The policy on the management of holding companies’ interest rate risk aims at monitoring and limiting the potential mediumterm variation in interest expenses and consequently at partially protecting future levels of interest expenses against movements in interest rates. Regarding foreign exchange risk, the implemented policy’s objective is to limit variations in net foreign currency-denominated assets resulting from movements in exchange rates. The purpose of the policy is therefore to protect partially or in full the value of AXA’s net foreign-currency investments in its subsidiaries and thus reduce the variability of Group consolidated shareholders’ equity against currency fluctuations, but also of other key indicators such as liquidity, gearing and solvency ratio at Group level. AXA regularly monitors its exchange rate hedging strategy and will continue to review its eff ectiveness and the potential need to adapt it taking into account impacts on earnings, value, solvency, gearing ratio and liquidity.
AXA Group analyzes sensitivities to movements in interest rates and equity markets looking at two diff erent measures: ■ sensitivities of the Group Available Financial Resources (AFR), as described below; ■ sensitivities of Group Solvency ratio (please refer to Section 4.2 “Internal control and Risk Management” of this Annual Report (1).
Reconciliation IFRS shareholders’ equity to Group AFR (in Euro billion) 2017
The main elements of the reconciliation from the €69.6 billion of IFRS shareholders’ equity to the €35.8 billion of IFRS TNAV are as follows: ■ Addition of €4.8 billion of net unrealized gains and losses on assets not reflected in IFRS shareholders’ equity; ■ Deduction of €7.4 billion of undated deeply subordinated notes (TSS) and of undated subordinated notes (TSDI) included in IFRS shareholders’ equity; and
■ other adjustments between IFRS TNAV and Group AFR valuation (€+0.5 billion), notably the inclusion of minority interests and the treatment of US insurance subsidiaries under the equivalence regime.
The sensitivities of the AFR to changes in major economic assumptions were calculated as follows for the 2017 values: ■ upward shift of 50 basis points in reference rates simulates a sudden shock to the initial conditions. This means changes to: 1) the current market values of fixed-interest assets, with related possible changes to projected capital gains/losses and/or fee revenues, 2) future reinvestment rates for all asset classes, and 3) discount rates. The change is applied to the reference interest rates, including the volatility adjuster where applied in the base case. Inflation rates, the volatility on interest rates and the Ultimate Forward Rates are not changed; ■ downward shift of 50 basis points in reference rates is the same as above but with a shift downward; ■ 25% higher value of equity markets simulates a shock to the initial conditions for equities only. Listed equities and private equity values including the impact of equity hedges are shocked. This means changes to current market values of all these equities excluding hedge funds, with related possible changes to projected capital gains/losses and/or fee revenues; ■ 25% lower value of equity markets: same methodology as mentioned above assuming a decrease.
2017 interest rate sensitivities for Property & Casualty business (% of P&C AFR) of 0% to upward 50 bps and 0% to downward 50 bps reflect mainly the impacts on fixed-income assets, off set by discount on liabilities.
2017 equity market sensitivities for Life & Savings business (% of L&S AFR) of 3% to 25% higher value and -6% to 25% lower value show asymmetries mainly driven by the impact of guarantees and profit-sharing rules, along with some hedging programs to limit potential losses. The impacts of equity market value changes can come from General Account exposures or from changing asset balances impacting future fee revenue on separate account business.
In Switzerland, AXA entities are exposed to exchange-rate risk through their investments in foreign currencies (mainly Euro and US Dollar) due to limited investment possibilities in the Swiss market. A major portion of the exposure is hedged back into Swiss Francs with foreign exchange swaps, options and forwards. At the end of 2017, Switzerland foreign exchange exposure amounted to €33,188 million (€40,095 million in 2016) which represented 38% of total assets (42% of total assets in 2016), of which €29,568 million were hedged (€35,807 million in 2016).
In Belgium, AXA held inv estments in foreign currency for €1,841 million in 2017. These investments are mainly in US Dollar for €1,177 million and in Pound Sterling for €388 million. The exchange-rate exposure on Assets is hedged for €1,440 million using mainly foreign exchange forwards, Cross Currency Swaps and Collar options strategies.
■ United States: 22% of Group assets at the end of 201 7 (22% in 2016): In United States, there is no significant exposure to exchangerate risk.
■ Asia: 8% of Group assets at the end of 2017 (8% in 2016): Japan
In Japan, AXA entities may invest when relevant outside the Japanese market in order to diversify and optimize investments and enhance returns. At the end of 2017, the total assets denominated in foreign currencies held both directly and indirectly through investment funds (mainly US Dollar) represented an amount of €10,545 million (€12,058 million in 2016). Excluding assets backing unit-linked contracts, the corresponding exchange-rate risk was fully hedged through the use of derivatives.
AXA Hong Kong holds investments denominated in foreign currencies for an amount of €13,465 million (€12,254 million in 2016), both directly and indirectly through investment funds. These investments are mainly in US Dollar €12,802 million (€11,710 million in 2016), in order to take advantage of the US bond market which is more developed, notably in terms of liquidity and available maturities. Exchange-rate risk exposure is hedged using foreign exchange forwards and cross currency swap for a notional amount of €4,862 million.
In the course of its business, AXA Corporate Solutions Assurance carries some insurance liabilities denominated in foreign currencies, particularly in US Dollar (€1,193 million at the end of 2017 versus €1,288 million in 2016) and, to a lesser extent, Pound Sterling (€372 million at the end of 2016 versus €397 million in 2016). AXA Corporate Solutions Assurance carries assets denominated in foreign currencies to ensure balance sheet congruence. The congruence between the Company’s foreign currency assets and liabilities is regularly adjusted.
At December 31, 2017, the main hedging positions of AXA SA were as follows: Foreign currency hedging
Information in this section should be read in conjunction with Note 4 “Financial and insurance Risk Management” in Part 5 “Consolidated Financial Statements” of this Annual Report. Only information referred to in Note 4 is covered by the report of the Statutory Auditors on the Consolidated Financial Statements.
Credit risk is defined as the risk that a third party in a transaction will default on its commitments. Given the nature of its core business activities, AXA Group monitors two major types of counterparties, using methods suitable to each type: ■ investment portfolios held by the Group’s insurance operations (excluding assets backing separate-account products where the financial risk is borne by policyholders) as well as by banks and holding companies; and
For more information on the AXA Group’s risk controls and Risk Management processes, please refer to Section 4.2 “Internal control and Risk Management” of this Annual Report.
AXA Group concentration risk is monitored by diff erent analyses performed at Group level by issuer and ultimate shareholder, in addition to local procedures and by a set of Group and local issuer limits.
At December 31, 2016, the breakdown of the debt security portfolio (€450 billion) by credit rating was: 19% in AAA, 29% in AA, 22% in A, 24% in BBB, 3% in BB and lower, and 3% in other.
Credit risk diversification and analysis policies, particularly using credit ratings, are implemented by Investment Departments and monitored by Risk Management teams.
The AXA Group, as part of its investment and credit Risk Management activities, uses strategies that involve credit derivatives (mostly Credit Default Swaps or CDS), which are mainly used as an alternative to debt security portfolios, when coupled with government debt securities, but also as a protection on single corporate names or specific portfolios.
At December 31, 2017, the nominal amount of positions taken through credit derivatives was €17.9 billion (1) of CDS (cumulated notional amounts of €4.3 billion protections bought and of €13.6 billion protections sold), which can be broken down as follows: i. €3.9 billion of CDS protections bought to hedge credit risk with regard to certain investments, mostly in corporate bonds; ii. €0.4 billion of CDS protections bought used to lock the liquidity premium through purchasing bonds and CDS protection on the same name (negative basis trade strategy) mostly in corporate bonds mainly in Japan (€0.4 billion); iii. €13.6 billion of CDS protections sold as an alternative to the direct purchase of a corporate bond mainly by holding government bonds and at the same time selling protection on very good quality names. This type of ALM strategy is oft en implemented to compensate for the lack of depth or liquidity in some markets in order to take synthetic credit risk.
(1) This figure represents an accounting view i.e.100% of assets held directly and in consolidated investment funds “Core Investment Portfolios”, and excluding credit derivatives in non-consolidated investment funds, in line with Note 20 to the Consolidated Financial Statements. The Group holds €19.6 billion (notional amount) of credit derivatives as total exposure including consolidated investment funds “Satellite Investment Portfolios” (€0.7 billion).
To manage the risk of reinsurers’ insolvency, a Security Committee is in charge of assessing reinsurers’ quality and acceptable commitments. The Committee is under joint authority of GRM and AXA Global Re. This risk is monitored to avoid any excessive exposure to any specific reinsurer. The Group Security Committee meets monthly – and more frequently during renewal periods – and decides on any action to be taken with the aim of limiting AXA Group’s exposure to the risk of default by any of its reinsurers.
The Group’s top 50 reinsurers accounted for 77% of reinsurers’ share of insurance and investment contract liabilities in 2017 (versus 77% in 2016).
The breakdown of all reserves ceded to reinsurers by reinsurer rating as of December 31, 2017 (€13.4 billion) was as follows: BB and lower
At December 31, 2016, the breakdown of reserves ceded to reinsurers (€17.0 billion) by reinsurer rating was: 52% in AA, 14% in A, 3% in BBB, 8% in BB and lower and 23% in others.
AXA banking operations, based in Belgium, France and Germany, are mostly limited to retail banking activities, distributing simple investment and credit products.
Credit risk in the banks encompasses: ■ retail credit risk, resulting from the commercial activity – sales of mortgages and other type of loans to retail clients and small enterprises. Credit Risk Management is done through careful risk selection (e.g. in Belgium “Internal Rating Based” scoring models regularly monitored to ensure a risk selection consistent with each bank’s risk appetite) and a regular monitoring of portfolios by product management teams and Risk Management teams; ■ other than retail credit risk, resulting from investment activity. This activity is limited with strong control processes in place.
The liquidity risk is the uncertainty, emanating from business operations, investments or financing activities, over whether AXA SA and/or an AXA entity will have the ability to meet payment obligations in a full and timely manner, in current or stressed environments. Liquidity risk concerns assets and liabilities as well as their interplay.
In the context of its Property & Casualty (P&C) and Protection & Health business operations as described in Section 1.3 “Business overview” of this Annual Report, the AXA Group is exposed to the following main insurance risks, which include: ■ premium risk resulting from fluctuations in the timing, frequency and severity of insured events, and relating to: • unexpired risks on existing contracts (insuff icient premium reserves),
AXA Group’s exposure to insurance risks is covered by the AXA Group’s Solvency Capital Requirement metric, as detailed in the paragraph “Internal Model” in Section 4.2 “Internal control and Risk Management” of this Annual Report and is taken into account in AXA’s liquidity Risk Management framework (please refer to Section 4.5 “Liquidity risk” of this Annual Report).
Insurance risks for Life & Savings, Health and Property & Casualty businesses are covered through 4 major processes, defined at Group level but performed jointly by central and local teams: ■ implementing a product approval process, which entails risk controls on new products that complement underwriting rules and product profitability analyses;
■ optimizing of reinsurance strategies in order to limit the Group’s peak exposures thereby protecting its solvency by reducing volatility and to mitigate risk within the Group to benefit from diversification; ■ reviewing technical reserves including a roll forward analysis; and
■ monitoring emerging risks to share expertise within the underwriting and risk communities.
Regarding the Property & Casualty exposures, ad hoc concentration risk studies are developed to ensure no singleperil event, natural (such as windstorm, earthquake, hurricane or typhoon) or man-made (such as cyber risk), is likely to aff ect the Group above the set tolerance levels.
Centralization and harmonization of reinsurance purchase is based on the same procedures for both the Life & Savings, Health businesses as for the Property & Casualty activities.
In order to build adjusted and optimized protection, the Group’s operating entities are reinsured by AXA Global Re. AXA Global Re can place a variable part of the local treaties on the domestic reinsurance market, for regulatory reason for example. A portion
They notably ensure that: ■ a sufficient number of elements have been scrutinized (including contracts, premiums and claims patterns, claims’ handling, and reinsurance eff ects); ■ the technical assumptions and actuarial methodologies are in line with professional practices and sensitivity analyses are performed at least for most significant ones; ■ a roll-forward analysis of reserves including merit-rating (boni-mali) back-tests has been performed, the regulatory and economic context references are taken into account and material deviations are explained; ■ the operational losses relating to the reserving process have been adequately quantified; and
In addition, the Solvency II regime requires insurance and reinsurance companies to provide for an effective actuarial function to: ■ coordinate the calculation of technical provisions; ■ ensure the appropriateness of the methodologies and underlying models used as well as the assumptions made in the calculation of technical provisions; ■ assess the sufficiency and quality of the data used in the calculation of technical provisions; ■ compare best estimates against experience; ■ inform the management and the Board of the reliability and adequacy of the calculation of technical provisions; ■ oversee the calculation of technical provisions; ■ express an opinion on the overall underwriting policy; ■ express an opinion on the adequacy of reinsurance arrangements; and
The Group Actuarial Function Holder reports to the Group Chief Financial Off icer.
The breakdown of the Group’s Property & Casualty technical reserves by line of business was as follows: ■ 37% at the end of 2017 (36% at the end of 2016) of the Group’s Property & Casualty reserves cover Motor insurance business; ■ 12% at the end of 2017 (13% at the end of 2016) of the Group’s Property & Casualty reserves cover Property insurance business; ■ 17% at the end of 2017 (18% at the end of 2016) of the Group’s Property & Casualty reserves cover Liability insurance business; ■ 33% at the end of 2017 (33% at the end of 2016) cover the other lines of business.
• biometric risks (e.g. longevity/mortality) and policyholder behaviours (notably lapses and annuity election rates), are regularly monitored. The hedging programmes embed dynamic policyholder behaviours to a range of possible market situations; ■ 16% at the end of 2017 (15% at the end of 2016) cover savings products without guaranteed cash values upon surrender; ■ 20% at the end of 2017 (21% at the end of 2016) are related to savings products off ering one-year guaranteed rates that are updated every year. The risks arising from a sustained fall in interest rates in the financial markets are limited for these types of products. Hedging programs have been implemented to cover long-term fixed maturities from the risk of an increase in interest rates; ■ 31% at the end of 2017 (32% at the end of 2016) cover other products like Protection & Health. These reserves cover surrender guarantees and, in some cases, a guaranteed longterm rate. Related risks are managed in the following ways: • products that are not surrender-sensitive are usually backed by fixed-income investments with maturities and interest rates generally suff icient to cover guaranteed benefits, so as to reduce as much as possible the reinvestment risk,
AXA Group has defined a single framework for identifying, quantifying and monitoring the main operational risks that may arise from a failure in its organization, systems and resources or from external events.
A key objective of the AXA Group’s operational risk economic capital model is to understand and reduce losses resulting from operational failures and to define an appropriate risk response strategy for major operational risk scenarios. Entities and Group Operational Risk profiles are presented to local/Group Risk Committees for decisions and actions to be taken.
In 2017, the Group Operational Risk Profile is reasonably well spread out with all seven operational risk categories covered and the main risks being the following: ■ compliance risk due to changes in legislation and regulation remains a top concern and is under the close monitoring of Group Compliance, as detailed in the paragraph “Group Compliance function” in Section 4.2 “Internal control and Risk Management” of this Annual Report; ■ transaction capture, execution and maintenance risk is still a major one and relates to process error, failure, and/or misperformance; ■ external fraud & system security risk continues also to be a top priority. AXA Group’s exposure to cyber risk is still high with more and more new technology into AXA Group’s products and services. Information on cyber risks should be read in conjunction with the paragraph “Operational and businessrelated Risks” in Section 4.1 “Risk factors” of this Annual Report; AXA Group’s exposure to operational risk is captured in the AXA Group’s Solvency Capital Requirement as detailed in the paragraph “Internal Model” in Section 4.2 “Internal control and Risk Management” of this Annual Report.
The implementation of the Reputation Risk Framework encompasses AXA Group activities including insurance, Asset Management, banking as well as internal service providers.
Emerging risks are risks which may develop or which already exist and are continuously evolving. Emerging risks are marked by a high degree of uncertainty, as some of them will even never emerge.
AXA Group has established processes to qualify and quantify emerging risks which could develop over-time and become significant. The emerging risk framework encompasses a network of circa 50 people within AXA Group (based in insurance,
By seeking to develop new solutions, acting as an advisor on Risk Management and actively contributing to the overall debate about the issues involved, along with other major market players, AXA Group intends to promote a better understanding and better forecasting of the emerging risks and to support sustainable development.
5.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 188 5.2 CONSOLIDATED STATEMENT OF INCOME 190 5.3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 191 5.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 192 5.5 CONSOLIDATED STATEMENT OF CASH FLOWS 196 5.6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 198
NOTE 29 Contingent assets and liabilities and unrecognized contractual commitments 325
NOTE 32 Subsequent events 332 5.7 REPORT OF THE STATUTORY AUDITORS ON THE CONSOLIDATED FINANCIAL STATEMENTS 334
Assets backing contracts where the financial risk is borne by policyholders (c) 175,003 175,292 9 Investments from insurance activities 711,358 727,402 9 Investments from banking and other activities 37,335 35,459 10 Investments accounted for using the equity method 2,381 2,245 14 Reinsurers’ share in insurance and investment contracts liabilities 13,081 14,988
Note: All invested assets are shown net of related derivative instruments impact. (a) Amounts are gross of tax.
(b) On January 1, 2017, Real estate loans were reclassified from Loans at cost to Investments in real estate properties at amortized cost for a total of €0.5 billion. (c) Includes assets backing contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (d) As of December 31, 2017, amounts include the assets of AXA Wealth Management (HK) Limited (“AWM”) and of Germany pension business ProbAV Pensionskasse AG for which the disposal process was not finalized at year-end.
Share capital and capital in excess of nominal value 25,033 25,885
Liabilities arising from insurance contracts where the financial risk is borne by policyholders (b) 159,702 160,222
Liabilities arising from investment contracts with discretionary participating features 33,199 32,466
Liabilities arising from investment contracts with no discretionary participating features 2,900 2,382
Minority interests of consolidated investment funds and puttable instruments held by minority interest holders 8,756 11,503
Other debt instruments issued, notes and bank overdraft s (a) 6,651 3,194
Fees and charges relating to investment contracts with no participating features 211 219
Net realized gains and losses and change in fair value of investments at fair value through profit and loss (d) 20,299 8,629 of which change in fair value of assets with financial risk borne by policyholders (e) 19,215 9,124
Amortization of the value of purchased business in force (44) (170)
Reserves relating to changes in fair value through shareholders’ equity 1,377 1,827
Reserves relating to changes in fair value of financial liabilities measured at fair value through profit and loss that are attributable to changes in own credit risk (23) -
Items that will not be reclassified subsequently to Profit or Loss 385 (581)
Amounts are presented net of tax, policyholders’ participation and other shadow accounting related movements. Tax, policyholder participation and related eff ects are further detailed in the Notes to the financial statements.
Reserves relating to changes in fair value of financial liabilities measured at fair value through profit and loss that are attributable to changes in own credit risk - - - - -
(b) Accumulated financial expenses up to 2016 on undated subordinated debts (TSS, TSDI) have been reclassified from Other to Undistributed profits and other reserves for €-3,288 million.
Employee benefits actuarial gains and losses - - - - -
Note: amounts are presented net of impacts of shadow accounting and its eff ects on policyholder participation, deferred acquisition costs, and value of business in force. (a) Mainly undated subordinated debts (TSS, TSDI), equity components of compounded financial instruments (e.g. convertible bonds) (see Note 13.1.2 ). (b) Accumulated financial expenses up to 2015 and financial expenses from January 1, 2016 to December 31, 2016 on undated subordinated debts (TSS, TSDI) have been reclassified from Other to Undistributed profits and other reserves for €-3,021 million and €-267 million respectively.
Net increase / (write back) in impairment on investments, tangible and other intangible assets 286 780
Net increase / (write back) in other provisions (d) (228) 196
Dividends recorded in profit or loss during the period (3,200) (3,076)
Investment income & expense recorded in profit or loss during the period (e) (10,574) (13,254)
Purchase of subsidiaries and aff iliated companies, net of cash acquired (0) (116)
Disposal of subsidiaries and aff iliated companies, net of cash ceded (12) 204
Net cash related to changes in scope of consolidation (12) 88
Net cash related to sales and repayments of investments (f) (g) (h) 133,579 119,013
Net cash related to purchases and issuance of investments (f) (g) (h) (145,299) (132,993)
Decrease in collateral payable / Increase in collateral receivable (140,519) (127,863)
Acquisition / sale of interests in subsidiaries without change in control (212) (214)
Net interest margin of hedging derivatives on financing debt - 4
CASH AND CASH EQUIVALENT AS OF JANUARY 1 (j) 25,734 25,630
Impact of change in consolidation method and of reclassifications as held for sale (k) (128) (12)
CASH AND CASH EQUIVALENT AS OF DECEMBER 31 (j) 23,196 25,734
(k) In 2017, amounts include the assets and liabilities of AXA Wealth Management (HK) Limited (“AWM”) and of Germany pension business ProbAV Pensionskasse AG for which the disposal process was not finalized at year-end.
In 2016, amounts include the assets and liabilities related to discontinued AXA Life Europe UK & Ireland operations for which the disposal process was not finalized at year-end.
The Group has decided to early adopt the IFRS 9 requirements for the classification and measurement of financial liabilities that are designated as at fair value through profit or loss. This change in accounting policy has aff ected the Group’s accounting for changes in the fair value of banking liabilities that are designated as at fair value through profit or loss. For these financial liabilities, IFRS 9 requires that the changes in fair value that are attributable to changes in the credit risk of those liabilities be recognized in other comprehensive income, unless the recognition of the eff ect of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to the financial liability’s credit risk are not subsequently reclassified to profit or loss, but instead remain in other reserves when the financial liability is derecognized. Previously, under IAS 39, the entire amount of the changes in the fair value of financial liabilities designated as at fair value through profit or loss was recognized in profit or loss.
Annual Improvements to IFRS: 2014 – 2016 Cycle – IFRS 12 – Disclosure of Interests in Other Entities
The standard defines the level of aggregation to be used for measuring the insurance contract liabilities and the related profitability. Indeed, IFRS 17 requires to identify portfolios of insurance contracts, which comprise contracts that are subject to similar risks and are managed together. Afterwards, each portfolio of insurance contracts issued shall be divided into three groups: ■ contracts that are onerous at initial recognition; ■ contracts that at initial recognition have no significant possibility of becoming onerous subsequently; ■ and the remaining contracts in the portfolio.
IFRS 17 requires a current measurement model, where the general model is based on the following “building blocks”: (a) the fulfilment cash flows (FCF), which comprise a. probability-weighted estimates of future cash flows, b. an adjustment to reflect the time value of money (i.e. discounting) and the financial risks associated with those future cash flows, c. and a risk adjustment for non-financial risk; (b) the Contractual Service Margin (CSM).
The CSM represents the unearned profit for a group of insurance contracts and will be recognized as the entity provides services in the future. The CSM cannot be negative at inception; any net negative amount of the fulfilment cash flows at inception will be recorded in profit or loss immediately.
At the end of each subsequent reporting period the carrying amount of a group of insurance contracts is remeasured to be the sum of: ■ the liability for remaining coverage, which comprises the FCF related to future services and the CSM of the g roup at that date; ■ and the liability for incurred claims, which is measured as the FCF related to past services allocated to the g roup at that date.
For these contracts, the CSM is adjusted for (i) changes in the variable fee (entity’s share in underlying items that corresponds to the revenue of the insurer), (ii) for the time value of money and (ii) for eff ect of changes in financial risks not arising from underlying items (such as options and guarantees).
IFRS 17 is eff ective for annual reporting periods beginning on or aft er January 1, 2021. Earlier application is permitted if both IFRS 15 – Revenue from Contracts with Customers and IFRS 9 – Financial Instruments have also been applied. The standard has not yet been endorsed by the European Union.
The method of implementation of IFRS 9 and its potential impact on the Group’s consolidated financial statements are currently being examined within the Group.
However amendments to IFRS 4 Insurance Contracts: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts, published on September 12, 2016, changes the existing IFRS 4 to allow entities issuing insurance contracts within the scope of IFRS 4 to mitigate certain eff ects of applying IFRS 9 before the IASB’s new insurance contract standard (also referred to as IFRS 17, Insurance Contracts) becomes effective. The amendments introduce two alternative options: ■ apply a temporary exemption from implementing IFRS 9 until the earlier of (i) the eff ective date of a new insurance contract standard; or (ii) annual reporting periods beginning on or aft er January 1, 2021. Additional disclosures related to financial assets are required during the deferral period. This option is only available to entities whose activities are predominately connected with insurance and have not applied IFRS 9 previously; or
IFRS 15 – Revenue from Contracts with Customers, published on May 28, 2014, amended on September 11, 2015 and on April 12, 2016, provides a principles-based approach for revenue recognition. The new model applies to all revenue arising from contracts with customers except those that are within the scope of other IFRS such as: insurance contracts, lease contracts and financial instruments. IFRS 15 is effective for annual periods beginning on or aft er January 1, 2018. Based on the analysis performed by the Group, no material impact is expected on the Group’s consolidated financial statements including on investment management fees. The cumulative eff ect of initially applying IFRS 15 will be recognized as an adjustment to the opening balance of retained earnings in 2018.
IFRS 16 – Leases, published on January 13, 2016 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (“lessee”) and the supplier (“lessor”). Under the IFRS 16 model a lessee is required to recognize (i) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (ii) depreciation of lease assets separately from interest on lease liabilities in the income statement. Lessors will continue to classify and account for their leases as (i) operating leases with recognition of the underlying assets; or (ii) finance leases by derecognizing the underlying asset and recognition of a net investment, similar to the current IAS 17 requirements. IFRS 16 is eff ective for annual periods beginning on or aft er January 1, 2019. The potential impact of the new standard on the Group’s consolidated financial statements is currently being assessed.
June 20, 2016 January 1, 2018* Guidance on how: ■ to take into account the vesting and non-vesting conditions on the measurement of a cash-settled share-based payment transaction; ■ to classify a share-based payment transaction with net settlement features for withholding tax obligations; ■ to account for a modification to the terms and conditions of a share-based payment transaction that changes its classification from cash-settled to equity-settled.
December 8, 2016 January 1, 2018* Collection of amendments to IFRS in response to issues that are not part of a major project.
June 7, 2017 January 1, 2019* Clarification how the recognition and measurement requirements of IAS 12 – Income Taxes are applied where there is uncertainty over income tax treatments.
October 12, 2017 January 1, 2019* Clarification that a company applies IFRS 9 Financial Instruments to long-term interests in an associate or joint venture to which the equity method is not applied but that in substance form part of the net investment in the associate or joint venture (long-term interests).
* With earlier application being permitted (subject to conditions in some cases) but no early adoption anticipated.
The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions. It requires a degree of judgment in the application of the Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in paragraph 1.7.1), intangible assets acquired in a business combination, the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted at fair value, deferred tax assets, liabilities relating to the insurance business, pension benefit obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful.
As recommended by IAS 1, assets and liabilities are generally classified globally on the balance sheet in increasing order of liquidity, which is more relevant for financial institutions than a classification between current and non-current items. As for most insurance companies, expenses are classified by destination in the income statement.
1.3.2 Business combinations and subsequent changes in the Group ownership interest
Upon first consolidation, all assets, liabilities and contingent liabilities (unless they are not present obligations) of the acquired company are estimated at their fair value. However, in compliance with an exemption permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to life insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profits emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI and reflecting the diff erence between the fair value and the carrying value of the liabilities). The present value of future profits takes into consideration the cost of capital and is estimated using actuarial assumptions based on projections made at purchase date but also using a discount rate that includes a risk premium.
Investment contracts with no discretionary participating features do not benefit from the exemption permitted by IFRS 4 in Phase I of the IASB’s insurance project such as described above, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature.
Other identifiable intangible assets such as the value of customer relationships should be recognized. The value of customer relationships intangible represents the value of future cash flows expected from renewals and the cross-selling of new products to customers known and identified at the time of the acquisition. These projections include assumptions regarding claims, expenses and financial revenues, or they can be estimated on the basis of the New Business Value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, future premiums relating to acquired business may be recognized in the “Value of acquired business in force” item.
Purchase consideration includes any contingent element (adjustment in the acquisition price conditional upon on one or more events). In the estimate of the contingent element, attention is paid to use assumptions that are consistent with the assumptions used for the valuation of intangible assets such as VBI. For business combinations that occurred before January 1, 2009, any contingent element was included in the cost of the combination to the extent the adjustment was probable and could be measured reliably. If the future events do not occur or the estimate needs to be revised, the cost of the business combination continues to be adjusted accordingly, taking account of the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. For business combinations on or after January 1, 2009, any change to the estimate of the contingent element between the acquisition date and the amount actually subsequently paid is recognized in the income statement.
Goodwill is measured as the excess of (a) the aggregate of the consideration transferred, the amount of any minority interest in the acquiree and in a business combination achieved in stages, the acquisition-date fair value of the Group’s previously held equity interest in the acquiree over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
If the cost of acquisition is less than the net of the acquisitiondate amounts of the identifiable assets acquired and the liabilities assumed, the difference is directly recorded in the consolidated statement of income.
If control in a subsidiary is lost, any gain or loss is recognized in net income. Furthermore, if an investment in the entity is retained by the Group, it is re-measured to its fair value and any gain or loss is also recognized in net income.
When the contract involves an unconditional commitment exercisable by the option holder, it is recognized as a liability. Since the balancing entry to this liability is not specified by current IFRS, the Group’s method is (i) to reclassify minority interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the diff erence either as an increase in goodwill for puts existing before January 1, 2009 or as a decrease in equity (Group share) for a put granted aft er January 1, 2009, to the extent there is no immediate transfer of risks and rewards. Similarly, subsequent changes in the liability are recorded against goodwill for puts existing before January 1, 2009 and against equity (Group share) for puts granted aft er that date.
In the event of an internal sale of an asset that is not intended to be held on the long term by the Group, deferred tax is recognized as the current tax calculated on the realized gain or loss is eliminated. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the statement of financial position.
Equity instruments quoted on exchange traded markets and bonds actively traded on liquid markets for which prices are regularly provided by external pricing services that represent consensus with limited dispersion and for which quotes are readily available are generally considered as being quoted in an active market. Liquidity may be defined as the possibility to sell or dispose of the asset in the ordinary course of business within a certain limited time period at approximately the price at which the investment is valued. Liquidity for debt instruments is assessed using a multi-criteria approach including the number of quotes available, the place of issuance and the evolution of the widening of bid ask spreads.
A financial instrument is regarded as not quoted in an active market if there is little observation of transaction prices as an inherent characteristic of the instrument, when there is a significant decline in the volume and level of trading activity, in case of significant illiquidity or if observable prices cannot be considered as representing fair value because of dislocated market conditions. Characteristics of inactive markets can therefore be very diff erent in nature, inherent to the instrument or indicative of a change in the conditions prevailing in certain markets.
Valuation techniques are subjective in nature and significant judgment is involved in establishing fair values. They include recent arm’s length transactions between knowledgeable willing parties on similar assets if available and representative of fair value and involve various assumptions regarding the underlying price, yield curve, correlations, volatility, default rates and other factors. Unlisted equity instruments are based on cross checks using diff erent methodologies such as discounted cash flows techniques, price earning ratios multiples, adjusted net asset values, taking into account recent transactions on instruments which are substantially the same if concluded at arm’s length between knowledgeable willing parties, if any. The use of valuation techniques and assumptions could produce diff erent estimates of fair value. However, valuations are determined using generally accepted models (discounted cash flows, Black & Scholes models, etc.) based on quoted market prices for similar instruments or underlyings (index, credit spread, etc.) whenever such directly observable data are available and valuations are adjusted for liquidity and credit risk.
The dislocation of certain markets may be evidenced by various factors, such as very large widening of bid ask spreads which may be helpful indicators in understanding whether market participants are willing to transact, wide dispersion in the prices of the small number of current transactions, varying prices over time or among market participants, inexistence of secondary markets, disappearance of primary markets, closing down of dedicated desks in financial institutions, distress and forced transactions motivated by strong needs of liquidity or other diff icult financial conditions implying the necessity to dispose of assets immediately with insuff icient time to market the assets to be sold, and large bulk sales to exit such markets at all costs that may involve side arrangements (such as sellers providing finance for a sale to a buyer). In such cases, the Group uses valuation techniques including observable data whenever possible and relevant, adjusted if needed to develop the best estimate of fair value, including adequate risk premiums or develops a valuation model based on unobservable data representing estimates of assumptions that willing market participants would use when prices are not current, relevant or available without undue costs and eff orts: in inactive markets, transactions may be inputs when measuring fair value, but would likely not be determinative and unobservable data may be more appropriate than observable inputs.
The segmental analysis provided in AXA’s Annual Report and Financial Statements reflects operating business segments; it is based on five geographies (France, Europe, Asia, the United States, and International) and the sixth segment comprises transversal entities as well as the Corporate Center and other central holdings. Key transversal entities are managed alongside those five geographies. This corresponds to AXA Investment Managers, the AXA’s core fully-owned asset management unit and AXA Corporate Solutions Assurance, AXA’s entity dedicated to Property and Casualty business for large corporates. Direct and traditional entities in Europe are reported within their respective countries.
In order to fully reflect the above-mentioned changes in the governance of the Group, the financial reporting has been aligned and retroactively restated for the year-ended December 31, 2016 in this report under the six following segments: ■ France (insurance and banking activities, and holdings); ■ Europe, consisting of : • Switzerland (insurance activities),
• Asia - Direct, consisting of : • AXA Global Direct Japan,
The profitability of business in force is determined using the embedded value methodology, which is an industry-specific valuation method, consistent with the principles of discounted earnings, as the value of business in force results from the projection of distributable earnings. The Group uses however both market consistent risk neutral approaches and traditional discounted cash flows projections.
■ The profitability of future new business: The value of new business is computed either on the basis of multiples of a standardized year of new business contribution (present value of projected future distributable profits generated from business written in a year) or on a projection of each of the expected annual future earnings when multiples are not appropriate. Main assumptions include, expenses, cost of capital, future investment margins, financial market volatility, first assessed on a risk free basis (basic test) and then on the basis of illustrative investment assumptions suitable for a traditional embedded value approach if the previous recoverable value is lower than the carrying amount.
The value in use approach uses cash flow projections based on business plans approved by management covering up to five years and discounted using a risk adjusted rate. Cashflows beyond that period are extrapolated using a steady growth rate and a terminal value.
The incremental direct costs of acquiring a portfolio of insurance contracts and investment contracts with discretionary participating features, primarily related to the selling, underwriting and initiating the insurance contracts in a portfolio, are deferred by recognizing an asset. In Property and Casualty, DAC are amortized over the terms of the policies, as premium is earned. For Life business, the asset is amortized based on the estimated gross profits emerging over the life of the contracts. This asset is tested for recoverability and any amount above future estimated gross profits is expensed. DAC are also tested through the liability adequacy test (see paragraph 1.14.2).
In case of unrealized loss over 15%, an impairment is recognized for the diff erence between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without off setting with unrealized gains) represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-by-line approach until the 10% threshold is reached.
AXA assesses at each balance sheet date whether a financial asset or a group of financial investments at (amortized) cost or designated as available for sale is impaired. A financial asset or group of financial investments is impaired when there is objective evidence of impairment as a result of one or more events and this event has an impact on the estimated future cash flows of the asset(s) that can be reliably estimated.
For equity instruments classified as available for sale, a significant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equity instruments showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date. If such evidence exists for an available for sale financial asset, the cumulative loss – measured as the diff erence between the acquisition cost and the current fair value, less any impairment on that financial asset already booked in the income statement – is removed from shareholders’ equity and an impairment is recognized through the income statement. Equity instruments impairment recognized in the income statement cannot be reversed through the income statement until the asset is sold or derecognized.
Ordinary shares are classified in shareholders’ equity when there is no obligation to transfer cash or other assets to the holders.
For traditional life insurance contracts (that is, contracts with significant mortality or morbidity risk), the future policy benefits reserves are calculated on a prospective basis according to each country’s regulation provided methods used are consistent with the Group’s policies and using assumptions on investment yields, morbidity/mortality and expenses.
The discount rates used by AXA are less than or equal to the expected future investment yields (assessed on prudent basis).
For example, for contracts with discretionary participating features, when unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded. The DPL or DPA corresponds to the discretionary participation available to the policyholders and is generally determined by applying on the basis of estimated participation of policyholders in unrealized gains and losses and any other valuation diff erence with the local contractual basis. Jurisdictions where participating business is significant are Switzerland (forgroup insurance policies), Germany and France where the minimum is set to 90%, 90% and 85% respectively, of a basis which may include not only financial income but also other components such as in Germany or Switzerland. Participating business is less prevalent in the United States or in Japan.
When a net unrealized loss (unrealized change in fair value, impairment, expense related…) is accounted, a deferred participating asset (DPA) may be recognized only to the extent that it is highly probable that it can be charged to policyholders, by entity, in the future. This could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or the DPL netted against value of businesses in force or indirectly through deduction of future fees on premiums or margins.
Any identified deficiency is charged to the income statement, initially by respectively writing off DPA, DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DPA, DAC and VBI. For non-life insurance contracts, an unexpired risk provision is recognized for contracts on which the premiums are expected to be insuff icient to cover expected future claims and claims expenses.
In accordance with IAS 39, these contracts are accounted for using “deposit accounting”, which mainly results in not recognizing the cash flows corresponding to premiums, benefits and claims in the statement of income (see “Revenue recognition” paragraph below). These cash flows shall rather be recognized as deposits and withdrawals.
This category includes mainly Unit-Linked contracts that do not meet the definition of insurance or investment contracts with discretionary participating features. For these Unit-Linked contracts, the liabilities are valued at current unit value, i.e. on the basis of the fair value of the financial investments backing those contracts at the balance sheet date together with r ights to future management fees, also known as Deferred Origination Costs (DOC, described in paragraph 1.7.3).
The current income tax expense (benefit) is recorded in the income statement on the basis of local tax regulations.
The AXA Sharep lan issued under a specific French regulatory framework includes a traditional and a leveraged formula (with an application subject to specific local regulations within the Group).
Restructuring provisions other than those that may be recognized on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those aff ected or to their representatives.
They exclude bank operating expenses and change in bad debt provisions, doubtful receivables or loans, which are recorded in “Bank operating expenses”.
AXA Equitable Holdings, Inc (previously AXA America Holdings, Inc) 100.00 100.00 100.00 100.00
AXA Global Re (previously AXA Global P&C) 100.00 100.00 100.00 100.00
As of December 31, 2017, 28 consolidated real estate companies corresponded to a total of €10,469 million invested assets (€9,413 million at the end of 2016), mainly in France, Germany and Japan.
As regards main subsidiaries with minority interests (other than investment funds and real estate companies): ■ the financial information of AB is available in Part II – Item 8. Financial Statements and Supplementary Data of its Annual Report for the year ended December 31, 2017, which is filed with the SEC; ■ summarized financial information for AXA MPS is as follows (including AXA and external share but excluding goodwill related to AXA’s holdings and before intercompany eliminations with other companies of the Group):
2.1.2 Main investments in companies accounted for using the equity method
Bharti AXA General Insurance Company Limited (India) 49.00 49.00 49.00 49.00
AXA Investment Managers Asia Holdings Private Limited Relution 49.00 47.75 49.00 47.52
The Group does not hold significant interests in unconsolidated insurance / reinsurance structured entities.
Furthermore, given its insurance business, the Group holds direct investments in corporates of various sectors, such as debt instruments, equity securities and loans. These investments are not designed to be done in structured entities and the whole Group’s exposure is reflected on the consolidated balance sheet.
Note 2.1). Other funds are not consolidated because they are not controlled or under significant influence. By nature, and notably because of the power of decision usually given to the asset managers (internal or external to AXA), most of these funds are structured entities.
Information on these unconsolidated investment funds are provided in diff erent sections of this Annual Report: ■ Section 1.1 Key figures : • AXA’s total assets under management including assets managed on behalf of third parties; ■ Section 2.3 Activity Report ; ■ Section 5.6 Notes to the consolidated financial statements : • Note 9 Investments with the breakdown of investments and detail on non-consolidated investment funds in Note 9.8,
Asia: The Asian market consists of Life & Savings activities in Japan, Hong Kong and Asia High Potentials (Indonesia, Philippines, Thailand and China) as well as Property & Casualty activities in Hong Kong and Asia High Potentials (Thailand and China). The Asia-Direct entities (Japan and South Korea) and Asia / Pacific holding companies are also included.
International: The International market consists of Life & Savings and Property & Casualty activities in 14 countries within Europe, Middle East, Africa & Latin America as well as in Singapore, in Malaysia and in India. AXA Bank Belgium and holding companies in these countries are also included in this segment.
Transversal & Central Holdings: includes transversal entities namely AXA Investment Managers, AXA Art, AXA Global Re, AXA Assistance, AXA Corporate Solutions Assurance, AXA Liabilities Managers and AXA Life Europe, as well as AXA SA and other Central Holdings.
The intersegment eliminations include only operations between entities from diff erent segments. They mainly relate to reinsurance treaties, assistance guarantees recharging, asset management fees and interests on loans within the Group.
Fees and charges relating to investment contracts with no participating features 1 128 40 - 42 - - 211 211
Net revenues from banking activities 125 26 - - 318 - 27 496 -
Net realized gains and losses relating to investments at cost and at fair value through shareholders’equity 668 1,036 203 (125) 17 (19) 2 1,781 1,833
Net investment result excluding financing expenses 6,868 7,142 2,754 16,937 761 121 (135) 34,449 33,751
Technical charges relating to insurance activities (24,764) (33,165) (8,939) (28,345) (5,049) (2,768) 346 (102,684) (102,684)
Change in goodwill impairment and other intangible assets impairment - (55) (17) (9) (32) (1) - (114) (107)
Split between : Net consolidated income - Group share 1,420 2,435 1,028 1,415 276 (365) - 6,209 6,394
Net revenues from banking activities 141 21 - - 388 - 40 590 -
Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (d) 865 584 321 6,861 250 (237) (16) 8,629 8,967 of which change in fair value of assets with financial risk borne by policyholders 995 328 205 7,487 67 43 (1) 9,124 9,124
Technical charges relating to insurance activities (23,785) (34,996) (8,521) (20,396) (4,800) (3,045) 193 (95,350) (95,350)
Net result from outward reinsurance (205) (327) (229) 323 (374) (25) 247 (589) (589)
Amortization of the value of purchased business in force - (127) (29) (10) (4) - - (170) (170)
Income from operating activities before tax 2,101 3,015 1,242 3,099 334 (176) (465) 9,149 6,613
Income (net of impairment) from investment accounted for using the equity method 20 2 138 - 45 12 - 218 205
Result from discontinued operations net of tax (e) - (439) - - - - 0 (439) (439)
Net consolidated income aft er tax 1,515 1,788 1,104 2,166 284 (663) - 6,193 5,745
Split between: Net consolidated income - Group share 1,509 1,708 1,096 1,944 243 (671) 0 5,829 5,611
Net consolidated income - Minority interests 6 79 8 221 42 8 (0) 364 134
Please refer to pages 171 to 174 of Section 4.3 “Market risks”, subsections “Interest rates & equity risks related to the operating activities of Group subsidiaries” and “Exchange-rate risk related to the operating activities of Group subsidiaries”.
Note: Goodwill related to entities accounted for using the equity method is not presented in this table (see Note 10). (a) Reallocation of Direct Insurance business to the other Property & Casualty activities, reclassification of Architas Solutions and Architas Europe to the United Kingdom & Ireland activities, AXA Art from AXA Germany to the Transversal & Central Holdings “Others”, AB to the United States as well as banking and holdings activities to its home country.
Alternative Solutions by AB (€+20 million), Eureka Funds Management by AXA Investment Managers (€+16 million) and Aid Call in the United Kingdom (€+9 million). (c) Mainly disposal of the United Kingdom Life & Savings business. (d) Due to Spain and Italy (now included in Europe), which were formerly reported within the Mediterranean & Latin American Region (renamed EMEA-LATAM region in FY16 and now included under International).
For entities for which recoverable amounts are calculated using non-risk neutral approaches, the applicable discount rates have been calculated using the capital asset pricing model (CAPM). Assumptions used to define the discount rates, including risk-free interest rates, equity risk premiums, insurance activity beta and leverage ratio are consistent with the view of AXA’s management for those markets.
Non-risk neutral approaches are used for cash generating units, with discount rates ranging from 5.4% to 12.0% in 2017 compared to a range of 5.9% to 12.8% in 2016, and growth rates beyond the strategic plan horizon, where applicable, from 2.3% to 6.1% compared to 2.1% to 5.6% in 2016. The two Life & Savings entities using a value in use approach are (i) AXA Belgium with a discount rate of 5.5% and (ii) AXA US using a discount rate of 6.4%.
However, subsequent impairment tests may be based upon diff erent assumptions and future cash flow projections, which may result in an impairment of these assets in the foreseeable future.
5.3 OTHER INFORMATION RELATING TO GOODWILL, ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES
AXA COMPLETED THE SALE OF AXA LIFE EUROPE LIMITED’S OFFSHORE INVESTMENT BONDS BUSINESS TO LIFE COMPANY CONSOLIDATION GROUP
On July 3, 2017, AXA announced that it had completed the sale of AXA Life Europe Limited’s off shore investment bonds business to Harcourt Life International dac (recently renamed to Utmost Ireland dac), a subsidiary of Life Company Consolidation Group.
The price consideration is HKD 2,200 million (or €237 million (1)) to be fully paid at closing, representing an implied 1.4x EV multiple. The proposed transaction is subject to customary conditions, including the receipt of regulatory approvals, and is expected to be finalized by the end of 2018 or early 2019.
As of December 31, 2017, the major classes of assets and liabilities of the AXA Wealth Management (HK) Limited (“AWM”) included the following (amounts are presented net of intercompany balances with other AXA entities): (in Euro million)
5.3.3 AXA to sell part of its german occupational pensions portfolio to Frankfurter Leben-Gruppe
(a) Mainly reclassification of AXA Wealth Management (HK) Limited (“AWM”) to assets held for sale.
Deferred Acquisition Costs and equivalent relating to Property & Casualty 2,018 1,981
Changes in deferred acquisition costs and equivalent were as follows: (in Euro million)
Capitalized interests for the period of Life DAC 910 29 914 30
DAC and similar costs capitalization for the period of Life DAC 2,193 35 2,251 38
(a) Restated to include the Deferred Acquisition Costs and equivalent of Property & Casualty activities in addition to those related to Life & Savings activities. (b) Relating to contracts subject to IFRS 4, i.e. insurance contracts and investment contracts with discretionary participating features. (c) Applicable to investment contracts with no discretionary participation features (IAS 39). (d) Include the reclassification of AXA Wealth Management (HK) Limited (“AWM”) to assets held for sale and Germany pension business ProbAV Pensionskasse AG for which the disposal process was not finalized at year end.
The value of Deferred Acquisition Costs and equivalent for insurance business, net of amortization, unearned revenue reserves and unearned fee reserves, was as follows: (in Euro million)
Deferred Acquisition Costs and equivalent 22,183 698 23,355 777 of which shadow DAC (1,769) - (1,476) -
Unearned revenues and unearned fees reserves 2,316 282 2,256 309 of which shadow unearned revenues reserves (403) - (494) -
DAC net of unearned revenues and unearned fees reserves 19,867 416 21,099 468
Other intangible assets represented €3,170 million net value as of December 31, 2017, and mainly included: (in Euro million) Gross value
Intangible assets recognized in business combinations and other business operations 3,312 (1,103) (24) 2,184 2,316
8.2 BREAKDOWN OF INTANGIBLE ASSETS RECOGNIZED IN BUSINESS COMBINATIONS AND OTHER BUSINESS OPERATIONS
Intangible assets recognized in business combinations mainly include value of distribution agreements and customer related intangibles, including €1,425 million (net carrying value) assets with indefinite useful life.
The amortization period for intangible assets recognized in business combinations with a finite useful life ranges from 10 to 20 years.
Investment in real estate properties designated as at fair value through profit or loss (c) 1,456 1,456 0.20%
Equity instruments designated as at fair value through profit or loss (c) 8,809 8,809 1.24%
Non consolidated investment funds designated as at fair value through profit or loss (c) 3,858 3,858 0.54%
Investment in real estate properties designated as at fair value through profit or loss (b) 1,256 1,256 0.17%
Equity instruments designated as at fair value through profit or loss (b) 8,975 8,975 1.23%
Investments (excluding those backing contracts where the financial risk is borne by policyholders) 562,341 552,110 75.90%
(a) Includes infrastructure investments. (b) Assets measured at fair value under the fair value option. (c) Includes assets measured at fair value notably under the fair value option. (d) Eligible to the IAS 39 Loans and receivables measurement category. (e) Mainly relates to mortgage loans and policy loans.
(a) On January 1, 2017, infrastructure loans were reclassified from loans at cost to investment in real estate properties at amortized cost for a total of €0.5 billion. (b) Includes infrastructure Investments.
(a) Includes change in scope and the eff ect of changes in exchange rates.
Debt instruments available for sale 337,654 380,710 380,710 47,362 4,306 343,689 390,821 390,821 54,800 7,668
Debt instruments (at cost) that are not quoted in an active market (c) 8,158 8,350 8,130 278 87 5,756 5,955 5,736 274 75
Equity instruments available for sale 13,931 18,461 18,461 4,688 159 12,901 16,499 16,499 3,799 202
Debt instruments available for sale 4,199 4,216 4,216 144 126 5,399 5,413 5,413 211 197
Debt instruments available for sale 341,853 384,927 384,927 47,506 4,432 349,087 396,234 396,234 55,011 7,864
Equity instruments available for sale 14,775 19,534 19,534 4,945 187 13,804 17,616 17,616 4,042 230
Non consolidated investment funds available for sale 8,096 9,228 9,228 1,242 109 8,170 9,122 9,122 1,043 91
See also Note 9.9.1 “Breakdown of financial investments subject to impairment”.
Loans from activities other than insurance and banks 125 125 91 92
Total - Financial investments exposed to fair value interest rate risk 29,770 108,272 315,432 453,473 37,308 117,902 317,386 472,596
Equity instruments as of December 31, 2016 8,579 7,809 685 1,365 3,300 1,017 1,517 2,810 27,082 (5) 27,077
Non consolidated investment funds mainly holding debt instruments 3,622 0 3,622 4,269 127 4,397
Debt instruments available for sale 342,096 (243) 341,853 43,074 384,927 349,616 (529) 349,087 47,147 396,234
Debt instruments (at cost) that are not quoted in an active market (c) (d) 9,156 (0) 9,155 (28) 9,127 6,893 (0) 6,892 (20) 6,872
(a) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (b) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (c) Revaluation to fair value for instruments at cost related to the application of hedge accounting. (d) On January 1, 2017, infrastructure and mid-cap loans were reclassified from loans at cost to debt instruments (at cost) that are not quoted in an active market for a total of €1.6 billion.
(e) Including policy loans. (f) On January 1, 2017, real estate loans were reclassified from loans at cost to investment in real estate properties at amortized cost for a total of €0.5 billion.
Impairment - Non consolidated investment funds 1,126 56 (34) - (64) 1,084
Financial investments and loans available for sale 301,740 109,437 4,524 415,701 413,689 294,708 127,292 4,049 426,048 422,972
Financial investments and loans held for trading 609 523 2 1,134 1,183 702 1,160 2 1,863 1,703
TOTAL FINANCIAL INVESTMENTS AND LOANS ACCOUNTED FOR AT FAIR VALUE 334,726 129,994 17,298 482,017 480,185 328,183 156,486 15,682 500,351 496,985
Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency which represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. Such assets are categorized in the level 1 of the IFRS 13 fair value hierarchy.
From January 1, 2017 to December 31, 2017, the amount of level 3 assets increased to €17.3 billion, representing 3.6% of the total assets at fair value (3.1% in 2016 i.e. €15.7 billion).
Main movements related to level 3 assets to be noted were the following: ■ €+3.0 billion of new investments; ■ €+0.1 billion of change in unrealized gains and losses; ■ €+0.05 billion of net asset transfers in and out of level 3 and foreign exchange fluctuation impact; ■ €-1.6 billion of asset sales, redemptions and settlements mainly of debt instruments, equity securities and non-conso investment funds accounted as available for sale and of equity securities, non-conso investment funds, other assets held by controlled investment funds and debt instruments accounted as fair value through P&L.
Fair value mainly not based on observable market data (level 3)
Note: This table excludes assets backing contracts where the financial risk is borne by policyholders with guaranteed minimum features. (a) On January 1, 2017, real estate loans were reclassified from loans at cost to investment in real estate properties at amortized cost for a total of €0.5 billion. (b) On January 1, 2017, infrastructure and mid-cap loans were reclassified from loans at cost to debt instruments (at cost) that are not quoted in an active market for a total of €1.6 billion.
Philippine AXA Life Insurance Corporation 72 - 22 (10) (8) 76
ICBC-AXA Assurance Co Ltd (previously AXA Minmetals Assurance Co Ltd) 346 - (3) (24) 94 413
AXA SPDB Investment Managers Company Limited 22 - 13 (2) (2) 32
Dividends received by AXA from the joint venture 48 - 48 -
A reconciliation of the summarized financial information to the carrying amount of the joint ventures is as follows: (in Euro million)
Group share in net assets 181 235 176 247 10.3 MAIN ASSOCIATES
Receivables from policyholders, brokers and general agents 8,393 (426) 7,967 7,967 8,676 (365) 8,311 8,311
Premiums earned not yet written 5,534 - 5,534 5,534 4,511 - 4,511 4,511
Receivables arising from direct insurance and inward reinsurance operations 16,792 (432) 16,360 16,360 16,787 (369) 16,418 16,418
Receivables from brokers and general agents 9 (5) 4 4 11 (7) 5 5
(a) Included in “Other debt instruments issued and bank overdraft s”. (b) The “Cash and cash equivalents” item excludes cash backing contracts where the financial risk is borne by policyholders (unit-linked contracts).
Net cash and cash equivalents decreased by €2,538 million compared to 2016 mainly due to: ■ Belgium (€+1,254 million) mainly due to subscription to AXA Money Market fund replacing AXA IM Euro liquidity fund; ■ Germany (€+1,205 million) mainly due to reclassification of money market funds and outstanding investments for 2018; ■ Switzerland (€+866 million) mainly due to de-risking strategy and outstanding investment for 2018; ■ Hong Kong (€-828 million) mainy due to due to new investments and dividend payments; ■ AXA SA (€-1,855 million) mainly due to the dividend paid to shareholders (€-2,808 million), the repayment of debts (€-2,119 million), shares buy back (€-1,655 million), financial expenses (€-725 million), loans granted to US operations (€-801 million) partly off set by dividends received (€+5,089 million), issuance of new debt (€+946 million), capital increases (€+576 million) including share plan; ■ The United States (€-1,512 million) mainly due to purchases of financial invested assets, repayment of debt and dividend paid, partly off set by cash generated from operating activites; ■ The United Kingdom & Ireland (€-722 million) mainly due debt repayment to AXA SA and payment into group pension scheme, partly off set by proceeds from the disposal of the Bluefin insurance group.
Regarding the consolidated statement of cash flows presented together with the primary financial statements, net cash provided by operating activities totaled €16,521 million in 2017, compared to €13,124 million in 2016.
Net cash relating to financing activities was €-6,111 million in 2017 mainly driven by: ■ Subordinated debt issued €+946 million and repayment of financing debt €-1,832 million and undated subordinated debt €-330 million in 2017; ■ Dividends payments of €-3,098 million.
Net cash relating to financing activities totalled €-2,878 million in 2016 mainly driven by: ■ Financing debt and subordinated debt issued €+2,306 million and €+500 million respectively and repayment of undated subordinated debt €-1,260 million in 2016; ■ Dividends payments of €-2,923 million.
As of December 31, 2017, the Company and its subsidiaries owned 41.8 million AXA shares, representing 1.7% of the share capital, an increase of 36 million shares compared to December 31, 2016.
Undated subordinated debt instruments are classified in shareholders’ equity at their historical value and their closing value as regards exchange rates. The corresponding foreign exchange diff erences are cancelled out through the translation reserve.
■ €-385 million from foreign exchange rate fluctuations; ■ €-229 million from interest expenses related to the undated subordinated debt (net of tax) .
Undated notes - 375 MUS$, variables rates 375 313 375 356
Undated subordinated debt oft en contains the following features: ■ early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem on certain dates the principal amount before settlement and without penalty, and; ■ interest rate step-up clauses with eff ect from a given date.
On April 26, 2017, Shareholders’ Meeting, shareholders approved a dividend distribution of €1.16 per share corresponding to €2,808 million with respect to the 2016 financial year.
During 2016, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: ■ a capital increase of €492 million including the employee share off ering (December 2016) of 24.5 million shares for €430 million net of related charges; shares distributed of 1.3 million under AXA Miles for €3 million (reclassified from other reserves); ■ a capital decrease of €637 million for 31 million shares in order to eliminate the dilutive eff ect of share-based compensation schemes (AXA SA’s stocks options, performance shares plans and share plan); ■ share-based payments for €37 million.
As of December 31, 2016, the Company and its subsidiaries owned 5.9 million AXA shares, representing 0.24% of the share capital, an increase of 3.9 million shares compared to December 31, 2015.
In 2016, following transactions pertaining to undated subordinated debt had an impact on AXA’s other reserves: ■ €-1,260 million from repayment of undated subordinated debt; ■ €-181 million from foreign exchange rate fluctuations; ■ €-267 million from interest expenses related to the undated subordinated debt (net of tax) .
On April 30, 2016 Shareholders’ Meeting, shareholders approved a dividend distribution of €1.10 per share corresponding to €2,656 million with respect to the 2015 financial year.
The following table shows the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro million)
Less unrealized gains and losses attributable to: Shadow accounting on policyholder participation and other obligations (27,019) (30,959)
Shadow accounting on Value of purchased Business In force (178) (185)
UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 16,194 15,376
Minority interests’ share in unrealized gains and losses (d) (215) (267)
(a) Unrealized gains and losses on total available for sale invested assets including loans and assets held for sale. (b) Net of shadow accounting on unearned revenues and fees reserves and held for sale activities. (c) Including unrealized gains and losses on assets held for sale operations. (d) Including foreign exchange impact attributable to minority interests. (e) Group share.
Unallocated unrealized gains and losses before tax 4,305 1,153 1,413 3,104
Unrealized gains and losses (net of tax) - Equity accounted companies 44 - - -
Minority interests’ share in unrealized gains and losses (c) (8) 0 - (1)
(a) Unrealized gains and losses on total available for sale invested assets including loans and assets held for sale (b) Net of shadow accounting on unearned revenues and fees reserves. (c) Including foreign exchange impact attributable to minority interests. (d) Group share.
Transfer in the income statement on the period (a) (725) (771)
UNREALIZED GAINS AND LOSSES (NET OF TAX) 100%, CLOSING 16,194 15,376
The total impact of foreign exchange rate movement was €-73 million (of which €-150 million from Group share and €+77 million from minority interest) as of December 31, 2016.
The €373 million increase in minority interests to €5,656 million was driven by comprehensive income and transactions with minority interests’ holders: ■ the comprehensive income for the period notably included the following: • net income attributable to minority interests for €+394 million,
• reserves relating to changes in fair value through shareholders’ equity for €-47 million,
■ transactions with minority interests’ holders, mainly included: • dividend payout to minority interests’ holders for €-274 million,
• reserves relating to changes in fair value through shareholders’ equity for €+129 million,
• foreign exchange movements for €+77 million; ■ transactions with minority interests’ holders, mainly included: • dividend payout to minority interests’ holders for €-270 million,
Total insurance and investment liabilities (D = A+B+C) 176,040 234,767 56,371 166,575 13,665 9,520 656,938
Total insurance and investment liabilities (D = A+B+C) 170,856 244,145 59,818 176,522 13,498 10,462 675,299
Liabilities arising from insurance contracts 334,913 66,216 401,129 347,874 66,694 414,569
Liabilities arising from investment contracts with discretionary participating features 33,199 - 33,199 32,466 - 32,466
Liabilities arising from investment contracts where the financial risk is borne by policyholders 15,896 - 15,896 15,511 - 15,511
Unearned revenue and unearned fee reserves 2,586 12 2,598 2,565 - 2,565
Reinsurers’ share in insurance contract liabilities relating to policyholders’ participation 1 9 10 136 2 138
Liabilities arising from insurance contracts (A) 334,913 66,216 401,129 347,874 66,694 414,569 of which measured at current assumptions (d) 13,427 - 13,427 15,355 - 15,355
Liabilities arising from insurance contracts where the financial risk is borne by policyholders (B) 159,702 - 159,702 160,222 - 160,222
Reinsurers’ share in future policy benefit reserves 5,697 (5) 5,693 7,440 - 7,440
TOTAL LIABILITIES ARISING FROM INSURANCE CONTRACTS, NET OF REINSURERS’ SHARE (G = C-F) 486,343 61,486 547,828 498,613 61,421 560,034
Note: Liabilities relating to unearned revenues and fees (see Note 7.3), to policyholder participation (see Note 14.9), and derivative instruments (see Note 20.4) are excluded from the table above. Reinsurers’ share in insurance contracts liabilities relating to policyholders’ participation (€10 million in 2017 and €138 million in 2016), as well as derivative instruments (none in 2017 and 2016) are excluded from the table above.
Liabilities arising from investment contracts with discretionary participating features (A) 33,199 32,466 of which measured at current assumptions (b) - -
Liabilities arising from investment contracts with no discretionary participating features (B) 2,900 2,382
Liabilities arising from investment contracts where the financial risk is borne by policyholders (C) 15,896 15,511
Sub-total liabilities arising from investment contract (D = A+B+C) 51,995 50,358
Reinsurers’ share in liabilities arising from investment contracts with discretionary participating features (E) 65 89
TOTAL LIABILITIES ARISING FROM INVESTMENT CONTRACTS - NET OF REINSURERS’ SHARE (I = D-H) 51,926 50,265
(a) Excluding “other policy benefits liabilities” (mainly mathematical annuity reserves), which totaled €5.2 billion in 2017 and €5.5 billion in 2016. (b) Excluding claims handling expense reserves.
Reinsurers’ share in claims reserves as of January 1 4,475 3,889
Change in scope of consolidation, portfolio transfers, change in accounting principles and other changes (151) 282
14.5 CHANGE IN LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS – LIFE & SAVINGS
14.5.1 Change in liabilities arising from insurance and investment contracts – gross of reinsurance
The table below gives detailed information on change in liabilities arising from insurance and investment contracts in Life and Savings presented in Note 14.2 (C) and Note 14.3 (D): (in Euro million)
Collected premiums net of loadings on premiums (+) 48,217 5,146 53,364 49,611 5,542 55,153
Unit-Linked technical reserves value adjustment (+/-) 17,991 386 18,377 8,860 423 9,283
Change in reserves relating to technical and actuarial items (+/-) (b) 4,816 2,467 7,283 5,248 2,794 8,042
Change in scope of consolidation, portfolio transfers and change in accounting principles (2,710) (216) (2,926) (390) (24,324) (24,715)
Impact of foreign currency fluctuation (32,427) (830) (33,257) 8,403 (3,922) 4,482
Reinsurers’ share in technical reserves as of January 1 (a) 9,483 93 9,576 14,812 101 14,914
Reinsurers’ share in collected premiums net of loadings on premiums (+) 1,240 7 1,247 2,105 7 2,111
Reinsurers’ share in surrenders, maturities and other claims and benefits paid net of charges and penalties (-) (732) (15) (747) (7,464) (20) (7,484)
Reinsurers’ share in change in reserves relating to technical and actuarial items (+/-) (b) (1,275) (13) (1,288) (138) 5 (133)
Reinsurers’ share in technical reserves as of December 31 (a) 8,272 69 8,342 9,483 93 9,576
(b) Notably includes interests credited and policyholder participation credited to reserves, fees on account balance and investment management fees and change in reserves relating to other technical and actuarial items.
Investment contracts with Discretionary Participation Features (DPF) measured with current assumptions (b) - -
Investment contracts with no Discretionary Participation Features (DPF) measured according to existing accounting policies 2,900 2,382
Investment contracts with no Discretionary Participation Features (DPF) measured at current unit value (d) 12,260 11,917
(b) See Note 1.14.2 – Reserves measured according to IFRS 4.24 option which allows to evaluate certain portfolios with current assumptions. (c) & (d) As unit-linked contracts reserves are measured on the basis of held asset units fair value (“current unit value”). Only the valuation of related assets is diff erent: ■ for unit-linked contracts with a discretionary participating feature (c), an asset representing the deferred acquisition costs is recognized in continuity with previous accounting policies; ■ for unit-linked contracts with no discretionary participating feature (d), an asset representing the rights to future management fees is recognized in accordance with IAS 18 (Rights to future management fees also known as Deferred Origination Costs “DOC”) – see Note 1.7.3 and Note 7.
The recognition of investment contracts with discretionary participating features is subject to IFRS 4, which allows, under certain conditions, the use of accounting principles applied prior to the adoption of IFRS. However, these contracts must be treated in accordance with IFRS 7 with regards to the disclosures to be provided in the Notes to the financial statements. IFRS 7 requires the disclosure of fair value or value ranges for these contracts, unless the Group cannot reliably measure the participating features.
In the context of the current IFRS 4, the IASB acknowledged the diff iculties involved in the recognition and the measurement of discretionary participating features included in insurance or investment contracts. The IASB issued guidance to measure fair value but with no principles addressing policyholder participation features and interpreting them before the issuance of IFRS 17 would be premature.
The first section of the table entitled “Cumulative payments” shows, for a given column N, the cumulative amount of payments related to years of occurrence prior to and including N, made since December 31 of year N.
Loss reserve development table: Property and Casualty (excluding Colisée RE – ex-AXA RE)
Gross reserves for unpaid claims and claims expenses developed initially at the booking date 44,020 44,046 44,470 46,367 45,946 46,440 47,031 49,868 51,965 53,286 52,973
Gross reserves for unpaid claims and claims expenses developed in 2017 adjusted for changes in exchange rates and scope of consolidation 42,390 39,699 39,716 39,807 40,503 41,359 42,406 43,950 45,142 50,972 52,973
Cumulative redundancy (deficiency) from the initial gross reserves in excess of re-estimated gross reserves: (e)
(a) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group adjusted certain items impacting the allocation of Seguros ING (Mexico) purchase price, resulting in a €33 million increase in the goodwill to €512 million. Most of this increase in goodwill was due to adjustments to provisions for liabilities and claims reserves.
(b) Following the disposal of Canadian operations, amounts in its respect were not reported for the current year while previously disclosed amounts were unchanged. (c) The comparative information related to previous periods was restated for the implementation of IFRS10 and 11. (d) Amounts prior to 2015 contains the Life & Savings entities historicaly reported in the International Insurance segment. (e) It is not appropriate to extrapolate future redundancies or future deficiencies based on the loss reserves development presented in the table, as conditions and trends that have aff ected development of the liability in prior periods may not necessarily occur in the future periods. Redundancy or deficiency disclosed includes forex impact between one year and the next.
The table below gives a reconciliation between developed reserves and total recognized claims reserves for the claims reserves and other reserves arising from insurance contracts as disclosed in Note 14.2.
Property & Casualty (excluding Colisée RE (ex AXA RE)) (a) 52,973 53,286
At year-end 2017, key data relating to asbestos claims were as follows: (in Euro million)
Claims reserves at end of year 878 832 998 944 of which Reported claims 140 129 144 130 of which IBNR claims 738 704 854 814
Reserves adequacy ratios 3-Year survival ratio excluding commutations (a) 28 years 30 years 31 years 34 years
Cumulative Payments to date / Projected Ultimate Cost 52% 50% 49% 47%
This year, the 3-Year survival ratio decreased mainly due to reserves release.
Total Liabilities arising from policyholder participation and other obligations 44,409 49,488
In the tables presented in Note 14.10.1 and 14.10.2, liabilities arising from Life & Savings and Property & Casualty insurance and investment contracts exclude contracts where the financial risk is borne by policyholders. These liabilities are not exposed to interest rate or duration risk, except unit-linked contracts with performance guarantees. In addition, as far as liquidity risk is concerned, entities hold unit-linked assets backing the corresponding liabilities arising from these contracts. Occasional mismatches result mainly from administrative timing diff erences in the processing of day-to-day operations.
The figures shown in the first line of the table below represent estimated undiscounted cash outflows in connection to death, incapacity and disability claims, surrenders, annuities, minimum guaranteed benefits for Unit-linked contracts, Property & Casualty and Health claims, net of premiums due from policyholders under contracts in-force. These cash flows are based on assumptions regarding mortality, incapacity and disability, surrender and settlement frequency for Property & Casualty businesses, which are consistent with past experience in the Group’s business. They are gross of reinsurance. Given the strong use of estimates, it is likely that actual payments will diff er.
The general principles for establishing insurance liabilities are set out in Note 1 of the consolidated financial statements. Liabilities are based on estimates, and one of the key assumptions used in these estimates is the discount rate.
By convention, contracts with zero guaranteed rates are deemed un discounted, except for products off ering guaranteed rates updated annually and for one year: these contracts are presented in discounted reserves. Reserves for savings contracts with non-zero guaranteed rates are discounted at the technical interestatements at closing mainly consist of reserves for guarantees (Guaranteed Minimum Death Benefits, etc.).
Life & Savings – locked-in discount rate (a) 271,906 1.87% 282,712 2.11%
In accordance with IFRS 7, the Group discloses, in Note 4 of its consolidated financial statements, quantitative sensitivities of the Group “AFR” (as defined in the Section 4.3 “Market risks”) to interest risk and equity price risk.
This Note describes the features that are embedded derivatives and meet the definition of an insurance contract on a standalone basis. The primary features can be divided into two main categories: Guaranteed Minimum Death Benefits (GMDB) or Guaranteed Minimum Income Benefits (GMIB) off ered on UnitLinked contracts and guaranteed annuity purchase rates.
Banking liabilities issued at fair value - Retail customers 2,710 2,710 2,810 2,810
As of December 31, 2017, debt relating to investments under lending agreements and equivalent in banking activities amounted to €383 million (€1,031 million as of December 31, 2016).
Banking liabilities issued at fair value - Retail customers 53 1,114 1,543 2,710 222 598 1,989 2,810
TOTAL LIABILITIES ARISING FROM BANKING ACTIVITIES 22,677 7,661 2,559 32,898 23,130 5,747 2,867 31,743
Provisions for risks and charges included the following items: (in Euro million) December 31, 2017 December 31, 2016
Changes in provisions for risks and charges (excluding employee benefits and share-based compensation) are set out below: (in Euro million) 2017 2016
Impact of change in scope of consolidation and other changes 295 202
Debt component of subordinated convertible notes, 3.75% due 2017 (€) - 1,783
Currency translation adjustment Others 17.2 FAIR VALUE MEASUREMENT OF FINANCING DEBT
Derivatives on financing debt instruments issued (a) (42) (42) (30) (30)
Information on the fair value figures presented in this Note is provided in addition to information on carrying values and should be used with caution. On the one hand, these estimates are based on closing date parameters such as interest rates and spreads, which fluctuate over time, and resulting in instantaneous values, and on the other hand because there are multiple possible methods to derive these estimates.
Debts relating to investments under total return swap agreement (“TRS”) 3,608 1,112
Other debt instruments issued, notes and bank overdraft s excluding TRS (a) 3,043 2,081
(a) Other activities than banking operations. (b) Excludes collateral debts relating to investments under lending agreements and equivalent in banking activities (see Note 15).
Minority interests in funds under this caption totaled €8,756 million as of December 31, 2017, a decrease of €2,747 million compared to December 31, 2016, mainly coming from Belgium.
Collateralized debt – JPY Libor 3M + 4 bps annual interest – maturity March 27, 2021 139 153
OTHER DEBT (OTHER THAN FINANCING DEBT) - OWED TO CREDIT INSTITUTIONS 734 310
The fair value of other debt instruments issued and bank overdraft s excluding total return swap agreement (“TRS”) was €3,043 million as of December 31, 2017. Among the elements included in the preceding table, fair value is only calculated for other debt instruments issued.
18.4 PAYABLES ARISING FROM DIRECT INSURANCE, INWARD REINSURANCE OPERATIONS AND DIRECT OUTWARD REINSURANCE OPERATIONS
As of December 31, 2017, payables arising from direct outward reinsurance operations totaled €6,170 million, a decrease of €458 million compared to December 31, 2016, mainly coming from run-off portfolios managed by AXA Liabilities Managers.
The table below sets out the contractual maturities of other debt instruments (excluding the impact of derivatives which is detailed in Note 20.1). Eff ective maturities may diff er from those presented, mainly because some instruments include clauses allowing early redemption, with or without penalty.
Other debt instruments issued, notes and bank overdraft s excluding TRS - Carrying value 2,306 194 543 3,043
Collateral debts relating to investments under a lending agreement and equivalent 25,394 2,468 539 28,401
Impact of diff erences in tax rates and tax bases (539) (161)
Tax losses of prior years used in the current year without DTA recognized previously (26) (11)
Derecognition/Recognition of DTA on temporary diff erences of prior years (other than tax losses) (a) 3 (21)
Impact of adjustments, decrease in value and other items (431) (83)
Effective tax rate stood at 15% in 2017 versus 28% in 2016. The 13 points decrease is mainly explained by exceptional items and can be detailed as follow: ■ Adjustments of tax relating to prior years (-5 points) were driven by the favorable settlement of the 2008 – 2009 tax audit in the United States as well as the 3% dividend tax refund in France.
■ Impact of the change in tax rate (-3 points) mainly corresponded to tax reforms in France, the United States and Belgium enacted in 2017. In 2016, it also included the impact of French tax reform enacted in 2016. The decrease in tax rates embedded in those reforms led to a reassessment of deferred tax balances in accordance with IAS 12, generating a loss for €191 million in France, and a gain for €310 million in the United States and €41 million in Belgium.
■ Impact of rate differences on notional tax charges (-1 point) corresponded to the difference between the expected tax calculated at each entity level with the applicable standard rate and the tax calculated using the 34.43% French tax rate applicable to the Company. This tax rate is composed of a basic tax rate (33.3%) and a social contribution (1.1%). The blended standard rate was 29% in 2017 and 30% in 2016.
19.2 DEFERRED TAX In the table below, the net deferred tax position corresponds to the diff erence between Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL) carried on the Group’s consolidated statement of financial position. Note that the breakdown of DTA/DTL disclosed in these tables corresponds to the deferred tax before the netting that occurs for balance sheet presentation purpose as required by IAS 12. Net deferred tax balances broke down as follows: (in Euro million)
The change from net liability position €-4,770 million in 2016 to €-4,947 million in 2017 mainly came from an increase in unrealized capital gains on fixed-income assets, partly off set by the decrease of the net impact of the reassessment of the deferred tax in the United States, France and Belgium following the tax reforms in these countries .
The €16,814 million DTA included €923 million of DTA on tax losses carried forward as of December 31, 2017 of which €568 million for the French Tax Group.
In 2016, the €-4,770 million net DTL position included €23,764 million DTA of which €1,558 million DTA on tax losses carried forward of which €883 million for the French Tax Group.
Note: This table includes all derivatives (assets and liabilities) as described in Note 1.10, i.e. hedge, macro-hedge and other asset or liability positions. (a) By convention, notional amounts are displayed in absolute value, and exclude potential netting out. (b) Restated to include derivatives instruments held by consolidated investment funds in the Satellite Investment Portfolio (see Note 1.8.2). The notional amount of derivatives held by consolidated Investment funds as of December 2017 totalled €1.7 billion (€0.9 billion at the end of 2016) and fair value of derivatives held by consolidated investment funds as of December 2017 totalled €250 million (€-214 million at the end of 2016).
Macro-hedges and other derivative instruments not qualifying under IAS39 but generally used as economic hedges Total
As of December 31, 2017, the notional amount of all derivative instruments totalled €467.2 billion (€456.8 billion at the end of 2016). Their net fair value as of December 31, 2017 totalled €2,515 million (€-353 million at the end of 2016), comprised of the fair value of derivatives on investment assets (€-1,354 million and €-3,685 million in 2016 – see Note 20.3) and of the fair value of derivatives on liabilities (€-3,869 million and €-3,332 million in 2016 – see Note 20.4).
AXA also uses derivatives as an alternative to gain exposure to certain asset classes through “synthetic positions”, for example, holding cash and equity futures instead of physical equities. Another example is the combination of government bonds and credit default swaps (CDS) as a synthetic position and an alternative to the direct purchase of a corporate bond. These schemes do not add any specific risks compared with other investment assets.
The notional amount of derivatives which is used to express the volume of instruments outstanding and to provide a basis for comparison with other financial instruments most certainly overstates the level of activity and does not directly measure risk as it greatly exceeds the possible credit and market loss that could arise from such transactions. It does not represent the amounts that are eff ectively exchanged by the parties, and thus is not a measure of the Group’s exposure to derivative instruments. For example, the Group is exposed to credit risk in respect of its counterparties to the derivative instruments, but is not exposed to credit risk on the entire notional amounts. AXA actively manages counterparty risk generated by derivatives through a specific Group-wide policy. This policy includes a limit framework and an exposure monitoring process. Limits are specifically set for each authorized counterparty, based on an internal scoring system. This policy also includes daily to weekly collateralization for the majority of the Group’s exposure. The total net collateral given communicated for all derivative instruments including those related to derivatives held within investment funds of the “Satellite Investment Portfolio” (see Note 1.8.2) was €1.0 billion as of December 31, 2017 (€2.1 billion at the end of 2016). This net total includes amounts recognized in the Consolidated Statement of Financial Position and unrecognized commitments received or given disclosed in Note 29.
For further detail on Asset Liability Management governance, please refer to page 167 of Section 4.2. “Internal control and Risk Management”.
As of December 31, 2017, the notional amount of equity derivative instruments totalled €38.0 billion (€30.1 billion at the end of 2016). Their net fair value as of December 31, 2017 totalled €1,966 million (€1,219 million at the end of 2016). AXA mainly uses (i) equity option contracts (62% of total notional amount of equity derivative instruments), (ii) equity swaps (20%) and (ii) equity futures and forwards (18%).
Currency derivative instruments are also used to hedge foreign exchange mismatch between assets and liabilities in insurance subsidiaries of the Group. While most of the operating units’ commitments are matched by assets denominated in the same currency, some entities may invest in foreign currency denominated assets to diversify their investments. This is the case mainly in (i) Switzerland using such contracts to hedge exchange rate risk arising from their investments in equities and debt instruments denominated in non CHF currencies (mainly Euro and US Dollar) with a total notional amount of €43.5 billion in 2017 versus €53.0 billion in 2016, and (ii) Japan using future and forward foreign currency contracts to hedge exchange-rate risk arising from its investments in fixed-maturity debt instruments denominated in non JPY currencies with a total notional amount of €12.0 billion in 2017 versus €15.4 billion in 2016.
As of December 31, 2017, the notional amount of credit derivatives held by the Group was €17.9 billion compared to €25.4 billion in 2016 (including the instruments held within investment funds of the “Satellite Investment Portfolio” (€0.7 billion); see Note 1.8.2).
Investment in real estate properties 23,055 46 23,101 699 - 699 23,754 46 23,800
Macro-hedge and other derivatives 0 792 792 - (6) (1) 0 792 792
(c) Carrying value (see (a)), including eff ect of hedging instruments (IAS 39), economic hedging instruments not acting as hedging under IAS 39, macro-hedge and other derivatives.
Investment in real estate properties 21,275 104 21,379 125 - 125 21,400 104 21,504
TOTAL LIABILITIES ARISING FROM INSURANCE CONTRACT 560,831 (1,109) 559,722 574,791 (1,489) 573,302
Macro-hedge and other derivative instruments on insurance and investment contracts (liabilities) - (1,706) (1,706) - (318) (318)
Liabilities arising from banking activities 33,232 (334) 32,898 32,113 (370) 31,743
Instruments quoted in an active market Instruments not quoted in an active market - No active market
Net value of derivative instruments - assets (A) (601) (753) - (1,354) (1,448) (2,237) - (3,685)
Derivative instruments relating to insurance and investment contracts 18 (2,912) - (2,895) 15 (1,917) - (1,903)
Derivatives on Liabilities arising from banking activities and Payables 2 (262) (17) (277) 4 (197) (17) (210)
Net value of derivative instruments - liabilities (B) 20 (3,872) (17) (3,869) 19 (3,334) (17) (3,332)
(a) Restated to include derivative instruments held by consolidated investment funds in the “Satellite Investment Portfolio” (see Note 1.8.2).
For more information about the Group’s segments identification, please refer to page 225 to 229 of Note 3 Consolidated statement of income by segment.
Total revenues (b) 98,549 100,193 of which direct premiums 86,198 88,834 of which reinsurance assumed 5,852 5,386 of which fees and charges on investment contracts with no participation features 211 219 of which revenues from other activities 6,288 5,754
(a) Restated: as per the new governance. (b) Net of intercompa ny eliminations.
Contracts with financial risk borne by policyholders (unit-linked) 16,281 159,702 15,896 15,789 160,222 15,511
21.3.3 Liabilities arising from insurance contracts in the Property & Casualty
Investment in real estate properties at amortized cost 770 636 - (3) 1,403
Non quoted debt instruments (amortized cost) 189 3 - - 192
Other assets held by consolidated investment funds designated as at fair value through profit or loss 98 - 15 - 113
Investment in real estate properties as at fair value through profit or loss 41 - 6 - 47
Non consolidated investment funds designated as at fair value through profit or loss 242 - (48) - 194
Other assets held by consolidated investment funds designated as at fair value through profit or loss 89 - 9 - 99
Loans designated as at fair value through profit or loss - - 0 - 0
Assets backing contracts where the financial risk is borne by policyholders - - 9,124 - 9,124
The changes in investment impairments for available for sale assets include impairment charges on investments, and release of impairments only following revaluation of the recoverable amount. Write back of impairments following investment sales are included in the net realized capital gains or losses on investments aggregate.
Claims ceded (including change in claims reserves) 2,138 287 311 873 284 912 (160) 4,646
The cost of the contributions paid was recognized as an expense in the income statement, and amounted to €157 million as of December 31, 2017 (€166 million in 2016).
The Group operates various defined post-employment benefit plans mainly in the United Kingdom, the United States, Germany, Switzerland, France and Belgium.
Most of the defined pension benefit plans are funded through long-term employee benefit funds or covered by insurance policies or Mutual funds. In Switzerland and Belgium, the main defined benefit plans are contributory pension plans whereas in the United States, France and Germany, the main plans are non-contributory defined benefit plans.
Benefit payments in the United Kingdom, the United States and Switzerland are from trustee-administered funds and plan assets held in trusts are governed by local regulations and practices. The Board of trustees, generally composed of representatives of the company and plan participants in accordance with the respective plan’s regulations is responsible for governance of the plans including investment decisions and contribution schedules in order to meet the existing minimum funding requirement or funding regime objective, jointly with AXA at local level.
In the United States, AXA US discontinued benefit accruals under its defined benefit pension plans aft er December 31, 2013, and provides a company defined contributions benefit plan for services aft er January 1, 2014.
In Ireland, the defined benefit pension plan was amended (with eff ect from July 31, 2015) so that the scheme was closed to future accrual and a new defined contribution pension plan was established from this date.
Actuarial (gains) and losses arising from changes in demographic assumptions (198) (74) (3) 7 (201) (67) Actuarial (gains) and losses arising from changes in financial assumptions (166) 2,293 17 11 (149) 2,304 Benefits paid by plan assets and by separate assets (644) (722) (1) (1) (645) (723) Benefits directly paid by the employer (310) (312) (38) (39) (348) (352)
Net transfer In/(Out) (including acquisitions, disposals and reclassifications) (b) (0) (26) 0 1 (0) (25)
Net transfer In/(Out) (including acquisitions, disposals and reclassifications) (b) (0) (21) - - (0) (21) Benefits paid by plan assets (510) (553) - - (510) (553) Amount paid in respect of settlements - (52) - - - (52)
Fair value of plan assets at the end of the year (B) 12,420 12,436 5 6 12,425 12,442 Change in separate assets Fair value of separate assets at the beginning of year 1,204 1,276 - - 1,204 1,276 Interest income on separate assets 11 19 - - 11 19 Actual return on separate assets, excluding interest income 94 (7) - - 94 (7)
Net transfer In/(Out) (including acquisitions, disposals and reclassifications) (b) (0) - - - (0) Benefits paid by separate assets (134) (169) (1) (1) (135) (170)
Cumulative eff ect of asset ceiling at the end of the year 17 18 - - 17 18 Funded status
“Other benefits” include post-retirement benefits other than pensions, principally health care benefits, and post-employment benefits aft er employment but before retirement.
The annual expense for employee pension and other benefits recorded in the income statement (included in Note 26.1.), for the years ended December 31, 2017 and 2016 is presented below: (in Euro million)
Interest cost on the defined benefit obligation 330 405 16 19 345 424
Interest income on separate assets (11) (19) - - (11) (19)
26.2.6 Change in the liability (net of plan assets but excluding S eparate A ssets and assets within the insurance General Accounts backing employee benefits) recognized in the statement of financial position
Similarly in some other countries (mainly in Switzerland), although non-transferable insurance policies related to Defined Benefits Obligation between entities within the Group are eff ectively backed by General Account assets (available to general creditors in case of bankruptcy), they are not taken into consideration in the pension assets disclosures.
Adjustment due to separate assets (116) (24) - - (116) (24)
Benefits paid by separate assets 134 169 1 1 135 170
Fair value of separate assets at the end of the year 1,281 1,204 - - 1,281 1,204
Net balance sheet position at the end of the year (6,813) (8,509) (560) (639) (7,373) (9,148)
26.2.7 Sensitivity analysis of the Defined Benefit Obligation (DBO): Gross of all assets
A description of the risk that pension schemes are exposed to is presented in Note 26.2.10. The sensitivity analysis for significant actuarial assumptions showing how the Defined Benefit Obligation (totaling €21,062 million as of December 31, 2017 and €22,777 million as of December 31, 2016) would have been aff ected by changes in the relevant actuarial assumption that is reasonably possible for year ended as of December 31, 2017, and 2016 is presented below: eff ect of 0.50% Increase eff ect of 0.50% decrease eff ect of 0.50% Increase eff ect of 0.50% decrease
One year increase in the life expectancy (derived from adjusted mortality rates) would result in an increase of 3.5% of the Defined Benefit Obligation.
In the United Kingdom, the Pensions Act 1995 legislation governs pension funds and the Pensions Act 2004 introduced regulations on the funding of defined benefit pension arrangements and several other measures. Central to the funding regime are the Statutory Funding Objective (SFO) which is a requirement that the Scheme has appropriate and adequate assets to meet its technical provisions and the Statement of Funding Principles (SFP) which is a document prepared by the Trustees which sets out their policy for ensuring that the SFO is met. As part of the actuarial valuation, the appropriate level of future contributions to be paid to the pension plan is determined and a schedule of contributions is prepared by the Trustees of the pensions scheme following discussions with the entity. This includes a 10 year recovery plan to ensure that the Statutory Funding Objective (SFO) is met. The contributions for the recovery plan are based on the actuarial valuation performed every three years. However the schedule of contributions may change more frequently if significant events occur in the year.
In the United States, the funding policy of the plans is to make an annual aggregate contribution to satisfy its funding obligations each year in an amount not less than the minimum required by ERISA (Employee Retirement Income Security Act of 1974), and not greater than the maximum it can deduct for Federal income tax purposes. Valuations are performed annually on a January 1 measurement date and any contribution in excess of the minimum is determined at the discretion of the plan sponsor.
In France, voluntary regular employer annual contributions are made to Separate Assets, with an objective of the coverage ratio remaining within a targeted range of the total Defined Benefit Obligation after consideration of the yearly predetermined service cost.
In Germany, there is no requirement to fund employee benefit obligation.
Statement of financial position liability (a) (8,094) (9,713) (560) (639) (8,654) (10,352)
The estimated amount of 2018 employer contributions for pension benefits is €280 million (€281 million estimated in 2016 for 2017).
The following tables disclose the fair values of Plan Assets and their level within the fair value hierarchy for the Defined Benefit plans of AXA Group as at December 31, 2017,and 2016, respectively (fair value hierarchy principles as described by the Group are described in Note 1.5): Asset mix for plan assets
(a) The other category of plan assets mainly includes Investment funds.
The investment positions are managed within an Asset Liability Management (ALM) framework defining an optimal strategic allocation with respect to the liabilities structure. The management of the assets notably includes liquidity management, diversification of each asset type so that the failure of any specific investment does not present a material risk to the plans, and implementation of hedging programs.
Moreover, caps on inflationary increases are in place to protect the plan against extreme inflation in the United Kingdom and in the United States.
The total charge is amortized over the vesting period and adjusted at each future closing date for the diff erence between actual and expected lapse to take into account actual service conditions and actual non-market performance conditions.
A detail of each of the major plans and the associated cost is presented in Note 26.3.1 and in Note 26.3.2.
From 2007 to 2012, for the employees who were granted more than 5,000 options, the first two instalments vest unconditionally at the end of the vesting period, while the final instalment is subject to the fulfilment of certain conditions regarding the performance of the AXA shares compared to the STOXX Insurance Index (“SXIP”). Since 2013, for all beneficiaries, the vesting of the final instalment has been subject to the fulfilment of the market performance condition regardless of the number of options granted.
The number of outstanding options and the number of exercisable options among the outstanding options are shown below by maturity date: Expiry year of options (in million)
(a) Assumptions at grant date, in average weighted by grants of the year. (b) The options with market performance criteria were valued at €1.66 per option granted in 2017 and €1.67 per option granted in 2016, based on a Monte-Carlo model. The options without performance criteria were valued at €1.96 per option granted in 2017 and €1.92 per option granted in 2016, based on the Black & Scholes model. (c) Based on an estimated pre-vesting annual lapse rate per year for options without performance criteria of 0% for options granted from 2016 and 5% for options granted before 2016.
The traditional plan allows employees to purchase, through a personal investment, AXA shares (either through Mutual funds (FCPE) or through direct share ownership, depending on the country) with a discount of 20%. The shares are held within the Group Company Savings Plans and are restricted from sale during a period of approximately 5 years (except specific early exit cases allowed by applicable laws). Employees are subject to the share price evolution, up or down, as compared to the subscription price.
At the end of the 5 years holding period, the employees can, depending on their residence country, do any one of the following: (1) receive the cash value of their investment; (2) receive the value of their investment in the form of AXA shares; or (3) transfer their assets invested in the leveraged plan into the traditional plan.
The leveraged plan allows employees to purchase, on the basis of 10 times their personal investment, AXA shares (either through Mutual funds (FCPE) or through direct share ownership, depending on the country) with a discount. The shares are held within the Group Company Savings Plans and are restricted from sale during a period of approximately 5 years (except specific early exit cases allowed by applicable laws). Employees’ personal investment is guaranteed by a bank, and employees also benefit from a portion of the share appreciation, calculated on the basis of the non-discounted reference price.
The table below shows the main features of the plan, the amounts subscribed, valuation assumptions, and the cost of the plan for 2016 and 2017: Traditional Leveraged Traditional Leveraged
Amount subscribed by employee (in Euro million) 37.5 40.6 34.2 39.6
Total number of shares subscribed (in million shares) 1.9 17.7 2.2 22.3
[B] Cost of the lock-up for the employee 19.61% 8.95% 18.72% 8.57%
Total cost for AXA = [A] – [B] + [C] (as a percentage of the reference price) 0.39% 1.95% 1.28% 1.97%
On March, 16, 2012, AXA granted 50 free AXA ordinary shares (“AXA Miles”) to more than 120,000 employees worldwide, engaging all employees in the successful execution of the Company’s strategic plan Ambition AXA. A first tranche of 25 AXA Miles was granted without any condition. The second tranche was subject to the fulfilment of a performance condition determined by AXA’s Board of Directors. This condition required the achievement of at least one of two indicators related to Ambition AXA: (1) an increase in underlying earnings per share or (2) an increase in the Group’s customer satisfaction index (“Customer Scope”). For the year ended December 31, 2012, both of these conditions were met and, consequently, the grant of the second tranche has been confirmed.
These 50 AXA Miles shares granted in 2012 vest upon completion of a two or four year vesting period (i.e. in 2014 or 2016) depending on applicable local regulations, and subject to fulfilment of certain conditions.
The free shares are valued using the ANC (Autorité des N ormes C omptables) approach described in the AXA Group Shareplan section using assumptions adapted to the structure of the plan (2+2 or 4+0 plan), based on a market price of €13.18 per share on March 16, 2012 and an estimated 5% pre-vesting lapse rate.
Performance Shares are granted to executive officers and other key employees mainly in France. These Performance Share plans are equity-settled award plans subjected to a non-
market performance criteria and have a specified vesting period (between two and three years) followed by a two-year postvesting restriction to transfer period.
In 2017, the valuation was based on a market price of €24.05 per share at grant date and an estimate 5% pre-vesting lapse rate per year. The grant date average fair value of Performance Shares granted in 2017 was €15.91 (€14.02 for 2016 grants).
The total cost of Performance Shares recognized was €36.2 million as of December 31, 2017 (€32.4 million as of December 31, 2016).
The Performance Units plans, granted until 2012, were mainly cash-settled award plans subjected to a non-market performance criteria.
As voted by the Shareholders’ Meeting of April 27, 2016, AXA’s Board of Directors is authorized to grant retirement performance shares to designated senior executives in France. Under this plan, beneficiaries of Performance Shares have the right to receive at the settlement date, a certain number of AXA shares based on the achievement of a performance condition related to the average AXA Group Solvency II ratio calculated during the performance period of three years.
For 2016 and 2017 grants, after the three years performance period, the performance shares definitively acquired are subject to (i) an additional restriction on transfer period of two years following the performance period and (ii) an obligation to hold the shares until retirement, provided that the beneficiaries may sell their shares for diversification purposes (following the threeyear performance period and two-year restriction on transfer period), as long as the sale proceeds are invested in a long-term savings plan until the beneficiary’s retirement.
AB grants Restricted AB Holding Units and options to acquire AB Holding Units, which are valued and booked according to IFRS principles.
The deferred awards under AB Incentive Compensation Award Plan are in the form of restricted AB Holding Units or cash which are granted to certain key employees.
Most of the awards granted in 2016 and in 2017 contained the same conditions as awards amended in 2011, resulting in the immediate recognition of the cost of these awards instead of an amortization over a maximum of four years.
The 2017 total cost amounted to €131.9 million (€118.9 million in 2016), gross of tax.
Compensation costs/expenses : ■ short-term benefits: compensation paid to members of the Management Committee in 2017 totaled €13.9 million (€19.5 million in 2016), including fixed salary, bonuses, directors’ fees, benefits in kind and other short-term benefits; ■ share-based compensation: the expense recognized in 2017 in respect of share-based compensation granted by AXA SA to Management Committee members was €7.5 million (€13.2 million in 2016); ■ post-retirement benefits: the estimated cost to the Group of providing defined benefit pensions and other post-retirement benefits to members of the Management Committee for the current year of service measured in accordance with IAS 19 amounted to €2.1 million in 2017 (€5.8 million in 2016).
At December 31, 2017, the Group employed 95,728 salaried people on a full-time equivalent basis (97,707 at the end of December 2016).
Net income per ordinary share takes into account interest payments related to undated subordinated debt classified in shareholders’ equity.
Net income including impact of undated subordinated debt A 5,980 5,562
Weighted average number of ordinary shares (net of treasury shares) – opening 2,419 2,424
Fully diluted – weighted average number of shares (c) D 2,404 2,423
FULLY DILUTED NET INCOME PER ORDINARY SHARE E = A/D 2.49 2.30
In 2017, the Company was party to the following transactions with related parties which may be deemed to have been material to AXA or the related party in question or unusual in their nature or conditions.
Each Mutuelle AXA is supervised by a b oard of d irectors elected by delegates representing policyholders. Certain members of the Company’s Executive Management and Board of Directors serve as directors or executive off icers of the Mutuelles AXA.
The Property & Casualty insurance business generated in France (Creditor excluded) by insurance brokers is mainly underwritten through a coinsurance arrangement between AXA Assurances IARD Mutuelle and AXA France IARD, a Property & Casualty insurance subsidiary of the Company. For coinsurance, AXA France IARD underwrites 89% of businesses and AXA Assurances IARD Mutuelle 11%. Aggregate written premiums recorded in this coinsurance agreement amounted to €1,913 million in 2017 (of which €1,725 million was attributed to AXA France IARD).
From time to time the Company enters into GIEs with certain of its subsidiaries. GIEs are intercompany partnerships, governed by French law, created to perform various common services for their members and to allocate associated costs and expenses among their members. The allocation of costs and expenses invoiced to GIE members may be based on various agreed criteria including particular activity drivers. The GIEs to which the Company was party during 2017 covered a variety of common services including services performed by the Group’s central functions (GIE AXA) for the benefit of AXA Group companies (e.g. finance, accounting and reporting, tax, legal, internal audit, human resources, procurement, information systems, r isk m anagement, cash management) as well as certain other services. Expenses invoiced by these GIEs to the Company and its subsidiaries are generally invoiced at cost and are included in the consolidated expenses reflected in the Company’s audited consolidated financial statements. Expenses invoiced by the GIE AXA to its members in 2017 and 2016 amounted to respectively €242 million and €230 million.
AXA has given numerous commitments and guarantees, including financing commitments, guarantees given to financial institutions and customers, pledged assets, collateralized commitments and letters of credit. For a description of these commitments and guarantees, see Note 29 “Contingent assets and liabilities and unrecognized contractual commitments” to the Group’s Consolidated Financial Statements.
Certain of these guarantees are given by the Company for the benefit of its subsidiaries and affiliates for various business purposes including to promote development of their business (e.g. to facilitate acquisitions, integration of acquired businesses, distribution arrangements, off -shoring arrangements, internal restructurings, sales or other disposals of assets or businesses, sales or renewals of products or services or similar transactions), to support their credit ratings, and/or to promote eff icient use of the Group’s capital resources. In this context, the Company may guarantee repayment of loans or other obligations between its subsidiaries, guarantee obligations of its subsidiaries to third parties, or provide other types of guarantees for the benefit of its subsidiaries. The beneficiaries of these guarantees are generally required to compensate the Company at a negotiated rate based on prevailing market rates and conditions for guarantees of a similar nature. In addition, from time to time, the Company may provide comfort letters or similar letters to rating agencies and/or regulators for the benefit of its subsidiaries and aff iliates for various business purposes, including facilitating specific transactions, achieving target rating levels and, more generally, helping to develop the business of these subsidiaries.
Commitments granted by the Company to its subsidiaries are disclosed in Appendix III of this Annual Report “AXA parent Company financial statements: Subsidiaries and participating interests”.
In addition, the Company may enter into various other types of transactions with its subsidiaries and aff iliates from time to time for various other business purposes including in connection with liquidity, solvency and capital management initiatives designed to promote eff icient use and fungibility of the Group’s capital resources. These transactions may involve loans or other types of credit arrangements, acquisitions or sales of assets, securities or other financial instruments (including swaps or other types of derivatives), securitization transactions, and/or other types of arrangements or transactions to which the Company may be a direct party and/or guarantor.
To the best of the Company’s knowledge, based on information reported to it: ■ on December 31, 2017, there were no loans outstanding from the Group to the Company’s two corporate off icers or to any member of the Company’s Board of Directors; ■ various members of the Company’s Board of Directors as well as various other executive off icers and directors of other AXA Group companies may, from time to time, purchase insurance, wealth management or other products or services offered by AXA in the ordinary course of its business. The terms and conditions of these transactions are substantially similar to the terms and conditions generally available to the public or to AXA employees in general. In addition, certain members of the Board of Directors are corporate off icers, directors or have interests, directly or indirectly, in companies that may have agreements or enter into transactions from time to time with AXA Group entities including extensions of credit, loans (including investments in loans to French midcap companies developed by AXA France with banking partners) purchases of securities (for their own account or for third parties), underwriting of securities and/or furnishing of other types of services or goods. These agreements or deals are generally fully negotiated and performed on arm’s length terms and conditions.
Commitments received by AXA totalled €82,868 million at the end of 2017, and increased by €328 million compared to the end of 2016, mainly due to an increase in pledged assets and collaterals (€868 million), guarantee commitments (€751 million); partly off set by the decrease in financing commitments (€498 million), letter of credit (€310 million) and other commitments (€483 million). These commitments can be broken down as follows: Financing commitments received totaled €13,811 million at the end of 2017, and mainly consisted of: ■ credit facilities received from banks for €12,475 million mainly by AXA SA (€11,867 million), AXA Banque France (€356 million), AB (€208 million) and on run-off portfolios managed by AXA Liabilities Managers (€39 million) for stand-by credit lines; ■ commitment lines granted to AB (€937 million) and Japan (€399 million) as part of their operations.
Guarantee commitments received totaled €23,992 million at the end of 2017, and mainly consisted of (i) guarantees from customers related to mortgage loans (€15,457 million) received mainly at Switzerland (€10,749) million), AXA Bank Belgium (€2,049 million), AXA Banque France (€1,407 million) and Belgium (€1,247 million); (ii) €4,877 million guarantees received from credit institutions mainly by AXA Banque France
Pledged securities and collateralized commitments received totaled €37,192 million at the end of 2017, and mainly consisted of: ■ mortgage security collateral taken for loans totaled €23,624 mil l ion, mainly f rom A X A Bank Belgium (€23,526 million); ■ collaterals for reinsurance operations €6,212 million mainly from the United States (€2,654 million), France (€2,420 million), AXA Global Reinsurance (€689 million) and AXA Corporate Solutions Assurance (€406 million); ■ collateral for derivatives €3,742 million mainly from Germany (€1,327 million), AXA Bank Belgium (€1,036 million), Belgium (€473 million), France (€471 million), Spain (€277 million) and the United Kingdom (€71 million) from an increase in collaterals deposit according to the variations of the derivatives in order to cover the risk of the counterparty; ■ security reverse repurchase agreements and similar operations totaled €3,468 million mainly in Germany (€2,438 million) and Japan (€971 million).
Letters of credit received totaled €3,882 million at the end of 2017 and were mainly from the United States (€3,650 million) and Turkey (€125 million) due to letter of credits related to reinsurance transactions.
Other commitments received totaled €3,992 million at the end of 2017, and mainly consisted of: ■ €2,533 million mainly received by France (€901 million), Germany (€720 million), Japan (€376 million) and Belgium (€290 million) related to mortgages as guarantees to debt instruments; ■ €909 million received by AXA Bank Belgium (€908 million) relating to timing difference between trade date and settlement date values of repo transactions; ■ €505 million received by Switzerland mainly due to covered bonds collaterals relating to invested assets other than real estate and private equity funds.
Commitments given totaled €68,126 million at the end of 2017, decreasing by €5,796 million compared to the end of 2016, mainly due to a decrease of €4,297 million in pledged securities and collateralized commitments, €1,773 million in financing commitments and €2,139 million in letter of credits and other commitments; partially off set by an increase of €2,412 million from guarantees. These commitments can be broken down as follows: Financing commitments given totaled €2,795 million at the end of 2017, and mainly consisted of financing commitments to customers (€2,709 million) notably comprising loan commitments granted at AXA Bank Belgium (€1,451 million), AXA Banque France (€748 million), Germany (€310 million) and Switzerland (€78 million) provided to their customers and financing commitments given to credit institutions (€86 million) notably at AB with commitment lines (€62 million).
Guarantee commitments given totaled €10,957 million at the end of 2017, and mainly consisted of guarantee commitments given to credit institutions related to loans (€4,709 million) from AXA SA; Guarantees related to financial obligations (€3,948 million) notably from AXA Bank Belgium (€3,169 million) and AB (€655 million) and Guarantees in case of insolvency and defaults (€2,123 million) notably from AXA Bank Belgium (€1,354 million) and France (€767 million).
Pledged securities and collateralized commitments given totaled €36,914 million at the end of 2017, and mainly consisted of: ■ security repurchase agreements and similar operations totaled €29,427 million mainly from France (€12,831 million), Japan (€7,802 million), Belgium (€3,028 million), the United States (€1,572 million), Hong Kong (€1,230 million), Switzerland (€1,184 million), AXA Corporate Solutions Assurance (€698 million) and Spain (€385 million);
■ pledged assets and collaterals for derivatives instruments totaled €3,576 million mainly in Japan (€1,180 million), France (€917 million), AXA Bank Belgium (€865 million) and Belgium (€174 million); ■ pledged assets and collaterals for reinsurance operations totaled €1,144 million mainly from France (€1,025 million); ■ other pledged assets / collaterals totaled €2,768 million mainly in AXA Banque France (€1,519 million), AXA Bank Belgium (€809 million) and Hong Kong (€359 million).
Other commitments given totaled €17,308 million at the end of 2017 and mainly consisted of: ■ €5,542 million commitment to private equity funds mainly from France (€1,964 million), Switzerland (€1,027 million), Germany (€1,023 million), Japan (€687 million), the United States (€620 million) and AXA Corporate Solutions Assurance (€89 million); ■ €2,705 million commitments to invested assets other than real estate funds or private equity funds mainly from Germany (€870 million), Belgium (€864 million) and France (€852 million); ■ €2,684 million as lease commitment given mainly by AB (€637 million), the United States (€408 million), France (€408 million), Germany (€370 million) and AXA Investment Managers (€207 million); ■ €2,482 million guarantees as part of Group employee insurance contracts mainly by AXA SA (€2,445 million); ■ €1,581 million as commitments to Real Estate funds mainly from France (€655 million), the United States (€539 million) and Germany (€162 million); ■ €1,010 million as commitments for constructions, renovations and pre sale of real estate assets contracts notably given by Switzerland (€942 million); ■ €814 million as commitments to insurance protection funds and other regulatory requirements from Germany (€418 million) and AXA SA (€314 million).
In addition to other employment-related obligations, various AXA subsidiaries are required to indemnify their employees and directors against certain liabilities and costs that they may incur from time to time in performing activities within the scope of their duties. These activities may include, for example, service as a director, off icer, agent, general partner, or in a similar capacity for (i) an AXA Group company other than the employee’s principal employer or (ii) a company outside the AXA Group where service is at the request of (or for the benefit of) the Group (e.g. joint ventures, partnerships, or special-purpose investment Companies or funds). The potential amount of compensation relating to commitments covered by these obligations cannot be evaluated with any certainty.
In most cases, the amounts available for distribution from AXA’s insurance subsidiaries and joint ventures are limited to net income for the year and retained earnings calculated in accordance with the statutory accounting policies used by the subsidiaries to prepare their local financial statements. Further restrictions may be imposed by the local insurance regulators in countries where AXA operates. In some cases, amounts available for distribution are also subject to regulatory capital adequacy tests or the approval of an independent actuary or subject to individual provisions contained in a company’s by laws.
63, rue de Villiers – 92208 Neuilly-sur-Seine Cedex, represented by Mr. Xavier Crépon, first appointed on February 28, 1989. The current appointment is for a term of 6 years, until the General Shareholders’ Meeting called to approve the financial statements for the fiscal year 2017.
With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of a negative outcome is probable, and the amount of the loss can be reasonably estimated, we establish a reserve and record an estimated loss for the expected outcome of the litigation. However, it is oft en diff icult to predict the outcome or estimate a possible loss or range of loss because litigation is subject to inherent uncertainties, particularly when plaintiffs allege substantial or indeterminate damages, the litigation is in its early stages, or when the litigation is highly complex or broad in scope.
In 2015, AXA SA acquired Financial Insurance Company Limited (“FICL”) and Financial Assurance Company Limited (“FACL”) from Genworth Financial Inc. (“Genworth”). Pursuant to the sale and purchase agreement (the “SPA”), Genworth agreed to indemnify AXA SA on demand for 90% of certain costs related to complaints alleging misselling of payment protection insurance underwritten by FICL and FACL. Following a claim for indemnification for misselling losses under the SPA which has not been satisfied, in December 2017, AXA SA filed a lawsuit in the United Kingdom against Genworth for breach of contract. A court timetable for the claim has yet to be set.
In the United States, certain AXA subsidiaries are involved in a number of lawsuits (both class actions and individual litigations), investigations and other actions in various states and jurisdictions where they do business. A detailed description of significant matters involving AXA Equitable Life Insurance Company and its subsidiaries (including AllianceBernstein L.P.) is included in the Annual Reports on Form 10-K for the year ended December 31, 2017 and subsequent reports on Form 10-
Q, respectively, of AXA Equitable Life Insurance Company (Securities and Exchange Commission (“SEC”) file no. 000-20501) and AllianceBernstein (SEC file no. 000-29961) filed with the SEC (collectively, the “Subsidiary SEC Reports”). The Subsidiary SEC Reports are publicly available and Management encourages readers of the Consolidated Financial Statements to consult the Subsidiary SEC Reports for a full description of all the various litigations and related matters in which these subsidiaries are involved.
Insurance Company in New York, New Jersey and Connecticut State Courts. These actions were brought on behalf of classes of persons who purchased Variable Annuities or variable life insurance policies from AXA Equitable that were subject to the AXA Tactical Manager (ATM) strategy which is a managed volatility strategy in certain variable investment options off ered to purchasers of certain AXA Equitable Variable Annuity and variable life insurance contracts. These suits assert claims for breach of contract and allege that AXA Equitable breached express provisions of the contracts/policies when it implemented this strategy. Damages sought are not quantified and are diff icult to estimate. All three matters were dismissed by the respective trial courts and appeals were filed in the Shuster and O’Donnell matters. Rulings from the appellate courts are expected in 2018. AXA Equitable believes that it has strong defenses to these claims and will defend them vigorously.
In February and March 2016, two class actions (Brach Family Foundation and Cartolano) were filed against AXA Equitable in New York Federal Court and Florida State Court with virtually identical allegations. Both these lawsuits challenge AXA Equitable’s decision to increase the cost of insurance for a specific block of life insurance policies (AUL II) with issue ages over 70 and face amounts in excess of $1 million (“COI”). This decision was based on the actuarial experience on this block of policies and was done in accordance with the terms of the policies and aft er review by relevant state insurance regulators and an outside actuarial consultant. These lawsuits allege breach of contract and, in New York, seek recovery under Section 4226 of the New York Insurance Law, and seek various remedies (including refund of premiums paid or cancellation of the increase in the cost of insurance, interest and costs). Many of these policies are owned or financed, directly or indirectly, by hedge funds or other institutional investors. The Florida action has now been voluntarily dismissed but may be refiled. Additionally, a separate putative class action and seven individual actions challenging the COI increase have been filed against AXA Equitable. AXA Equitable believes that it has strong defenses to these claims and will defend them vigorously.
Enedis (formerly ERDF, a subsidiary of Électricité de France, the primary electric utility in France) has notified claims for coverage under a professional liability policy underwritten by AXA Corporate Solutions Assurance (“AXA CS”). The underlying liabilities in question arise out of a series of lawsuits (more than 500 individual suits) brought against Enedis by local electricity producers in France engaged in production of solar/green energy. These local producers allege financial losses due to Enedis’s delay in processing their applications to be connected to the public grid within the statutory period, resulting in their inability to profit from attractive buyback rates under certain French government Decrees promulgated in 2006 and 2010 (the “Decrees”). In February 2014, the Court of Appeal of Versailles ruled against Enedis in one of these law suits and, as part of this decision, ruled that AXA CS was liable to Enedis under the terms of the insurance policy for compensation of these losses in this specific case. AXA CS has appealed this decision to the French Cour de cassation but the appeal was dismissed in June 2015 (damages are currently being assessed). In the context of another similar case, however, the Court of Appeal of Versailles referred to the question as to the legality of the Decrees to the European Court of Justice (“ECJ”) following which a significant number of courts stayed proceedings in similar cases. On March 15, 2017, the ECJ rendered its decision in favor of the arguments raised by AXA CS regarding the illegality of the Decrees and each court will now be asked to make a final decision on this basis. AXA CS believes that this decision of the ECJ substantially limits any claims for damages by the plaintiff s and in addition that certain policy exclusions and defenses would apply.
RBS has notified claims for coverage to AXA CS under general liability policies covering the years 2001-2004. AXA CS insured the primary layer (up to £5 million per claim or series of related claims) under these policies. RBS seeks coverage for potential liabilities arising out of three class actions brought against NatWest (an RBS subsidiary) between 2005-2007 in New York Federal Court under the US Anti-Terrorism Act for aiding and abetting terrorism due to certain accounts it maintained. NatWest succeeded in having this case dismissed in March 2013 on a summary judgment motion but, during 2014, this was overturned and the case was remanded to the court of first instance. AXA CS is not a party to this litigation. The exposure of AXA CS in this matter, if any, cannot be reasonably estimated at this time and will depend on a variety of factors including (i) the ultimate outcome of the litigation for NatWest and, in the event of an adverse outcome, (ii) the number of deemed separate incidents that would trigger coverage, and (iii) whether certain policy exclusions apply.
In addition to the matters noted above, AXA and its subsidiaries are also involved in various legal actions and proceedings of a character normally incident to their business including claims litigation arising in connection with the Group’s insurance business and litigation arising from the Group’s Asset Management business.
Beyond litigation risks of the type described above, AXA and its subsidiaries are subject to comprehensive regulation in the various jurisdictions where they do business. In this context, AXA and its subsidiaries are subject, from time to time, to examinations, investigations, enforcement proceedings and other actions by regulatory and law enforcement authorities (involving civil and/or penal matters) as well as to proposed changes in law and/or regulation that may significantly impact their business and results of operations. For additional information on these matters as well as other risks and contingent liabilities aff ecting the Group and its business, please see Section 4.1 “Risk Factors” and Section 6.3 “General Information” of this Annual Report and Note 29 “Contingent assets and unrecognized contractual commitments” in Part 5 – “Consolidated Financial Statements” of this Annual Report. Some of the litigations described above have been brought on behalf of various alleged classes of claimants, and certain of the claimants in these actions seek significant or unspecified amounts of damages, including punitive damages.
On March 5, 2018, AXA announced that it had entered into an agreement to acquire 100% of XL Group Ltd (NYSE: XL), a leading global Property & Casualty Commercial lines insurer and reinsurer with strong presence in North America, Europe, Lloyd’s and AsiaPacific. The merger agreement has been unanimously approved by the Boards of AXA and XL Group. Total consideration for the acquisition would amount to USD 15.3 billion (€12.4 billion (2 )), to be fully paid in cash. Under the terms of the transaction, XL Group shareholders will receive USD 57.60 per share (3 ). This represents a premium of 33% to XL Group closing share price on March 2, 2018.
Founded in 1986, XL Group is a leader in P&C commercial and specialty lines with an active global network. XL Group generated USD 15 billion of GWP in FY17. It is a growing franchise with a high-quality underwriting platform and a rich and diversified product off ering. XL Group is a highly agile company renowned for innovative client solutions and has a comprehensive business model of originating, packaging and selling risks. XL Group has ca. 7,400 colleagues worldwide and has a strong presence across specialty and mid-market segments via insurance and reinsurance.
(1) EUR 1 = USD 1.2233 as of January 19, 2018 (source: Bloomberg).
(2 ) EUR 1 = USD 1.2317 as of March 2, 2018 (Source: Bloomberg).
(3 ) Completion of the transaction is subject to approval by XL Group shareholders and other customary closing conditions, including the receipt of required regulatory approvals.
Completion of the transaction is subject to approval by XL Group shareholders and other customary closing conditions, including the receipt of required regulatory approvals, and is expected to take place during the second half of 2018.
(1) Include P&C Commercial lines and P&C Commercial Health for comparability purposes with peers.
In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group as at December 31, 2017, and of the results of its operations for the year then ended in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
This is a free translation into English of the Statutory Auditors’ report issued in French and is provided solely for the convenience of English speaking readers. This report includes information specifically required by European regulation or French law, such as information about the appointment of Statutory Auditors. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on specific items of the consolidated financial statements.
Measurement of Life & Savings future policy benefit reserves including deferred acquisition costs for contracts with long-term financial guarantees
In the Life & Savings line of business, the Group sells contracts that may be combined with a long term financial guarantee, the aim being to provide policyholders with a minimum return. In this case, the market volatility risk is borne by the Group and not the policyholder.
The future policy benefit reserves relating to these contracts, including deferred acquisition costs, are measured on a prospective basis using economic, biometric and policyholder behavior assumptions, as described in Notes 1.14.2 and 14 to the consolidated financial statements.
■ We tested, on a sample basis, the calculation models applied to estimate the future cash flows used to determine the future policy benefit reserves or to implement liability adequacy tests.
■ We applied procedures to test the reliability of the underlying data used in the models and reserve calculations.
■ We assessed the assumptions used by management and the sensitivity of the models to the assumptions.
■ We applied analytical procedures with a view to identifying and analyzing any material unusual and/or unexpected changes.
Measurement of claim reserves in the Property & Casualty line of business (See Notes 1.14.2 and 14 to the consolidated financial statements)
At December 31, 2017, the Group had recorded claim reserves of €63,131 million, as described in Note 14.1 to the consolidated financial statements.
These reserves correspond to the estimated ultimate cost of settling an insurance claim. They include claims incurred and reported, claims incurred but not reported as well as claims handling costs.
As stated in Note 1.14.2 to the consolidated financial statements, these reserves are calculated using deterministic statistical methods, on the basis of historical claim data, and using actuarial assumptions for which the judgment of an expert is required to estimate the ultimate cost. Changes in the inputs selected are liable to have a significant impact on the value of these reserves at the end of the reporting period, especially for long-tail insurance categories for which the inherent uncertainty and likelihood of forecasts being achieved are generally lower.
■ We applied procedures (including monitoring the change in loss ratios) to analyze the significant changes that took place over the reporting period.
■ Where appropriate, we undertook an independent evaluation of the reserves for certain insurance risk categories with a view to providing a basis for our professional judgment and our assessment of the estimates used by the Group.
At December 31, 2017, the Group’s statement of financial position showed goodwill with a net carrying amount of €15,391 million.
As stated in Note 1.7.1 to the consolidated financial statements, an impairment test of goodwill is performed at least once a year to ensure that the net carrying amount does not exceed the recoverable amount and there is no risk of impairment.
The recoverable amount corresponds to the higher of fair value less costs to sell and value in use. Adverse developments in the expected return on businesses to which goodwill has been allocated, whether due to internal or external factors related to the economic and financial environment in which those businesses operate, can have a significant impact on the recoverable amount and require the recognition of an impairment loss.
We assessed the compliance of the methodology applied by the Group with current accounting standards. We also performed a critical assessment of the procedure for implementing this methodology and verified: ■ that all of the components of the carrying amount of a CGU have been taken into account and are consistent with those used to project future cash flows; ■ that the projected future cash flows are consistent with management’s most recent estimates, as calculated during the budget process; ■ that the assumptions made with respect to projected future cash flows are reasonable in terms of the economic and financial context of the CGU and, by assessing the reasons for diff erences between projected and actual performances, that the process by which the estimates were calculated is reliable.
With respect to the Life Insurance CGUs in the United States, we also verified: ■ the consistency of the financial assumptions and growth rates used to project future cash flows with available external analyses (market analyses, consensus); ■ the calculation of the discount rate applied to estimated future cash flows, verifying the various inputs used (risk-free rate, market premium, unlevered beta, specific risk premium).
■ the analysis performed by the Group to ascertain the sensitivity of value to changes in the main assumptions used.
Given the degree of judgment management’s decision to class certain deferred tax assets as recoverable or otherwise, we deemed this issue to be a key audit matter.
We assessed the compliance of the methodology applied by the Group with current accounting standards. In association with our tax specialists, our audit approach also consisted in assessing the business plans used and thus the likelihood that AXA SA tax consolidation group entities would be able to utilize deferred tax assets in the future. In particular, we assessed: ■ the underlying projections and assumptions, and their consistency with the latest management estimates as calculated during the budget process and the reliability of the process by which the estimates were calculated, by assessing the reasons for diff erences between projected and actual performances; ■ the schedules for the reversal of temporary differences and therefore the opportunities for off setting deferred tax liabilities.
As required by law we have also verified in accordance with professional standards applicable in France the information pertaining to the Group in the management report of the Board of Directors.
We were appointed as statutory auditors of AXA SA at the Shareholders’ Meetings held on February 28, 1989 (PricewaterhouseCoopers Audit) and on June 8, 1994 (Mazars). At December 31, 2017, PricewaterhouseCoopers Audit and Mazars were in the twenty-nine and in the twenty-four consecutive year of total uninterrupted engagement, respectively.
The consolidated financial statements were approved by the Board of Directors of AXA SA.
Our role is to issue a report on the consolidated financial statements. Our objective is to obtain reasonable assurance about whether the consolidated financial statements taken as a whole are free from material misstatement. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with professional standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
We also provide the Audit Committee with the declaration provided for in Article 6 of Regulation (EU) No. 537-2014, confirming our independence within the meaning of the rules applicable in France such as they are set in particular by Articles L.822-10 to L.822-14 of the French Commercial Code (code de commerce) and in the French Code of Ethics (code de déontologie) for statutory auditors. Where appropriate, we discuss with the Audit Committee the risks that may reasonably be thought to bear on our independence, and the related safeguards.
The principal trading market for AXA ordinary shares is Euronext Paris (Compartment A). Since the delisting of AXA ADRs (American Depositary Receipts representing American Depositary Shares (“ADS”), each representing one AXA ordinary share) from the New York Stock Exchange on March 26, 2010, AXA ADRs have traded on the US over-the-counter (“OTC”) market and are listed on the OTC QX platform under the symbol AXAHY.
(b) AXA Assurances IARD Mutuelle (11.26% of capital ownership and 19.10% of voting rights) and AXA Assurances Vie Mutuelle (2.88% of capital ownership and 4.88% of voting rights).
AXA Assurances IARD Mutuelle and AXA Assurances Vie Mutuelle (the “Mutuelles AXA”) are parties to agreements pursuant to which they have stated their intention to collectively vote their shares in AXA. As part of these agreements, the Mutuelles AXA have established a Strategy Committee (Comité de Coordination Stratégique) composed of certain directors from their respective Boards. The Strategy Committee elects a Chairman among its members (currently, Mr. François Martineau) and is generally consulted on all significant matters relating to the Mutuelles AXA including their collective shareholding in AXA and overall relationship with the Company and the AXA Group.
In connection with the share repurchase programs approved by AXA’s shareholders during their Shareholders’ Meetings held on April 27, 2016 (Resolution 16) and April 26, 2017 (Resolution 17) and pursuant to Article L.225-209 of the French Commercial Code (Code de commerce), (i) 67,476,040 AXA shares were repurchased (for the purposes of (a) hedging free grants of shares to employees of the Group, (b) delivering the shares upon exercise of the rights attached to securities corresponding to debt instruments or (c) cancelling them in order to neutralize the dilutive impact of shares issued in connection with equity compensation arrangements and employee share plan off erings) for an average weighted gross unit price per share of €24.43, and (ii) no AXA shares were sold between January 1 and December 31, 2017.
As a result, on December 31, 2017, following the delivery of AXA treasury shares to Group employees during 2017 in the context of performance share plan s, and the cancellation of AXA treasury shares, the total number of AXA treasury shares, all allocated for hedging or cancellation purposes, was 41,395,855 (or 1.71% of AXA’s share capital at that date). These shares were acquired for an aggregate purchase price of €999,890,949.81 (with a par value of €2.29 per share).
Since 1993, the AXA Group has promoted employee shareholding by offering each year to its employees an opportunity to become shareholders through a share capital increase reserved exclusively to them (“Shareplan ”).
At the end of the 5 year holding period, the employees can, depending on their country of residence, do any one of the following: (1) receive the cash value of their investment; (2) receive the value of their investment in the form of AXA shares; or (3) transfer their assets invested in the leveraged plan into the traditional plan.
The leveraged plan in 2017 allowed employees to subscribe, on the basis of 10 times their personal investment, in AXA shares (either through Mutual funds (FCPE) or through direct share ownership, depending on their countries of residence) with an 8.98% discount. These shares are held within the Group Company Savings Plans and are restricted from sale during a period of approximately 5 years (except specific early exit cases allowed by applicable law). Employees’ personal investment is guaranteed by a bank, and employees also benefit from a portion of the share appreciation, calculated on the basis of the nondiscounted reference price.
• €406.4 million in the leveraged plan; ■ a total of over 19 million new shares were issued, each with a par value of €2.29. These shares began earning dividends on January 1, 2017.
On December 31, 2017, AXA employees and agents held 5.34% of the share capital and 6.88% of the voting rights. These shares are owned through Mutual funds (FCPE) or directly either in the form of ordinary shares or ADS.
The following table sets forth changes in the number of shares from January 1, 2015 to December 31, 2017: Date Transaction
Share capital reduction by cancellation of shares (10,763,717) (219,244,525) 2,441,493,498 5,591,020,110
Exercise of stock options 3,883,751 52,198,740 2,426,458,242 5,556,589,374 2016 New equity issue related to the 2012 AXA Miles Program (4 + 0 plan) 1,280,050 - 2,427,738,292 5,559,520,689
New equity issue reserved for employees of AXA (Shareplan 2016) 24,546,959 368,403,757 2,448,766,155 5,607,674,495
Share capital reduction by cancellation of shares (26,331,484) (60,299,098) 2,422,434,671 5,547,375,397
New equity issue reserved for employees of AXA (Shareplan 2017) 19,558,841 394,238,574 2,443,538,044 5,595,702,121
Share capital reduction by cancellation of shares (23,272,226) (531,851,334) 2,420,265,818 5,542,408,723 31/12/2017 Exercise of stock options 4,969,933 73,161,594 2,425,235,751 5,553,789,870
AXA’s authorizations to issue shares or other types of securities that were valid as of December 31, 2017 are summarized in the tables below: Issues with preferential subscription rights for shareholders
(d ) The aggregate nominal value of the capital increase with or without preferential subscription rights may not exceed €2 billion in nominal value.
Ordinary shares reserved for a specific category of beneficiaries in connection with off erings for employees – 135 million (c ) 18 months October 26, 2018
Performance shares (actions de performance) (d ) – 1% (e ) 38 months June 27, 2019
Shares issued in connection with the exercise of stock options – 1% (f ) 38 months June 26, 2020
(a ) Including the issue of ordinary shares or securities (i) in the event of private investments or through public off ers, (ii) in the event of public exchange off ers initiated by the Company, (iii) in consideration for contributions-in-kind for up to 10% of the Company’s share capital, or (iv) as result of securities issued by subsidiaries of AXA.
(c ) Common and independent ceiling. (d ) Existing shares and/or newly issued shares. (e ) At the date on which performance shares are granted by the Board of Directors. (f ) At the date on which stock options are granted by the Board of Directors. (g ) Dedicated to retirement.
Ordinary shares reserved for a specific category of beneficiaries in connection with off erings for employees – 135 million (a) 18 months October 25, 2019
Please see paragraph “Employee shareholders” of the present Section 6.2 of this Annual Report.
In 2017, by virtue of the authorization granted by the shareholders at the Shareholders’ Meeting of April 26, 2017 (resolution 29), 3,070,397 stock options have been granted, each of which gives the holder a right to acquire an AXA share (either newly issued or existing) at a specified strike price.
In 2017, by virtue of the authorizations granted by the shareholders at the Shareholders’ Meeting of April 27, 2016 (resolutions 19 and 20) respectively 2,486,368 performance shares and 601,444 performance shares dedicated to retirement were granted by the AXA Board of Directors.
AXA is a société anonyme (a public limited company) organized under the laws of France, which is the publicly traded parent company of the AXA Group. The Company’s registered off ice is located at 25, avenue Matignon, 75008 Paris, France and its telephone number is +33 (0) 1 40 75 57 00. AXA SA was incorporated in 1957 but the origin of its activities goes back to 1852. The Company’s corporate existence will continue, subject to dissolution or prolongation, until December 31, 2059. The Company is registered with the Paris Trade and Companies Register (Registre du commerce et des sociétés) under number 572 093 920.
While the extent and nature of regulation varies from country to country, most jurisdictions in which AXA’s insurance subsidiaries operate have laws and regulations governing distribution practices, standards of solvency, levels of capital and reserves, permitted types and concentrations of investments, and business conduct to be maintained by insurance companies as well as agent licensing, approval of policy forms and, for certain lines of insurance, approval or filing of rates. In certain jurisdictions, regulations limit sales commissions, fees and certain other marketing expenses that may be incurred by the insurer and impose product suitability and disclosure requirements. In general, insurers are required to file detailed annual financial statements with their supervisory agencies in each of the jurisdictions in which they do business. Such agencies may conduct regular or unexpected examinations of the insurers’ operations and accounts and request additional information from the insurer. Certain jurisdictions also require registration and periodic reporting by holding companies that control a licensed insurer. This holding company legislation typically requires periodic disclosure, reporting concerning the corporation that controls the licensed insurer and other aff iliated companies, including prior approval (or notice) of transactions between the insurer and other affiliates such as intra-group transfers of assets and payment of dividends by the controlled insurer. In general, these regulatory schemes are designed to protect the interests of policyholders rather than shareholders.
In recent years, the European Union has developed a regulatory regime for European insurers which became effective on January 1, 2016, following the adoption of the 2009 Solvency II Directive on the taking-up and pursuit of the business of insurance and reinsurance, as amended and the regulations promulgated thereunder (together with the Solvency II Directive, “Solvency II”). Solvency II was implemented into French law beginning in 2015. Solvency II is designed to implement solvency requirements that better reflect the risks that insurance companies face and build a supervisory system that is consistent across all EU Member States. Solvency II is based on three pillars: (1) Pillar 1 consists of the quantitative requirements around own funds, valuation rules for assets and liabilities and solvency capital requirements; (2) Pillar 2 sets out qualitative requirements for the governance and Risk Management of insurers, as well as for the eff ective supervision of insurers including the requirement for insurers to submit an Own Risk and Solvency Assessment (“ORSA”); and (3) Pillar 3 introduces an enhanced reporting and disclosure regime, pursuant to which subject insurance undertakings headquartered in the European Union are required to prepare the Regular Supervisory Report (“RSR”), to be submitted by the undertaking to the competent national regulator on a regular basis as determined by the regulation, and the Solvency and Financial Condition Report (“SFCR”), to be made publicly available on an annual basis. Solvency II covers, among other matters, valuation of assets and liabilities, the treatment of insurance groups, the definition of capital and the overall level of required capital. A key aspect of Solvency II is that assessment of the Group’s risks and capital requirements is aligned more closely with economic capital methodologies and allows the use of either a standard model or an insurer’s own internal economic capital model (to permit a better understanding of the actual risks and Risk Management of the insurer) to calculate the Solvency Capital Requirement (“SCR”), subject in the latter case to the approval of the insurer’s lead regulator.
Group as of December 31, 2017, published on February 22, 2018, was estimated at 205% (1), compared to 197% as of December 31, 2016, and remains within AXA’s target range of 170-230%.
The European Insurance and Occupational Pensions Authority (“EIOPA”) continues to issue regulations and guidelines under Solvency II. In addition it will review the consistency of European insurer’s internal models and any such review may lead to further regulatory changes to increase convergence and to strengthen oversight of cross-border groups. For more information on the Internal Model, please refer to Section 4.2 “Internal control and Risk Management – Internal Model” of this Annual Report. For further information on AXA’s SCR, Internal Model and other Solvency II disclosures, please refer to the AXA Group’s SFCR for the year ended December 31, 2016, available on AXA’s website (www.axa.com). AXA Group’s SFCR for the year ended December 31, 2017 is expected to be published on May 25, 2018, on the same website.
In addition, in connection with Solvency II, on September 22, 2017 the European Union and the US signed the “Bilateral Agreement between the European Union and the United States of America on Prudential Measures Regarding Insurance and Reinsurance” (the “Covered Agreement”) which sets out principles governing the imposition of group capital and supervisory standards for insurance groups headquartered in an EU Member State or the US with operations in both. While parts of the Covered Agreement apply on a provisional basis since its signature, the full agreement is subject to European Parliament and Council consent and currently expected to come into force in September 2022 . The AXA Group will remain subject to group supervisory and capital requirements, as currently provided under Solvency II, with AXA’s US insurance subsidiaries remaining subject to local requirements. The Covered Agreement also addresses various regulatory information-sharing and reporting matters, as well as EU/US reinsurance market issues.
For further information on the risks related to regulatory capital requirements, please see the paragraph “The Group’s or its insurance subsidiaries’ failure to meet their solvency capital requirements could have a material adverse effect on our business, liquidity, ratings, results of operations and financial position” in Section 4.1 “Risk Factors” of this Annual Report.
(1) The Solvency II ratio is based on the Internal Model calibrated based on adverse 1/200 years shock and assuming US equivalence. The Solvency II ratio will be finalized prior to the publication of AXA Group’s SFCR currently expected to be on May 25, 2018.
The policy measures for GSIIs, as published by the IAIS in July 2013, include (1) the introduction of new capital requirements including a “basic” capital requirement (“BCR”) applicable to all GSII activities and an additional level of capital, called “Higher Loss Absorbency” (“HLA”) required for GSIIs in relation to their systemic activities; (2) greater regulatory oversight over holding companies, (3) various measures to promote the structural and financial “self-suff iciency” of group companies and reduce group interdependencies including restrictions on intra-group financing and other arrangements, and (4) in general, a greater level of regulatory scrutiny for GSIIs, including a requirement to establish a Systemic Risk Management Plan (“SRMP”), a Liquidity Risk Management Plan (“LRMP”) and a Recovery and Resolution Plan (“RRP”) which have entailed significant new processes, reporting and compliance burdens and costs.
For additional information, see “Our businesses are subject to extensive regulation and regulatory supervision in the various jurisdictions in which we operate” and “As a holding company, we are dependent on our subsidiaries to cover our operating expenses and dividend payments” in Section 4.1 “Risk factors” of this Annual Report.
Management expects the regulatory landscape with respect to insurance and financial markets will continue to evolve in 2018 and beyond with further legislative and regulatory initiatives.
AB and AXA Investment Managers are subject to extensive regulation in the various jurisdictions in which they operate. These regulations are generally designed to safeguard client assets and ensure adequacy of disclosures concerning investment returns, risk characteristics of invested assets in various funds, suitability of investments for client investment objectives and risk tolerance, as well as the identity and qualifications of the investment manager. These regulations generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply with such laws and regulations. In such event, the possible sanctions that may be imposed include the suspension of individual employees, limitations on engaging in business for specific periods, the revocation of the registration as an investment adviser, censures and/or fines.
The European Union (European Market Infrastructure Regulation – “EMIR”) and the US regulations (principally the Dodd-Frank Act) set several prescriptive guidelines for derivatives which impact operations, liquidity and credit Risk Management for derivatives. AXA’s asset managers and banks, which manage derivatives on behalf of various AXA Group aff iliates (including on behalf of AXA), are currently operating in conformity with these new rules (or preparing for their implementation) and the Group’s financial risk framework, including credit and liquidity risk procedures, has been adjusted to reflect these requirements. In addition, Directive 2014/65/EU on markets in financial instruments (“MiFID II”) and Regulation (EU) No. 600/2014 on markets in financial instruments, both adopted in May 2014, came into force on January 3, 2018. The MiFID II package, which is designed to better integrate the European Union’s financial markets and increase cross-border investments, market transparency and investor protection, imposes a wide variety of new requirements including with respect to trading/clearing of certain derivatives on organized platforms, regular reporting with respect to derivatives positions and certain other types of financial instruments, restrictions and/ or prohibitions on certain types of compensation arrangements or other monetary inducements to firms providing independent investment advice and greater regulation of structured products and other complex financial instruments.
In January 2012, the European Commission put forward its EU Data Protection Reform to update the principles of processing of personal data in the European Union contained in the 1995 Data Protection Directive (95/46/EC). The EU Data Protection Reform resulted, in particular, in the adoption in April 2016 of Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the “General Data Protection Regulation”), which will apply from May 25, 2018. The main principles of the General Data Protection Regulation include (i) the strengthening of citizens’ fundamental rights, giving them more control over their personal data and making it easier for them to access it, (ii) an increased harmonization of the applicable law across the EU and a “one-stop-shop” that will streamline cooperation between the data protection authorities on issues with implications for all the EU, and (iii) a stronger enforcement regime, under which data protection authorities will be able to fine companies which do not comply with EU rules up to 4% of their global annual turnover.
Solvency II sets out the remuneration policy principles and governance requirements to be implemented by European insurers and specifies that the companies subject to Solvency II must adopt a written remuneration policy compliant with a number of principles set out in the Delegated Regulation (EU) 2015/35 of October 2014 which promotes sound and eff ective r isk m anagement and does not encourage risk-taking that exceeds the risk tolerance limits of the Company. In this context, AXA has reviewed and formalized its existing Group remuneration policy, identified the individuals responsible for managing and having an impact on the Group’s overall risk profile and defined a consistent approach to manage remuneration of individuals in charge of control functions. AXA’s Compensation & Governance Committee is in charge of overseeing the design of the remuneration policy and remuneration practices, their implementation and operation.
These principles and standards are reflected in a variety of regulations and legislative initiatives that have been enacted over the past few years in various jurisdictions where the Group does business. While these restrictions are oft en aimed primarily at the banking sector and do not apply uniformly to the Group across the various jurisdictions where it does business, the Group has largely aligned its global executive compensation practices with these standards and principles and conducts regular reviews of its compensation practices and policies in light of these standards as well as applicable legal and regulatory requirements. The application of these principles and standards may vary among the diff erent actors in the financial sector (such as banks, insurers, asset managers, private equity funds, hedge funds) and across the various jurisdictions where the Group does business, which may give rise to certain competitive issues for the Group, including by aff ecting the Group’s ability to attract and retain top-rate talents.
While the extent and timing of the implementation of the Fiduciary Rule continue to remain uncertain, and are currently subject to judicial challenge, Management continues to evaluate its potential impact on AXA US. If implemented as planned, and unless repealed or meaningfully revised, the new Fiduciary Rule is currently expected to cause adverse changes to the level and type of services provided by AXA US and its aff iliated advisors and firms, as well as the nature and amount of compensation and fees such entities receive, which may have a significant adverse eff ect on AXA US’s business and operations.
Policyholders’ liabilities are currently accounted for according to IFRS 4, which generally allows the use of a wide variety of accounting practices for insurance contracts, reflecting diff erent national accounting requirements, and the continuation of accounting policies applied prior to conversion to IFRS. On May 18, 2017, the IASB issued the IFRS 17 standard on insurance contracts, which will replace IFRS 4, finalizing a long-standing project of the IASB to develop a single, consistent approach to the accounting for insurance contracts. In particular, IFRS 17 requires insurance obligations to be accounted for using current values, instead of historical costs. Subject to adoption by the European Union, the new standard is scheduled to become eff ective for annual periods beginning on or aft er January 1, 2021.
September 12, 2016, which were adopted by the European Union on November 3, 2017. These amendments allow, under certain criteria, entities issuing insurance contracts within the scope of IFRS 4 to defer the implementation of IFRS 9 until the eff ective date of IFRS 17, but no later than January 1, 2021. The Group is eligible for this temporary exemption and intends to apply it.
The IDD was initially expected to come into force on February 23, 2018. However, in December 2017, the European Commission proposed postponing the transposition date of the IDD into local law to July 1, 2018, and its application date to October 1, 2018, in order to give the insurance sector, especially small insurance distributors, more time to prepare. On march 1 and March 9, 2018 respectively, the European Parliament and the Council agreed to the new transposition and application dates. Meanwhile, MiFID II and the PRIIPs Regulation entered into force at the beginning of January 2018.
For additional information, please see “Our businesses are subject to extensive regulation and regulatory supervision in the various jurisdictions in which we operate” in Section 4.1 “Risk Factors” and Section 4.8 “Other material risks” of this Annual Report.
(1) The list of the Group’s main subsidiaries and participating interests is available in Appendix III “AXA parent company financial statements” of this Annual Report. The legal organizational chart of the Group is also published on the Company’s website (www.axa.com).
In the countries where it operates, AXA is both a tax payer and a tax collector, given that many specific taxes are levied on insurance policies and collected from our customers as part of the insurance and Asset Management revenues while others are remitted to the various state and federal administrations around the world.
The tax function is organized within the Group to ensure full compliance with all tax legislation in the countries where AXA operates. In addition to the Group Tax Department based in France, all key operational entities/countries/geographic zones have a tax team in charge of ensuring that tax regulations are well understood and satisfied by the entities. A Tax Code of Ethics, agreed between Group Tax Department and local tax teams, highlights the key principles (1 ) guiding the actions of the various tax teams. The satisfaction of this Code of Ethics is a prerequisite of the activities performed by all AXA tax teams. In this respect, a bi-annual tax review process of each key entity or business line is performed by the Group Tax Department in connection with each local team. In addition, an International Tax Committee composed of various senior tax executives within AXA tax teams meets every quarter to ensure consistency in approach on some technical topics, as well as agreements on guidelines connected to specific items.
AXA has no licensed insurance or operating business activities in the countries specifically identified as non-cooperative jurisdictions (2 ) under French domestic tax rules, except i n Panama. In this country, which has been recently identified as such, AXA has been acting locally for several years through two operating companies providing assistance services to local customers or travelers insured by AXA.
The Consolidated Financial Statements present the reconciliation between the theoretical tax charge and the eff ective tax charge under IFRS. All differences are fully explained (see Note 19 “Tax” in Part 5 – “Consolidated Financial Statements” of this Annual Report). It should be noted that in many jurisdictions where AXA operates, the income and capital gains on savingsproducts benefit from a favorable tax treatment, also when such products are included in life insurance products. This leads to a lower eff ective tax rate for life insurance companies. Over the last several years, and notably following the financial crisis, this diff erence has trended down.
AXA products are not designed to allow or encourage tax evasion. The Group has set up a validation framework to ensure that new products undergo a thorough approval process before they go to market.
The local decision to launch a new product must result from a documented approval process that complies with the AXA Group’s standards in terms of product features, pricing, assetliability management and aspects related to legal, compliance, regulatory, accounting and reputation.
Moreover, AXA has established strict policies regarding its cross-border activities and knowledge of its customers, in order to ensure that our products and services are not misused for money laundering or tax evasion purposes and are governed by specific rules according to which cross-border life insurance proposals must be presented to the Group Tax and Compliance Departments for validation.
In addition to French law provisions, AXA’s Bylaws and the Board’s Terms of Reference include a number of specific provisions concerning members of the Board of Directors, including the following: Compensation
The corporate off icers of the Company receive compensation in the amount and on conditions set by the Board of Directors, upon proposal of the Compensation & Governance Committee.
For further information, please see Part 3 – “Corporate G overnance” of this Annual Report.
All shareholders are entitled to attend these meetings, either in person or by proxy, provided that they show valid proof of ID and share ownership as specified under French law. This ownership is justified by a book entry showing the number of shares in the name of the shareholder (or the intermediary for the account), on the second business day preceding the meeting at 0:00 am, Paris time (France), either in the registered share accounts kept by the Company or in the bearer share accounts kept by a qualified intermediary.
Pursuant to Article 7 of AXA’s Bylaws, any person, acting alone or jointly, who comes to hold, directly or indirectly through companies it controls within the meaning of Article L.233-3 of the French Commercial Code, a number of shares representing 0.5% of the Company’s share capital or voting rights, shall notify the Company by registered letter with acknowledgment of receipt within five days from the threshold crossing. This notification shall detail the total number of shares and voting rights held as well as the total number of securities giving a diff ered claim to the share capital and the potential voting rights attached thereto.
In the event of failure to comply with the notification requirements described above, shares exceeding the fraction that should have been notified will be deprived of voting rights at Shareholders’ Meetings if, at such meetings, the notification failure has been recorded and if one or more shareholders jointly holding at least 5% of the share capital so request. Loss of voting rights shall be applicable in all Shareholders’ Meetings that would be held up until two years following proper notification.
Report by one of the Statutory Auditors, appointed as an independent third party, on the 393 consolidated human resources, environmental and social information presented in the management report 7.6 VIGILANCE PLAN 396
Insurance protection encourages innovation, risk-taking and borrowing for investments (through lower default risk and thus more affordable credit rates)
(connecting the misfortunes of the few to the fortunes of the many) and social protection (micro insurance) generate social cohesion provides long-term funding to the economy, including for infrastructure
■ Climate Change: AXA reduces its own carbon footprint and leverages its core business of insurance and investment to help better face climate risks; ■ H ealth risk prevention: capitalizing on our tobacco divestment and NGO partnerships, and as a trusted partner of our clients and with our expertise as risk managers, we will develop our health risk prevention eff orts to achieve positive outcomes; ■ Social and Economic Development: as an insurance company, we aim to provide protection and risk prevention to underserved populations, thereby contributing to global socioeconomic development; ■ Data for Good: data can be a force for good, especially when it gives us an opportunity to protect our customers’ risk knowledge data by reinforcing cyber-security. We will notably “give back data” to our customers and society for public good.
PricewaterhouseCoopers Audit, one of AXA SA’s Statutory Auditors, appointed as an independent third party, presents in their assurance report attached at the end of this chapter, their attestation of completeness on the consolidated social and environmental information disclosed in the Company’s management report prepared for the year ended December 31, 2017 pursuant to Article L.225-102-1 of the French Commercial Code as well as reasoned opinion on the fairness of the Information.
The Group’s Environment, Social and Governance (ESG) performance is also evaluated by specialized rating agencies. The Group generally ranks close to the top in its industry and is also included in main international sustainability indices. These ratings are available on ratings-ethical-indexes.
(1) Methodology note: The social data communicated here are collected through a reporting process defined by procedures associated with a list of indicators shared with all entities of the AXA Group. This process is updated and communicated to each entity on a yearly basis. These indicators represent the data of 310 entities of the AXA Group (few entities may pre-consolidate data on a local level). The perimeter is updated annually following potential acquisitions/ mergers or business disposals. These indicators are reported for the period between 01/01/2017 and 31/12/2017, unless mentioned otherwise. Evolutions are measured with ratios between 2016 and 2017 end-of-year data. The data are provided by local correspondents into an IT tool dedicated to the social data reporting process and accessible by all the entities since 2009. Consistency checks and quality controls are carried out before and during the data collect process. There are no estimations nor extrapolations made on the data provided. Regarding data published in ratios and percentages: numerator and denominator are realigned for each calculation to exclude entities with empty data points.
AXA’s overall salaried workforce on December 31, 2017, was 116,514 employees (open-ended and fixed-term contracts), which represents a decrease of 1.6% compared to 2016. This decrease is due to several business disposals in different countries.
As a result, the footprint of AXA’s salaried workforce in 2017 was: 59.1% in Europe (vs. 59.9% in 2016), 21.8% in Asia-Pacific-Middle East (vs. 21.4% in 2016), 14.3% in the Americas (vs. 14.3% in 2016) and 4.8% in Africa (vs. 4.4% in 2016). AXA continued to recruit in 2017 and hired more than 16,500 employees on open-ended contracts (excluding entries due to mergers and acquisitions), of which, almost 3,450 were sales employees.
Average FTE of salaried sales force 15,818.9 ft e 16,028.2 ft e
■ Non salaried temporary staff and contingent workers 5,784.9 ft e 4,859.2 ft e
Average length of service of salaried workforce 10.8 yrs 10.8 yrs
Effective labor-management communications and social dialogue pave the way for the stability required to implement the Group’s business development strategy. Each AXA Group entity, therefore engages with staff or their representatives for communications on a regular basis. AXA has also set up a European Works Council (EWC), whose extensive role goes beyond regulatory requirements. The EWC is made up of staff representatives from AXA’s largest European entities, who meet in order to receive and exchange information on the social, strategic and economic issues that concern the Group and maintain an ongoing dialogue between employees and management.
The majority of the Group’s employees are covered by the EWC’s framework agreement. Other aff iliates outside the scope of the EWC have also developed social dialogue agreements, but these are not monitored at Group level. More generally, beyond Europe, the Group strives to ensure that employees are fairly represented in all major countries where it is present. In addition to the work of the EWC, numerous collective bargaining agreements are signed on a local basis.
The aforementioned Group EWC agreement commits the Group to a certain number of measures in favor of employees when major organizational changes impact their jobs. AXA maintains the following principles with a view to guiding its various European business units in local management practices: ■ when organizational changes affect jobs, AXA pledges to supply relevant information and, as appropriate in light of local cultures and rules, to consult with employees and their representatives; ■ in connection with an information-gathering and consultative process, AXA would provide data and information about possible alternative solutions, where relevant; ■ factoring in its employees’, customers’ and shareholders’ interests, AXA undertakes to maximize opportunities for internal and external redeployment, when applicable, for all AXA employees aff ected by possible employment issues; ■ AXA will do its utmost to prevent compulsory redundancies and other collective transfers, by pursuing other approaches whenever possible; ■ when geographic mobility is necessary, it must be off ered as a matter of priority to employees who volunteer to move, with the process managed with a view to enabling their integration into a new environment under the best possible conditions; ■ AXA pledges to acknowledge certain individuals as staff representatives and uphold their liberty, rights and purpose, in line with national legislation and, where relevant, agreements in force in local business units; ■ aware that training represents a major investment, both for the Group and for its employees, AXA commits to embrace a continuous-learning culture; ■ AXA condemns discrimination of any kind on the basis of gender, color, ethnic origin, genetic form of difference, disability, sexual orientation, language, religion, personal conviction, union membership or political opinion.
Movements of salaried workforce Net headcount evolution (entries versus departures) ( 2,176) emp. ( 1,354) emp.
■ Number of external recruitments (including re-hires) 11,467 emp. 11,871 emp.
■ Number of entries following mergers and acquisitions 198 emp. 1,453 emp.
■ Number of departures due to external transfers (b) 1,252 emp. 2,875 emp.
Movements of salaried sales force Net headcount evolution (entries versus departures) ( 447) emp. ( 337) emp.
■ Number of fixed-term contracts transformed into open-ended contracts 94 emp. 98 emp.
■ Number of departures due to external transfers (b) 321 emp. 284 emp.
Movements of salaried workforce with fixed-term contract Net headcount evolution of salaried non-sales force (entries versus departures) 1,828 emp. 1,468 emp.
Net headcount evolution of salaried sales force (entries versus departures) 172 emp. 74 emp.
AXA’s business continues to go through profound digitization and transformation. More than 20 entities, representing near 75% of AXA’s global workforce, have implemented Strategic Workforce Planning methodology.
AXA entities are implementing their Workforce Transformation roadmap to secure the Business Transformation. As part of it, AXA will continue increasing its learning budget by 23% up to 2020 compared to the 2015 budget, to upskill its employees and build the workforce of tomorrow.
Strategic Workforce Planning is periodically updated to take into new strategic, regulatory and demographic assumptions and adapt the Workforce Transformation roadmap as needed.
Average number of working hours per week 36.9 hrs +0.3% 36.8 hrs
■ Proportion of absences due to work related accidents 2.0 % 2.1 %
■ Proportion of absences due to work related accidents 1.9 % 2.0 %
■ Proportion of absences due to sickness 72.5 % 72.0 %
AXA broadly applies a “pay-for-performance” approach which, (i) recognizes achievement of defined financial and operational targets aligned with AXA’s business plan, (ii) promotes longterm sustainable performance by incorporating risk adjustment measures in performance metrics (such as cash Return-OnEquity which takes into account the capital required to deliver performance) and (iii) determines individual compensation amounts on the basis of both financial results and demonstrated individual leadership and behaviours.
Solvency II regulations came into force on January 1, 2016, and include a number of specific remuneration and governance requirements applicable to European insurers and reinsurers.
In this context, AXA has undertaken a comprehensive review of its existing remuneration policies and practices against the requirements of Solvency II and has adopted a new Group Remuneration policy applicable to all AXA employees as of January 1, 2016.
In 2017, total compensation cost amounted to €8.5 billion, which corresponds to a decrease of 1.6% compared to 2016. On a constant exchange rate basis, total compensation cost increased by 0.2%.
Since 2016, one of the performance metrics used to calculate AXA’s Long Term Incentives (Performance Shares) incorporates Corporate Responsibility considerations. The criterion used is based on AXA’s Dow Jones Sustainability Index percentile ranking (with research conducted by RobecoSAM). The DJSI is a robust and recognized independent assessment of long term performance drivers, including corporate governance, compliance, customer relations, environmental management, human capital development, etc.
Benefits form a significant part of AXA’s broader total rewards off er. AXA’s policy is to target benefits coverage at a minimum level of the median of the relevant market. Benefits should include pension, healthcare and protection covers (the nature and type of which, may vary by entity depending on local competitive and cost considerations). In all cases, local minimum requirements must be respected.
Through its Sharep lan program, the Group encourages employees to become AXA shareholders. Offered internationally for the first time in 1994, each year Sharep lan gives AXA employees an opportunity to acquire shares at preferential prices.
Compensation cost of salaried workforce (a ) 8,501 M€ -1.6% (a ) 8,638 M€
Annual gross payroll of salaried non-sales force ■ Proportion of fixed pay (related to wages) 83.1 % 84.1 %
Annual gross payroll of salaried sales force ■ Proportion of fixed pay (related to wages) 44.9 % 45.4 %
■ Proportion of variable pay (related to wages) 55.1 % 54.6 %
AXA promotes diversity & inclusion (D&I) by creating a working environment where all employees are treated with dignity and respect and where individual diff erences are valued. In all aspects of employment, AXA off ers equal opportunities to all employees. AXA opposes all forms of unfair or unlawful discrimination and does not tolerate discrimination based on age, nationality, ethnic origin, gender, sexual orientation, gender identity or expression, religion, marital status, disability (or any other criterion defined by local regulations). By making the workplace attractive and accessible to diverse people, we create conditions more favorable to innovation.
Acceleration towards gender equality remained a top priority for AXA in 2017, as a new target for female top executives (Group Senior Executives or GSE) has been set: reaching gender parity by 2023. The “Sponsorship Tandems” program, leveraging senior executives to act as advocates and using their influence to help strengthen the development of female talent, has formed 16 new Sponsorship pairings with the Group Senior Executives. Furthermore, local roll-outs are in operation across 17 AXA entities. In parallel, the Global Executive Development Program (GEDP) for 17 participants involving 70% women was launched. This program is designed to accelerate the development of the next generation of executives.
Aft er organizing a yearly Women’s Conference for 4 years, AXA held an Inclusion Conference as an opportunity to go beyond gender diversity. The emphasis was on the theme of “Diff erent, Together, Stronger”. Thomas Buberl, AXA CEO, presented his D&I vision and announced the new target regarding gender parity on this occasion. The conference day off ered a mix of presentations around inclusion, leading to innovation and workshops around the People, Culture and Marketplace framework.
As AXA strives to be the most inclusive company in the financial services industry, Global Employee Resource Groups (ERGs) continued to be leveraged in 2017 as a way to engage AXA’s employees across the globe on various inclusion topics. “Allies@ AXA_Pride”, a group on sexual orientation, and “WoMen@AXA”, a group on gender equality, have grown in membership since their launch in 2014 (with over 2,500 members in total). In 2017, “AXA_ Able”, an ERG to raise awareness around disability was launched.