(a) For the periods ended December 31, 2003, 2002, and 2001, the change in fair value of separate accounts had impacted the net investment result for respectively €+14,949 million, €–17,576 million and €–11,613 million and benefits and claims respectively.
– A non-recurrent gain of € 19 million at the German holding company (after adjustment for goodwill amortization) following the release of a provision booked when the Group acquired German activities in 1997, which had become unnecessary
1. Year 2003 Operating Highlights The Company is a holding company for AXA, an international group of companies offering financial protection products and services. AXA operates principally in Western Europe, North America and Asia-Pacific. In AXA’s annual report and financial statements, the segmental analysis is based on five types of activities: “Life & Savings”, “Property &
DISPOSALS In Australia, AXA Asia Pacific Holdings completed the disposal of its 50% stake in Members’ Equity Pty Ltd to Industry
In Austria, AXA announced on December 18, 2002 the results of its discussions with UNIQA Versicherung AG – Austria’s number one life insurer and number four Property & Casualty insurer – concerning the sale of its Austrian assets.
The deal was signed in December 2002 and completed on June 4, 2003. The Group’s share of the capital gain was €37 million net Group share.
CAPITAL INCREASE The AXA Group has for several years offered its employees, inside and outside France, the opportunity to purchase its shares through share issues reserved for employees. In 2003, employees invested €188 million (€13 million in
Bonds redeemable in shares or cash (ORANs) The Group decided to finance its planned €1.4 billion acquisition of MONY Group Inc. (a New York-based life insurance company, also known as MONY), by issuing ORAN bonds (bonds redeemable in shares or cash). The ORAN bonds were issued through the exercise of warrants allocated free of charge by AXA to its shareholders.
All ORANs will be automatically redeemed through the issue of one AXA ordinary share on the day of the MONY
OTHERS On December 16, 2002, Crédit Agricole S.A. launched a public exchange offer for Crédit Lyonnais. AXA tendered its Crédit Lyonnais shares to this offer, and received cash and Crédit Agricole S.A. shares in return. The capital gain realized on the sale of Crédit Lyonnais shares was €542 million, or €442 million on a net group share basis. All Crédit
Agricole S.A. shares received as part of the exchange were sold, allowing AXA to make an additional capital gain of €8 million.
On January 2, 2004, AXA completed the divestment of its Dutch insurance brokerage business, Unirobe, through a management buy-out. The price was €126 million, resulting in an estimated capital gain of €105 million.
stake in Hilo Direct Seguros y Reaseguros S.A. (“Direct Seguros”). After this transaction, AXA will own 100% of Direct
Group”), is the holding (Parent) Company for an international financial services group focused on financial protection, insurance and asset management. The list of AXA’s consolidated entities is provided in note 4 of the notes to consolidated financial statements.
AXA’s consolidated financial statements are prepared as at December 31. Certain entities within AXA have a reporting year-end that does not coincide with December 31, in particular AXA Life Japan and its insurance subsidiaries, which have a September 30 financial year-end. Prior to 2001, AXA Asia Pacific Holdings and its subsidiaries also had a financial year ending September 30, however, the financial year-end was changed to
December 31 in 2001. Therefore, AXA’s 2001 consolidated financial statements included 15 months of operating results beginning October 1, 2000 for this group of companies.
– Regulations issued by the French Accounting Regulations Committee (“Comité de la Réglementation Comptable”
On December 12, 2002, regulation 02-10 was issued by the French Accounting Regulation Committee “Comité de la réglementation Comptable” or CRC) in respect of depreciation and impairment of assets. In 2003, this regulation came into force following transitional provisions issued by the “Emergency Committee” of the French Standard setter
(“Comité d’urgence du Conseil National de la Comptabilité” or CNC), and modified by CRC regulation 03-07 issued on December 12, 2003. In respect of goodwill, AXA already applies this regulation. The methodology used is described in the note 3.5.1 of this section. Due to the AXA’s activities, the other provisions set out by this regulation had no significant impact on AXA’s consolidated financial statements.
– The subsidiary does not have a material impact on AXA’s consolidated financial position and consolidated operating results, or
– The information required to prepare the consolidated financial statements cannot be readily obtained, either for reasons of cost or timeliness of preparing such information.
holds no equity securities are excluded from consolidation. However, relevant information on these vehicles is provided in note 31 to the consolidated financial statements. In accordance with the French “Financial Security Act” (Loi de
3.4.2. BUSINESS COMBINATION: PURCHASE ACCOUNTING AND GOODWILL INCLUDING ACQUISITIONS OF MINORITY INTERESTS
Valuation of Assets Acquired and Liabilities Assumed At the first consolidation, the identifiable assets and liabilities of the acquired company are recorded at their estimated fair value. However, the insurance liabilities are maintained at the predecessor’s carrying value if the measurement basis is consistent with AXA’s accounting principles. In conjunction with purchase accounting relating to acquired life insurance operations, an asset is recorded corresponding to the present value of estimated future profits emerging on purchased life insurance business in-force at the date of acquisition (also referred to as value of purchased life insurance business in-force or VBI). The present value of future profits is estimated using actuarial assumptions based on anticipated experience. This experience is determined as of the purchase date using a discount rate that includes a risk premium.
– Increase in interest of ownership interest of an existing consolidated company: the net carrying value of the assets are reviewed and decreased in value where appropriate, with the remaining negative goodwill offset against any pre-existing goodwill asset arising from previous partial acquisitions of the company in question.
Revisions can be made to goodwill up until the end of the fiscal year end following the year of the acquisition, if new information becomes available. Goodwill recorded is allocated (i) to the companies or portfolios of business acquired in respect of importance in the market and their expected profitability, and (ii) to the segments and entities within the AXA Group that will benefit from the activities acquired.
For acquisitions undertaken prior to January 1, 2001, when new shares were issued by AXA (the Company) to partly finance an acquisition, a portion or all of the goodwill could be charged directly to retained earnings and reserves
(to the extent of the portion financed by the issue of new shares) Effective from January 1, 2001, this treatment is no longer permitted and was not subject to a retroactive adjustment upon adoption of the new French regulations in 2001.
Acquisitions can be accounted for using the “preferred method” detailed in article 215 of the new Pooling of interests regulation if certain conditions are met.
– The same applies to the potential policyholder benefit in respect of the disposal gain or loss (a deferred policyholder benefit asset of liability is then posted to the balance sheet).
The multi-criteria analysis mentioned above and performed to determine if there are significant adverse changes include the long-term nature of the holding, and exclude factors affected by short-term market volatility. The analysis also considers the interdependence of transactions within sub-groups. Within each operational entity, a comparison is made between net carrying value and the fair value, which is equal to the highest of the market value and value in use. The value in use is the net assets and expected earnings from existing and new business, taking into account the entity’s future prospects. The value of future expected earnings is estimated on the basis of life insurance and savings embedded value figures published by AXA. The fair value also considers similar calculations for other activities, other possible approaches such as those based on various valuation multiples.
Other Intangible Assets Other intangible assets mainly include costs associated with developing software for internal use. These costs are capitalized and amortized on a straight-line basis over their estimated useful life (in general not to exceed five years).
3.5.3. INVESTMENTS FROM INSURANCE, BANKING AND OTHER ACTIVITIES In general, investments are accounted for as described below: Real Estate Investments Real estate investments are stated at historical cost less accumulated depreciation and any valuation allowances.
Real estate acquired in satisfaction of debt is valued at estimated fair value at the date of foreclosure.
Valuation allowances are recorded on real estate investments in the following cases: – Buildings to be sold in the twelve months following the end of the accounting period: The allowance is recorded and equals the excess of the net carrying value over the likely selling price, less disposal costs and the cost of works expected to be incurred to bring the building to sale.
Equity Securities Equity securities are stated at historical cost less any valuation allowances for declines in the estimated fair values of specific equity investments that are deemed to be other-than-temporary.
d’urgence du Conseil National de la Comptabilité” or CNC) on December 18, 2002 in respect of other-than-temporary impairments.
It is presumed that there is an other-than-temporary impairment when a significant unrealized loss exists for a continuous period of 6 months or more prior to year-end. An unrealized loss is regarded as significant if it equals 20% of carrying value in periods where the markets are slightly volatile, increasing to 30% when markets are volatile as determined by the French regulator. The 20% criterion was applied at December 31, 2003, taking into account market trends in the second half of 2003, in accordance with recommendations issued by the financial markets and insurance industry supervisory authorities. At December 31, 2002 and for the first six months of 2003, the 30% criterion was applied, whereas the 20% criterion was applied in 2001.
Equity securities intended to be held for business purposes are not subject to valuation allowance, if there are no particular factors that raise questions about the fundamentals of the issuer.
The valuation allowance recorded for equity securities that are determined to have an other-than-temporary impairment is equal to the difference between the net carrying value and the recoverable value at year-end.
(net worth, future cash flows and specific considerations relating to the industry sector/activities of the issuer).
– For mutual funds, valuation allowances are determined by taking into account the specific nature of each fund.
Other Investments – Policy loans are stated at outstanding principal balances.
– Certain investments held by non-European Life insurance subsidiaries, for which the unrealized gains and losses of invested assets are included within insurance liabilities,
3.5.4. OTHER ASSETS Real estate (property) owned and occupied by AXA is included under the balance sheet caption “Other assets” and depreciated on a straight-line basis over the estimated useful life of the buildings, ranging from 20 to 50 years. This includes materials, fixtures and equipment that are depreciated on a straight-line basis over each asset’s estimated useful life.
3.5.5. DEFERRED ACQUISITION COSTS (“DAC”) IN RESPECT OF LIFE INSURANCE OPERATIONS
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. This asset is amortized based on the estimated gross profits emerging over the contract term. Estimates of gross profits are reviewed at the end of each accounting period and the amount not deemed recoverable from future estimated gross profits is recorded as a charge against income. DAC is reported net of unearned revenue reserves, which are recorded in income over the contract term using the same amortization basis used for DAC.
Restructuring Costs In connection with a business combination, restructuring costs relating to employee termination benefits, the closing of office sites and image changes in respect of the acquired company are included in a restructuring provision recognized in the opening balance sheet of the acquired company. When a restructuring provision impacts the acquirer or its subsidiaries, a restructuring provision is recorded as a liability and included in the purchase price.
The funding and implementation methods of such plan assets are specific to the local regulation in each country in which the employee benefit plan is held.
– Plan assets may be valued on the basis of market values over a period up to five years, instead of market values at valuation date. In addition, the valuation date used by AXA may be up to three months prior to the year-end, rather than the year-end as recommended by the CNC.
– Past service costs are recognized over the expected remaining service life of the plan participants, even if benefits are fully vested.
Unearned Premium Reserves Unearned premium reserves represent the portion of gross premiums written which has not yet been earned in the period. A portion is included in income over the periods benefited, as the portion of the unearned premium reserve earned in the period is calculated on a pro rata basis in proportion to the insurance still in force at period-end. The deferred acquisition costs related to such contracts are included as an asset under the heading “Prepayments and accrued income” using the same basis.
Insurance Liabilities For traditional life insurance contracts (that is, those contracts with significant mortality risk), the liability for future policy benefits is calculated in accordance with the applicable regulatory principles of each country on the basis of actuarial assumptions as to investment yields, mortality, morbidity and expenses, using a prospective approach. An additional provision is recorded in the event of an adverse impact on the benefits due to a change in mortality tables.
The liability for savings contracts or other investment contracts, in which there is minimal mortality or morbidity risk and that are not separate account (unit-linked) contracts, is determined using the retrospective method. Under this method, the liability represents an account balance based on the premiums received to date plus any interest or bonus credited to the policyholders less policy charges, such as for insurance administration and surrenders. In respect of participating life insurance contracts, whether allocated or not, the future policy benefit liability includes a value attributable to anticipated participation rights arising from the operating results or net investment return for the period.
The method of determining the insurance benefits is in line with the preferred method set out in the new French regulations effective from January 1, 2001. However, the discount rates used by AXA are, in effect, lower than the expected future investment yield recommended in the regulations.
Reserves for guarantees in respect of separate account (unit-linked) contracts in respect of direct insurance and reinsurance activities are determined using a prospective approach. The current value on future benefit obligations to be paid to the policyholder in the event that the guarantee is triggered is estimated on the basis of reasonable scenarios. The assumptions include an investment return and related volatility, surrender rates and mortality. This current value of future benefit obligations is set up as a provision such that the total average cost of the guarantees is recognized over the contract life.
Insurance Claims and Claims Expenses The claims reserves are determined on a basis to cover the total cost of settling an insurance claim. With the exception of disability annuities, for which the payments are fixed and determinable, the claims reserves are not discounted.
(“IBNR”) in the accounting period and costs associated with the claims settlement management. The claims reserve is based upon estimates of the expected losses and unexpired risks for all lines of business taking into consideration management’s judgment on the anticipated level of inflation, regulatory risks and the trends in cost and frequency of claims, actual against estimated claims experience, other known trends and development, and local regulatory requirements.
Claims reserves include unexpired risk provisions and equalization provisions as set out below: – Equalization provisions are determined on the basis of local regulations in certain countries in which AXA operates and, principally, relate to catastrophe risks, such as hail, storms, floods, nuclear accidents, pollution liability and terrorist attacks.
3.6.4. SEPARATE ACCOUNT (UNIT-LINKED) CONTRACTS These contracts are linked to a specific pool of investment funds / assets and are written by AXA’s Life insurance companies.
3.7. DERIVATIVE INSTRUMENTS Derivative instruments are accounted for according to the opinion of the CRC regulation (CRC 2002-09) issued on
December 12, 2002 specific to the accounting for certain financial instruments (forwards) by insurance companies.
For derivative transactions that qualify as hedges, where AXA uses in asset-liability management or to cover certain designated assets or liabilities against a change in fair value or variability in cash flows, the total change in value is recorded in a similar manner as the underlying hedge item; related charges and revenues are recorded in the net investment result. Tests of effectiveness are performed on a routine basis. For foreign currency hedges in net investments in foreign operations, the unrealized and realized gains and losses are recorded in shareholders’ equity until the foreign subsidiary is sold, at which time the amount is included in income. In the case of a strategic investment / divestment, the results are deferred until the asset is acquired or sold. In the case of a yield-based investment, results are recorded over the duration of the strategy.
Other derivative instruments that are not involved in qualifying accounting hedges are accounted for on the balance sheet at estimated fair value. The unrealized losses are included in the net investment result. Any unrealized gains are recorded but fully offset by a provision to neutralize the impact in the income statement. The estimated fair value is determined using market value, if available, otherwise determined using other valuation techniques such as option pricing models, or other internal estimates.
3.8.1. GROSS PREMIUMS AND FINANCIAL SERVICES REVENUES Gross premiums written correspond to the amount of premiums written on business incepted in the year for insurance and reinsurance companies, net of policy cancellations and gross of reinsurance ceded. In the reinsurance sector, the premiums are recorded on the basis of declarations made by the cedant and may include estimates of gross premiums written but not yet reported in the period, which are adjusted in future periods to reflect actual gross premiums written and ceded to the reinsurer.
Gross revenues from banking and other activities mainly include: – Commissions received upon the sale of financial products, including those revenues received by the insurance companies on such activities,
– Sales proceeds received on buildings constructed or renovated and subsequently sold by real estate businesses.
– Realized investment gains and losses net of valuation allowances for investment impairment, and
– Unrealized investment gains and losses on invested assets in respect of separate account (unit-linked) assets, assets allocated to UK “With-Profit” contracts and other invested assets whereby such assets are stated at market value
3.10. ACCOUNTING FOR SHARE OPTIONS The accounting principles adopted by AXA for the accounting of stock option plans will vary according to the type of stock-option plan.
(corresponding to the difference between the market value of the shares and the exercise price) is determined at a measurement date, being the vesting or exercise date. Accordingly, an estimate of the compensation charge is determined at the end of each interim reporting period dependent on the market value of the underlying shares at such interim date.
The activities of Banque Directe were merged with AXA Banque. The activities of Ipac Securities Limited were integrated within the AXA Australia New Zealand sub-group on the acquisition date.
FULLY CONSOLIDATED COMPANIES Certain entities below represent the Parent Company of sub-groups that can hold an interest in entities in more than one country and, therefore, may be consolidated with an ownership interest less than that indicated for the Parent
AXA Parent company Parent company AXA China 100.00 76.31 100.00 76.31 AXA France Assurance 100.00 100.00 100.00 100.00 Colisée Excellence 100.00 100.00 100.00 100.00 AXA Participations II (formerly Financière Mermoz) 100.00 100.00 100.00 100.00 Jour Finance Merger with AXA France Vie – – 100.00 99.94 Mofipar 99.90 99.90 100.00 99.90 Société Beaujon 99.99 99.99 99.99 99.99 AXA Technology Services 100.00 99.99 100.00 99.99
United Kingdom Guardian Royal Exchange Plc 100.00 99.99 100.00 99.99 AXA UK Holdings Limited 100.00 100.00 100.00 100.00 AXA UK Plc 100.00 99.99 100.00 99.99 AXA Equity & Law Plc 99.95 99.95 99.95 99.95
Belgium AXA Holdings Belgium 100.00 99.92 99.98 99.88 Royale Belge Investissement 100.00 99.92 100.00 99.88
The Netherlands AXA Verzekeringen 100.00 99.92 100.00 99.88 Gelderland 100.00 99.92 100.00 99.88 Vinci BV 100.00 100.00 100.00 100.00
The Equitable Life Assurance Society of the United States 100.00 100.00 100.00 100.00
Ayuda Legal SA de Seguros y Reaseguros 100.00 99.69 100.00 99.68
AXA Aurora SA Iberica de Seguros y Reaseguros 99.69 99.69 99.68 99.68
AXA Aurora SA Vida de Seguros y Reaseguros 99.69 99.69 99.68 99.68
AXA Portugal Companhia de Seguros de Vida SA 95.09 94.89 95.09 95.05
Change Voting Ownership Voting Ownership in Scope rights interest rights interest
AXA General Insurance Accounted for by the Hong Kong Ltd equity method in 2002 (a) 100.00 100.00 100.00 100.00
AXA Insurance Investment Holding Accounted for by the equity method in 2002 (a) 100.00 100.00 100.00 100.00
AXA Insurance Hong Kong Ltd Accounted for by the equity method in 2002 (a) 100.00 100.00 100.00 100.00
Hilo Direct SA de Seguros Accounted for by the y Reaseguros equity method in 2002 50.00 50.00 50.00 50.00
AXA Oyak Holding AS Accounted for by the equity method in 2002 50.00 50.00 50.00 50.00
(a) Despite being more than 50%-owned, these companies were accounted for by the equity method at January 1, 2002, since their contribution to revenues, income or net assets was not significant (see Note 3.4).
(1) The total Group assets at constant exchange rate (2002) amount to €476,566 millions.
6. Goodwill An analysis of goodwill by principal acquisition and segment is presented in the table below. In general, the figures shown below refer to several operational entities whose contribution to Group earnings is decreased by the goodwill amortization charge.
AXA Investment Managers (including AXA Rosenberg) 107 46 (15) (11) 4
AXA Financial (acquisition of minority interests) 4,599 – – (191) 1
AXA Aurora (acquisition of minority interests) 101 – – (3) (0)
Goodwill under euro 100 millions each 680 – – (107) 23
Of which: Others 79 46 – (15) (34) (a) The portion of goodwill attributed to the Asset Management activities is to be amortized over 17 years. (b) Euro 47 million have been reclassified from “Acquisition” to “Other changes”.
The main goodwills are attributable to the following operations and entities: AXA UK (2001) - FINANCIAL REORGANIZATION OF AXA EQUITY & LAW As a result of AXA Equity & Law’s financial reorganization, AXA acquired a portion of the surplus assets held in the participating (“With-Profit”) fund and related future benefits based on the percentage of policyholders who elected in favor of the plan. This acquisition was carried out via the payment of an incentive bonus of approximately £260 million plus £18 million of direct expenses associated with the transaction (a total of approximately €451 million based on the average £/€ exchange rate for the period).
This total cost is accounted for as goodwill and is being amortized over a remaining useful life of 27 years. The net book value of this goodwill at December 31, 2003 was €361 million, and the annual goodwill amortization charge was €14 million in 2003.
AXA FINANCIAL – BUY-OUT OF MINORITY INTERESTS (2000) The aggregate purchase consideration was €11,213 million and included the following items: – €3,868 million, representing the value of the 25.8 million ordinary shares issued by AXA at a price of €149.90 per share at December 22, 2000, the closing date of the initial offer period, and
Merger Agreement, AXA had an obligation to acquire all of the remaining shares of AXA Financial, which was done through the merger of AXA Merger Corp. with AXA Financial (completed on January 2, 2001).
– 20% was attributed to the Asset Management operations of Alliance Capital (being amortized over 20 years).
In 2003, an exceptional goodwill amortization charge of €106 million was booked following a review of deferred tax liabilities relating to periods prior to AXA’s acquisition of ‘The Equitable Inc’. This amortization charge, together with an additional charge booked following the exercise of stock options, takes the overall amortization charge for 2003 to €310 million.
SANFORD C. BERNSTEIN TRANSACTION (2000) The purchase price was US$3.5 billion (€4.0 billion) and consisted of US$1.5 billion of cash and 40.8 million newly issued private units in Alliance Capital. A portion of the cash was funded by AXA Financial through a financing agreement whereby in June 2000 AXA Financial purchased units of limited partnership interest of Alliance Capital Management
At December 31, 2003, this goodwill had a net book value of €2,255 million, and was being amortized over a remaining useful life of 17 years. The annual amortization charge in 2003 was €174 million at 100% (€107 million net
In connection with this acquisition, AXA Financial agreed in 2000 to provide liquidity to the former shareholders of
SUN LIFE & PROVINCIAL HOLDINGS (SUBSEQUENTLY RENAMED AXA UK HOLDINGS) – BUY-OUT OF MINORITY INTERESTS (2000) AXA acquired the 44% minority interests in Sun Life & Provincial Holdings (SLPH), which was subsequently renamed
AXA UK Holdings for a purchase price of £2.3 billion (approximately €3.7 billion). The goodwill recorded was €1,971 million and is being amortized over 30 years. The goodwill amortization charge was €64 million in 2003.
AXA NICHIDAN (SUBSEQUENTLY KNOWN AS AXA LIFE JAPAN) (2000) The valuation of the assets brought by AXA and the shareholders of Nippon Dantai to the new joint entity, AXA Nichidan
Holding, together with the two cash contributions made by AXA to increase AXA Nichidan’s capital generated a goodwill of €1,856 million, to be amortized over 30 years. Following the revaluation of an intangible asset that decreased the opening balance sheet by €130 million (Group share), goodwill was subsequently increased.
At December 31, 2003, this goodwill had a net book value of €1,408 million, and was being amortized over a remaining useful life of 27 years. The annual amortization charge in 2003 was €53 million.
AXA CHINA REGION - BUY-OUT OF MINORITY INTERESTS (2000) In November 1999, AXA Australia purchased minority interests in AXA China Region for €519 million. The goodwill recorded totaled €300 million and is being amortized over 20 years and is consistent with the estimated useful life used in the accounting for the acquisition of AXA Asia Pacific Holdings (formerly National Mutual Holdings and the parent company of AXA China Region) in 1995.
The goodwill relating to the English, Irish and Portuguese Property & Casualty subsidiaries was mainly due to a significant deficiency in insurance claims reserves, and had been impaired in 1999 for €446 million (€259 million net group share), representing the deficiency observed in the opening reserves.
Following a review of the risks insured and the resulting additional technical reserves booked in 2000, the opening balance sheet of GRE was revised and, therefore, goodwill modified. At December 31, 2000, gross goodwill was €1,261 million, accumulated amortization was €505 million (of which €25 million 2000 amortization charge) and, therefore, goodwill net of accumulated amortization totaled €770 million, after taking account of foreign currency fluctuations of €14 million.
Colonia Re JV to General Re in 2003. Had no goodwill been charged directly to retained earnings and reserves, additional goodwill amortization of €234 million would have been recorded against income, including an exceptional charge of €181 million arising from the aforementioned release of provisions.
As of January 1, 2001, goodwill can no longer be charged directly against shareholders’ equity. This explains the lack of variation between 2001 and 2003 (with the exception of notional amortization allowances).
– For real estate investments, fair value determination is usually based on studies conducted by qualified external appraisers. They are based on a multi-criteria approach, and its frequency and modality are based on local requirements.
– Fair values of mortgage, policy and other loans are estimated by discounting future contractual cash-flows using interest rates at which loans with similar characteristics and credit quality would be originated. Fair values of doubtful loans are limited to the estimated fair value of the underlying collateral, if lower than the estimated discounted cash-flows.
Estimated fair value does not take into account supplemental charges or reductions due to selling costs that may be incurred, nor the tax impact of realizing the unrealized capital gains and losses.
The difference between the net carrying value and the estimated fair value represents the unrealized gains or losses.
Upon disposal of the investment, the realized investment gains and losses included in AXA’s consolidated operations result may be impacted by the allocation to participating Life insurance contracts (as a change in future policy benefits), minority interests and tax.
– Other mutual funds – 17,197 16,169 – 14 27 – 17,211 16,196 Equity securities and holdings in mutual funds 65,122 61,823 61,240 612 576 617 65,734 62,398 61,857 Fixed maturities 149,814 147,811 156,032 6,598 6,594 6,675 156,412 154,405 162,707 Real estate 12,789 11,727 13,982 32 32 42 12,821 11,759 14,025 Mortgages, policy and other loans 17,122 17,009 17,591 268 239 247 17,389 17,248 17,838 Invested assets excluding investments in participating interests 244,847 238,370 248,846 7,509 7,441 7,582 252,356 245,811 256,427 – Of which listed – 166,030 174,002 – 7,011 7,100 – 173,041 181,102 – Of which non listed – 72,340 74,843 – 430 482 – 72,770 75,325 Investments in participating interests 2,955 2,797 3,565 697 659 654 3,652 3,456 4,219 TOTAL INVESTED ASSETS 247,802 241,167 252,410 8,206 8,100 8,236 256,008 249,267 260,646 – Life & Savings 209,170 204,350 214,027 – Property & Casualty 31,701 30,154 31,468 – International Insurance 6,931 6,663 6,915
At December 31, 2003, AXA ordinary shares held by AXA (the Company) or its subsidiaries (“treasury shares”) totaled around 30 million (or a slight decrease of 0.9 million compared to December 31, 2002). At December 31, 2003, the carrying value of such shares was €473 million, representing 1.8% of outstanding ordinary shares, unchanged relative to 2002. The treasury shares held at December 31, 2003 were intended to cover the exercise of stock options (options to buy AXA ADSs) by employees of AXA Financial, Inc.
– Equity securities and holdings in equity security-based mutual funds – 26,006 23,712 – 377 395 – 26,383 24,107
Invested assets excluding investments in participating interests 241,250 236,032 242,396 8,295 8,170 8,422 249,545 244,202 250,817
– International Insurance 7,244 7,018 7,172 (a) The realization of unrealized gains and losses upon disposal of the investments may give rise to an allocation to participating insurance contracts, minority interests and tax.
Listed companies: Unlisted companies (a) : Investment holdings under euro 50 million each 1,527 1,510
Net Last fiscal year Fiscal Percentage carrying Fair Shareholder’s net income year of (in euro millions) value value equity Amount Year end ownership
Fixed Maturities: (a) Held to maturity and available for sale 137,379 136,840 8,672 (370) 145,142
(b) Allocated to UK with-profits business trading – – – – 9,486
At December 31, 2002 Amortized or Net carrying Gross Gross unrealized Fair
(b) Allocated to UK with-profits business trading – – – – 10,342
TOTAL 221,497 (a) The realization of unrealized gains and losses upon disposal of the investments may give rise to an allocation to participating insurance contracts, minority interests and tax.
Depreciation of real estate used for operating purposes 837 115 – (238) 714
9. Separate Account (unit-linked) Assets Assets that back separate account (unit-linked) contracts and stated at market value (refer to Note 3-5 on accounting principles) are presented in the table below. “Holdings in other mutual funds” essentially consisted of investments by the French Life & Savings insurance companies in mutual funds that invest predominantly in real estate.
Assets from the banking sector and other activities are presented in note 8 above. Fin an cia l S
An analysis of the investments in affiliated companies (accounted for by using the equity method) is given below.
(in euro millions) 1, 2003 in Scope changes (a) 31, 2003 Net income
(a) Includes foreign currency fluctuations and net income for the period adjusted for dividends received.
Australia and New Zealand as investments under the equity method (previously fully consolidated).
(and which were previously fully consolidated), since they no longer met Group materiality requirements. The complete list of these entities is available in Note 4. The change in scope on AXA Asia Pacific Holdings subsidiaries
(in euro millions) 1, 2001 in Scope changes (a) 31, 2001 Net income
AXA Germany affiliates: AXA Asia Pacific Holdings affiliates: – NM Home Loans Trust 74 – (5) 69 –
TOTAL 1,217 438 (85) 1,569 17 (a) Includes foreign currency fluctuations and net income for the period adjusted for dividends received.
The receivables and payables from insurance and reinsurance activities are as follows: 13. Cash and Cash Equivalents Cash and cash equivalent are mainly liquid and short-term investments. The table below details those cash and cash equivalents by segment.
(in euro millions) value Provisions value Payables Deposits and guarantees 2,235 – 2,235 1,598 Current accounts from other companies 3,010 (109) 2,901 2,590 Policyholders, brokers, general agents 3,551 (203) 3,348 3,587 Estimated premiums not yet recorded 2,025 – 2,025 –
Deferred acquisition costs on unearned premiums 0 1,102 171 1,273 1,408
YEAR-END BALANCE 9,720 9,557 9,613 Fin an cia l S ta te m en ts
– Impact of New French GAAP restatements – – (593) – (593) – – Conversion of 4.5% mandatorily convertible bonds at maturity 66 254 – – 320 29 – “Squeeze out merger in the buyout of minority interests in AXA Financial, Inc.” 45 692 – – 737 20 – Impact of change in methodology
(AXA Equity & Law Inherited Estate) – – (79) – (79) – – Exercise of share options 9 22 – – 31 3 – Employee stock purchase program
– Net Income – – – 949 949 – Balance at December 31, 2002 4,035 13,824 (3,076) 8,925 23,711 1,762 – Employee stock purchase program
and of real estate companies in Australia and New-Zealand as well as the exercise of Alliance Capital stockoptions of €22 million (decreasing AXA’s ownership interest from 52.64% at December 31, 2000 to 52.28% at Decem-
In 2002, the principal change of €113 million was attributable to the 3.4% increase in Group’s interest in Alliance
Capital (from 52.3% to 55.7%) as 8.16 million units were bought back from former Sanford Bernstein shareholders.
Minority Interests The minority interests’ share of total equity in 2003 included €1,288 million in respect of Alliance Capital, with the remaining balance relating to non-wholly owned operations in Australia / New Zealand, Germany and Japan.
17. Other Equity There has been no other equity since December 31, 2001.
Program; – €94 million of new debt issued by AXA Bank Belgium1 due to strong loan production in 2003; partially offset by: – the repayment of €144 million of external debts by AXA Life Japan, which is now financed internally by AXA SA; – a €238 million positive impact from currency derivatives, arising from the strengthening of the euro against other currencies.
AXA, The Company Subordinated Perpetual Notes, variable (US $ and euro) 1,772 941 Perpetual Notes, 3.29% / variable (Yen) 200 217 Subordinated Convertible Notes, 2.5% due 2014 (euro) 1,518 1,518 Subordinated Perpetual Debt (euro) 234 234 Subordinated Perpetual Notes, 7.25% (euro) 500 500 Subordinated Convertible Notes, 3.75% due 2017 (euro) 1,099 1,099 Subordinated Convertible Notes, variable, due 2020 (euro) 215 215 U.S. registered subordinated debt, 8.60%, 2030 (US $) 990 1,192 U.S. registered subordinated debt, 7.125%, 2020 (GBP) 461 500 U.S. registered subordinated debt, 6.75%, 2020 (euro) 1,070 1,070 Amount of derivatives hedging subordinated debt (527) (289)
AXA Life Japan (formerly Nichidan Life) Subordinated Notes, variable, due 2010 – 144
Other subordinated debt (under euro 100 million each) 138 232 TOTAL 8,453 8,300
(1) At December 31, 2003, subordinated bonds issued by AXA Bank Belgium and previously included in the “Other subordinated debt”caption are now shown separately, along with securities previously issued by the company (€59 million in 2002), in the table above.
19. Insurance Liabilities The table below sets out insurance liabilities by segment: Fin an cia l S
Property International Life & Savings & Casualty (a) Insurance (a) Total Insurance
Total reinsurance ceded on insurance liabilities 3,557 3,812 2,340 2,512 2,573 3,586 8,470 9,910
Reinsurance ceded on separate account (unit-linked) liabilities 19 20 – – – – 19 20
AXA carefully monitors potential claims for which it has received notice.
(b) International Insurance currency fluctuations in 2002 are mainly due to World Trade Center insurance reserves (accounted for in dollars).
I. EMPLOYEE BENEFITS Long-term liabilities of employee benefit plans are calculated according to the “preferred method” under French regulations (refer to note 2 “Significant accounting Policies”).
The weighted-average assumptions used by AXA for pension plans in the principal regions in which AXA operates are as follows: Fin an cia l S
Expected rate of return on plan assets 6.2% 8.4% 1.3% 8.2%
Annual change in pension plan liabilities A yearly evolution of the PBO1 is made based on the following items: – service cost (representing the increase in the PBO attributable to one year of additional service),
– actuarial gain or losses (change in long term assumptions, change in staff,...),
(“PBO”) and the market value of the corresponding invested plan assets, increased by the unrecognized loss or decreased by the unrecognized gains. When this difference is positive a contingency and loss reserve is booked within the balance sheet liability. When it is negative, an asset is recorded in the balance sheet.
The following table sets forth the change in benefit obligation and change in plan assets associated with various pension plan and post-retirement benefits sponsored by AXA. The amounts are recognized in the accompanying balance sheets as at December 31, 2003 and 2002.
(1) Projected Benefit Obligation. (2) For the amount which exceeds the 10% corridor (the greater of 10% of the present value of future benefits paid and 10% of the fair value of plan assets).
Change in benefit obligation: Benefit obligation, beginning of year 8,762 9,010 567 578
With a negative net position (Liability) (1,781) (1,743) (386) (441) (a) This amount does not necessarily equal to the amount used in the PBO calculation because pension plans are not always covered
(fully funded) by assets. (b) That is, not yet recorded in financial statements.
Net Periodic Benefit Cost 316 201 34 43 (a) Mainly pre-retirement benefits.
Net periodic benefit cost The net periodic benefit cost, that is, the annual expense for employee benefits recorded in the income statement, for the years ended December 31, 2003, and 2002 is presented below:
The balance sheet evolution for a defined benefit plan is function therefore of: – the accumulated cost recorded in the income statement,
The overall amount of liabilities recorded in the balance sheet for pension benefits and other similar obligations are the following.
AXA uses December 31th measurement date for a majority of its pension plans and other post-retirement plans.
(a) In 2002, AXA Belgium reclassified €74 million of provision for restructuring costs to pension obligations. Fin an cia l S ta te m en ts
– A provision of €193 million associated with the cost of settling/exchanging outstanding share options of AXA Financial.
This provision decreased by €84 million in 2003 (€44 million at constant exchange rates) mainly due to the exercise of these options.
– Provisions for the deferred compensation plans of AXA Financial (€155 million) and Alliance Capital (€159 million).
– €161 million of provisions for discounts on convertible bonds at AXA SA. These provisions have started to be recorded in 2002.
– Provisions for legal disputes, mainly in France (€71 million), the UK (€18 million) and Belgium (€15 million).
– Provisions to cover “end-of-career” measures (€63 million), all of which were recorded in 2003 in France.
– In Germany, an impact of €+73 million in Germany, mainly due to (i) the release of a provision booked at the time of acquiring German activities in 1997, following the Group’s 2003 sale of its stake in Colonia Re JV to General Re
French statutory income tax rate (35.43% in 2003 and 2002, 36.43% in 2001). The sources of differences from the statutory rate and the tax effect of each are as follows: In 2001, the income tax expense was affected by the German tax reform: from January 1, 2002 realized gains on equity securities were no longer subject to tax. Consequently, the deferred tax liability that had been recorded on unrealized capital gains at the time of acquisition was released. The total release of deferred tax liability amounted to €221 million (100%). In addition, a deferred tax asset (€130 million) had been recorded on non tax-exempt provisions for run-off financial services and €63 million had been utilized on Sicher Direct fiscal losses in Germany.
– €96 million of differences and the impact of tax rate changes, including (i) the release of a provision booked at the time of acquiring German activities in 1997, following the Group’s 2003 sale of its stake in Colonia Re JV to General
following the review of the deferred tax positions, partially offset by (iii) the €149 million impact of deferred tax depreciation in Japan.
Some companies in the AXA Group are subject to examination by tax authorities. Reserves booked for the tax issues that have not been contested by the Group are evaluated as appropriate.
AXA UK Holdings: Wholly-owned and Joint venture Real Estate (AXA Financial, Inc.): Other financing debt (under euro 100 million each) 6 16
Non-subordinated debt increased by €474 million in 2003, or by €864 million at constant exchange rates. Movements in exchange rates therefore had a €390 million positive impact. This increase was mainly due to: 1) An increase in financing debt (€1,161 million at constant exchange rates) relating mainly to: – the issue of ORAN bonds (bonds redeemable in shares or cash), through the exercise of warrants allocated free of charge to AXA shareholders as part of the MONY transaction for a total mount of €1,389 million: – partly offset by the €258 million redemption of mandatory convertible bonds (bearing interest at 6%) issued by AXA Colonia Konzern Finance in 1998,
– the repayment of the Company’s commercial paper issued in 2000 (€–826 million),
– the partial repayment of AXA Financial senior bonds (€–53 million); partly offset by: – a €532 million issue carried out under the Company’s Euro Medium Term Note Program (“EMTN”),
– a decrease in operating debt (€–185 million) in particular at Alliance Capital (decrease in commercial debt following issuance of senior notes in 2001) and at AXA Banque (decrease in financing needs).
– repayments of other maturing credit lines by AXA SA (€–254 million).
In 2002, the €159 million reduction in debt was mainly due to the decreasing operating debt of AXA Banque (lower financing needs in 2002), CFP Crédit and AXA Bank Belgium (principally on deposit accounts).
(At December 31, in euro millions) 2003 2002 FINANCING DEBT 29 304 AXA
24. Segment Information and Technical Results 24.1 GROSS WRITTEN PREMIUMS AND FINANCIAL REVENUES The following table presents AXA’s consolidated gross premiums and financial services revenues by segment: Gross written premiums and financial revenues Years ended December 31,
PROPERTY & CASUALTY 17,098 15,948 15,896 Direct premiums written 16,655 15,569 13,478
INTERNATIONAL INSURANCE 3,972 5,762 5,678 Direct premiums written 1,180 1,276 1,525
/279 24.2. SEGMENT INFORMATION The following tables set forth the analysis of technical result by insurance segment: Life & Savings Gross written premiums
Total gross premiums include: – Separate Account (Unit linked) contracts 15,022 14,344 16,767 101,069 – UK “With-Profit” business 1,288 3,128 3,443 29,119
Years ended December 31, Insurance reserves (in euro millions) 2003 2002 2001 at December 31, 2003 Personal line
Fees, commissions and other revenues 35 12 2 TOTAL 17,098 15,948 15,896 (a) Since January 1, 2003, UK Health business is presented under lines “Other” (€1,036 million gross revenues in 2003).
Fees, commissions and other revenues 16 22 14 TOTAL 3,972 5,762 5,678
Revenues from banking activities – – – – 850 – (30) 820
Gross written premiums and financial services revenues 46,812 17,128 4,081 3,199 866 0 (458) 71,628
Total benefits, claims and other deductions 1,483 826 194 402 199 (516) – 2,587
Income after income tax expense 1,194 632 154 304 144 (376) – 2, 051
Life & Property International Asset Financial Holding segments Savings & Casualty Insurance Management Services companies eliminations Total
Revenues from banking activities – – – – 1,038 – (26) 1,012
Gross written premiums and financial services revenues 48,619 15,981 5,872 3,724 1,046 0 (514) 74,727
Change in unearned premiums reserve (16) (307) (58) – – – (2) (382)
Change in unearned premiums reserve (2) (115) (238) – – – (0) (355)
Income after income tax expense 1,269 201 (372) 795 145 (362) – 1,676
Equity in income from affiliated entities 16 5 (0) (4) 0 0 – 17
Net change in separate account (unit-linked) assets 14,949 – 14,949 (17,576) (11,613)
Change in separate account (unit-linked) liabilities (19,375) (1) (19,376) 6,537 351
Other revenues, net of benefits, claims and other deductions 326 313 219
Net investment result included in technical result 853 – 853 999 1,551
Other revenues, net of benefits, claims and other deductions (5) 9 2
Fixed maturities 8,132 8,462 8,554 – – 0 15 7 27 (17) (17) (10) 8,131 8,453 8,571 Equity investments 2,139 1,915 1,997 13 7 23 67 35 55 2,219 1,958 2,075 Mortgage, policy and other loans 1,276 1,528 1,790 – – – 9 7 14 (222) (178) (82) 1,063 1,357 1,722 Real Estate 764 824 828 (3) 2 (1) (1) (1) (2) (0 (2) 761 825 823 Other invested assets 631 822 1,178 11 16 23 230 386 423 (153) (215) (205) 720 1,009 1,419 Interest expenses (236) (274) (328) (45) (58) (55) (755) (862) (1,090) 333 361 286 (702) (832) (1,186) Other investment expenses (569) (564) (684) (22) (12) (14) (13) (30) (39) 84 96 83 (520) (510) (654)
Investment gains/(losses), net of valuation allowances on: 101 (4,196) (2,891) 191 376 97 23 424 395 – – – 315 (3,396) (2,399)
Fixed maturities 7,084 7,336 7,342 787 849 909 261 278 303 8,132 8,462 8,554 Equity investments 1,762 1,545 1,565 353 348 403 24 23 29 2,139 1,915 1,997 Mortgage, policy and other loans 1,196 1,385 1,705 51 113 80 29 30 6 1,276 1,528 1,790 Real Estate 621 667 660 134 139 145 8 18 23 764 824 828 Other invested assets 455 678 951 113 75 160 64 69 67 631 822 1,178 Interest expenses (152) (183) (258) (38) (53) (44) (46) (38) (25) (236) (274) (328) Other investment expenses (427) (431) (558) (121) (94) (108) (21) (38) (18) (569) (564) (684)
Investment gains/(losses), net of valuation allowances on: 285 (4,105) (3,324) (204) (145) 373 20 54 60 101 (4,196) (2,891)
Change in fair value of separate account (unit-linked) assets (net) 14,949 (17,576) (11,613) – – – – – – 14,949 (17,576) (11,613) Net investment result 25,773 (10,684) (3,531) 1,075 1,230 1,916 339 396 445 27,187 (9,058) (1,170)
2003 brought a reversal in the three-year downtrend in the financial markets, with a twofold impact on the net investment result: – The higher market value of assets supporting separate account (unit-linked) contracts had a €14.9 billion positive impact on the net investment result of Life & Savings insurance companies (2002: €–17.6 billion and 2001: €–11.6 billion).
Assurance resulting from the improvement in gross claims experience, partly offset by (ii) the rise in reinsurance ceded at AXA RE, due to the review of reinsurance programs, resulting in a fall in the amount of premiums ceded.
Including: Other charges (1,850) (1,060) (263) (3,173) (1,609) (166) 59 316 (4,573) (a) Represents total acquisition expenses as presented in the statement of income including amortization expense for value of purchased life business in-force (VBI) and the change in deferred acquisition costs (DAC), which is net of changes in unearned premium reserves.
Including: (a) Represents total acquisition expenses as presented in the statement of income including amortization expense for value of purchased life business in-force (VBI) and the change in deferred acquisition costs (DAC) net of changes in unearned premium reserves. (b) Before amortization of value of purchased business in-force, the change in deferred acquisition costs and the change in unearned premium reserves.
(down 473 or 17%), AXA Corporate Solutions Assurance (down 142 or 10%), AXA RE (down 74 or 9%), France (down 1,086 or 6%, half of which relates to a change in the commercial counting) and Germany (down 520 or 6%), mainly following restructuring measures adopted since 2001.
REMUNERATION OF THE MANAGEMENT AND OFFICERS The aggregate remuneration of the Executive Officers of the consolidating entity paid in relation to their services1 in the controlled entities amounted to €21 million (€10 million for the Management Board and €11 million for the Executive
There were no pensions or other similar benefits provided to these executives specific to these capacities. There were no advances or loans given to these directors by AXA (the Company) or by any of the entities under AXA’s control.
28. Net Income per Ordinary Share The Company calculates basic net income per ordinary share and diluted net income per ordinary share: – 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.
– From 2002, the calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans and convertible bonds. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average price of AXA share over the period. The effect of convertible bonds (number of shares and income) is integrated in the calculation if it actually generates a dilution of the net income per share.
(a) The employees of entities proportionately consolidated are included using the percentage of ownership. (b) Employees of AXA Belgium provide services for both the insurance activities and the bank activities. Consequently, the split is not available.
The continued fall in AXA’s average stock price from €17.8 to €14.1 in 2003 meant that 35 million shares
The detailed calculation of net income per ordinary share (basic and diluted) is provided below: 29. Financial Instruments AXA uses derivatives instruments primarily for non-trading purposes and from time to time will also trade in derivative instruments as discussed further below.
At December 31, 2003, the notional amount of all derivative instruments, for trading and non-trading purposes, totaled €166.9 billion (2002: €177 billion). The estimated net fair value of these derivative instruments at December 31, 2003 totaled €1,384 million (2002: €1,044 million). The use of credit derivatives across the Group is limited to the management of a small portfolio of credit default swaps written in prior years by AXA Corporate Solutions Assurance.
Ordinary Net Adjusted Ordinary Net Adjusted Ordinary Net Adjusted Ordinary Net Adjusted shares income earnings shares income earnings shares income earnings shares income earnings
Net Income and Adjusted Earnings Per Ordinary Share (basic) 0.57 0.82 0.55 0.78 0.30 0.70 0.30 0.70
ORAN Bonds (bonds redeemable in shares or cash) 22.97 – – – – – – – – – – –
At December 31, 2003, the notional amount, net fair value and net carrying value of derivative instruments used by
At December 31, 2003 and based on notional amounts, (i) approximately 51% of the derivative instruments used for hedging purposes consisted of swap contracts, principally interest rate swaps, and (ii) approximately 37% of the derivative instruments used for hedging purposes consisted of futures / forwards (principally other than foreign currency contracts).
– Swap contracts are agreements between two parties to exchange one set of cash flows for another. Payments are based on a notional amount. In connection with the use of such derivatives instruments, under French GAAP
the balance sheet may include a net receivable or net payable at period end for cash flow exchanges that have been accrued for but not yet settled as at period end. AXA uses primarily (i) interest rate swap contracts to manage cash flows on interest received on investments or interest payments on debt, and to a lesser extent (ii) currency swap contracts to manage foreign currency denominated cash flows or investments. On a consolidated basis, the notional amount, net fair value and net carrying value of such instruments as at December 31, 2003 was €78,598 million, €1,724 million and €299 million (2002: €78,195 million, €1,453 million and €767 million). The net impact on AXA’s 2003 consolidated net income was a gain of €273 million (2002: a gain of €584 million). At December 31, 2003, interest rate swap contracts accounted for just over 82% of these instruments used by AXA (based on notional amounts), in particular (i) AXA (the parent company) to hedge its interest rate exposure on debt issued or amounts borrowed, (ii) AXA Bank Belgium mainly to hedge interest rate exposures in connection with its ordinary course of business to achieve an appropriate interest rate spread between the interest earning assets and the interest bearing liabilities and (iii) AXA’s U.S. holding company used interest rate swaps to reduce fixed interest cost of its long-term debt obligations. Currency swaps constitute another part of AXA’s hedging strategies to manage foreign currency cash flow exposures, and are primarily used by AXA (the parent company).
December 31, 2003, products with these features had a total account value of and net amount at risk of approximately €10,324 million, and € 13 million, respectively. Foreign currency related forward and future contracts are primarily used by Japan to hedge foreign currency risk associated with foreign currency denominated fixed maturity security investments.
(floor). The notional amount, net fair value and net carrying value of such instruments as at December 31, 2003 was €15,851 million, €2 million and € 12 million (2002: €25,259 million, €–230 million and €-55 million). The net impact on income for 2003 was a charge of € 38 million (2002: a charge of €295 million). These types of derivatives are used predominantly by AXA’s U.S. and French Life & Savings operations to hedge interest crediting rates on products with guaranteed rates of return and other interest-sensitive products. Income and expense resulting from these hedges are generally reflected as an adjustment to interest credited to policyholders’ account balances. Any net premium paid on such contracts is amortized on a straight-line basis over the life of the contracts.
OTHER OPERATIONS AXA uses derivative instruments to manage its asset and liability exposures principally as it relates to interest rate, foreign currency and equity price risk exposures in certain of its operations. Certain of the derivative instruments are used in connection with economic hedging activities that do not meet certain requirements for hedge accounting under French GAAP and, therefore, are accounted for as other operations. At December 31, 2003, and in respect of derivative instruments accounted for as other operations, the notional amount and the net fair value was €12,145 million and €1 million, respectively (2002: €23,938 million and €83 million, respectively). The impact on net income was a charge of €54 million in 2003 and excludes any unrealized gains, which are not permitted to be recognized in the income statement under French GAAP (2002: a charge of €208 million). The principal AXA entities that use such instruments are (i) AXA Bank Belgium, which uses principally non-foreign exchange rated forward rate contracts, as well as interest rate swaps in order to generate short-term trading profits in the ordinary course of banking activities, and (ii) AXA Japan, which purchases and writes covered call options to manage the interest rate, foreign currency and equity price risk exposures associated with its investment and liability portfolios. These instruments do not meet certain requirements for hedge accounting, in addition, in 2003, due to the evolution of interest rates, AXA Japan no longer required the use of swaptions. The impact on AXA’s 2003 consolidated net income was a charge of €111 million, offset by a gain on the underlying assets.
The main off-balance sheet commitments received by AXA increased by €2,765 million in 2003, and broke down as follows: – Financing commitments received by AXA in 2003 totaled €7,120 million (2002: €6,991 million). This increase of €129 million, or €444 million at constant exchange rates, was mainly due to an increase in credit lines at AXA SA
(€–208 million), a reduction in commitments received by the Group’s other financial services activities following the disposal of Auxifina (€–44 million) and the expiry at AXA Banque of a commitment originating with Banque
(€980 million), as well as the International insurance business. These guarantee commitments are mainly thirdparty pledges and mortgages on buildings relating to customer loans.
Commitments to finance : Of which lines of credit (a) 1,625 – 833 – – 67 900 –
This was partly offset by a reduction among French banks (€–113 million) resulting from the lower volume of secured loans and a €389 million reduction at AXA Corporate Solutions Assurance, mainly reflecting the reclassification of €311 million of collateralized commitments under guarantee commitments.
– Other commitments received rose by €558 million. They mainly concern securities managed by AXA France Vie on behalf of provident societies (€777 million), a guarantee received by AXA France Vie on a loan of securities
(€130 million) and €371 million of collateral received by AXA Bank Belgium as part of its cash management (increase of €340 million with respect to 2002).
The main off-balance sheet commitments given by AXA increased by €1,597 million in 2003, and break down as follows: – Financing commitments rose by €376 million, mainly due to a €415 million increase in financing commitments to customers to €1,803 million, resulting from (i) an increase in commitments relating to home loans made by AXA
Versicherung (€+313 million), partly offset by (iii) a fall in customer overdrafts at Banque Directe (€–192 million).
The increase in collateral, guarantees and pledges given to credit institutions (€+1,335 million), mainly at AXA SA
(€+848 million) was partly offset by the fall in guarantee and financing commitments made by AXA to customers
– Collateralized commitments: As at December 31, 2002, substantially all collateralized commitments related to
AXA Bank Belgium operations (€2,739 million). In the normal course of its banking operations AXA Bank Belgium is required to give collateralized commitments (i) to the National Bank of Belgium as security for normal clearinghouse activities, and (ii) to financial institutions in respect of existing security repurchase agreements. In 2003, these commitments fell by €1,111 million, mainly at AXA Bank Belgium (€–1,426 million) following a reduction in pledged securities.
– Letters of credit: Commitments given under letters of credit as at December 31, 2002 and 2003 primarily related to AXA’s international insurance operations, in particular, AXA RE (€903 million). Such commitments were given in 2001 in connection with future claims settlements arising from the US terrorist attacks on September 11, 2001.
Since most letters of credit are denominated in dollars, the €294 million reduction was mostly due to movements in the euro/dollar exchange rate and the fall in activity.
At December 31, 2003, this transfer amounted to £590 million (€837 million), corresponding to the total amount transferred on January 31, 2003 plus the corresponding financial revenues. According to the rules of the plan, an annual test must be carried out at least once every 12-month period, possibly resulting in an additional transfer. The test on January 1, 2004 is likely to result in an additional transfer of £200 million (€284 million). Current projections, consistent with management’s strategic plans, indicate that these cumulative transfers can reasonably be expected to be returned by the “With-Profit” funds over time and not be designated permanent.
Capital units can be sold at market price to AXA Financial, Inc. over the seven coming years but not more than 20%
CDOs and in CDOs managed by third parties. AXA derives no direct benefit from the total assets within the CDOs other than its direct investment plus any investment management fees, if it is also the investment manager, and cannot utilize those assets in its operations. Neither the creditors nor the equity investors (if any) have any recourse against
and, therefore, such vehicles could be required to be consolidated in AXA’s consolidated financial statements in 2004.
AXA’s investment in these vehicles, being the carrying value included in its consolidated financial statements, totaled €104 million with no additional funding commitments. At such date, these vehicles had total assets of approximately €2 billion.
The GIE also assumes cash management for the Company, its subsidiaries and affiliates. At December 31, 2003 the cash managed by the GIE amounted to €8.1 billion, as (€6.8 billion at December 31, 2002).
Members of the GIE (related parties) are the Company, the entities controlled directly or indirectly and the three insurance
and AXA Courtage Assurance Mutuelle through the GIE, in compliance with an existing co-insurance agreement. In 2003, following the restructuring of the French business, the GIE ceased to manage the broker network’s coinsurance. A new co-insurance system was set up to take care of dividing up premiums written by the broker network between AXA Courtage Assurance Mutuelle and AXA France IARD, resulting from the merger between AXA Courtage
As part of this co-insurance system, technical results are shared between entities in proportion with their written premiums. Aggregate written premiums (Mutual and Limited Company) recorded in the agreement amounted to €1,325 million in 2003 (of which €1,179 million attributed to the Limited Company), €1,262 million in 2002 (of which €1,123 million attributed to the Limited Company), and €1,127 million in 2001 (of which €1,003 million attributed to the Limited
(2) At December 31, 2003, Finaxa was 65%-owned by the AXA “mutuelles” and directly holds 17% of AXA.
Adjustments to reconcile net income to net cash provided by operating activities: Net investment gains/losses (1,913) 3,343 1,811
Cash-flows from investing activities (a) : Maturities and sales: Purchases: Net cash used in investing activities (13,100) (10,780) (20,793)
Cash-flows from financing activities: Long term debt and borrowings 830 (24) 1,432
Cash and cash equivalents end of year (net) 18,412 16,515 16,018 (a) Includes the cost of acquisitions and proceeds from the sale of subsidiaries. (b) Includes net movements in Separate Account assets. (c) This amount included capital increases in cash. It does not included non-cash transactions: (i) conversion of convertible bonds into ordinary shares, (ii) the merger of existing wholly-owned subsidiaries with and into AXA (the Company), and (iii) ordinary shares exchanged in connection with AXA’s buyout of minority interests in AXA Financial.
In most cases, the amounts available for dividends from AXA’s insurance subsidiaries are limited to the accumulated earnings calculated using the subsidiaries’ historical statutory basis of accounting. 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 or the approval of an independent actuary, or subject to individual terms contained in company by-laws.
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 and, in France or in certain other countries (as approved by local regulators), unrealized capital gains on marketable securities and real estate as reported in regulatory filings. AXA’s insurance operations in countries outside of the European
Since 2002, information relative to condensed US GAAP financial statement are presented in the chapter “Other financial information”.
This is a free translation into English of the auditors’ report issued in the French language and is provided solely for the convenience of English speaking readers. This report includes information specifically required by French law and this is presented below the Opinion on the consolidated financial statements. This information includes explanatory paragraphs discussing the auditors’ assessment of certain significant accounting matters. These assessments were made for the purpose of issuing an opinion on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the consolidated financial statements. The report also includes information relating to the specific verification of information in the group management report.
In compliance with the assignment entrusted to us by the shareholders, we have audited the accompanying consolidated financial statements of AXA for the year ended December 31, 2003.
The consolidated financial statements are the responsibility of the Management Board. Our role is to express an opinion on these financial statements based on our audit.
Opinion on the consolidated financial statements We conducted our audit in accordance with the professional standards applicable in France ; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. 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 the management as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
We have assessed the reasonableness of the assumptions used to calculate these values, particularly with respect to the Group’s loss experience and its regulatory and economic environments. We also assessed the overall consistency of these assumptions.
We have assessed the consistency of the valuation allowances with AXA’s intended holding periods for the related securities. Management indicated that AXA is able to hold these securities for a duration that is consistent with the intended holding periods.
Our assessments on these matters did not reveal findings that call into question the reasonableness of the basis on which these accounting estimates were made or the valuations that result from them.
Specific verifications and information We have also verified the information given in the Management Board’s annual report on operations. We have no matters to report with regard to its fair presentation and conformity with the consolidated financial statements.
Adoption of New International Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
1.1. SUMMARY OF MATERIAL DIFFERENCES BETWEEN FRENCH GAAP AND U.S. GAAP
Accounting for Business Combinations, Goodwill and Other Intangibles and Impairment or Disposal of Long-Lived Assets On January 1, 2002, AXA adopted statement of Financial Accounting Standards (“FAS”) No. 141 “Business acquisitions”, FAS 142 “Goodwill and other intangible assets”, and FAS 144 “Accounting for the Impairment of Long-
At the time of adoption January 1, 2002 the U.S. GAAP carrying value for goodwill was tested for impairment. In subsequent periods, goodwill is no longer amortized but rather subject to an impairment test, at least annually. In addition, at January 1, 2002 AXA ceased to amortize negative goodwill, which was eliminated and recorded in income: the after-tax cumulative effect of the change in accounting for negative goodwill was €12 million net group share.
Accounting for embedded derivatives. AXA elected a January 1, 1999 transition date, thereby effectively “grandfathering ” existing accounting for derivatives embedded in hybrid instruments acquired, issued or substantively modified on or before that date. As a consequence of this election, coupled with interpretative guidance issued by the Financial Accounting Standards Board (“FASB”) and the Derivatives Implementation Group (“DIG”) with regard to insurance contracts and features therein, adoption of the new requirements for embedded derivatives had no material impact on AXA’s consolidated financial condition and operating results under U.S. GAAP. There are currently no requirements to measure and recognize embedded derivatives under French GAAP.
Accounting for derivatives and hedging activities. Under FAS 133 all derivatives are on the balance sheet at fair value with changes in fair value (that is, the gains and losses) recorded in the income statement, unless the derivative is used as a hedging instrument. If the derivative is used as a hedging instrument, the accounting for such changes in fair value depends on the hedging relationship as summarized below.
– Fair value hedges. The derivatives are used to hedge for changes in fair value, including those linked to exchange rates variation. The entire change in fair value of the derivative is recorded in income along with the associated gain or loss on the hedged item attributable to the risk being hedged.
– Cash-flow hedges. The derivative instruments are used to cover for the change in cash flows including the effect of foreign exchange fluctuations. The change in fair value of the derivative attributable to the effective portion of the hedge is recorded in “other comprehensive income” (a separate component of shareholders’ equity), which is subsequently reclassified into income in the same period in which the forecasted transaction affects income. The change in fair value of the derivative attributable to the ineffective portion of the hedge is recorded in income.
AXA manages its risks and, therefore, its hedging strategies to meet the hedging requirements as set forth under
Reclassification of Fixed Maturity and Equity Investments Under the transition rules of FAS 133, AXA recorded the following reclassifications: – £19,806 million (or approximately €31,492 million at transition date) of “available-for-sale” securities as “trading”
securities, resulting in an after-tax cumulative-effect-type adjustment of €2,698 million from other comprehensive income to the statement of income, representing the after-tax unrealized gain of the assets backing the UK “With-
Under the transition provision of FAS 133, this reclassification does not call into question AXA’s intent to hold current or future debt securities to their maturity. This reclassification under U.S. GAAP had no impact on AXA’s accounting for its fixed maturity and equity investments under French GAAP.
In January 2003, the FASB issued FASB Interpretation No.46, “Consolidation of Variable Interest Entities”, an
“Consolidated Financial Statements” as it relates to certain entities called variable interest entities (“VIEs”). A VIE is an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk to finance its activities without subordinated financial support from other parties. VIEs will include vehicles formerly known as special purpose vehicles, such as, collateralized debt obligations (also known as debt securitizations) and depending on the facts and circumstances other vehicles, such as, investment in limited partnerships.
FAS 150: Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equities
1.1.2. SCOPE OF CONSOLIDATION Under US GAAP, entities are assessed for consolidation under one of two methodologies as summarized below.
– AXA is required to fully consolidate an entity if it is a variable interest entity (“VIE”) as defined under FASB issued
Interpretation No. 46, “Consolidation of Variables Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”) and
AXA is the primary beneficiary, that is, AXA has a variable interest which will absorb a majority of the VIE’s expected losses or receive a majority of its expected residual returns, or both. Such basis for determining if consolidation is required does not exist under French GAAP.
1.1.3. BUSINESS COMBINATIONS - PURCHASE ACCOUNTING Business acquisitions are generally accounted for using the purchase method of accounting under both French GAAP
In respect of significant acquisitions, material accounting differences between French GAAP and U.S. GAAP relate primarily to (i) the different methods of determining the purchase price attributable to the issuance of ordinary shares of AXA and settling / exchanging outstanding employee share options, (ii) the differences in the underlying accounting principles used for determining the value of net assets acquired between French GAAP and U.S. GAAP, and (iii) the portion of goodwill charged directly to shareholders’ equity when ordinary shares of AXA were issued in respect of transactions that were completed before the adoption of the new French Regulations on January 1, 2001.
the purchase price is determined at the closing date of the offer period whereas under U.S. GAAP the purchase price is determined at the date the merger agreement is signed and announced (so long as the terms of exchange are fixed), using the average market rate over a period consisting of a number of days before and after such date.
– In connection with an acquisition of a target company, not of a minority interest, under both French GAAP and
Value of Assets Acquired and Liabilities Assumed Under French GAAP, the portion of assets acquired and liabilities assumed, other than in connection with a buyout of minority interests, are recorded at their estimated fair value at the date of acquisition. The insurance liabilities are maintained at the predecessor’s carrying value if the measurement basis is consistent with AXA’s French accounting principles. The portion of assets acquired and liabilities assumed in connection with a buyout of minority interests are maintained at carrying value at date of acquisition.
Determination of Identifiable Intangible Assets French GAAP provides for the recognition of the present value of future profits of purchased Life insurance business in-force (VBI) as an intangible asset. Under U.S. GAAP, an intangible asset can be recognized at date of acquisition if there is either (i) a contractual or legal right or (ii) it is separable, that is, it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged. Such intangible assets may include, but are not limited to, customer and contract lists.
Under French GAAP, the goodwill asset is amortized over the remaining estimated useful life and subject to routine impairment testing. Effective from January 1, 2002 under U.S. GAAP, the goodwill asset is not amortized anymore but is subject to an impairment test at least annually. Any negative goodwill is amortized in income over the estimated remaining useful life under French GAAP whereas effective from January 1, 2002 under U.S. GAAP, negative goodwill is recorded in income immediately.
Under French GAAP, in the event that a subsidiary issues shares and there is a specific plan to repurchase such shares (at the time shares were issued), this gain is recorded in income with a corresponding charge to establish a provision, on a pre-tax basis. There is no impact on AXA’s consolidated net income and shareholders’ equity under
French GAAP. At the point in time when a portion or all of the issued shares are repurchased a portion or all of the provision will be released with a corresponding reduction in goodwill arising on the acquisition. Under U.S. GAAP, the after tax gain is accounted for as a capital transaction and recorded in shareholders’ equity.
Fixed Maturities, Equity and Real Estate, Other Than Assets Allocated to UK “With-Profit” Contracts In respect of the accounting for fixed maturity and equity investments outside of the separate accounts (unit-linked)
cost and historical cost, respectively, less valuation allowances. Under U.S. GAAP, the accounting for these securities depends on the investment classification: – securities classified as “held to maturity” are reported at amortized cost,
– securities classified as “trading” are reported at fair value with changes in unrealized gains and losses included in income, and
In respect of valuation allowances on impairment fixed maturity and equity securities and real estate investments, under French GAAP AXA has applied the rules for other-than-temporary decline in value as described in Note 2. Under
AXA has concluded for the periods presented that all declines in value in excess of cost should be realized as an other-than-temporary impairment in the income statement unless the decline in value was both (i) less than 20%
Assets Allocated to UK “With-Profit” Contracts The assets supporting the UK “With-Profit” contracts consist primarily of fixed maturity and equity securities. The
UK “With-Profit” contracts are participating contracts and distribution from the “With-Profit” long-term fund is based on legal restrictions whereby policyholders have a 90% right to all risks and rewards of the participating (“With-
"With-Profit" policyholder benefits was recorded against income in the same period. Accordingly, AXA believed that this exclusion under U.S. GAAP did not reflect fully the economic effect of the UK “With-Profit” contracts. An increase in the estimated fair value of these assets resulted in an increase in the liability for policyholder benefits, and a reduction of AXA’s consolidated net income. A decrease in the estimated fair value of assets resulted in a decrease in the liability for policyholder benefits, and an increase in AXA’s consolidated net income.
As a consequence, this led to AXA’s presentation of “U.S. GAAP, except for adjustment for the change in unrealized investment gains and losses on assets allocated to UK “With-profit” contracts” in the reconciliations of consolidated net income and consolidated shareholders’ equity from French GAAP to U.S. GAAP whereby the changes in market value of the assets allocated to UK “With-Profit” contracts were included in income: a presentation that AXA
Effective from January 1, 2001 and as permitted under the transition rules of FAS 133, “Accounting for derivatives instruments and hedging activities”, the fixed maturity and equity securities supporting the participating (“With-Profit”)
Equitable Life. 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 120, “Accounting and reporting by mutual Life insurance enterprises and by insurance enterprises for certain long-duration participating contracts’’. Under French GAAP, the liability for terminal dividends is accrued in proportion to gross margins over the life of the contract. For U.S. GAAP purposes, management elected not to implement FAS 120 for AXA's consolidated financial statements and, accordingly, has maintained its U.S. GAAP methodology for all long-duration participating life insurance contracts based on FAS 60 whereby the terminal dividends are taken into account in the establishment of reserve factors, and the reserves are accrued in proportion to premium revenue over the life of the contract.
Reinsurance contracts that cover Guaranteed Minimum Income Benefits (“GMIBs”) features of variable annuity
1.1.7. PLAN OF FINANCIAL REORGANIZATION OF AXA EQUITY & LAW (“THE PLAN”)
Under U.S. GAAP, the transaction could not be accounted for as a business combination, as it was a portfolio transfer within a commonly controlled group and, therefore, (i) no VBI was recognized, and (ii) the cost of the incentive bonus was recorded as an expense in the period, which was recorded as a decrease to U.S. GAAP net income of €433 million (adjustment in the reconciliation under the caption “Purchase accounting and goodwill”).
Cost of Reinsurance Due to the implementation of new French regulations, the cost of reinsurance is recorded in income in the year the reinsurance arrangement, including for long duration contracts, is placed with a third party reinsurer, including for long duration contracts. Under U.S. GAAP, the cost of reinsurance on long duration contracts is amortized into income over the lifetime of payments.
However, in prior periods, French GAAP differed from U.S. GAAP, as French GAAP did not eliminate such gains and losses if the seller or buyer was an insurance or reinsurance company. Consequently, this difference is still presented in AXA’s reconciliation of consolidated net income and consolidated shareholders’ equity from French GAAP to U.S.
Restructuring Provisions For restructuring provisions established prior to January 1, 2003 under French GAAP and U.S. GAAP, the nature of costs that can be included in restructuring provisions is generally similar. However, U.S. GAAP requires that certain conditions exist including the timing of recording restructuring provision for involuntary termination benefits.
Consequently, certain costs included in restructuring provisions under French GAAP are not permitted under U.S.
GAAP. These differences will reduce over time as the related restructuring costs are incurred.
(recognized if incurred only, a commitment to undertake a restructuring or exit plan is not sufficient) , and (ii)
Under U.S. GAAP, as the value of the long-term debt accretes according to the stated redemption price, this accretion, if significant, is amortized over the period up to earliest redemption date and is recorded as interest expense with a corresponding increase in the value of the principal outstanding in the balance sheet.
Under French GAAP, valuation allowances are recorded against deferred tax assets unless under an economic approach
109 “Accounting for Income Taxes” gives greater weight to previous cumulative losses than the outlook for future probability when determining whether deferred tax assets are realizable.
De-Recognition of Transferred Assets Assets transferred to entities in which AXA does not hold an ownership are permitted to be recognized as a disposal under French GAAP. Under U.S. GAAP any realized profit or loss on the disposal is eliminated if the transaction does not meet the requirements for de-recognition due to various factors including continuing involvement in the company’s management.
Applying these new methods, the Group has recognized an additional gross charge of €1,853 million on the statement of income, which was previously included as an unrealized loss under “Other Comprehensive Income”
Having examined the potential impact of this new impairment policy on the Group’s 2000 U.S. GAAP consolidated financial statements, the AXA Group has concluded that the application of these new methods does not justify any restatement for 2000.
Consolidated Net Income in Accordance with U.S. GAAP (in euro millions) Year ended December 31, 2001
– The partial recovery in the financial markets and its positive impact on investments in mutual funds, which are included at market value under U.S. GAAP (€+475 million).
– The reduction in non-temporary impairment charges on equity securities under U.S. GAAP (€+675 million). The differences between U.S. and French GAAP (described in section 1.1.4 below) led to the recording of €373 million net group share of valuation allowances under U.S. GAAP as opposed to €1,048 million under French GAAP (net group share).
– The recognition of the disposal gain on the Australian health insurance business (€+93 million), which was recognized in 2002 under French GAAP.
- Reduced non-temporary impairment charges on equity securities under U.S. GAAP (€+284 million).
- The increase in market value of mutual fund investments (€+134 million).
In the Property & Casualty segment, net income Group share was €777 million higher under U.S. GAAP, mainly due to (i) the increase in market value of mutual fund investments (€+294 million), (ii) reduced valuation allowances on equity securities (€+354 million) and (iii) the non-recognition of goodwill amortization charges (€+120 million).
In the Asset Management segment, the €142 million increase in net income Group share compared to French GAAP
The net income Group share of Holding companies was €222 million higher under U.S. GAAP, due to (i) the recognition of derivative instruments under FAS 133 (€185 million) and (ii) the recognition of the disposal gain on the Australian health insurance business (€+93 million), partially offset by (iii) the compensation charge arising on
This decrease was principally due to: – The impairment charge on equity securities under U.S. GAAP. The differences between U.S. and French GAAP
and AXA Corporate Solutions (reinsurance accepted), these contracts are considered as derivative instruments, and as such are accounted for at fair value under FAS133.
Ot he rs up ple m en ta ry fin an cia l inf or m at ion
The Life & Savings segment was the one most affected by these restatements. Net income Group share was €2,569 million lower under U.S. GAAP, due to: (i) The additional valuation allowance recorded against the Japanese deferred tax asset (€–1,014 million); (ii) A higher impairment charge on equity securities (€–926 million); (iii) The adverse impact of financial market trends on the value of investments in mutual funds (€–421 million); (iv) The recognition of deferred tax liabilities on future distributions in UK (€–345 million); (v) The recognition of 10% of the profit emerging from the UK “With-Profit” funds (€–274 million).
These factors were partly offset by: (vi) The absence of goodwill amortization as of 2002 (€+301 million).
French GAAP, mainly due to (i) the adverse impact of financial market trends on the value of investments in mutual funds (€–515 million), (ii) a higher impairment charge on equity securities for (€–589 million), partly offset by (iii) the absence of goodwill amortization as of 2002 (€+103 million).
Material differences (gross of taxes): Differences in scope of consolidation 471 (1,481) (614)
Investment accounting for UK “With-Profit” business assets: – Reclassification of fixed maturities and equity securities at January 1, 2001 – – 3,853
Taking into account 2003 results and the differences between French and U.S. GAAP, the Group’s consolidated U.S.
Major event known subsequently to December 31, 2003 In 2002, pursuant to Bernstein and SCB Partners Inc.'s exercise of their rights to sell limited partnership interests in Alliance Capital to AXA Financial. The acquisition generated a $122 million goodwill fully amortized over the period, reflecting the 3 points increased of AXA Financial ownership in Alliance Capital. On March 5, 2004, the former shareholders of Sanford C. Bernstein exercised their rights to sell 8,16 million Alliance Units. As a consequence, the ownership interest of AXA Financial in Alliance Capital at this date increased by 3 points from 56% to 59%.
Adoption of New International Accounting Standards In accordance with European Parliament Regulation (EC) 1606/2002, companies governed by the national law of an EU member state and whose shares are traded on a regulated market are to prepare their consolidated financial statements according to international accounting standards as of the financial year starting on or after January 1, 2005.
In view of this, in 2002, the Group devised a program to convert its French GAAP consolidated financial statements to these new international accounting standards. The program continued in 2003, and the Group strengthened its central project team, as well as setting up project teams within its main entities and holding steering committee meetings bringing together all CFOs of Group subsidiaries. Training seminars dealing with these new accounting standards were organized. A list of differences between these standards and French GAAP has been drawn up, concerning subjects non-specific to the Group’s activities, such as goodwill (which will simply undergo impairment tests instead of being amortized), stock options (which will automatically give rise to a charge), treasury shares (which must all be eliminated regardless of use), and the scope of consolidation (which will probably be larger under the new standards).
This program will continue in 2004 with a first draft project of the Group’s opening balance sheet, which may undergo substantial change due to the aforementioned uncertainties. The Group will also develop its IT systems, in order to ensure that new financial data not already produced through existing reporting procedures will be produced in future.
Financial Results over the Past Five Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Management Board’s Report on the Parent Company Financial Statements NET INCOME Net income for the fiscal year ended December 31, 2003 was €863 million, compared to €1,066 million for the year ended December 31, 2002.
Dividends received from European insurance companies totaled €621 million, versus €838 million in 2002. Dividends received from insurance companies outside of Europe totaled €256 million, versus €383 million in 2002.
Belgium in 2003 compared to €177 million in 2002, and lower dividends from Germany, where the dividend payment was cut back by €132 million to €41 million in 2003. These dividend reductions were attributable to lower profits in 2002 as a result of the tough conditions prevailing on the financial markets. Conversely, the dividend payments received from AXA France Assurance increased to €580 million from €478 million in 2002. The dividend paid in 2002 was topped up by a repayment of debt arranged with the Company.
The dividends received from insurance companies outside Europe decreased by €127 million as a result of the cutback in dividends paid by AXA Financial to €174 million from €302 million in the previous year. This reduction was intended to bolster AXA Financial’s financial position amid the strong expansion in its business activities, combined with the appreciation in the euro against the dollar.
Dividends from the financial services subsidiaries decreased by €28 million, since the exceptional dividend payment of €52 million by Compagnie Financière de Paris during 2003 was more than offset by the full impact of the reduction in the dividend paid by AXA Participations 2 to €147 million from €227 million in 2002 when it did not record such large capital gains as in 2001.
Net financial charges, including interest expense net of income from loans and investments, reached €157 million, up from €130 million in 2002, representing an increase of €27 million.
In 2003, capital gains (net of provisions releases) totaled €100 million, including €47 million on the sale of Schneider securities and €44 million from releases of provisions on Compagnie Financière de Paris securities. In 2002, they totaled €89 million, including a gain of €54 million also derived from the sale of Schneider securities.
The foreign exchange gain totaled €99 million in 2002, compared with €49 million in 2002. The hedging policy implemented by the holding company on net investments denominated in foreign currencies, to protect the group’s consolidated shareholders’ equity against currency fluctuations, induced gains during 2003, notably on the US dollar and sterling. In addition, the use of currency options to protect the AXA group’s dollar-denominated earnings against depreciation in the currency, gave rise to a gain of €18 million.
Releases of provisions for contingent liabilities amounted to €68 million, including €48 million related to guarantees given to Compagnie Financière de Paris. This provision, which was no longer required in 2003, covered the estimated losses on loans held by Compagnie Financière de Paris.
Allowances to provisions for contingent liabilities totaled €88 million at year-end 2003, compared to €102 million at year-end 2002. These allowances primarily related to redemption premiums payable on convertible bonds, which totaled €82 million, a similar amount to that set aside in 2002.
Pursuant to the Corporate Tax Group , tax savings are recorded directly in the financial statements of the parent company of the tax group. This had no impact on the year’s financial statements, since the entire tax savings generated by loss-making subsidiaries (€102 million) were provisioned given the high probability that these subsidiaries will return to profit for tax purposes.
BALANCE SHEET At December 31, 2003 the balance sheet totaled €41,656 million, versus €38,950 million at December 31, 2002.
This €79 million increase was primarily attributable to acquisitions of securities for €316 million and asset disposals for €227 million.
New equity issues totaled €62 million, including €47 million by AXA UK Holdings Limited, a holding company dedicated to the management of discontinued Property and Casualty portfolio business in the UK, primarily in order to enable this company to acquire shares in AXA Global Risks UK from AXA RE for €34 million.
The Company also increased its direct shareholding in AXA Financial by acquiring shares from one of its subsidiaries for €53 million.
Conversely, the Company sold Schneider securities on the market which acquisition cost was €53 million.
The pursuit of the selling program of real estate assets held by Société de Gestion Civile Immobilière (SGCI) and
Receivables from subsidiaries net of valuation allowances reached €3,156 million, compared with €2,034 million at year-end 2002.
This €1,123 million increase was primarily attributable to 10-year loans granted to AXA Insurance Holding Japan, for €980 million. These funds are intended to push up the subsidiary’s solvency ratios to well above the regulatory minimum and put them at a level that is more in line with the group’s internal requirements.
Other financial assets decreased by €227 million compared with the previous year. In particular, subordinated notes acquired by AXA in 2001 from its Australian subsidiary AXA Asia Pacific Holding were sold to AXA Groupe Life Insurance.
LIABILITIES Shareholders’ equity, before 2003 net income and after payment of dividends in respect of the prior year, totaled €26,655 million, an increase of €196 million, including €188 million in respect of new equity issues reserved for employee stock purchase program and €8 million in respect of subscription options exercised. In sum, 15,935,791 new shares were issued.
Company issued three new undated notes that were placed with private banking institutions in Europe and Asia, namely a $500 million issued in May 2003, a €200 million issue in October 2003 and a €300 million issue in
December 2003. These notes were issued as part of the €5 billion Euro Medium Term Note (EMTN) program. As well as benefiting from the highly favorable market conditions, these issues reinforced the group’s financial structure and enabled to anticipate the refinancing of debt maturing shortly, notably over the next two years.
Financial debt increased by €1,358 million, following the issue of bonds redeemable in shares or in cash (ORANs).
The €1.4 billion in financing raised by AXA for the potential acquisition of MONY took the form of an issue of bonds redeemable in shares or in cash subscribed upon the exercise of bond subscription warrants issued free of charge by AXA to its shareholders.
At December 31, 2003, other payables include primarily €54 million in remaining capital to be called-up on AXA Italia
Unrealized foreign exchange gains were €648 million in 2003, versus €279 million at year-end 2002. This item reflects the positive effects derived from the revaluation of denominated foreign currency assets and liabilities at the balance sheet date. This increase was mainly due to the decrease in debt issued in US dollars and sterling.
Ordinary shares Ordinary shares Capital in excess (number in millions) (nominal value) of nominal value Total
Exercise of share options and conversion of convertible bonds 804,969 2 6 8
The Management Board proposes that this amount be appropriated as follows: – allocation to the legal reserve €3,648,803
– allocation to the special reserve for long term capital gains €31,380,178
In accordance with the foregoing, the Management Board recommends that the dividend paid to each share be a net dividend of €0.38 for each of the 1,778,103,135 ordinary shares with a nominal value of €2.29 earning dividends as from January 1, 2003, payable as of May 3, 2004, for a total dividend (taking into account a tax credit of €0.19)
Gross carrying Amortizations Net carrying value as at value as at (in euro millions) value and provisions value December 31, 2002 December 31, 2001
Investments in and receivables from subsidiaries (a) – – 0 35,883 34,771
In 2003, these items are shown separately. (b) In 2002, this item included €2,004 million in loans to the Company's subsidiaries. These loans are now shown under receivables from subsidiaries.
Allowances: * for depreciation of buildings and deferred charges (26) (21) (21)
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX (VI = III + IV + V) 820 1,202 1,460
Net book value on the sale of fixed assets (171) (768) (1,165)
III. NET INCOME FOR THE FINANCIAL YEAR VI + VII +VIII 863 1,066 1,620
Financial Results Over the Past Five Years 01/01/1999 01/01/2000 01/01/2001 01/01/2002 01/01/2003 (in euro millions) 12/31/1999 12/31/2000 12/31/2001 12/31/2002 31/12/2003 1 - CLOSING BALANCE SHEET SUMMARY
a) Gross revenues before sales tax 1,576 1,755 2,232 1,981 1,474 b) Pre-tax income from continuing operations, before depreciation, amortization and changes in reserves 1,165 1,199 1,481 1,223 846 c) Total pre-tax income, including capital gains and losses before depreciation, amortization and changes in reserves 1,189 1,143 1,402 1,222 934 e) Net after-tax income after depreciation, amortization and changes in reserves 1,160 1,058 1,620 1,066 863 3 - PER SHARE DATA
A. Detailed information concerning subsidiaries and investments accounting for in excess of 1% of AXA’s shareholders’ equity 1) Subsidiaries (at least 50% owned)
CIE FINANCIERE DE PARIS “CFP” 9 69 100.00% 184 137, rue Victor Hugo, 92687 Levallois-Perret
AXA HOLDING UK 104 (60) 100.00% 109 140, Frenchurch Street, EC3M 6BL, London
AXA CANADA (a) (b) 145 121 100.00% 205 2020, rue University, Montréal, Québec H3A 2A5
AXA FRANCE ASSURANCE 378 3,762 100.00% 3,070 26, rue Drouot, 75009 Paris
AXA GENERAL INSURANCE HK 16 27 100.00% 65 30th F, Hong Kong Telecom Tower, Taikoo Place, 979 King's Road, Quarry Bay, Hong Kong
(a) For insurance companies: gross written premiums. For real estate companies: rents. For holding companies: dividends. For financial services companies : gross banking products.
Net book Loans and cash Guarantees and Last Last closingvalue of advances given commitments closing result Dividends Closing date securities by the company given by the revenues available (b) received and other held still outstanding Company available (a) observations
Gross book Share Other Percentage value capital shareholders’ of capital of securities equity held held
AXA UK Plc (b) 1,471 3,417 78.31% 4,556 107, Cheapside, EC2V 6DU, London
AXA ITALIA SpA 624 57 98.24% 715 15, Via Léopardi, 20123 Milano
AXA LIFE HONG KONG 6 0 100.00% 90 151, Gloucester Road, Wan Chai, Hong Kong
AXA HOLDINGS BELGIUM 453 1,399 84.30% 3,886 25, boulevard du Souverain, 1170 Bruxelles
AXA KONZERN AG 80 540 26.33% 703 Gereonsdriesch 9-11 postfach, 50670 Köln
a) in French companies (total) 57 b) in foreign companies (total) 45
For real estate companies: rents. For holding companies: dividends. For financial services companies: gross banking revenues.
Persons responsible for this annual report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356
– to perform any and all transactions directly or indirectly related to the foregoing or in furtherance thereof,
– in particular, to acquire and manage equity interests in any form, directly or indirectly, in any French or foreign company engaged in the insurance business.
Notification of statutory thresholds (Article 7 of the articles of incorporation and bylaws).
This notification must be made whenever an additional 0.5% threshold is reached. Failure to comply with the requirement to disclose the passing of statutory thresholds may entail the forfeiture of voting rights with respect to any shares exceeding the above referenced thresholds if ownership of these ordinary shares has not been duly disclosed to AXA. This period of forfeiture may last for two years as of the date on which the holder complies with these disclosure requirements.
The independent auditors are: Incumbent auditors: – PricewaterhouseCoopers Audit: 32, rue Guersant - 75017 Paris, represented by Mrs Catherine Pariset and
Its term of office is scheduled to expire at the close of the annual meeting of shareholders called to approve the financial statements for the year ending on December 31, 2009.
TABLE OF COMPENSATION PAID TO INDEPENDENT AUDITORS IN 2003 (in euro thousands) PricewaterhouseCoopers Mazars & Guérard
FINAXA owns the name “AXA” and the AXA trademark and, for this reason, is responsible for managing and protecting the trademark. In 1996, the Company and FINAXA entered into a licensing agreement pursuant to which
With this sum, must be added 50% of the annual fees that the Company would be brought to receive from licensees, that is to say, for the year 2003, a total amount of 3,817,000 euros which the Company will pay to FINAXA.
On September 12, 2001, the AXA Group (AXA, FINAXA and the Mutuelles AXA) and the BNP Paribas Group entered into an agreement that provides for maintaining a certain level of cross-shareholding between the parties (respectively a 4.9% ownership interest by the AXA Group in BNP Paribas and a 22.25% ownership interest by BNP Paribas in FINAXA). The agreement also grants each party a preemptive right to acquire the other party’s minimum equity investment following the termination of the agreement as well as an option to repurchase the ownership interests of the other party if there is a change in control of the other party. Furthermore, the AXA Group guarantees the liquidity of BNP Paribas’ holdings in ordinary shares of FINAXA. The agreement was concluded for a term of three years from the date of execution, renewable automatically for subsequent terms of three years, unless either party provides notice of termination at least three months before the end of the current term. This agreement was made public by the Conseil des Marchés Financiers on September 28, 2001.
Information concerning the share capital of the Company CHANGES IN SHARE CAPITAL
Date Operations Number Number Amount of share of shares Issue of shares after capital after the issued premium the operation operation in euros 1999 Share capital increase through capitalization of reserves (conversion of equity capital into euros) – – 350,288,821 3,205,142,712 Exercise of stock options 211,833 3,976,555 350,500,654 3,207,080,984 Conversion of bonds into shares 542,441 16,705,461 351,043,095 3,212,044,319 New equity issue reserved for employees 184,321 16,671,834 351,227,416 3,213,730,856 Exercise of stock options 624,365 16,208,125 351,851,781 3,219,443,796 Conversion of bonds into shares 1,036,410 31,931,307 352,888,191 3,228,926,947
New equity issue reserved for employees 572,561 10,935,915 1,733,028,257 3,968,634,708 Exercise of stock options 1,158,810 10,593,596 1,734,187,067 3,971,288,383
New equity issue reserved for employees of AXA 689,142 12,011,745 1,735,467,281 3,974,220,073
Exercise of stock subscription warrants (employees based in Germany) 443 8,461 1,735,614,909 3,974,558,141
New equity issue reserved for employees of AXA 1,294,128 10,275,376 1,763,802,141 4,039,106,903
Exercise of stock subscription warrants (employees based in Germany) 2,488 22,392 1,763,924,947 4,039,388,129
New equity issue reserved for employees of AXA 13,836,694 143,735,303 1,778,001,447 4,071,623,314
Exercise of stock subscription warrants (employees based in Germany) 368 3,278 1,778,103,135 4,071,856,179
February 29, 2004: To the best of the Management Board’s knowledge, no other shareholders own more than 5% of the share capital.
Besides, the Company has decided to communicate on other shareholders holding more than 2% of the share capital; to the best of the Management Board knowledge, there are none.
Of the 1,778,301,333 shares comprising the share capital, 471,371,749 shares entitled their holder to double voting rights at February 29, 2004.
Finaxa holds 95.42% of the share capital and 97.16% of the voting rights of ANF, a holding company that owns 0.31%
Finally, to the knowledge of the Company, companies of the AXA Group do not hold any AXA shares that are pledged.
In addition, still at the knowledge of the Company, some rare shareholders, individuals, having registered shares hold
Treasury shares 28,669,584 1.61% – Employees and agents 84,087,794 4.73% 5.16%
The following table describes the potential change in the Company’s share capital, assuming that the maximum number of new shares is issued following conversion of all convertible bonds and the exercise of all stock options.
Date of Board meeting 09/10/97 09/30/97 04/20/98 06/09/99 (a) (b) (b) (b)
Term of exercise of stock options 25% 09/10/99 25% 09/30/99 25% 04/20/00 25% 06/09/01
Number of shares subscribed at 02/29/2004 (c) 0 50,977 557,890 101,513
Subscription price in euros (d) 11.23 14.74 23.53 28.11 (a) Of Lor Finance origin. (b) Of AXA origin. (c) Adjusted amounts.
Option exercisable as of 11/18/01 07/05/02 07/12/02 11/13/02 05/09/03 Expiration date 11/17/09 07/04/10 07/11/10 11/12/10 05/08/11
Excluding stock option plans of UAP origin, stock options granted in plans up to November 18, 1999 may be exercised under the following conditions: – 25% of the total grant is exercisable at the end of the second year following the date of the grant; – 50% of the total grant is exercisable as of the third year following the date of the grant; – 75% of the total grant is exercisable as of the fourth year following the date of the grant; – 100% of the total grant is exercisable as of the fifth year following the date of the grant.
– 100% of the total grant is exercisable at the end of the fourth year following the date of the grant.
Initial allocation adjusted at 10/22/2003 (b) 9,866,010 10,879,297 – Number of beneficiaries 1,655 1,950 – Executive Committee allocation 2,219,432 2,934,587 – Executive committee beneficiaries (d) 12 12 Option exercisable as of 02/27/04 03/14/03 Expiration date 02/26/12 03/13/13 Discount granted 0.00% 0.00% Term of exercise of stock options 33.33% 02/27/04 33.33% 03/14/05
Number of shares subscribed at 02/29/2004 (b) 0 8,040 Options cancelled at 02/29/2004 (b) 823,761 216,848
Subscription price in euros (c) 20.88 € 10.96 € (b) Of AXA origin.
Term of exercise of stock options 25% 04/13/96 25% 07/10/98 25% 05/07/00 25% 05/26/01
In August 1996, Mofipar set up a stock option plan within the Company involving 33% of its share capital, for the benefit of employees, directors and officers of AXA.
AUTHORIZATIONS TO ISSUE SHARES AND OTHER SECURITIES The authorizations to issue shares and other securities, which were granted to the Management Board at the extraordinary and ordinary annual general meeting of shareholders held on April 30, 2003, and the authorizations submitted for approval by the shareholders at the meeting scheduled on April 21, 2004, are summarized in the tables below: Date of Board meeting 08/05/96 Date of Shareholders’ meeting 07/29/96
Issues without preferential subscription rights Maximum Maximum amount amount of the capital
Securities granting a claim to shares of the Company at maturity through subscription, conversion, exchange, redemption, presentation of a warrant or other 6 billion 1 billion 26 months June 30, 2005
Shares issued as a result of the issuance of bonds with stock subscription warrants and composite securities of Group subsidiaries – 1 billion 24 months April 30, 2005
Shares reserved for employees – 150 million 26 months June 30, 2005
Shares issued in connection with the exercice of stock options (a) – 3% of share capital 38 months July 2, 2005
(a) Resolution approved by the annual general meeting of shareholders held on May 3, 2002.
The Company did not repurchase any of its own shares in 2003. However, it did use derivative instruments to stabilize its share price on the market but there were no repurchase of shares. At December 31, 2003, there were no optional positions.
Maximum number of shares that can be bought or sold .................................. 149,160,549
We performed our works in accordance with the professional standards applicable in France. Those standards require that we plan and perform the review to obtain reasonable assurance about whether the evidence supporting the information in our possession is consistent with that information.
Agreements authorized during prior fiscal years and which remained in force during the year ended
STATEMENT BY THE INDEPENDENT ACCOUNTANTS This is a free translation into English of the statement issued in the French language and is provided solely for the convenience of English speaking readers. This statement includes information specifically required by French law. This should be read in conjunction with French law and professional auditing standards applicable in France.
We have audited the annual and consolidated financial statements for the years ended December 31, 2001, 2002 and 2003 drawn up by the Management Board, in accordance with professional standards in France, and issued an unqualified opinion thereon. In accordance with the requirements of Article L.225-235 of the Commercial Code, which are being applied for the first time in respect of 2003, our audit reports on the annual and consolidated financial statements for the year ended December 31, 2003 include explanations of the bases for our opinions. They concern the following items: – Consolidated financial statements : certain balance sheet line items that are specific to the insurance and reinsurance business, purchase goodwill, valuation allowances for other than temporary impairments in equity securities in the trading portfolio, and deferred taxes.
– Annual financial statements: equity securities and redemption premiums on bonds convertible into stock that are issued by the Company.
CERTIFICATIONS BY RESPONSIBLE PERSONS Certification by persons responsible for the document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355
CAPITAL Particularities (limitations to the voting rights exercise) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341
Changes in share capital during the past 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344
CAPITAL AND VOTING RIGHTS Current ownership of share capital and voting rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346
DESCRIPTION OF BUSINESS Description of business (relations between Company and subsidiaries, information on subsidiaries) . . . . . . . . . . . 98
Market and competitiveness position of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Performance indicators (creation of value for the Company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Ten first employees non director (stock option attributed and raised) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
- T h ie rr y Fo u lo n (
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