.
– Inflation is a risk, since it increases the compensation payable to policyholders, with the effect that, if it is not adequately taken into consideration, actual claims payments may exceed the reserves set aside. This risk is particularly significant for long-tail businesses.
The investments of Property & Casualty insurance companies are therefore managed so as to optimize the return on assets while bearing in mind both the aforementioned risks and the requirements in terms of regulatory solvency and covering commitments. A large portion of investments is made in liquid bonds, to ensure the payment of exceptional benefits and claims that may arise.
The first consists of defining general ALM organizational principles, allowing the most effective investment strategy. The second involves implementing investment processes and precise governance principles. The third consists of asset management companies applying the investment strategy.
– Implementation of these strategic allocations by insurance companies through the definition of management contracts with asset management companies.
– Tactical allocation and stock selection by asset management companies as part of management contracts.
LONG-TERM OUTLOOK: MODELING AND PROJECTING FUTURE CASH FLOWS Long-term analysis is carried out in order to model commitments resulting from insurance policies and to define asset allocation so that these commitments can be met with a high degree of confidence while maximizing the expected return.
This work is carried out by Risk Management departments (local and central teams) and takes the form of detailed annual analyses that use consistent methods based on deterministic and stochastic scenarios. The aim of these analyses is to maximize the increase in economic value while complying with risk constraints. They are carried out by all significant Group entities, and provide the following information for the main product lines: – The amount of assets needed to meet commitments in a specific proportion of cases depending on risk tolerance (for example, in 99% of cases over 10 years).
– The minimum proportion of assets invested in the local currency taking into account technical commitments denominated in this currency (congruence rule).
GOVERNANCE An Investment Committee, made up of managers from the financial and operational sides of the insurance company and also, in certain cases, representatives of its board of directors, approves investment strategy and assesses the quality of the results obtained.
At Group level, an ALM Co-ordination Committee, supervised by the Group Chief Financial Officer, determines general assetliability management policy guidelines and evaluates the results, which are then submitted to the Management Board and to the Finance Committee of AXA’s Supervisory Board.
All products that involve hedging programs using derivative instruments are designed with the help of dedicated teams at AXA IM and AllianceBernstein. This organization means that all entities benefit from the best possible expertise and a high level of legal and operational security in these transactions, which are sometimes complex.
Market risks: financial risks relating to the management of equity and debt
The Group Central Finance Department produces monthly reporting data that consolidate interest rate, foreign exchange and liquidity exposures, as well as the interest expenses of holding companies. It bases its analyses on reports submitted by subsidiaries, which are responsible for the quality of the data. This consolidated reporting includes mediumterm forecasts.
Together with information about hedging strategies, reporting documents are sent regularly to and validated by the Finance Committee of AXA’s Supervisory Board.
POLICY: the objective is to limit variations in net foreign currency-denominated assets resulting from movements in exchange rates.
ASSESSMENT: exchange rate sensitivity analyses measure the annual change in interest expenses resulting from a 10% appreciation in the euro against all other currencies together with the impact on adjusted net asset value, European embedded value and solvency ratios.
In addition, liquidity is secured by Group standards, particularly through a procedure for tendering eligible assets to the European Central Bank’s tender operations.
MANAGEMENT: liquidity risk is managed carefully and conservatively by keeping a long maturity on financial resources (debts) – mostly subordinated – and by maintaining a large amount of confirmed credit facilities (around €6 billion undrawn at
– AXA holds significant liquidity, amounting to €19.8 billion at December 31, 2006. More than half of this liquidity is managed within the AXA Trésorerie Europe economic interest grouping (GIE), which was specifically set up to centralize management of the liquidity held by units operating within the euro zone. This GIE reflects the solid liquidity position of the Group, since it had an average cash balance of around €13.4 billion in 2006, which was invested in a liquid portfolio with a very short maturity (41 days at end-2006).
– In addition, to deal with any liquidity crises that may arise, the back-up plan to tender eligible assets to European Central Bank tenders would allow around €20 billion to be mobilized, creating a very large alternative source of refinancing.
In the UK, AXA Life is exposed to exchangerate risk solely through its foreign-currency investments in Group companies, which are held in non-profit funds, and through investments held entirely in With-Profit funds. Exchange-rate risk on other investments held in non-profit funds is hedged through foreign exchange derivative instruments.
Companies in the German Life & Savings segment hold some investments denominated in foreign currencies, both directly and indirectly through investment funds, with the aim of diversifying their investments and
In Belgium, AXA Belgium manages a US dollar run-off portfolio, which is fully hedged with investments in the same currency in an amount of around €130 million.
In Germany, AXA Versicherung is exposed to US dollar exchange-rate risk on certain investment funds. It controls and limits its exchange-rate risk by using foreign exchange derivatives (forwards). Remaining exchangerate risk exposure, mainly concerning the pound sterling and the Japanese yen, is incurred for the purpose of diversifying investments.
These five companies account for 78% of the Group’s Property & Casualty companies’ assets.
• JPY456 billion in respect of the activities in Japan, mainly in the form of cross-currency swaps,
• CAD996 million in respect of the Canadian business in the form of cross-currency swaps.
As of January 1, 2007, AXA SA’s activities in Switzerland following the acquisition of the Winterthur Group were hedged in an amount of CHF5 billion.
Embedded Value (EEV) in the Life & Savings business, as described in the “Other financial information” chapter of this document.
Sensitivity of economic value to variations in interest rates and equity markets INTEREST RATES The purpose of these analyses is to estimate changes in the economic value of assets and liabilities in the event of parallel 100-basis-point upward or downward shift in the risk-free bond yield curve in the country in which each subsidiary operates.
As a result, a 10% fall in the equity markets would have an overall negative impact estimated at €2.8 billion.
In the event of a 10% rise in equity markets, the overall positive impact would be €2.8 billion. This breaks down into a positive €1.9 billion effect on EEV in the Life & Savings business and a positive €0.9 billion impact on the fair value of the Property & Casualty business.
Sensitivity to exchange rate fluctuations As mentioned in section “Exchange-rate risk related to the operating activities of Group subsidiaries”, each operational entity has the task of ensuring the congruence between foreign-currency-denominated assets and liabilities. In many countries, this congruence is covered by specific standards issued and monitored by the regulatory authorities.
In 2006, a 10% increase in the euro against all other currencies would have had an approximately €73 million negative impact on AXA’s net income, taking into account hedging, particularly on US dollar movements. The same scenario applied to the end-2005 position would have resulted in a negative impact of €61 million on AXA’s 2005 net income.
Other limitations of these sensitivity analyses include: – the use of hypothetical market movements that do not necessarily represent management’s view of expected future market changes; – the assumption that interest rates in all countries move identically and that all global currencies move in tandem with the euro; – the lack of correlation between interest rates, equity prices and foreign currency exchange rates.
The Group’s insurance activities expose it to various risks with a wide range of time horizons. Natural risks arising from climate change, particularly global warming, are longterm risks to which AXA Group pays close attention. On a more short-term view, insurance risks are covered mainly through procedures governing pre-launch product approval, exposure analyses, the use of reinsurance and the financial markets (catastrophe bonds, mortality bonds) and reviews of technical reserves.
The changing and growing risks caused by climate change and, more specifically, by global warming, represent a major challenge for all human activities and particularly insurance operations.
Global warming is now proven beyond doubt, although experts disagree on its scale, causes and pace. Greenhouse gas emissions are the principal human cause. Very broadly, global warming leads to higher maximum and minimum temperatures, with more hot days (heatwaves) as well as heavier and more frequent cyclonic precipitation events. These phenomena have already been observed and could become more prevalent, albeit to different extents, across almost all land surfaces on the planet.
The latest publications by the IPCC (Intergovernmental Panel on Climate Change) point in the same direction. However, it remains very difficult to estimate the local effect of climate change, due to the large number of local geographical factors to be taken into account (sea currents, reliefs etc.). It is also very difficult to estimate the consequences of extreme events (heatwaves, droughts and floods, high winds and intense precipitation caused by cyclones), which are of particular concern to insurance companies.
Gradual premium rate adjustments will be required to reflect these risk factors, but are not likely to be sufficient on their own. In addition, the increasing damage caused by meteorological events will lead to greater efforts to transfer these risks to the financial markets, such as via European storm catastrophe bonds.
As a result, and as part of its mortality risk management, AXA in 2006 issued a bond on which the redemption amount depends on general mortality thresholds. This instrument was created by AXA Cessions and transformed by AXA Cessions into reinsurance capacity for AXA Group subsidiaries.
Risks relating to new product launches, particularly underwriting, pricing and ALM risks is managed on a gross basis (before taking into account reinsurance), primarily by AXA’s operational entities. These have a set of actuarial tools for this purpose, enabling them to price products and then monitor their profitability over time.
The principal Risk Management tools are as follows: – Pre-launch approval procedures for new products.
– Guarantees and options embedded in the product must be quantified using stochastic methods defined by GRM in order to ensure that they are correctly reflected in pricing. This work also gives a better understanding of any asset-liability mismatch risk and the actual economic capital requirement at the product design stage.
These procedures are intended to ensure that new risks underwritten by the Group have undergone a rigorous prior approval process before the products are offered to customers. This harmonized approach also facilitates the sharing of product innovation within the Group.
Similar methods have been developed for the underwriting of specific Property & Casualty risks, while maintaining the principle of local decision-making based on a documented approval procedure. The profitability analysis framework has been adapted to the Property & Casualty business, and special efforts have been made to formalize the quantitative requirements.
In addition to these exposure analyses, additional studies are undertaken to model life risks (mortality, longevity, dependence etc.).
In the Life & Savings business, therefore, the aforementioned tools allow mortality/longevity risks to be analyzed on a multi-country basis. The AXA Group regularly monitors its exposure to these risks. It uses the results of its work to enhance the structure of its product ranges and its reinsurance coverage.
AXA Cessions. Prior to ceding risks, in-depth actuarial analyses and modeling are conducted on each portfolio by AXA Cessions and GRM to optimize the quality and cost of reinsurance cover. These analyses are performed in collaboration with the technical and reinsurance departments of Group operational entities. They measure frequency risks as well as specific severity risks (natural catastrophe, storms, flooding, earthquakes). They provide guidance for determining the most appropriate reinsurance cover (retention levels and scope of cover) for each portfolio and for each type of risk in accordance with objectives and capital allocation constraints.
market. Most risk is combined at the AXA Cessions level to form an internal Group reinsurance pool.
Additional reserves for incurred but not reported (IBNR) claims, along with reserves not enough reserved (IBNER - incurred but not enough reported) are also booked. Various statistical and actuarial methods are used in these calculations. Calculations are initially carried out locally by the technical departments in charge, and are then reviewed by local risk management teams.
Actuaries in charge of assessing reserves for claims payable do not use a single method but a selection of approaches such as: – Methods based on the development of claims
(paid or incurred) using triangulation methods (e.g. chain ladder and link ratio) for which past experience is applied to each loss occurrence or underwriting year, in order to make reserves projections until their estimated final development.
– Methods based on claims ratios (such as the ultimate claims ratio or the additional claims ratio).
Counterparty credit risk is defined as the risk that a third party in a transaction will default on its commitments. Given the nature of its core business activities, AXA monitors two major types of counterparties, using methods suitable to each type: – Investment portfolios held by the Group’s insurance operations (excluding assets backing separate-account products where risk is transferred to policyholders) as well as by banks and holding companies. These portfolios give rise to counterparty risk through the bonds and derivative products held within them.
At December 31, 2006, the breakdown of the bond portfolio by credit rating category was as follows: Breakdown of the fixed income portfolio by rating at December 31, 2006
At December 31, 2006, the nominal amount of positions taken through credit derivatives was €9.9 billion including €4.3 billion via CDOs.
The breakdown of underlying bonds by rating (resulting from management information) is as follows: Breakdown of CDS by rating of underlying bond
Furthermore, AXA summarizes and analyzes its exposure to all reinsurers by factoring in all positions with reinsurers (claims, premiums, reserves, deposits, pledges and security deposits).
The Group’s top 50 reinsurers accounted for 75% of reinsurers’ share of insurance and investment contract liabilities in 2006. The breakdown of all reserves ceded to reinsurers by rating is as follows, taking into account only the ratings of these top 50 reinsurers: Breakdown of reserves ceded to reinsurers by reinsurer rating at December 31, 2006
(a) Provisions ceded to Paris Re as part of the AXA RE disposal.
Guided by the principles set forth by the Basel Committee on banking supervision, AXA defines operational risk as the risk of loss resulting from inadequate or failed processes, people or systems. This inadequacy or failure may come from internal or external causes.
AXA has classified its operational risks as follows: – Internal fraud.
To comply with Sarbanes-Oxley legislation, AXA adopted a code of professional ethics in February 2004. The code was updated in March 2006. It defines rules for day-to-day professional conduct. Rules defined in specific chapters include those concerning conflicts of interest, transactions involving AXA securities and those of its listed subsidiaries, confidentiality and control of sensitive information, and data protection and storage.
line with this charter, each entity has introduced procedures based on certain general principles, on top of applicable local regulations, and has appointed an anti-money laundering officer. The "know your customer" principle is crucial in this respect, and is fundamental to all transactions. The principle also covers intermediaries. Special attention is paid to transactions involving cash or other equivalent instruments. Procedures are reviewed and adjusted regularly based on experience. In France, a specific organization has been set up to ensure effective co-operation with TRACFIN.
AllianceBernstein and AXA Investment Managers are subject to comprehensive regulations in each jurisdiction in which they operate. The aim of these various regulatory systems is to protect customer assets, to ensure transparent information for customers regarding investment returns and risks, to provide customers with information on the fund manager’s identity and skills and to ensure that the proposed investments fit with the customer’s objectives.
statements in accordance with IFRS, and then reconciles this information with accounting principles generally accepted in the United States (US GAAP). The application of these two methods may lead to some differences. In addition, non-US issuers listed on the NYSE (like US issuers) are subject to the Sarbanes Oxley Act, which was adopted in the USA in July 2002. In particular, the Sarbanes Oxley Act requires that both the CEO and the CFO certify AXA’s consolidated financial statements. It also contains requirements concerning corporate governance and, as of 2006, the annual audit of internal controls on financial reporting. Specialist teams at AXA ensure that the Group complies with these regulations through specific and targeted analyses and reports.
exposure of the AXA Group to the Philips program increased because Winterthur and some of its subsidiaries held a significant participation in Philips program. Philips commenced proceedings in the US seeking a judgement that a US court and not a Dutch court should have jurisdiction over the claim. The US court decision is expected in May 2007. The transfer of the proceedings to US courts would increase the AXA Group’s exposure to this risk.
To the best of the Company’s knowledge and at the current stage of the various lawsuits, none of the lawsuits described above is likely to have a material adverse effect on the business or consolidated financial position of AXA and its subsidiaries taken as a whole. However, AXA’s management cannot currently predict whether these litigations could have a material adverse affect on AXA’s consolidated financial results of operations in any particular accounting period.
Environmental risks are limited because AXA’s core business activities are generally nonpolluting.
AXA Cessions has been appointed to buy certain types of group-wide insurance coverage for risks shared by all entities. These policies, covering directors and officers’ liability, professional liability and fraud, are set out below.
Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of, or indicate, future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and AXA’s plans and objectives to differ materially from those expressed or implied in the forward looking statements (or from past results). These risks and uncertainties include, without limitation, the risk of future catastrophic events including possible future weather-related catastrophic events or terrorist related incidents. Please refer to AXA’s Annual Report on Form 20-F and AXA’s Document de Reference for the year ended December 31, 2005, for a description of certain important factors, risks and uncertainties that may affect AXA’s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise.
France. According to the FFSA, in 2006, the increase in gross written premium has been estimated to 17% (of which PEL +9%) vs. +14% in 2005, explained by a strong increase in gross premiums on unit-linked contracts estimated at 45% (49% in 2005) and by an estimated increase of 9% in general account premiums. In the Life market, AXA ranks third.
United Kingdom.2 New annualized business (new regular premiums plus 10% of single premiums) were 30% higher than 2005 in the year to September 2006. Continued investor confidence, driven by stock market gains, plus the growing popularity of offshore investment vehicles and fund supermarkets, fuelled significant growth in “Wealth Management” markets. The simplification of Pensions Legislation in April 2006 (known as A-Day) and the subsequent reviewing of existing arrangements by individuals, delivered a significant boost to new business for providers active in these sectors (although a proportion of this is thought to be one-off in nature). As a result, Self-Invested Personal Pensions (SIPPs) have developed into a mainstream planning solution. A-Day and ongoing reconstructions of final salary schemes also drove Corporate Pensions growth. “At Retirement” markets received increased attention from providers, including new entrants, attracted by predicted population demographics in the medium to long term. Competitive Protection line volumes were static following premium rate cuts despite ongoing housing market activity. The IFA channel, and slowly emerging multi-tie channel, combined to represent 76% of total market new business.
(1) Please note that the numbers quoted for the market data (life and annuity) are 9M06. (2) Derived from Q1-Q3 2006 figures.
sophistication evolve. The continued positive economic environment has contributed to improved solvency and credit standings of most insurers, restoring previously eroded customer confidence in the industry. Foreign life insurers continued to expand their role in the market. Being one of the most mature insurance markets, Japan continues to be a highly competitive market. Well established and mega domestic insurance companies dominate the landscape. However, attracted by the high margin medical market and bancassurance growth potential, some foreign insurers have succeeded in entering the market. This fragmentation of the market together with the revitalization of the mega domestic insurance companies has led to declining margins. A mid-sized player (10th & 12th in the market based on new business and assets respectively) with a diversified product range and distribution model, AXA Japan is well positioned to profitably grow its market share.
Germany. After the introduction of the German Retirement Earnings Law (“Alterseinkünftegesetz”) in 2005, the market picked up again in 2006. It showed an increase in annuity products and a decrease in endowment products regarding annual premiums for pure life new business (non unitlinked endowments –7.4% to €1.0 billion, non unit-linked annuity products +18.9% to €2.2 billion, unit-linked endowments –7.8% to €0.5 billion, and unit-linked annuity products +60.2% to €1.2 billion). Among business for single premiums, that grew by 25.4% to €11.4 billion, non unit-linked annuity products are still dominating (+45.4% to €5.2 billion), followed by non credit-linked collective insurance (–8.1% to €2.4 billion), bank-like savings products (“Kapitalisierungsgeschäfte”) (+1.6% to €1.4 billion) and unit-linked annuity products (+605.8% to €0.8 billion). New business for “Pensionskasse” (current premiums) decreased by 35.3% to €0.3 billion after losing tax advantages compared to individual pension plans (“Direktversicherung”) that are easier transferable. GWP of pensions funds (Type “Pensionsfonds”) increased by 649.0% to €0.8 billion, which was caused by a single contract in the market in Q4. Also in the future, an ongoing need to replace defined benefit systems is expected to push group life pension products in general. The core products of the Retirement Earnings Law (“Alterseinkünftegesetz”), the “Rürup” pensions, seem to gain acceptance at last. Current regular premiums increased by 59.5% to €0.4 billion (thereof 59.2% unit-linked). In 2006, 2.0 million contracts of the also highly regulated “Riester”products were sold (+78.9%). The current regular premiums increased by 206.5% to €1.38 billion. Premiums were affected by a raised government aid this year which resulted in a significant growth. The regular premiums of cashed-in contracts increased only by 120.7% to €0.78 billion. The development of private health insurance is marked by two influences: on one hand, ongoing difficulties in the public health insurance system continue to push private health insurance. On the other hand, the increases of the income threshold in 2003, fixed by the health reform, complicated the switch from public to private. This is the reason why mainly civil servants and self-employed contribute to the market growth. In consequence, it lowered the market potential for full coverage and resulted in a strong decline of net new inflow for this type in 2006.
Supplementary insurance, however, increasingly meets demand. But the increase in gross written premiums by 4.2% in Q1-Q3 mainly reflects rising premiums per contract. In the Life market AXA ranks eighth with a market share of 4%1 and in Health, AXA is tenth with a market share beyond 3%2.
new product developments are required to sustain business growth. The market downturn in 2006 was spectacular in Individual Life, especially for Non-Unit-Linked market (forecast 2006 –18% compared to +11% in 2005) but also in Unit-Linked products (forecast 2006 +2% compared to +127.5% in 2005).
United Kingdom and Ireland. The UK market has continued to be soft, causing difficult underwriting conditions throughout the market. This has made rating increases and the retention of business difficult. Within Personal Lines, Household and Healthcare have shown significant growth largely due to new business deals. Commercial Lines have seen lower growth due to the ongoing competitiveness in acquiring new business contracts. In Ireland, the
Belgium. The Property & Casualty market 2006 growth rate was fuelled by the introduction of the natural peril coverage. The motor market which represents 34% of total Property & Casualty should grow by 1.3% while household premiums should rise by 5.9% (natural peril). The Workers’ compensation market should confirm its growth pace in 2006 with 3.6% (vs. 3.0% in 2005). In Property & Casualty Corporate, increased competition leads to pressure on average premiums. This is particularly true in Workers Compensation, Household and Motor. AXA continued to rank first in the market.
(1) OCI, September 2006, combining HSBC and Hang Seng (given common ownership). Market statistics must be used with caution, they are not sanctioned or audited and comparisons with previous years do not fully reflect the true trends in the market place.
(2) 3rd quarter 2006, year-on-year % change in real terms. (3) Derived from Q1-Q3 2006 figures.
AXA Corporate Solutions is the AXA Group subsidiary dedicated to Property and Casualty insurance of major European companies, and to Aviation and Marine insurance worldwide. After several years of rate increases and restructuring of large corporate insurance programs, underwriting conditions on large risks insurance market softened in 2005 and 2006. In 2006, this trend was also fuelled by a lack of major natural disasters. In Property and Casualty insurance, AXA Corporate Solutions revenues grew significantly in 2006. AXA Corporate Solutions pursued its development in property insurance business targeting risk managed accounts on selected industry sectors. Growth in revenues was also due to the development of construction insurance. In marine and aviation, one-off elements and negative change impacts explained a decrease in revenues in 2006 after a significant increase in 2005. Despite recent pressure on price, growth outlook remained positive considering an ongoing increase in air traffic worldwide and a booming shipping industry, particularly in Asia. AXA Corporate Solutions is among the top five large corporate risks insurers in Europe.
In 2006, total long-term stock, bond and hybrid fund net inflows were $226 billion for 2006, compared with $192 billion for 2005.
Specifically, stock net inflows increased 16% and bond net inflows increased 95% reflecting the continuing demand for retirement savings products such as life-style funds, asset allocation funds, and target maturity funds. The strong performance of funds investing in foreign stocks and the depreciation of the dollar also continued to attract strong demand for U.S. stock funds investing abroad. In addition, strong market appreciation of +13.6% for the S&P 500 U.S. Equity Index, +13.5% for the MSCI World Equity Index and +15.9% for the MSCI Europe Index increased assets under management. Favorable demographics continue to support industry expansion as financial advisors and planners continue to recommend mutual funds as the primary investment vehicle for retirement plans. A growing theme among investors is to focus on products with income distribution characteristics.
The insurance sector had a solid start to the year with most large companies releasing 2006 earnings that exceeded expectations buoyed by strong equity markets in 2006 partially offset by the continued low interest rate environment, narrowing credit spreads and a flat yield curve. Specifically, life insurance earnings were robust driven by a continued product mix shift toward guaranteed equity products and an expansion in distribution channels. Property and casualty earnings demonstrated resilience again contributing strong earnings to 2006 results. Asset management earnings were a significant contributor aided by strong global equity market performances and higher net inflows.
The global economy slowed down, but it remained robust nonetheless, driven both by the United States and the emerging countriesespecially China, which has once again posted gross domestic product growth in excess of 10% in 2006. In the United States, growth slowed down off slightly in 2006, to around 3.3%, while the Euro zone saw a marked improvement in its economic situation during the year.
Bond markets The 10-year Treasuries climbed during the first part of the year, reaching as high as 5.25% before falling as the economy began to lose steam and the Fed ended its round of monetary tightening. Overall, government bonds performed in barely positive territory, with a marked outperformance of the United States. The performance of indexed bonds was comparable to that of nominals.
Related intangibles amounted to €309 million, of which €115 million of goodwill and €194 million Value of Business in Force (net of tax).
On May 15, 2006, AXA announced the squeeze-out of the minority shareholders of its German subsidiary AXA Konzern AG, whereby it would acquire the 3.2% of AXA Konzern shares it did not already own at a price of €134.54 per ordinary share and preference share. The resolution of the squeezeout was endorsed at the Annual General Meeting of AXA Konzern on July 20, 2006.
AXA proceeded with a squeeze-out of the 0.44% minority shareholding in Kölnische Verwaltungs-Aktiengesellschaft für Versicherungswerte AG (“KVAG”) at a price of €2,042.01 per ordinary share. The principal asset of KVAG was a 25.6% stake in AXA Konzern’s share capital. The resolution of the squeeze-out was endorsed at the annual general meeting of KVAG, held on July 21, 2006. The total investment to reach a 100% ownership in both AXA Konzern and KVAG starting from the situation as at January 1, 2006 amounted to €309 million. A part of this amount remained to be paid in 2007 as the registration of the squeeze out is subject to various procedures according to German law.
In order to further streamline the organization in Germany, AXA Konzern launched in parallel the squeeze-out of the minority shareholders of its listed life insurance subsidiaries. Upon the completion of these transactions, AXA would own directly or indirectly 100% of all its German subsidiaries.
AXA secured the total financing of the acquisition of Winterthur through: – €4.1 billion capital increase resulting in the issue of 208,265,897 new shares (see Capital operations below for more details).
– €3.8 billion of perpetual deeply subordinated note issues (see Capital Operations below for more details)
On October 16, AXA entered into an agreement with Alpha Bank to acquire its insurance subsidiary Alpha Insurance for €255 million. AXA and Alpha Bank signed a long-term exclusive agreement to pursue and strengthen the existing bancassurance partnership. Alpha Insurance is one of the top ten composite insurers on the Greek market with solid positions on profitable segments and a strong distribution network. Alpha Insurance recorded revenues of €151 million in 2005. It will be integrated to AXA’s Mediterranean Region platform upon completion of the acquisition which is subject to regulatory approvals in Greece.
On December 14, 2006, ONA and AXA had entered into an agreement for the buy-out of ONA’s 49% share in the capital of AXA-ONA (the holding company of AXA Assurance Morocco). The transaction values AXA-ONA at MAD 6.382 billion (revised value, €573 million with December 31, 2006 exchange rate) for 100% of its share capital and will be financed locally. This agreement is an opportunity for
AXA Assurance Morocco to reinforce its integration in the AXA Group. Closing of this transaction is subject to regulatory approvals. Upon its completion, AXA Assurance Morocco will be 100% controlled by AXA. As at December 31, 2006, AXA’s ownership interest and voting right percentages in AXA Assurance Morocco are both 51%.
Disposals AXA initiated in 2006 a strategic review regarding the future of its reinsurance activity, currently underwritten by AXA RE and reported in the “International Insurance” segment. Following the receipt of a binding offer on April 6, 2006 and consultation with the relevant workers’ councils, AXA announced on June 6, 2006 the signing of a definitive agreement to cede the business of AXA RE to Paris Re Holdings Limited.
On December 21, 2006, AXA completed the sale of AXA RE’s business to Paris Re Holdings, in which AXA had taken a 3.4% stake. Under the terms of the agreement, the business of AXA RE has been ceded to Paris Re Holdings, with the risks and corresponding net income related to AXA RE’s 2006 claims experience accruing to Paris Re Holdings. This transaction generated a capital gain of €66 million net of tax on the business ceded. AXA guarantees the reserves pertaining to losses incurred on or before December 31, 2005. Starting with 2006 accounts, the accounting results of AXA RE accruing to the AXA Group will mainly comprise the impact of the loss reserve developments on the corresponding run-off portfolio and will be reported in the Other International Insurance segment.
AXA announced on July 11, 2006 the completion of a €4.1 billion capital increase (1 new share for 9 previously held at a price of 19.8 euros per share) to finance part of the Winterthur acquisition, resulting in the issue of 208,265,897 new shares. The settlement and listing of the new shares on the Eurolist market of Euronext Paris took place on July 13, 2006. The new shares are eligible for any future dividend distributions, including the dividend paid in 2007 in respect of fiscal year 2006 earnings.
AXA also placed in October 2006 a tripletranche Australian perpetual deeply subordinated note issue for a total amount of $AUD 750 million (approximately €0.5 billion).
On December 11, 2006, AXA priced a two-tranche US$ perpetual deeply subordinated note issue for a total amount of US$1.5 billion (approximately €1.1 billion) of which US$750 million for the US Dollar Perpetual Deeply Subordinated Non-Call 12 year tranche and US$750 million for the US Dollar Perpetual Deeply Subordinated Non-Call 30 year tranche.
shareholders represented approximately 4.98% of the outstanding share capital as of the end of 2006.
On November 13, 2006, AXA completed its first mortality risk securitization transaction by the implementation through a special purpose vehicle, “OSIRIS Capital plc”, of a €1 billion shelf program in order to transfer mortality risk to the capital markets. This shelf program is a flexible and efficient structure to diversify sources of cover for the Group’s mortality risk exposure by benefiting from the broad capacity of capital markets. In this framework, AXA announced the placement of notes indexed to mortality levels in France (60% of the combined index), Japan (25%) and the US (15%), for a total amount of circa €345 million in four different tranches rated AAA, A-, BBB, BB+.
The meeting of holders of the 2014 convertible bonds approved the amendment. Consequently, holders who did not convert their bonds by January 26, 2007, received €16.23 per bond on January 31, 2007. The meeting of holders of the 2017 convertible bonds did not approve the amendment. Consequently, to fully neutralize the dilutive impact of the 2017 convertible bonds AXA has purchased from a banking counterparty, for a total cash amount equivalent to the payment proposed to bondholders, call options on the AXA share with an automatic exercise feature. This feature is such that one option is automatically exercised upon each conversion of a convertible bond. Consequently, each issuance of a new share resulting from the conversion of the bond will be offset by the delivery by the bank to AXA (and subsequent cancellation) of an AXA share; The issuance of a share in respect of the conversion of the bond and the cancellation by AXA of the AXA share received will offset each other. As a result of this transaction, there will no longer be a change to the outstanding number of AXA shares created by the convertible bond conversion.
In connection with AllianceBernstein’s acquisition of the business of SCB Inc., formerly known as Sanford C. Bernstein, Inc., in 2000, AXA Financial Inc. entered into a purchase agreement under which certain former shareholders of Sanford Bernstein have the right to sell (“Put”) to AXA Financial, subject to certain restrictions set forth in the agreement, limited partnership interests in AllianceBernstein L.P. (“AllianceBernstein Units”) issued at the time of the acquisition.
On March 19, 2007, AXA Holdings Belgium SA reached an agreement with ELLA Holdings Ltd and its main shareholder Royalton Capital Investors to acquire 100% of the Hungarian retail bank ELLA and its affiliates. Originally specialized in on-line banking and today the fastest growing bank in Hungary, ELLA is the 6th largest supplier of mortgage loans in the country with total assets of €375 million. The combination of AXA Hungary’s operations, the 5th largest company in the pensions market; with those of ELLA Bank shall duplicate the successful business model of AXA in Belgium. Completion of this operation was subject to required regulatory approvals.
(a) Net of intercompany eliminations. (b) Including AXA RE. (c) Excluding net realized capital gains and change in fair value of assets under fair value option and derivatives, net banking revenues and total consolidated revenues would respectively amount to €393 million and €78,793 million for the period of December 31, 2006.
Total life New Business APE1 reached €6,234 million, up 13.9% compared to full year 2005. On a comparable basis, Group New Business APE increased by 14.8%. This growth was attributable to all significant countries except Belgium.
France new business APE increased by 14% to €1,231 million with Individual business up 12% and Group business up 21%. Individual business growth was largely driven by unit-linked Investment & Savings up 31% to represent 38% of Individual savings as well as by the 33% increase in individual Life and Health thanks to the successful launch of new products in proprietary channels (Héliade and Prêt-à-Protéger) and new Health offers targeting families and independent workers. Group new business benefited from some large non unit-linked single premiums.
(1) Annual premium equivalent is New regular premiums, plus one tenth of Single premium, in line with Group EEV methodology. APE is Group Share.
Japan APE increased by 16% to €651 million following the growth in individual business (+18% to €627 million), driven by strong sales of Increasing Term products and SPA (saving product), partly offset by the continued declining momentum in LTPA sales. Group business decreased by 26% driven by lower Mutual Aid sales.
In the United Kingdom, new business APE was up 38% to €1,134 million driven by strong growth in Investment & Savings (+55%) largely due to sales of unit-linked investment bond, particularly offshore bonds in the fourth quarter of 2006, following enhancements to the offshore bond products during the year.
Pension business also continued to demonstrate strong growth in the wake of A-day (+29%).
Benelux new business APE declined by 9% due to Belgium APE down 11%, (or –8% excluding the impact of the termination of the distribution agreement with “La Poste” in the second quarter of 2005), mainly due to a decrease in non unit-linked product sales (notably Crest), as a new tax on premiums introduced in early 2006 triggered exceptionally high sales in December 2005 and a significant decrease of the whole market in 2006. Netherlands APE was up 6% notably driven by Group pension business.
Property & Casualty gross written premiums were up 4.9%, or +4.3% on a comparable basis to €19,793 million, mainly driven by United Kingdom & Ireland (+7% to €4,721 million), France (+4% to €5,187 million), Southern Europe (+4% to €3,152 million), Turkey (+20.5% to €507 million), Morocco (+17% to €163 million) and Japan (+20% to €158 million).
Personal lines (62% of P&C premiums) were up 5% on a comparable basis, stemming from both Motor (+4%) and Non Motor (+5%).
Motor revenues grew 4%, mainly driven by Southern Europe up 6%, recording strong net inflows of 293,700 policies owing to the launch of new products, United Kingdom & Ireland up 16%, due to updated pricing strategies and new business growth, Germany up 4%, with net inflows of 157,000 policies, and France up 1% due to positive net inflows (+58,000 new contracts). Japan (+20%) and Turkey (+15%) also contributed to motor revenue growth while in Canada, Motor revenues were down 10% mainly impacted by the 18/24 months policies sold in 2005 leading to less renewals in 2006.
Commercial lines (37% of P&C premiums) recorded a +4% growth on a comparable basis.
International Insurance revenues were down 2.5% or up 7% on a comparable basis to €3,716 million attributable to both AXA Corporate Solutions Assurance and AXA Assistance.
AXA Corporate Solutions Assurance revenues were up 5% or 7% on a comparable basis to €1,689 million, driven by portfolio development in Property and Construction. Such development was achieved through selective new business activity focused on risk managed accounts in targeted industry sectors and despite softening market conditions.
Other transnational activities revenues (including the transfer of reinsurance activities formerly led by AXA RE to “Other Transnational”) were down 15% to €1,351 million, mainly attributable to AXA RE (–16% to €1,217 million) principally due to a decrease in (i) current year gross attritional written premiums, and (ii) gross Major Losses reinstatement premiums all years mainly related to 2005 Major Losses (especially Katrina, Rita and Wilma hurricanes).
Asset management revenues increased by 28% or 29% on a comparable basis to €4,406 million, driven by higher average Assets under Management (+18.5% or 17% excluding Framlington) and strong net inflows (€+17 billion to €73 billion).
AUM increased by €54 billion to €544 billion driven by €38 billion net inflows across all client categories and €72 billion favorable market impact, partly offset by €57 billion unfavorable exchange rate impact.
on a comparable basis, driven by higher average AUM (+16% on a comparable basis), a positive client and product mix evolution, and higher performance fees.
ADJUSTED EARNINGS AND NET INCOME Restated (b) Published Restated (b) Published Gross written premiums 72,099 65,995 65,995 62,152 62,152
Revenues from insurance activities 72,707 66,504 66,504 62,570 62,570 Net revenues from banking activities 393 408 408 402 402
ADJUSTED EARNINGS 5,140 4,281 4,108 3,409 3,342 Profit or loss on financial assets (under fair value option) & derivatives (226) 122 149 416 428
Goodwill and other related intangibles impacts (24) (13) (13) (41) (41)
Profit or loss on financial assets & derivatives and tax impact 428 26 (38) 416
2005 Transfer of foreign TSDI 2005 Published exchange impact reclassification Restated (b)
(a) €–94 million includes €–66 million related to foreign exchange impact on TSDI. (b) Please note that FRS 27 impacts on the statement of income (underlying basis) are not detailed as they are not significant.
Profit or loss on financial assets (under fair value option) & derivatives (226) 122 149 416 428
Underlying earnings (excluding Japan 2005 non recurring items) increased by €484 million on a constant exchange rate basis, mainly resulting from: (i) An improved investment margin
(iv) A lower level of VBI amortization (€+66 million) mainly attributable to Japan (€+100 million), reflecting notably (i) the lower 2006 amortization due to a reduced VBI opening balance and (ii) the impact from actuarial assumption changes, mainly related to mortality (€+38 million).
Property & Casualty underlying earnings improved by €107 million to €1,453 million. This improvement was attributable to almost all countries in particular Canada (€+33 million), Southern Europe (€+23 million), Belgium (€+19 million) and France (€+20 million): (i) A higher net technical result (€+507 million to €6,266 million), with an accounting loss ratio improving by 0.9 point to 68.3%, partly offset by: (ii) Higher expenses (€–317 million to €–5,647 million), the expense ratio deteriorated by 0.1 point to 28.6 % driven by (i) a 1.1 point higher acquisition ratio notably in the United Kingdom ( mainly change in business mix), partly offset by (ii) a lower administrative expense ratio by 1.0 point, notably in Germany (helped by VAT impact).
(v) Income/Loss arising from investment in affiliates and associates-equity method increased by €6 million due to the new consolidated business in Malaysia.
(1) And earnings of entities for which no margin analysis is performed.
(v) AXA Asia Pacific Holding (€–22 million to €–24 million) notably due to the non-recurrence of a positive income received in 2005 on cross currency interest rate swaps, following the restructuring of the forward rate hedging in July 2005.
(vi) AXA SA (€–16 million to €–219 million, or €–54 million excluding a non recurring tax benefit of €39 million in 2006 compared to €70 million in 2005, and €69 million financial income in 2006 on proceeds from Winterthur financing [rights and TSS issues]) mainly due to (i) a €20 million higher financial charge mostly related to the financing of the FINAXA exchangeable bond buy-back and the dilution control program partly offset by positive volume effects due to increasing cash flows received from entities and (ii) €30 million some non recurring costs related to share based compensation plans.
Group net capital gains attributable to shareholders were up €186 million on a current exchange rate basis or €187 million on a constant exchange rate basis to €1,130 million, mainly as a result of: – higher net realized capital gains by €298 million on a current exchange rate basis or €299 million on a constant exchange rate basis mainly coming from Belgium (€+264 million to €407 million, of which €170 million in Life and Savings entities, €89 million in Property and Casualty) mainly in equity investments, partly offset by,
As a result of higher underlying earnings and higher net capital gains, adjusted earnings were up €859 million or €877 million on a constant exchange rate basis to €5,140 million.
Net income reached €5,085 million, up €767 million or €784 million on a constant
(ii) €–69 million due to a decrease on CHF interest rates linked to long term CHF denominated swaps (CHF5 billion nominal value) used to finance Swiss assets of Winterthur,
(iii) €–133 million related to a lower increase of U.S$ interest rates linked to currency swaps in 2006 compared to 2005,
• a €–43 million corresponding to foreign exchange operations of which €–52 million related to TSDI foreign exchange hedges no more eligible to natural hedge accounting linked to the reclassification in shareholder’s equity of TSDI,
– €66 million related to the gain on the sale of AXA RE’s business.
of AXA Investment Managers shares in 2006 (€–17 million), real Estate Tax in AXA SA (€–10 million), the sale of DARAG in Germany (€–3 million), the integration costs on acquisition of MLC and Citadel (€–7 million) and the impairment of real estate companies in AXA Bank Belgium (€–1 million).
Assistance participation in CAS (€23 million), of AllianceBernstein Cash Management business (€5 million), India and South Africa joint ventures (€3 million), and of BIA in AXA Bank Belgium (€2 million),