(b) Includes interest expense on short-term trading instruments. (c) In 1999 and 1998, AXA used the weighted average exchange rate to translate the results of operations whereas in 1997 the year-end exchange rate was used.
recorded by AXA IM and the receipt in 1999 of performance -related commissions relating to the three previous years. Excluding inter-group transactions, consolidated revenues of € 227 million were up by 36% on a constant structural and exchange rate basis.
An amortization charge for goodwill of € 13 million mainly relates to the acquisition of AXA Rosenberg.
growth in the new markets by centralizing certain functions such as strategy, equity research, interest rate research, marketing and information technology systems.
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■ Including revenues from AXA insurance companies eliminated upon consolidation, the asset management revenues of AXA IM totaled € 199 million, an increase of 27.0% on a constant exchange rate and structural basis. Such growth was due to the 18.1% constant exchange rate growth of in assets under management of € 19 billion and the more rapid growth of assets under management with higher fee rates. The latter was principally the result of the appreciation of assets managed for third parties, which grew by 37.7% on a constant exchange rate basis. The overall growth in assets under management is attributable to appreciation of asset values and the addition of new accounts, which accounted for 40.2% and 59.8% of the growth, respectively.
Excluding revenues from AXA insurance companies eliminated upon consolidation, AXA IM asset management revenues totaled € 133 million, a 50.1%
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Financial Services Segment, along with the asset management operating activities. Due to creation of two operating segments from one previous segment, prior year financial information has been restated accordingly for comparative purposes.
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increase in stock market transactions, which for the second year running set a new record in the financial market, and an increase in fees on mergers and acquisitions and revenues earned on equity portfolio transactions. This is in contrast to the second-half of 1998 which was marked by volatility in the financial markets and, therefore, affected revenues from equity portfolio transactions and stock issues.
Management expenses were up by 20.4%, which must be evaluated in light of the total revenues generated by DLJ in 1999. The expenses include staff costs and development costs associated with DLJ’s development activities in Europe and Japan.
■ On a constant exchange rate basis, revenue growth was 14.0% principally due to strong growth in the mergers and acquisitions market and to the growth in trading volume, which reached record levels in 1998.
Net income was € 130 million, a decrease of € 23 million compared to 1997. The decline in DLJ’s net income was primarily due to markdowns on DLJ’s fixed maturities and to losses incurred in emerging markets and the decline in income from fixed income security activity, and costs related to international development.
■ Net income from the other financial and real estate companies decreased in 1999 compared to 1998.
On a constant structural basis, the Belgian banks reported net income, which is similar to that reported in the prior year. Margins on credit transactions dropped as a result of strong competition but were offset by favorable European interest rates in 1999.
group of € 35 million, as the operations are currently loss making, and (iii) a charge of € 69 million (€ 43 million group share) recorded by the various shareholders of the bank (being AXA subsidiaries) in relation to the costs of providing guarantees to the bank relating to doubtful debts.
Net income provided by the European subsidiaries was € 42 million. On a constant structural basis, the contribution to net income increased € 17 million. This increase was primarily due to an improvement in the net income of Sofapi, Holding Soffim, and Sofinad of € 12 million due to the favorable resolution of a contentious case and a decrease in expenses related to outstanding balances.
Excluding the deconsolidated of the investment companies, the contribution of other companies decreased by € 1 million to € 34 million, of which
Banque IPPA earned € 5 million, Colonia Bausprkasse earned € 5 million, and Royale Belge Investissement earned € 8 million.
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The Holding Company activities consist of AXA’s nonoperating companies, including the Company, AXA
Results in 1999 were favorably impacted by the significant net realized gains on the sale of equity securities of € 37 million after tax. These realized gains
Net Income Year Ended December 31, Including Minority Interests Group Share were partially offset by the amortization of goodwill of € 16 million relating to GRE’s Portuguese branch, higher general expenses linked to the significant advertising campaign of the AXA trademark of € 11 million after tax, and by a foreign currency exchange loss of € 27 million (after tax) following the acquisition of GRE.
■ The Company recorded a net loss of € 193 million as compared to € 160 million in 1997. The 1998 net loss was principally comprised of the following items: Incorporated), AXA Asia Pacific Holdings (formerly
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• Negative net investment results after tax of € 80 million, principally due to interest expense incurred by the Company in financing certain external growth, principally, the short-term financing of the acquisition of Royale Belge minority interests. In addition, such investment results include a € 18 million (after tax)
impairment provision for recording the office building at 25 avenue Matignon at its fair value. General costs, after tax, increased € 12 million compared to 1997, primarily due to increased costs related to the promotion of the AXA trademark worldwide.
In 1997, net income included realized gains on the sale of equity securities held in Schneider and BNP, and a dilution gain recorded by the Company when AXA
Financial, Inc. redeemed for shares of common stock subordinated debentures and preferred stock. These gains were partially offset by realized losses and impairments on real estate.
■ Other holding companies recorded a net loss of € 202 million in 1999 compared to net income of € 77 million in 1998. This change resulted principally from the following: • A significant realized gain of € 101 million (after tax)
• The group share of net income of the other French holding companies in 1998 included a capital gain of € 93 million (after tax) on the sale by Colisée
Excellence of stock held in treasury, which did not exist in 1999.
(group share), resulting from adjustments to the opening balance sheet provisions. In 1998, the results of
SLPH included a tax charge of € 54 million (group share) on the sale of AXA Leven to AXA Nederland.
■ The contribution of other holding companies to net income in 1998 was € 65 million versus a net loss of € 77 million in 1997. This significant change is attributable to the following variations: • An increase in income from AXA France Assurance, which realized a gain on the sale of equity securities held in BNP in 1998 (€ 82 million).
• AXA Financial, Inc., which in 1998 recorded a € 12 million dilution gain on the exercise of DLJ stock options. In addition, interest expense decreased as a result of the redemption of its subordinated debentures and preferred stock in August 1997.
Holdings primarily due to an income tax charge of € 54 million, group share, related to the sale of AXA
Holding Companies, which realized a gain in 1999 on the sale of ordinary shares of the Company
In 1999, AXA continued its research efforts to identify the life insurance policies subscribed by Holocaust victims in various European countries, which may not have been paid. On August 25, 1998, AXA, along with five major European insurance groups, signed an agreement with certain American state insurance regulatory authorities and Jewish organizations. The
The companies within AXA involved in this process are companies operating in Germany (5% of the market in 1938 for AXA), Belgium (22% of the market), and France (31% of the market). Investigations undertaken to date have made it possible to identify approximately 200 unpaid policies in Germany and less than 100 in France that may be related to the
As of December 31, 1999, AXA had spent € 17 million (of which € 10 million in 1999, primarily representing the cost of internal research and an audit carried out within AXA and also AXA’s share of the operating expenses of the International Commission. The
Company is not in a position, at this time, to reasonably estimate AXA’s ultimate exposure in this matter and, therefore, is unable to determine whether such amounts will be material to AXA’s consolidated results of operations, liquidity or financial condition.
Group systems and technology were generally compliant by June 30, 1999, with final testing completed by September 30, 1999.
With regard to its insurance and reinsurance operations, since 1997 AXA has been particularly restrictive in the provision of insurance coverage on Year 2000 risks, by excluding or limiting the most risk-sensitive guarantees.
The Company, as the holding company for AXA, will from time to time, however, arrange for and participate in financing the operations of subsidiaries.
4.2 billion, respectively, and AXA’s operating debt was € 11.7 billion and € 6.1 billion, respectively. Financing debt is primarily comprised of long-term debt and convertible debt of the Company or one of its subsidiaries.
Of the total financing debt and operating debt, the amount of short term debt was € 9.0 billion and € 4.2 billion at December 31, 1999 and 1998, respectively. Operating debt is comprised of borrowings, principally used by the financial services subsidiaries to provide working capital. Further information is provided in Notes 7 and 8 to the Consolidated Financial
At December 31, 1999, € 2.0 billion in convertible debt issued by the Company that has the potential to be converted into 20.4 million ordinary shares in accordance with the terms and conditions of the debt.
At December 31, 1999, the aggregate principal payments required to be made on maturing operating and financing debt and mezzanine capital (other than mandatorily convertible bonds and notes) for 2000 and the four years thereafter are € 0.5 billion, € 1.8 billion, € 1.6 billion, € 0.3 billion and € 0.7 billion, respectively. Off-balance sheet commitments are discussed in Note 17 to the Consolidated Financial
As a holding company, the Company’s principal sources of funds are dividends from subsidiaries and funds that may be raised through the issuance of debt or equity securities and bank or other borrowings. The
In February 2000, the Company issued € 500 million of 7.25 % undated subordinated notes. These notes may be redeemed at any time at the option of the
Concomitantly, the Company issued € 1,100 million in 3.75% subordinated convertible notes due January 1, 2017. These notes may be redeemed at any time starting from January 1, 2007 at the option of the
Company in accordance with the terms and conditions set out in the offering circular. The redemption price at the earliest redemption date of January 1, 2007 is € 196 per note, or 118.4 % of the original principal amount. The conversion into shares of all the notes issued would result in the issuance of 6.6 million AXA ordinary shares.
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In June and July 1998, the Company acquired the minority interests of Royale Belge for € 2,882 million.
The Company anticipates that cash dividends received from operating subsidiaries will continue to cover its operating expenses including planned capital investment in existing operations, interest payments on its outstanding debt and mezzanine capital, and dividend payments during each of the next three years. The
■ At December 31, 1999 and 1998, the Company had € 183 million and € 88 million, respectively, of cash and cash equivalents.
In 1999, the Company received € 1,438 million in cash dividends compared to € 1,036 million and €
Company’s direct and indirect subsidiaries are subject to restrictions on the amount of dividends and debt repayments that can be paid to the Company and its affiliates (see Note 19 to the Consolidated Financial
The Company maintains standby committed credit facilities in aggregate amount of € 2.3 billion, of which € 758 million was drawn as of December 31, 1999
(compared to € 2.1 billion, of which € 191 million was drawn as of December 31, 1998). At December 31, 1999, such credit facilities had an average remaining expiration period of approximately 2.1 years, with renewal periods equal to the original term of the facility at the Company’s option.
In addition, the Company set up a committed bank facility to finance the acquisition of GRE, for a total original amount of £1,000 million (€ 1,600 million), of which £450 million (€ 720 million) was drawn down as of December 31, 1999.
Abeille Re. Such amount includes € 128 million of aggregate principal amount of the Mandatorily
ordinary shares at a total value of € 63 million. In addition in 1997, in exchange for outstanding UAP
6.0% convertible debt, AXA issued convertible debt with similar characteristics for € 282 million and 4.1 million Certificates of Guaranteed Value.
■ The Company’s principal uses of funds are (i) payment of operating expenses, (ii) servicing of its debt obligations, (iii) payment of dividends to shareholders, and (iv) investment in strategic activities.
Company is expected to be approximately € 250 million during each of the next three years, assuming no additional repurchases or early redemptions of outstanding borrowings or mezzanine capital.
since 1997 of which € 18 million was invested in 1999; – € 50 million in respect of Direct Seguros (Spain) a 50 % / 50 % joint venture between AXA and Banco
Bilbao Viscaya since 1986 of which € 14 million was invested in 1999; – € 47 million in respect of Direct Japan since 1995 of which € 29 million was invested in 1999; Over the next three years, the Company plans to invest additional amounts of approximately € 240 million in direct marketing insurance operations (approximately € 50 million, € 40 million and € 150 million in France, Germany and Japan, respectively).
held cash and short-term investments and US Treasury securities of approximately € 148 million and € 157 million, respectively.
AXA Financial, Inc. include the sale of DLJ common stock, the issuance of debt or additional ordinary shares of AXA Financial, Inc., and dividends received from its subsidiary, Equitable Life. Until 1998, Equitable Life was subject to restrictions on dividends that were set by the
Financial, Inc. of € 140 million (US$150 million), and is currently in negotiations to obtain permission to distribute additional dividends in 2000.
In 1998, AXA Financial, Inc. began a capital stock repurchase program, which was increased from 16 million to 30 million shares of capital stock following a stock split in September 1998. During the year ended December 31, 1999 and 1998, AXA Financial,
Inc. repurchased 8.0 million of capital stock for € 242 million and 9.1 million shares of common stock for € 211 million, respectively. These repurchases represented approximately 1.8% and 2.0% of its total capital stock at December 31, 1999 and at December 31,
Holdings held cash and short-term investments of € 5 million and € 16 million, respectively. In addition to these amounts, AXA Asia Pacific Holdings’ primary
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Mutual Life Association paid in connection with the internal restructuring of its subsidiaries, including AXA
It also has a credit line of € 291 million (A$ 475 million ) of which € 219 million (A$ 357 million) had been drawn as of December 31, 1999. AXA Asia Pacific
At December 31, 1999, SLPH held cash and short-term investments of € 31 million, compared to € 263 million at December 31, 1998. At December 31, 1998,
Company, of which € 192 million remained outstanding at December 31, 1999. This loan granted by the
Company was financed mainly by the proceeds of the subordinated convertible note (2.5% due 2014) issued in February 1999 and from available lines of credit.
The principal sources of funds for AXA’s insurance operations are premiums, investment income and proceeds from sales of invested assets and repayments or maturities of debt security principal. The major uses of these funds are to pay policyholder benefits, claims and claims expenses, policy surrenders and other operating expenses and to purchase investments.
The liquidity of insurance operations is affected by, among other things, the overall quality of AXA’s investments and the ability of AXA to realize the carrying value of its investments in accordance with contractual maturities. For an analysis of AXA’s General
Account Insurance Portfolio, see “Item 1: Description of Business-Insurance-related invested assets”. The liquidity needs of the Life Insurance Segment can also be affected by fluctuations in the level of surrenders and withdrawals (see “Item 1: Description of Business-
■ AXA’s investment strategy is designed to match the net investment results (the investment yield) and the estimated duration of its investments with expected payments on the insurance contracts. AXA regularly monitors the valuation and duration of its assets, market conditions that might affect the level of surrenders and withdrawals on its life insurance policies, and changes in projected immediate and long-term cash needs. AXA adjusts its investment portfolios to reflect such considerations (further information on risk management in connection with market risk is provided in “Item 9A: Qualitative and Quantitative Disclosure about Market Risk”.
ized investment gains. If benefit payments and operating expenses with respect to with-profit contracts and other general account products exceed cash flows from premiums and investment assets in the general account, AXA Sun Life would have to sell additional assets or otherwise fund the shortfall.
Historically, cash flows from premiums and investment assets in the general account have exceeded benefit payments and operating expenses. Therefore, it has not been necessary to sell additional assets in order to meet obligations with respect to with-profit contracts. However, should the cash flow trends reverse, the majority of AXA Sun Life’s investment assets are readily marketable.
■ One source of liquidity for Equitable Life is dividends from Alliance Capital. Such dividends amounted to € 202 million, € 102 million and € 115 million for the years ended 1999, 1998 and 1997, respectively.
In 1997, Equitable Life began a program of divesting from real estate that continued in 1998 and in 1999.
In addition, a European Directive dated October 27, 1998, requires beginning for the year ended December 31, 2001, a consolidated solvency calculation.
Each member state has until June 5, 2000 to adopt specific procedures that will comply with this directive. US life insurers, including Equitable Life, are subject to certain risk based capital ("RBC") guidelines.
“Item 1: Description of Business – Additional Factors which may affect AXA – Regulation” for further information on RBC). Equitable Life was above its target
Australian insurers, including National Mutual Life, are subject to capital adequacy and solvency margin requirements. Under the standards, the assets of the statutory fund are required at all times to exceed the aggregate of the fund’s best estimate of policy liabilities, the solvency or capital adequacy margin and any liabilities attributable to the fund. The solvency and capital adequacy margins are calculated based on a formula which contains variables for expenses, inflab03 -338 • Item 9 (US) ok 23/05/00 12:11 Page 193 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
■ Alliance Capital’s principal sources of liquidity are cash flows from operations, proceeds from the issuance of capital stock, lines of credit and other borrowings from credit institutions.
Alliance Capital’s financing needs arise from continued growth in its operations and the selling of products for which payments of commissions paid to
■ The principle sources of funds for DLJ are (i) issuance of capital (including long-term debt), (ii) internally generated funds, (iii) lines of credit lines and other borrowings, (iv) deposit balances in customer accounts, (v)
are highly liquid. A relatively small percentage of total assets are held for a period longer than one year.
DLJ has a € 2.5 billion (US$2.5 billion) revolving credit facility, with no amount outstanding under this agreement at December 31, 1999.
DLJ’s overall capital needs are continually reviewed to ensure that its capital base can appropriately support the anticipated needs of its businesses and meet the regulatory capital requirements of its subsidiaries.
DLJdirect tracking stock for a unit price of $20, representing 17.9% of the capital stock of DLJdirect, its online brokerage service. The proceeds of this issue totaled US$ 347 million, of which US$ 234 million was recorded by DLJdirect.
SEC to commence a senior and subordinated debt securities and preferred stock program for a total amount of € 2 billion (US$ 2 billion). In connection with this program, DLJ has issued € 1,273 million
Series B, with a liquidation preference of US$50 per share, a US$175 million (€ 149 million) aggregate liquidation value. At December 31, 1998, this debt, classified as subordinated, totaled € 491 million (US$ 575 million). In addition, DLJ issued four senior notes for a total principal amount of € 1,146 million (US$ 1,350 million) in 1998 and repaid the outstanding balance of its subordinated revolving credit line of US$325 million
activity (bank, credit establishment or other), a minimum liquidity ratio or a minimum risk ratio. At
C o n s o l i d a t e d C a s h F l o w s
33,776 million for the year ended December 31, 1999 as compared to € 12,947 million for the year ended December 31, 1998. The increase in net cash provided by operations was mainly attributable to the increase in cash flows resulting from operating activities carried by AXA’s Financial Services segment.
Net cash used in investing activities in 1999 was € 36,703 million compared to net cash used of € 10,687 million in 1998. The increase in cash used in investing activities primarily stems from the increase in the invested assets of the insurance activities: increase in equity securities and loans partially offset by a decrease in fixed maturities.
Net cash received from financing activities amounted to € 2,193 million in 1999 compared to € 111 million in 1998. The increase in net cash provided by financing activities in 1999 is primarily attributable to the absence of repayments of long-term debt in 1999.
The net impact of foreign exchange was a € 837 million increase in net cash in 1999 compared to a decrease € 150 million in 1998. The net addition to cash due to changes in the scope of consolidation increased to € 3,548 million in 1999 from a negative
The operating, investing and financing activities described above, as well as the impact of foreign exchange and change in scope of consolidation, resulted in an increase in cash and equivalents of € 3,709 million in 1999 as compared to an increase of € 2,214 million in 1998.
12,947 million for the year ended December 31, 1998 as compared to € 12,413 million for the year ended December 31, 1997. The increase in net cash provided by operations was mainly attributable to the increase in insurance cash flows and cash flows from broker-dealer activities in the financial services operations.
In 1998, additions to the long-term debt included the € 1,146 million of senior debt issued by DLJ and approximately € 509 million issued by Equitable. The new funds were used primarily to reimburse maturing debt, to finance business growth, notably at DLJ, and to finance the AXA Financial, Inc.'s capital stock repurchase program.
The net impact of foreign exchange was a € 150 million decrease in net cash in 1998 compared to € 149 million increase in 1997. In 1998, changes in scope of consolidation reduced cash by € 25 million while b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 195 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
in 1997 such changes increased cash by € 2,081 million (primarily from inclusion of UAP).
The operating, investing and financing activities described above, as well as the impact of foreign exchange and change in scope of consolidation, resulted in an increase in cash and equivalents of € 2,214 million in 1998 as compared to an increase of € 4,527 million in 1997.
R e c o n c i l i a t i o n o f F r e n c h G A A P t o U S G A A P There are several differences between French and US
and US GAAP consolidated net income. For a discussion of the differences between French GAAP and
Net income in accordance with US GAAP, by segment, in 1999 and 1998 was as follows: Consolidated 1999 Net Income US Adjusted French
changes in scope of consolidation which includes the mutual funds and real estate companies which experienced favorable market trends, (iii) the increase in catastrophe equalization reserves which are not recognized under US GAAP, and (iv) the exclusion of the exceptional amortization of goodwill in connection with the acquisition of GRE which is accounted for under French GAAP.
Insurance Segment is € 111 million higher than that calculated according to French GAAP, primarily due to the consolidation of mutual funds (€ 204 million).
compared to French GAAP (€ 81 million) is primarily due to the impact of a number of non-recurring items related to the GRE acquisition and the recognition of the amortization of a redemption premium on the subordinated convertible note issued by the Company in
US GAAP was € 32 million. This amortization is not accounted for under French GAAP.
GAAP was € 1,531 million compared to € 749 million under US GAAP for the year ended December 31, 1998. Consolidated net income under US GAAP was less than consolidated net income determined in accordance with French GAAP primarily due to the negative impact under US GAAP from the difference between the two bases of accounting for assets allocated to UK with-profits contracts. The increase in
The Life Insurance Segment’s net income is higher under French GAAP than US GAAP principally due to the elimination under US GAAP of € 56 million of gains realized on treasury share sales by life insurance entities and the impact of a higher US GAAP carrying value for AXA Leben which reduced the gain realized its sale by € 59 million.
(€ 170 million) which principally correspond to the consolidation of mutual funds controlled by AXA and the elimination of catastrophe equalization reserves
(€ 81 million). These positive impacts were offset by the difference in accounting for business combinations which resulted in an additional charge under US GAAP
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The following information should be read in conjunction with (i) “Item 9: Management’s Discussion and
Statements on Forward Looking Statements’ at the beginning of this Annual Report.
R i s k M a n a g e m e n t
AXA’s geographic diversification, the impact of local economic and insurance cycles is reduced.
• level of assets to be maintained in the local currency to meet the insurance liabilities in that local currency.
At December 31, 1999, approximately 34% of the total net life insurance liabilities represented contracts with policyholder participating benefits (including 9%
of total net life insurance liabilities relating to UK withprofit contracts). In respect of these contracts, the policyholder participates in the earnings or surplus of the insurance company (in the case of UK with-profit contracts, the amount due to policyholders are generally based on the fair value of the investments supporting such products) through the distribution of policyholder dividends. Therefore, AXA’s exposure to market risk is reduced as generally 85% or more of the earnings are attributed to the policyholders.
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the spread between investment income, largely earned on investment grade fixed-income securities, and interest credited to policyholder account values.
AXA strives to maintain this spread by adjusting interest credited rates at contractually-specified intervals.
AXA is able to provide policyholders adequate returns while complying with regulatory requirements.
Generally, management of market risk is less critical for property and casualty insurance and reinsurance as the amounts and timing of claims do not vary significantly with interest rates or other market changes that affect the underlying investments. The premiums received and the return on investments (net investment income and realized gains and losses) provides substantial liquidity to meet claims payments and associated expenses as they arise. Consequently, there is greater flexibility in investment strategies while managing investments to ensure sufficient liquidity to meet the claims as they become due based on actuarial assessment.
At December 31, 1999, the principal risks to DLJ are interest rate risk, credit risk (potential changes in an issuer’s credit rating that affect the value of financial instruments) and equity price risk. To cover its exposure to interest rate risk and equity price risk, DLJ enters into transactions in US government securities, options, swaps and futures and forward contracts designed to reduce DLJ’s risk profile.
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AXA performs sensitivity analyses to quantify the exposure of certain instruments to interest rate risk, equity price risk and foreign currency exchange risk.
SEC regulations, real estate is not included within the scope of the analyses.
Such analyses include AXA’s material insurance operations, and holding companies in France, the United
Australia, and Hong Kong. Such subsidiaries account for approximately 76 % of the total AXA investment assets within the scope this analysis and approximately 93% of AXA’s total life, property and casualty, and reinsurance liabilities.
For purposes of the sensitivity analyses, fair values were estimated in accordance with the valuation methods described in Note 1 to the Consolidated
• For participating life insurance contracts, the fair value was considered to be the greater of 1.) the fair value of the assets designated to support such policies or 2.) the future cash flows discounted using the guaranteed minimum interest rate, if any. For interest-sensitive life insurance contracts, a discounted cash flow approach was used. As is the case with most variable rate liabilities, interest sensitive life insurance contracts’ fair values were not significantly affected by market changes as future crediting rates can be adjusted, subject to guaranteed minimum interest rates, if any, to reflect market changes.
Such fair values, which vary with changes in the estimated discount rate, were considered to be sensitive to interest rate changes but unaffected by equity price changes. For property and casualty and reinsurance contracts, no changes were made in the estimates of claims’ amounts and timing as a result of changes in interest rates or stock market prices for equity securities.
Interest Rate Risk. The estimated potential exposure due to a 100 basis point parallel shift upward in the
December 31, 1999 and 1998, respectively. This potential exposure is much less than the gross unrealized gains on equity investments of € 12 billion at
The increase in these countries results from inclusion of the GRE companies which had a higher ratio of equity security investments to total investment holdings compared to the existing AXA operations in these countries.
For example, as market indices fluctuate, management could take certain actions including selling investments, changing investment portfolio allocation, and adjusting bonuses credited to policyholders. In addition, such sensitivity analyses do not consider the affect of market changes on new business generated in the future, primarily insurance premiums, which are a critical and integral component of future profitability. AXA, and its competitors, would likely reflect adverse market changes in the pricing of new business. Therefore, management believes actual losses as a result of financial market fluctuations of the magnitudes analyzed would be less than these potential estimated losses.
Other limitations on the sensitivity analyses include: the use of hypothetical (but reasonably possible) market movements which do not represent management ’s view of expected future market changes; the assumption that interest rates in all countries move identically; the assumption that all global currencies move in tandem against the euro; and the lack of correlation of interest rates, equity prices and foreign currency exchange rates. In addition, the analyses do not include certain significant items such as real estate, deferred acquisition costs and value of purchased business in-force. These factors limit the ability of these analyses to accurately predict the impact of future market movements on fair values and future earnings.
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VAR models are designed to assist in risk management and to provide senior management with one probabilistic indicator of risk at the firm level. VAR numbers should not be interpreted as a predictor of actual results. DLJ’s VAR model has been specifically tailored for its risk management needs and to its risk profile.
a daily VAR does not capture the risk inherent in trading positions that cannot be liquidated or hedged in one day, (ii) VAR is based on historical market data and assumes the past trading patterns will predict the future, (iii) all inherent market risks cannot be perfectly modeled, and (iv) correlations between market movements can vary, particularly in times of market stress.
Total company-wide VAR was approximately € 17 million and € 19 million at December 31, 1999 and 1998, respectively. The company-wide VAR is less than the sum of the individual components below due to the benefit of diversification. The VAR for the two main components of market risk, expressed in terms of theoretical fair values had the following VAR: In euro millions : At December 31
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Edward Miller 2000 2003 Chief Executive Officer of AXA Financial Inc.
Claude Tendil 2000 2003 Chief Executive Officer of French Insurance Companies
Under French law, the Management Board has management responsibility for the Company and broad authority to take actions in the name of the Company, within the scope of the corporate purpose, and subject to the authority expressly reserved by law to the shareholders and the Supervisory Board.
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S u p e r v i s o r y B o a r d
Company by the Management Board and has the responsibility of making whatever ongoing checks and inspections it deems appropriate and of reviewing such documents as it deems necessary or appropriate for the performance of its duties.
The Supervisory Board consists of the following 18 members: Initially Term Name Appointed Expires Principal Occupation or Employment
Henri de Clermont-Tonnerre 1997 2001 Chairman and Chief Executive Officer of Ersa Société Industrielle et Financière
Henri Hottinguer 1997 2003 Chairman of the Supervisory Board of Credit Suisse Hottinguer Paris
Richard Jenrette 1997 2001 Senior advisor of Donaldson Lufkin & Jenrette
Alfred von Oppenheim 1997 2003 Chairman of the Supervisory Board of SAL Oppenheim Jr & Cie
Michel Pébereau 1997 2001 Chairman and Chief Executive Officer of Banque Nationale de Paris
Bruno Roger 1997 2001 Senior Manager of Lazard Frères b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 206 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
The table below sets forth the names of the executive officers of the Company, their current principal position within AXA and the years of their initial designation as executive officers of the Company.
Françoise Colloc'h Member of the Management Board, Group Executive President, Human Resources, Communication and Synergies 1991
Claus Michael Dill Chairman of the Management Board of AXA Colonia Konzern AG 1999
Denis Duverne Group Executive Vice President, Finance, Control and Strategy 2000
Gérard de La Martinière Member of the Management Board, Group Executive President, Finance, Control and Strategy 1991
Edward Miller Member of the Management Board and Chief Executive Officer of AXA Financial Inc. 1997
Mark Wood Managing Director of Sun Life & Provincial Holdings 1997 b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 207 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
S u p e r v i s o r y B o a r d C o m m i t t e e s
Each committee issues recommendations, proposals and opinions on matters falling within its mandate, and each is empowered to undertake such reviews as it deems necessary to shed light on Supervisory
The Audit Committee also reviews the program and aims of the AXA’s Central Audit Department and reports produced by this department or by firms the latter may mandate. It may, at its discretion, request that internal and external audits be carried out.
The Audit Committee may also examine any and all matters it deems appropriate and report to the
The Finance Committee is composed of seven members: Jacques Friedmann, Chairman - Antoine
The Finance Committee reviews proposed sales of securities, assets or real estate when the sale price exceeds the authority delegated to the Management
The Compensation Committee is composed of four members: Henri Hottinguer, Chairman - Antoine
Shareholders, as well as Company stock subscription and purchase options granted to members of the
Board recommendations pertaining to the principles and procedures governing the compensation of AXA
The Committee is informed by the Management Board of compensation levels set by the Boards of the
The Selection Committee is composed of six members: Henri de Clermont Tonnerre, Chairman - Jacques
Chairman and other members as well as Chairmen of all Sub-Committees of the Supervisory Board. The
The Selection Committee is kept informed of appointments of AXA’s principal executives and officers, in particular the Executive Officers.
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by the company or its subsidiaries (including pension contributions) of the members of the Management
Supervisory Board of the Company as directors' fees paid or accrued in 1999 by the Company (totaling 21 persons, including three persons who are no more serving) was € 660,000 (FF 4,329,316).
Supervisory Board is regularly informed of implementation status. This policy applies to all executive officers of the Company. Under the supervision of the subsidiaries Boards of Directors, the policy is adapted to local regulations and practices.
The portion of the variable component tied to AXA’s global financial performance is based on net earnings per share and share price trends. The portion of the variable component tied to individual performance objectives is adjusted to comprise the principal component of annual compensation, in such a way that compensation levels of Group executives are situated within the upper range of the going market rate.
S h a r e s The Management Board members of AXA hold AXA
(1) As of March 1st, 2000, excluding AXA Actionnariat share fund.
(7) R. Gogel joined AXA Group in January 2000. His fixed salary is € 550,174 for 2000. (8) L. Owen joined AXA Australia in November 1999. His compensation includes its bonus quota invested in the Sun Life Executive Deferred Incentive Plan (€ 845,182). (9) P. Thourot joined AXA Group in January 1999. (10) The bonus include the quota invested in the Sun Life Executive Deferred Incentive Plan (€ 856,868).
At March 1, 2000, options to purchase a total of 7,428,862 shares from the Company were outstanding representing 2.06% of the share capital. The number of Shares subject to outstanding options together with the exercise prices and expiration dates of such options were as follows: Item 12: Options to Purchase Securities from Registrant or Subsidiaries
Number of Shares Exercise Price Exercise Price Expiration Date Subject to Options per Share (€) per Share (FF)
(19 persons). Outstanding options to purchase 40,000 Shares were held at such date by the members of the Supervisory Board of the Company
Item 16: Changes in Securities and Changes in Security for Registered Securities
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Shareholder’s Equity for the years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-6
Parent Company Condensed Financial Statements Exhibit 27b * Exhibits are incorporated by reference.
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R e p o r t o f I n d e p e n d e n t A c c o u n t a n t s
To the shareholders of AXA: We have audited the accompanying consolidated balance sheets of AXA (“the Company”) and its subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of income, of shareholders ’ equity, and of cash flows for each of the three years in the period ended December 31, 1999, all expressed in euros. These consolidated financial statements have been translated into English from those published in French and include additional disclosures required by the United States Securities and Exchange
Commission, but in all other respects follow accounting principles generally accepted in France. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in France, which are substantially similar to those in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
Consolidated Financial Statements, the Company changed its methods of accounting for certain items as discussed therein.
Accounting principles generally accepted in France vary in certain material respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of consolidated net income for each of the three years in the period ended December 31, 1999 and determination of consolidated shareholders’
December 31, 1999 and 1998 to the extent summarized in Notes 28 and 29 of Notes to the Consolidated
AXA - Consolidated Balance Sheets (continued) At December 31, (in euro millions) 1999 1998 (a)
Ordinary shares, € 9.15 nominal value, 465.62 million authorized shares and 356.34 million issued and outstanding shares at December 31, 1999 (1998: 400.29 million authorized shares and 350.29 million issued and outstanding shares) 3,260 3,204
TOTAL LIABILITIES, MINORITY INTERESTS, SUBORDINATED DEBTS MANDATORILY CONVERTIBLE BONDS AND NOTES, AND SHAREHOLDERS’ EQUITY 507,480 384,835
b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-3 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Gross premiums and financial services revenues (Note 22) 66,528 56,697 55,587
Net Income Per Ordinary Share (Note 16): (a) The euro amounts were converted using the previously reported financial information in French francs and the French franc to euro legal conversion rate established on January 1, 1999 of FF 6.55957 = € 1.00. See Note 1.
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AXA - Consolidated Statements of Shareholders’ Equity Ordinary Shares Capital in Retained
Number Nominal excess of earnings in millions value nominal value and reserves Total
Effect of intercompany sales of consolidated subsidiaries – – – 8 8
Cumulative effect of change in accounting principle stock-options – – – (67) (67)
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Cash flows from financing activities: Long term debt 818 430 (340)
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S t a t e m e n t P r e s e n t a t i o n
AXA, a French société anonyme (the “Company” and, together with its consolidated subsidiaries, “AXA”), is the holding company for an international group of financial services companies, principally focused on insurance and asset management. AXA’s most significant non-French operations are conducted through (i)
Incorporated) together with its consolidated subsidiaries including Equitable Life, Alliance Capital
National Mutual Holdings Limited) together with its consolidated subsidiaries including National Mutual
Colonia Konzern AG (“AXA Colonia Holdings” and its consolidated subsidiaries, “AXA Colonia” (principally in
(principally in Belgium). Refer to Note 26 for further information on the entities included within AXA.
The Consolidated Financial Statements of AXA have been translated into English from those published in
Statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial
Statements as well as the reported amounts of revenues and expenses for the accounting period.
■ Assets and liabilities of subsidiaries denominated in foreign currencies, being the functional currency of the local subsidiary, are translated into the French franc (and subsequently into the euro) at exchange rates prevailing at the year-end (and into euro using the legal conversion rate of FF 6.55957 to € 1.00). Prior to 1998, revenues and expenses reported in the income statements of the subsidiaries denominated in foreign currencies were translated into French franc (and subsequently into the euro) using the exchange rates prevailing at the year end (and into euro using the legal conversion rate of FF 6.55957 to € 1.00). In 1998,
AXA changed its accounting policy on foreign exchange translations relating to revenues and expenses whereby the revenues and expenses reported in the income statements of the subsidiaries denominated in foreign currencies were translated into French franc (and subsequently into the euro) using the average exchange rate for the accounting period (and into euro using the legal conversion rate of FF 6.55957 to € 1.00). As a result of this change, 1998 net income increased by € 35 million. If the average foreign currency exchange rates were used in 1997, net income would have decreased by € 20 million.
In 1998, as a result of a recommendation made by the
Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-8 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
investment and real estate companies owned directly or indirectly by French life insurance subsidiaries using the cost method in order to improve financial statement presentation. Previously, the financial statement presentation differed depending on whether assets were held directly by insurance companies or indirectly through investment or real estate companies. If held indirectly, the assets of such entities and the related income would appear in the financial services segments rather than the insurance segments. The change in accounting method better reflects the insurance companies ’ economic purpose for holding such entities. If such companies were consolidated in 1998, the impact on total revenues and on consolidated net income would have been € 190 million (€ 30 million of which were realized gains) and € 64 million, respectively. Net income for such entities was € 31 million in 1997.
■ The principal changes in presentation for the period ended December 31, 1999 include the following and, unless otherwise stated below, the prior year financial information has been restated accordingly for comparative purposes: – The amortization of goodwill on acquired businesses is included as a charge against the income of the acquired businesses and not of the acquiring company. This presentation is only for segmental reporting purposes and, therefore, there is no impact arising from foreign currency exchange differences.
Transnational Property and Casualty Group, formerly included in the Property and Casualty Insurance
• Since the 1999 merger with AXA Royale Belge, gross premiums and net income earned by Royale Belge
Segment. Since this subsidiary’s business activity has no material impact, 1997 and 1998 financial information has not been restated to reflect this change.
Related Assessments”. SOP 97-3 provides guidance for determining when a liability for a guaranty-fund and other insurance-related assessments should be recognized and the basis for measuring that liability.
French GAAP and US GAAP effective from January 1, 1999. Capitalized internal-use computer software costs are is amortized on a straight line basis over the estimated useful life of the software and will be assessed for impairment as events or circumstances arise that indicate that the carrying amount is not recoverable.
“Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise”, which amends existing accounting and reporting standards for certain activities of mortgage banking enterprises and other enterprises that conduct operations that are substantially similar to the primary operations of a mortgage banking enterprise. This statement is effective for the first fiscal quarter beginning after December 15, 1998. This statement did not have a material impact on AXA’s Consolidated Financial Statements.
Financial Services Group. Since asset management has become increasingly important to AXA both from a strategic and profitability perspective, AXA created the
AXA’s principles of consolidation are generally as follows: – Companies in which AXA exercises controlling influence are fully consolidated. Controlling influence is generally presumed when AXA directly or indirectly holds at least 40% of the voting rights and no other shareholder directly or indirectly holds a percentage greater than AXA.
Investment, real estate, mutual fund and portfolio management companies (owned by French life insurance companies) are not consolidated. Investments in shares of such companies are accounted for using the cost method.
Subsidiaries and equity interests are not consolidated if: – from the date of acquisition, the corresponding equity securities are held for sale,
– the subsidiary does not have a material impact on the Company’s consolidated financial condition,
Financial Statements cannot be readily obtained, either for reasons of cost or reporting deadlines.
This difference does not impact operating results as it is reported as change within shareholders’ equity (and presented separately in the Statement of Shareholders’
December 31, 1992, assets other than certain fixed maturities and non-insurance liabilities of the acquired company are generally recorded at their estimated fair value. Insurance liabilities are maintained at historical value if the basis for measuring such value is consistent with French accounting principles. Fixed maturities for which the acquired company (property and casualty only) has the positive intent and ability to hold until maturity are maintained at historical amortized cost and amortized over their remaining life. For noninsurance company acquisitions, assets and liabilities are maintained at their historical cost, except for real estate that is recorded at estimated fair value. If information becomes available that necessitates an adjustment to purchased assets or liabilities such adjustment can be made before the end of the fiscal year that follows the year of the acquisition. Any such adjustments to purchase accounting values will increase or decrease goodwill. If the related goodwill was charged directly to retained earnings and reserves, such purchase accounting adjustments will correspondingly increase or decrease retained earnings and reserves.
Certificates of guaranteed value (“Certificates”) are not recorded as part of acquisition purchase prices and are b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-11 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
off-balance sheet liabilities until the earlier of the maturity date or when cancelled. Cash payments at maturity, if any, to the Certificate holders and any amounts paid to purchase and retire Certificates prior to their maturity will increase the existing goodwill asset, net of accumulated amortization as if such goodwill has been recorded at the date of acquisition. The accumulated amortization is recorded through an immediate charge to earnings.
■ Goodwill is measured as the difference between the purchase price and the net carrying value of the acquired company, as adjusted. If the adjusted net carrying value of the acquired company is greater than the purchase price, the estimated fair value adjustment for real estate is decreased to the extent necessary to eliminate such excess. Any excess remaining after full elimination of the adjustment is recorded as a negative goodwill liability. Currently, negative goodwill is amortized over a maximum of five years.
In accordance with Article D 248-3 Decree of February 17, 1986 and the recommendation of the COB, the
Company to partly finance an acquisition, a portion or all of the goodwill can be charged directly to retained earnings and reserves (in proportion to the value of shares issued to total purchase price). Any remaining goodwill will be recorded as an asset and will be amortized over a period not to exceed 30 years.
entity acquired, if separately identifiable, or the business segment that acquired the entity, or at the level of AXA as a whole in the event that such an acquired company has activities fall in more than one business segment of AXA.
Generally, valuation allowances are recorded for declines in the value of a specific fixed maturity security that are deemed to be permanent. In the case of
Equity securities are stated at cost. For a decline in the estimated fair value of a specific equity investment that is deemed to be other than temporary, AXA’s
Real estate, including real estate acquired in satisfaction of debt, is stated at depreciated cost, less valuation allowances. Real estate acquired in satisfaction of debt is valued at estimated fair value at the date of foreclosure. For AXA’s European subsidiaries, valuation allowances on all classifications of real estate are recorded for a decline in the value of a property that is deemed to be other than temporary. In determining whether or not a decline in the estimated fair value is other than temporary, AXA considers the length of time and extent to which the estimated fair value has declined, the market conditions and the ability of AXA to retain the asset for a period sufficient to recover any such decline. For AXA’s non-European subsidiaries, valuation allowances are recorded only for real estate held for sale and are computed using the lower of current estimated fair value, net of disposition costs, or depreciated cost. AXA considers current fair value to be equal to the anticipated sales price for those cases where a sale is in negotiation.
European subsidiaries is written down to fair value with the impairment loss included in net investment results.
Unrealized investment gains and losses are included in net investment results. This treatment is also used in respect of capital development activity, principally private equity investments of AXA’s US brokerage subsidiary held through Donaldson Lufkin & Jenrette Inc.
Securities sold under agreements to repurchase and securities purchased under agreements to resale principally relate to DLJ and are treated as financing arrangements and carried at the contract amounts that reflect the amounts at which the securities will be subsequently reacquired or resold as specified in the respective agreements. Interest is accrued on such contract amounts and is included in brokerdealer -related receivables or payables in the consolidated balance sheets. DLJ generally takes possession of the underlying assets purchased under agreements to resell and obtains additional collateral when the estimated fair value falls below the contract value.
Repurchase and resale agreements with the same counterparty and same maturity date that settle through the US Federal reserve system and which are subject to master netting agreements are presented net in the Consolidated Financial Statements. The weighted average interest rates on securities sold under repurchase agreements were 4.38% and
The difference between the carrying amount (original cost or amortized cost) and the fair value represents unrealized gains and losses and will be reflected in
AXA’s operating results after taking account of tax, attribution to participating policyholder contracts (as an adjustment to insurance reserves) and allocation to minority interests.
■ The costs of acquiring new and renewal business that vary with and are primarily related to the production of new business are specifically identified and deferred by establishing an asset which is amortized in subsequent years. The acquisition costs are subject to recoverability testing at the time of policy issue and loss recognition testing at the end of each accounting period. For traditional life and annuity policies with life contingencies (except for certain participating policies ) deferred acquisition costs are amortized in proportion to anticipated premiums. For universal life and investment-type contracts, and certain participating policies, deferred acquisition costs are amortized over the expected average life of the contracts as a constant percentage of estimated gross profits emerging from the contracts over the term of the contract.
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and depreciated on a straight-line basis over the estimated useful life of the buildings, ranging from 20 to
■ For traditional life insurance contracts (i.e., those with significant mortality risk), the liability for future policy benefits is calculated in accordance with the applicable regulatory and accounting rules on the basis of actuarial assumptions as to investment yields, mortality, morbidity and expenses. In general, for AXA’s
European Union, the reserves are based on a best estimate that takes account of estimated terminations/
AXA also writes participating life insurance contracts whereby the policyholder has the right to participate / share in the investment returns/profits earned by the insurance company. Participation rights of participating contracts issued by AXA vary by contract and by the country in which the contract is issued. Liabilities are established for participation rights whether or not such amounts have been credited to the policyholders.
UK with-profit contracts are participating life insurance contracts that provide for the sharing of investment performance and other company experience with policyholders. Benefit amounts paid for UK withprofit contracts reflect, in part, the estimated fair value of assets allocated to the contracts. Accordingly, the liability for these contracts (including terminal bonuses)
fluctuates with the estimated fair value of assets, as well as management’s assessment of the future level of benefits to be paid. Terminal bonuses are the principal way UK with-profit contracts fulfil the objective of providing for the policyholders’ reasonable expectations.
A liability for insurance claims and claims expenses is recorded for claims which have been incurred in the accounting period, for reported claims, claims incurred but not reported (“IBNR”) and associated claims expenses.
The liability for insurance claims and claims expenses is based upon estimates of the expected losses and unexpired risks for all lines of business and takes into consideration management’s judgement on the anticipated level of inflation, regulatory risks and the trends in claims. Estimates of expected losses are developed using historical claims experience, actual against estimated claims experience, other known trends and development and local regulatory requirements. The liability is undiscounted except for disability annuities for which the payments are fixed and determinable.
Claims reserves also include: – Unexpired risk provision. A reserve for unexpired risks is established (in addition to the unearned premium reserve) for contracts for which the premiums collected are expected to be insufficient to cover future claims and claims expenses. Such liability is recorded net of acquisition costs as part of the claim and claim expense liability.
– Catastrophe Equalization Reserves. As permitted by regulation in certain of the countries in which AXA operates, AXA establishes “catastrophe equalization reserves” in its property and casualty insurance and reinsurance operations.
losses, such as nuclear incidents, storms, floods and pollution liability occur. Subject to regulatory limitations, management determines amounts added to or subtracted from the catastrophe equalization reserves.
Gains and losses, realized and unrealized, on hedges of foreign currency risk of net investments in certain foreign subsidiaries are recorded in shareholders’
Derivative financial instruments used for trading activities and derivatives not effective as or not designated as a hedge are generally presented as receivables or payables from broker-dealers in the consolidated balance sheets and stated at estimated fair value with the changes in fair value recorded currently in net investment results.
Inc. and, where permitted, other subsidiaries each file individually consolidated income tax returns; other companies file separate income tax returns. Current income tax expense is charged or credited to operations based upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year. Deferred income tax assets and liabilities are recorded based on the differences between financial statement carrying amounts and income tax bases of assets and liabilities and for net operating loss carryforwards, if any, using enacted income tax rates and laws expected to be applicable when such differences reverse. Valuation allowances are recorded for deferred tax assets that are not expected to be realized.
related to acquisition, administration, investment management and mortality charges are included as revenue.
Net investment results represent investment income, net of investment expenses, and realized investment gains and losses, net of valuation allowances. Net investment results exclude the net investment results derived from the separate account (unit linked) assets and certain participating insurance contracts for which are reflected as a change in the separate account (unit linked) liabilities or future policy benefits on participating insurance contracts, respectively.
Valuation allowances are netted against the asset categories to which they apply. Changes in valuation allowances are included in realized investment gains or losses except those related to the operational activity of certain European financial services subsidiaries which are included in financial and holding company expenses and those related to a Transition Allowance recorded in January 1995 relating to new French insurance regulations on consolidated financial statements. Amounts recorded in the Transition Allowance are released from retained earnings and reserves upon full or partial sale of the asset, recoveries in value of the asset or periodic depreciation of the asset. If releases of the Transition Allowance result in a gain, such gain is excluded from the income and credited directly to retained earnings and reserves. Any gain or loss in excess of the Transition Allowance is immediately recognized in net income.
Restructuring provisions not associated with acquisitions but rather related to changes in existing operations, termination of employees and exiting operational activities, will be established and recorded as
For the large employee benefit plans, a liability is established generally in accordance with Statement of
■ The investment holding of a parent company’s shares by the Company or its subsidiaries (“treasury shares”) is accounted for as an investment in equity securities if the treasury shares are considered held for sale. The carrying amount represents the original cost of these shares. However, if the treasury shares are not considered held for sale, they are accounted for as a reduction of shareholders’ equity.
■ AXA uses the intrinsic value-based method of accounting for compensatory stock option incentive plans offered by its subsidiaries. Under such method, compensation expense is recorded only if the current market price of the underlying stock exceeds the exercise price of the options on the date both the number of options and exercise price are known. The compensation expense is recognized over the employees’
Estimates are revised each period taking into consideration market value changes in the underlying stock.
Company’s stock option incentive plans or its employee stock purchase plans.
Consolidated Financial Statements beginning January 1, 2000. SOP 98-7 provides guidance to both the insured and insurer on how to apply the deposit method of accounting when it is required for insurance and reinsurance contracts that do not transfer insurance risk. SOP
98-7 does not address or change the requirements as to when deposit accounting should be applied. SOP 987 applies to all entities and all insurance and reinsurance contracts that do not transfer insurance risk except for long-duration life and health insurance contracts. The adoption of SOP 98-7 is not expected to have a material impact on AXA’s Consolidated Financial Statements.
Fixed Maturities: Assets allocated to UK with-profit contracts (3,558) (3,135) – – (3,558)
Total Equity Securities and Mutual Funds 36,106 35,641 10,286 239 46,154
TOTAL 31,457 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-21 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Fixed maturities not due at a single maturity date have been included in the above table in the year of final maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At December 31, 1999, approximately 36% of fixed maturities are due from French borrowers and 19% from US borrowers, with no other country representing more than 10% of the borrowings.
The investment holding of a parent company’s shares by the Company or its subsidiaries (“treasury shares”)
December 31, 1999 and 1998, AXA held for sale ordinary shares of the Company of 3.7 million and 3.6 million, respectively, with a carrying value of € 265 million and € 259 million, respectively, and a market value of € 511 million and € 450 million, respectively.
For the year ended December 31, 1998 and 1997, the Company sold some shares in the marketplace to third parties and recognized a gain of € 161 million and € 37 million, respectively.
account of tax, attribution to participating policyholders (as an increase in insurance benefits) and allocation to minority interests.
The contractual maturity of fixed maturity securities is shown below: b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-22 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
At December 31, 1999 and 1998, Equitable Life’s impaired mortgage loans (as defined under FAS 114)
December 31, 1999, 1998 and 1997, Equitable Life’s average recorded investment in impaired mortgage loans was € 191 million, € 273 million and € 408 million, respectively. Interest income recognized on these impaired mortgage loans totaled € 17 million, € 18 million and € 29 million, for the years ended including € 0.3 million, € 5 million and € 11 million, respectively, recognized on a cash basis.
As of December 31, 1999 and 1998, the carrying value of real estate held for sale amounted to € 2,132 million and € 1,331 million, respectively.
The cost of trading account securities held by financial services companies at December 31, 1999 and respectively. The increase in net unrealized gains
Item 17 1999 Balance at Other Balance at (in euro millions) January 1, Additions Deductions Changes (a) December 31,
amounted to € 210 million, € 91 million and € 12 million for the years ended December 31, 1999, 1998 and 1997, respectively. There were no real estate writedowns in 1999 and 1998. Writedowns of real estate amounted to € 121 million for the year ended
Companies accounted for by using the equity method, and AXA’s share of ownership in such companies are set out in Note 26 to the Consolidated
CKAG subsidiaries: – General Ré-CKAG 654 – – – – 654 –
NMLA subsidiaries: – National Commercial Union 54 – (54) – – – –
– NM Home Loans Trust 61 – – – 13 73 8
Other subsidiaries 1998 Carrying Exchange Carrying Contribution value Other rate value at in
Listed companies: Banco Bilbao Vizcaya Argentaria 113 10,248 1,746 1999 Dec 31, 1999 0.93%
TOTAL 4,673 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-27 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
A b o u t F a i r V a l u e o f F i n a n c i a l I n s t r u m e n t s
Financial instruments that are subject to fair value disclosure requirements, unless otherwise noted herein, are carried in the Consolidated Financial Statements at amounts that approximate fair value based on quoted market prices, if available, estimated discounted cash flow, or quoted market prices of comparable instruments. The fair value information for
Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-28 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Deferred acquisition costs related to property and casualty insurance and reinsurance amounted to € 1,003 million, € 720 million and € 736 million at
c o m b i n a t i o n s
(a) Structural changes include additional acquisitions, sales of acquired companies. (b) Structural changes in 1998 concern entities principally in Portugal.
b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-30 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Guaranteed Value issued in connection with the acquisition, was € 5,625 million, of which € 1,863 million represented the excess of purchase price of UAP’s acquired identifiable net assets, all of which was attributed to goodwill. In accordance with French
GAAP, goodwill resulting from an acquisition which is associated with the issuance of new shares can be charged directly to retained earnings and reserves with any excess amount recorded as an asset.
Consequently, € 1,641 million of the excess was charged to the Company’s retained earnings and reserves and the remaining amount of € 222 million was recorded as an asset. As a result of purchase accounting adjustments made in 1998, the amount charged directly to retained earnings and reserves was increased to € 1,718 million at December 31, 1998, all of which was notionally allocated to UAP’s operating subsidiaries. Upon subsequent sale of a subsidiary, all unamortized goodwill notionally attributed to such subsidiary is eliminated through a charge to net income.
The change in goodwill in 1999 is due to the following events: – Certificates of Guaranteed Value issued in connection with the acquisition of Compagnie UAP in 1997 matured in 1999 with no cash payment required. A
acquisition and the sale of PanEuroLife reduced goodwill net of amortization by € 91 million (a reduction of € 88 million of goodwill charged to retained earnings and reserves (see Statement of
December 31, 1998. The purchase price did not include an amount that AXA could have been required to pay in respect of Certificates of Guaranteed Value
At December 31, 1999, gross goodwill relative to this transaction was € 1,007 million. The portion of goodwill corresponding to the value of cash paid and treasury shares issued is € 337 million at December 31, 1999 (1998: € 388 million), which was charged directly to retained earnings and reserves (see
Statement of Shareholders’ Equity). The remaining balance representing a goodwill asset was € 670 million
Had no goodwill been charged to retained earnings and reserves, additional goodwill amortization of € 11 million would have been recorded against income.
Guardian Royal Exchange (“GRE”) in May of 1999 for a total consideration of £3,417 million (€ 5,110 million ). This acquisition was financed by a £1,114 million (€ 1,666 million) stock issued by SLPH and a cash payment. As a result of this transaction, AXA’s ownership interest in SLPH decreased to 56.3% compared to 71.6% at December 31, 1998.
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December 31, 1999, former GRE companies operating in the United Kingdom, Ireland, Germany, the
Goodwill recorded in connection with the acquisition of GRE totaled € 1,138 million, representing the difference between fair value of identifiable net assets
subsidiary), was recorded which includes € 416 million related to UK and Irish subsidiaries and € 313 million related to German subsidiaries. A portion of this goodwill is attributable to the decrease in net assets of the acquired companies at date of acquisition as there was a significant deficiency in insurance claims reserves recorded in the opening balance sheet by AXA. This deficiency relates to the difference between local statutory basis and AXA’s accounting policies on establishing property and casualty reserves. Consequently, an exceptional amortization of goodwill of € 446 million (€ 259 million, group share) was recorded against the French GAAP earnings in 1999.
In 1998 and 1999, AXA Financial, Inc. repurchased 9.1 million and 8.0 million shares of its own common stock. Given that AXA Financial, Inc. is not wholly owned by AXA, these repurchases increase AXA’s share of ownership in AXA Financial, Inc. As a result, additional goodwill was recorded of € 68 million and € 60 million, respectively. This additional goodwill is being amortized over 30 years.
AXA Rosenberg Group. This transaction included an up-front payment of US$ 125 million (€ 107 million)
Holdings gave rise to goodwill of € 43 million relating to AXA China Region.
Analysis of goodwill amortization (positive and negative ) is presented below: Years Ended December 31, (in euro millions) 1999 1998 1997
Goodwill from companies accounted for by the equity method (36) (1) (1)
At December 31, 1999, accumulated amortization on goodwill totaled €1,514 million (1998: €688 million).
The value of purchased business inforce for AXA’s life insurance companies and changes thereto are as follows: Item 17
Amortization of the value of purchased business inforce, net of accrued interest, expected to be recorded in each of the next five years is € 162 million, € 141 million, € 141 million, € 143 million and € 147 million. Such amounts are best estimates based on assumptions regarding anticipated future experience of the purchased business. Accordingly, such amounts are subject to adjustment each year to reflect actual experience.
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Long-term and short-term financing debt consist of the following: December 31, (in euro millions) 1999 1998
Long-Term Financing Debt: The Company: Medium Term Notes, 3.3% to 8.2%, due 1999 through 2005 (C) 162 193
AXA Colonia: AXA Financial, Inc. : Senior Exchange Notes, 6.75% to 7.30% due 2000 through 2003 (F) 177 183
(C) – The Company has medium term negotiable notes of € 1.5 billion. At December 31, 1999, € 162 million represents the amount outstanding with an average maturity of 6 years.
DM 500 million (€ 259 million) redeemable in shares with an interest rate of 6.0 %.
Financial, Inc. issued notes which include US$ 125 million principal amount of 6.73% Series I Senior Notes and US$ 179 million principal amount of 7.30% Series
(G) -- In June 1995, AXA Asia Pacific Holdings entered into a five year unsecured bilateral Australian dollar bank loan facility agreement with a number of banks
375 million. This was increased by A$ 100 million during 1999. At September 30, 1999 (being AXA Asia
Holdings had lines of credit of A$ 475 million of which
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Compagnie Financière de Paris due 2003 were previously reported in Operating Debt (see Note 8).
Long-Term Financing Debt: DLJ: Senior Notes, 5.875% due 2002 (B) 644 –
Medium Term Notes, 4.995% to 7.42%, due through 2016 (H) 1,753 807
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(A) – At December 31, 1999 AXA’s US subsidiaries maintain bank credit facilities aggregating US$ 3,875 million (€ 3,838 million) with variable interest rates based on external indices dependent on the type of borrowings. In addition, there is a commercial paper program of US$ 3,625 million (€ 3,591 million) to fund short-term working capital needs and facilitate the securities settlement process. At December 31, 1999 there were no amounts outstanding under these bank credit facilities and US$ 1,712 million
In 1999, ANHYP’s borrowings secured by fixed maturity securities were reclassed to long term debt of € 1,414 million. This was previously included in
Subordinated Secured Floating Rate Notes for US$ 200 million (€ 198 million) and US$ 250 million (€ 247 million) due March 15, 2005 and September 15, 2005, respectively. These notes are collateralized by a portfolio of investments, primarily senior bank debt valued at US$ 441 million. Senior bank debt consists of interests in senior corporate debt, including term loans, revolving loans and other corporate debt. In 1999,
US$ 500 million (€ 493 million) aggregate principal amount of 6.875% Senior Notes due November 1, 2005. Interest is payable semi-annually. The senior notes are not redeemable by DLJ prior to maturity and are not entitled to any sinking fund.
September 2000. DLJ has entered into an interest rate swap transaction to convert such notes to a 6.94%
(H) -- In February 1996, DLJ completed a public offering of US$ 250 million aggregate principal amount of 5.625% Medium Term Notes due 2016. The notes are payable by DLJ, in whole or in part, at the option of the holder on February 15, 2001. In addition, in 1998
DLJ issued US$ 350 Medium Term Notes with interest rates ranging from 5.82 % to 6.28 % that mature at various dates through 2003. In 1999, in connection with its debt program of US$ 2 billion, DLJ issued
US$ 970 million (€ 961 million) medium term negotiable borrowings with interest rates from 4.995 % to 7.42 % and maturities through 2008 and US$ 315 million (€ 312 million) debt with interest rates from 5.0 to 7.07 % and maturities through 2004.
I n t e r e s t s Changes in minority shareholders’ interests are summarized as follows: Years Ended December 31, (in euro millions) 1999 1998 1997
Impact of foreign currency fluctuations on minority interests 851 (355) 389
Minority interests in income of consolidated subsidiaries 858 974 802 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-39 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
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(A) -- The Company issued subordinated perpetual notes in December 1997 in two tranches with no specified maturity date. The first tranche is in US dollars for US$ 400 million (€ 398 million). The interest rate is three-month LIBOR plus a 60 basis point margin (annual). The second tranche is in French francs for FF 3,800 million (€ 579 million). The interest rate is the three-month EURIBOR plus a 60 basis point margin (annual). The margin is to be increased to 210 basis points on the two tranches on or after December 3, 2007. These subordinated perpetual notes are redeemable at the Company’s option beginning
(B) -- In June 1998, the Company issued ¥ 27,000 million (€ 263 million) principal amount of subordinated perpetual notes (the “Yen Perpetual Notes”) with no specified maturity date. The Yen Perpetual Notes are redeemable after July 31, 2028 only at the
Company’s option. Up to July 31, 2028 the interest rate is 3.29 % and a floating interest rate thereafter.
(C) – In 1999, the Company issued perpetual notes of € 234 million to several financial institutions with an option to redeem within ten years. The interest rates on these perpetual notes are based on the EURI-
200 million (€ 198 million) of the Trust’s 8.42% mandatorily redeemable preferred securities. The only assets of the Trust at December 31, 1996 were US$ 200 million of 8.42% Junior Subordinated Debentures of DLJ
due 2046. The Junior Subordinated Debentures are redeemable by DLJ, in whole or in part, on or after
On November 19, 1996, DLJ issued 4.0 million shares of Fixed/Adjustable Rate Cumulative Preferred Stock,
Series A, with a liquidation preference of US$ 50 per share. Dividends on the preferred stock are cumulative and payable quarterly at a rate of 5.94% per annum through November 30, 2001. Thereafter, the dividend rate will be adjusted based on various indices, not to be less than 6.44% nor higher than 12.44%. The preferred stock is redeemable, in whole or in part, at the option of DLJ, on or after November
Interest on the facility is based on the average buying rates quoted on Reuters page BBSY for nominated interest periods plus an average margin of 0.53%.
At December 31, 1999 the aggregate maturities of subordinated debt based on required principal payments at maturity for 2000 and the succeeding four years are € 23 million, € 212 million, € 53 million, € 214 million and € 39 million, and € 4,291 million thereafter. With regard to the subordinated convertible debt of € 1,524 million issued in February 1999, the Company has the option to redeem the debt on or after 2005 at a price of € 186.12 per note in 2005
In October 1995, in connection with its acquisition of Abeille Ré, the Company issued € 320 million aggregate principal amount of 4.5% Mandatorily
Mandatorily Convertible Bonds at maturity, January 1, 2001, will convert into an aggregate of 7.08 million ordinary shares (subject to certain antidilution adjustments ), of which 2.83 million ordinary shares will be owned by subsidiaries of the Company.
In January 1997, in conjunction with the acquisition of UAP, AXA issued € 282 million aggregate principal amount of 6.0% Notes (“AXA Notes”). The AXA Notes were converted into 4.1 million ordinary shares on
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B e n e f i t P l a n s 11-1. PENSION PLANS
AXA sponsors a variety of pension benefit and retirement indemnity plans covering the majority of
AXA employees and, at Equitable Life, certain life insurance agents. The specific features of these plans vary in accordance with the regulations of the country in which employees are located, although they are, in general, either money purchase plans (that is, defined contribution plans) or based on years of service and salary (that is, defined benefit plans).
AXA recorded charges of € 8 million and € 5 million for the years ended December 31, 1999 and 1998, respectively.
(€ 155 million) at December 31, 1999 and 1998. The aggregate pension accumulated benefit obligation and aggregate fair value of plan assets for AXA
For other plans with accumulated benefit obligations in excess of plan assets and accrued pension liability, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans were € 837 million, € 769 million and € 51 million, respectively, as of December 31, 1999 and € 798 million, € 715 million and € 87 million, respectively, as of December 31, 1998.
Company and its French and certain other European subsidiaries and represented by investment contracts issued by AXA’s consolidated life insurance subsidiaries. AXA carries an equal amount as a liability for future policy benefits. Other plan assets consist primarily of investments in corporate and government fixed maturity securities and equity securities, real estate investments, and shares of mutual funds managed by a subsidiary of AXA Financial, Inc.
Assumed discount rates and rates of increase in remuneration used in calculating the projected benefit obligations together with long term rates of return on plan assets vary according to the economic conditions of the country in which the pension plans are situated.
The following table sets forth the ranges for the major economic assumptions: 11-2. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1994, AXA made available a partial early retirement plan for eligible employees in
Eligibility is based on attained age, years of service and management approval. Once approved, the employee receives 70% of their current salary, for a period not exceeding five years, and AXA retains the right to call back the employee, if necessary. A provision for the total payment anticipated under this plan is made when an employee is approved as a participant.
Net periodic postretirement benefits costs include the following components: b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-45 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Fair value of plan assets at beginning of year 8 9 –
Fair value of plan assets at end of year 8 8 9 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-46 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
increase on the sum of the service cost and interest cost. If the health care cost trend rate assumptions were decreased by 1%, the accumulated postretirement benefits obligation as of December 31, 1999 would be decreased by 4.38%, representing an 4.96% decrease on the sum of the service cost and interest cost.
L i a b i l i t i e s
Future policy benefits and unearned premium reserves 148,097 133,078 4,699 3,430 1,583 1,242 154,380 137,750
UK with-profit contract liabilities 25,332 18,713 – – – – 25,332 18,713
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The movement in the property and casualty insurance and international insurance claims reserves are presented in the table below.
(in euro millions) Property Property Property and casualty International and casualty International and casualty International insurance insurance insurance insurance insurance insurance
Claims and Claims Expenses: Provision attributable to the current year 11,222 3,092 9,381 2,821 8,688 2,393
Increase (decrease) in provision attributable to prior years (631) (123) (794) (566) (347) (427)
Total Claims and Claims Expenses 10,592 2,969 8,587 2,255 8,342 1,966
(b) The increase in catastrophe equalization reserves was € 140 million, € 21 million and € 176 million for the years ended December 31, 1999, 1998 and 1997, respectively. (c) Includes reserves for disability annuities and future claims for construction insurance.
From 1996 through 1999, AXA Reassurance participated in reinsurance of a line of special risk contracts called “Gap Financing” relating the movie/film production. Due to recent difficulties in this line of business, studies have been undertaken to value the potential risk exposure to AXA Reassurance relating to this portfolio of business. The provisions in the accounts at December 31, 1999 represent the best estimate of AXA Reassurance based on current information available.
i n v e s t m e n t r e s u l t s The sources of net investment results are summarized as follows: Years Ended December 31, Insurance Financial Services (a) Holding Companies Total
Realized investment gains (losses): Mortgage, policy and other loans (43) (31) (48) 40 – – (1) 11 (0) (4) (20) (49)
Investment Spread Before Intersegment Elimination 6,039 5,247 4,405 226 169 433 645 178 1 6,910 5,593 4,839
(a) Amounts do not include the investment income from the financial services operations, which is included in “gross premiums and financial services revenues” in the consolidated statements of income. Also, depreciation expense related to real estate held by AXA’s real estate companies is included in financial and holding company expenses, not in investment expenses.
(b) Includes interest expense incurred by AXA’s three insurance segments and its holding company segment of € 490 million, € 580 million and € 517 million for the years ended December 31, 1999, 1998 and 1997, respectively. Interest expense incurred by AXA’s financial services segment relating to financing short-term trading and other operational activity is included in financial and holding company expenses and is not included in the calculation of “investment spread” for the financial services or holding company segments.
Years Ended December 31, Life Insurance Property and Casualty International Total
Net Investment Income: Mortgage, policy and other loans 1,219 1,160 1,220 55 57 79 4 4 4 1,279 1,221 1,303
Net realized investment gains (losses): Mortgage, policy and other loans (31) (26) (42) (12) (5) (2) – 1 (5) (43) (31) (48)
Investment Spread Before Intersegment Elimination 3,066 2,898 2,381 2,373 1,846 1,558 601 503 466 6,040 5,247 4,405 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-50 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
In connection with the acquisition of GRE, a dilution gain was realized by the Company due to the decrease in AXA’s ownership of SLPH, net of future costs related to the exercise of stock options issued by SLPH to holders of GRE stock options (€ 469 million, group share).
Associated realized gains and losses on such disposals is included within the net investment results tables above.
In addition, this transaction reduced AXA’s ownership interest in AXA Financial, Inc. from 60.5% at June 30, 1997 to 57.5% when considered together with the reduction in AXA’s ownership interest of AEL.
Equitable Real Estate (excluding two subsidiaries) for € 365 million consisting of € 274 million in cash and a US$ 100 million (€ 91 million) 7.4% note maturing in eight years. A gain of € 148 million, net of tax of € 80 million, was recognized on this transaction.
French Savings Contracts (ACAV and ACAVI) are supported by investments in the form of mutual funds or real estate funds (collectively referred to as funds) generally established by AXA. Real estate funds consist of non-listed real estate companies or real estate joint ventures. The funds issue shares at fair value, which form the underlying investments of French Savings
When AXA establishes a fund, the insurance company ’s General Account contributes cash or other assets, generally in the form of securities or real estate, to the fund and receives all of the shares of the fund in return. When securities or real estate assets are contributed to the funds, a gain or loss is recognized corresponding to the difference between the estimated b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-51 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
AXA’s historical carrying value of such assets at the date of transfer.
General Account to the Separate Account for such income. At contract maturity or redemption, fund shares are transferred back to the General Account, for cash, at fair value and a new cost basis in such shares held in the General Account is established. Such shares are generally held in the General Account as equity investments or real estate, as appropriate, pending issuance of new French Savings Contracts or increases in balances for existing French Savings Contracts; such shares can also be held for investment, be sold or be redeemed at fair value by the issuing fund. Fair value of fund shares is determined annually or more frequently for real estate funds and daily for mutual funds.
Change in unearned premium reserve ceded 97 94 420 (46) (49) (42) (24) (32) 26 27 13 405
Insurance benefits and claims ceded (include changes in claims reserves, ceded) 411 383 389 1,305 744 694 936 837 750 2,652 1,965 1,832 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-53 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
AXA evaluates the financial condition of its reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. Significant reinsurance amounts recoverable on paid and unpaid losses are secured by letters of credit or assets deposited with AXA or in trusts on behalf of AXA. A contingent liability exists with respect to reinsurance ceded should the reinsurers be unable to meet their obligations.
The provisions for income taxes are different from the amounts determined by multiplying income before income tax expense by the French statutory income tax rate (40 % in 1999, 41 2/3% in 1998 and 1997).
Net Deferred Income Net Deferred Income Net Deferred Income Net Deferred Income
(in euro millions) Tax Asset Tax Liability Tax Asset Tax Liability
The components of the net deferred income tax asset and net deferred income tax liability are as follows: At December 31, 1999 there were net operating loss carryforwards for tax purposes approximating € 272 million of which € 27 million will expire within 10 years (or 2009) and the remainder (€ 245 million) will be available indefinitely. At December 31, 1999 the principal countries with net operating loss carryforwards are the United Kingdom (64 %), Ireland (16 %),
Italy (10 %) and the United States (10 %). These net operating loss carryforwards are included in income tax returns that are subject to examination by various tax authorities.
P e r o r d i n a r y S h a r e The calculation of basic net income per ordinary share assumes no dilution and is based on the weighted average number of ordinary shares outstanding for the period. The calculation of diluted net income per ordinary share reflects the dilution that would have occurred if potential ordinary shares had been issued and shared in the net income of the Company, if the effect of the potential ordinary shares would have been dilutive. Potential ordinary shares include stock options granted but not exercised and potential ordinary shares on convertible debt (on an ‘if converted’
(in euro millions except Ordinary Net Ordinary Net Ordinary Net ordinary shares in millions) shares income shares income shares income
Net income attributable to ordinary shares and potentially dilutive securities 376.14 2,031 361.67 1,534 348.98 1,215
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a n d C o n t i n g e n t L i a b i l i t i e s 17-1. DERIVATIVE FINANCIAL INSTRUMENTS
■ AXA’s Other Financial Services Segment, principally through DLJ, is party to a variety of option, forward, and futures contracts in its derivative activities and also enters into swap agreements, primarily equity, interest rate and foreign currency swaps. All trading instruments are subject to market risk, the risk that future changes in market conditions may make an instrument less valuable or more onerous. Exposure to market risk is managed in accordance with risk limits set by management by buying or selling instruments or entering into offsetting positions.
Option writing. As part of customer accommodations, AXA’s financial services operations write options contracts specifically designed to meet customer needs. Substantially all of these contracts are written by DLJ. As a writer of over-the-counter (‘OTC’) option contracts, DLJ receives a cash premium at the beginning of the contract period and bears the risk of unfavorable changes in the value of the financial instruments underlying the option (‘market risk’). Options written do not expose DLJ to credit risk since they obligate DLJ (not its counterparty) to perform. With respect to the financial instruments underlying these options, DLJ makes a determination that credit exposures are appropriate for the particular counterparty with whom business is conducted. DLJ generally covers this market risk by purchasing or selling cash or other derivative financial instruments on a proprietary basis. Such purchases and sales may include debt and equity securities, futures and forward contracts and options. DLJ reviews the creditworthiness of the counterparties of such covering transactions. Future cash requirements for options written are equal to the fair value of the options. Option contracts are typically written for a duration of less than thirteen months and are included in the consolidated balance sheets at fair value.
Equities and other 4,850 720 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-57 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
The fair values of options were approximately € 990 million and € 339 million at December 31, 1999 and 1998, respectively, and were included as liabilities in the consolidated balance sheets.
Services Segment, principally through DLJ, also enters into forward purchase and sale contracts for mortgage -backed securities and foreign currencies, futures contracts on equity-based indices, foreign currencies and other financial instruments, as well as options on futures contracts. Such activities are classified as trading, however, certain transactions are for the purpose of risk management. Forward and futures contracts are treated as off-balance-sheet items. Market risk for forward and futures contracts is the movement of price on the notional value of the contracts.
Forward contracts generally call for the purchase or sale, on a delayed settlement basis, of fixed maturity securities or currencies or other financial instruments.
For forward contracts, cash is not generally required at inception; cash equal to the notional value of the contract is required at settlement. Futures contracts are exchange-traded contracts that settle daily and generally call for the purchase or sale of a financial instrument at a specified future date at a specified price. For futures contracts, the original margin is required in cash at inception; cash equal to the daily change in market value is required at settlement.
The performance of forward contracts is dependent on the financial reliability of the counterparty and exposes AXA to credit risk. AXA monitors credit exposure of forward contracts by limiting transactions with specific counterparties, reviewing credit limits and adhering to internally established credit extension policies. Futures contracts and options on futures contracts are exchange-traded financial instruments that generally do not represent exposure to credit risk due to daily cash settlements of the change in market value with the exchanges. The credit risk with the futures exchange is limited to the net positive change in the market value for a single day.
Unrealized losses included in liabilities at end of period 200 230
Unrealized losses included in liabilities at end of period 10 1 are contractual agreements to receive the appreciation or depreciation in value based on a specific strike price on an equity instrument in exchange for paying another rate, which is usually based on index or interest rate movements. Interest rate swaps are contractual agreements to exchange interest rate payments based on agreed notional amounts and maturity.
December 31, 1999 and 1998, respectively. The notional or contract amounts indicate the extent of
DLJ’s involvement in derivative instruments. They do not measure DLJ’s exposure to market or credit risk and do not represent the future cash requirements of such contracts.
Swaps contracts: Average fair values included in assets during the period 15 1
Unrealized losses included in total liabilities at end of period 242 66 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-59 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
In the normal course of business, DLJ’s customer, trading and correspondent clearance activities involve the execution, settlement and financing of various securities and financial instrument transactions. These activities may expose DLJ to off-balance-sheet risk in the event the other party to the transaction is unable to fulfill its contractual obligations. DLJ limits this risk by requiring customers and counterparties to maintain margin collateral that is in compliance with regulatory and internal guidelines. Additionally, with respect to
DLJ’s financing and securities settlement activities involve DLJ using securities as collateral in support of various secured financing sources. In the event the counterparty does not meet its contracted obligation to return securities used as collateral, DLJ may be exposed to the risk of reacquiring the securities at the prevailing market prices to satisfy its obligations. DLJ
US$ 2.3 billion (€ 2.3 billion) were used as collateral for securities borrowed with a market value of
The notional amounts do not represent the amounts actually exchanged by the parties and thus are not a measure of AXA’s exposure under these interest rate swap contracts. Gains and losses related to interest rate swap transactions are amortized as yield adjustments over the remaining life of the underlying hedged security and are reflected in net investment income.
Equitable Life has an interest rate cap program designed to hedge crediting rates for interest sensitive individual annuity contracts. Interest rate caps are option-like agreements where the seller agrees to pay to the counterparty an amount equal to the differential, based on a notional amount, between the interest rate of the specified index and the interest rate cap.
The outstanding notional amounts at December 31, 1999 and 1998 of contracts purchased were € 7,503 million and € 7,210 million, respectively, and of contracts sold were € 867 million and € 1,088 million, respectively. The net premium paid by Equitable Life on these contracts was € 51 million and is being amortized ratably over the contract periods ranging from 1 to 4 years. Income and expense resulting from this program are reflected as an adjustment to interest credited to policyholders’ account balances.
In addition, the French insurance companies use interest rate caps to hedge interest rate fluctuations. At
The premium is amortized on a straight-line basis over the life of the contracts.
AXA Asia Pacific Holdings uses foreign currency forward contracts to hedge its translation exposure of investments in certain foreign subsidiaries. Such forward contracts are commitments to buy or sell currency at a specified rate on a future date. The notional amount of such contracts was approximately € 286 million and € 253 million at December 31, 1999 and 1998, respectively.
At December 31, 1999, the notional value of interest rate derivatives, foreign exchange derivatives and equity derivatives was € 64,969 million, € 1,214 million and € 377 million, respectively, compared to € 60,419 million, € 1,562 million and€ 234 million, respectively, at
December 31, 1998. The market value of such derivatives was € 46 million (1998: € 89 million).
Commitments to finance: Guarantees: Other: Commitments for future construction 11 – – 196
Royale Belge Certificates – – – 82 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-62 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
These Certificates matured on July 1, 1999 and did not give rise to payment.
From time to time, AXA Financial, Inc. has provided certain guarantees or commitments to affiliates, investors and others. At December 31, 1999, these arrangements include commitments by AXA
Financial, Inc, under certain conditions: to make capital contributions up to € 59 million to affiliated real estate joint ventures; and to provide equity financing to certain limited partnerships of € 370 million under existing loan or loan commitment agreements.
March 16, 2000 to loan US$ 150 million (€ 149 million ) to third parties to be secured by mortgage loans on real estate properties. At December 31, 1999 unfunded commitments under this facility amounted
DLJ also has commitments to invest on a side-by-side basis with merchant banking partners of € 693 million. Management believes AXA Financial, Inc. will not incur any material losses as a result of these commitments.
Equitable has directed payment under these annuities to be made directly to the beneficiaries under the structured settlement agreements. A contingent liability exists with respect to these agreements should the previously wholly owned subsidiaries be unable to meet their obligations. Management believes the risk that Equitable Life will be required to satisfy those obligations is remote.
In the second half of 1999, the Company approached the UK Financial Services Authority
precautionary in nature. There are significant uncertainties that affect the insurance companies’ ability to estimate future losses for these types of claims and there are a number of issues now being litigated, which may ultimately determine whether and to what extent insurance coverage exists. Additionally, possible changes in the US Comprehensive Environmental
European regulators and certain European insurers agreeing to the establishment of an International
AXA is in the process of conducting a review of its principal European affiliates. The ultimate objective of this review is to identify relevant archives in order to assess the extent of unpaid policies issued to Holocaust victims by AXA (or its predecessors) between 1920 and 1945.
Because of the significant uncertainties and complexities involved in resolving these matters, including the outcome of related litigation, and the likelihood that these uncertainties and complexities will not be resolved in the near future, management is not in a position, at this time, to reasonably estimate AXA’s ultimate exposure in this matter and therefore, is unable to determine whether such amounts will be material to AXA’s results of operations, liquidity or financial condition.
Life, are also subject to governmental scrutiny regarding their sales practices. In some jurisdictions, juries have substantial discretion in awarding punitive damages. To date no such lawsuit has resulted in an award or settlement of any material amount against AXA.
Some of these lawsuits have been brought on behalf of various alleged classes of claimants, and certain of these claimants seek significant or unspecified amounts of damages. Although the outcome of any lawsuit cannot be predicted with certainty, particularly in the early stages of an action, management believes that the ultimate resolution of the ongoing lawsuits referred to in this and the preceding paragraph should not have a material adverse effect on the consolidated financial position of AXA, taken as a whole. Due to the nature of such lawsuits, particularly when in their early stages, management cannot make an estimate of loss, if any, or predict whether or not such lawsuits will have a material adverse effect on the consolidated results of operations of AXA, taken as a whole, in any particular period.
In addition, the Company and certain of its subsidiaries are defendants in various legal actions and proceedings of a character normally incident to their business, including actions arising from insurance activities, such as disputes with respect to claims and coverages, and actions arising from investment activities, particularly actions arising from the ownership or management of real estate investments. Some of the actions and proceedings seek specific amounts of damages that are significant while others seek damages of unspecified amounts. While the ultimate outcome of such litigation cannot be predicted with certainty, management believes the resolution of these actions and proceedings will not result in losses that would have a material adverse effect on the consolidated financial position or results of operations of AXA, taken as a whole.
The Company is not subject to legal restrictions on the amount of dividends it may pay to its shareholders provided that earnings and accumulated earnings available for distribution are sufficient. However, certain of the Company’s subsidiaries, principally insurance companies, are subject to restrictions on the amount of funds they may transfer in the form of cash dividends or otherwise to their shareholders.
These amounts can be further limited based on the discretion of the insurance regulators in each country in which AXA operates. In some cases, amounts available for dividends are also subject to regulatory capital adequacy tests, individual subsidiary restrictions contained in company by-laws or approval of the company chief actuary.
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In accordance with European Union directives, insurance companies organized in European Union member countries are required to maintain minimum solvency margins which must be supported by capital, retained earnings and reserves, including unrealized appreciation or depreciation on securities and, in
Company at a price generally between 90% and 100% of the market price of the ordinary shares at the date of grant. Options have a maximum term of ten years and generally become exercisable in installments of 25% per year on each of the second through fourth anniversaries of the grant date with the final 25% on either the fifth or ninth anniversary.
A summary of the status of the Company’s stock options for 1999, 1998 and 1997 is presented below: Item 17
Stock options issued to AXA employees, outstanding at December 31, 1999 are as follows: Number
AXA Asia Pacific Holdings shares. The shares under option would represent 25% of the shares issued by the subsidiary, if and when such options are exercised.
Any shares acquired by exercising options are nontransferable and the holders have certain rights to put the shares to AXA for a price based on the equivalent market price of AXA Asia Pacific Holdings common stock at the date when put.
Options vest over time and are exercisable at € 6.68 per ordinary share generally commencing in 1996.
The GIEs accumulate costs, such as salaries and benefits, training, information systems, product development and marketing, and allocate the costs among the respective companies on the basis of actual use of the specific service, to the extent practicable, and, to the extent not practicable, in proportion to such factors as the relative gross premiums or general expenses of the companies participating in the specific GIE. Management believes the allocation methods are reasonable. Costs allocated to AXA under these arrangements were € 749 million, € 146 million and € 552 million for the years ended December 31,
billion and € 3.1 billion at December 31, 1999 and 1998, respectively.
The underwriting results of the property and casualty business generated in France by insurance brokers are allocated between one of the Company’s French insurance subsidiaries and one of the Mutuelles AXA, through a GIE, under a coinsurance agreement. The agreement allocates underwriting results based on premiums written and is subject to modification to reflect changes in business activity. Total premiums subject to this agreement were € 1,001 million, € 875 million and € 310 million for the years ended
i n f o r m a t i o n
AXA has five operating business segments: life insurance, property and casualty insurance, international insurance, asset management and other financial services. In addition, non-operating activities are conducted by the holding companies The financial information for AXA’s business segments, and the holding company activities, is presented on a French GAAP
Property and Casualty Insurance Segment. This segment includes notably AXA Reinsurance and AXA
Global Risks, with all aspects of global large risk insurance and reinsurance risk cover.
International Financial Services Group. Because asset management has become increasingly important to
Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-68 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
tive, in 1998 AXA created two separate operating business segments being Asset Management and Other
No customer accounted for 10% or more of AXA’s consolidated revenues in 1999. No segment is dependent upon a single customer, or a few customers, the loss of which would have a significant effect on the earnings of the segment. AXA is not dependent on any one, or a few, independent brokers or independent agents or other insurance companies for which a loss of business would have a material adverse effect on the earnings of any one of the segments or AXA.
Includes individual and group traditional whole life insurance (including participating policies whereby policyholder participates in the net investments results or profits of the insurance company), immediate annuities and investment products (including endowments, savings-related retirement products savings-related products that provide for lump sum payments at retirement or death prior to retirement, and separate account (unit linked) products) and services, including financial planning services, designed to meet a broad range of its customers’ needs throughout their financial life-cycles.
International Insurance Segment products and services. The reinsurance operations principally focus on property damage, third party liability and marine property and third party liability reinsurance through either treaties or facultative contracts, and financial guarantee insurance and is currently developing life reinsurance products in the United States. The products in the insurance operations within this segment, which specifically relate to AXA Global Risks, include insurance cover to large national and international corporations specifically relating to casualty, automobile, property, Marine Aviation and Transport, construction risk, financial risk, and directors and officers liability.
(including mutual funds management) services to a variety of institutional clients and individuals, including AXA’s insurance companies, and is involved in the creation and sale of structured fixed income and equity products.
Information described as “Insurance’’ represents the life insurance, property and casualty insurance and international insurance segments combined. Information described as “Financial Services” includes the asset management and other financial services segments combined.
Life Casualty International Asset Financial Holding (in euro millions) Insurance Insurance Insurance Management Services companies Total
Gross premiums and financial services revenues 37,091 13,593 3,109 1,928 10,806 1 66,528
Insurance benefits and claims (42,226) (11,409) (3,046) – – – (56,681)
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Total Benefits, Claims and Other Deductions (41,721) (12,990) (3,299) (1,109) (7,810) (152) (67,081)
Income (loss) before income tax expense 1,983 775 62 369 544 (15) 3,717
(a) Includes acquisition costs (net of change in deferred acquisition costs) plus amortization of value of purchased business in force.
Change in unearned premium reserve 5 12 (18) – – – (1)
Total Benefits, Claims and Other Deductions (40,201) (12,961) (3,729) (981) (7,176) (197) (65,245)
Income (loss) before income tax expense 1,424 701 201 383 686 (242) 3,153
Equity in income (loss) of unconsolidated entities 27 6 – – 11 – 45
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For the year ended December 31, 1999 interest expense by segment was Life € 130 million (1998: €
Financial Services € 10 million (1998: € (1) million and 1997: € 7 million) and non-operating holding companies € 307 million (1998: € 336 million and 1997: In addition, to the amortization of goodwill, AXA also has amortization expense related to value of purchased business inforce which relates specifically to the
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Insurance invested assets were as follows: Insurance Financial Services Holding companies Total
Mortgage, policy and other loans 15,531 16,663 6,913 6,913 140 140 22,584 23,716
Securities purchased under resale agreements – – 20,383 20,383 – – 20,383 20,383
TOTAL CASH AND INVESTED ASSETS 267,883 286,481 51,527 52,055 2,588 3,463 321,998 341,999
(in euro millions) value value value value value value value value
The following table presents employees data for AXA at December 31, 1999.
Mortgage, policy and other loans 14,548 15,650 937 967 46 46 15,531 16,663
(a) Real estate assets are subject to periodic valuation conducted by qualified external appraisers based on local legal requirements. Such expert valuations are based on a number of techniques including comparative studies and capitalization of income. Fair value of real estate amounts for AXA Financial, Inc have been set equal to the carrying value of real estate as there are no local legal requirements to disclose fair values.
In 1998, the provisions for restructuring increased by € 146 million principally due to the restructuring of operations in Belgium. In 1999, the increase in provisions is attributable to the acquisition of GRE and the change program project being undertaken in AXA
Release of Provision via Payments (273) (91) (364) (94) (64) (158)
France. In order to consolidate the Company’s leading position in its market, AXA France has undertaken a full-scale change program that involves the entire organization. AXA France recorded a provision in 1999 of € 213 million (net of tax) to cover the cost of implementing this change initiative.
In addition, AXA Global Risks and AXA Réassurance plan to combine their operations in 2000. In connection with this restructuring, AXA Global Risks recorded a provision of € 18 million in 1999.
Since 1995, the AXA Group has been heavily involved in Year 2000 compliance work and in conducting the tests necessary to ensure adequate preparation for January 1, 2000. This work was completed in accordance with the established timetable, and AXA
At the end of December, a centralized command center was established linking all of the Group’s companies to each other and to Company Management. This command center allowed AXA to monitor each stage of the rollover to Year 2000 from December 31, 1999 to January 4, 2000. No disruption of activity was experienced during this period, and business resumed normally on January 3, 2000. The overall cost (internal and external) of completing the Year 2000 project was approximately € 410 million, of which 95% has been incurred at December 31, 1999.
i n s c o p e o f c o n s o l i d a t i o n PRINCIPAL CHANGES IN CONSOLIDATION IN 1999
As a result of the public offer of exchange on GRE
by SLPH on May 10, 1999, AXA’s ownership interest in SLPH decreased to 56.3% compared to 71.6% at
December 31, 1998. As a result of this acquisition, the following insurance companies and holding companies were consolidated as of May 10, 1999: UK and Irish subsidiaries: GREA Insurance, GRE
Other: The Hong Kong property and casualty subsidiary and branches in Portugal, the Netherlands and
Colonia KAG and AXA Colonia Asset Management, for which AXA has an ownership interest of 70.6% and 90%, respectively, all other of these businesses are 93.8% owned by the Company.
AXA has a 51% voting interest in a Chinese joint venture, AXA Minmetals, which began operations in June 1999 and has been consolidated since June 1999.
Consequently, it is accounted for by the equity method as of the year ended December 31, 1999, in accordance with generally accepted international accounting standards.
s u b s i d i a r i e s a n d C o m p a n i e s a c c o u n t e d f o r u n d e r t h e e q u i t y m e t h o d The following table lists the companies consolidated or included by the equity method of accounting as well as the Company’s share of the subsidiary’s voting rights and direct and indirect ownership interest, at b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-81 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Germany AXA Colonia Konzern AG 86.98 86.04 74.75 73.05 GRE Continental Europe Holding Gmbh (*) 100.00 86.04 - -
AXA Global Risks US 100.00 98.04 100.00 97.57 AXA Ré Life Insurance Company 100.00 99.72 100.00 99.90
The Equitable Life Insurance Soc. (28 companies) 100.00 58.43 100.00 58.46
United-Kingdom AXA Equity & Law Life Insurance Soc. 100.00 56.31 100.00 71.55 AXA Global Risks UK Ltd 100.00 98.49 100.00 99.12
Ireland Guardian Dublin Docks (*) 100.00 56.31 – – Guardian PMPA Group Ltd (*) 100.00 56.31 – –
AXA Life Insurance (Japan) 100.00 100.00 100.00 100.00 AXA Life Hong Kong 100.00 100.00 100.00 100.00
Austria AXA Nordstern Colonia Versicherung 100.00 86.04 100.00 73.05 AXA Nordstern Colonia Leben 100.00 86.04 100.00 73.05
Spain Aurora Iberica SA de Seguros y Reaseguros 99.82 69.72 99.82 69.70 AXA Aurora Vida de Seguros y Reaseguros 99.82 69.72 99.82 69.70 AXA Aurora Vida de Seguros y Reaseguros 98.51 69.12 98.51 69.10 Ayuda Legal SA de Seguros y Reaseguros 100.00 69.65 100.00 69.63 Hilo Direct SA de Seguros y Reaseguros 71.43 49.89 71.43 49.88
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Germany AXA Colonia Asset Management (*) 100.00 90.00 – – AXA Colonia Bausparkasse AG 99.65 85.75 97.81 71.45 AXA Colonia KAG (*) 77.50 70.64 – –
(*) Consolidated for the first time in 1999 (refer to Note 25 for more details).
(*) Consolidated for the first time in 1999 (refer to Note 25 for more details). (a) Entity is proportionally consolidated in 1999 (was fully consolidated in prior year).
Japan. In November 1999, AXA announced that it would acquire a majority interest in a Japanese life insurance company, Nippon Dantai. This acquisition is consistent with AXA’s global strategy to become a significant player in the largest life insurance market in the world, being Japan. Nippon Dantai is Japan’s thirteenth largest life insurance company with annual premium income of approximately € 5.7 billion in 1998 and assets under management exceed € 20 billion. It is also the second largest non-mutual company with a 2% market share. On a pro forma basis, Japan will represent 7% of AXA’s consolidated total revenues.
Pacific Holdings. Because the fiscal year-end reporting date for AXA Asia Pacific Holdings is September 30, the November 1999 transaction will not be presented in AXA’s Consolidated Financial Statements until 2000. Goodwill recorded in respect of this acquisition is approximately € 300 million (€ 140 million, group share) which is to be amortized over 30 years.
b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-87 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
GAAP purposes, majority-owned companies, based on voting rights directly or indirectly held, are fully consolidated and less than majority-owned companies over which AXA exercises significant influence (generally 20% or more owned), including those companies proportionately consolidated under French GAAP, are included in the Consolidated Financial Statements using the equity method.
In consolidating mutual funds for US GAAP purposes, investment securities held by the funds are carried at estimated fair value and changes in estimated fair value are included in net income.
Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-88 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
ties of non-insurance company acquisitions are maintained at their historical cost except for real estate which is recorded at estimated fair value. In addition, under French GAAP, the acquired portion of assets and liabilities in connection with minority interests acquisitions are not recorded at their estimated fair value at the minority interest acquisition date. Rather, the carrying values used for the acquired portion of assets and liabilities are the same as those used before the minority interest acquisition.
In 1998 the basis for purchase accounting changed, relating to certificates of guaranteed value, under US
Accordingly, the Royale Belge Certificates were recorded at fair value at the acquisition date and included in the purchase price. Prior to cancellation in 1999, such instruments were classified as debt and changes in their fair value were recorded in earnings.
Goodwill is unaffected by such changes in fair value or payments made upon maturity or to purchase the
For French and US GAAP, the purchase price of acquisitions is generally measured as the fair value of assets distributed as consideration. However, for French
318 million for US GAAP. For French GAAP, substantially all the goodwill arising from the UAP acquisition was charged directly to retained earnings and reserves (see Notes 2 and 6). Under US GAAP, the goodwill was recorded as an asset in the consolidated balance sheet and subject to amortization over 30 years.
The additional amortization of goodwill in 1999 relates to the dilution of AXA’s ownership interest in SLPH in connection with the GRE acquisition which reduced goodwill.
French GAAP, € 337 million was charged directly to retained earnings and reserves while under US GAAP, the goodwill was recorded as an asset in the consolidated balance sheet.
Certificates, which were cancelled with no additional payment made in 1999.
■ Under French GAAP for insurance companies, fixed maturities and equity investments are carried at amortized cost or original cost (for equities), less valuation allowances. Such valuation allowances are eliminated for US GAAP and fixed maturity and equity securities are written down directly for declines in value deemed to be other than temporary.
Other than for assets held in Separate Accounts (with the exception of separate accounts with guaranteed investment returns) and securities classified as trading,
US GAAP prohibits the recognition in net income of changes in the estimated fair value of assets, even when such assets are allocated to support insurance contracts. Accordingly, AXA’s consolidated net income
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Consequently, the impact of a rise in fair value of assets is to reduce US GAAP consolidated net income.
Under US GAAP, future policy benefits for traditional life policies are computed using a net level premium method on the basis of actuarial assumptions as to mortality, persistency and interest based on the insurance company’s experience, with a margin for adverse deviation; such actuarial assumptions are established as of the date of policy issue. When the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses, a deficiency reserve is established by a charge to earnings.
US GAAP relates to the assumptions on interest rates and persistency rates (under US GAAP, policies are assumed to lapse based on the insurance company’s estimate of rates of surrender). For those life insurance subsidiaries for which different US GAAP interest rate assumptions have a more material effect, the assumptions used for US GAAP generally range from 3 % to 9% .These interest rate assumptions contrast with the rates used for French GAAP for these subsidiaries which generally range from 3% to 7%.
For French GAAP purposes, in 1996 Equitable Life changed its method of accounting for certain longduration participating life insurance contracts in accordance with the provisions prescribed by FAS
Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration Participating Contracts’’.
■ The French GAAP policy regarding deferred acquisition costs is substantially the same as US GAAP for business written after December 31, 1996. Previously there were differences for some of AXA’s European subsidiaries.
■ Under French GAAP, in according with local regulatory requirements in certain jurisdictions in which
AXA operates, AXA provides a catastrophe equalization reserve for future catastrophe and other unusual losses. US GAAP does not permit recording reserves for losses not yet incurred.
■ Under French and US GAAP, the nature of costs that can be included in restructuring provisions is generally similar. However, US GAAP requires that certain conditions exist before recording a restructuring provision which are not required under French GAAP.
GAAP, all gains or losses on intercompany sales of assets are eliminated with appropriate recognition given for asset impairment.
Employer’s Accounting for Pensions, as of January 1, b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-93 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
1989. At the date of adoption a transition asset, reflecting the overfunded status of AEL’s pension plan, was recorded and is being amortized over the remaining fifteen year average service life of employees.
Under FAS 87, if the liability is less than the excess of the accumulated benefit obligation over the fair value of plan assets, an additional minimum pension liability must be recorded net of tax as a reduction to shareholders ’ equity. This is recorded under US GAAP but is not recognized under French GAAP.
Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-94 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
The approximate effects on consolidated net income of material differences between French GAAP and US
Consolidated Net Income in Accordance with French GAAP 2,021 1,531 1,207
Consolidated Net Income In Accordance with US GAAP 1,209 748 310
Change in unrealized investment gains on assets allocated to UK with-profit contracts, net of deferred income tax 1,030 709 953
and US GAAP are as follows: b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-96 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
The following condensed US GAAP financial statements reflect the effects of the material differences between French GAAP and US GAAP on consolidated net income and shareholders’ equity identified in Note 28 as well as material scope of consolidation differences between French GAAP and US GAAP.
Unearned revenue amounts are classified as part of the liability for future benefits under US GAAP and as a reduction of deferred acquisition costs under
Life”). Under the terms of the demutualization, liabilities for certain participating policies inforce at the date of demutualization together with an amount of assets were segregated into the Closed Block for the purpose of determining policyholder dividends. The maximum contribution from the Closed Block that may inure to the benefit of Equitable Life’s shareholders was determined at the time the Closed Block was established.
Equitable Life after its demutualization, Equitable Life is subject to regulations which require it to pay policyholder dividends equal to at least 90% of statutory profits (measured before policyholder dividends)
attributable to participating products. The liability for annual policyholder dividends is recorded as earned and terminal dividends are accrued in proportion to gross margins over the life of the contract.
(a) US GAAP, except for adjustment for the unrealized investment gains on real estate and related deferred tax asset allocated to UK with-profit contracts.
Condensed Consolidated Statements of Income Year ended December 31, 1998 (in euro millions) US GAAP Adjusted (a) French GAAP
Condensed Consolidated Statements of Income Year ended December 31, 1997 (in euro millions) US GAAP Adjusted (a) French GAAP
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Comprehensive income, being net income plus other comprehensive income, in accordance with US GAAP
million in 1999, 1998 and 1997, respectively. The balance in the cumulative translation adjustment is based on movements in the account since 1994.
Balance at January 1 in accordance with US GAAP 6,920 4,126 5,291 3,180 2,112 953
Unrealized appreciation (depreciation) of investments, net of tax and reclassification adjustments 372 (412) 1,857 1,337 3,185 1,978
Impact of foreign currency fluctuations 636 981 (252) (417) 228 435
Effect of restructurings and intercompany sales of consolidated subsidiaries 10 10 26 28 (234) (185)
– by subsidiaries was € 32 million, € 17 million and € 23 million, respectively, on a US GAAP basis compared to € 29 million, € 16 million and € 21 million, respectively, on a French GAAP basis; – due to the treatment of treasury shares held by AXA
the weighted average number of ordinary shares outstanding decreased by 3.7 million, 4.7 million and 9.0 million in 1999, 1998 and 1997; and
– recognition of additional amortization of premium on the € 1,524 million 2.5% subordinated convertible debt issued in February 1999 whereby the issuer (AXA) has the right of early redemption at a price greater than the original issue price per note starting in January 2005. Under French GAAP, the additional premium over the original issue price is not amortized while. Under US GAAP the premium is approximately € 195 million of which € 32 million was amortized in 1999 (1998 and 1997:€ nil).
For purposes of US GAAP, at December 31, 1999 and 1998, AXA has classified fixed maturities and equity investments having an amortized cost of € 167,745 million and € 149,507 million, respectively, and estimated fair value of € 173,430 million and € 171,965 million, respectively, as available for sale and fixed maturity securities having an amortized cost of € 5,792 million and €2,169 million, respectively, and estimated fair value of €6,063 million and € 2,410 million, respectively, as held to maturity.
For the years ended December 31, 1999, 1998 and 1997, deposits related to investment contracts amounted to € 14,674 million, € 9,825 million and € 11,889 million, respectively, and withdrawals related to investment contracts amounted to € 7,004 million, € 7,269 million and € 9,241 million, respectively, and are part of operating cash flow under
French GAAP. Such deposits and withdrawals would be reflected as financing activities in a statement of cash flows prepared in accordance with US GAAP.
Details on stock options in respect of AXA are provided in Note 20.
Total compensation cost recognized in income for stock-based employee compensation in 1999, 1998 and 1997 was € 64 million, € 43 million and € 94 million, respectively, under US GAAP.
January 1, 1995 in accordance with FAS 123, net income and net income per ordinary share under US
Such pro forma effects are not necessarily indicative of future effects on net income and net income per ordinary share such as the pro forma does not take account of options granted before January 1, 1995.
Actuarial reserves Liability established under French GAAP to provide for future benefits to policyholders net of liability ceded to reinsurers. Such liability is gross of liability ceded to reinsurers
Annualized new business premiums For a specified period, the sum of premiums on regular premium products written during such period and one-tenth of premiums on single premium products written during such period. This measure is used in the UK to compare the size of life insurance companies.
Annuity A contract that pays a periodic income benefit for the life of a person (the annuitant) or persons or for a specified number of years, or a combination of the two.
Catastrophe equalization reserves Premium revenue deferred to future periods to provide against future catastrophes.
Cede; ceding insurer; cession When an insurer reinsures its risk with another insurer (a ‘’cession ’’), it ‘’cedes’’ business and is referred to as the ‘’ceding insurer’’.
Claims and claims expenses The sum of incurred claims and claims expenses. This term is used interchangeably with ‘’loss and loss adjustment expenses’’.
Claims ratio The ratio of a property and casualty insurance or reinsurance company ’s incurred claims and claims expenses to gross premiums earned net of reinsurance ceded. For 1995, 1996 and 1997, the change in catastrope equalization reserves is included in incurred claims and claims expenses; for prior years, such change is included in premiums earned.
Claims expenses The expenses of investigating and settling claims, including certain legal and other fees, and the expenses of administering the claims adjustment process. This term is used interchangeably with
Combined ratio The sum of the claims ratio and the expense ratio for a property and casualty insurance company or a reinsurance company. A
combined ratio below 100 generally indicates profitable underwriting. A combined ratio over 100 generally indicates unprofitable underwriting. An insurance company with a combined ratio over 100 may be profitable to the extent net investment results exceed underwriting losses.
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Declared interest account The notional account into which premiums from policyholders choosing the minimum guaranteed interest option offered under interest sensitive and variable products are deposited. The premiums earn a minimum guaranteed return for the life of the product, plus additional interest credited at a rate that is declared periodically.
Deferred annuity An annuity which begins benefit payments after a determined period of time (at maturity) or possibly upon earlier surrender.
Deferred policy acquisition costs Commissions and certain other underwriting, policy issuance and selling expenses that are directly related to the production of business. These expenses are deferred and later amortized to achieve a matching of revenues and expenses.
Excess of loss insurance Insurance which applies excess of specific underlying insurance and/or a specified attachment point.
Exposure This term in the insurance field may have several meanings: possibility of a loss; the potential value of a loss; or a unit of measure of the amount of risk a company assumes (for example, one car insured for one year).
Frequency The number of claims occurring under a given coverage divided by the number of exposures for the given coverage.
General account The assets of an insurance company which support its insurance and other obligations (other than separate account obligations).
General account insurance portfolio The investment assets in the general accounts of the AXA insurance subsidiaries. These assets support general account life insurance, property casualty insurance and reinsurance liabilities.
“GIC” Annuities Guaranteed Group deferred annuity contracts sold to pension and profit sharing plans and funding agreements that guarantee principal and a stated interest rate for a specified period of time. Equitable has a GIC Segment which was discontinued in September 1991. This reporting Segment offered GIC annuities and wind-up annuities.
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Individual insurance products Life insurance products offered to individuals as opposed to groups or businesses.
Investment products Contracts issued by insurance companies that are vehicles for investment and offer no insurance guarantees.
Life products Life insurance products that provide death benefits in excess of the benefits provided on surrender or maturity.
Premiums Payments and considerations received for policies and contracts that are issued, renewed or reinsured by an insurance company.
Premiums earned That portion of gross premiums written in current and past periods which applies to the expired portion of the policy period, calculated by subtracting changes in unearned premium reserves from gross premiums.
Regular premium products Life insurance products which provide for premiums to be paid periodically, typically either annually or monthly.
Reinsurance The practice whereby one insurer, called the reinsurer, in consideration of premiums received, agrees to indemnify the ceding insurer for all or a portion of the risk under a policy or policies of insurance issued by the ceding insurer. However, the legal rights of the insured generally are not affected by the reinsurance transaction, and the insurance enterprise issuing the insurance contract remains liable to the insured for payment of policy benefits.
Reserves Liabilities established by insurers and reinsurers to reflect the estimated cost of claims and benefit payments and the related expenses that the insurer or reinsurer will ultimately be required to pay in accordance with the insurance or reinsurance it has written.
Retention The amount or portion of risk which a ceding insurer retains for its own account. Claims and claims expenses paid by the ceding insurer in excess of the retention level are then owed to the ceding insurer by the reinsurer. In proportional insurance, the retention may be a percentage of the original policy’s limit. In non-proportional insurance, the retention an amount of loss, a loss ratio or a percentage.
Retirement products Life insurance products that are savings vehicles for retirement.
Tail The period of time that elapses between the incurrence and settlement of losses under a policy. A ‘’short-tail’’ insurance product is one where ultimate losses are known comparatively quickly; ultimate losses under a ‘’long-tail’’ insurance product are sometimes not known for many years.
National Mutual. Terminal bonuses are not guaranteed in advance of contract termination.
Term life insurance Life insurance protection for a limited period which expires without value if the insured survives the period specified in the policy.
Underwriting The process of examining and accepting or rejecting insurance risks, and classifying those accepted, in order to charge the appropriate premium for each accepted risk.
Variable products often offer a general account guaranteed interest investment option.
Whole life insurance A permanent life insurance product offering guaranteed death benefits and guaranteed cash values.
With-profits contracts A type of participating life insurance product offered in the UK.
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