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responsibilities by participating in the life of the community through acts of corporate philanthropy and prevention.
Environment AXA also seeks to play an active role in protecting the environment by making available its environmental risk management capability, and by promoting environmentally sound practices in the workplace.
Employees AXA seeks to contribute to the satisfaction and fulfillment of its employees by promoting respect and empowerment in the workplace, and by providing regular training and development opportunities.
The AXA Vision Our Business: Financial Protection and Wealth Management It’s the vision we have of our business and how it should be done.
The business of Financial Protection and wealth management involves offering our customers – individuals as well as small, mid-sized and large businesses – a wide range of products and services that meet their insurance, protection, savings, retirement and financial planning needs throughout their lives.
Aware and proud of our industry’s contribution to the economic and social development of the community, we seek to do business responsibly by living up to consistent values and stakeholder commitments throughout the world.
Our Ambition: We are working toward the shared ambition of setting the standard worldwide in our core business of Financial Protection and wealth management.
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This report is a free translation of AXA’s French Document de Référence. It is being furnished solely for informational and convience purposes and is qualified in its entirety by reference to the original French Document de Référence which is available on AXA’s website at www.axa.com.
Insurance and Asset Management markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Major event known subsequently to December 31, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320
Principal Statutory Information concerning the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
Persons responsible for this annual report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355
■ Assets Under Management €775 billion (+17% at constant exchange rates)
■ 117,000 employees and distributors worldwide working to deliver the right solutions and top quality service to our customers.
Throughout 2003, corporations responded to the financial market depreciation of previous years by refocusing on their core business. Intensive efforts in this direction were made by the insurance industry in general and by AXA in particular, where efforts initiated earlier were pursued with intensity. At the same time, steps were taken to ensure that financial market accidents, which are inevitable in our business, would have the least possible impact on the overall health of the organization. The results speak for themselves, and I can only applaud the people of AXA for the work they accomplished in an environment that was often hostile.
■ The life insurance business has been compromised by financial market depreciation and persistently low interest rates.
We did not buy into any of these ideas, which we felt were the product of situational fears and enthusiasms, and decided instead to stick with our long-term strategic positioning: ■ in the Financial Protection and wealth management business, because it allows us to support and cover our clients – individuals and businesses – as they navigate in a world where both risks as well as the need for protection and sound advice are growing; ■ by offering our clients both property-casualty and life and savings solutions wherever and whenever possible since it is the interplay of these products and services, rather than any one taken in isolation, is the strength of our Financial Protection and wealth management solutions; ■ by investing first and foremost in our proprietary distribution channels – career agents, salaried sales professionals, brokers – and then seeking third-party distribution agreements, rather than trying to acquire networks engaged, in part, in businesses that we don’t know.
The second lesson that we learned – or relearned – is that mastering the technical fundamentals of the business is critical to resisting periods of crisis and building a secure competitive edge.
■ Finally, thanks to the technical quality of our operations, the strength of our balance sheet, and the motivation of our people, we are in a position to seize good opportunities that may arise. And this has always been one of AXA’s key strengths.
In 1997, AXA merged with Compagnie UAP. This transaction enabled AXA to significantly increase its size and reinforce its strategic positions, especially in Europe.
In 2000, AXA acquired a majority ownership interest in “Nippon Dantaï Life Insurance Company”, resulting in a new company called “AXA Nichidan”. 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, which was completed in November 2000. In October 2000, Alliance Capital, a subsidiary of AXA Financial, acquired the U.S. asset management company Sanford C. Bernstein. In December 2000, AXA acquired the remaining minority interests in
AXA has sold all its activities in Argentina as well as AXA Seguros Brasil, under the condition of the agreements of the local authorities.
In October 2003, AXA Group has decided to sell Unirobe Groep B.V., a network of brokers, held by AXA Nederland.
In September 2003, the Group announced the acquisition of the American group Mony; this operation should allow
AXA to reinforce the distribution capacity of its life activities in the United States by representing 25%. This transaction is subject to the approval of Mony shareholders, obtaining required regulatory approvals and other customary closing conditions.
GOVERNANCE STRUCTURE: MANAGEMENT BOARD AND SUPERVISORY BOARD A Management Board and a Supervisory Board have governed AXA since 1997. This form of corporate governance, which separates the powers of management from those of supervision, is considered to offer the most balanced framework governing the exercise of corporate power.
Procedures) is included at the end of this section on Corporate governance.
Role and Powers The Supervisory Board oversees the efficient operation of the Company and reports to shareholders. The Supervisory
Board appoints the Chairman and members of the Management Board and supervises executive management.
According to these regulations, the Supervisory Board meets at least five times per year.
Its members receive documentation prior to each meeting. Board documentation is usually sent to members eight days in advance.
In this respect, the Group’s principal managers are invited to take part in some Board meetings to present their business area, their objectives and their results.
The Annual General meeting of April 30, 2003, has reappointed the mandate of Messrs Jean-René Fourtou, Jacques
Calvet, David Dautresme, Henri Hottinguer, Gérard Mestrallet, Alfred von Oppenheim, and has appointed a new member : Mr. Ezra Suleiman.
The mandate of Claude Bébéar is the only one coming to reappointment at the Annual General Meeting on
Supervisory Board members are selected on the basis of their acknowledged competence, experience, complementarity and their ability to supervise a company like AXA.
The Supervisory Board is taking all necessary measures to be ensure that the members of the Audit Committee will be independant in accordance with the criteria of Sarbanes-Oxley with effect from July 31, 2005.
Chairman and CEO of France Telecom; Chairman of the Board of Directors of Thomson SA and Orange; Director or member of the Supervisory Board of Thomson, Schneider Electric and Dexia.
Chairman of the Supervisory Committee of Bazar de l’Hôtel de Ville (BHV); Vice-Chairman of the Supervisory Board of Galeries Lafayette; Vice-Chairman of the Board of Directors of VIVARTE; Director or member of the Supervisory Board of Société Générale and Société Foncière Lyonnaise.
Senior advisor of Lazard Frères; Chairman of Montech Expansion (Euris Group); Director or member of the Supervisory Board of Casino, Club Méditerranée and Fimalac; Managing partner of DD Finance.
Chairman and CEO of Schneider Electric; Director or member of the Supervisory Board of FINAXA, Vivendi Universal, Groupe Norbert Dentressangle and the AXA Mutuals.
Chairman and CEO of Suez; Chairman of Suez-Tractebel (Belgium) and Hisusa (Spain); ViceChairman of Sociedad General de Aguas de Barcelona (Spain); Director or member of the Supervisory Board of Compagnie de Saint-Gobain, Crédit Agricole S.A. , Taittinger, Pargesa Holding S.A (Switzerland) and Electrabel (Belgique).
Chairman of the Supervisory Board of Banque Sal Oppenheim jr & Cie KgaA (Germany) and Chairman of the Board of Directors of Banque Sal Oppenheim jr & Cie AG (Switzerland) and Sal. Oppenheim jr. & Cie. Luxembourg S.A.; Member of the Supervisory Board of AXA Konzern AG (Germany).
Chairman of BNP Paribas; Director or member of the Supervisory Board of Saint Gobain, Total, Lafarge, BNP Paribas UK (GB) and Dresdner Bank AG Francfort (Germany).
The results of the review underscored the quality of dialogue and debate between the directors and with the Group’s managers and the Management Board in particular. They also highlighted the effectiveness of Board meetings and its committee meetings. Some areas for improvement were noted, and these were implemented in 2003, particularly in terms of making the compositon of the Board younger and more international.
Activity In 2003, the Supervisory Board met seven times, and the overall attendance rate was 86%.
The Board’s work in 2003 focused mainly on the following issues: – the conclusions of the self-review procedure described above,
– proposed changes to the Board’s internal regulations, the composition of its committees and a review of each director’s independence,
– draft management reports and draft resolutions to be presented to the shareholders’ meeting,
– the strategy of some Group companies, particularly AXA Corporate Solutions Assurance, the Belgian business and
– the Group’s activity, via the Management Board’s quarterly presentation concerning the activities of the Group’s various entities,
– work carried out by the Board’s four specialist Committees, whose activities are discussed below and which gave rise to reports given by their respective Chairmen to the Board. The conclusions of these reports were discussed in meetings.
SUPERVISORY BOARD COMMITTEES In 1990, the Supervisory Board established special Committees to help implement its corporate governance principles.
In January 1997, when AXA adopted its current corporate governance structure (consisting of a Management Board and a Supervisory Board), the Supervisory Board formally established four special Committees, whose Chairmen and members it appoints and whose rights and duties it specifies.
Each Committee issues opinions, proposals and recommendations and is empowered to undertake or commission studies on subjects to be presented to the Board, each Committee may invite outside participants to its meetings.
Audit Committee The Audit Committee, as of December 31, 2003, had three members, all of whom will be independant in accordance with applicable US regulations: Jacques Calvet (Chairman), David Dautresme, Alfred von Oppenheim.
At the beginning of 2004, Thierry Breton and Gérard Mestrallet, who will also be independent in accordance with applicable US regulations, became members of this Committee.
The Committee met seven times in 2003. The global attendance rate was 70%.
The Audit Committee: – examines the Company’s interim and annual financial statements before they are presented to the Supervisory Board.
In addition to internal regulations of the Supervisory Board, the Audit Committee has adopted an Audit Committee charter, which highlight certain of its duties. In particular, the Audit Committee: – works with the Management Board and Group Internal Audit to review the Internal Audit Guidelines and the structure of internal audit operations,
– holds separate meetings with the head of Group Internal Audit as often as it seems necessary,
The principal subjects dealt with by the Audit Committee in 2003 are indicated below: – examination of accounts closing options adopted in 2002,
(Chairman), Thierry Breton, Jacques Calvet, Gérard Mestrallet, Alfred von Oppenheim and Michel Pébereau.
At the beginning of 2004, Henri Lachmann became member of this Committee in replacement of Gérard Mestrallet.
The Finance Committee: – examines and issues recommendations on plans to sell real-estate or equity interests with an appraised value exceeding the authorisations granted to the Management Board by the Supervisory Board,
The primary subjects considered by the Finance Committee in 2003 are indicated below: – AXA’s financial structure,
A the beginning of 2004, Ezra Suleiman became member of this Committee.
The Selection Committee: – formulates recommendations to the Supervisory Board with respect to the appointment of members of the Supervisory
Board or the Management Board, their respective Chairmen and Vice-Chairman, as well as the members and
The primary subject considered by the Selection Committee in 2003 is indicated below: – Composition of the Supervisory Board and analysis of each member’s independence.
In 2002, the Committee reviewed the Management Board succession plan and decided to propose the implementation of this plan to the Supervisory Board during 2003. The Committee proposed the appointment of Denis
Duverne to replace Gérard de La Martinière and Claude Brunet to replace Françoise Colloc’h. The Supervisory Board approved these changes.
Supervisory Board members according to the previously-determined criteria of age, nationality, sex, cultural background and experience.
On the recommendation of its Selection Committee, the Supervisory Board on January 15, 2003 reappointed the following members of the Management Board to new three-year terms.
– Claude Brunet (46), Head of Transversal Operations and Projects, of Human Resources, Brand and Communications.
– Christopher Condron (56), Head of the Insurance in the United States and Alliance Capital.
– François Pierson (56), Head of the Insurance in France, Large Risks, Assistance and AXA Canada.
Gérard de La Martinière, formely a member of AXA’s Management Board, was elected Chairman of the Fédération
Française des Sociétés d'Assurances (FFSA) on May 13, 2003. His appointment took effect immediatly and at this date he resigned from all his functions and mandates within AXA Group. His successor is Denis Duverne.
Currently none of the members of AXA’s Management Board serve as directors of companies outside the AXA Group.
The Executive Committee’s principal mission is to discuss, review and execute AXA’s strategy.
The Committee’s composition reflects the structure of the AXA Group. It includes members of the Management Board and the CEOs of the Group’s principal business units.
The 15 members of the Group’s Executive Committee conduct quarterly business reviews (QBR), during which Group performance is reviewed. These reviews were introduced in 2000 and are designed to provide a clear and consistent framework for: – reviewing operational performance and monitoring the progress of key projects using quantifiable standards of measurement defined in collaboration with the Management Board; – assessing the progress of transversal projects; – exchanging ideas and information concerning key strategy orientations.
Denis Duverne Member of the Management Board in charge of Finance, Control and Strategy.
Jean-Raymond Abat Chief Executive Officer of AXA Seguros (Spain) and head of the Mediterranean region.
François Pierson Member of the Management Board, Chief Executive Officer of AXA France, Head of Large Risks, Assistance and AXA Canada (Canada).
OPERATING UNITS AXA has nine business units, whose CEOs report directly to the Management Board and its Chairman.
Consequently, all of AXA’s principal subsidiaries, whether publicly traded or not, are governed: - by a board whose membership includes independent or non-executive directors, - by an audit committee, whose membership also comprises independent or non executive directors members.
Executive remuneration is made up of a fixed part and a variable part. The fixed component is targeted at the lower quartile of the market. The variable component is linked, with variable weightings depending on the level of responsibility, to the global performance of AXA, the performance of the business unit and the achievement of executives’
individual objectives. The variable part is supposed to be the main component of the total annual remuneration so that in case of achievement or over-achievement of predetermined targets, the executive total remuneration would be positioned in the upper or top quartile of the market.
The fixed remuneration of the Chairman of the Management Board (€500,000) has not changed since his nomination in May 2000.
– The performance of the AXA share measured by reference to its competitors .
– Finally his individual performance assessed by the Remuneration Committee based on specific objectives set at the beginning of the year.
The target amount corresponds to the variable remuneration if the objectives set for the 3 indicators mentioned above are achieved 100%. If they are exceeded, the variable remuneration may exceed the target amount up to a predefined ceiling.
The variable remuneration amounts awarded, which have never reached the target amount so far, demonstrate the exigence of the objectives, the actual variability of this remuneration component and the fact that the crisis in the sector over the past three years had a measurable and important impact on the total remuneration of the Chairman of the Management Board: – Variable remuneration for the year 2000 paid in 2001 : €1,381,373.
For other members of the Management Board, four elements are considered : – The Group results (earnings per share and underlying earnings).
– The performance of the business unit or functional area they are responsible for, measured against objectives set at the beginning of the year, and
The variable remuneration of other members of the Executive Committee also depends on the Group performance, their business unit’s performance as well as their individual performance.
When target variable remuneration levels are set (remuneration obtained for achieved performance), the part linked to Group results is more important for members of the Management Board than for other members of the Executive
Committee. Performance hurdles (floor and ceiling) are set to ensure a real element of variability in the remuneration.
The table below provides the following information: – gross compensation paid in respect of 2003 (e), i.e. the fixed component paid 2003 (a), the variable component earned in 2003 and paid in 2004 (including expatriation allowances paid in 2003) (b), any directors’ fees paid in 2003 (c) and benefits in kind for the year 2003 (d); – gross compensation paid in 2003 (g), i.e. the fixed paid in 2003 (a), the variable component earned in 2002 and paid in 2003 (f) (including expatriation allowances paid in 2003), any directors’ fees paid in 2003 (c) and benefits in kind for the year 2003 (d); – and gross compensation paid in 2002, i.e. fixed compensation paid in 2002, the variable component earned in 2001 and paid in 2002 (including expatriation allowances paid in 2002), any directors’ fees paid in 2002 and benefits in kind for the year 2002.
Due to the different tax systems in countries where AXA’s executive officers are located, it is difficult to make meaningful comparisons of compensation and benefits earned by Executive Committee members. For information, the relevant marginal tax rates are as follows: Germany: 47.47% (including the Church Tax) ; Australia: 47%; Belgium: 53.50%; the United States: 42.63% and 39.74% (respectively, for New York and Philadelphia); Spain : 45% ; France: 58.09%, including an additional 10% for social taxes; the United Kingdom: 40%.
STOCK OPTIONS For many years, AXA has shared the rewards of its performance with directors, officers and employees of the company in France and abroad by offering stock options. Stock option programs are designed as an incentive to reward and retain talents while linking them with the AXA share long-term performance.
Annual grants generally occur during the first quarter of the year. In 2003, grants were made 10 trading days after the publication of annual financial statements, i.e. on March 14, 2003. As from 2004, grants will be made 20 trading days after the publication of annual financial statements.
Individual options grants are approved by the Management Board, with the exception of grants for the members of the Management Board which are approved by the Supervisory Board, based on the Remuneration Committee’s recommendation.
– 9,236,901 purchase options granted by AXA Financial at an average price of $12.62 to 1,150 employees in the
(1)Taking into account AXA Financial all-employee stock option program in 2001.
Members of the Management Board H. de CASTRIES (Chairman) 4,015,600 284,796 0 110,000
Members of the Executive Committee J.-R. ABAT (Spain) 337,271 0 0 0
(1) As part of AXA’s buyout of minority interests in AXA Financial, the outstanding options on AXA Financial common shares were converted into AXA American depository shares (ADR) on January 2, 2001. (2) An unlisted subsidiary of the AXA Group. (3) Also holds 7,562 shares of stock in AXA Investment Managers, an unlisted company.
Number Exercise Price Number Price Number Exercice Price Number Price date (in euros) date (USD)
Stock options granted during the year to the 10 employees who received the highest number of options 1, 564,114 €10.96
The principle of performance units is as follows: – Each beneficiary is initially granted a certain number of performance units, which will be used to calculate the final number of performance units that will be earned after a 3-year period, provided the beneficiary is still an employee of the AXA Group at that date.
– During each of the 3 years, a fraction representing 1/3 of the performance units initially granted is subject to performance criterias measuring both the AXA Group performance and the beneficiary’s business unit performance, based on pre-determined targets.
– The achievement rate of performance targets determines the number of performance units actually granted to the beneficiary, which may vary between 0% and 130% of the number of performance units at stake each year.
– At the end of the 3-year period, performance units actually granted each year become definitely earned by the beneficiary, provided the beneficiary is still en employee of the Group at that date.
– The total amount corresponding to the value of all performance units definitely earned by a beneficiary is paid as a remuneration.
– If the number of performance units definitely earned is 1,000 or more, the beneficiary receives only 70% of the total value in order to pay social contributions and income tax based on 100%, and 30% of the performance units are reinvested into AXA shares locked for a further minimum 2-year period, in order to develop employees stock ownership and align employees and shareholders’ interests.
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 there are no newly issued shares.
INTRODUCTION The aim of internal control is to prevent and manage the risks relating to AXA’s financial protection and wealth management activities, and to ensure that accounting and financial information accurately reflect AXA’s activities and situation. Internal control procedures have been devised in a global and coherent manner within the Group, and each subsidiary applies operational controls that help strengthen the Group’s overall internal control environment.
This report has been prepared with the help of the departmental heads of AXA’s support functions, and in association with the outside auditors. The report has been presented to the Management Board, the Audit Committee and the
In order to fulfill all its duties, the Management Board has access to a range of tools that enable it to supervise the
Group in three respects: – the execution of the strategy devised by the Management Board,
Strategic planning The aim of AXA’s strategic planning efforts is to exert upstream control over major trends and the three-year forecasts developed by the Group’s main companies. After various analysis phases and adjustments, this procedure results in a consolidated forecast that is used as the Group’s budget and forms the basis of the targets contained in each entity’s annual ‘target letters’.
– quantitative targets (revenues, expenses, profitability, productivity and quality indicators) based on a central set of economic forecasts,
– description of corresponding action plans, including human resource and IT systems aspects,
QBRs (Quarterly Business Reviews) Once per quarter, AXA’s Management Board reviews each entity’s activity and performance by drawing comparisons with targets set out in the budget and in its annual ‘target letter’. Transversal issues and questions specific to each entity are also dealt with in the QBR.
AXA’s Management Board relies on its BSD team to ensure continuous relations with all of these Business Units.
– The management of the Group’s financial position as regards capital, liquidity and financing.
Consolidation, management control and controls over financial and accounting information The Finance Department’s central PBRC team is responsible for consolidation, management control and controls over financial and accounting information. This team collaborates with local PBR (planning, budget and results) teams within the Finance Departments of Group subsidiaries.
– liaising with the outside auditors and contributing to Audit Committee meetings when necessary.
comprising the consolidation system, consolidation guidelines, reporting guidelines and guidelines for measuring embedded value – and for issuing instructions to subsidiaries,
The consolidation system can also be used to handle management reporting and control information, with the aim of viewing the consolidated financial statements in the light of economic reality. The process for producing and validating this management reporting information is the same as that used in producing consolidated financial information.
This organisation is used for all AXA Group publications, i.e. French GAAP financial statements twice a year, revenue figures four times a year, and Embedded Value.
– the principal options for closing of the consolidated accounts are presented to the Management Board and then to the Audit Committee prior to their examination of the annual accounts, for validation purposes,
Along with this accounts closing work, PBRC produces, for internal use, monthly activity reports, quarterly profitability reports and one half-year and three full-year sets of targets, and consolidates the financial data contained in the budget and the business plan. The outside auditors identify risks and validate the proposed accounting principles and accounts closing options, working on both annual and half-year closings.
In addition, the production of Group financial statements involves a process of transmitting information to Group entities. This allows the validity of financial data to be assessed through the transmission of subsidiary-related data approved by the subsidiary’s CEO and CFO. Through this process, the Group CFO learns the exact conditions in which the work has been done.
Due to the large number of merger and acquisition transactions carried out by the Group in recent years, financial data is produced using a variety of information systems that are progressively subject to a more fully integration process.
Management of the Group’s financial position The Supervisory Board’s Finance Committee and the Management Board are regularly informed by the CFO of all major projects and changes relating to the management of the Group’s financial position. Periodically, they examine reports and three-year forecasts concerning the consolidated financial position. These forecasts are updated on a monthly basis as part of the General Management’s performance indicators, and take into account potential financial market performance scenarios.
Working in close collaboration with local finance teams, the AXA Group’s DCFG team is in charge of: – defining and managing subsidiaries’ capital adequacy,
The AXA Group is governed by regulations that require additional monitoring for insurance companies. In this respect, the DCFG team calculates adjusted solvency margin on the basis of the Group’s consolidated financial statements, which is passed on each year to the Commission de Contrôle des Assurances (CCA - French insurance industry supervisory body).
Each subsidiary sends half-year reports to DCFG, enabling it to check each subsidiary’s capital adequacy with respect to its particular regulatory constraints.
In addition, subsidiaries carry out simulations that take into account their regulatory obligations, using extreme scenarios concerning assets (market value of equities and movements in interest rates). In every half-year period, these simulations are sent to DCFG, enabling it to measure each subsidiary’s financial flexibility.
The GIE AXA Trésorerie Europe carries out centralised cash management for eurozone entities. The standards applied by the Group ensure liquidity due to the profile of invested assets, particularly through the ownership of assets defined as eligible by European Central Bank (ECB). A Group liquidity back-up plan ensures AXA’s ability to withstand any liquidity crises.
DCFG has devised formal principles for monitoring and measuring resources, along with liquidity risk management standards.
To ensure that the Group has a large amount of financial flexibility, DCFG co-ordinates consolidated debt and manages it in terms of interest rate and exchange rate risk.
Investor relations The quality of financial and accounting information depends upon the production, review and validation of financial information, and on the principle of having a single source of information. With very few exceptions, all financial information reported by the company comes from the PBRC department. The exceptions arise periodically when the financial markets request ‘management’ information which does not originate from the Group’s accounting and financial consolidation systems.
Financial communication media (press releases, press and financial market presentations, etc.)
Several departments (Financial Communication, Internal Communication and Legal) are involved in preparing these documents. PBRC co-ordinates their preparation and ensures the overall consistency of the information contained in them. Each contributor works to ensure that documents comply with standards and are clear. They are submitted for approval to the Management Board.
All information contained in these legal documents is also audited by the outside auditors according to professional standards applicable in France.
BUSINESS CONTROL Business control is carried out by three separate departments: – Legal Department: intervenes in all issues relating to the law, either at the preparation stage or retrospectively,
AXA is strongly committed to the fight against money laundering in all of its business locations. The Group’s antimoney laundering strategy is set out in a set of guidelines that has been approved by the Management Board and
In accordance with these guidelines, each operating entity has developed procedures based on certain general principles in addition to the applicable local regulations. The ‘know your customer’ principle is crucial, and underlies all transactions. Particular attention is paid to transactions made in cash or any equivalent monetary instrument.
A network of correspondents involved in the fight against money laundering has been set up to co-ordinate efforts and distribute important information. In France, an organisation has been set up in order to collaborate with TRACFIN
as efficiently as possible. Some foreign subsidiaries pay particularly close attention to anti-money laundering initiatives.
In 1990, AXA introduced a Code of Ethics, mainly involving bans on trading in AXA and Finaxa shares.
The Group’s large scale, and continued focus on sustainable development coupled with 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.
Off-balance sheet commitments are monitored in a decentralised manner, with each subsidiary transmitting information to PBRC as part of the consolidation process.
For AXA, most commitments given are financial in nature, and fall into three main categories.
DCFG has established an organisation allowing the responsibilities of the team in charge of initiating derivatives transactions to be separated from those of the team responsible for monitoring risks.
In accordance with regulatory and accounting obligations, every time a strategy is implemented and at every accounts closing, DCFG draws up documents setting out hedging operations and their basis.
being taken, and to optimise the allocation of capital between the Group’s various activities.
Risk measurement work relies mainly on a set of standardised stochastic modelling tools.
Regular monthly and quarterly reports allow the monitoring of portfolio movements and the detection of excessive concentrations and excessive deviations from the management benchmarks defined with asset managers,
– the central Risk Management team carries out an annual review of insurance reserves established by the operating entities for the property/casualty and reinsurance business lines. In life insurance, the Risk Management team reviews the main assumptions made by operating entities in determining their future policyholder benefit reserves. This work is complemented by external reviews, carried out in particular by the outside auditors,
– economic capital is estimated annually for each product line and operating entity, and is then aggregated at the group level. This is one of the main tasks of the stochastic modelling tools developed and implemented by the
– Reinsurance policy is implemented by operating entities with the help of the Group’s central AXA Cessions unit.
All results of the work described above are presented to the Management Board for review and decision-making purposes. The Audit Committee is also informed of the results.
– AXA Tech, which is in charge of operating IT equipment and telecoms networks.
To ensure the independence of the Group Internal Audit team, its director reports to the Management Board, and more specifically, to the Management Board member charged with ordinary operations by AXA’s Finance Department.
Committee, and acts as the Secretary of this committee. Local internal audit teams are operationally dependent on the Group audit team.
The Group internal audit team fulfils its responsibilities in two ways.
– It co-ordinates internal audit teams. This consists of establishing internal audit directives and standards, co-ordinating work done by local teams, guaranteeing that the relevant risk-based approach is used when drawing up annual internal audit plans, monitoring the quality of work and compliance with recommendations, ensuring that resources are made available to internal audit teams and in the correct amount, and encouraging the development of professional best practice. Reviews of this work are presented to the Management Board and the Audit Committee.
internal audit processes, operational efficiency and profitability are also identified and reported to the management teams responsible. Internal audit reports are given to the managers of the audited entities, to members of the
The Group internal audit team complies with guidelines approved by AXA’s Management Board and Audit Committee.
CONCLUSION The Group’s internal audit system is based on a coherent source of information that is under the control of the
32, rue Guersant Le Vinci - 4, allée de l’Arche 75017 Paris 92075 Paris-La Défense cedex
Report of the Independent Auditors, prepared in compliance with the last paragraph of Article L.225-235 of Commercial Code, on the report prepared and submitted 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
In our capacity as Independent Accountants Auditors of AXA, and in compliance with the requirements of the last paragraph of Article L.225235 of the Commercial Code we hereby submit our report on the report prepared and submitted by the Chairman of the Supervisory Board of your Company in conformity with the terms of Article L.225-68 of the aforementioned Code, for the year ended December 31, 2003.
AXA stock is listed on Euronext Paris SA on the Premier Marché (continu A), Euroclear France code: 12062 and, since June 25th 1996, on the New York stock exchange under American Depositary Shares (ADS) representing one
Shares created since January 1st 2004 by exercise of convertible bonds or subscription options are listed “au comptant”
AXA and AXA ADS Stocks transactions since 20 months (Paris and New York) PARISBOURSE NEW YORK STOCK EXCHANGE
Price per Share in euros Price per ADS in US$ Calendar Volume Calendar Volume Period (in thousand) High (a) Low (a) Period (in thousand) High Low
(a) Historical share price adjusted on the basis of the theoretical value of Warrants to the ORANs (see below “Other stocks”, defined and calculated by Euronext Paris in the Euronext document n° 2003-3047 published on September 19, 2003 completing document
Shareholders of record at close of business on September 19, 2003 were allocated, free of charge, one warrant for each share held resulting in the issue by AXA of 1,763,924,947 warrants. 16 warrants entitled warrantholders to subscribe one ORAN against payment of Euro 12.75 per ORAN corresponding to the issue of 110,245,309 ORANs for a total of Euro 1,405,627,690.
Delivery and settlement of the ORANs took place on October 21, 2003.
Each ORAN will be automatically redeemed by the issuance of one new ordinary AXA share following the closing date of the acquisition. If the acquisition is not completed, and at the latest on December 21, 2004, the ORANs will be redeemed in cash, at par plus accrued interest of 2.4% prorata temporis.
The ORANs are listed on the Premier Marché of Euronext Paris SA under ISIN code number FR 0010019349.
These adjustments have been published in a notice in the Bulletin des Annonces Légales Obligatoires, a notice issued by Euronext Paris S.A., and a notice in a financial newspaper circulated both in France and internationally.
AXA subordinated convertible bonds Subordinated convertible bonds Subordinated convertible bonds from February 8, 1999 from February 17, 2000
– by issuer agreement, in cash, from January 1, 2005 at a price with a gross 4.45% actuarial yield, if the Company’s share average over 10 consecutive days is above 125% of the anticipated repayment price,
– at any time, by issuer agreement, at 269.16 euros if the number of bonds in circulation is below 10% of the number of bonds issued.
Convertible subordinated bonds AXA 2.5% 2014 are listed au comptant on the Premier Marché of the Paris stock exchange.
The AXA Group offers its employees an opportunity to become shareholders through a special equity issue reserved for them.
By virtue of the authorization granted by the shareholders at their meetings of May 3, 2002 and April 30, 2003, the
Management Board increased share capital, as provided for by French Ordonnance of October 21, 1986, in two offerings, through the issue of shares to employees of the Group under the Shareplan 2003 program. The shareholders were asked to waive their preferential subscription rights so that these options could be granted to employees.
– the investment leverage plan offered in 29 countries (28 in 2002).
The Shareplan 2003 program was carried out in two phases: – phase I (July 2003): employees in France were given the opportunity to invest their profit-sharing and bonuses,
– phase II (December 2003): a second issue, open to all Group employees through voluntary contributions.
More than 120 companies in 29 countries took part in Shareplan 2003, and participating employees invested a total of 190 million euros (down 26% compared with the 255 million euros invested in 2002) as follows: – 31 million euros in the traditional plan (versus 41 million euros in 2002),
As of December 31, 2003, AXA employees held 84,359,000 shares, i.e. 4.74% of the Group’s outstanding ordinary shares representing 5.32% of the voting rights. These shares are owned through 18 employee mutual funds or directly, in the form of shares or ADS.
The global financial market conditions in 2003 took a turn for the positive. Equities rallied over the year off of March lows as uncertainty on war in Iraq was lifted, favorable economic reports were released, the US started to recover, more stringent regulations and requirements were implemented, and investors regained confidence in companies’
Financial strength ratings of insurers and reinsurers were downgraded or placed on review by rating agencies during the year. Also, regulatory changes, such as the move to “realistic” balance sheet in the UK, put pressure on solvency. In response, a number of insurers and reinsurers announced capital raising measures and/or sales of nonstrategic operations in order to support their financial strength. During 2003, the European insurance industry raised a total of €11 billion of additional shareholders’ funds through equity issues.
Bond yields fell to their historical lows in mid-June 2003, raising concerns regarding crediting rate levels and life & savings investment margins. To counteract these fears, regulators took actions to lower guarantees on new business
(e.g., the US) and on inforce (e.g., Switzerland) to alleviate the risk of these guarantees biting. At the same time, companies have been taking their asset/liability management far more seriously to minimize reinvestment risk. AXA, owing to its economic capital work which started in 2000, was perceived as being well protected and ahead of the game in terms of asset/liability management.
Since June 2003, the interest rate cycle has been on the upturn.
Continued strength of the Euro, up 20% against the US dollar in 2003, also hurt US-exposed insurers. The dollar hit a record low against the Euro on December 31, 2003 when € 1 = $1.2564. AXA’s hedging strategy acted to mitigate the effect of the dollar/Euro relationship on its income statement in 2003.
From September on wards, the asset management industry was tainted by the mutual fund probe into late trading and market timing practices, with possible spill-over into the variable annuity industry. In December 2003, Alliance
Capital proactively reached an agreement with both the SEC and the New York State Attorney General in respect to market timing in certain of its mutual funds.
Non-life combined ratios showed substantial improvement across the European insurance sector, benefiting from
The AXA stock price rose by 35% in 2003, strongly outperforming the insurance sector as investors looked to more equity-geared stocks in the rising market environment and as AXA demonstrated its operating strength and efficiency.
AXA reduced costs by €269 million in 2003, for a total of €1,235 million in savings since October 2001. AXA improved its Property & Casualty combined ratio from 105.4% in 2002 to 101.4% in 2003, ahead of target, and returned back to profit specific operations such as International Insurance and Japan Life. The diversification of AXA’s revenue base, both in geographic and product terms, helped enable the Group to report a growth in revenues of 5.3% on a comparable basis to 2002. Life & Savings revenues increased by 8.5% due to strong sales in the US, Belgium and Germany, as well as France and Japan. Property & Casualty revenues expanded by 4% as the Group continued to expand its franchise in personal lines, while commercial lines benefited from targeted rate increases and cancellations.
As of February-end 2004, of the 37 analysts following AXA, 27 have a Buy recommendation, 6 are neutral and 4 have underperform recommendations.
SHAREHOLDER INFORMATION: A TOP PRIORITY AXA’s goal is to deliver clear, complete and reliable information that meets the needs of all shareholders, regardless of their level of expertise as investors.
AXA ranks among a small number of listed companies that provide very detailed information on business strategy, performance and earnings, and has received various awards for the quality of its disclosures. In 1998, AXA’s investor relations received the “Cristal” Award for transparency handed down by Compagnie Nationale des Commissaires aux Comptes in France. In addition, the French Club des Assureurs selected AXA’s 2002 annual report as the year’s best.
1.6% Treasury shares 8.9% Individual shareholders 4.8% Employees 2.8% Other shareholders 20.1% France 8.1% Germany 12.8% North
America 11.6% United Kingdom and Ireland 1.1% Switzerland 3.1% Benelux 4.9% Other countries
The percentage on the left represents the economic interest and the percentage on the right represents the percentage of control. (a) Holding company that owns The Equitable Life Assurance Society of the United States. (b) Holding company that owns AXA France Vie, AXA France IARD, Direct Assurance and AXA Corporate Solutions Assurance. (c) Holding company that owns The National Mutual Life Association of Australasia.
America 14% United-Kingdom 9% Germany 5% Belgium 37% AXA (General account assets)
National Mutual Funds Management – – – 26 – – OTHER FINANCIAL SERVICES 866 836 1,020 1,128 (18.0%) (19.2%) French Banks 142 139 134 187 3.8% (16.9%)
(b) In 2001, the average exchange rate corresponds to the period from October 1 to December 31 (15-month period).
Consolidated Adjusted Earnings and Net Income by activity Years ended December 31,
(in euro millions except per ordinary share amounts) 2003 2002 2001
AXA Investment Managers 76 63 58 National Mutual Funds Management – – 15 OTHER FINANCIAL SERVICES 126 133 144
Other french holdings (9) 69 120 Other foreign holdings (154) (251) (220)
NET INCOME, GROUP SHARE 1,005 949 520 Net income per ordinary share (basic) (b) 0.57 0.55 0.30 Net income per ordinary share (diluted) (b) 0.56 0.55 0.32 Return on Equity 4.4% 4.0% 2.1%
(a) Adjusted earnings represents AXA’s consolidated net income before goodwill amortization and exceptional operations. Adjusted earnings is a non-GAAP measure, which management believes provides a meaningful understanding of the results. It should be noted that “Adjusted earnings” as defined may not be comparable with similarly-titled measures reported by other companies as it is not defined under either French GAAP or U.S. GAAP.
(a) 2003 dividends proposed for approval by AXA shareholders at the annual general meeting of shareholders held on April 21, 2004. (b) Net Dividend / Adjusted Earnings.
Salaried employees As at December 31, As at December 31, As at january 1, As at December 31,
– Belgium (including AXA Bank Belgium) (e) 5,695 5,381 5,175 4,969
Other Financial Services (excluding AXA Bank Belgium) (e) 622 836 836 776
AXA Technology, AXA Consulting and @ business 344 197 2,062 1,949
– Disposal of Austria and Hungary activities. – Acquisition of AXA Epargne Services Entreprise (AXA Investment Managers sub-group). – Transfers from AXA Liabilities Managers, an AXA Group subsidiary dedicated on run-off portfolio management. This specific company was created in January, 1, 2003. Before, staff was reported under AXA RE (83 p.) and also under AXA Corporate Solutions Assurance (60 p.).
– Transfers from Belgium, France, United States, Germany, United Kingdom and Australia to AXA Technology. (b) Following a portfolio management agreement, a portion of the personnel of 4 AXA’s “mutuel” (not in AXA’s consolidated financial statements) is included in the France Insurance and Other Financial Services activities. (c) In 2001, Japan salaried employees included respectively 5,947 salaried sales force by mistake. (d) As at December 31, 2002, United States salaried employees were under estimated (115 p.) and The Netherlands salaried employees over estimated (669 p.) (in 2001, figures included salaried employees from a brokerage network). (e) Employees of AXA Belgium provide services in common for both the insurance activities and the bank activities. Consequently, split is not available.
Life NB APE Margin (b) 15% 15% 0.7 pt + 1 pt
Life NB APE Margin (c) 12% 12% – + 0.4 pt (a) In this section, “Life” will refer to whole “Life & Savings” activities in the Group. (b) Before cost of capital. (c) After cost of capital.
Note: NBC and APE are calculated at average exchange rate, ANAV and PVFP at closing exchange rate. 2002 NBC
and APE have been restated to average exchange rate for consistency.
“New Business Contribution” (NBC) measures the value of new business sold during the year. It includes the PVFP
NBC combines elements which increase PVFP balances from one year to the next and elements which reduce the
“Annualized Premium Equivalent” (APE) is a measure of new business volume which includes sales of regular recurring premium business at 100% but sales of single premium business at only 10%. The “APE Margin” is the ratio of NBC to APE.
AXA publishes PVFP only for its life and savings business. AXA’s ANAV calculation does include elements for all of its business.
The ANAV can be reconciled to the consolidated balance sheet as follows (in Euro million): Published Shareholder’s Equity: 23,401
The Life Insurance ANAV is calculated from the free capital available on a local regulatory (statutory) basis, adjusted for the cost of holding capital consistent with maintaining a “AA” rating, and for any unrealized capital gains or losses not included in the calculation of PVFP. Starting from the consolidated accounts, an adjustment is needed for the differences between AXA’s consolidated accounting basis and local regulatory bases, including elimination of intangible assets such as Deferred Acquisition Costs, Value of Business Inforce, and Goodwill.
The PVFP is calculated for Life & Savings business only. It is based on future regulatory earnings on our current portfolio, not including any value of future sales. Investment returns include the unrealized capital gains and losses on assets backing policyholder liabilities, where appropriate for local regulation and management practice.
– No benefit from future mortality improvement on Life business, while annuity business does have an allowance for the costs of longevity increasing.
– A weighted average equity return of 7.8%, and risk-free return of 4.5%.
Euro per share difference from the base case): Assumption tested PVFP Impact NBC Impact
An independent actuarial consultancy, Tillinghast, was hired by AXA to perform a review, and has issued the following statement of opinion: “Tillinghast has reviewed the methodology and assumptions used to determine the embedded value at December 31, 2003 and the value added by 2003 new business for the principal life operating entities of the AXA Group.
Tillinghast has concluded that the methodology used is reasonable and consistent with recent industry practice for embedded value reporting. The values are based on deterministic projections of future after-tax profits, with allowance for risk through the use of risk discount rates and an explicit adjustment for the cost of capital. Explicit allowance for the cost of equity-based product guarantees in the life business has been made using stochastic projections on a realistic basis.
Tillinghast has not, however, performed detailed checks on the models and processes involved.”
HOW THE FINANCIAL PROTECTION AND WEALTH MANAGEMENT BUSINESS CONTRIBUTES TO SUSTAINABLE DEVELOPMENT The roots of financial protection and wealth management can be traced to insurance, a business founded on the notion of providing compensation for certain kinds of professional or personal mishaps.
Initially, insurance involved maritime and fire related risks. The scope of coverage gradually broadened to encompass other kinds of risks – to property (residential, commercial, vehicles) as well as to individuals (life, disability and health).
By investing the premiums paid in return for coverage by policyholders, insurers acquired expertise in asset management as well. Today, AXA makes the expertise it has accumulated in risk and asset management available to customers by offering solutions to their evolving savings, investment management and estate planning needs.
Pre-Lloyd’s insurance contracts enabled ship owners in the Middle Ages to transact marine business, while modern insurance companies began to appear during the Industrial Revolution. In each of these historical examples, insurance offered the safety net that allowed entrepreneurs to take the risks that produced and multiplied the wealth and comfort enjoyed in most developed countries.
This is the first sustainable development report published by the AXA Group. The first section of this three-part document focuses on how AXA’s financial protection and wealth management business contributes directly to sustainable development. The second half showcases AXA’s commitments to its key stakeholders. The third part contains a brief summary of the key social ratings attributed to AXA by specialized rating agencies.
Su st ain ab le De ve lop m en t
When it comes to the ethical issues that confront insurers, AXA’s stance is clear. For example, genetic information is neither solicited from insurance applicants nor used to deny medical insurance coverage.
In lending its risk management expertise to these industries, and by working closely with corporate clients to identify and implement effective prevention programs, AXA contributes in a meaningful way to sustainable development.
Before agreeing to insure a business, AXA sends out specialists to perform risk audits on all or a representative sample of its operating facilities. During such audits, experts identify risk exposures, recommend preventive steps to be taken, and suggest ways of reducing the impact of losses that may occur.
Moreover, risks previously excluded from cover may be reconsidered if appropriate remedial steps are taken.
The committee issues its recommendation when all the information needed to insure this type of vessel is available.
In this case, the analysis conducted by our technical advisors (five former ship captains) is essential in determining the outcome.
Interview with Denis Develey, Marine & Aviation line/AXA Corporate Solutions Assurance ““
The need to adopt a framework and procedures that extended beyond what was strictly required by law was brought into sharp and tragic focus by the events of September 11, 2001. As of that date, the fight against financing terrorism became linked with efforts to prevent money laundering.
In November of the same year, AXA began to strengthen and improve its AML organization, devising a formal set of guidelines that are binding on all AXA companies operating in countries that have not enacted specific AML
AML report that is sent to the AXA Management board member who oversees AML efforts at the corporate level.
The effort required to meet Group objectives in this area varies from one country to the next. However, the guidelines apply to all AXA subsidiaries and have inspired a number of strict and explicit procedures. At AXA France, for example, members of the salaried sales force are formally prohibited from accepting cash payment, and thereby turning a potential problem into a fail-safe solution.
To meet specific regulatory requirements and to reflect the higher intrinsic risk of the type of business it transacts, AXA Life has introduced additional training on AML for its staff members who work directly with customers. As a result, we have observed a significant increase in the number of suspicious activities being reported.
Implementing AXA AML Policy in the United Kingdom Alun Jones, Head of Group Compliance, AXA UK“ “
AXA’S ASSET MANAGEMENT BUSINESS AND SUSTAINABLE COMMUNITY DEVELOPMENT To honor its commitments to customers, AXA has developed expertise in medium- to long-term asset management.
This expertise is made available via AXA’s two asset management specialists: AXA Investment Managers and
On December 31, 2003, AXA managed total assets valued at approximately 775 billion euros, which makes AXA
Investment) funds in certain sectors into the processes of financial analysts.
Since 2003, a full-time team of six manages SRI funds (equities, bonds and micro-loans) at AXA Investment
Managers. Together, these funds have aggregated more than 460 million euros to date. The team’s investment decisions are made on the basis of data and strategic considerations provided by internal sources as well as information from a corporate social responsibility rating agency.
The leading vehicle in AXA IM’s growing family of SRI funds is AXA Euro Valeurs Responsables, an equity fund for retail and wholesale clients with total net inflow of more than 172 million euros since it was created in 2002.
AWF DEVELOPMENT is an AXA Investment Managers fixed-income fund that invests in organizations that provide financing for sustainable development projects, in particular micro-loans to businesses in emerging markets.
In the area of employee savings, AXA Investment Managers manages the largest mutual fund for French employees that invests on the basis of SRI criteria (241 million euros under management). The AXA GENERATION range, which invests in both fixed-income and equity securities on the basis of social and environmental criteria, was among the first three funds to be labeled by the French inter-union commission.
Accordingly, both AXA Investment Managers (AXA IM) and Alliance Capital have adopted formal procedures and practices.
Jean-Pierre Hellebuyck, a widely respected expert in corporate governance who currently chairs the Corporate
Governance Commission of the AFG (Association Française de la Gestion financière), chairs the Paris committee.
The committee’s London-based counterpart includes a member of the Investment Committee of the Association of
Française de la Gestion financière) recommendations provide guidance. In the United Kingdom, our voting decisions are informed by research conducted by the ABI.”
Alliance Capital, a US-based subsidiary of AXA with 376 billion euros in assets under management, publicly recognizes its “fiduciary duty to vote proxies in a timely manner and make voting decisions that are in our clients’
Accordingly, Alliance Capital “supports resolutions that encourage full disclosure and responsible governance. For example, Alliance Capital will support resolutions that enhance shareholder access to the proxy, that call for a majority of independent directors on the board, or that favor the separation of chairman and CEO positions...”
(see Alliance Capital’s Proxy Voting Manual published in July of 2003).
Office and residential properties owned by the company are managed by AXA Real Estate Investment Managers
(AXA REIM), a dedicated real-estate specialist. Its largest subsidiary is AXA REIM France, which manages real-estate assets valued at 10 billion euros, roughly a third of total real-estate assets.
One of the top priorities in recent years has been to incorporate ambitious health and safety criteria into real-estate management that meet the most stringent environmental standards. Similarly, efforts have been made to work with general contractors to discourage the use of illegal alien workers on construction sites.
As part of this effort, last year AXA REIM France analyzed its practices on the basis of the fourteen criteria set forth under the French environmental quality standard HQE. The analysis revealed that AXA REIM has acquired expertise in environmental management, notably with respect to sanitation, water and air quality in its buildings.
AXA REIM France intends to acquire the methods and tools needed to obtain socially and environmentally responsible status for its entire real-estate portfolio.
The AXA REIM management team has devised a set of written environmental standards, which will serve as the source of best practices to be adopted or more broadly rolled out with the aim of meeting HQE standards in such areas as noise pollution and responsible water and energy use. Both general contractors and building maintenance firms will be required to comply with these practices.
Later on in 2004, these policies and environmental reporting system will be tested on a pilot construction site. Based on the system developed for AXA’s administrative facilities, environmental reporting ultimately be required for all properties under AXA REIM management. Before making its expertise available to all of AXA REIM AXA REIM France will seek formal certification for the process.
To further its mission, AXA Assistance works with a vast international network of external service providers, in France and abroad, whose expertise encompasses virtually every domain: automobile mechanics, plumbing and painting, medical transportation and outpatient care, hospital care and home help.
For AXA’s multinational clients, AXA Assistance has developed a unique service designed to protect the human capital of employers. Through its subsidiary Emergency Medical Care (EMC), AXA sets up temporary facilities that provide emergency medical services onsite. EMC, which joined AXA Assistance in 2000, was founded in 1998 by emergency medical care specialists. It establishes emergency medical care centers for multinationals operating in countries that do not have adequate local hospital systems, such as Nigeria, Libya, Chad and Algeria. At the request of a large
Often called on to make services available in developing countries, EMC seeks to ensure compliance with both local and international regulations. Particularly attentive to ethical issues, EMC once refused a project due to the widespread practice of bribery in the country in question.
For many years now, AXA Group subsidiaries have developed and adopted best practices in virtually every domain
– including employment, philanthropy and corporate governance – with the aim of satisfying their customers, their shareholders and their employees.
Our Challenges Improving customer satisfaction is one of AXA’s strategic objectives.
In an intensely competitive industry, the ability to attract and retain customers is essential. A satisfied customer is a source of growth for AXA, since its customers currently own an average of less than two AXA products each. The
– Respond quickly and efficiently to customer requests and ensure quality follow-through.
– Continually work to enhance products and services by listening to customers in order to determine their needs.
– Provide employees with the training and tools they need to deliver sound advice to customers.
Customer Scope and the continuous improvement process are stepping up efforts to refocus AXA organizations around customers and their needs and to improve the level and quality of service AXA delivers.
companies in 12 countries were using Customer Scope. Together, they represent 80 percent of consolidated revenues in 2003.
AXA Customers in Germany: Better Informed in the Event of a Loss
Recent Customer Scope surveys carried out in Germany showed that, for more than 80 percent of AXA’s customers there, the most important issue is timely and accurate information following a loss. While 55 percent of those surveyed prefer to be informed in writing within a week of having filed their claim, only 22 percent were actually receiving letters summarizing key information. Another 31 percent received letters, but not within a week, while another 47 percent got nothing in writing at all. The root cause of this situation was simply that the information process relative to claims was designed to meet the needs of the company, and not those of its customers.
A project team set out to remedy the situation by collecting and analyzing the most frequently asked questions and devising a template. This specimen letter tells customers how their loss will be settled, who is handling the related claim, and how to go about arranging for repairs. This initiative quickly led to three significant improvements: the number of calls to the company for claims-related information decreased by 50 percent; customers are more satisfied with the information they receive; and the rate of retention among homeowners’ policyholders who have experienced a loss has increased significantly.
In 2002, AXA launched a continuous improvement program whose aim is to achieve operational excellence and change internal business processes through people.
To ensure that its products meet evolving client needs, AXA solicits and responds to feedback from customers. In 2003, AXA Financial introduced “Accumulator 2”, an improved version of the Accumulator product, the first variable annuity product introduced in the United States, in the 1990s.
Most of AXA’s subsidiaries adhere to the professional code of conduct in force where they operate. Some, such as
AXA Financial and AXA UK, have also adopted company-wide codes of conduct.
In addition to the domestic and international regulations to which AXA subsidiaries are subject, the AXA Group
Clear and honest information: we undertake to always give our customers information that is clear, honest and well grounded on the insurance coverage acquired, the services to which they are entitled, the status of their savings, etc.
Non-disclosure of confidential client information: we undertake to refrain from disclosing any and all information that we may acquire on the personal life, assets and activities of our customers.
In the United Kingdom, AXA Insurance developed a web-based tool that helps brokers better address the needs of their small and mid-sized business clients. Among other things, the new tool allows brokers to answer all customer queries in a single phone call. The system was recently hailed with an Insurance Times award.
In Ireland, AXA launched a program designed to encourage brokers to innovate by recognizing brokers and their staff who come up with novel ideas aimed at improving customer service. In 2003, more than 200 ideas were submitted.
■ In the United Kingdom, an AXA PPP healthcare employee won a National Customer Service Award. Some 1,000 candidates from 300 companies were in competition for this honor.
■ AXA Financial in the US was awarded the Seal of Excellence for the quality of its investor account statements by DALBAR –
a leading US research, ratings, and rankings agency specializing in various financial service fields, including insurance.
■ The AXA New Zealand call center was named the best in the insurance sector for the third year running, beating eight other contenders. Criteria used to measure performance include quick phone pick-up, friendly greetings, listening skills, product knowledge and other service related factors.
■ AXA in Australia and New Zealand received the InvestorWeb Research Six Star Award in international equities category for one of its funds.
■ AXA France received an Oscar for innovation in life insurance from the French publication Gestion de Fortune.
AXA’s Commitments to Employees – To provide a workplace in which employees are respected.
– To encourage a management style that empowers and develops people.
Agent Scope Rolled Out Group-wide Agent Scope has been tested so far in pilots rolled out in the US and in Germany, which means that 31.5% of its 26,507 tied agents or sales associates worldwide have been exposed to the survey tool.
Living up to our Commitments As a decentralized group, AXA sets forth general guidelines in the area of employment and human resources. Specific action plans are implemented by its subsidiaries to address local concerns.
AXA is also sensitive to the issue of employing the disabled. A number of AXA subsidiaries, both in France and abroad, have developed policies aimed at encouraging the hiring of disabled persons, which now make up just under 1 percent of the Group’ total workforce.
The importance of establishing a genuine labor-management dialogue is deeply ingrained at AXA. Constructive communication helps to sustain employee morale, an essential factor in implementing the Group’s development strategy.
This conviction is reflected in the union voucher program established in France in 1991. Aware of the importance of maintaining dialogue between employer and employee, and in light of the low level of labor involvement in France, AXA
The EWC bureau meets monthly with the head of human resources for the AXA Group to review operations and events.
Twice a year, the EWC holds plenary session meetings attended by AXA Chairman and CEO Henri de Castries.
Once again, the annual performance appraisal plays a key role in elucidating training needs related to current job performance as well as future career development and opportunities.
Employees are paid on the basis of their skills, their individual contribution and the performance of their company, in line with local regulations and prevailing wages in the local market.
“Without a doubt, AXA’s EWC is one of the most active in terms of dialogue – due in part to AXA’s decision to go beyond the requirements of law. At the same time, we would like to be granted additional resources to conduct economic investigations.
The Group’s emphasis on maintaining a high quality labor-management dialogue is evidenced by Henri de Castries’ attendance at the two plenary sessions held annually. During these meetings, employee representatives from AXA companies in Europe are able to ask the CEO direct questions and air views directly.
While the EWC is no substitute for negotiations that take place at company level, it does provide a forum for reviewing and promoting better labor practices at AXA. The most compelling example in 2003 was the work done on service and call centers.
Since 1993, AXA has been using the Scope survey to assess the degree to which employees adhere to Group values and to measure their satisfaction with the quality of their work environment and management. The Scope survey is made up of some fifty questions, grouped under seven dimensions: manager’s qualities, organization efficiency, empowerment, strategy perception, engagement/openness, support and working conditions, and evaluation.
The AXA Group has devised a global Scope KPI to measure the level of employee satisfaction in general. It is defined as the arithmetical mean of index scores for all Scope questions for all AXA subsidiaries.
More than 70 percent of the company’s workforce is made up of university graduates. Employing this highly skilled workforce has contributed significantly to increasing the competitive position of European business operations and, in the longer run, to saving jobs. In the United Kingdom, for example, fixed overhead costs were too high. AXA was faced with the prospect of either closing the company or drastically cutting operating costs. Outsourcing certain back-office services to AXA Business Services helped the UK operation to remain in business. According to Henri de Castries: “It simply makes no sense to say we are in favor of helping emerging countries to develop while refusing to offer employment to which their competitive posture allows them to aspire. Hiring graduates of Indian or Chinese universities is as legitimate as hiring those from Western universities with the same credentials.”
Concerned with the consequences of this outsourcing decision, the European Works Council (EWC) visited AXA
Business Services in March of 2003. The observations of the EWC delegates who visited AXA’s operation in India can be summarized as follows (with their consent): AXA Business Services is a highly efficient operation with a well-motivated workforce. The activity does not directly impact on any current AXA jobs, according to the EWC, but could have ramifications for future employment if the role of AXA Business Services is expanded at the expense of jobs at other Group companies. This is particularly true in the United Kingdom, where AXA has announced that 700 jobs will be eliminated in 2004.
Working conditions are comparable to those enjoyed by AXA employees in the United Kingdom, and local facilities include many amenities (television lounge, gym facilities, etc.). Compensation levels also compare favorably to local market rates. Employees are represented via an employee satisfaction committee, but this is a fledgling organization.
Number of employees holding stock options 3,169 (b) + 21% 2,610 (a) Statistics for 2002 have been adjusted since they first appeared. A problem occurred when this data was originally consolidated, with the result that some personnel categories were counted twice. The figures for 2002 and 2003, printed in this year’s document, should be considered as the correct ones.
2003/2002 (a) SOCIAL INDICATORS (on a constant structural basis – with 2003 as the base year)
– Net number of new jobs created during the year (external recruitment
% of employees who participated in at least one training program during the year
The way in which AXA selects suppliers is also important. In addition to the usual cost/benefit considerations, AXA
screens vendors on the basis of economic, social and environmental criteria and practices. Business ethics also enter into both the initial selection and subsequent monitoring of business partners that come in direct contact with AXA
By creating this virtual circle, AXA acquires protection against practices that could ultimately harm its reputation or the quality of its service delivery.
AXA’s Commitments to Suppliers Maintain quality relationships: – by adhering to a clearly defined code of purchasing conduct; – by promoting ongoing dialogues; – by respecting the terms of payment.
AXA expects its employees to behave in an exemplary manner in their contacts with suppliers. A special code of conduct, developed in 2002, sets forth the following obligations for buyers: – Disclosure/Confidentiality. Supplier offers are strictly confidential, as is the content of any contracts entered into.
– Fairness/Competitive bidding. All participants in requests for proposal, which are issued by AXA for all contracts involving 15,000 euros or more, are treated in accordance with the highest standards of honesty and fairness.
The Business Partners Department at AXA France, which manages relationships with nearly 5,000 AXA-approved suppliers, has adapted the Code to its activity. The department’s annual business with providers of in-kind claims-related services (auto repairs, loss adjustments, home repair and renovation specialists) totals around 1.5 billion euros.
Encouraging Adoption of the Group Procurement Code Total procurement spending in 2003: €3.9 billion. In terms of volume, 50% of these purchases were made via procurement departments and 55% were made via procurement departments that have signed AXA’s Code.
Ongoing dialogue is the key to strong relationships with suppliers. It increases the likelihood that issues can be dealt with before they become full-blown problems, and also fosters a global approach to related services. The decision to establish a Key Suppliers Account Manager (KSAM) program supports this dual aim.
In order to encourage this attitude on the part of its suppliers, AXA is gradually incorporating questions pertaining to sustainable development issues into its request for proposal process. Ultimately, such questions will be standard practice. In a related development, AXA is introducing a sustainable development clause into the contracts that bind the company to its suppliers.
Our Challenges Our core financial protection and wealth management business places us at the heart of community life. Whether our customers are individuals, businesses, local communities or non-profit organizations, the way we do business has an impact on others. Above and beyond our role as a provider of financial protection and wealth management solutions, our relationship with the outside world makes active participation in community life both a right and an obligation. Interaction with the community is a source of both pride and cohesion for AXA people around the world.
– Share our expertise with the community, particularly in the area of prevention.
“As we see it, corporate philanthropy is the natural extension of the business and values of the organization. As important as financial donations and sponsorships are, they cannot replace voluntary involvement on the part of our people.”
As a provider of financial protection and wealth management solutions, AXA seeks to develop lifelong relationships with its customers. AXA uses its expertise to give its customers the peace of mind they need to fulfill their aspirations and deal with life’s major challenges – including but not limited to education, home ownership, parenthood, and retirement.
But not everyone has the means to protect themselves adequately against life’s contingencies. More than a decade ago, AXA founded AXA Hearts in Action, a philanthropic organization that relies entirely on the time and commitment of employee volunteers.
In 2000, AXA companies worldwide kicked off the third millennium by hosting AXA Challenge, a series of local volunteer initiatives conducted simultaneously around the world.
Christopher Condron, AXA Financial President and a member of the AXA Management Board, the AXA Foundation has made the AXA Achievement Scholarship Program its top priority.
In 2002, the cost of financing a college education kept more than 400,000 students from finishing their fourth year of college (source: USA Today, June 2002).
Number of projects completed: 2.500, in partnership with 1,600 local charity organizations
(1) In 2003, a total of 30,000 volunteers took part in community outreach events, including those who participated in a special drive organized by AXA Financial in the US to collect employee donations to charity that were matched by the company.
AXA Achievement awards a total 1.5 million dollars (roughly 1.2 million euros) in scholarship funds each year.
In 2003 and 2004, AXA Art collaborated with the Vitra Design Museum in Germany, one of the largest museums of its type in Europe, on the development and application of new techniques for conserving and restoring twentieth century synthetic objects.
AXA Art teamed up with the Guggenheim Museum in New York to analyze and conduct experimental treatment on
AXA makes its risk management and prevention expertise available to both business clients and individuals. In Belgium,
In 2003, AXA Corporate Solutions Assurance created Scope 2, a software program that offers corporate clients with an automobile fleet a comprehensive approach to teaching road safety to their employees. Companies can choose between online
(Intranet) and CD-ROM versions of the software, which features an eleven-step program leading to safer driving. More than 30,000 employees have already completed the two-hour program, which is followed with a review test.
AXA Prévention also signed a formal agreement with the French Transportation Ministry, under which AXA France undertakes to promote safe driving on the part of employees who use a vehicle for business travel. The program includes defensive driving courses, funded by AXA France, and prevention studies for corporate clients that insure their automobile fleets.
It is also the responsibility of individuals, corporations, and local governments to help reduce environmental impairment, regardless of the extent to which they personally pollute. In addition to saving the environment, these efforts can also save money.
AXA’s Commitments to Environmental Responsibility – Offer our customers the benefit of our expertise in environmental risks.
In Belgium and Ireland, where AXA does not write environmental insurance, in-house experts have been appointed to provide services that respond to client risk management needs.
Using generally accepted market indicators, such as those in the Global Reporting Initiative (GRI), and the expertise of its environmental engineers, AXA has developed a scorecard of indicators that are relevant to its core business.
The Clean City Awards were introduced by the City of London as w way of working with business to reduce the volume of waste in the city’s streets.
AXA Investment Managers is one of ten recipients of a Silver Award from Clean City for its efforts to raise awareness of ecological issues in the workplace. AXA Investment Managers in London now recycles 90 percent of its office waste, which amounts to 100,000 tons of paper a year.
Employee involvement in the initiative has been high, and many suggestions have come from staff members, such as the idea of using one-side printouts for scratch paper and assembling note pads out of used paper.
In 2003, the company recycled more than 150 tons of paper.
The information contained in this report is of critical importance, since it offers insight into actual practice at every operating facility and subsidiary. On the basis of this data, sources of improvement are identified and action plans are drawn up.
Working with its electricity provider EDF, AXA France identified several sources of significant savings in electricity use. Under the terms of Equilibre, the first green energy contract signed with EDF in 2003, AXA agreed to pay a surcharge in exchange for the production by EDF of the renewable energy equivalent of the total energy consumption of AXA’s two operating facilities that were eligible for the contract (La Tour AXA at La Défense near Paris and Marly Le Roy in the Paris suburbs). Together, these sites consume one-quarter of the energy used by all AXA operations in
France, the equivalent of more than 22 million KwH a year. Both the operating facilities and the EDF production plant are audited and certified by the Observatoire des Energies Renouvelables, the French representative of the Renewable
– Paper produced from sustainable forest management (%) 63% 68% 7% 58.7%
– Office supplies, electrical and electronic equipment (units) 50,960 55,457 9% 66,118
Air / CO2 emissions from (tons): Business travel by air and rail 2,590 5,081 96%4 5,205
(1) Including employees + permanent staff onsite but not employed by the company, a total of 21, 292 in France and 26,522 in France
+ Belgium (2) A unit is a keyboard, a monitor, a mouse, a printer, etc. (3) There is no relevance to quantify the progression between 2002 and 2003 as the basis of consolidation has changed. (4) The events of September 11, 2001 caused a significant decline in air travel in 2002.
AXA: How would you describe the quality of your relationship with your AXA Group contacts?
V. Lucas-Leclin: “As an SRI analyst, I’ve been tracking AXA since 1999. To be honest, it was hard going at the beginning: lacking information about the role of SRI rating agencies, AXA always referred us to people in the organization who handled relations with financial rating agencies, and who couldn’t really help us. Things changed in 2001 with the creation of a dedicated department. That turned out to be the springboard to the establishment of a strong working relationship based on mutual respect and learning – which is unusual enough to be worth mentioning. Not only that, we managed to do so despite social and environmental ratings that were not always optimal.
V. Lucas-Leclin: “The term ‘socially responsible’ doesn’t have much relevance when it comes to large international groups like AXA. In addition, the world is not divided into responsible and irresponsible corporations. Like its peers, AXA faces a variety of situations – in human, social and environmental terms – not to mention intense profit pressures and difficult market conditions since 2001. However, it is clear that AXA has a strong corporate culture and values, and these elements provide a solid foundation on which to build its notion of responsibility. AXA has made serious efforts to take ownership of the sustainable development issue, implementing environmental practices that place it within striking distance of the world’s leading organizations. In terms of employment issues, AXA endeavors to inspire its employees to do their best and in return offers them its best. The Group has a good overall track record, despite a certain degree of contrast in local situations.”
– below average = average + advanced ++ pioneer max. sector min. sector AXA
By Vigeo AXA shows evidence of its commitments on CSR issues. The Group set up a sustainability structure in July of 2001 to coordinate its actions and policies towards shareholders; it has achieved slight improvements regarding HR issues although it still faces problems, notably regarding the management of function overlaps after the merger with UAP
By Innovest Innovest’s EcoValue’21® environmental ratings (ranging from AAA to CCC) identify environmental risks, management quality and profit opportunity differentials typically not identified by traditional equity analysis.
The values for the total score, the dimension and the criteria scores are on a scale from 0 to 100%.
The DJSI Guidebooks on www.sustainability-index.com contain further information on the assessment methodology.
Introduction The Company is the holding company for AXA, a worldwide leader in financial protection. Based on available information at December 31, 2003, AXA was one of the world’s largest insurance group, with consolidated gross revenues of €71.6 billion for the year ended December 31, 2003. AXA is also one of the world’s largest asset managers, with total assets under management as at December 31, 2003 of €775 billion, including assets managed on behalf of third party clients of €392.3 billion. Based on available information at December 31, 2002, AXA was the world’s 8th largest asset manager1 including banking companies with total assets under management of €741.6 billion.
AXA operates primarily in Western Europe, North America and the Asia Pacific region and, to a lesser extent, in other regions including in particular the Middle East. AXA has five operating business segments: Life & Savings, Property
Consolidated gross premiums and financial services revenues 71,628 100% 74,727 100% 74,832 100% Adjusted earnings (b)
Adjusted earnings from operating segments 1,838 100% 1,701 100% 1,519 100%
Adjusted earnings 1,450 1,357 1,201 – Impact of exceptional operations 148 235 –
The table below presents the total assets managed by AXA’s entities, including those assets managed on behalf of third parties: The table below presents AXA’s consolidated gross premiums and financial revenues by segment for each of its major geographic markets for the years indicated: AXA’s Total Assets Under Management At December 31,
AXA 281,328 275,531 287,728 Separate (unit-linked) account assets 101,002 90,458 115,723 Subtotal 382,330 365,989 403,451 Managed on behalf of third parties 392,305 375,567 506,546 TOTAL 774,635 741,556 909,997
AXA Investment Managers 21% 19% 13% National Mutual Funds Management (a) – – 1%
Information on market trends in countries where AXA operates is presented in the introduction of the Management
In addition to the principal markets discussed above, AXA offers life, health and retirement products in other countries in Europe (Netherlands, Luxembourg, Italy, Spain, Portugal, Switzerland and Turkey), Morocco, Canada,
Australia, New Zealand, Hong Kong, Singapore, and China, as well as other countries in the Middle East and the
Asia Pacific region. The products offered in these markets are offered through various distribution channels, including general agents, salaried sales forces, bank networks, financial advisers and brokers.
(a) Source: Swiss Re Sigma report 6/2003 “World insurance in 2002”, measured in U.S. dollars. (b) In general, based on 2002 market data for each specific country or an estimate for 2003. (c) Relates to the variable annuity products. (d) Based on annualized new business premium equivalent (regular premium plus one-tenth of new business single premium).
The principal competitive factors affecting the Life & Savings segment’s business include: – Price.
– Ratings for an insurer’s financial strength and claims-paying ability (at December 31, 2003, main Life entities of
AXA Group were rated AA by Fitch IBCA, AA– by Standard & Poor’s and Aa3 by Moody’s), which unable them to account for the best ratings for financial strengh.
– Size, strength and quality of the distribution platform, in particular the quality of advisers.
“Pensionskasse” type in order to profit from a new buoyant market that has developed since the last German government’s pension reforms. In contradiction to many competitors, AXA’s Pensionskasse is open to third party providers, including insurance companies that are not part of the AXA Group. The health products offered include critical illness and permanent health insurance products. The nature of the products offered by AXA varies from market to market.
Total includes: Separate account (unit-linked) contracts 32% 15,022 14,344 16,767 101,069
UK “WITH-PROFIT” BUSINESS Specific to the United Kingdom, the participating contract, also known as the “With-Profit” contract, is offered by many life insurance companies in the United Kingdom, including AXA Sun Life. In 2002, AXA decided to cease the marketing of new product for the “With-Profit” contracts. For “With-Profit” contracts, policyholders’premiums are paid into a life insurance company’s participating (“With-Profit”) fund, which is part of a company’s long term insurance business fund. In the participating (“With-Profit”) fund, the premiums are invested in a range of assets, including fixed maturity and equity securities, real estate and loans. The participating (“With-Profit”) policyholders are entitled to receive a share of the profits arising from these investments. The policyholders’ share of the profits, referred to as bonuses include both regular bonuses and terminal bonuses. These bonuses are either paid on or credited to “With-Profit” contracts held in the fund as recommended by the company’s actuary and approved by its board of directors. The regular bonuses are designed to provide a return to the policyholder through a periodic increase in benefits and are credited to the policyholder at regular intervals. Regular bonuses represent a partially smoothed return of investment income, but do not reflect the return earned by the insurance company in any one period. Once credited, regular bonuses are guaranteed to be paid at maturity, death or as otherwise specified in the policy. Terminal bonuses, which are not guaranteed in advance of payment, are designed to provide policyholders with their share of total investment performance (including investment income and realized and unrealized investment gains or losses) and other experience of the participating (“With-Profit”) fund (including expenses, mortality experience and income taxes). Terminal bonuses can represent a significant portion of the total amount paid at maturity (which has in the past often exceeded 50% and currently exceeds 25% in some case) or upon surrender prior to maturity.
The amount of terminal bonus to be paid is determined 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
Over the past few years, AXA’s Life & Savings operations have experienced significant growth in savings-related unit linked products. This growth has been notable in Europe and in the Asia / Pacific region and is attributable to (i) an
increase in consumer awareness of such products, (ii) government initiatives to move away from state funded pensions to private funded pensions which contributed to the development of these products, and (iii) favorable financial market performance up to 2000. A similar trend also existed in the U.S. Life & Savings operations. However, due to a significant shift in product mix, as a result of deterioration in the global financial market performance since 2001, gross premiums on such business have decreased from €16.8 billion in 2001 to €14.3 billion in 2002. In 2003, mainly due to the lower volatility of the financial markets, gross premiums in unit-linked reached €15.0 billion, representing at constant exchange rates 33% of total gross revenues, compared to 29% in 2002.
DISTRIBUTION AXA distributes its Life & Savings products through a number of channels that vary from country to country including notably exclusive agents, independent brokers, salaried sales forces, direct marketing (mail, telephone or internet sales) and specialized networks (including banks and other financial services providers). In Europe, a number of distribution channels are used by both AXA’s Life & Savings operations and its Property & Casualty insurance operations.
The split by distribution channels used by AXA’s principal Life & Savings operations, based on consolidated gross premiums from new business for the year ended December 31, 2003, is presented below: SURRENDERS AND LAPSES For most life and retirement type products, costs in the first year are higher than costs in subsequent years due to first year commissions and the costs of underwriting and issuing a contract. Consequently, the rate of policies remaining in-force and not lapsing, also known as the “persistency rate”, plays an important role in profitability. The majority of individual retirement products and individual Life & Savings products issued by AXA may be surrendered for a cash surrender value. Most of the individual life and retirement products issued by AXA have front-end charges (or subscription fees), which are assessed at the inception date of the contract and/or surrender charges (charges assessed in the case of early surrender). Both front-end charges and surrender charges are intended to offset a portion of the acquisition costs.
Based on gross premiums from new business in 2003: Other networks, including
(a) Approximately 70% of the products are distributed through affinity groups, which include the Chamber of Commerce and Industry and corporate direct sales (to individuals).
(b) During 2003, several brokers in Belgium became bancassurance distributors and consequently have been reclassified from “Agents and direct sales force” to “Other networks, including direct marketing / corporate partnerships and bank networks”.
Property & Casualty Segment AXA’s Property & Casualty segment offers a range of personal and commercial insurance products. The Property &
Casualty Segment accounted for €17.1 billion, or 24% of AXA’s consolidated gross premiums and financial services revenues for the year ended December 31, 2003 (2002: €15.9 billion or 21% respectively).
Reserves” included at the end of this section of the annual report. Key ratios for Property & Casualty operations are presented in the Management Report.
Life & Savings Segment - Surrenders and Lapses Years ended December 31,
(a) Amounts reported for the US and UK life operations exclude lapses and, for US operations, excludes institutional separate accounts. (b) Including conversions in Japan.
MARKET In 2003, the Property & Casualty market continued to grow, driven by an increase in the number of contracts and an increase in premium rates. This increase was mainly attributable to the on-going high level of claims cost
The table below presents the Property & Casualty markets in which AXA operates ranked by worldwide gross premiums in 2002, along with AXA’s ranking (by market share).
Property & Casualty Based on worldwide gross property & casualty premiums written in 2002
(d) The UK product lines, based on gross earned premiums, are ranked as follows: fifth in personal automobile insurance (4.8% market share), fifth in homeowners/domestic property insurance (4.7% market share), fifth in commercial vehicle (5.6% market share) and third in total commercial property (9.6% market share).
Casualty insurance industry in each of AXA’s principal markets is highly competitive, with surplus underwriting capacity leading to low premium rates. The principal competitive factors are as follows: – Price.
– Changes in regulations, which may affect premium rates charged or claims settlement costs paid, and
In France, Germany and Belgium, markets are fragmented. In the United Kingdom, industry-wide consolidation across the sector has affected both major insurance companies and brokers, resulting in increased concentration among the top few players in recent years.
PRODUCTS AXA’s Property & Casualty insurance operations offer a broad range of products including automobile, homeowners
/ household, property and general liability insurance for both personal and commercial customers, the latter specifically focusing on small to medium-sized companies and permanent health insurance.
DISTRIBUTION AXA distribute its Property & Casualty insurance products through a number of channels that vary from country to country. In Europe, the same distribution channels are used by both AXA’s Life & Savings operations and Property
CEDED REINSURANCE AXA’s Property & Casualty insurance operations use various types of reinsurance, primarily to limit their maximum exposure to catastrophic events, environmental pollution risks and certain other types of risks. Certain insurance exposures are ceded internally to AXA Cessions, which organizes external reinsurance programs. Total gross premiums ceded by the Property & Casualty operations to third party reinsurers in 2003 was €1,043 million (2002: €1,146 million).
– AXA RE focuses on its reinsurance business, principally on Property and catastrophe business as well as some other profitable niches. Such business is underwritten in Paris, Canada, Miami (for South American business) and
– AXA announced that it would (i) cease underwriting and renewing contracts on Life and Non-life reinsurance businesses through its U.S. subsidiaries, and (ii) cease U.S. financial guarantee reinsurance activities carried by AXA RE Finance, and
Based on gross written premiums in 2003 General agents Intermediaries, Direct sales Other networks, including
(a) Including health. On a comparable basis, in 2002, the distribution channels is respectively 52%, 29% and 19%.
large corporate clients in Europe, as well as in the Marine and Aviation lines for all clients on a worldwide basis.
The table below summarizes AXA’s consolidated gross premiums and financial services revenues and gross insurance liabilities (gross of reinsurance) for the International Insurance Segment for the periods and at the dates indicated.
International Insurance Segment Gross premiums and financial services segment Gross insurance liabilities
PRODUCTS The table below presents the International Insurance segment’s gross written premiums and gross insurance liabilities by major product for the periods and as at the dates indicated: AXA RE - REINSURANCE ACTIVITY These operations have a geographically diverse reinsurance portfolio, including the following classes of business: property damage (including catastrophe exposure), third-party liability, marine, financial risk and guarantee, and life and health insurance. The reinsurance operations are oriented towards non-proportional and proportional reinsurance treaties and cover niche products (such as catastrophic risks).
AXA CESSIONS AXA’s Property & Casualty subsidiaries reinsure a large portion of their business internally through AXA Cessions.
AXA Cessions coordinates retrocession with external reinsurers to reduce the loss exposures of each subsidiary and of AXA as a whole.
– Premiums retroceded by AXA RE to external reinsurers are split between (i) ceded €279 million premiums related to specific and proportional retrocessions (deemed to protect specific lines of business), and (ii) ceded €290 million related to covers (deemed to cover the whole portfolio against major events).
Alliance Capital provides diversified Asset Management and related services globally to a broad range of clients including: – Management of separate accounts, hedge funds and other investment vehicles for private clients (such as, high net worth individuals, trusts and estates, charitable foundations).
CONTRIBUTION TO AXA’s CONSOLIDATED GROSS PREMIUMS AND FINANCIAL SERVICES REVENUES 2,922 3,411 3,730
(a) Based on market value. (b) As of January 1, 2002, the financial information in respect of National Mutual Funds Management is presented within the Australia/
AXA INVESTMENT MANAGERS (“AXA IM”) AXA IM is one of the largest Asset Management companies based in Europe. AXA IM’s clients include both (i) institutional investors and (ii) individual investors. AXA IM provides diversified Asset Management and related services globally to mutual funds managed by AXA IM, which are distributed through AXA’s distribution networks, AXA IM’s own sales team and external distributors, and AXA’s insurance subsidiaries in respect of their insurance-related invested assets and separate account (unit-linked) assets.
As at December 31, 2003, AXA IM had €292 billion of assets under management, including €64 billion of assets managed on behalf of third party clients (2002: €268 billion and €51 billion, respectively).
During 2002, AXA IM and AXA Rosenberg, a subsidiary of AXA IM specializing in the management of equities, merged their Asian offices. In addition, in 2001, AXA exercised its option to acquire an additional ownership interest in that company for approximately $30 million, increasing its equity interest from approximately 47% to approximately 75%.
As part of this agreement, and due to AXA Rosenberg’s operating performance, during 2002, AXA made an additional payment of approximately $25 million. This transaction is also subject to an earn-out agreement whereby additional consideration may be paid up until the end of 2005 that is contingent upon the future operating performance of AXA
AXA BANQUE AND AXA CRÉDIT Based in Paris, AXA Banque delivers banking services dedicated to AXA. Its main activities include cash and security flows management and bank account services to AXA’s existing clients and distribution networks, as well as to direct clients. In 2002, AXA merged with Banque Directe, purchased the same year from BNP Paribas. Banque
Directe was a provider of online banking services and complements AXA’s existing financial offering in France. AXA
Insurance-related Invested Assets As mentioned before, the assets supporting AXA’s insurance operations (included within the three segments: the
The general account liabilities of AXA’s Life & Savings operations can be divided into two primary types, participating and non-participating. For participating products, the investment results of the underlying assets determine, to a large extent, the return to the policyholder that is either reflected as an increase in future policy benefits or paid out in cash in the year the bonus is credited to the policyholder. The insurer’s profits on such business are earned from investment management net of policyholder’s participation, mortality and other charges. For non-participating or interest-sensitive products, the insurer’s profits are earned from a positive spread between the investment return, the crediting or reserve interest rate, and mortality.
As part of this approach, insurers develop investment guidelines for each product line that form the basis for investment strategies to manage such product line’s investment return and liquidity requirements, consistent with management’s overall investment objectives for the Insurance-related investment assets. Investments frequently meet the investment objectives of more than one class of product liabilities whereby each class of business may be allocated on a pro rata basis across the investment portfolio.
AXA routinely monitors and evaluates the status of its investments in light of current and anticipated future economic conditions and trends, and other factors. The strategic allocation of assets is generally determined through asset liability analyses for both Life & Savings and Property & Casualty businesses. The strategy may differ across the geographical territories and the different lines of businesses depending on the existing investment mix, the availability of alternative investment vehicles and the underlying nature and duration of the in-force insurance contracts (please refer to the “Risk factors” section).
At December 31, 2003, based on total invested assets1, the net book value of the insurance-related invested assets supporting the general account Life & Savings operations, primarily consisted of fixed maturity investments including equity holdings in fixed maturity-based mutual funds and equity investments of 69% and 14%, respectively (2002: 68% and 13%, respectively). At such date, the insurance-related invested assets supporting the Property & Casualty operations primarily consisted of fixed maturity investments including equity holdings in fixed maturity-based mutual funds and equity investments of 56% and 23%, respectively (2002: 53% and 27%, respectively).
(1) Based on net carrying value and excluding assets backing UK “With-Profit” contracts, assets backing unit-linked contracts and investments in affiliated companies (Equity Method).
International Life & Savings Property & Casualty Insurance Total % of total
Of which equity holdings in fixed maturity-based mutual funds 16,233 16,470 3,398 3,426 252 268 19,883 20,165 9% 9%
Based on insurance-related invested assets, AXA’s fixed maturity and equity investments, are predominantly publicly traded. In respect of these investments, 84% (versus 85% in 2002) of the fixed maturity investments and 90% (versus 91% in 2002) of the equity investments are held by AXA’s principal insurance operations in France, the United States, the United Kingdom, Germany, Belgium and Japan.
More specifically, the insurance-related invested assets backing the insurance liabilities in these operations were predominantly holdings in domestic investments, or in the local currency of the liabilities. In Japan, the allocation is more diversified.
Equity investments (including trading accounts): Related assets at year end 51,732 48,175 54,950
Total invested assets: Total invested assets at year end 219,146 219,518 222,830 (a) The investment yields were calculated on a constant structual basis using the average net carrying value of invested assets (for each category) in the period. The realized gains were net of realized losses and included the net change in valuation allowances on impaired assets as well as the unrealized gains and losses on investments carried at market value, notably the assets supporting the UK “With-Profit” contracts.
Fixed maturity investments: Related assets at year end 15,832 14,059 15,726
Total invested assets: Total invested assets at year end 35,132 32,721 33,083 (a) The investment yields were calculated on a constant structual basis using the average net carrying value of invested assets (for each category) in the period. The realized gains were net of realized losses and included the net change in valuation allowances on impaired assets.
Fixed maturity investments: Related assets at year end 4,936 5,206 4,506
Other assets and cash and cash equivalents: Related assets at year end 2,292 1,897 1,597
Property & Casualty Claims Reserves ESTABLISHMENT OF CLAIMS RESERVES AXA is required to establish reserves for outstanding claims (claims which have not yet been settled) and associated claims expenses that arise from its Property & Casualty and International Insurance operations. AXA establishes its gross insurance liabilities, that is, its claims reserves, by product, type of insurance coverage and year, and charges them to income as incurred.
Claims reserves (also referred to as “loss reserves”) fall into two categories namely: – Reserves for reported claims and claims expenses. These reserves are for outstanding claims which have not yet been settled and are based on undiscounted estimates of the future claims payments that will be made in respect of the reported claims, including the expenses relating to the settlement of such claims; and
– Reserves for incurred but not yet reported (“IBNR”) claims and claims expenses. IBNR reserves are established on an undiscounted basis, to recognize the estimated cost of losses that have occurred but have not yet been notified to AXA. These reserves include the expenses associated with claims settlement, necessary to bring claims to final settlement.
AXA continually reviews the adequacy of the established claims reserves, including emerging claims development, and actual claims experience compared to the original assumptions used to estimate initial gross claims reserve.
Based on current information available in the preparation of the consolidated financial statements included in this annual report, AXA considers that these provisions are sufficient.
The information within this section presents separately (i) AXA’s Property & Casualty insurance operations representing the Property & Casualty Segment operations and AXA Corporate Solutions Assurance within the International
As in prior years, AXA RE is presented separately because: (i) this business consists of insurance assumed from other insurers, (ii) programs which are monitored separately within the reinsurance operations, and the type of insurance and the nature of the risks and exposures covered is different compared to the direct insurance coverage provided by AXA’s Property & Casualty insurance operations and AXA Corporate Solutions Assurance, (iii) a portion of this business is reinsured to other reinsurers through retrocession programs which are monitored separately within the reinsurance operations, and (iv) the claims are accounted for on an underwriting year basis covering a 24-month period rather than on an accident year basis covering a 12-month period.
PROPERTY & CASUALTY RESERVES NOT INCLUDED IN LOSS DEVELOPMENT TABLES AXA does not discount its reserves for claims and claims expenses except for disability claims for which final settlement has been agreed and the payments are generally fixed over a period of time. The disability claims reserves have not been included in the Loss Reserve Development Table, as these are similar to structured settlements.
AXA’s French Property & Casualty operations underwrite construction coverage with a ten-year contract term. In accordance with the French regulations, a specific provision is added to the claims reserves based on methodology established by the French government. This reserve is in addition to each single notified claim. The construction reserves and catastrophe equalization reserves were excluded from the Loss Reserve Development table as such reserves provide no indication as to how claims have been reserved (initially) and the outcome upon settlement of such claims in future periods based on the underwriting and associated reserving methodologies adopted by AXA.
The Property & Casualty loss reserves that were excluded from the Loss Reserve Development Table represented 14.4% of total gross Property & Casualty insurance liabilities at December 31, 2003 (2002: 12.9%). For further information, refer to the “Reconciliation of Loss Reserves to Consolidated Financial Statements” table following the
In respect of the direct insurance business in 2003, there were no reportable changes in the claims payment patterns. In addition, (i) there have been no significant changes in assumptions during the current year, and (ii), in 2003, the company AXA Corporate Solutions Insurance US was transferred from the large risks insurance activities to the reinsurance business with total claims reserves of €459 million at December 31, 2003.
Loss Reserve Development Table: Property & Casualty including International Insurance operations (except for AXA RE)
Reserve re-estimated at: Eight years later 11,663 12,166 12,905 Nine years later 11,652 11,835 Ten years later 11,304
(in euro millions, except percentages) 1993 1994 1995 (c) 1996 1997 1998 1999 2000 2001 (d) 2002 2003
Reserve re-estimated at: Eight years later 1,422 1,552 2,653 Nine years later 1,360 1,688 Ten years later 1,480
Initial net claims reserves in excess of (less than) re-estimated net claims reserves: Percent of original net reserve (a)10.4% 11.4% 20.0% 28.1% 27.7% 11.0% 17.5% 24.3% 23.6% – na (a) The loss reserve development table is presented on an underwriting year basis for AXA RE business. Accordingly reserves re-estimated and the excess of re-estimated reserves in excess of the original reserves include reserves for losses occurring up to twelve months subsequent to the original year-end. It is not appropriate to extrapolate future redundancies or future deficiencies based on the loss reserve development presented in the table as conditions and trends that have affected the development of the liability in prior periods may not necessarily occur in the future periods.
Property & Casualty and International Insurance (excluding AXA RE) 27,825 28,465
Total gross claims and other reserves excluding Life & Savings 37,412 38,175
Claims and other reserves for Life & Savings Segment 7,624 7,556
shareholders’ equity. Following this operation, AXA now holds 100% of AXA Financial equity.
– Sanford Bernstein. Alliance Capital Management L.P. (“Alliance Capital”), a subsidiary of AXA Financial, has acquired Sanford C. Bernstein, Inc., a US-based asset manager with assets under management of approximately $90 billion (€96 billion).
– Minority interests buy-out. AXA has continued its reinforcement strategy through the buy-out of minority interests.
UK Holdings, previously named Sun Life & Provincial Holdings. Based in London, GRE’s insurance operations were located in the United Kingdom, Ireland and Germany. Pursuant to this acquisition, AXA has reinforced its presence in these countries, especially on the health, property and casualty market in the UK.
In 1991, AXA Financial, Inc. (previously Equitable Holdings Companies Inc.). AXA invested $1 billion in The
Equitable Life Assurance Society of the United States (“Equitable Life”), in anticipation of Equitable’s Life demutualization.
Following the demutualization of Equitable Life in 1992, AXA’s initial investment was converted into a controlling equity interests in The Equitable Holding Companies, Inc. (renamed AXA Financial, Inc.), the holding of Equitable Life.
– In 2000, Donaldson, Lufkin & Jenrette (United States). On November 3, 2000, AXA sold the investment bank
Donaldson, Lufkin & Jenrette (“DLJ”) to Crédit Suisse Group for $7.3 billion (€8.4 billion at the date of the operation). The consideration included cash for $2.4 billion and 25.7 million shares from the Crédit Suisse Group
(6.4 million were immediately sold, the remaining 19.3 million shares have been sold in January 2001).
Company, as the holding company for the AXA Group, co-ordinates these activities and, in this role, participates in financing the operations of certain subsidiaries. Certain of AXA’s subsidiaries, including AXA France Assurance, AXA
AXA’S INSURANCE OPERATIONS The principal sources of funds for AXA’s insurance operations are premiums, investment income and proceeds from sales of invested assets. The major uses of these funds are to pay policyholder benefits, claims and claims expenses, policy surrenders and other operating expenses, and to purchase investments. The liquidity of insurance operations is affected by, among other things, the overall quality of AXA’s investments and the ability of AXA to realize the carrying value of its investments to meet policyholder benefits and insurance claims as they fall due.
AXA’s investment strategy is designed to match the net investment results (the investment yield) and the 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
ASSET MANAGEMENT AND FINANCIAL SERVICES The principal sources of liquidity relating to these operations are operating cash flows, proceeds from the issuance of ordinary shares (where applicable), credit facilities and other borrowings from credit institutions.
United States. The Company did not have any amounts outstanding on bank overdrafts at December 31, 2003.
On a consolidated basis at December 31, 2003, AXA’s total outstanding subordinated debt totalled €8,980 million, after taking into account all intra-group eliminations, or €8,453 million after taking into account a €527 million decrease relating to foreign exchange derivative instruments (2002: €8,589 million, €8,300 million and €289 million respectively ).
The increase of €153 million in 2003 (after the impact of foreign exchange derivative instruments), or €555 million at constant exchange rates, was mainly due to the following factors. As part of the €5.0 billion EMTN (Euro Medium
At December 31, 2003, the potential number of ordinary shares to be issued upon conversion of AXA's total outstanding subordinated convertible debt was around 64.0 million (2002: 64.0 million).
For further information, refer to Notes 18 and 22 to the consolidated financial statements.
December 31, 2003, an increase of €474 million from the €4,682 million figure a year earlier. Of the total nonsubordinated debt outstanding at December 31, 2003, the amounts classified as financing debt and operating debt equalled €4,459 million and €697 million, respectively (2002: €3,622 million, and €1,060 million respectively). On a constant exchange rate basis, the increase was €864 million and was primarily due to the following factors: – Financing debt increased by €1,161 million. This was mainly due to ORANs issued following the exercise of warrants allocated free of charge, to shareholders as part of the contemplated acquisition of MONY (€1,389 million after the elimination of intra-group financing). This was partly offset by the redemption of €258 million of 6% mandatory convertible bonds issued by AXA Colonia Konzern Finance in 1998, and the partial redemption of AXA Financial’s senior bonds (€73 million).
Of AXA’s total outstanding debt at December 31, 2003, short-term debt (maturity of 1 year or less) equalled €2,355 million, of which €1,789 million related to the Company (mainly consisting of ORAN bonds).
For further information see Note 22 to the consolidated financial statements.
AMOUNTS OWED TO CREDIT INSTITUTIONS On a consolidated basis at December 31, 2003, amounts owed by the Company and its subsidiaries to credit institutions totalled €3,851 million as compared to €5,018 million at December 31, 2002, or a decrease of €1,167 million. Of the total amounts owed to credit institutions outstanding at December 31, 2003, financing and operating debts (including bank overdrafts for €1,016 million), represented €29 million and €3,822 million, respectively. The decrease of €1,167 million was attributable primarily to the following items: – In 2003, AXA Bank Belgium’s debt fell by €480 million since financing needs were essentially fed through current accounts with the National Bank of Belgium.
– Bank overdrafts were reduced by around €60 million across the whole group.
In connection with the contemplated acquisition of MONY Group Inc. – a life insurance company based in New York, also known as MONY –, AXA decided to finance this proposed transaction by issuing ORAN bonds (bonds redeemable in shares or cash), for an amount of €1.4 billion. The ORAN were issued upon the exercise of warrants allocated free of charge by AXA to its shareholders.
Those owning shares on September 19, 2003 received a warrant for every share held. As a result, 1,763,924,947 warrants were issued. These warrants gave holders the right to subscribe to one ORAN bond at a price of €12.75 for every 16 warrants held. As a result, 110,245,309 ORANs were issued for a total amount of €1,405,627,690.
Each ORAN will be automatically redeemed by the issuance of one new ordinary AXA share following the closing date of the acquisition. If the acquisition is not completed, and at the latest by December 21, 2004, the ORANs will be redeemed in cash at par, with accrued interest of 2.4% prorata temporis.
DIVIDENDS RECEIVED Dividends paid to the Company were approximately €1,109 million in 2003 (2002: €1,481 million, 2001: €1,882 million), of which approximately €250 million were in currencies other than the euro (2002: €387 million, 2001: €410 million).
The net decrease in dividends received during 2003 related principally to a decrease in dividends received from (i)
AXA Konzern AG, which reduced its dividend payment by €132 million, (ii) AXA Holdings Belgium, which paid no dividend in 2003 versus €177 million in 2002, (iii) AXA Financial, which reduced its dividend by €128 million and (iv)
AXA Participations II, which cut its dividend by €80 million to €147 million. This decrease was partly offset by (i) a €102 million increase in the dividend paid by AXA France Assurance to €580 million and (ii) a non-recurring dividend of €52 million paid by Compagnie Financière de Paris in 2003.
SOLVENCY MARGINS AND RISK BASED CAPITAL Each insurance company within AXA is required by regulations in the local jurisdictions to maintain minimum levels of capital adequacy and solvency margin. The primary objective of the solvency margin requirements is to protect policyholders. AXA’s insurance subsidiaries are in compliance with the applicable solvency requirements.
The solvency and capital adequacy margins in general are calculated based on a formula that contains variables for expenses, inflation, investment earnings, death, disability claims, surrenders, premium dormancy and policyholder options, distribution of assets among investment categories, and the matching of specific categories of assets and liabilities.
The new requirements are regulated in France by the Commission de Contrôles des Assurances, des Mutuelles et des Institutions de Prévoyance.
that require each to maintain, depending on its area of activity (bank, credit establishment or other), a minimum liquidity ratio or a minimum solvency ratio.
On this basis, and taking into account future profits as advised by the 2002.12 Directive dated from March 5, 2002, the adjusted solvency ratio is approximately 212% at December 31, 2003, compared to 172% at December 31, 2002.
SUBSEQUENT EVENTS AFTER DECEMBER 31, 2003, AFFECTING AXA’S LIQUIDITY In AXA’s ordinary general meeting of shareholders, to be held on April 21, 2004, a dividend of €676 million (€0.38 per share) in respect of the 2003 financial year will be proposed for approval to shareholders.
Organization of Risk Management at AXA The Risk Management department, within Group’s Finance Department, is responsible for defining methods and systems to identify, measure and monitor risks so that they can be managed efficiently.
AXA manages its market risk within the framework of disciplined and organized investment processes: – Insurance subsidiaries are responsible for monitoring risks through the use of liability structure analysis and asset/liability matching techniques. They define strategic asset allocation policy, which is implemented by asset management companies mandated under investment management agreements. Insurance subsidiaries are responsible for monitoring and controlling the investment policy carried out on their behalf by these asset management companies.
At Group level, an ALM Steering Committee, supervised by the Group Finance Officer, determines general asset liability 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.
Risk assessment standards cover two types of requirement: 1. Analysis of the insurer’s ability to meet long-term policyholder obligations arising from its insurance contracts.
AXA has a significant surplus of assets as measured against a level of assumed risks that is consistent with a rating in the AA range. This favorable situation is attributable primarily to the significant impact of the diversification of risks between the various businesses and countries in which AXA operates.
2. Analysis of AXA’s ability to satisfy capital adequacy requirements over the short and medium terms.
– Lastly, subsidiaries perform simulations on the various regulatory constraints that they have to meet using extreme scenarios for assets (in terms of both the market value of equity securities and interest rate trends). Every six months, these models are sent to the Group’s Finance Department, enabling it to assess the extent of each subsidiary’s financial flexibility. The results are presented to the Finance Committee of AXA’s Supervisory Board on a regular basis.
LIFE AND SAVINGS OPERATIONS The market risks to which life and savings subsidiaries are exposed arise from a number of factors: – A decline in yields on fixed-income investments 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.
– A decline in equity and real estate prices may reduce the level of unrealized capital gains and available surpluses.
– Exposure to the foreign exchange risk are generally limited for the Group’s life insurance companies. Foreign currency commitments are matched to a large extent by assets in the same currency.
AXA’s risk exposure, since the underlying financial market performance is fully for the account of policyholders.
3. 19% of AXA’s life insurance mathematical reserves cover products without guaranteed cash values upon surrender.
– The "With-Profit" policies sold in the United Kingdom are managed with a significant surplus of free assets, used to smooth performance over the duration of such policies while at the same time reflecting financial market performance in payments to policyholders.
– Annuities in the payout phase are usually backed by fixed-income assets with maturities that match the underlying payout schedules, thereby avoiding reinvestment and liquidity risks.
4. 10% of AXA’s life insurance reserves are related to products offering guaranteed rates for one year which rates are updated every year. The risks in case of interest rates declining are relatively limited for these types of products that mainly concern certain French and Japanese contracts. Hedging derivatives programs may be implemented to cover the most sensitive products with respect to an increase of interest rates.
In addition, the ever-evolving product range allows to reduce the risk of this type of investment through improved segmentation of new products, reducing the sales of new guaranteed interest rate products. Some products offer guarantees “in-fine” with lower cash value guarantees upon surrender. Other products offer surrender guarantees but no guaranteed interest-crediting rates.
– The foreign exchange rate risk is relatively limited as commitments in foreign currencies are largely backed by assets in the same currencies.
– Inflation is a risk, since it increases the value of claims payable to policyholders. Consequently, if inflation is not adequately taken into consideration, actual claims payments may exceed the reserves set aside.
Property and casualty company investments are managed on the basis of these risk factors. Contracts that offer guaranteed payout rates are usually backed by fixed-income investments that to a great extent cover the reinvestment risk. A portion of investments is made in highly liquid assets, to ensure the payment of exceptional benefits and claims that may arise.
– foreign exchange rate risk, resulting from a mismatch between the currency in which an asset is denominated (notably net investments denominated within the foreign currencies in subsidiaries) and its financing; – interest rate risk, resulting from differences between the interest rate structure of an asset and its financing in terms of: – type (fixed rate versus floating rate),
– The purpose of the foreign exchange norm is to determine the optimum proportion of liabilities denominated in foreign currency providing a balance sheet hedge in order to protect AXA’s investments in its subsidiaries and thus the Group consolidated shareholders’ equity against currency fluctuations.
– The interest-rate norm is defined in such a way as to control and curb variation in financial expense in the medium term and thus to protect future levels.
– The liquidity norm establishes the size of confirmed credit lines required by AXA to weather a liquidity crisis and sets the constraints on the debt maturity profile. In addition, the norms introduced by the Group preserve its liquidity by ensuring that it holds assets eligible for the European Central Bank’s tender operations.
– interest rate sensitivity analysis, which measures changes in the value of the interest rate position following a parallel 1% rise in the yield curve by currency and by maturity,
– exchange rate sensitivity analysis, which measures the year-by-year change in interest expense attributable to a 10% appreciation in the euro against all other currencies,
– the maturity schedule of consolidated debt and credit lines available.
Liquidity risk is managed carefully and conservatively by maintaining the duration of sources of funds long and by maintaining a large stock of confirmed credit facilities (over €5 billion at December 31, 2003).
Furthermore, the Group’s liquidity profile is bolstered by the following factors: – The Group’s financial strength gives it broad access to various different markets via standardized debt programs: €3 billion in commercial paper, a €1.5 billion BMTN program, a €5 billion EMTN program subject to documentation requirements and a US shelf registration covering up to $5 billion in debt securities.
Group, AXA has ensured that it is not exposed to default or early repayment clauses that may have a material adverse effect on its consolidated financial position.
SENSITIVITY TESTING AXA performs sensitivity analyses to quantify the Group exposure to interest rate risk, equity price risk and foreign exchange rate risk. Such sensitivity analyses quantify the potential impacts under certain scenarios of adverse changes in financial markets.
Such analysis include AXA’s principal insurance operations and holding companies in France, the United States, the
For invested assets, fair value was estimated in accordance with the valuation methods described in the notes to the consolidated financial statements. The fair value of liabilities by type of contract was estimated as follows: – For saving contracts with variable interest rate, a discounted cash flow method is used. For this type of contract, sensitivity is limited as assets and liabilities generally fluctuate symmetrically, resulting in a lower net sensitivity
– For participating life insurance contracts, the fair value attributed to mathematical reserves is considered to be the higher of (a) the fair value of the assets designated to support such policies and (b) the discounted future cash flows using the guaranteed minimum interest rate, if any.
(compared to €1,7 in 2002) and €3,3 billion (stable compared to 2002), respectively, net of changes in liabilities reflecting participating contracts. The very small change in exposure to equity market between 2002 and 2003 was mainly attributable to the stable percentage of the Group’s assets, invested in equity securities.
Over the last few years, the potential loss from stock market fluctuations has been larger than the potential loss resulting from interest rate changes. The impact of interest rate fluctuations on the value of life insurance investments is partially offset by fair value changes in a large proportion of insurance liabilities. However, the impact of stock market declines on equity securities was accompanied by much smaller changes in the estimated fair value of insurance liabilities (except for participating life contracts and separate account contracts). The difference was even greater for Property and Casualty operations, since their insurance liabilities were not affected by equity price fluctuations and their investment portfolios are invested to a greater extent in equities than life insurance investment portfolios.
In 2003, a 10% increase of the euro against all other currencies could have had an approximately €36 million positive impact on AXA’s net income. The same scenario applied to 2002 could have resulted in a negative impact of €48 million on AXA’s net income.
This significant change in AXA’s results sensitivity to a strengthening of the euro is explained by two main factors: – On one hand, the significant sensitivity generated by the US Dollar zone, linked to their traditional important positive contribution to the net consolidated result was completely offset by a specific hedging program implemented in
LIMITATIONS TO SENSITIVITY TESTING The results of the analyses presented above must be examined with caution due to the following elements: – Only the assets and liabilities defined in the introductory paragraph on sensitivity analysis were included in the scope of analysis of the sensitivity testing for market fluctuation on fair value,
– They do not take into consideration the fact that asset liability management put in place by the different Group entities to minimize the exposure to market fluctuations are active and dynamic strategies. As market indices fluctuate, these strategies may involve buying and selling investments, changing investment portfolio allocation or adjusting bonuses credited to policyholders.
– In addition, these sensitivity analysis do not take into account the impact of market changes on new business, which is a critical component of future profitability. Like its industry peers, AXA would likely reflect adverse market changes in the pricing of new products.
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; – and the lack of correlation of interest rates, equity prices and foreign currency exchange rates.
AXA is establishing a database consolidating the Group’s listed assets and analyzing them by issuer, by credit rating, sector and geographic region to help monitor the risk of concentration of its equity and bond portfolios.
This information is used to define limits at Group level and for each subsidiary based on different criteria, such as counterparty and the structure of the portfolio by rating. These tools are designed to enable the Risk Management department to ensure that these limits are complied with, to analyse the potential breach when significant, and to examine any formal requests for special dispensation. The ALM Steering Committee is regularly kept informed of the work performed.
These tools are also designed to enable co-ordinated contingency measures to be taken for the most sensitive counterparties.
Finally, the Group position resulting from its operations on the derivative market are monitored on a regular basis, and by counterparts based on their financial strength.
AXA’s exposure to the risk of default any of its reinsurers.
– Human health: Increased morbidity and mortality rates owing to the effects of major heat waves on individuals, particularly in urban areas. Lower morbidity and mortality rates attributable to cold weather. Expansion in the area in which certain dangerous disease carriers live, leading to higher risks of epidemics.
– Basic services: Reduction in the quantity (drought) and quality (heavy rain) of water resources. Sparser resources for hydro-electric generation, reduced reliability of electricity supplies (networks under greater strain) in view of stronger demand for cooling services.
– Other: change in tourist destinations, higher risks for all coastal infrastructure, etc.
Gradual premium rate adjustments to reflect these risk factors will be required, but are not likely to be sufficient on their own. Significant opportunities exist for the development of climate-related derivative products for sectors, such as agriculture, tourism and construction. Furthermore, the increasingly substantial damage caused by meteorological events is likely to increase the use of tools such as catastrophe bonds to transfer some of these sophisticated types of risk to the capital markets.
SHORT-/MEDIUM-TERM OUTLOOK Underwriting/pricing risk is managed on a gross basis primarily by AXA’s insurance operations, which have a set of actuarial tools for this purpose enabling them to price up products and then monitor their profitability over time.
A uniform Group-wide framework for quantifying all the risks has been developed by the Risk Management department using stochastic modeling tools factoring in insurance risks. This framework includes pricing control systems that insurance operations use as part of their product development process.
This type of analysis underlines the benefits of diversification created by AXA’s various businesses and regional operations.
The tools that have been described above allows multi country studies to be carried out into the mortality/longevity risks to anticipate any future development and to ensure that this risks are correctly priced and reflected in insurance reserves.
Lastly, the Risk Management teams review the main assumptions used by the life insurance operations to calculate their insurance reserves. The review includes a comparison of the assumptions used to the actual figures for both mortality/longevity and return on invested assets.
PROPERTY & CASUALTY OPERATIONS In addition to the pricing risk (gross of reinsurance), a specific focus is made for Property & Casualty to ensure that the level of reserves is satisfactory.
In addition to the reviews performed at entity level or, eventually, by the supervisory authorities, these claim reserves, and more specifically the IBNR, are reviewed at Group level by the Risk Management. These analyses do not provide an absolute assurance that the reserves are adequate, however they help to enhance the reliability of the estimations based on the information available.
REINSURANCE POLICY The establishment of reinsurance programs is a major and sensitive element in the course of insurance activities.
For Property & Casualty operations, the reinsurance programs is set up as follows: Reinsurance placement is handled centrally for AXA’s main Property & Casualty portfolios through AXA Cessions, an AXA subsidiary. Prior to ceding risks, in-depth actuarial analyses and modeling are conducted on each portfolio by AXA Cessions to optimize the quality and cost of reinsurance cover. These analyses are performed in collaboration with the Group operational entities. They measure the risks related to frequency as well as to specific types of natural catastrophe (storms, flooding, earthquakes), and 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 light of objectives and capital allocation constraints.
In addition to the analyses performed above, AXA closely and regularly monitored its exposition to its main reinsurers, as described in the paragraph relating to the credit risk management.
Responsibility for managing the day-to-day operational risks lies mainly with subsidiaries, which are best positioned to take the appropriate measures to reduce the risks facing their organizations.
Concurrently, a review and assessment of the main insurance processes (pricing, underwriting, claims management, etc.)
applied by insurance operations have been implemented to conduct a comparative assessment of their practices (scoring).
Based on the scores obtained, AXA defines minimum requirements. All subsidiaries are then expected to comply with these requirements by undertaking any remedial actions that may be necessary.
SPECIFIC REGULATIONS AXA, due to its principal activity of acquiring and managing equity interests in insurance companies, is considered to be an insurance group (“société de groupe d’assurance”) by virtue of Article L.322-1-2 of the French Insurance
Code (the 'Code des assurances'). Consequently, it is subject to supervision by the French Insurance Commission
International Chamber of Commerce in Paris relating to the sale by various AXA Group companies in 1999 of PanEurolife, a life insurance company incorporated in Luxembourg. Nationwide is seeking cancellation of the sale and/or damages after PanEurolife was investigated by the French judicial system for alleged money laundering.
SOCIAL AND ENVIRONMENTAL RISKS With respect to its employment practices, AXA’s key challenge is to retain employees and position itself as an employer that is able to attract top talent.
Subsidiaries are responsible for identifying and obtaining insurance coverage with respect to their transferable risks
For example, facilities located in France benefit from extensive coverage, regardless of their actual use or ownership status. IT risks are covered under comprehensive policies that include machine breakdown as well as the provision of gross replacement and other costs required to restore normal operation.
To avoid possible conflict of interest, all liability risks are covered by policies written by insurers other than AXA.
This program was initiated in 1999 and extends to all AXA subsidiaries, with the exception of AXA Financial and
– The Fraud program covers all of AXA’s subsidiaries, with the exception of the two mentioned in the preceding paragraph.
AXA carries a D&O liability policy that combines coverage suited to countries whose legal system is based on common law and those whose legal system is based on civil or codified law which offers protection against legislation and regulations in force in the various countries in which AXA operates. Ri sk M
Cautionary Statements Concerning Forward-Looking Statements This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document.
Market conditions in 2003 FINANCIAL MARKETS 2003 saw a reversal of the downturn that had persisted in the financial markets for three years running, with the MSCI
DISPOSALS On January 8, 2003, AXA Asia Pacific Holdings completed the sale of its 50% interest in Members’ Equity to Industry
Versicherung AG, the first Life and fourth Non-Life Insurer in this country, for the sale of its business. This transaction has been signed by both parties in December 2002, and finalized on June 4, 2003. The amount of the realized capital gain accounted for in 2003 is €37 million.
AXA Bank Belgium sold Auxifina, one of its subsidiaries dealing with consumer credit, which client population was not consistent with its core business population. The realized capital gain was €+15 million gross and net group share.
Furthermore, during the second half year, AXA made private placements totaling approximately €500 million from its Medium Term Note program. These issues, which are callable undated subordinated notes, allow to partly anticipate the refinancing of debt maturing in 2004 and 2005, whilst benefiting from unprecedented favorable market conditions and improving AXA’s liquidity by further extending the average maturity of its debt.
Bonds redeemable in shares or in cash [obligations remboursables en actions ou en numéraire (ORANs)] AXA decided to finance the proposed acquisition of MONY for an amount of Euro 1.4 billion, by issuing ORANs, which are bonds redeemable either in shares or in cash. The ORANs have been issued upon the exercise of warrants allocated free of charge by AXA to its shareholders.
Shareholders on record at close of business on September 19, 2003 were allocated, free of charge, one warrant for each share held resulting in the issue by AXA of 1,763,924,947 warrants. 16 warrants entitled warrantholders to subscribe one ORAN against payment of Euro 12.75 per ORAN corresponding to the issue of 110,245,309 ORANs for a total
Each ORAN will be automatically redeemed by the issuance of one new ordinary AXA share following the closing date of the acquisition. If the acquisition is not completed, and at the latest on December 21, 2004, the ORANs will be redeemed in cash, at par with accrued interest of 2.4% prorata temporis.
OTHER HIGHLIGHTS On December 16, 2002, a public offer was launched by Crédit Agricole S.A. on Crédit Lyonnais. AXA tendered its
Capital took into its Full-Year 2003 accounts a €292 million ($330 million charge), with an impact on AXA Group earnings of €-104 million. In addition, as part of the settlement, Alliance Capital agreed to lower its fees on domestic equity mutual funds by 20% for the next five years, with an estimated impact on revenues of $70 million for 2004.
This agreement approved a definitive merger under which AXA Financial will acquire 100% of MONY’s outstanding common shares through a cash merger valued at $1.5 billion. This transaction fits to the Group strategy and is expected to benefit to AXA Financial thanks to strong distribution capabilities, complement product offering, substantial assets under management, a solid workforce and strong client relationships.
On January 2, 2004, AXA concluded the disposal of insurance brokerage operations activities in the Netherlands,
Unirobe, through the means of a management buy-out. The proceeds for the sale will amount to €126 million, and the related capital gain is estimated to €105 million.
On January 23, 2004, AXA concluded with BBVA Group an agreement under which AXA will acquire the 50% stake of BBVA in its subsidiary Hilo Direct Seguros y Reaseguros S.A. (“Direct Seguros”). After this transaction, AXA will hold 100% of Direct Seguros. The purchase price will amount to €49 million. The transaction is subject to the approval of the Spanish insurance and competition regulatory bodies.
(+ 13%) and 2000 (+ 20%), premium growth reached an estimated + 9% as compared to + 2% in 2002 and a decrease of – 7% in 2001. The growth pace accelerated towards the end of the year. Increase in individual business premiums reached +8% while group business (mainly group retirement) increased by + 20%, fuelled by additional retirement premiums from large companies. Similarly to 2002 trends, general account premiums were up + 13% as customers continued to favor these products perceived as less volatile. Meanwhile, decrease in unit linked gross premiums slowed down, as financial markets were less volatile, to – 7% to be compared with – 32% in 2002.
Universal Life sales were up 25%. Industry fixed Whole Life insurance sales were also up (9%), while Term insurance sales were flat from 2002. Management believes that the stronger equity market is likely to drive higher sales of variable annuities and could start improving sales of variable life insurance.
With sales of both investment and pension products being hit, the principal growth area in 2003 was protection, in particular term assurance. Sales of With Profits Bonds, the largest product sector in 2002, collapsed in 2003 as falling stock markets reduced capital available to finance new business at the levels of previous years and consumers lost confidence in the With Profits concept. It will take some time for that 'lost' “With-Profit” business to be redirected into other life bond products. While overall sales of Group Pensions have fallen, there has been a change in the types of product sold, as many employers have closed defined benefit schemes and moved to lower cost defined contribution schemes. Independent Financial Advisers continued to be the principal sales channel in 2003 accounting for around 70% of new business.
Japan. The Japanese Life insurance market experienced declining in-force business for the eighth consecutive year
Life insurers in the Japanese market was 17%, (a 3.4 point increase compared to fiscal year 2002) and AXA Japan
(1) Industry Sales Results are from LIMRA as of September 30, 2003.
Customers are now re-focusing their investment strategies towards equity-based investment linked business as a result of the rebound in equity markets. The Hong Kong equity market (Hang Seng Index) grew 31% during the second half of the year.
There are two types of market-share-winners: Mutual insurers with low-price-image and manufacturers with innovative products and strong position in the broker market. Overall health market is expected to grow by 7.0% in 2003.
+ 39% in 2002 and + 64% in 2003), whereby life products grew 31% overall in 2003 and short term bank savings accounts increased by 13%. The overall Life & Savings market growth was estimated at + 26%.
Southern Europe. In 2003, the institutional Spanish insurance market faced the end of the externalization of pensions funds products (– 34%). Unit-linked products increased by 14% benefiting from financial markets recovery2.
However the future of this business is uncertain due to a change in tax regulation. In Italy, the market has continued growing over 2003: written premiums grew by 15% as compared to the same period last year3, and new business grew by 13%4. The new business growth was mainly driven by index-linked products and traditional saving products, particularly single-premium. In Portugal market grew by 18.2% to €5.4 billion, mainly driven by the increase of group products, which benefited mostly bank-insurers5.
(3) ISVAP: Sept. 2003 (Instituto per la vigilanza sulle assicurazioni private / insurance controller). (4) IAMA Consulting, Nov. 2003 (market research consultancy). (5) Portuguese Insurance Association.
PROPERTY & CASUALTY France. The French property and casualty market growth rate was higher (+ 8%) in 2003 than in 2002 and 2001
Germany. In 2003, total Property & Casualty business increased by 2.8% in all lines. In motor line, gross written premiums, covering more than 40% of total Property & Casualty, increased by 2.4% to €16.1 billion. Due to the absence of catastrophes and major losses, and owing to favorable climatic conditions, claims paid for current year (all motor lines aggregated) decreased by 4.0%, mainly in motor liability (– 7.4%). Property is the second largest Property &
Workers compensation market showed only a slight growth of 2% in 2003 as the Belgian economy softened.
Southern Europe. The Spanish market grew by 9% to €24 billion in a favorable economic environment2. In spite of a 7% growth, the motor line confirmed the slow-down which started in the second half of 2002 as a result of strong price competition. Household and health businesses increased respectively by 14% and 9%. In Italy, the insurance market in 2003 was influenced by the Italian government request to limit tariff increases on compulsory Motor Third-
and brokers (mainly in other lines). The introduction in July of the “patente a punti”, a driving license where points are deducted upon offences, contributed to a reduction in severe car accidents on Italian roads. In Portugal, market grew by 5.3%. Motor business, which represented nearly half of written premiums, increased by 4.5% to €1.9 billion.
INTERNATIONAL INSURANCE On the reinsurance side, after the large claims experience and the financial market crisis in 2001, a progressive stabilization of prices is under way. The bulk of AXA RE’s portfolio –Property, Marine and Aviation– showed stable rates and no capacity issues. The rest of the portfolio -Motor and Casualty- benefited from additional rate increases.
ASSET MANAGEMENT After a slow start to the year, a strong climb by equity markets in 2003 provided a positive background for the industry, demonstrated by the S&P 500 which advanced by nearly 29% during the year. Those investors, who either left or reduced their activity in equity markets during the past few years, began to return or increase their activity, albeit cautiously. In the second half of the year, the market timing and late trading investigations carried out by the regulatory authorities, in particular the SEC and the Office of the New York Attorney General became a focal point for both US
Hungary, AXA Australia Health activities, and International insurance business in run-off in the United States) also contributed to the decrease (€–1.4 billion or – 2.1 bpts).
On a comparable basis, consolidated revenues were up + 5.3%, showing a sustained growth throughout the year.
UK still shows a decrease (– 11.2%) mainly as a result of AXA’s withdrawal from the “With-Profit” bonds market since
Spain also showed a decrease in revenues (– 44%) since 2002 revenues had benefited from large Group single contracts relative to pension fund outsourcing.
FY FY Change Change on a FY (in euro millions) 2003 2002 comparable basis (b) 2001 Life & Savings 46,799 48,586 (3.7%) 8.5% 48,399 Property & Casualty 17,098 15,948 7.2% 4.0% 15,896 International Insurance 3,972 5,762 (31.1%) (10.9%) 5,678 Asset Management 2,922 3,411 (14.3%) (0.3%) 3,730 Other Financial Services 836 1,020 (18.0%) (19.2%) 1,128 TOTAL 71,628 74,727 (4.1%) 5.3% 74,832
Property & Casualty: gross written premiums were up +4%, showing good performance in all major countries, especially in France (+ 5.9%), the UK (+ 3.6%). This growth was achieved through successful rates increases and positive net inflows despite the continuing application of strict underwriting policies. Personal lines grew by + 3%. This was attributable to both the Motor business (+ 2%) especially in France, Germany, and Belgium, due to a combination of moderate rates increases and portfolio growth, and the non-Motor business (+ 4%) mainly in the UK benefiting from new partnerships agreements. Commercial lines also grew by + 8%, mainly attributable to France and the UK, due to significant tariff increases in all lines of business, combined with a strict underwriting policy and portfolio pruning.
International insurance revenues were down – 10.9%, pulled by AXA RE (– 17.7%), reflecting (i) continued stringent underwriting policy aiming at reducing the risk exposure of the portfolio while focusing the P&C portfolio on more profitable business, and (ii) a 2002 non-recurring revision on prior year premiums (€+271 million). AXA Corporate
The 2003 net income Group share included €148 million of exceptional operations relating to: – Realized capital gains on the disposals of (i) the Austrian and Hungarian subsidiaries (€+37 million), (ii) Auxifina in
AXA Bank Belgium (€+15 million), and (iii) Members Equity in Australia (€+12 million),
– An exceptional profit in AXA Financial (€66 million net of goodwill effect) following a review of tax positions related to periods prior to the acquisition of “The Equitable Inc.” by AXA. The comprehensive tax review impact was partly compensated by an exceptional amortization of the goodwill (recorded in 2002 when acquiring the minority interest of AXA Financial) for €–106 million.
Colonia Re participation to General Re and was offset by an exceptional goodwill depreciation.
(a) Adjusted Earnings represents AXA’s consolidated net income, before goodwill amortization and exceptional operations. Adjusted Earnings is a non–GAAP measure, which management believes provides a meaningful understanding of the results. It should be noted that “Adjusted Earnings” as defined may not be comparable with similarly–titled measures reported by other companies as it is not defined under either French GAAP or U.S. GAAP.
The 2002 net income included €235 million of exceptional operations relating to: – The realized capital gain realized on the sale of AXA Asia Pacific Health activities (€87 million), and
– An exceptional profit of €148 million in Alliance Capital, as a result of the partial release (€+277 million) of the provision set up in 2000 to offset the dilution gain when acquiring Sanford C. Bernstein, Inc. This release was due to the buy-back of 8.16 million private units in Alliance capital to the former shareholders of Sanford Bernstein, after these shareholders exercised their liquidity put option; it generated an additional goodwill, which was entirely amortized over the year (€–129 million at average exchange rate).
Net capital gains and losses deteriorated by €–345 million to €–585 million, including (i) a valuation allowance on
Japanese deferred tax asset related to prior year realized losses (€–119 million), (ii) higher impairment valuation allowances on equity securities (€–434 million to €–1,048 million), and lower impairment valuation allowances on bonds (€+26 million to €–166 million), partly offset by (iii) higher net realized capital gains (€+182 million to €748 million), including €+442 million related to the exchange of Crédit Lyonnais shares for Crédit Agricole SA shares.
This decrease was mainly due to: – A deterioration of €–335 million in underlying earnings, or €–96 million on a comparable basis1, with improvements in most countries, more than offset by a deterioration in the UK (€–319 million).
– Lower net capital gains (€–134 million to €–403 million), of which €–119 related to a valuation allowance on Japanese deferred tax asset related to prior year realized losses, €–273 million to higher impairment valuation allowances on equity securities, partly offset by €+215 million higher net realized gains (including €+142 million on Crédit Lyonnais shares).
INTERNATIONAL INSURANCE Adjusted earnings were up by €+296 million to €147 million, or €+306 million on a constant exchange rate basis.
This improvement was attributable to (i) the non-repeated impact of the 2002 cost of September 11, 2001 events
OTHER FINANCIAL SERVICES Adjusted earnings slightly decreased by €–7 million to €126 million, mainly as a result of lower underlying earnings (€–21 million) due to the integration of Banque Directe in French banks (€–17 million), lower favorable runoff development (€–16 million), partly offset by higher investment results in AXA Bank Belgium (€+18 million). This deterioration was partially compensated by higher net capital gains (€+14 million primarily due to €+13 million from
HOLDINGS Adjusted earnings decreased by €–44 million to €–388 million, mainly driven by lower net capital gains
(€–113 million), as 2002 benefited from the €104 million capital gain on the disposal of BBVA shares. This was partly offset by higher underlying earnings (€+69 million or €+53 million on a constant exchange rate basis), mainly attributable to German holdings, due to the non-repeated impact (€+29 million) of a 2002 non-recurring tax charge.
Annualized Adjusted ROE 6.3% 5.7% 4.9% 0.6 bp 0.8 bp Annualized Underlying ROE 8.9% 7.1% 6.3% 1.7 bp 0.8 bp
At December 31, 2003 (before net income of the period) 22,396 1,778.1 Net income for the period 1,005 –
(a) Including €181 million in counterpart of an exceptional amortization of a goodwill which was originally offset against shareholders’ equity in 1997 at the time of purchase of German operations by the Group. This exceptional amortization of goodwill has been posted following the release of a provision set-up at the time of acquistion, this release was due to the disposal, during 2003, of Colonia Re participation to General Re.
Net income Per Ordinary Share 0.57 0.56 0.55 0.55 4.2% 2.9%
Adjusted Earnings Per Ordinary Share 0.82 0.81 0.78 0.78 5.2% 3.8% Underlying Earnings Per Ordinary Share (a) 1.15 1.14 0.97 0.97 18.8% 17.2%
Equity in income (loss) of unconsolidated entities 19 (7) (7) 16 16
Contribution to consolidated gross revenues 46,799 47,452 48,586 47,243 48,399 (a) Gross written premiums, plus fees, commissions and other revenues. (b) UK Health business has been transferred to UK Property & Casualty segment. Consequently FY 2002 and FY 2001 has been restated excluding UK Health business.
FY Pro As Pro As (in euro millions) 2003 forma (a) published forma (a) published
Gross written premiums were up + 4% due to the strong growth in individual general account savings and group pensions premiums.
Life & Health (33% of gross written premiums) grew by 3%, mainly as a result of a positive net inflow of new contracts in individual health and of rate increases in Group business.
Net technical margin eroded by €6 million to €98 million. Margin improved on Group Life and Health products (€+34 million) mainly due to a €32 million lower charge in respect of the French law reinforcing death coverage (€8 million in current year 2003 as compared to €40 million in 2002 when the law was applicable for the first time). These positive trends were largely offset by a reduction of the discount rate for annuity reserves from 3.25% to 3% leading to a €35 million reserve strengthening.
Adjusted earnings marginally decreased by €7 million to €425 million in 2003, as the improvement in investment margin (€48 million) and management expenses (€25 million) was more than offset by the increase in income tax expense (€77 million).
Gross revenues increased by + 8% to €13,732 million, or + 29% on a constant exchange rate basis. The combined two main insurance business lines (Investment & Savings and Life, which totaled 93% of US Life & Savings gross revenues) grew by 37% in 2003, compared to the same period in 2002. This trend is mainly due to very strong sales of the Variable Annuity Accumulator Series product line launched on April 1, 2002, especially in the Wholesale channel.
The increase was mainly due to lower realized capital losses, which amounted to €99 million, better by €163 million, as a result of lower net realized capital losses on fixed maturities by €340 million, partially offset by lower gains on sale of real estate of €–155 million in 2003. Investment income decreased by €38 million, primarily due to lower yields partially offset by a higher level of assets in the general account. Interest and bonus credited decreased by €+54 million as the impact of lower credited rates in life and annuity business and lower dividends was partially offset by higher general account balances.
Net technical margin increased by €146 million in 2003, or by €243 million on a constant exchange rate basis. The increase was mainly attributable to a decrease in incurred benefits related to Guaranteed Minimum Death Benefit
(“GMDB”) and Guaranteed Minimum Income Benefit (“GMIB”) features on annuity products reflecting the initial reserves established in 2002 (€150 million) and the improvement in the financial markets in 2003 (€60 million) and more favorable life mortality (€35 million).
Expenses decreased by €94 million in 2003, or an increase of €154 million on a constant exchange rate basis. This was due to an increase in DAC amortization of €131 million mainly due to higher margins in products, which are
Expenses net of DAC capitalization increased by €23 million principally due to (i) additional employee benefit costs of €52 million, reflecting higher qualified pension plan expenses which includes the impact of reducing the expected long-term return on assets, (ii) increased amortization of IT expenses net of capitalization of €17 million, (iii) field restructuring costs of €11 million, and (iv) greater commission expenses of €189 million. This increase is partially offset by higher DAC capitalization (€249 million).
Total revenues for 2003 have reduced by 11% to €5,831 million, with new business on an APE1 basis also down 11%. New business APE in the second half of 2003 is 12% higher than in the same period in 2002.
lower than last year. Revenues in the second half of 2003 are 11% higher than the same period in 2002. AXA Life’s focus since the withdrawal from the With Profit Bonds market in July 2002 has been on cautious investment products, which continue to drive sales performance in unsettled market conditions. Full Year sales of Unit Linked were up 27% during 2003 and represented 72% of 2003 total revenues compared to 51% in 2002.
– Life (12% of gross written premiums): Total Life premiums are up 9% predominantly due to increased premiums from protection products.
Investment margin increased by €31 million in 2003, or €63 million on a constant exchange rate basis mainly explained by: – €+77 million realized gains mainly due to the sale of Crédit Lyonnais shares (€60 million) and favorable currency movements on non-sterling denominated bonds (€20 million).
Operating Income 45 197 277 178 220 Income tax expense (2) 93 71 (44) (56)
Fees and revenues reduced by €28 million in 2003, but increased by €3 million on a constant exchange rate basis: – €19 million increase in loadings on premiums on life and pension products attributable mainly to higher volumes of Unit Linked Bonds offset by margin pressure on Unit Linked business.
Underlying cost income ratio increased to 131.7%, mainly attributable to the impact of a reduction in the technical margin arising from increased actuarial liabilities.
Income tax expense increased by €95 million in 2003 as compared to 2002. The distribution tax that was recorded on the “Inherited Estate” attributed to AXA prior to 2002 was released at end 2002 with a positive impact of €111 million.
Adjusted earnings decreased by €246 million in 2003, or €242 million on a constant exchange rate basis, mainly as a result of increases to actuarial reserves and the release of distribution tax on the “Inherited estate” in 2002, partly offset by improved investment margin.
(1) Part of these expenses are located in the With Profits funds and therefore are borne by policyholders.
Excluding group pension transfers (€882 million in 2003 versus €1,695 million last year), gross written premiums increased by 23% or €1,100 million driven by (i) strong level of conversions, (ii) the sustained efforts to increase the business written in higher margin individual health line (€62 million) and (iii) the growth in investment & savings sales essentially due to development of bancassurance agreements (€140 million).
– Investment & Savings (36% of gross written premiums): Premiums decreased by 17% mainly driven by a reduction in group pension transfer that was partially offset by the increase in sales of individual annuities essentially due to the development of bancassurance.
– Life (44% of gross written premiums): Premiums increased by 19% to €2,686 million mainly benefiting from conversion inflows. Excluding conversions, total premiums were down by 3% as increase in whole life premiums driven by new business sales did not offset the decrease of regular premiums on endowment products.
Investment margin decreased by €328 million, or €377 million on constant exchange rate basis, as a result of larger valuation allowances on impaired securities and loans (€523 million compared to €90 million in 2002, an increase by €497 million on constant exchange rate). Excluding these impairments, the investment margin was up by €120 million mainly driven by the €98 million higher net capital gains and losses principally on equities during the second half-year. The investment income net of interests credited to policyholders increased by €22 million mainly due to a higher asset balance.
Expenses gross of DAC and VBI amortization decreased by €49 million to €796 million, or an increase of €49 million on constant exchange rate. This was mainly due to higher commissions resulting from the combination of higher new business and the change in product mix. Expenses, net of DAC and VBI amortization, increased by €15 million on constant exchange rate following higher DAC amortization partly offset by a lower VBI amortization.
This decrease in VBI amortization was driven by significant impairments on assets, partly offset by higher profits on conversions and surrenders.
Income tax expense increased by €32 million, or €47 million on constant exchange rate, to €132 million, mainly driven by a €167 million valuation allowance on AXA Japan's tax loss carry forward (compared to €40 million in 2002).
This increase was partly compensated by the lower taxable income resulting from large impairment on assets.
Underlying earnings increased by €103 million on constant exchange rate to €52 million, mainly as a result of the improvement in technical and investment margins.
Other (8% of gross written premiums – primarily consortium and medical council business) grew by 19% mainly due to higher single premiums.
The Health operating income decreased by €5 million to €18 million due to the restructuring of the investment portfolio to reduce the downside risk. Excluding impairments and capital losses, operating income increased by €9 million, following the positive development of fees and revenues (€+15 million) due to the strong new business increase.
In 2003, the tax regime for Life and Health insurance has substantially changed as capital gains and losses on equity securities are taxable again from 2004 onwards, while for 2001 to 2003 only 80% of net capital gains on equity securities and dividends are taxable. The additional taxes, resulting from the special, interim tax rules for the years 2001 to 2003, gave rise to an additional shareholder charge of €–13 million net of policyholder participation. However, compared to 2002, the tax expenses improved by €+42 million, since 2002 was impacted by the following: (i) a tax provision of €20 million and (ii) a high amount of trade tax on dividends.
Underlying earnings increased by €+13 million to an amount of €19 million mainly driven by the improvement in fees and revenues.
“Opti-Deposit” (+ 94% excluding a non-recurring premium of €103 million). The strong growth in non unit-linked products was partly offset by decreases in unit-linked contracts (– 13%) and in Life products (– 5%).
Group Life and Savings (21% of gross written premiums). Premiums were up by 21% to €425 million due to an exceptional single premium of €47 million and a higher level of regular premiums (+ 7%), mainly in non unit-linked products.
(€–110 million as compared to 2002, or €–91 million net of policyholders bonuses), the investment margin would have increased by €32 million to €125 million mainly driven by a higher net investment income (€+66 million) in relation to a higher level of technical reserves and higher dividend income, partly offset by higher interests credited (€34 million). The 2003 average policyholder credited rate decreased by 27 basis points to 4.43%.
Expenses decreased by €10 million, due to lower overhead costs and a lower VBI amortization charge, which were partly offset by higher commissions and a lower DAC capitalization due to change in product mix.
Underlying cost income ratio decreased from 73.5% in 2002 to 60.2% in 2003 mainly as a consequence of a higher net investment income and lower overhead costs.
Underlying earnings increased by €39 million to €94 million, mostly driven by a higher net investment margin
Australia/New Zealand, Hong Kong, The Netherlands, Spain, Italy as well as Portugal, Singapore, Luxembourg,
Contribution to consolidated gross revenues 4,798 5,877 6,517 (a) Corresponds to 15 months of activities for Australia /New Zealand and Hong Kong.
(a) Since FY 2002, includes the Australia and New Zealand mutual funds and financial advisory businesses. Previously these results were shown under NMFM in the Asset Management Segment. The prior year has not been restated for this change, as it is not material to the consolidated results.
(b) Corresponds to 15 months of activities for Australia /New Zealand and Hong Kong.
Recent results published by an independent researcher place AXA in the top five for retail net sales, one of the key goals under the 3 year transformation program.
Excluding earnings from AXA Health (€10 million), which was sold in August 2002, adjusted earnings decreased €10 million to €39 million. Underlying earnings decreased by €13 million to €41 million.
These evolutions were explained by the following (based on 100% ownership): – The investment margin3 decreased by €27 million to €8 million mainly as a result of reduced return on assets backing the annuity portfolio, despite the improvement of equity returns.
– Total expenses were €27 million higher than last year at €405 million. This increase was largely driven by the full year's inclusion of ipac, which added €22 million. Increased commission expense, consistent with growth in the mutual fund and advisory business, has also contributed to the higher expense. Excluding ipac, non-commission expenses have decreased by €13 million, reflecting improved operational effectiveness achieved by the three-year transformation program.
The underlying cost income ratio increased to 89% from 78% in 2002, due to reduced investment margin as discussed above.
Gross written premiums of €791 million were 1% higher than 2002 on a comparable basis, mainly driven by the increased sales of individual life products. Unit-linked single premiums improved over the second half of the year, benefiting from improved economic conditions.
Adjusted earnings1 amounted to €99 million, an increase of €66 million (or €85 million on a constant exchange rate basis), reflecting mainly the improvement in investment markets which resulted in higher realized capital gains and lower impairments net of policyholder rights and tax (€74 million compared to last year or €77 million on a constant exchange rate). Underlying earnings reached €86 million, decreasing by €9 million (increase of €8 million on constant exchange rate). This improvement was driven by (i) higher investment income due to an increased asset base (ii) an increase in mortality margins, partially offset by (i) lower surrender margin following an improved retention on individual life products, and (ii) higher VBI amortization in line with the improved investment result.
The underlying cost income ratio improved from 52% to 46% reflecting lower management expenses driven by the enhanced operational effectiveness and lower commissions due to the change in product mix.
In Life insurance, adjusted earnings increased by €18 million to €15 million compared to 2002. This was mainly driven by a €10 million higher investment margin. Fees and revenues are lower by €3 million, mainly due to less new business in annuities in 2003. The net technical margin increased by €5 million. Expenses decreased by €2 million mostly attributable to (i) a non recurring €6 million valuation allowance for doubtful receivables recorded in 2002 and (ii) a €2 million decrease in commission expenses, partly offset by (ii) a €5 million higher VBI amortization.
Adjusted earnings reached €–11 million, down by €13 million. Earnings were adversely impacted by a €22 million deterioration of asset impairments as well as a €9 million decrease in the tax benefit from the legal restructuring of
AXA subsidiaries in Italy (€2 million in 2003 compared to €11 million in 2002).
As a result of the items described above, underlying earnings improved by €9 million to €20 million.
(1) AXA Asia Pacific is 51.66% owned by the AXA Group.
SPAIN Gross written premiums decreased by 44% to €470 million, as AXA Seguros benefited in 2002 from large group single premium contracts relative to pension funds outsourcing (legal obligation until November 2002). Excluding pension funds, written premiums increased by 15% driven by Life products (+ 29% benefiting from a large thirdparty distribution agreement) and Investment & Savings unit-linked products (+ 155%) following financial markets recovery.
OTHER COUNTRIES The other countries' adjusted earnings of €19 million were mainly attributable to the following countries: /186
Singapore Gross revenues for 2003 of €111 million were 9% higher than last year (on a constant exchange rate basis) despite the challenging market conditions due to volatile investment markets and SARS. This increase was driven by improved adviser productivity levels.
Adjusted earnings increased by €3 million to €0 million mainly driven by i) better investment result reflecting the good performance in equity markets, and ii) lower expenses due to continuous management efforts on expense control.
Underlying earnings increased by €2 million to €0 million reflecting the decrease in management expenses as mentioned above.
Turkey Adjusted and underlying earnings reached €3 million from €0.4 million last year. This increase was driven by an improved technical margin on traditional life products, cost-cutting efforts as well as lower average commission rate.
FY Pro As Pro As (in euro millions) 2003 forma (b) published forma (b) published
(a) UK Health business transferred from Life & Savings segment. Consequently FY 2002 has been restated including UK Health business.
Personal lines (65% of gross written premiums): premiums grew by 5%, mainly as a result of positive net inflows in motor, gaining momentum during the second half of the year, and in household, as a consequence of the success of new products adapted to targeted customer needs, as well as rates increases.
Commercial lines (35% of gross written premiums): premiums increased by 9% following rate increases coupled with a strict underwriting policy.
In 2003, loss development was positive in the property and natural catastrophes lines, partly offset by a €–25 million adjustment in motor annuity reserves mainly as a consequence of a compulsory decrease (– 25 bp at 2.50%) in discount rate due to decreasing French interest rates.
(€–33 million to €+37 million in 2003). Net investment gains on equities were down by €30 million to €+10 million in 2003, including a €137 million gain on the sale of Credit Lyonnais shares more than offset by €142 million of valuation allowances. Investment income marginally decreased by €8 million mainly on real estate.
(€54 million driven by the 1.3 point improvement of the combined ratio) and the €16 million decrease in tax expense, partly offset by the €41 million decrease in net investment result.
Gross written premiums remained stable at €2,852 million on a comparable basis.
The Net Technical Result showed a significant improvement by €212 million to €877 million, mainly driven by significant improvements in the current accident year loss ratio as a result of tariff increases coupled with successful and ongoing portfolio pruning both in personal and commercial lines.
– All accident year loss ratio improved by 7.5 points to 69.5%, as a result of lower current accident year loss ratio partly compensated by lower positive development on prior years.
Underlying earnings increased by €42 million to €60 million, benefiting from improved combined ratio offset by lower net investment income.
– Personal lines revenues (30% of gross revenues) decreased by – 5% on a comparable basis. This was mainly driven by a decrease in motor (– 25%) partly offset by a significant growth in non-motor activities primarily driven by the acquisition of new corporate partnerships. The decrease on motor reflected continued strict underwriting, and our new agreement with RAC to manage RAC branded motor business through a jointly owned broker panel operated by AXA, resulting in a €78 million decrease in revenues.
The current accident year loss ratio improved by 5.4 points to 67.9%, mainly due to an improvement in (i)
household following non-recurring 2002 weather losses, (ii) property as a result of both rates increases and improved claims frequency, (iii) liability due to rate increases, and (iv) a favorable claims performance in the Health business.
The all accident year loss ratio improved by 5.2 points to 72.0% as a result of better current accident year loss ratio.
Current accident year loss ratio (net) 67.9% 70.3% 72.5% 73.0% 77.5%
All accident year loss ratio (net) 72.0% 77.2% 78.7% 78.3% 82.1%
(c) The net technical result is now presented including fees, commissions and other revenues in FY 2003 and in 2001 and 2002 pro-forma.
as (i) a 1.7 point positive impact of lower general expenses resulting from tight cost control and efficiency improvements introduced under the First Choice strategy, was offset by a 1.9 point negative impact due to (ii) a higher pension charge (1.0 point) and (iii) higher earned commissions (0.9 point) primarily driven by the growth in Commercial businesses.
Commercial lines (36% of gross written premiums) remained stable. Despite a 7.5% tariff increase, Workers compensation premiums decreased by 3.6% as a result of pruning measures. The growth in Motor lines (+1.6%) and in Property
The net technical result was €360 million, increasing by €84 million compared to 2002.
(ii) a significant decrease in large claim cost for Commercial Property.
The all accident year loss ratio improved by 5.8 points to 74.3%, in line with the current year loss ratio.
Compared to 2002, the expense ratio decreased by 0.2 point to 29.4% mainly due to further expense reductions.
Net investment result increased by €77 million to €227 million explained by (i) higher level of realized capital gains
(€87 million of which €84 million on Crédit Lyonnais shares), partly offset by (ii) higher valuation allowances on equity securities (€23 million to €120 million, whereas investment income increased by €13 million, mainly attributable to real estate assets.
Adjusted earnings increased by €147 million to €118 million, due to an improved claims experience, lower expenses and higher net capital gains and losses, partially offset by higher income tax expenses.
Accordingly, underlying earnings increased by €84 million to €143 million, mainly driven by improved combined ratio.
ITALY Gross written premiums increased by 6% to €1,088 million, driven by personal motor (61% of total premiums) and general liability. After the drastic portfolio cleaning measures and tariff increases in 2002 that resulted in significant portfolio losses, the personal motor portfolio returned to positive net inflows in 2003.
Adjusted earnings increased by €+14 million to €+46million. Direct Seguros contribution grew by €1 million to €3 million driven by an improvement in combined ratio. Excluding Direct Seguros, adjusted earnings increased by €12 million, reflecting (i) a 0.5 points improvement in combined ratio to 99.4% benefiting from the cost cutting program and (ii) a one-time tax credit. As a result, underlying earnings increased by €9 million to €42 million.
IRELAND Gross written Premium increased by €8 million (+ 1%) to €562 million in 2003 as a result of 2% growth in commercial lines (21% of gross written premiums) while personal lines remained stable. This trend was driven by significant growth in volumes, particularly on personal motor business, mainly due to the strong new business inflow, which have been offset by falling average premiums. Average Motor premiums fell during 2003 following rate reductions (– 10% on 2003 renewals) coupled with improved risk selection.
As a result the combined ratio improved by 10.5 points to 85.1% in 2003.
The net investment result remained stable at €51 million, explained by lower net capital gains and losses (€–4 million)
offset by a €4 million increase in investment income reflecting higher assets under management but at a lower yield.
(i.e transfer of claims handling costs) and (ii) the 3.2 points lower expense ratio mainly as a result of the transfer mentioned above (impact of 2.0 points).
OTHER COUNTRIES Adjusted earnings were up €73 million to €33 million, mainly attributable to the following countries: Morocco Gross written premiums increased by + 9% on a constant exchange rate basis to €155 million mainly as a result of workers' compensation rate increases following a change in local regulation.
Adjusted earnings1 increased from a loss of €4 million to a profit of €21 million driven by realized capital gains.
a 7.3 points improvement of the combined ratio to 104.5% primarily driven by tariff increases in Health and reduced frequency, together with lower average claim costs. These items were partially offset by the booking of a tax provision in relation to a tax litigation.
Adjusted earnings increased by €20 million to €1.5 million, mainly attributable to the increase in net capital gains of €+11 million and the net technical margin of €+9 million.
Underlying earnings were up by €+10 million to €0.2 million, mainly driven by higher investment income (€+1 million)
and an enhancement in the net technical margin (€+9 million), as a result of an improvement of the net combined ratio from 111.8% to 102.4%.
Japan Gross written premiums increased by 37% compared to 2002 on a constant exchange rate basis to €94 million, mainly driven by motor business growth (+50%, 83% of revenues). This performance was notably achieved thanks to an extensive use of direct media (especially Internet) and partially offset by the contraction of the personal accident portfolio.
Adjusted Earnings improved by €7 million compared to 2002 to €–18 million (€+5 million on constant exchange rate), driven by the enhancement of the combined ratio from 145.5% to 127.2%. This evolution reflected the 12.6 points improvement of the loss ratio, which was impacted positively by one-off recoveries on motor bodily injury claims in 2003. The expense ratio improved to 67.5% as a result of (i) the scale effect attributable to a motor portfolio increase and (ii) savings on personnel costs, communication and IT projects.
Contribution to consolidated gross revenues 3,972 5,762 5,762 5,695 5,678 (a) Gross written premiums, plus fees, commissions and other revenues. (b) (i) Run off entities transferred from AXA Corporate Solutions Assurance to other transnational activities.
(ii) Transfer of AXA Corporate Solutions Assurance US from AXA Corporate Solutions Assurance to AXA RE. (c) (i) Discontinued business transferred from Property & Casualty segment.
FY Pro As Pro As (in euro millions) 2003 forma (a) published forma (b) published
Insurance benefits and claims, net of reinsurance ceded (2,307) (3,630) (3,519)
(ii) Transfer of AXA Corporate Solutions Insurance US from AXA Corporate Solutions Assurance to AXA RE.
reducing the portfolio risk exposure whilst (ii) focusing the Property & Casualty portfolio on the highest profitability businesses, such as Property Cat.
unfavorable development of claims of which the September 2001 events claim (€–143 million net of reinsurance and gross of tax) and (ii) adverse developments following an extensive reserving review performed in 2002; – Life net technical result significantly decreased by €-108 million mainly reflecting the impact of a change in underlying assumptions.
Thus the improvement in the overall (Property & Casualty and Life) attritional current year ratio was limited to 1.3 point at 69.8%.
Excluding the cost of September 11th terrorist attacks and net realized capital gains and losses, underlying earnings amounted to €+108 million in 2003 as compared to €+5 million in 2002.
Insurance benefits and claims, net of reinsurance ceded (1,418) (1,535) (1,650)
(a) Before intercompany transactions. (b) (i) Run off entities transferred from AXA Corporate Solution Assurance to other transnational activities.
Gross revenues decreased by – 4% on a comparable basis down to €1,571 million, as strong rate increases and new business, particularly on French lines (Property + 23%, Casualty + 24%), were offset by lower premiums in Aviation
General expenses decreased by €8 million to €196 million driven by lower acquisition expenses.
As a result, the net combined ratio improved by 6.8 points at 102.3%.
Net investment result increased by €20 million to €42 million, including realized gains on the sale of the Crédit Lyonnais shares in 2003 (€38 million), but was still impacted by impairment valuation allowances for €–68 million on equity securities (as compared to €–88 million in 2002). Investment income remained stable.
Adjusted earnings increased by €116 million to €–5 million mainly as a result of the strong improvement of the net combined ratio and despite a still significant level of impairment valuation allowances.
AXA CESSIONS AXA Cessions adjusted earnings increased by €20 million to €16 million, as 2002 was negatively impacted by risk reserves strengthening. This was partly offset by lower positive reserve development.
Segment for the periods indicated: M an ag em en t R
Private Client and Retail sectors, respectively. Retail outflows were predominantly coming from cash management products (€–4 billion).
Administrative expenses decreased by €136 million, or an increase of €277 million on a constant exchange rate basis, mainly driven by a €291 million charges for legal proceedings and mutual fund investigation settlement matters
Operating Income decreased by €339 million, or €285 million on a constant exchange rate basis, as a result of the charge for legal proceedings and mutual fund matters. As a result, the operating cost income ratio increased by 12.7 points from 70.8% in 2002 to 83.5% in 2003. Excluding the charge for legal proceedings and mutual fund matters, the cost income ratio remained flat at 70.9% in 2003.
Adjusted Earnings decreased by €123 million, down €109 million on a constant exchange rate basis (–56%), reflecting the impact net of tax and minority interests of the charge for legal proceedings and mutual fund matters (€–104 million or €–124 million on a constant exchange rate basis).
Assets Under Management (“AUM”) were €292 billion as of December 2003, increasing by €24 billion since 2002 closing (+12% on a comparable basis). Positive Net New Money (€+13 billion), mainly driven by Institutional segment, especially structured products and international equities, and market appreciation (€+19 billion) were partially offset by adverse exchange rate impacts (€–8 billion).
Fees, commissions and other revenues, including those earned from AXA insurance companies eliminated in consolidation, reached €783 million, stable on a comparable basis. Excluding fees retro-ceded to distributors, net revenues reached €554 million, + 4% on a comparable basis. Management fees increased by 8% in 2003, stemming from higher average AUM (+ 5% on a comparable basis) and slightly higher average fees (mainly higher Unit Linked fees and higher Institutional weight)), partly offset by lower performance fees (– 24%).
The cost income ratio stood at 79.6% in 2003 improving by 2% compared to 2002, reflecting higher net revenues.
Adjusted and underlying earnings increased by €13 million in 2003 as compared to 2002, or €+20 million on a constant exchange rate basis.
FRENCH BANKS AXA Banque adjusted earnings and underlying earnings decreased by €–17 million to €–20 million in 2003 mainly due to the costs linked to the integration of Banque Directe (€24 million before tax).
OTHER Subgroup CFP revenues decreased by – 53% on a comparable basis to €21 million.
CFP revenues (7% of the “Other” revenues) decreased by – 82% in 2003 to €3 million mainly due to lower interest revenues following the debt reduction of CFP’s subsidiaries.
Holding SOFFIM revenues (22% of the “Other” revenues) decreased by – 34% mainly due to lower interests on loans and lower credits granted.
Adjusted earnings decreased by €20 million to €78 million in 2003. Although it had a slightly lower impact than in 2002, run off development of the CFP sub-group remained significantly positive in 2003.
Holding Company Activities The Holding Company activities consist of AXA’ s non-operating companies, including mainly AXA Parent Company,
OTHER FRENCH HOLDING COMPANIES The €–78 million decline of Other French Holding is mainly explained by the absence of net realized capital gains in 2003 compared to €+104 million at December 2002 (disposal of the BBVA stake).
AXA FINANCIAL INC. Adjusted earnings inproved by €27 million in 2003 as compared to 2002, to €–57 million. On a constant exchange rate basis, adjusted earnings increased by €16 million and underlying earnings increased by €14 million due to the execution of interest rate swap contracts, which reduced interest expense compared to 2002.
Adjusted earnings loss reduced by €12 million to €–5 million compared to last year. This improvement was mainly driven by lower interest expenses, which was the result of favorable currency movements, as well as lower average debt level following the sales of Members Equity and AXA Health Australia.
(1) The AXA Asia Pacific Group is 51.6% owned by AXA.
AXA UK HOLDINGS Adjusted earnings decreased by €10 million in 2003, or by €17 million on constant exchange rate, to €–55 million, due to a decrease in the investment result of €20 million, principally as a result of higher interest expenses to fund additional capital invested in its main UK subsidiaries, partially offset by €9 million release of provision related to
(i) higher capital gains for €14 million mainly explained by the sale of Colonia Ré JV, the Joint Venture with General
Life and Savings growth potential. This, combined with improving levels of assets under management as well as policyholders returning progressively to equity linked products should benefit Life and Savings and Asset Management earnings in 2004.
An increasing focus on organic growth coupled with a close monitoring of our general expenses and renewed attention on operating efficiency should enable the Group to maintain the positive trend experienced in 2003.
Glossary COMPARABLE BASIS On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rate for the same period of prior year (constant exchange rate basis) and eliminated the results of acquisitions, disposals and business transfer (constant structural basis) and of changes in accounting principles
Adjusted earnings per share diluted (adjusted EPS diluted) represents the AXA’s consolidated net income before the impact of exceptional operations and amortization of goodwill, divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding stock options, that are not anti-dilutive, being exercised, and conversion of existing convertible debt into shares, if their impact is not anti-dilutive).
(ii) Policyholders’ interest in participating insurance contracts is reflected as a change in insurance benefits in the
Statement of Income. In the Margin Analysis, it is allocated to the related margin, that is, primarily, the “Investment
(iii) The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the policyholders’ participation (see above) and to exclude the loading on (or contractual charges included in) unit-linked business, which are included in “Fees and Revenues”.
Fees & Revenues include: (i) Revenues derived from mutual fund sales (which are part of consolidated revenues),
(ii) Loading charged to policyholders on premiums and on funds under management for separate accounts (unitlinked ) business,
(iv)Other fee revenues, e.g., fees received on financial planning, sales of third party products.
(ii) Surrender margin: The difference between the benefit reserve and the surrender value paid to the policyholder in the event of early contract termination,
(iii) Policyholder bonuses: If the policyholder participates in the risk margin and the expenses of the company,
Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales),
(ii) Deferred Acquisition Costs (DAC): capitalization of acquisition expenses linked to new business, net of the corresponding Unearned Revenue Reserve (URR),
PROPERTY & CASUALTY (INCLUDING AXA CORPORATE SOLUTIONS ASSURANCE) Net investment result includes the following items: (i) Net investment income,
Net technical result is the sum of the following components: (i) Earned premiums, gross of reinsurance,
(iii) Commissions (fixed commissions, sliding scale commissions as well as profit commissions), (a) paid to the ceding companies and (b) received from the reinsurance companies,
(ii) Current year claims charge (excluding major losses), net of cession / retrocession,
Receivables from non-insurance activities 12,790 11,367 11,433 13 Cash and cash equivalents 19,428 17,592 17,646
Total minority interests and shareholders’ equity 25,870 26,523 28,189 17 Mandatorily convertible bonds and notes – – –
19 Insurance liabilities, gross of reinsurance 259,532 263,172 272,125 19 Separate account (unit-linked) liabilities, gross of reinsurance 101,069 90,011 115,305 20 Provisions for risks and charges 6,918 9,775 10,553 12 Payables arising from insurance and reinsurance activities 8,312 8,299 8,806
(in euro millions) 2003 2002 2001 30 Other commitments received 30 Other commitments given
Years ended December 31, (in euro millions, except per ordinary share amounts) 2003 2002 2001
Gross written premiums 67,306 69,723 69,471 Revenues from banking activities 820 1,012 1,127 Other revenues 3,503 3,992 4,234 24 Gross Premiums and Financial Services Revenues 71,628 74,727 74,832 Change in unearned premium reserves 320 (382) (355)
25 Net investment result (a) 26,935 (8,713) (1,244) Total Revenues 98,883 65,632 73,233 Insurance benefits and claims (a) (81,317) (47,922) (56,668)
26 Reinsurance ceded, net (1,113) (523) 1,163 27 Insurance acquisition expenses (5,798) (5,891) (6,394)
Net Income 2,051 2,171 1,676 11 Equity in income from affiliated entities 41 23 17 06 Goodwill amortization, net (844) (877) (788)
Minority interests (243) (368) (385) NET INCOME GROUP SHARE 1,005 949 520 28 Net Income per ordinary share (basic) (b) 0.57 0.55 0.30 28 Net Income per ordinary share (diluted) (b) 0.56 0.55 0.32