RISK FACTORS AND RISK MANAGEMENT 141 4.1 Risk factors 142 4.2 Internal control and Risk Management 155 4.3 Market risks 169 4.4 Credit risk 175 4.5 Liquidity risk 178 4.6 Insurance risks 179 4.7 Operational risk 183 4.8 Other material risks 184
CORPORATE RESPONSIBILITY 361 7.2 Social information 364 7.3 Environmental information 375 7.4 Responsible Investment, “Article 173”/Climate-related Financial Disclosures (TCFD) 381 7.5 Societal information 388 7.6 Vigilance Plan 396
APPENDICES 401 Appendix I Management’s annual evaluation of internal control over financial reporting 402 Appendix II Statement of the person responsible for the Registration Document 405 Appendix III AXA parent company financial statements 406 Appendix IV Group Embedded Value & AFR 432 Appendix V Glossary 433 Appendix VI Board of Directors’ report – Cross-reference table 438 Appendix VII Corporate governance report – Cross-reference table 439 Appendix VIII European Commission regulation (EC) No. 809/2004 of April 29, 2004 – 440 Cross-reference table Appendix IX Annual Financial Report – Cross-reference table 443
This Registration Document includes (i) all the components of the Annual Financial Report (Rapport Financier Annuel) referred to in paragraph I of Article L.451-1-2 of the French Monetary and Financial Code (Code monétaire et financier) as well as in Article 222-3 of the AMF General Regulation (Règlement Général de l’AMF) (please refer to the cross-reference table on page 443 of this Registration Document which indicates the relevant sections of this Registration Document corresponding to the items referred to in Article 222-3 of the AMF General Regulation), and (ii) all disclosure matters required to be included in the Board of Directors’ report to AXA’s Shareholders’ Meeting to be held on April 25, 2018, established pursuant to Articles L.225-100 and L.225-100-2 of the French Commercial Code (Code de commerce) (the relevant sections of this Registration Document corresponding to such required disclosures have been approved by AXA’s Board of Directors and are referred to in the cross-reference table on page 438 of this Registration Document as well as (iii) all the elements required to be included in the corporate governance report established pursuant to Articles L.225-37 et seq. of the French Commercial Code (Code de commerce) (the relevant sections of this Registration Document corresponding to such required disclosures have been approved by AXA’s Board of Directors and are referred to in the cross reference table on page 439 of this Registration Document (the “Annual Report”).
The Company’s ordinary shares are referred to in this Annual Report as “shares”, “ordinary shares”, “AXA shares” or “AXA ordinary shares”. The principal trading market for AXA’s ordinary shares is Euronext Paris (Compartment A), which we refer to in this Annual Report as “Euronext Paris”.
The Group’s consolidated financial statements and related notes are prepared in accordance with International Financial Reporting Standards (IFRS) (the “Consolidated Financial Statements”) and published in Euro (“Euro”, “euro”, “EUR” or “€”). Unless otherwise stated, all amounts in this Annual Report are (i) expressed in Euro, with applicable foreign exchange rates presented on page 27 of this Annual Report, and (ii) presented in millions for convenience. Such amounts may have been rounded. Rounding diff erences may exist, including for percentages.
Cautionary statement regarding forward-looking statements and the use of non-GAAP financial measures
AXA is building its future according to a clear strategic view. The Group will continue to shift its portfolio towards preferred segments, favoring products with high frequency c u s t o m e r c o n t a c t s a n d innovative additional services.
The new operating model is designed to provide teams with increased empowerment and accountability for their operational performance, making AXA’s transformation tangible on the ground, as close as possible to its clients.
The proposed 2017 dividend, payable in 2018, has increased by a further 9% to €1.26 per share, equivalent to a 49% payout.
AXA also recently acquired Maestro Health Inc., a US digital health benefits administration company, which will accelerate innovation at AXA and reflects AXA’s intention to adapt its model from P ayerto - P artner.
Implementation of the AXA Group corporate responsibility strategy continued in 2017. The Group continued to be a forerunner in the fight against global warming, taking a firm stand on the issue as it has done for the past several years. I had the opportunity to work with our teams on the launch of an innovative partnership between AXA and the International Finance Corporation (IFC), a subsidiary of the World Bank that supports climate related infrastructures projects in emerging countries aimed at protecting vulnerable populations.
AXA also successfully launched health and prevention products to serve the middle class in emerging countries, reaching 8 million policies by the end of 2017.
The Board of Directors will continue to devote significant attention to corporate responsibility matters with a view to contributing to sustainable economic development, taking into account the interests of society as a whole.
Executive Off icer and myself as Chairman of the Board. I am very honored by the confidence that the Board has shown me and welcome the opportunity to continue to work with the Group in the coming years.
On behalf of myself and the Board, I would like to extend my warmest thanks to all Group employees for their commitment and the energy invested during 2017 in implementing this most recent step in the Group’s transformation.
I am convinced that insurance has a key role to play in this changing environment. The insurance model, based on the diversification and mutualization of risks, brings a formidable and very relevant response to our societies’ most acute challenges.
I would like to thank our more than 100 million clients for their continued trust and all of our employees, agents, and partners who are AXA’s heart and image across the world.
Thomas Buberl Chief Executive Off icer 2017: the year of strategic decisions
AXA operates primarily in five geographies: France, Europe, Asia, the US and International (including the Middle East, Latin America and Africa).
(2) Ranking in terms of total assets established by AXA based on information available in 2016 Annual Reports.
• Italy (insurance activities and holding); ■ Asia, consisting in: • Japan (insurance activities),
• Asia Holding; ■ United States (insurance activities, AB and holdings); ■ International, consisting in: • 14 countries (*) within Europe, Middle East, Africa & Latin America, mainly including Turkey, Mexico, Morocco, Czech Republic & Slovak Republic and Luxembourg (insurance activities and holdings),
• AXA Bank Belgium; ■ Transversal & Central Holdings, consisting in: • AXA Investment Managers,
(b) An annual dividend is generally paid each year in respect of the prior year aft er the Annual Shareholders’ Meeting (customarily held in April or May) and before September of that year. Dividends are presented in this table in the year to which they relate and not in the year in which they are declared and paid. A dividend of €1.26 per share will be proposed at AXA’s Shareholders’ Meeting that will be held on April 25, 2018. Subject to the Shareholders’ Meeting approval, the dividend will be paid out on May 7, 2018, with an ex-dividend date of May 3, 2018.
The table set out below presents the key activity and earnings indicators. You should read it in conjunction with Section 2.3 “Activity Report” and the Glossary set forth in Appendix V to this Annual Report.
AXA determines its dividend policy on the basis of its adjusted earnings less interest charges on its outstanding undated debts. In 2015, AXA indicated that it targets to pay aggregate dividends in a general range of 45% to 55% of this amount (representing an increase from the prior indicative range of 40% to 50%). The dividend proposed by the Board of Directors in any particular year may vary considerably depending on a variety of factors (as noted above) which may have an impact on this target from one year to another. In assessing the dividend to be paid in any given year, Management tries to strike the appropriate balance between (i) prudent capital management, (ii) reinvestment of previous results to support business development and (iii) an attractive dividend for shareholders.
For further information on AXA’s dividend, see Note 29.4 “Other items: Restriction on dividend payments to shareholders” in Part 5 – “Consolidated Financial Statements” and Section 6.3 “General information – Bylaws - Dividends” of this Annual Report.
Acquisition of (i) Sanford C. Bernstein (United States) by AXA’s a sset m anagement subsidiary Alliance Capital, which subsequently changed its name to AllianceBernstein (now AB); (ii) the minority interest in AXA Financial and (iii) Japanese life insurance company, Nippon Dantaï Life Insurance company; and
Sale of Donaldson, Lufkin & Jenrette (United States) to Credit Suisse G roup.
Launch of ICBC-AXA Life, a Life insurance joint venture in China with ICBC; and
Acquisition of (i) 7% of African Reinsurance Corporation (“Africa Re”); (ii) BRE Insurance, mBank’s Property & Casualty subsidiary in Poland; (iii) the P&C large commercial risks insurance subsidiary of SulAmérica in Brazil; (iv) Commercial International Life, the Life & Savings joint-venture between Commercial International Bank (“CIB”) and Legal & General in Egypt and conclusion of an exclusive Life & Savings distribution partnership with CIB and (v) Genworth Lifestyle Protection Insurance; Launch of (i) AXA Strategic Ventures, a venture capital fund dedicated to emerging strategic innovations in insurance and financial services; and (ii) Kamet, an InsurTech incubator dedicated to conceptualizing, launching and accompanying disruptive InsurTech products and services; and
Acquisition of (i) Charter Ping An Insurance Co. and (ii) the Polish Property & Casualty operations of Liberty Ubezpieczenia from Liberty Mutual Insurance G roup; and
Sale of (i) the Property & Casualty commercial broker in the UK, Bluefin Insurance group Ltd, to Marsh, (ii) the Life & Savings insurance operations in Romania to Vienna Insurance group and (iii) AXA Life Europe Limited’s off shore investment bonds business to Harcourt Life International dac (recently renamed to Utmost Ireland dac), a subsidiary of the Life company Consolidation G roup.
Asia market includes AXA’s operations in seven countries (Japan, Hong Kong, Thailand, Indonesia, China, the Philippines and South Korea).
(a) Net of intercompany eliminations. (b) Restated: as per the new governance. (c) Include fees and charges related to investment contracts with no participating features and revenues from other activities.
AXA off ers insurance products, including Life & Savings, Property & Casualty, Health, as well as banking products off ered by AXA Bank Belgium. Types and specificities of the products off ered by AXA vary depending on geographies and cover a broad range of products including m otor, h ousehold, property and general liability insurance, term life, whole life, universal life, endowment, deferred annuities, immediate annuities, and other investmentbased products for both Personal/Individual and Commercial/ Group customers.
Through its operating entities located in more than 20 countries, AXA Investment Managers (“AXA IM”) provides its clients with a wide range of global products and expertise, in the a sset m anagement area, principally via m utual funds and dedicated portfolios. AXA IM’s clients include (i) institutional investors, (ii) individual investors to whom m utual funds are distributed through AXA and external distribution networks, and (iii) AXA’s insurance subsidiaries both for main fund and Unit-Linked fund backing insurance products. AXA IM’s expertise include (i) Fixed Income and Structured Finance, (ii) Framlington and Rosenberg Equities, (iii) Real Assets and (iv) Multi-Asset Client Solutions.
AXA Corporate Solutions Assurance is the Group subsidiary dedicated to large corporations for Property & Casualty, loss prevention, r isk m anagement, underwriting and claims handling and to specialty markets (Marine, Aviation, Space) worldwide.
Market conditions 27 2.2 OPERATING HIGHLIGHTS 30 2.3 ACTIVITY REPORT 34
Subsequent events aft er December 31, 2017 impacting AXA’s liquidity 78 2.5 EVENTS SUBSEQUENT TO DECEMBER 31, 2017 79 2ACTIVITY REPORT AND CAPITAL MANAGEMENT
In 2017, financial markets reacted to a number of important political events: elections in France, Germany, the United Kingdom, a referendum in Catalonia, protracted Brexit negotiations, as well as the passing of the US tax reform bill at the end of the year. Eurozone economic activity served up some positive surprises throughout the year, while the US continued its path of monetary policy normalisation in a trend that spread to other central banks, with the European Central Bank (ECB), the Bank of Japan (BoJ) and the Bank of England (BoE), all expected to normalize their accommodative policies over time.
In Europe, the main election results did not see the rise in populism that some might have feared: the election of Emmanuel Macron in France and the elections in Germany were taken as a relief by investors. In the United Kingdom, Prime Minister Theresa May called for early elections in June, which resulted in a weaker coalition with the Northern Ireland Democratic Unionist Party (DUP). The Eurozone had a particularly strong year and macroeconomic indicators surprised positively throughout 2017. Growth is expected to come in at around 2.2% in 2017 aft er 1.7% in 2016. The driving force was h ousehold consumption and investment, supported by a boost in confidence and low interest rates. The Euro area also benefited from the world trade recovery. The labour market continued to improve gradually, with the unemployment rate falling from 9.7% at the end of 2016 to 8.8% at the end of 2017, the lowest since January 2009. Inflation stood at around 1.5% on average in 2017 versus 0.2% in 2016. The European Central Bank began normalizing its monetary policy by announcing a reduction of its asset purchase program in October from €60 billion to €30 billion per month, beginning January 2018. In the United Kingdom, GDP slowed in 2017, recording growth of 1.5% aft er 2.0% in 2016, while inflation peaked at 2.7% on average in 2017. The depreciation of the Sterling accounted for 0.7%. In this context, the Bank of England raised its key interest rate by 25 basis points in November.
Chinese growth remained stable in 2017 (6.8% aft er 6.7% in 2016) as Beijing continues to implement macro-prudential reforms. Brazil and Russia were back to positive growth and are expected to grow at around 1.0% and 1.9% respectively in 2017.
Equity markets in the United States, Japan and Europe posted gains in 2017. The MSCI World Index increased by 16.3%.
The Dow Jones Industrial Average index increased by 25.1% and the S&P 500 index increased by 19.4% in 2017. The Nikkei index in Tokyo increased by 19.1% and the FTSE 100 index in London increased by 7.6% in 2017. The EUROSTOXX 50 index in the Eurozone increased by 6.5%.
The 10-year government bond yields increased also in most of the Eurozone peripheral countries: +18 bps to 2.00% in Italy and +18 bps to 1.57% in Spain while it decreased by 301 bps to 4.12% in Greece, by 183 bps to 1.93% in Portugal and by 9 bps to 0.68% in Ireland.
In Europe, the Property & Casualty market experienced growth. In Belgium, growth was in line with inflation while the market remained competitive. In Spain, growth was boosted by the economic recovery. The Swiss market remained saturated and very competitive with continuing pressure on prices. In Italy, the market was impacted by the continued decrease in average premiums in Motor. In Life & Savings persistently low interest rates continued to weigh, notably in Belgium, Italy and Switzerland. In Spain, the market decreased further as growth in Unit-Linked business was more than offset by the further decrease in clients appetite for G/A products. In Germany, the Health business remained challenged by a decrease in the number of privately insured clients.
In Japan, the Life & Savings insurance market declined sharply, negatively impacted by the strong decrease in the Protection and Annuity markets following tariff increases, which was partly off set by the development of tax-eff icient savings products for SME in Health.
In Hong Kong, the Life & Savings new business sales declined significantly following a strong performance in 2016 and were notably impacted by restrictions put in place for Mainland
Chinese visitors. The market is facing increased competition, notably from both Chinese and local players. In Property & Casualty, premiums grew modestly and profitability was impacted by natural catastrophes.
France 3 8.9 2 14.2 FFA as of December 31, 2017.
United States Variable Annuities 3 10.8 n/a n/a Morningstar VARDS as of September 30, 2017.
n/a n/a 2 8.0 UK General Insurance: Competitor Analytics 2017, Verdict Financial, as of December 31, 2016.
United Kingdom Health n/a n/a 2 30.8 LaingBuisson 2017 HealthCover report, as of December 31, 2016.
Ireland (Northern Ireland) Motor n/a n/a 1 27.0 Driver & Vehicle Licensing Authority registered vehicle numbers, as of December 31, 2016.
Belgium 3 8.4 1 17.8 Assuralia (Belgium Professional Union of Insurance companies) based on gross written premium as of September 30, 2017.
Italy 6 4.4 6 5.2 Associazione Nazionale Imprese Assicuratrici (ANIA). Ranking and market share as of December 31, 2016.
Brazil n/a n/a 20 0.2 SUSEP (Superintendência de Seguros Privados) as of December 31, 2016.
Mexico 9 2.6 3 10.3 AMIS (Asociacion Mexicana de instituciones de Seguros) as of September 30, 2017.
Thailand 4 12.4 16 1.6 TLAA (Thai Life Assurance Association) & TGIA (Thai General Insurance Association) statistics report as of November 30, 2017.
Institutional investors further diversified their portfolios with an increased focus on cost and better alignment of interests. In a market environment characterized by political turbulence and rising interest rates, inflows in Mutual funds have been very dynamic in 2017. Significant inflows confirmed strong appetite for multi-assets and equity strategies, while inflows on fixed income strategies were focused on global currencies, global emerging markets and floating rates.
Responsible investment has become more mainstream and remains on the agenda of institutional investors. This is a growing area of focus for retail and wholesale investors as well.
In the Asset Management market, AXA Investment Managers ranked 19th (1) and AB 34th (1) based on volume of assets under management. On a combined basis, AXA ranked 10th (1).
(1) Ranking established by AXA based on information available as of September 30, 2017.
Should shareholders approve these proposed renewals, the Board of Directors would reappoint Mr. Denis Duverne as Chairman of the Board and Mr. Thomas Buberl as Chief Executive Off icer of AXA.
On April 28, 2017, AXA announced that it had completed the sale of its Life & Savings insurance operations in Romania to Vienna Insurance G roup and exited the Romanian market. Vienna Insurance G roup’s subsidiaries BCR Life and Omniasig acquired 100% of AXA Life Insurance SA (1).
AXA completed the sale of AXA Life Europe Limited’s off shore investment bonds business to Life Company Consolidation G roup
On July 3, 2017, AXA announced that it had completed the sale of AXA Life Europe Limited’s off shore investment bonds business to Harcourt Life International dac (recently renamed to Utmost Ireland dac), a subsidiary of Life Company Consolidation G roup.
AWM is a licensed life insurer in Hong Kong, managing individual policies through a network of salaried consultants under the Swiss Privilege brand. In 2016, it represented approximately 2% of AXA Hong Kong’s Life & Savings new business APE.
This transaction would be in line with the Group’s portfolio simplification, and would allow AXA Hong Kong to focus on its core Life agency and broker channels, while simplifying its corporate structure. AXA remains committed to grow the Life, Health and Property & Casualty businesses in Hong Kong across all customer segments including high net-worth individuals.
On February 21, 2018, AXA announced it had entered into an agreement with Mr. Elkhan Garibli to sell all its insurance operations in Azerbaijan. Under the terms of the agreement, Mr. Elkhan Garibli would acquire 100% of the non-life entity (AXA MBask Insurance company OJSC).
(1) AXA Life Insurance SA is the AXA Life & Savings operating entity in Romania.
AXA and Uber signed a partnership in view of strengthening the protection of independent workers in the digital sector
As part of this innovative partnership, the AXA Group will bring its experience in the protection of independent workers, notably on coverage of medical expenses, disability indemnities, and survivor benefits in case of an accident. For its part, Uber will off er a new protection for free that will enable these independent workers to work flexibly with peace of mind.
On March 6, 2018, S&P Global Ratings placed the ‘AA-‘ financial strength rating of AXA’s core operating subsidiaries on CreditWatch with negative implications.
On March 6, 2018, Fitch Ratings placed the ‘AA-‘ financial strength rating of AXA’s core operating subsidiaries on Rating Watch negative.
On March 7, 2018, Moody’s Investors Service aff irmed the ‘Aa3’ insurance financial strength rating of AXA’s principle insurance subsidiaries, changing the outook to negative from stable .
On January 11, 2017, AXA announced the successful placement of $1 billion of Reg S subordinated notes due 2047 to institutional investors to refinance, in advance, part of its outstanding debt.
On April 6, 2016, the US Department of Labor (the “DOL”) issued a final rule that significantly expands the range of activities that would be considered to be fiduciary investment advice (the “Fiduciary Rule”) under the Employee Retirement Income Security Act of 1974 (“ERISA”). Pursuant to the new regulation, advisors and employees, including those aff iliated with AXA US, who provide investment-related information and support to retirement plan sponsors, participants, and Individual Retirement Account (“IRA”) holders would be subject to enhanced fiduciary duty obligations and requirements. In February 2017, the DOL was directed by memorandum (the “President’s Memorandum”) to review the Fiduciary Rule and determine whether the rule should be rescinded or revised, in light of the new administration’s policies and orientations. In response, in March 2017, the DOL published a notice soliciting comments on the examination described in the President’s Memorandum, which were due in April 2017. In addition, in April 2017, the DOL announced that the applicability date of the Fiduciary Rule was deferred from April 10, 2017, to June 9, 2017. The Fiduciary Rule became partially eff ective on June 9, 2017, with a special transition period, ending January 1, 2018, for certain of the Fiduciary Rule’s requirements. On July 6, 2017, the DOL published a request for information in connection with its examination of the Fiduciary Rule, on which comments were requested by August 7, 2017, at the latest. On November 29, 2017, the DOL extended the special transition period from January 1, 2018, to July 1, 2019, with the primary purpose of considering public comments under the criteria set forth in the President’s Memorandum, including whether possible changes and alternatives to exemptions would be appropriate in light of the current comment record and potential input from, and action by, the Securities and Exchange Commission and other regulators.
While the extent and timing of the implementation of the Fiduciary Rule continue to remain uncertain, and are currently subject to judicial challenge, Management continues to evaluate its potential impact on AXA US. If implemented as planned, and unless repealed or meaningfully revised, the new Fiduciary Rule is currently expected to cause adverse changes to the level and type of services provided by AXA US and its aff iliated advisors and firms, as well as the nature and amount of compensation and fees such entities receive which may have a significant adverse eff ect on AXA US’s business and operations.
On May 10, 2017, AXA announced its intention to list a minority stake of its US operations (1) (expected to consist of its US Life & Savings business and AXA Group’s interest in AB) in the first semester of 2018, subject to market conditions. To enhance the capitalization of the US operations ahead of the IPO, about $1 billion of outstanding debt owed by AXA US to AXA Group will be converted into equity. The proceeds of the IPO will be reinvested in the Group’s priority lines of business, including Health, Capital-light Savings, Protection and P&C Commercial lines, in line with the Ambition 2020 strategy, and/or potentially
(1) Expected NYSE listing of AXA Equitable Holdings, Inc., which is expected to consist of the AXA US Life & Savings business and the AXA Group’s interest in AllianceBernstein LP and AllianceBernstein Holding LP (“AB”). AXA America Corporate Solutions Inc. is not expected to be part of the IPO.
AXA SA announced filing of AXA US registration statement for initial public off ering
On November 13, 2017, AXA SA (“AXA”) announced the filing by AXA Equitable Holdings, Inc. (“AEH”), AXA’s wholly-owned US holding company, of a registration statement on Form S-1 with the US Securities and Exchange Commission (“SEC”) relating to the proposed initial public offering (“IPO”) and US listing of AEH common stock. The off ering is expected to consist of a minority stake in AEH’s common stock, to be sold by AXA as selling stockholder. AXA anticipates that the IPO will occur in the second quarter of 2018. There can be no assurance that the IPO will be completed on the expected timeline or at all.
The shares will be offered by a group of underwriters led by Morgan Stanley & Co. LLC and J.P. Morgan LLC. The number of shares to be off ered and the price range for the proposed off ering have not yet been determined. When available, copies of the preliminary prospectus relating to the off ering may be obtained from: Morgan Stanley & Co. LLC, Attention: Prospectus Department, 180 Varick Street, 2nd Floor, New York, New York 10014 or J.P. Morgan Securities LLC, c/o Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, New York 11717 Attention: Prospectus Department, or by calling toll-free at (866) 803-9204.
On February 15, 2018, AXA SA (“AXA”) announced the filing by AXA Equitable Holdings, Inc. (“AEH”), AXA’s wholly-owned US holding company, of Amendment No. 1 to the registration statement on Form S-1 with the US Securities and Exchange Commission (“SEC”) relating to the proposed initial public off ering (“IPO”) and US listing of AEH common stock. The off ering is expected to consist of a minority stake in AEH’s common stock, to be sold by AXA as selling stockholder. AXA anticipates that the IPO will occur in the second quarter of 2018. There can be no assurance that the IPO will be completed on the expected timeline or at all.
A registration statement relating to the proposed IPO has been filed with the SEC but has not yet become effective. These securities may not be sold nor may off ers to buy be accepted prior to the time the registration statement becomes eff ective. The press release associated does not constitute an offer to sell or the solicitation of an off er to buy securities, and shall not constitute an off er, solicitation or sale in any jurisdiction in which such off er, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction.
Following Shareplan 2017, on December 31, 2017, AXA’s employees held 5.34% of the share capital and 6.88% of the voting rights.
The total number of outstanding AXA shares amounted to 2,425,235,751 on December 31, 2017.
On December 12, 2017, AXA announced several new ambitious decisions to accelerate its commitment to fight climate change.
In 2015, AXA committed to reach €3 billion in green investments by 2020. Given that this target has already been reached, the Group has decided to quadruple its original target and reach €12 billion green investments by 2020. This accelerated target is twice as high as the recent recommendation from Christiana Figueres, former Executive Secretary of the United Nations Framework Convention on Climate Change and one of the leading architects of the COP21, to invest 1% of assets into green and clean technology by 2020.
AXA decided two years ago to divest €500 million from the coal industry by targeting companies which derive over 50% of their revenues from coal. The Group has decided to increase its divestment fivefold to reach €2.4 billion, by divesting from companies which derive more than 30% of their revenues from coal, have a coal-based energy mix that exceeds 30%, actively build new coal plants, or produce more than 20 million tonnes of coal per year.
It would be inconsistent to commercially support industries that the Group is divesting from. Therefore, AXA will stop insuring any new coal construction projects. Similarly, the Group will stop insuring the main oil sands and the associated pipeline businesses.
AXA also leads the European Union High Level Expert group on Sustainable Finance, and supports several coalitions such as the Climate Action 100+ initiative and the United Nations Principles for Responsible Investment (UN PRI).
Consolidated gross revenues amounted to €98,549 million as at December 31, 2017, down 2% compared to December 31, 2016, on reported basis and stable on a comparable basis.
AXA has introduced Health as a separate line of business for activity and underlying earnings indicators. Unless otherwise specified, Life & Savings and Property & Casualty lines of business therefore exclude the Health business.
Gross revenues were down 2% on a reported basis and stable on a comparable basis to €98,549 million. The growth in the United
States, International and Transversal & Central Holdings, was off set by a slowdown in Europe and Asia.
Asia gross revenues were down 3% (or €-249 million) to €8,985 million on a comparable basis, mainly from: ■ Japan (€-304 million or -6%) to €4,647 million from (i) Life & Savings mainly due to lower new business from the G/A capital light Single Premium Whole Life product in the context of new regulatory requirements eff ective late 2016, partly off set by (ii) Health mainly due to Medical Whole Life products driven by higher inforce revenues and the success of a New Medical Care product launched in the third quarter 2017; ■ Hong Kong (€+78 million or +2%) to €3,170 million from (i) Life & Savings from Protection and G/A Savings both due to new business sales and in-force growth, partly off set by Unit-Linked due to the prolonged impact of the regulatory changes and lower single premiums, (ii) Health mainly driven by higher volumes in Individual, and (iii) Property & Casualty mainly stemming from higher new business; ■ Asia – Direct (€-26 million or -3%) to €989 million driven by Motor in (i) South Korea following the implementation of a new strategy targeting clients with a low risk profile, and (ii) Japan mainly due to the non-repeat of a refinement of accounting methodology.
The United States gross revenues were up 2% (or €+413 million) to €16,911 million on a comparable basis: ■ The United States Life & Savings (€+183 million or +1%) to €14,210 million mainly from Unit-Linked driven by higher sales of non-GMxB Variable Annuity products, partly off set by a decrease in GMxB Variable Annuity sales, and Mutual funds & Other reflecting higher advisory sales from favorable market conditions; ■ AB (€+230 million or +9%) to €2,700 million mainly driven by higher management fees resulting from favorable product mix and higher average AUM.
premiums by the government starting from April 12, 2017, as well as the introduction of an insurance pool.
Transversal & Central Holdings gross revenues were up 1% (or €+48 million) to €5,152 million on a comparable basis, mainly from: ■ AXA Investment Managers (€+111 million or +9%) to €1,276 million driven by higher management, performance and other fees, as well as higher transaction fees; ■ AXA Corporate Solutions Assurance (€+56 million or +2%) to €2,322 million driven by Marine, Liability and Property mainly from strong business growth in the United Kingdom and Brazil, partly off set by Construction due to actions undertaken to protect the profitability; partly off set by: ■ AXA Life Europe (€-134 million or -95%) to €7 million as a result of the decision to stop sales of the Secure Advantage product, mainly in the United Kingdom.
Europe (€1,034 million, 16% of total) down €85 million (-8%) from (i) Switzerland (€-36 million) primarily driven by the nonrepeat of the sale of a large Group Protection contract in 2016, (ii) Germany (€-21 million) reflecting lower new business in G/A traditional business, (iii) Italy (€-15 million) mainly from G/A Savings partly off set by Unit-Linked, driven by the diff iculties faced by Banca Monte dei Paschi di Siena and the commercial focus on new Unit-Linked products launched in 2H17, and (iv) Spain (€-13 million) in line with the strategy to shift towards capital light products.
Asia (€1,510 million, 23% of total) down €103 million (-6%) mainly from (i) Hong Kong (€-69 million) driven by Protection with Savings mainly due to a strong competition notably on the short term pay whole of life participating products with attractive policyholder returns, Health mainly reflecting the non-repeat of the sale of a large Group contract in 2016, and Unit-Linked due to the prolonged impact of the regulatory changes, and (ii) Japan (€-38 million) mainly due to lower new business in the G/A capital light Single Premium Whole Life product in the context of new regulatory requirements eff ective late 2016.
The United States (€1,799 million, 28% of total) up €107 million (+6%) mainly from Mutual F unds & Other reflecting higher advisory sales from favorable market conditions.
International (€278 million, 4% of total) up €37 million (+15%) notably from higher Unit-Linked sales in Singapore.
Net capital gains or losses attributable to shareholders net of income tax 455 237 237 23 (60) (7) 26
Profit or loss on financial assets (under fair value option) and derivatives (134) 31 (2) (59) 96 11 (211)
Exceptional operations (including discontinued operations) 124 (252) (57) (0) 268 (22) 187
Amortization of value of purchased life business inforce (169) - (127) (28) (10) (4) -
Underlying earnings before tax from insurance activities 7,641 1,931 3,085 1,137 912 288 288
Underlying earnings before tax from other activities 56 (2) 91 (2) 499 68 (598)
Net capital gains or losses attributable to shareholders net of income tax 415 152 237 19 8 (21) 20
Adjusted earnings, Underlying earnings and Adjusted Return on Equity are Alternative Performance Measures as defined in ESMA’s guidelines issued in 2015. A reconciliation from non-GAAP financial measures Underlying earnings and Adjusted earnings to the most directly reconcilable line item, subtotal or total in the financial statements of the corresponding period is provided in the above tables. Adjusted Return on Equity is reconciled to the financial statements in the table set forth on page 43 of this Annual Report.
Adjusted earnings represent the net income (Group share) as disclosed in Part 5 - “Consolidated Financial Statements” of this Annual Report, before the impact of the following items net of policyholder participation, deferred acquisition costs, VBI, taxes and minority interests: ■ integration and restructuring costs related to material newlyacquired companies as well as restructuring and associated costs related to productivity improvement plans;
■ goodwill and other related intangibles; ■ exceptional operations (primarily changes in scope and discontinued operations); ■ profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets.
Underlying earnings correspond to adjusted earnings without the following elements net of policyholder participation, deferred acquisition costs, VBI, taxes and minority interests: ■ realized gains and losses and change in impairment valuation allowance (on assets not designated under fair value option or trading assets); and
The Adjusted Return on Equity (“Adjusted RoE”) is calculated as adjusted earnings net of financial charges related to undated subordinated debt (recorded through shareholders’ equity as disclosed in Part 5.4 - “Consolidated Statement of Changes in Equity” of this Annual Report) divided by the weighted average shareholders’ equity. The weighted average shareholders’ equity: ■ is based on opening shareholders’ equity adjusted for weighted average impact of capital flows (including dividends); ■ without reserves relating to the change in the fair value of financial investments available for sale as disclosed in Part 5.4 – “Consolidated Statement of Changes in Equity” of this Annual Report; ■ without undated subordinated debt as disclosed in Part 5.6 – “Note 13 Shareholders’ Equity and Minority Interests” of this Annual Report.
On a constant exchange rate basis, underlying earnings before tax from insurance activities increased by €249 million (+3%) to €7,758 million: ■ Lower investment margin (€-154 million or -3%) mainly driven by lower reinvestment yields on fixed income assets across geographies, primarily in Europe (€-133 million) and France (€-47 million), partly off set by Turkey (€+46 million) stemming from both higher interest rates and average asset base; ■ Higher fees & revenues (€+259 million or +3%) primarily from higher Unit-Linked management fees (€+254 million). This growth is driven by (i) the United States Life & Savings (€+111 million) mainly driven by favorable equity market conditions, (ii) France (€+89 million) mainly reflecting a higher asset base as well as higher average fee bps, and (iii) Europe
(€+44 million) mostly from Italy (€+46 million) mainly due to higher account value on Unit-Linked products as well as higher average fee bps; ■ Lower net technical margin (€-144 million or -1%) primarily in (i) the United States (€-524 million) mainly due to unfavorable actual mortality and morbidity experience as well as model and assumption changes (mostly off set in Deferred Acquisition Costs). This was partly offset by (ii) Europe (€+166 million) mainly driven by favorable weather conditions and the nonrepeat of terrorist attacks of March 2016 in Belgium, the nonrepeat of an unfavorable 2016 prior year reserve development in Germany, and a favorable prior year reserve development in Spain and Switzerland, (iii) France (€+150 million) mainly driven by Property & Casualty from a lower current accident year loss ratio stemming from the cancellation of unprofitable contracts in Commercial lines and a favorable prior year reserve development, as well as Life & Savings mainly due to a higher profitability in Protection, and (iv) International (€+102 million) mainly due to the acquisition of Liberty Ubezpieczenia and the first consolidation of Property & Casualty traditional activities in Poland, and a favorable business mix combined with a positive volume eff ect in Brazil;
On a constant exchange rate basis, underlying earnings before tax from other activities decreased by €41 million (-73%) to €-2 million: ■ Europe (€-68 million or -75%) mainly driven by the non-repeat of an exceptional decrease in pension costs in 2016 in Germany Holdings; ■ International (€-19 million or -28%) mainly due to the decrease in gross revenues at AXA Bank Belgium; ■ The United States (€+69 million or +14%) driven by AB from higher gross revenues and staff costs containment initiatives, partly off set by higher promotion and servicing expenses as well as one-off charges linked to the reduction of real estate footprint and vendor termination payment; ■ Transversal & Central Holdings (€-20 million or -3%): • AXA SA (€-63 million or -7%) mainly driven by higher financial charges,
AXA SA, as well as higher positive tax one-off s in the United States Life & Savings (€202 million in 2017 vs. €164 million in 2016).
On a constant exchange rate basis, the Property & Casualty combined ratio remained stable at 96.3% as the negative impact from higher natural events (+0.8 point) notably from the earthquakes in Mexico and Harvey, Maria, Irma and Lydia hurricanes, were fully off set by a better claims experience notably in France and International. Prior year reserve development slightly deteriorated by 0.1 point to -1.2 points.
On a constant exchange rate basis, the Protection combined ratio improved by 0.2 point to 96.9% as the deterioration in the United States driven by adverse mortality margin, partly off set by lower expenses due to lower Deferred Acquisition Cost amortization, was more than off set by an improvement in France, Europe and International as a result of a lower loss ratio.
Net realized capital gains and losses attributable to shareholders amounted to €455 million. On a constant exchange rate basis, net realized capital gains and losses attributable to shareholders increased by €40 million due to: ■ €+266 million lower impairments to €-127 million mainly driven by equity securities (€+176 million), alternative investments (€+41 million), real estate (€+25 million) and fixed income assets (€+22 million); ■ €-24 million more unfavorable change in intrinsic value to €-92 million related to equity hedging derivatives;
■ €-202 million lower net realized capital gains to €674 million mainly driven by fixed income assets (€-248 million to €-65 million), equity securities (€-47 million to €+330 million) and real estate (€-27 million to €+208 million), partly off set by alternative investments (€+118 million to €+201 million).
• the change in the fair value of interest rate and credit derivatives not eligible for hedge accounting under IAS 39, down €11 million to €-205 million,
• the adverse impact of regulatory changes on annuity legal indexation at AXA France (€-0.2 billion) and the impact of the partial write-off of the net deferred tax asset position in France due to the decrease in the corporate tax rate from 34% to 26% enacted in 2017 and eff ective in the coming years (€-0.2 billion),
Reserves relating to changes in fair value of financial liabilities measured at fair value through profit and loss that are attributable to changes in own credit risk (23)
Adjusted earnings (Euro per Ordinary Share) 2.60 2.59 2.42 2.41 7.6% 7.6%
Underlying earnings (Euro per Ordinary Share) 2.41 2.40 2.24 2.24 7.4% 7.3%
Gross revenues decreased by €83 million (0%) to €24,475 million. On a comparable basis, gross revenues increased by €10 million (0%): ■ Health (€+474 million or +14%) to €3,877 million. On a comparable basis, Health gross revenues increased by €474 million (+14%) reflecting an increase in Group business (€+449 million) driven by tariff and volume increases in both international and domestic markets as well as in Individual business (€+25 million) due to higher renewals; ■ Property & Casualty (€-30 million or 0%) to €7,307 million. On a comparable basis, Property & Casualty gross revenues increased by €39 million (+1%) driven by Commercial lines (€+26 million) due to higher volumes in assumed business and tariff increases in all segments as well as higher volumes in the Credit & Lifestyle Protection business, and Personal lines (€+12 million) mainly stemming from the Direct business;
NBV Margin increased by 3.5 points to 34.5% mainly driven by (i) favorable economic conditions reflecting favorable equity markets, lower interest rate volatilities and lower equity volatilities, (ii) the decrease in the corporate tax rate, and (iii) the positive impact of a change in policyholder behavior assumptions.
Underlying earnings increased by €44 million (+3%) to €1,429 million. On a constant exchange rate basis, underlying earnings increased by €47 million (+3%).
Adjusted earnings increased by €129 million (+8%) to €1,666 million. On a constant exchange rate basis, adjusted earnings increased by €132 million (+9%) driven by higher underlying earnings and higher net realized capital gains.
(a) Net of intercompany eliminations. (b) Restated: reallocation of Direct Insurance business into the other Property & Casualty activities, as well as banking activities and holdings into the Other activities. (c) Other corresponds to banking activities and holdings.
APE decreased by €41 million (-14%) to €259 million. On a comparable basis, APE decreased by €36 million (-12%) driven by Protection (€-29 million) mainly due to the non-repeat of the sale of a large Group contract in 2016 and lower sales in Individual Life.
Underlying earnings before tax increased by €63 million (+7%) to €1,014 million. On a constant exchange rate basis, underlying earnings before tax increased by €83 million (+9%): ■ Life & Savings (€+68 million or +19%) to €419 million. On a constant exchange rate basis, Life & Savings underlying earnings before tax increased by €77 million (+22%) mainly driven by lower amortization of VBI (€+63 million) mainly due to the non-repeat of model assumption update combined with lower expenses (€+9 million) as well as an improved net technical margin (€+8 million). Investment margin increased by €5 million due to higher distribution from private equity investments;
■ Property & Casualty (€+5 million or +1%) to €606 million. On a constant exchange rate basis, Property & Casualty underlying earnings before tax increased by €18 million (+3%) as a higher current year combined ratio (+2.8 points) mainly due to higher natural events, was more than offset by a favorable prior year reserve development (-3.2 points). Investment margin remained stable; ■ Health (€-11 million) to €-11 million. On a constant exchange rate basis, Health underlying earnings before tax decreased by €11 million driven by the investments related to the launch of the business in 2H17.
Income tax expenses increased by € 15 million (+8%) to €-202 million. On a constant exchange rate basis, income tax expenses increased by €19 million mainly driven by higher pretax underlying earnings.
Net capital gains or losses attributable to shareholders net of income tax 109 61
Gross revenues increased by €138 million (+1%) to €10,672 million. On a comparable basis, gross revenues increased by €138 million (+1%) driven by preferred businesses with Health and Commercial lines Non-Motor in Property & Casualty: ■ Health (€+183 million or +6%) to €3,059 million. On a comparable basis, Health gross revenues increased by €183 million (+6%) mainly due to tariff increases in full benefit insurance and continued growth in the civil service segment; ■ Property & Casualty (€+43 million or +1%) to €3,879 million. On a comparable basis, Property & Casualty gross revenues increased by €43 million (+1%) driven by Commercial lines (€+39 million) due to new business in Non-Motor in SME and Mid-Market; ■ Life & Savings (€-90 million or -2%) to €3,696 million. On a comparable basis, Life & Savings gross revenues decreased by €90 million (-2%) reflecting lower volumes in G/A traditional business (€-118 million) in line with the strategy, as well as lower hybrid products (€-73 million). This was partly off set by strong growth in preferred businesses, namely Unit-Linked (€+70 million) and Pure Protection (€+30 million).
Net income increased by €96 million (+18%) to €621 million driven by higher adjusted earnings, the non-repeat of restructuring costs and a favorable change in the fair value of economic hedge derivatives not eligible for hedge accounting, partly off set by the negative impact related to the disposal of a part of the occupational pension business.
Net capital gains or losses attributable to shareholders net of income tax 49 107
Gross revenues decreased by €67 million (-2%) to €3,310 million. On a comparable basis, gross revenues decreased by €67 million (-2%): ■ Property & Casualty (€-53 million or -3%) to €2,044 million. On a comparable basis, Property & Casualty gross revenues decreased by €17 million (-1%) driven by Commercial lines (€-21 million) mainly due to the non-repeat of the one-off booking of a prior year reinsurance contract, partly off set by Personal lines (€+4 million) as lower volumes were more than off set by tariff increases; ■ Life & Savings (€-31 million or -3%) to €1,178 million. On a comparable basis, Life & Savings gross revenues decreased by €31 million (-3%) driven by Unit-Linked (€-60 million) due to lower single premiums, mainly on the Oxylife Invest hybrid product, in line with the strategy to stop the Individual Savings business, partly off set by G/A Savings (€+17 million) driven by pension products for SME and self-employed, and Protection (€+11 million), in line with the strategy; ■ Health (€+18 million or +25%) to €87 million. On a comparable basis, Health gross revenues decreased by €18 million (-17%) due to the non-repeat of the one-off booking of a prior year reinsurance contract, partly off set by an increase in Group business due to a new large contract.
NBV Margin increased by 17.5 points to 75.4% mainly driven by lower acquisition expenses and the positive impact of the decrease in the corporate tax rate.
Underlying earnings before tax increased by €12 million (+2%) to €531 million: ■ Property & Casualty (€+25 million or +9%) to €286 million mainly due to a lower current year combined ratio (-2.5 points) driven by favorable weather conditions and the non-repeat of terrorist attacks of March 2016, partly off set by an unfavorable prior year result (+1.0 point). Investment margin decreased by €3 million; ■ Other (€+2 million or +57%) to €-2 million driven by lower expenses in the Holding; ■ Life & Savings (€-13 million or -5%) to €253 million driven by a lower investment margin (€-39 million) mainly due to the nonrepeat of exceptional Mutual funds dividends in 2016, partly off set by a higher net technical margin (€+17 million) mainly due to a more favorable mortality experience, as well as lower expenses (€+9 million) resulting from the cost savings program; ■ Health (€-3 million or -70%) to €-7 million mainly driven by a higher combined ratio (+1.6 points) mainly from an unfavorable prior year reserve development.
Adjusted earnings decreased by €60 million (-13%) to €406 million driven by lower net realized capital gains as well as lower underlying earnings.
Gross revenues decreased by €237 million (-4%) to €5,130 million. On a comparable basis, gross revenues increased by €72 million (+1%): ■ Property & Casualty (€-100 million or -3%) to €3,372 million. On a comparable basis, Property & Casualty gross revenues increased by €49 million (+1%) in Commercial lines (€+86 million) principally in Motor due to higher new business and tariff increases, partly off set by Personal lines (€-37 million) mainly in Property reflecting lower volumes following tariff increases and the exit of a scheme, partly off set by growth in Motor in Ireland; ■ Health (€-124 million or -7%) to €1,700 million. On a comparable basis, Health gross revenues increased by €31 million (+2%) mainly driven by volume growth and tariff increases in the United Kingdom, as well as in Commercial International business; ■ Life & Savings (€-12 million or -18%) to €57 million. On a comparable basis, Life & Savings gross revenues decreased by €8 million (-12%).
■ Health (€+6 million or +6%) to €109 million. On a constant exchange rate basis, Health underlying earnings before tax increased by €14 million (+13%) driven by higher volumes and an improvement in the combined ratio (-0.8 point) mainly due to tariff increases in Corporate business and an improvement in claims management; ■ Life & Savings (€+10 million) to €12 million. On a constant exchange rate basis, Life & Savings underlying earnings before tax increased by €10 million mainly due to lower expenses; ■ Other (€+2 million) to €-10 million. On a constant exchange rate basis, Other underlying earnings before tax increased by €1 million at AXA UK Holdings.
Underlying earnings decreased by €38 million (-12%) to €282 million. On a constant exchange rate basis, underlying earnings decreased by €22 million (-7%).
Adjusted earnings decreased by €36 million (-11%) to €295 million. On a constant exchange rate basis, adjusted earnings decreased by €19 million (-6%) driven by lower underlying earnings, partly off set by higher net realized capital gains.
(a) Net of intercompany eliminations. (b) Restated: reallocation of Direct Insurance business into the other Property & Casualty activities.
APE decreased by €13 million (-15%) to €73 million. On a comparable basis, APE decreased by €13 million (-15%) in line with the strategy to shift towards capital light products, driven by Protection with Savings (€-16 million) mainly due to the non-renewal of two large bank agreements, and G/A Savings (€12 million) as a consequence of the reduction of interest credited rates, partly off set by Unit-Linked (€+9 million) mainly due to the commercial focus.
NBV Margin increased by 9.3 points to 84.3% mainly driven by a business mix shift from G/A Savings to Protection, in line with the above-mentioned strategy to shift towards capital light products.
Underlying earnings before tax increased by €22 million (+12%) to €207 million: ■ Property & Casualty (€+18 million or +16%) to €131 million driven by a lower current accident year loss ratio (-0.4 point) due to a favorable claims experience in Commercial lines, despite higher natural events, reflecting management actions to improve profitability, a favorable prior year reserve development (-0.6 point) as well as lower administrative expenses mainly resulting from the cost savings program, partly off set by a lower investment margin (€-6 million) mainly driven by the non-repeat of an exceptional distribution from Mutual funds in 2016; ■ Life & Savings (€+3 million or +5%) to €61 million mainly driven by a higher investment margin from lower interests credited to policyholders; ■ Health (€+1 million or +9%) to €15 million mainly driven by a positive volume eff ect.
Adjusted earnings increased by €18 million (+12%) to €163 million mainly driven by higher underlying earnings.
Net capital gains or losses attributable to shareholders net of income tax 6 4
Adjusted earnings decreased by €10 million (-6%) to €170 million mainly driven by lower underlying earnings.
Net capital gains or losses attributable to shareholders net of income tax 9 19
Gross revenues decreased by €514 million (-10%) to €4,647 million. On a comparable basis, gross revenues decreased by €304 million (-6%): ■ Life & Savings (€-462 million or -12%) to €3,252 million. On a comparable basis, Life & Savings gross revenues decreased by €315 million (-8%) mainly due to lower new business from the G/A capital light Single Premium Whole Life product (€337 million) in the context of new regulatory requirements eff ective late 2016; ■ Health (€-52 million or -4%) to €1,395 million. On a comparable basis, Health gross revenues increased by €11 million (+1%) mainly due to Medical Whole Life products driven by higher inforce revenues and the success of a New Medical Care product launched in the third quarter 2017.
NBV Margin increased by 13.9 points to 112.1% mainly driven by tariff increases since April 2017 as well as a more favorable business mix shift towards Protection.
Underlying earnings before tax increased by €38 million (+6%) to €719 million. On a constant exchange rate basis, underlying earnings before tax increased by €70 million (+10%): ■ Life & Savings (€+39 million or +15%) to €298 million. On a constant exchange rate basis, Life & Savings underlying earnings before tax increased by €52 million (+20%) primarily driven by lower expenses (€+55 million) mainly as a result of the restructuring of the pension scheme as well as costs containment initiatives, and higher fees & revenues (€+12 million) mainly due to in-force growth, partly off set by a lower net technical margin (€-7 million) mainly due to a less favorable mortality margin; ■ Health (€-1 million or 0%) to €421 million. On a constant exchange rate basis, Health underlying earnings before tax increased by €18 million (+4%) mainly driven by a higher mortality margin.
Adjusted earnings increased by €7 million (+1%) to €506 million. On a constant exchange rate basis, adjusted earnings increased by €30 million (+6%) driven by higher underlying earnings, partly off set by lower net realized capital gains.
Net income decreased by €71 million (-12%) to €497 million. On a constant exchange rate basis, net income decreased by €48 million (-9%) as higher adjusted earnings were more than off set by an unfavorable change in the fair value of Mutual funds and interest rate hedging derivatives not eligible for hedge accounting.
Profit or loss on financial assets (under fair value option) & derivatives 1 6
Average exchange rate: € 1.00 = Hong Kong Dollar 8.80 8.59
APE decreased by €80 million (-15%) to €456 million. On a comparable basis, APE decreased by €69 million (-13%) driven by Protection with Savings (€-42 million) mainly due to a strong competition notably on the short term pay whole of life participating products with attractive policyholder returns, Health (€-12 million) mainly reflecting the non-repeat of the sale of a large Group contract in 2016, and Unit-Linked (€-11 million) due to the prolonged impact of the regulatory changes.
Underlying earnings increased by €3 million (+1%) to €392 million. On a constant exchange rate basis, underlying earnings increased by €13 million (+3%).
Adjusted earnings increased by €10 million (+3%) to €393 million. On a constant exchange rate basis, adjusted earnings increased by €20 million (+5%) driven by higher underlying earnings as well as higher net realized capital gains.
Net capital gains or losses attributable to shareholders net of income tax 14 8
Profit or loss on financial assets (under fair value option) & derivatives (54) (29)
Scope: (i) for gross revenues and combined ratios: Property & Casualty subsidiary in Thailand and non-bancassurance Life & Savings subsidiary in Indonesia, on a 100% share basis; (ii) for APE, NBV, underlying earnings, adjusted earnings and net income: China, Indonesia, Thailand and the Philippines, on a Group share basis.
Underlying earnings before tax increased by €5 million to €4 million. On a constant exchange rate basis, underlying earnings before tax increased by €6 million: ■ Health (€+11 million) to €0 million. On a constant exchange rate basis, Health underlying earnings before tax increased by €11 million mainly driven by Indonesia (€+7 million) following the discontinuation of unprofitable products combined with a favorable portfolio growth and Thailand (€+3 million) mainly driven by a lower combined ratio following tariff increases in both Commercial and Personal lines; ■ Life & Savings (€+1 million) to €14 million. On a constant exchange rate basis, Life & Savings underlying earnings before tax increased by €2 million in Indonesia (€+2 million) mainly driven by the launch of a new Protection product combined with a favorable portfolio growth; ■ Property & Casualty (€-7 million) to €-10 million. On a constant exchange rate basis, Property & Casualty underlying earnings before tax decreased by €7 million in Thailand (€-7 million) driven by a higher current year loss ratio due to higher large losses mainly in Commercial Property combined with higher Nat Cat events.
Underlying earnings increased by €10 million (+6%) to €171 million. On a constant exchange rate basis, underlying earnings increased by €13 million (+8%).
Net income decreased by €10 million (-7%) to €129 million. On a constant exchange rate basis, net income decreased by €8 million (-6%) as higher adjusted earnings were more than off set by an unfavorable change in the fair value of financial assets in China and an unfavorable accounting mismatch in Thailand.
Net capital gains or losses attributable to shareholders net of income tax (60) 8
Profit or loss on financial assets (under fair value option) & derivatives 96 (40)
NBV Margin increased by 1.6 points to 23.4% mainly driven by the decrease in the corporate tax rate from 35% to 21% enacted in December 2017 and eff ective from 2018 onwards.
Underlying earnings increased by €45 million (+6%) to €852 million. On a constant exchange rate basis, underlying earnings increased by €64 million (+8%).
Adjusted earnings decreased by €23 million (-3%) to €792 million. On a constant exchange rate basis, adjusted earnings decreased by €5 million (-1%) as higher underlying earnings were more than off set by lower net realized capital gains.
Net income decreased by €729 million (-42%) to €1,006 million. On a constant exchange rate basis, net income decreased by €707 million (-41%) mainly from Holdings due to the nonrepeat of the exceptional net capital gains on the sale of two real estate properties in New York, partly off set by the impact of the revaluation of the net deferred tax liability following the decrease in the corporate tax rate from 35% to 21% enacted in December 2017 and eff ective from 2018 onwards (€+156 million).
Assets under Management (“AUM”) decreased by €18 billion from December 31, 2016, to €468 billion at the end of December 31, 2017, driven by €-62 billion unfavorable foreign exchange rate impact and €-21 billion change in scope impact related to the transfer of the AXA Japan advisory mandate to AXA IM, partly off set by €+53 billion positive market eff ects and €+12 billion net inflows mainly from retail clients (€+10 billion).
Gross revenues increased by €170 million (+7%) to €2,700 million. On a comparable basis, gross revenues increased by €230 million (+9%) mainly driven by higher management fees (€+179 million) resulting from favorable product mix and higher average AUM, higher performance fees (€+57 million) due to favorable market conditions and higher distribution fees (€+25 million) due to higher average AUM in retail m utual funds, partly off set by lower Institutional Research Services fees (€-27 million) due to lower trading volumes in the United States.
The underlying cost income ratio decreased by 1.6 points to 71.8%.
Underlying earnings and adjusted earnings increased by €92 million (+48%) to €283 million. On a constant exchange rate basis, underlying earnings and adjusted earnings increased by €98 million (+51%).
AXA ownership of AB at December 31, 2017, was 64.7%, compared to 63.7% at December 31, 2016.
Net capital gains or losses attributable to shareholders net of income tax (7) (21)
Profit or loss on financial assets (under fair value option) and derivatives 11 22
• The Gulf Region (€+75 million or +17%) to €513 million mainly driven by new business in Commercial Motor,
• Poland (€+65 million or +19%) to €423 million mainly driven by new business in Personal Motor and Commercial lines,
• Colombia (€+20 million or +6%) to €369 million mainly driven by new business in Personal Accident and Workers’ Compensation, partly off set by the loss of a large contract in Commercial Liability,
• Turkey (€-194 million or -20%) to €620 million mainly due to a decrease in Motor Third Party Liability reflecting a change in market conditions following the implementation of a cap on premiums by the government starting from April 12, 2017, as well as the introduction of an insurance pool,
• Malaysia (€-16 million or -6%) to €239 million from lower sales in a context of fierce market competition; ■ Health (€-53 million or -4%) to €1,235 million. On a comparable basis, Health gross revenues were stable at €1,282 million, as the loss of large accounts in the Gulf Region (€-73 million or -19% to €306 million) was off set by higher revenues in Mexico (€+67 million or +12% to €615 million) driven by tariff increases; ■ Other (€-31 million or -9%) to €323 million. On a comparable basis, Other gross revenues decreased by €16 million (-5%) fully driven by AXA Bank Belgium mainly due to a lower commercial margin on current and savings accounts, partly off set by strong sales of Mutual funds as well as a positive change in the fair value of interest rate swaps hedging AXA Banque France loans.
Profit or loss on financial assets (under fair value option) & derivatives (211) (225)
(a) Net of intercompany eliminations. Gross Revenues amounted to €1,604 million before intercompany eliminations as of December 31, 2017.
Gross revenues increased by €95 million (+8%) to €1,276 million. On a comparable basis, gross revenues increased by €111 million (+9%) driven by higher management, performance and other fees (€+103 million), as well as higher transaction fees (€+8 million).
The underlying cost income ratio decreased by 1.6 points to 70.8%.
Net income increased by €58 million (+22%) to €322 million. On a constant exchange rate basis, net income increased by €62 million (+24%) mainly driven by higher adjusted earnings and a positive adjustment to the deferred consideration linked to the disposal of AXA Private Equity in 2013.
Net capital gains or losses attributable to shareholders net of income tax 31 25
Profit or loss on financial assets (under fair value option) and derivatives (36) 4
Gross revenues increased by €4 million (0%) to €2,322 million. On a comparable basis, gross revenues increased by €56 million (+2%) stemming from Marine (€+46 million or +9%), Liability (€+24 million or +5%) and Property (€+17 million or +2%), which are all mainly driven by a strong business growth in the United Kingdom (€+61 million or +31%) and Brazil (€+6 million or +7%), partly off set by Construction (€-41 million or -20%) due to actions undertaken to protect the profitability.
Income tax expenses decreased by €5 million (-16%) to €-27 million. On a constant exchange rate basis, income tax expenses decreased by €5 million (-17%) mainly due to lower pre-tax underlying earnings.
Net capital gains or losses attributable to shareholders net of income tax 0 0
Underlying earnings before tax increased by €9 million (+27%) to €43 million: ■ Health (€+6 million or +38%) to €23 million driven by lower claims handling costs and higher revenues; ■ Property & Casualty (€+3 million or +17%) to €20 million driven by an improved all accident year loss ratio due to lower attritional losses in Motor and a positive prior year reserve development in Travel, partly off set by a deteriorated expense ratio due to a higher level of commissions stemming from the business model evolution through large partnerships in Motor and Travel.
Underlying earnings increased by €46 million to €-726 million mainly driven by the impact of the removal of the 3% French tax on dividends paid to shareholders in 2017.
Adjusted earnings increased by €53 million to €-727 million driven by higher underlying earnings and the absence of impairments in 2017.
Each of the major operating subsidiaries of the Group is responsible for managing its own liquidity position, in coordination with the Company. The Company, as the holding company of the AXA Group, coordinates funding and liquidity management and, in this role, participates in financing the operations of certain of its subsidiaries. Certain of AXA’s subsidiaries, including AXA France Assurance, AXA Financial, AXA Konzern AG, AXA UK Plc. and AXA Mediterranean Holding SA, are also holding companies and consequently, depend on dividends received from their own subsidiaries to meet their obligations.
As a holding company, AXA is not subject to legal restrictions on dividend payments, provided that its accumulated profits are suff icient to cover distributions and that the Group Solvency ratio is in line with the level defined in the Group Target Capital framework. However, many Group subsidiaries, particularly AXA’s insurance subsidiaries, are subject to local regulatory restrictions on the amount of dividends they can pay to their shareholders. For more information on these restrictions, see Note 29.4 “Other items: restrictions on dividend payments to shareholders” in Part 5 – “Consolidated Financial Statements” of this Annual Report.
Liquidity needs of Property & Casualty subsidiaries can be affected by actual claims experience. Property & Casualty Insurance’s net cash flows are generally positive. They can be negative in the case of exceptional loss events, such as natural catastrophe events. A portion of these cash flows is invested in liquid, short-term bonds and other listed securities in order to manage the liquidity risk that may arise from such events.
The principal sources of liquidity for AXA’s Asset Management and Banking subsidiaries are operating cash flows, repurchase agreements, borrowings from credit institutions, banking clients, drawings on credit facilities, proceeds from the issuance of ordinary shares (where applicable).
(2) Debt gearing is calculated by dividing the gross debt (financing debt and undated subordinated debt) by total capital employed (shareholders’ equity excluding undated subordinated debt and reserves relating to the change in the fair value of financial instruments and of hedge accounting derivatives plus gross debt).
AXA has put in place a robust liquidity Risk Management framework which is reviewed on a regular basis through a quarterly monitoring of liquidity and solvency requirements in stressed environments both at local and Group level. For additional information, please refer to Section 4.2 “Internal control and Risk Management” (1 ) and Section 4.5 “Liquidity risk” (2 ) of this Annual Report.
The Group’s subordinated debt is described in Note 17 “Financing debt” in Part 5 – “Consolidated Financial Statements” of this Annual Report.
Financing debt instruments issued are described in Note 17 “Financing debt” in Part 5 – “Consolidated Financial Statements” of this Annual Report.
At December 31, 2017, the Group did not owe any financing debt to credit institutions.
At December 31, 2017, other debt owed to credit institutions was equal to €1,435 million (including €702 million of bank overdraft s), increase of €545 million compared to €890 million at the end of 2016 (including €580 million of bank overdraft s).
(1 ) Only information contained in Section 4.2 “Internal control and Risk Management” of this Annual Report and referred to in Note 4 “Financial and insurance Risk Management” in Part 5 – “Consolidated Financial Statements” of this Annual Report is covered by the report of the Statutory Auditors on the Consolidated Financial Statements.
Dividends paid to AXA SA’s shareholders in 2017 in respect of the 2016 financial year were equal to €2,808 million, or €1.16 per share, versus €1.10 per share paid in 2016 in respect of the 2015 financial year (€2,656 million in total). Those dividends were paid in cash.
In 2013, the AXA Group was designated a Global Systemically Important Insurer (“GSII”). The framework policy measures for GSIIs include a number of requirements on GSIIs amongst which the requirement to submit a Systemic Risk Management Plan, a Liquidity Risk Management Plan and a Recovery Plan to their Group supervisor.
For additional information, please refer to Section 6.3 “General Information – Regulation and Supervision – Global Systemically Important Insurer (GSII) Designation” (1) of this Annual Report.
The operating insurance subsidiaries are subject to local regulatory capital requirements which are designed to protect policyholders and to monitor capital adequacy.
In the event that the Group or any of its insurance subsidiaries failed to meet minimum regulatory capital requirements, insurance regulators would have broad authority to require or take various regulatory actions. A failure by any of the Group’s insurance subsidiaries to meet its minimum regulatory capital requirements or a deterioration of their solvency position that may negatively impact its competitive position may also cause the Company having to provide significant amounts of new capital to such subsidiary, which could adversely affect the Company’s liquidity position.
The AXA Group has defined and implemented capital management standards aimed at ensuring that the Company and its subsidiaries are well positioned from a competitive point of view and maintain an adequate solvency ratio in accordance with local regulation requirements. The Management has developed various contingency plans. These plans may involve use of reinsurance, sales of investment portfolios and/or other assets, measures to reduce capital strain of new business or other measures. There can be no assurance, however, that these plans will be eff ective to achieve their objectives.
Available financial resources are split into three diff erent tiers, based on the quality of each component as defined under Solvency II regulations. The classification depends upon the extent to which the own fund item is immediately available to absorb losses including in case of a winding-up (permanent availability) and subordinated to all other obligations including towards policyholders and beneficiaries. Capital elements of the highest quality are classified in Tier 1. Eligibility limits apply to these components to cover the Solvency Capital Requirement (“SCR”).
Hybrid debt instruments eligible for Tier 1 must not exceed 20% of the total amount of Tier 1 capital.
Dated and undated subordinated notes issued by the Company qualify as available financial resources.
Certain TSR include clauses which permit or force the Company to defer interest payments. In addition, redemption at maturity is subject to (i) the prior approval by the Autorité de Contrôle Prudentiel et de Résolution (“ACPR”), (ii) the absence of any event (a) making the own funds of the Company and/or the Group insuff icient to cover its regulatory capital requirements or (b) pursuant to which the Company would have to take specified action in relation to payments under the notes due to its financial condition or (c) having an adverse effect on its insurance subsidiaries claim payments ability.
In assessing whether certain fungibility restrictions of capital held by AXA subsidiaries may apply to cover the Group SCR, the Group considers the following elements: ■ whether the own funds are subject to legal or regulatory requirements that restrict the ability of that item to absorb all types of losses wherever they arise in the Group; ■ whether there are legal or regulatory requirements that restrict the transferability of assets to another insurance or reinsurance undertaking; and
Finally, own funds for which availability would not be proven are included in the Group own funds as long as as they are eligible for covering the SCR of the entity.
For additional information on Regulation and Capital Requirements, please refer to Section 6.3 “General Information – Regulation and Supervision – Regulatory capital and solvency requirements” (1 ) of this Annual Report.
(1) This information is not required under IFRS and as such is not part of the Consdidated Financial Statements. Therefore, it is not covered by the report of the Statutory Auditors on the Consolidated Financial Statements.
2.5 EVENTS SUBSEQUENT TO DECEMBER 31, 2017 2.5 EVENTS SUBSEQUENT TO DECEMBER 31, 2017
AXA a ccelerates its “P ayer-to-P artner” strategy with the acquisition of Maestro Health
On March 5, 2018, AXA announced that it had entered into an agreement to acquire 100% of XL G roup Ltd (NYSE: XL), a leading global Property & Casualty Commercial lines insurer and reinsurer with strong presence in North America, Europe, Lloyd’s and AsiaPacific. The merger agreement has been unanimously approved by the Boards of AXA and XL G roup. Total consideration for the acquisition would amount to USD 15.3 billion (€12.4 billion (2)), to be fully paid in cash. Under the terms of the transaction, XL G roup shareholders will receive USD 57.60 per share (3). This represents a premium of 33% to XL G roup closing share price on March 2, 2018.
This acquisition is aligned with AXA’s Ambition 2020 preferred segments favoring product lines with high frequency customer contacts, quality service and superior technical expertise. XL G roup provides both a premier specialty platform complementing and diversifying AXA’s existing Commercial lines insurance portfolio, and reinsurance capabilities that will allow AXA an access to enhanced diversification and alternative capital. The combination of AXA’s and XL G roup’s existing position will propel the Group to the #1 global position in P&C Commercial lines with combined 2016 revenues of ca. €30 billion (4) and total P&C revenues of ca. €48 billion (5).
Completion of the transaction is subject to approval by XL G roup shareholders and other customary closing conditions, including the receipt of required regulatory approvals, and is expected to take place during the second half of 2018.
(3) Completion of the transaction is subject to approval by XL G roup shareholders and other customary closing conditions, including the receipt of required regulatory approvals.
AXA remains focused on the delivery of its Ambition 2020 plan and on the transformation of its business model - anticipating the rapidly evolving needs of its customers - and articulated around its preferred segments (Health, P&C Commercial lines and Protection).
This shift in business model is well underway across all major geographies and is set to accelerate with the IPO of the US operations, targeted to take place during the second quarter of 2018, with the redeployment of proceeds through M&A towards preferred segments and/or capital return to shareholders.
3.1 CORPORATE GOVERNANCE STRUCTURE – A BALANCED AND EFFICIENT GOVERNANCE 82
Transactions involving Company securities completed in 2017 by the members 129 of the Board of Directors
Special report of the Statutory Auditors on regulated agreements and commitments 138
These decisions reflected the Board’s conclusions that splitting the roles of Chairman and Chief Executive Off icer was in the best interest of the Company at that time. The Board concluded that the separation of roles would ensure that the Group benefits from the mix and complementarity of the respective experiences and skills of Mr. Denis Duverne and Mr. Thomas Buberl and would lead to a smooth transition .
The members of the Board of Directors are appointed by the Shareholders’ Meeting for four years.
The Board believes that this diversity fosters open debate within the Board and brings a broader perspective to Board discussions.
Diversity directors out of 14 are non-French nationals – 7 nationalities are represented on the Board
Denis Duverne (64) Chairman of the Board of Directors 25, avenue Matignon – 75008 Paris – France French nationality
Thomas Buberl (44) Director and Chief Executive Off icer 25, avenue Matignon – 75008 Paris – France German nationality
Jean-Pierre Clamadieu (59) Chairman of the Executive Committee and director of Solvay (Belgium) Rue de Ransbeek 310 – 1120 Brussels – Belgium French nationality
Independent director Member of the Audit Committee 5,700(a) April 2016/2020 Annual Shareholders’ Meeting
André François-Poncet (58) Chairman of the Management Board of Wendel SE 89, rue Taitbout – 75009 Paris – France French nationality
Independent director Member of the Audit Committee 5,850 April 2016/2020 Annual Shareholders’ Meeting
Mrs. Isabelle Kocher (51) Chief Executive Off icer of ENGIE 1, place Samuel de Champlain – 92930 Paris la Défense cedex – France French nationality
Independent director Member of the Finance Committee 8,000 April 2010/2018 Annual Shareholders’ Meeting
François Martineau (66) Attorney at Law at Lussan/Société d’avocats 282, boulevard Saint Germain – 75007 Paris – France French nationality
Ramon de Oliveira (63) Managing Director of Investment Audit Practice, LLC (United States) 580 Park Avenue – New York – NY 10065 – United States French nationality
Mrs. Deanna Oppenheimer (59) Founder of CameoWorks (United States) 2200 Alaskan Way #210 – Seattle – WA 98121 – United States American and British nationalities
Independent director Member of the Compensation & Governance Committee 9,800 April 2013/2021 Annual Shareholders’ Meeting
Director, representing the employee shareholders Member of the Finance Committee 6,740 April 2012/2020 Annual Shareholders’ Meeting
The Shareholders’ Meeting to be held on April 25, 2018 will be asked to vote on (i) the re-appointment of three members of the Board of Directors whose terms of office are ending (Messrs. Denis Duverne, Thomas Buberl and André FrançoisPoncet ) and (ii) the appointment of two members of the Board (Mrs. Patricia Barbizet and Mrs. Rachel Duan) to replace
Subject to the approval of the Shareholders’ Meeting of April 25, 2018, the Board of Directors will consequently comprise fourteen members including six women (43%) and ten members considered independent (71%) by the Board of Directors in accordance with the criteria of the Afep-Medef Code.
INFORMATION ON CURRENT MEMBERS OF THE BOARD OF DIRECTORS (1 )
Expertise and experience Mr. Denis Duverne is a graduate of the École des hautes études commerciales (HEC). Aft er graduating from the École nationale d’administration (ENA), he started his career in 1979 at the Tax Department of the French Ministry of Finance, and aft er 2 years as commercial counsellor for the French Consulate General in New York, he became director of the Corporate Taxes Department and then responsible for tax policy within the French Ministry of Finance from 1986 to 1991. In 1991, he was appointed Corporate Secretary of Compagnie Financière IBI. In 1992, he became a member of the Executive Committee of Banque Colbert, in charge of operations. In 1995, Mr. Denis Duverne joined the AXA Group and assumed responsibility for supervision of AXA’s operations in the US and the UK and managed the reorganization of AXA companies in Belgium and the United Kingdom. From February 2003 until December 2009, Mr. Duverne was the Management Board member in charge of Finance, Control and Strategy. From January 2010 until April 2010, Mr. Duverne assumed broader responsibilities as Management Board member in charge of Finance, Strategy and Operations. From April 2010 to August 31, 2016, Mr. Denis Duverne was director and Deputy Chief Executive Off icer of AXA, in charge of Finance, Strategy and Operations. Mid-2014, Mr. Denis Duverne became a member of the Private Sector Advisory Group (PSAG), which brings together international leaders of the private sector whose shared goal is to help developing countries improve their corporate governance, co-founded in 1999 by the World Bank and the Organisation for Economic Co-operation and Development (OECD). Since September 1, 2016, Mr. Denis Duverne has been non-executive Chairman of the Board of Directors of AXA.
Directorships held during the last five years Chairman of the Management Board: AXA Konzern AG (Germany), AXA Krankenversicherung AG (Germany), AXA Lebensversicherung AG (Germany), AXA Versicherung AG (Germany), DBV Deutsche Beamtenversicherung AG (Germany) C h a i r m a n o f t h e S u p e r v i s o r y B o a r d : A X A K ra n k e n v e r s i c h e r u n g A G ( G e r m a n y ) , A X A Lebensversicherung AG (Germany), AXA Versicherung AG (Germany), Deutsche Ärzteversicherung AG (Germany) Deputy Chairman of the Supervisory Board: Roland Rechtsschutz-Versicherungs-AG (Germany) Managing Director and Chief Executive Officer: Vinci B.V. (the Netherlands) Director or member of the Supervisory Board: AXA ART Versicherung AG (Germany), AXA Life Insurance Co. Ltd (Japan), Tertia GmbH (Germany)
Expertise and experience Mr. Jean-Pierre Clamadieu is a graduate of the École nationale supérieure des mines of Paris and ingénieur du Corps des Mines. He began his carrier in various positions within the French Civil Service, in particular for the Ministry of Industry and as technical adviser in the Ministry of Labour. In 1993, he joined the Rhône-Poulenc Group and held various executive positions. In 2003, he was appointed Chief Executive Off icer of the Rhodia Group and in 2008, Chairman & Chief Executive Officer. In September 2011, further to the combination between the Rhodia and Solvay groups, Mr. Jean-Pierre Clamadieu became Vice-Chairman of the Executive Committee of Solvay and Chairman of the Board of Directors of Rhodia. Since May 2012, Mr. Jean-Pierre Clamadieu has been Chairman of the Executive Committee and member of the Board of Directors of Solvay.
Directorships held outside the AXA Group Chairman: Cytec Industries Inc.** (United States) Director: Faurecia*, Solvay* ** (Belgium)
Directorships held during the last five years Chairman of the Board of Directors: Rhodia Chairman & Chief Executive Officer: Rhodia Director: SNCF
Appointed on April 30, 2015 Term expires at the 2019 Shareholders’ Meeting
Expertise and experience Mrs. Irene Dorner graduated with a Master of Arts in Jurisprudence from St. Anne’s College, Oxford (United Kingdom) and qualified as a Barrister-at-Law (College of Law, London) and then became in-house counsel for Citibank N.A. In 1982, she joined Samuel Montagu as Head of the Legal Department and, following t he HSBC acquisition of Midland Bank in 1992, became Head of Strategic Planning at Midland Bank. She then held various senior front line and support function roles in Midland Global Markets and HSBC Bank. In early 2007, she became Deputy Chairman and Chief Executive Off icer of HSBC in Malaysia. From 2010 to 2014, she was Chief Executive Officer & President of HSBC USA. Whilst in this role, American Banker appointed her the first most powerful woman in the banking sector. She was also Group Managing Director of HSBC Holdings (United Kingdom) and member of the HSBC Group Management Board. In 2014, Mrs. Irene Dorner retired from HSBC. On March 1, 2018, Mrs. Irene Dorner was appointed Chair Elect and Non-Executive Director of Virgin Money (United Kingdom).
Expertise and experience Mr. Jean-Martin Folz is a graduate of the École polytechnique and ingénieur du Corps des Mines. Between 1975 and 1978, he has held various French government cabinet positions, his last position being head of cabinet of the Secretary of State for Industry. In 1978, he joined Rhône-Poulenc to run the Saint-Fons plant, and was then promoted to Senior Executive Vice-President of Rhône-Poulenc for the Specialty Chemicals business unit. In 1984, he became Senior Executive Vice-President and then Chairman & Chief Executive Off icer of Jeumont-Schneider (a Schneider subsidiary). In 1987, he was appointed Chief Executive Off icer of Péchiney and Chairman of Carbone Lorraine (in 1988). In 1991, he became Group Chief Executive Officer of Eridania Béghin-Say and Chairman & Chief Executive Off icer of Béghin-Say. Mr. JeanMartin Folz joined PSA Peugeot Citroën in 1995 and became Chairman of the Management Board in 1997. He left PSA in February 2007. From June 2007 to March 2010, Mr. JeanMartin Folz was Chairman of the Afep. From November 2011 to September 2013, Mr. Jean-Martin Folz was Chairman of the Board of Directors of Eutelsat Communications. On December 2016, the AXA Board of Directors appointed Mr. Jean-Martin Folz as Senior Independent Director.
Directorships held during the last five years Chairman of the Board of Directors: Eutelsat Communications Director or member of the Supervisory Board: Alstom, Compagnie de Saint-Gobain, Société Générale, Solvay (Belgium)
Expertise and experience Mr. André François-Poncet graduated from the École des hautes études commerciales (HEC) and holds a Master in Business Administration (MBA) from the Harvard Business School. He began his career, in 1984, at Morgan Stanley in New York and then in London and in Paris, where he was in charge of the opening of Morgan Stanley French office in 1987. After a sixteen year career at Morgan Stanley, he joined, in 2000, BC Partners (Paris and London) as Managing Partner until December 2014 and then as Senior Advisor until December 2015. From September 2016 to December 2017, Mr. André François-Poncet was a Partner at the French asset manager CIAM in Paris. Since January 1, 2018, Mr. André François-Poncet has been Chairman of the Management Board of Wendel SE.
Directorships held outside the AXA Group Chairman of the Management Board: Wendel SE* ** Chairman and director: Trief Corporation** (Luxembourg), Harvard Business School Club de France Vice-Chairman of the Board of Directors and director: Bureau Veritas Director: Winvest Conseil** (Luxembourg) Member of the bureau: Club des Trente Member of the European Advisory Board: Harvard Business School
Directorships held during the last five years Partner: CIAM (Paris) Chairman and Chief Executive Officer: LMBO Europe SAS Director: Medica
Expertise and experience Dr. Angelien Kemna graduated with a Master of Arts in Econometrics and a Ph.D in Finance from Erasmus University Rotterdam (the Netherlands). She has a visiting scholar at the Sloan School, MIT (United States). Dr. Angelien Kemna began her career as Associate Professor in Finance at the Erasmus University from 1988 to 1991. In 1992, she joined Robeco NV and held various positions, notably Investments and Account Management Director from 1998 to 2001. During this period, she was also part-time Professor of Financial Markets at the University of Maastricht (the Netherlands) (1993–1999). From 2001 to July 2007, she worked for ING Investment Management BV (the Netherlands), where she initially held the position of Global Chief Investment Officer and subsequently Chief Executive Off icer for the European Region. In the period 2007-2011, Dr. Angelien Kemna was part-time Professor of Corporate Governance at the Erasmus University and had also various Non-Executive and advisory positions, most notably Vice-Chairman of the Supervisory Board of the Dutch regulatory institution (AFM). In 2009, Dr. Angelien Kemna joined APG Group N.V. as member of the Executive Board with the responsibility of Chief Investment Off icer. From September 2014 to November 2017, Dr. Angelien Kemna was Chief Finance & Risk Off icer of APG Group (the Netherlands).
Expertise and experience Mrs. Isabelle Kocher is a graduate of the École normale supérieure (ENS-Ulm), ingénieur du Corps des Mines and holds an aggregation in Physics. From 1997 to 1999, she was in charge of budget of Telecommunication and Defense at the French Ministry of Economy. From 1999 to 2002, she was Advisor on Industrial Affairs of the French Prime Minister Off ice (Lionel Jospin). In 2002, she joined the Suez group. She then held various positions: from 2002 to 2005, at Strategy & Development; from 2005 to 2007, director of Performance and Organisation; from 2007 to 2008, Deputy Chief Executive Off icer of Lyonnaise des Eaux. From 2009 to September 2011, Mrs. Isabelle Kocher was Chief Executive Off icer of Lyonnaise des Eaux, in charge of the development of activities in Europe. From October 2011 to November 2014, Mrs. Isabelle Kocher was Executive Vice-President, Chief Financial Off icer of GDF SUEZ. From November 2014 to April 2016, Mrs. Isabelle Kocher was director, Deputy Chief Executive Officer and Chief Operating Off icer of GDF SUEZ, which became ENGIE on April 2015. Since May 3, 2016, Mrs. Isabelle Kocher has been Chief Executive Off icer of ENGIE.
Directorships held outside the AXA Group Chief Executive Officer: ENGIE* ** Chairman: Electrabel** (Belgium) Director: Suez**
Directorships held during the last five years Chairman & Chief Executive Officer: Eau et Force Chief Executive Officer: Lyonnaise des Eaux Director and Deputy Chief Executive Officer: ENGIE Executive Vice-President: ENGIE Vice-Chairman: Electrabel (Belgium) Director: Arkema France, ENGIE E.S., Sita France, R+i alliance, Safege, Degremont, International Power Ltd (United Kingdom)
Suet Fern Lee Member of the Board of Directors of AXA
Appointed on April 23, 2014 Term expires at the 2018 Shareholders’ Meeting
Directorships held outside the AXA Group Chairman of the Board of Directors: CelsiusPro AG (Switzerland), YES.com AG (formerly Yes Europe AG) (Switzerland) Chairman of the Advisory Board: German Insurance Association for Vocational Training (BWV) (Germany) Vice-Chairman of the Board of Directors: Acqupart Holding AG (Switzerland) Member of the Supervisory Board: Commerzbank AG* (Germany)
Co-founder and Chairman of the Board of Directors of YES. com AG (formerly Yes Europe AG) (Switzerland)
Appointed on April 27, 2016 Term expires at the 2020 Shareholders’ Meeting
Expertise and experience Mr. Ramon de Oliveira is a graduate of the University of Paris and of the Institut d’études politiques (Paris). Starting his career in 1977, Mr. Ramon de Oliveira spent 24 years at JP Morgan & Co. From 1996 to 2001, Mr. de Oliveira was Chairman & Chief Executive Officer of JP Morgan Investment Management. Mr. Ramon de Oliveira was also a member of the firm’s Management Committee since its inception in 1995. Upon the merger with Chase Manhattan Bank in 2001, Mr. Ramon de Oliveira was the only executive from JP Morgan & Co. asked to join the Executive Committee of the new firm with operating responsibilities. Between 2002 and 2006, Mr. Ramon de Oliveira was an Adjunct Professor of Finance at both Columbia University and New York University. Mr. Ramon de Oliveira is the Managing Director of the consulting firm Investment Audit Practice, LLC, based in New York.
Ramon de Oliveira Member of the Board of Directors of AXA
Appointed on April 26, 2017 Term expires at the 2021 Shareholders’ Meeting
Directorships held outside the AXA Group Founder: BoardReady.io (United States), CameoWorks (United States) Chairman: Hargreaves Lansdown plc* (United Kindgom) Director: Tesco PLC* (United Kingdom), The Joshua Green Corporation (United States), Vettd (United States), Whitbread plc* (United Kingdom) Trustee: University of Puget Sound (United States)
Directorships held within the AXA Group Chairman of the Board of Directors: AXA Corporate Solutions Assurance Chairman of the Supervisory Board: AXA ART Versicherung AG (Germany) Director, representing the employee shareholders: AXA* Director: AXA China Region Limited (Bermuda), AXA China Region Insurance Company (Bermuda) Limited (Bermuda), AXA China Region Insurance Company Limited (Hong Kong), AXA Financial Services (Singapore) Pte Ltd (Singapore), AXA General Insurance Hong Kong Limited (Hong Kong), AXA Insurance Pte Ltd (Singapore), AXA Wealth Management (HK) Limited (Hong Kong), Charter Ping An Insurance Corporation (Philippines), Philippine AXA Life Insurance Company Limited (Philippines), Red Switch Pte. Ltd. (Singapore)
Criterion (the criterion is considered to be met when it is identified by )
One member of the Board of Directors (currently Mrs. Doina Palici-Chehab) is the AXA employee shareholders’ representative. This representative is appointed by shareholders every four years from a list of candidates selected by the Group’s employee shareholders, following an internal selection process.
** As Mr. Martineau is the Chairman of the AXA Mutuals’ Strategy Coordination Committee, the Board of Directors concluded that he was no longer independent.
The Board is collectively responsible for determining the strategic orientations of the Company, ensuring their implementation, and establishing the internal framework for oversight of Executive Management, subject to relevant laws and regulations and the Bylaws of the Company. In addition, the Board inter alia: ■ chooses the appropriate corporate governance framework; ■ appoints and dismisses the Chairman, any Vice-Chairman/ Senior Independent Director, the Chief Executive Officer, any Deputy Chief Executive Officer, any dirigeants effectifs (executives who eff ectively run the Company as required by Solvency II), and determines their respective compensation; ■ convenes Shareholders’ Meetings; ■ recommends directors for appointment to the Shareholders’ Meeting and/or co-opts directors to the Board; ■ reviews and endorses (arrête) the Company’s and the Group’s half-year and annual financial statements; ■ presents a report on corporate governance to the Shareholders’ Meeting; ■ fulfills all the Board obligations set out in Solvency II; ■ adopts and oversees the general principles of the Group’s compensation policy; ■ reviews the strategies and the policies on the taking, management and monitoring of risks as well as the conclusions of the internal assessment of risks and solvency (ORSA – Own Risk and Solvency Assessment – report); ■ approves non-audit services and recommends the Group’s Statutory Auditors for appointment to the Shareholders’ Meeting.
The Chief Executive Off icer, who is also a Board member, is vested with the broadest powers to act in all circumstances on behalf of the Company and to represent the Company in its relationships with third parties. However, the Board of Directors also reserves the approval of certain matters to itself in its Terms of Reference, including the approval of certain material transactions including sales or acquisitions (over €500 million), significant financing operations and other material transactions.
In accordance with French law, the Chairman’s role is to organize and oversee the work of the Board of Directors. In this context, he sets the agenda of the Board meetings, holds regular discussions with the Chief Executive Officer and the directors, requests any document or information necessary to help the Board of Directors for the preparation of its meetings, verifies the quality of the information provided and more generally, ensures that Board members are in a position to fulfill their role. Prior to each meeting, Board members receive documentation concerning matters to be reviewed, generally eight days in advance of Board meetings.
In this context, in 2017, the Chairman of the Board of Directors, notably: ■ represented the Company at various national and international events attended by certain of the Group’s main partners and strategic stakeholders; ■ had discussions with the main institutional shareholders of the Company, in particular prior to the Shareholders’ Meeting; and
Following the decision to separate the positions of Chairman and Chief Executive Off icer, the Board of Directors decided to maintain the position of Senior Independent Director (1), in particular due to the qualification of non-independent director of the Chairman of the Board of Directors.
The Senior Independent Director (Mr. Jean-Martin Folz), replaces the Chairman of the Board of Directors in the event of temporary incapacity or death, chairs meetings of the Board in the absence of the Chairman, acts, if need be, as spokesperson for the independent directors and informs the Chairman of any potential conflict of interest identified. The Senior Independent Director also reviews, with the Chairman of the Board of Directors, the agenda of Board meetings and the quality of information provided to the Board.
In 2017, Mr. Jean-Martin Folz, also acting as Chairman of the Compensation & Governance Committee: ■ maintained regular dialogue with the Chairman of the Board and with the Executive Management (i.e. the Chief Executive Officer and the Deputy Chief Executive Officers (Directeurs Généraux Adjoints)); ■ was actively involved in the preparation of Board meetings, working closely with the Chairman of the Board of Directors and the Executive Management; ■ led the selection process (in France and abroad) of the future members of the Board of Directors and its Committees; ■ worked closely with the Chairman of the Board on the organization of the annual self-assessment of the Board; ■ contributed to the review of all communications made to shareholders in particular on corporate governance topics and Executive Management’s compensation.
He reported on his activities to the Shareholders’ Meetings of April 26, 2017.
In 2017, several training sessions were organized by the Chairman of the Board of Directors to familiarize the members of the Board of Directors with the Group’s main activities and challenges. These sessions particularly focused on the Group’s investment strategy, accounting developments and the Group’s emerging client strategy.
The Board of Directors conducts an annual self-assessment to review its composition, operating procedures and overall functioning. The conclusions of this self-assessment are discussed annually at the Board of Directors.
(1) The role of the Senior Independent Director is described in the Board’s Terms of Reference which are available on AXA’s website.
Each director was also individually interviewed by the Chairman of the Compensation & Governance Committee in order to collect their assessments and suggestions on the personal contribution of the Chairman of the Board of Directors. The conclusions of these interviews were then submitted by the Chairman of the Compensation & Governance Committee to the Chairman of the Board of Directors.
The Chairman of the Compensation & Governance Committee reviewed in detail the conclusions of the Board evaluation, the principal areas identified for improvement and made recommendations to the Board of Directors which were examined and approved at the Board meeting of December 14, 2017.
During this meeting, the members of the Board of Directors expressed a very favorable opinion on the overall functioning of the Board and indicated that the recommendations of the prior review had been largely implemented.
To ensure a well-balanced governance, the Board’s Terms of Reference go beyond the requirements of French law and specifically provide that independent directors have a major role in all Board Committees, as follows: ■ each of the three Committees is chaired by an independent director; ■ all members of the Audit Committee and the Compensation & Governance Committee are independent directors; ■ none of AXA’s corporate officers may be members of the Committees.
The Committees may request external consulting expertise if necessary. They may also invite external participants to attend their meetings.
The role and responsibilities of each Committee are set out in the Board’s Terms of Reference and in the Audit Committee Terms of Reference available on AXA’s website.
The Committee regularly meets the Statutory Auditors and the Global Head of Internal Audit during ad hoc sessions.
The Chief Executive Off icer, the Group Chief Financial Off icer, the Global Head of Internal Audit, the Group Chief Risk Off icer, the Group Chief Accounting Off icer, the Group General Secretary as well as the Statutory Auditors attend each Audit Committee meeting.
Company’s financial structure, ■ any plan to perform a financial operation of significant size for the AXA Group, except for M&A transactions discussed directly at the Board; ■ to examine any subject relating to the financial management of the AXA Group including: – the policy on financial risk management, – the liquidity and financing of the Group, – solvency and capital management; ■ to examine the impact of the main orientations and limits of Asset Liability Management policy on the Group’s capital and solvency; and
The Chairman of the Board of Directors, as well as the Chief Executive Off icer, although not members of the Committee, contribute to the work of the Committee and attend its meetings.
The Committee focused, in particular, on the following issues: ■ macroeconomic environment; ■ capital and solvency; ■ debt and liquidity; ■ financial risk management; ■ risk appetite and asset allocation; ■ review of the 2017 investment strategy; ■ Systemic Risk Management Plan; ■ Liquidity Risk Management Plan; ■ Recovery Plan; ■ review of the financial authorizations (guarantees); and ■ review of the proposed capital increase reserved for the employees of the AXA Group (Shareplan 2017).
Composition: Jean-Martin Folz (Chairman) – Jean-Pierre Clamadieu – André François-Poncet – Deanna Oppenheimer
The Chief Executive Off icer also informs the Committee of the compensation of the main executives of the AXA Group; ■ in depth analysis of certain Group human resources topics, including the annual review of the Company’s policy with respect to professional equality and equal pay; ■ to examine the Group’s strategy on corporate social responsibility and other related issues; ■ in depth analysis certain governance matters relating to the operation and organization of the Board of Directors and the organization of the periodic self-assessment of the Board of Directors; and
The Committee in particular focused on the following issues: Compensation issues: ■ the compensations paid to the Chief Executive Off icer and to the members of the Management Committee; ■ the 2017 and 2018 equity allocations (stock options and performance shares) and their performance conditions; ■ the grant of performance shares dedicated to retirement to replace the defined benefits supplemental retirement plan for senior executives in France; ■ the Group Remuneration policy; ■ the “say-on-pay” ex post and ex ante for the corporate off icers; and ■ the amount and allocation of the directors’ fees.
The Group General Secretary attends each Compensation & Governance Committee meeting.
Under French law, the Chief Executive Off icer is vested with the broadest powers to act in all circumstances on behalf of the Company and to represent the Company in its relationships with third parties. He exercises these powers within the scope of the Company’s corporate purpose and subject to the powers expressly assigned by law to the Shareholders’ Meetings and the Board of Directors. In addition, the Board’s Terms of Reference provide for specific limitations of the powers of the Chief Executive Off icer and require, in addition to legal requirements, prior Board approval for certain significant transactions as indicated in the Section “Board of Directors” above.
The Chief Executive Off icer reports to the Board on a regular basis on the Company’s financial condition and all key issues, and provides regular written updates to the Board between Board meetings.
The Management Committee’s role is to assist the Chief Executive Off icer in the operational management of the Group.
George Stansfield Group Deputy Chief Executive Off icer (Directeur Général Adjoint) & General Secretary
The complete list of the members of the Partners group is available on the AXA Group website (www.axa.com).
Mrs. Doina Palici-Chehab, who is the employee shareholder representative to the AXA Board of Directors, is currently an employee of AXA China Region Insurance Company Limited, which is one of AXA’s principal Hong Kong subsidiaries.
To the best of the Company’s knowledge, there are no agreements or arrangements that have been entered into with major shareholders, customers, suppliers or others pursuant to which a member of the Board of Directors was selected.
To the best of the Company’s knowledge and based on the information reported to it, none of the members of its Board of Directors have been, during the last five years (i) subject to any conviction in relation to fraudulent off ences or to any off icial public incrimination and/or sanction by statutory or regulatory authorities, (ii) disqualified by a court from acting as a member of the administrative, management or supervisory body of an issuer or from acting in the management or conduct of the aff airs of any issuer, or (iii) associated as a member of the administrative, management or supervisory body with any company that has declared bankruptcy or been put into receivership or liquidation, provided, however, that AXA has from time to time sold, discontinued and/or restructured certain business operations and voluntarily liquidated aff iliated companies in connection with these or similar transactions and certain members of AXA’s Board of Directors may have been associated with other companies that have undertaken similar solvent liquidations.
Of which Belgium (including AXA Bank Belgium) (f) (g) 4,273 4,193 4,019
Of which AXA Technology Services, AXA Group Solutions, AXA Business Services (n) 8,061 7,393 7,061
(b) A portion of the employees of AXA’s French aff iliates is included in GIEs. (c) In 2017, the decrease by 459 in France was driven by the optimization of the replacement rate of retirees . (d) In 2017, the increase by 125 in Switzerland was mainly driven by the integration of employees from AXA Technology Services. (e) In 2017, the decrease by 65 in Germany reflected eff iciency programs.
(f) Some employees of AXA Bank Belgium provide services in common for both the insurance activities and the banking activities and vice versa. Consequently, the split in employees is not available.
(g) In 2017, the decrease by 174 in Belgium was mainly driven by the restructuring plan announced in September 2016. (h) In 2017, the decrease by 78 in UK & Ireland was driven by restructuring measures in Architas Solutions. (i) In 2017, the increase by 61 in Japan was mainly due to the increase in sales staff driven by service expansion. (j) In 2017, the increase by 59 in Hong Kong was mainly due to business needs.
The Compensation & Governance Committee is exclusively composed of independent members. Their independence is assessed annually by the Board in accordance with the criteria set forth in the Afep-Medef Code. The Senior Independent Director is the Chairman of the Committee and presents the compensation policy of the Company each year at the Shareholders’ Meeting.
The Committee meets frequently with the Group Executives and the Internal Departments of the Company including Group Human Resources and Group Legal. The Committee is empowered to undertake or commission specific reviews and to use external consulting expertise to the extent deemed appropriate. Thus, during the last few years, the Committee worked several times with a compensation-consulting firm in order to benefit from an external expertise and an independent overview in order to compare AXA’s variable compensation practices with market practices.
Solvency II regulations came into force on January 1, 2016 and include a number of specific compens ation and governance requirements applicable to European insurers and reinsurers. In this context, AXA has undertaken a comprehensive review of its existing compensation policies and practices against the requirements of Solvency II and has adopted a Compensation Policy applicable to all AXA employees as of January 1, 2016. This compensation policy is designed to support the Group’s longterm business strategy and to align the interests of its employees with those of the shareholders by (i) establishing a clear link between performance and compensation over the short, medium and long term, (ii) ensuring that the Group can off er competitive compensation arrangements across the multiple markets in which it operates while avoiding potential conflicts of interest that may lead to undue risk taking for short-term gain, and (iii) ensuring compliance with Solvency II regulations and any other applicable regulatory requirements.
The requirements set out in the Group Compensation policy may be supplemented in order to comply with local regulatory requirements or best practices. The policy is reviewed and updated annually to mirror, as the case may be, changes in the internal organization and the nature, scale and complexity of the risks inherent to AXA’s business and to reflect exchanges with the French insurance regulator (Autorité de C ontrôle P rudentiel et de R ésolution (ACPR)).
In this context, the overall compensation structure is based on the following components, which are designed to provide balance and avoid excessive risk taking for short term financial gain: ■ a fixed component which comprises guaranteed elements, such as base salary and any other fixed allowances. It takes into account the job content, responsibilities, experience, market practices, technical skills and leadership competencies, and also sustained individual performance and criticality or scarcity of skills; ■ a variable component which comprises an upfront cash element (Short Term Incentive) and a deferred element which is awarded through equity based instruments (or equivalents), such as stock options and/or performance shares (Long Term Incentive). This variable component depends on the AXA Group’s global performance, on the beneficiary’s operating business performance, and on the achievement of the executive’s individual objectives including demonstrated abilities for leadership. The variable portion is designed to represent a substantial component of the executive’s global compensation and, where an executive attains or exceeds the set objectives, to position the compensation levels of AXA executives between the median and the third quartile (or, in certain cases, beyond the third quartile) of the market reference.
The Board of Directors, upon recommendation of its Compensation & Governance Committee, has decided to maintain unchanged in 2017 the total annual cash compensation target of the Chief Executive Officer, Mr. Thomas Buberl, at €2,900,000.
The individual performance of the Chief Executive Officer is assessed on the basis of various indicators and qualitative and quantifiable objectives set by the Board of Directors through a written target letter drawn up at the beginning of each calendar year, as well as on the basis of demonstrated leadership abilities by the Chief Executive Off icer before the beginning of the performance period. This letter includes detailed objectives about the Group’s progress in the elaboration of its strategic plan as well as other performance indicators and objectives designed to assess the level of achievement of global strategic initiatives and/or relating to certain geographic areas, and the evolution of certain investments contributing to the development of the Group’s operations.
Each of these two metrics is reviewed separately so that overall variable payout reflects performance against two distinct components assessed independently.
• development of the 2020 target of 33% gender diversity in the Group Senior Executives population and ensure that roughly 40% of new Group Senior Executives appointed in 2017 are women (promotions and external recruitments),
The assessment of the leadership competencies is based on the dimensions of the AXA Leadership framework, which includes: ■ vision; ■ customer; ■ transform; ■ deliver; ■ develop; ■ lead; ■ collaborate.
(a) This amount includes the part of the variable compensation with respect to 2016 and 2017 which has been deferred in accordance with the mechanism described below . The total amount paid will depend on performance conditions and may then vary.
(b) Amount before deduction of 70% of directors’ fees. (c) Please note that Mr. Thomas Buberl received a variable compensation of €592,850 in respect of his employee position within the AXA Group for the period from January 1 to August 31, 2016.
(d) Pursuant to Articles L.225-37-2 and L.225-100 of the French Commercial Code, the payment of the Chief Executive Off icer’s 2017 variable compensation is withheld until the approval of the Shareholders’ Meeting on April 25, 2018.
Under this mechanism, the Chief Executive Off icer’s deferred amount of variable compensation for the 2017 fiscal year will be paid out in two tranches, in 2019 and 2020. The actual amount to be paid will vary depending on the AXA share price performance over the deferral period and will be subject to a minimum of 80% and a cap of 120% of the deferred amount; provided, however that no variable compensation would be paid in the event (i) that the Group’s underlying earnings are negative for the year ending immediately prior to the year of scheduled payout, or (ii) of resignation or dismissal, for gross or willful misconduct prior to the payout date (clawback provision).
Total of the other Management Committee members 15,256,758 553,510 572,647 2,082,671 18,465,586 10,308,268 720,239 1,817,463 2,061,639 14,907,609
(a) This amount includes the part of the variable compensation with respect to 2016 or 2017 which has been deferred in accordance with the mechanism described on page 111 . The total amount paid will depend on performance conditions and may then vary.
€554,999 fixed compensation and €592,850 variable compensation). (d) This amount includes the payment of the Chief Executive Off icer’s 2017 variable compensation which will be withheld until the approval of the Shareholders’ Meeting on
(a) This amount does not include the part of the variable compensation with respect to 2017 which has been deferred in accordance with the mechanism described on page 111 . (b) Director’s fees are deducted up to 70% from the variable compensation. (c) Pursuant to Articles L.225-37-2 and L.225-100 of the French Commercial Code, the payment of the the Chief Executive Off icer’s 2017 variable compensation is withheld until the approval of the Shareholders’ Meeting on April 25, 2018.
Directors’ fees indicated in the above tables were paid for Board memberships held in AXA Group companies and are deducted up to 70% (of their net value) from the variable compensation of the same year in accordance with the Group policy applicable to all employees who benefit from directors’ fees. This principle of deduction of up to 70% of the paid directors’ fees is meant to compensate the absence of contribution (e.g. life insurance disability insurance, retirement) on behalf of the beneficiary, because of the decrease of the gross compensation.
The only “benefit in kind” for Messrs. Thomas Buberl and Denis Duverne is a company car.
(Gross amounts, in Euro) Directors’ fees paid in 2018 for 2017 Directors’ fees paid in 2017 for 2016
The total annual amount of directors’ fees to be allocated to the members of the Board of Directors was set by the Shareholders’ Meeting of April 30, 2015 at €1,650,000.
No directors’ fees are paid by the Company to the corporate officers (i.e. Chairman of the Board of Directors and Chief Executive Off icer).
(1) Mrs. Doina Palici-Chehab’s cash compensation was paid in SGD and HKD.
Stock options are valid for a maximum period of 10 years. They are granted at market value, with no discount, and become exercisable by tranches, generally in thirds between 3 and 5 years following the grant date.
(iv) specificity of compensation arrangements due to regulatory frameworks. The recommendations for individual grants of options are made by the executive management of the operating businesses and by the Group’s functional department heads. These recommendations are reviewed by the Group Executive Management to ensure a global coherence. Individual grants of options are then decided by the Board of Directors, provided that individual grants to the Chief Executive Officer and the other members of the Management Committee are preceded by a proposal of the Compensation & Governance Committee which especially takes into consideration the aggregate elements of compensation of the executive as well as the market studies carried out by the Group with an independent compensationconsulting firm. Furthermore, the level of allotment of options to the executive off icers also depends on the level of achievement of the strategic objectives defined by the Board of Directors.
The Board of Directors also decided that the total number of options granted to the executive officers of the Company each year may not exceed 10% of the aggregate number of options granted during the same year, to avoid an excessive concentration of options granted to the executive off icers.
On December 31, 2017, approximately 4,700 Group employees held a total of 23,114,171 outstanding options, representing 0.95% of the Company’s share capital on the same date.
(1) SXIP index (StoxxInsurance Index): a capitalization-weighted index, which includes European companies that are involved in the insurance sector. On December 31, 2017, this index included 33 companies of the sector.
Grant date (Board of Directors or Management Board) 10/05/2007 10/05/2007 10/05/2007 24/09/2007 24/09/2007 19/11/2007 19/11/2007 01/04/2008 01/04/2008 19/05/2008
Expiry date of options 10/05/2017 10/05/2017 10/05/2017 24/09/2017 24/09/2017 19/11/2017 19/11/2017 01/04/2018 01/04/2018 19/05/2018
Subscription or purchase price of options (a) 32.95 33.78 33.78 29.72 29.72 28.53 28.53 21.00 21.00 23.42
Grant date (Board of Directors or Management Board) 19/05/2008 22/09/2008 22/09/2008 24/11/2008 20/03/2009 20/03/2009 02/04/2009 10/06/2009 10/06/2009 21/09/2009
Total number of shares to be subscribed (a) or purchased, from which to be subscribed or purchased by: 12,360 19,127 46,929 19,047 4,870,844 407,692 114,324 22,291 2,137,462 53,237
Corporate off icers: Start date of exercise 19/05/2012 22/09/2010 22/09/2012 24/11/2012 20/03/2011 20/03/2011 02/04/2011 10/06/2013 10/06/2011 21/09/2013
Number of options exercised at 31/12/2017 0 0 4,715 16,117 3,137,464 179,156 55,252 2,589 1,521,287 38,424
Grant date (Board of Directors or Management Board) 08/12/2009 08/12/2009 19/03/2010 19/03/2010 18/08/2010 18/08/2010 13/10/2010 13/10/2010 22/12/2010 18/03/2011
Total number of shares to be subscribed (a) or purchased, from which to be subscribed or purchased by: 3,134 20,890 7,671,540 278,986 22,846 10,619 4,274 27,772 12,758 8,598,469
Expiry date of options 08/12/2019 08/12/2019 19/03/2020 19/03/2020 18/08/2020 18/08/2020 13/10/2020 13/10/2020 22/12/2020 18/03/2021
Exercise schedule of options 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y
(a) The number of options and exercise prices have been adjusted, pursuant to applicable regulation, as a result of operations on the AXA stock. (b) “Employees” other than corporate off icers at grant date
Corporate off icers: Start date of exercise 18/03/2015 04/04/2013 16/03/2014 13/06/2014 22/03/2015 24/03/2017 19/06/2018 06/06/2019 21/06/2020
Exercise schedule of options 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 33% aft er 3 y 66% aft er 4 y 100% aft er 5 y 33% aft er 3 y 66% aft er 4 y 100% aft er 5 y 100% aft er 5 y 33% aft er 3 y 66% aft er 4 y 100% aft er 5 y
The fair value of stock options is determined in accordance with IFRS standards. This is a historical value at the date of grant, calculated for accounting purposes as described in Note 26.3.1 “Share-based compensation instruments issued by the Group” in Part 5 “Consolidated Financial Statements” of the Annual Report.
are prohibited from engaging in any transaction designed to hedge the value of equity-based compensation awards (stock options and performance shares) granted under any plan or arrangement maintained by AXA or any of its subsidiaries. This restriction applies from the date of grant until such time as the beneficiary receives the securities underlying the award upon, for example, the exercise of a stock option or the lapse of restrictions on performance shares. In accordance with the recommendations of the Afep-Medef Code, the executive off icers of the Company make a formal commitment to not resort to such hedging transactions.
STOCK OPTIONS HELD BY CORPORATE OFFICERS THAT BECAME EXERCISABLE DURING 2017
Chairman of the Board of Directors 22/03/2013 subscription or purchase 56,332 13.81 22/03/2023 100% of options: SXIP index 24/03/2014 subscription or purchase 51,667 18.68 24/03/2024 100% of options: SXIP index
Representative of employee shareholders to the Board of Directors 22/03/2013 24/03/2014 subscription or purchase subscription or purchase 22/03/2023 24/03/2024
STOCK OPTIONS HELD BY CORPORATE OFFICERS (OPTIONS GRANTED BUT NOT EXERCISED AS OF DECEMBER 31, 2017)
Performance Shares are usually granted to beneficiaries residing in France while International Performance Shares are generally granted to beneficiaries residing outside of France.
The recommendations for grants of performance shares are made by the management of each operating business and by the Group’s functional department heads. These recommendations are reviewed by the Executive Management to ensure a global coherence and respect of the Group’s internal equity principles. Individual grants of performance shares are then decided by the Board of Directors, provided that individual grants to the Chief Executive Off icer and other members of the Management Committee are preceded by a proposal of the Compensation & Governance Committee, which takes into consideration their aggregate compensation elements as well as the market studies carried out by the Group together with an independent compensation-consulting firm. Furthermore, the grant to AXA executive off icers shall depend on the level of achievement of the strategic objectives previously defined by the Board of Directors.
During the performance period, all performance shares initially granted are integrally subject to performance conditions regardless of the beneficiary’s status. These criteria measure both the financial and operational performance of the AXA Group as well as the beneficiary’s operating business performance, according to pre-determined targets.
The nature of these criteria as well as the associated targets are defined and reviewed on a regular basis by the Board of Directors, depending on the evolution of the Group’s strategic objectives and aft er consideration of market practices as well as changes in regulations. Thus, during the last few years, the performance criteria used for this purpose have been linked to (i) the underlying earnings and the net income or adjusted earnings to measure the operating businesses’ performance, and (ii) the net income per share or the adjusted earnings per share to measure the AXA Group performance.
For each of these indicators, the cumulated performance over the fiscal years of the acquisition period is compared to the cumulated performance of such indicator over a reference period of identical duration preceding the performance shares grant.
• 100% of the shares shall be granted if AXA’s score is equal to the eighty-fift h percentile, and
• a maximum of 130% of the shares shall be granted if AXA’s score is equal or greater than the ninety-fift h percentile.
The global performance rate is therefore calculated as follows: [10% CSR (DJSI) + 40% Group performance (Adjusted Earnings Per Share) + 50% operating business performance [average (Adjusted Earnings + Underlying Earnings)] ] +/- 5 points of relative performance (TSR) within the upper limit of 130%.
Since the 2017 grant, the performance target setting is aligned with the financial targets of the Ambition 2020 strategic P lan.
In the event of 100% achievement of the Ambition 2020 strategic P lan targets (“target”), the number of shares definitively granted at the end of the acquisition period would be equal to the number of p erformance s hares initially granted.
For the executive officers and members of the Management Committee, should the performance be: ■ lower than the average cumulated results achieved over the 3 years immediately prior to the grant date, no share would be delivered to the beneficiary at the end of the acquisition period; consequently, in the absence of growth, no shares would be granted, and no potential underperformance would be rewarded; ■ equal to 100% of the average cumulated results achieved over the 3 years immediately prior to the grant date, the number of shares definitively granted would be equal to 50% of the number initially granted; ■ equal to 100% of the performance required to reach the target, the number of shares definitively granted would be equal to 100% of the number initially granted; ■ equal to or higher than 130% of the performance required to reach the target, the number of shares definitively granted would be equal to 130% of the number initially granted.
Furthermore, should no dividend be paid by the AXA Group during any fiscal year of the acquisition period, the number of shares definitively granted would be automatically divided by 2.
The performance conditions are summarized in the chart below: Executive off icers & Management Committee Other b eneficiaries
As far as I nternational P erformance S hares are concerned: ■ the I nternational P erformance S hares are subject to a 3-year performance period followed by a 1-year deferred acquisition period. The payment is made in shares. Should this type of payment not be possible for legal, tax or any other reason, the payment could be made in cash; ■ the amounts corresponding to I nternational P erformance S hares are expensed each year under the variable accounting method. They do not create any dilution for shareholders since no new shares are issued.
(a) 50% of shares acquired on March 24, 2016, 50% on March 24, 2017, except for the Chairman & CEO, and the Deputy CEO at grant, 100% of shares acquired on March 24, 2017.
Number of shares granted capital Value (in Euro) Acquisition date End of restriction
Representative of employee shareholders to the Board of Directors 21/06/2017 International Performance
(b) The performance rate of 107% is composed of: 1/3 x 109% (Net income per share) + 2/3 x 107% (Underlying earnings and Net income). (c) The performance rate of 124% is composed of: 1/3 x 111% (Net income per share) + 2/3 x 130% (Underlying earnings and Net income).
Denis Duverne Chairman of the Board of Directors 22/03/2013 133,786 24/03/2017
AXA implemented a shareholding policy applicable to all the main senior executives of the Group. This policy imposes each executive to hold, during the entire duration of his/her functions, a minimum number of AXA shares (the “Minimum Shareholding Requirement”) representing a multiple of the annual fixed compensation received for his/her functions within the Group: ■ the Chief Executive Off icer is required to hold the equivalent of his annual fixed compensation multiplied by 3; ■ Management Committee members are required to hold the equivalent of their annual fixed compensation multiplied by 2; ■ Partners group are required to hold the equivalent of their annual fixed compensation multiplied by 1.
Pursuant to Articles L.225-197-1 and L.225-185 of the French Commercial Code, the Supervisory Board and later the Board of Directors have decided that, as long as the Chief Executive Off icer has not met his Minimum Shareholding Requirement,
all stock options and Performance Shares granted to him will be subject to the following restrictions: ■ upon each exercise of these stock options granted, the Chief Executive Off icer must continue to hold in registered form a number of shares obtained upon exercise equal in value to at least 25% of the pre-tax capital gain realized upon exercise . These shares shall be held during his entire term of off ice as Chief Executive Off icer; ■ for Performance Shares granted, the Chief Executive Off icer must, at every performance share acquisition date, hold in registered form at least 25% of the Performance Shares acquired during his entire term of off ice as Chief Executive Off icer.
These restrictions do not apply if the Chief Executive Officer complies with his Minimum Shareholding Requirement.
To the best knowledge of the Company and based on information reported to it, each AXA Board of Directors member held, on December 31, 2017, the number of AXA shares or ADS AXA indicated in the table below.
Denis Duverne – Chairman of the Board of Directors 1,445,562 18,734
I Transactions involving Company securities completed in 2017 by the members of the Board of Directors
Pursuant to the AXA Group Compliance and Ethics Guide, corporate off icers and other employees of the Company must refrain from any purchase or sale of AXA securities during specific time periods (“blackout periods”) prior to the earnings releases. These blackout periods generally begin about 30 days before its annual or half-year earnings releases and about 15 days before its quarterly financial information releases. Depending on the circumstances, these blackout periods could be declared at other times or be longer.
The Chief Executive Off icer of the Company. Mr. Thomas Buberl, as well as all other employees of AXA Group entities in France, participate in a mandatory and collective supplementary pension scheme with defined contributions (collective insurance contract – contrat d’assurance de groupe as defined in Article L.141-1 of the French Insurance Code ). This AXA p ension f und was implemented in 2011 and benefits to the employees of AXA Group entities in France falling within the scope of the Collective Agreement of December 18, 2009. The individual employer contribution rate is set at 0.75% of the total gross compensation, which is not capped (the contribution base is the same as the one used for contributions related to the Social Security General Scheme). Contributions are subject to 8% social charges (7.5% for CSG and 0.5% for CRDS).
It provides beneficiaries with portable pension benefits until retirement in line with Directive 2014/50/UE/of the European
Parliament and of the Council of April 16, 2014 on minimum requirements for enhancing worker mobility between Member States by improving the acquisition and preservation of supplementary pension rights.
These performance shares are subject to (i) an acquisition period of three years; (ii) a holding period of two years following the acquisition period and (iii) an obligation to hold the shares until retirement, provided that the beneficiaries may sell all or part of their shares for diversification purposes (following the three-year acquisition period and two-year holding period), as long as the sale proceeds are invested in a long-term savings plan until the beneficiary’s retirement.
The definitive acquisition of these shares is subject to (i) the beneficiary’s presence in the Group on December 31 of the year during which the grant is decided and (ii) the achievement of a performance condition related to the average AXA Group Solvency II ratio calculated during the acquisition period and subject to different performance levels: to benefit from the totality of performance shares initially granted, the average AXA Group Solvency II ratio calculated during the acquisition period must be greater than or equal to 170%. However, if the average ratio is 150%, only half of the shares initially granted will be acquired. Between these performance levels, the number of shares definitely acquired will be calculated, on a linear basis depending on the achieved performance.
No shares will be acquired if the Company does not pay dividends during any year of the acquisition period.
The Company’s Board of Directors also decided that no more than 10% of the total number of shares granted during any fiscal year should be granted to AXA’s executive off icers, to avoid an excessive concentration of retirement performance shares granted to the executive off icers.
All retirement performance shares granted are subject to the performance conditions described above and calculated over a three-year period beginning on January 1, 2017 and ending on December 31, 2019.
Thomas Buberl Chief Executive Off icer Beginning of current mandate: 09/01/2016 Term of off ice: 2018 (a)
Denis Duverne Chairman of the Board of Directors Beginning of current mandate: 09/01/2016 Term of off ice: 2018 (a)
In accordance with the recommendations of the Afep-Medef Code, Mr. Thomas Buberl has decided to renounce his employment contract as of the date of his appointment as Chief Executive Off icer.
In connection with this decision, the Board of Directors upon recommendation of its Compensation & Governance Committee undertook a review of the consequences of this renunciation including with respect to the continuity of the social benefits (health insurance, life insurance, disability insurance, etc.) to which Mr. Thomas Buberl was entitled as an employee. In this context, the Board of Directors was concerned that the decision of Mr. Thomas Buberl to renounce his employment contract in accordance with the recommendations of the Afep-Medef Code would jeopardize the continuity of his accrued and future social benefits.
As a result, on August 2, 2016, the Board of Directors took the following decisions: ■ the Board of Directors authorized that, following the termination of his employment contract, Mr. Thomas Buberl will continue to have social benefits (health insurance, life insurance, disability insurance, etc.) on terms equivalent to those of all other Group senior employees of the AXA Group in France; ■ the Board of Directors authorized a contractual severance benefit for Mr. Thomas Buberl designed to replicate the benefits to which he would have been entitled as AXA employee under the 1993 collective agreement covering director-level employees of the insurance sector, but with the addition of performance conditions in accordance with the Afep-Medef recommendations. A severance benefit would be applicable, except in the case of gross or willful misconduct, solely in the event of dismissal or non-renewal further to the Board of Directors’ decision. The payment of the severance benefit would be subject to the three following performance conditions as determined by the Board of Directors during its August 2, 2016 meeting: (1) achievement, for at least 2 of the 3 preceding fiscal years, of the objectives set for the beneficiary’s variable compensation and corresponding to the payment of at least 60% of his variable compensation target, (2) evolution of the AXA share price at least equal to the stock reference index of the insurance sector (SXIP) (in percentage) over a 3-year period preceding the termination of the term of off ice, and (3) the average consolidated adjusted ROE over the 3 preceding years higher than or equal to 5%.
The amount of severance benefit to be paid to the beneficiary would be adjusted in accordance with the level of achievement against these performance conditions: 100% of the severance benefit will be paid if at least two of the three performance conditions are met; 40% of the severance benefit will be paid if only one performance condition is met; and no severance benefit shall be paid if none of the performance conditions are met. Notwithstanding the foregoing, if only two of the three performance conditions are met, the amount of severance benefit will be reduced by 50% if performance condition (1) is not met or if AXA’s consolidated net income for the preceding fiscal year is negative.
These commitments were approved by AXA’ Shareholders’ Meeting of April 26, 2017. They took eff ect upon Mr. Thomas Buberl’s eff ective renunciation of his employment contract on September 1, 2016 and will continue so for the duration of his mandate and under any potential renewed mandates.
This report was prepared in accordance with Article L.225-37-2 of the French Commercial Code and presents the principles and criteria for determination, distribution and allocation of all elements of compensation of the corporate off icers of the Company as approved by the Board of Directors during its meeting held on February 21, 2018, upon recommendation of its Compensation & Governance Committee.
The Compensation & Governance Committee, the role and composition of which are presented in detail in Section 3.1 of the 2017 Annual Report, is responsible for, among others, formulating propositions to the Board of Directors regarding the Company’s principles and policy on corporate off icers’ compensation.
AXA’s compensation policy is designed to support the Group’s long-term business strategy and to align the interests of its management with those of the Company, its shareholders and all other stakeholders by (i) establishing a close relation between performance and compensation over the short, medium and long term, (ii) ensuring that the Group can off er competitive compensation that is consistent with the various markets in which it operates while avoiding potential conflicts of interests that may lead to undue risk taking for shortterm gain, and (iii) ensuring compliance of the Company’s practices with all applicable regulatory requirements.
The diff erent components of the Chief Executive Off icer’s total compensation are presented in detail hereaft er: Fixed annual compensation of the Chief Executive Off icer
Thus, the Board of Directors, upon recommendation of its Compensation & Governance Committee, and following a comparative review of national, European and industry practices, decided to maintain unchanged, for 2018, the Chief Executive Off icer’s target annual variable compensation, at €1.45 million, i.e. 100% of the amount of his annual fixed compensation.
The evaluation of the Chief Executive Off icer’s individual performance with respect to the 2018 fiscal year will be based on the following two components: ■ the Group’s performance, as assessed based on underlying earnings per share, return on equity (adjusted Return on Equity – ROE), gross revenues in both Commercial Property & Casualty and in Protection & Health and Net Promoter Score (customer recommendation index). The relative weight of each indicator is, respectively, 55%, 15%, 15% and 15%. The indicators selected to measure the Group’s performance reflect objectives in terms of growth, profitability, capital management, operational eff iciency and proximity with clients that have been disclosed both internally and externally. Thus, indicators which are directly linked to the strategic orientations of the Group include both financial and operating indicators and rely on achievement of a predefined budget or target figure; ■ individual performance, assessed on the basis of various indicators and qualitative and quantifiable objectives determined by the Board of Directors in a target letter drawn up at the beginning of each relevant year, as well as on the basis of demonstrated leadership abilities by the Chief Executive Off icer. The target letter includes detailed objectives with regards to the Group’s progress in the elaboration of its strategic plan as well as other performance indicators and objectives designed to assess the level of achievement of global strategic initiatives or relating to certain geographic areas, as well as progress on certain investments that are expected to contribute to the development of the Group’s operations.
Pursuant to the provisions of Article L.225-37-2 of the French Commercial Code, payment of the Chief Executive Off icer’s variable cash compensation for 2018 is subject to the approval by the Shareholders’ Meeting to be held in 2019 of the compensation elements paid or granted to the Chief Executive Off icer for the 2018 fiscal year.
Each year, the Board of Directors, upon recommendation of its Compensation & Governance Committee, decides to grant Long Term Incentives (LTI) to the Chief Executive Off icer in the form of stock options and performance shares.
The LTIs granted to the Chief Executive Off icer are entirely subject to demanding internal and external performance conditions (the details of which are presented in Section 3.2 of the 2017 Annual Report), which are assessed over a minimum period of three years, and do not guarantee any minimum grant or gain. Moreover, the LTI plan rules provide that in the event the Chief Executive Off icer leaves his position (1) at any time before the end of the performance period, any instruments initially granted are irremediably lost, unless otherwise decided by the Board of Directors in a motivated decision disclosed at the time of the off icer’s departure.
The only benefit in kind granted to the Chief Executive Off icer is the use of a company car.
The performance shares granted under such plan are subject to (i) a vesting period of three years, (ii) a holding period of two years following the end of the acquisition period, and (iii) an undertaking not to transfer the performance shares before the date on which the beneficiary retires, subject to the option off ered to the beneficiaries, for diversification purposes, to transfer all or part of their shares (aft er the end of the acquisition period of three years and the holding period of two years) as long as the proceeds of such transfer are invested in a long-term savings plan until the beneficiary retires.
The commitments made to the benefit of the Chief Executive Off icer regarding social benefits and unemployment benefits are presented in more detail in the Statutory Auditors’ special report on regulated agreements and commitments as well as in the 2017 Annual Report.
APPOINTMENT OF A NEW CHIEF EXECUTIVE OFFICER AFTER THE SHAREHOLDER’S MEETING TO BE HELD ON APRIL 25, 2018
For purposes of this report only, and in accordance with applicable regulations, the Board of Directors has also considered the hypothetical appointment of a new Chief Executive Off icer following the Shareholders’ Meeting to be held on April 25, 2018.
Under such circumstances, the compensation structure applicable to a new Chief Executive Off icer would comply with this policy and the Board of Directors would perform a comprehensive review of the situation of the relevant executive, provided that: ■ the amount and criteria of his compensation would be determined in accordance with existing practices within the Company by reference to compensation practices for similar functions in a sample of CAC 40 companies and in the main European companies in the financial sector; and
Finally, in the event that the Chief Executive Off icer is recruited externally, the Board of Directors retains the right to grant to the newly appointed executive a lump sum (in cash and/or in shares) the amount of which, in accordance with the recommendations set forth in the Afep-Medef Code, may not under any circumstances exceed the amount of the benefits the executive would have had to forgo by resigning from his previous position.
For further information on the Chief Executive Off icer’s compensation, please see Section 3.2 of the 2017 Annual Report.
STRUCTURE AND CRITERIA FOR DETERMINATION OF THE CHAIRMAN OF THE BOARD OF DIRECTORS’ COMPENSATION
Having considered that the most appropriate compensation structure for the Chairman of the Board of Directors would be fixed compensation only, the Board of Directors has resolved, as a consequence, that the Chairman of the Board of Directors will not benefit from any variable compensation, any directors’ fees, any options or performance shares grants, or of any other long-term compensation elements.
APPOINTMENT OF A NEW CHAIRMAN OF THE BOARD OF DIRECTORS AFTER THE SHAREHOLDERS’ MEETING TO BE HELD ON APRIL 25, 2018
■ the experience and skills of the executive as well as the scope of his assignments as defined by the Board of Directors in connection with his appointment would also be taken into account.
For further information on the compensation of the Chairman of the Board of Directors, please see Section 3.2 of the 2017 Annual Report.
In December 2008, AXA adopted all of the Afep-Medef recommendations, including the recommendations on the compensation of corporate officers of October 2008, as its Corporate Governance Code of Reference.
AXA complies with the recommendations of the Afep-Medef Code that are in line with the long-established corporate governance principles initiated by the Company. Details are presented in Sections 3.1 “Corporate governance structure – a balanced and efficient governance” and 3.2 “Executive compensation and share ownership” of this Annual Report describing corporate governance mechanisms and containing information about executives’ compensation.
The Company implements all the recommendations of the Afep-Medef Code. However, in order to take into account certain specificities of its business and governance practices, AXA has decided to adapt in certain cases set out below the provisions of the Afep-Medef Code while remaining in line with the principles of the Afep-Medef Code: ■ Section 8.5 of the Afep-Medef Code relating to the independence of parent company directors holding a directorship in a Group subsidiary: although certain members of the AXA Board of Directors hold a non-executive directorship in one or more Group subsidiaries wholly owned, directly or indirectly, by AXA, the Company considers that this does not automatically (i) place them in a situation of conflict of interest, or (ii) impair their independence in any way. The Board believes that permitting its members to sit on the Boards of certain Group subsidiaries is beneficial to the Board’s overall knowledge and appreciation of the Group’s operations, strategy and risk profile. Directors who also serve on the Boards of Group subsidiaries, however, are required to abstain from participating in the decisions of the AXA Board which could aff ect the interests of the entity in which they hold a directorship to prevent potential independence issues; ■ Section 24.3.3 of the Afep-Medef Code relating to the exercise of stock options: pursuant to the Afep-Medef Code, companies shall determine periods preceding the disclosure of their financial statements during which the exercise of the stock options is not allowed (“sensitive periods”). AXA Group’s Compliance and Ethics Guide defines sensitives periods as periods beginning 30 days prior to the disclosure of the annual or half-year earnings releases and 15 days prior to its quarterly financial information releases. During sensitive periods, the AXA Group’s Compliance and Ethics Guide (i) permits the exercise of AXA stock options but (ii) prohibits the sale of shares acquired upon exercise of stock options (“subscription and sale” transactions). Consequently, beneficiaries of options may exercise options at their pre-determined strike price at any time but may not sell AXA shares obtained upon exercise (or otherwise engage in transactions involving AXA securities) during sensitive periods (or during other periods outside of sensitive periods when they may be in possession of material non-public information). It should be noted that the French High Committee for Corporate Governance (Haut Comité de Gouvernement d’Entreprise) in its Annual Report dated October 2014 considers this position to be acceptable.
It does not fall within the scope of our assignment to ascertain the potential existence of other agreements and commitments but rather, on the basis of the information that was given to us, to inform you, the shareholders, of the main features of those agreements and commitments of which we have been informed and the reasons for the Company’s interest in those. It is not our responsibility to express an opinion on the utility or merits of such agreements. Pursuant to Article R.225-31 of the French Commercial Code (Code de commerce), you are being asked to form an opinion on the relevance of such agreements and commitments for the purpose of approving them.
We have been informed of the following agreements and commitments, authorized since the year ended December 31, 2017, and that have been previously authorized by the Board of Directors.
Consequently, the Board of Directors proceeded to a full review of the future social status of Mr. Thomas Buberl, once the renunciation of his employment contract will be eff ective in accordance with the Afep-Medef recommendations. In this context, the Board of Directors, in view of the seniority of Mr. Thomas Buberl in his employee status and from the significance of his services provided to the Company, confirmed its wish to maintain social benefits, as an e xecutive d irector, in the same conditions than the ones applicable to AXA Group director-level employees in France, took the following decisions: ■ the Board of Directors confirmed that, as a corporate off icer, Mr. Thomas Buberl will continue to have social benefits (health insurance, life insurance, disability insurance, etc.) on terms equivalent to those of all other Group director-level employees of the AXA Group in France; ■ the Board of Directors authorized a contractual severance benefit for Mr. Thomas Buberl in the event of termination of his directorship as corporate off icer designed to replicate the benefits to which he would have been entitled as AXA employee under the 1993 collective agreement covering director-level employees of the insurance sector, but subject to performance conditions in accordance with the Afep-Medef recommendations.
The reasoned opinion of the Board of Directors relies on the position that it should be inequitable that the renunciation by Mr. Thomas Buberl of his employment contract prevent him, either immediately or in the future, from having social benefits he could profit as an employee.
Nature, purpose, terms and conditions On February 17, 2010, the Supervisory Board acknowledged the eff ective renunciation by Mr. Denis Duverne of his employment contract as of the Shareholders’ Meeting of April 29, 2010 during which the former dual structure consisting of a Management Board and a Supervisory Board was replaced by a unitary Board of Directors structure.
Consequently, the Supervisory Board took the following decision: ■ the Supervisory Board authorized the Company to take all appropriate commitments to ensure that, as a corporate off icer, Mr. Denis Duverne would continue to have social benefits (health insurance, life insurance, disability insurance…) identical or on terms equivalent to those applicable to AXA Group director-level employees in France, including by amending Group benefit plans in terms of health, life and disability insurance.
Risk control and risk mitigation 175 4.5 LIQUIDITY RISK 178 4.6 INSURANCE RISKS 179
You should carefully consider the following risk factors together with other information contained in this Annual Report. Any of these risks could materially affect our business, financial condition or results of operations, cause the trading price of our ordinary shares to decline materially or our actual results to diff er materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations or cash flows. The Company’s risk management processes, procedures and controls are described in Section 4.2 “Internal control and R isk M anagement ” of this Annual Report, which should be read in conjunction with this Section 4.1. While the M anagement devotes very substantial resources to risk management on an on-going basis, the Group’s risk management activities, like all control systems, are subject to inherent limitations and cannot provide absolute assurance or render the Group immune in any respect from the risks described in this Part 4 or the losses that may be incurred in connection with these risks. Where the risks described in this Section 4.1 have given rise to quantifiable and material financial impacts and/or material contingent liabilities, those financial impacts and/or contingent liabilities are reflected in the Consolidated Financial Statements. You should also refer to Section 4.3 et seq. of this Annual Report for quantitative information on the material risks to which AXA is exposed.
Our businesses, financial position and results of operations are impacted by global financial market fluctuations and economic conditions generally. While financial market results and economic conditions were generally favorable in 2017, there remains a wide variety of factors which could negatively impact economic growth prospects and contribute to high levels of volatility in financial markets. These factors include, among others, continuing concerns over certain sovereign debt issuers, particularly in Europe; concerns over levels of economic growth and consumer confidence generally; the strengthening or weakening of foreign currencies, in particular the U.S. dollar, against the Euro; structural reforms or other changes made to the Euro, the Eurozone or the European Union; the availability and cost of credit; the stability and solvency of certain financial institutions and other companies; inflation or deflation in certain markets; central bank intervention in the financial markets through quantitative easing or similar programs or the winding down or cessation of such programs; volatile energy costs; uncertainty regarding membership in the European Union or the Eurozone; “Brexit” and current negotiations between the United Kingdom and the European Union with respect to the United Kingdom’s status in relation to the EU when it ultimately leaves the European Union; adverse geopolitical events (including acts of terrorism or military conflicts); and other recent developments such as recent political events in Spain, Germany and Poland, as well as continuing uncertainty regarding the U.S. and worldwide political, regulatory and economic environment following the inauguration of a new U.S. administration in January 2017, including potential measures aff ecting foreign trade and U.S. tax reform. Specifically, certain initiatives from governments and support of central banks previously put in place to stabilize financial markets are being wound down, which could, in an uncertain economic context, have an adverse effect on the global financial industry. In addition, geopolitical risks in various regions, including Russia, Ukraine, Syria, Iraq or North Korea, have contributed to increased economic and market uncertainty generally.
related factors. Our ability to make a profit on insurance and investment products, for example, depends in part on the returns on investments supporting our obligations under those products, and the value of specific investments may fluctuate substantially depending on the foregoing conditions. In addition, certain types of insurance and investment products that we offer expose us to risks associated with fluctuations in financial markets, including certain types of interest sensitive or variable products such as guaranteed annuities or variable annuities, which have crediting or other guaranteed rates or guaranteed minimum benefits not necessarily related to prevailing market interest rates or investment returns on underlying assets. Although we use hedging techniques to help mitigate our exposure under certain of these guarantees, not all risks can be eff ectively hedged against and volatility in the financial markets, combined with unanticipated policyholder behavior, may increase our cost of risk and/or negatively aff ect our ability to hedge against certain of these risks, which may in turn adversely aff ect our profitability.
More generally, to the extent the economic environment in the jurisdictions in which we do business may become characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending, the demand for our financial and insurance products could be adversely aff ected. In addition, in such circumstances, we may experience an elevated incidence of lapses or surrenders on certain types of policies, lower surrender rates than anticipated on other types of products, such as certain variable annuities, with in-the-money guarantees, and our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. These developments could accordingly have a material adverse effect on our business, results of operations and financial condition.
Business and market conditions as well as accounting rules may impact the amount of goodwill we carry in our consolidated balance sheet, our pattern of DAC, VBI and other intangible assets amortization and the value of our deferred tax assets and deferred participation assets. The value of certain of our businesses including, in particular, our U.S. Variable Life and Variable Annuity businesses, is significantly impacted by such factors as the state of the financial markets, particularly equity markets, and ongoing operating performance.
Adverse experience relative to the methodologies, estimations and assumptions used by management in valuing investments and determining allowances and impairments may materially adversely aff ect our results of operations
The determination of the amount of allowances and impairments that we recognize with respect to the investment assets we hold varies by investment type, and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. In considering impairments, Management considers a wide range of factors, including those described in Note 1.8.2 “Financial instruments classification” in Part 5 “Consolidated Financial Statements” of this Annual Report, and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and the prospects for near-term recovery. For certain asset classes, particularly debt instruments, Management ’s evaluation involves a variety of assumptions and estimates about the operations of the issuer of the instrument and its future earnings potential. Management updates its evaluations regularly and reflects changes in allowances and impairments as such evaluations are revised. There can be no assurance, however, that Management has accurately assessed the level of impairments taken and allowances reflected in our financial statements, and the need for and timing of any additional impairments and/or allowances may have a material adverse eff ect on our consolidated results of operations and financial position.
Our exposure to interest rate risk relates primarily to the market price and cash flow variability associated with changes in interest rates. Changes in interest rates may negatively aff ect the value of our assets (particularly fixed-income investments) and our ability to realize gains or avoid losses from the sale of those assets, all of which also ultimately aff ect earnings. In particular, negative interest rates and the continuing low level of interest rates generally may negatively impact our net interest income and the profitability of our Life & Savings business, which may have an adverse impact on Group profitability.
Due to the geographical diversity of our business, we are subject to the risk of exchange rate fluctuations since a significant portion of our participations and investments, revenues and expenses are denominated in currencies other than Euro (primarily in U.S. D ollar, Hong Kong Dollar, Pound Sterling, Japanese Yen, Swiss Franc), while our Consolidated Financial Statements are published in Euro. Likewise, the part of our debt and other obligations denominated in currencies other than Euro is subject to foreign currency exchange rate fluctuations.
We are also subject to deflation risk, which has materialized in the Eurozone in recent years. Deflation may erode collateral values and diminish the quality of certain investment assets, and may negatively impact customer behavior or otherwise negatively aff ect our business and results of operations.
We need liquidity to pay our operating expenses (including claims and surrenders), interest on our debt and dividends and to refinance certain maturing debts and other liabilities. In addition, we need liquidity in connection with derivatives transactions to which we are party which require us to post cash collateral and/or subject us to margin calls in certain circumstances. The availability of additional financing to supplement internal liquidity resources will depend on a variety of factors such as market conditions, the overall availability of credit to the financial services industry, our credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of our long-term or shortterm financial prospects if we incur large investment losses or if the level of our business activity decreases due to a market downturn. While M anagement has put in place a liquidity Risk Management framework that includes active monitoring of the
Group’s liquidity position and contingency plans for accessing liquidity, liquidity constraints over a prolonged period may have a material adverse eff ect on our business, results of operations and consolidated financial position.
Under our reinsurance arrangements, other insurers or reinsurers assume a portion of the losses and related expenses under policies we issue, although we remain liable as the direct insurer on all risks reinsured. While we evaluate periodically the financial condition of our reinsurers to minimize our exposure to significant losses from reinsurer insolvencies, our reinsurers may become financially unsound by the time their financial obligations to us become due. In addition, in the future, reinsurance may not be available to us at commercially reasonable rates, and any decrease in the amount of our reinsurance will increase our risk of loss.
In addition, we carry out certain of our operations through joint ventures, and part of our product distribution is carried out through distribution arrangements with third parties that we do not control. As a result, we face operational, financial and reputational risk in the event that any of our joint venture partners fails to meet its obligations under our joint venture agreements, or fails to comply with applicable laws and regulations, or in the event of any disruption to our distribution arrangements.
There can be no assurance that defaults by the foregoing or other counterparties would not materially and adversely aff ect our business and results of operations.
The profitability of our businesses largely depends on a variety of factors including social, economic and demographic trends (including, in the life insurance business, mortality and morbidity trends), policyholder behavior (including surrender and persistency rates), court decisions, changes in laws and regulations, inflation, investment returns and underwriting expenses. We make assumptions about these factors in determining the pricing of our products, establishing insurance and employee benefits reserves and reporting capital levels and business results (using such industry measures of value as New Business Value (NBV) or European Embedded Value (EEV)). Adverse experience relative to such assumptions or inherent product defects may result in an increase in the pricing of our insurance products or the need for us to strengthen our product reserves which may in turn have an adverse eff ect on our results of operations and financial position.
In addition, in accordance with industry practices and accounting and regulatory requirements, we establish reserves for claims and claims expenses related to our Property & Casualty business. Reserves do not represent an exact calculation of liability, but instead represent expectations of what the ultimate settlement and administration of claims will cost based on our assessment of facts and circumstances then known, review of historical settlement patterns, estimates of trends in claims severity and frequency, actuarial experience on past events, legal liability and other factors. While we continually review the adequacy of our claims reserves, because the establishment of claims reserves is an inherently uncertain process involving numerous estimates, including the impacts of any regulatory and legislative changes and changes in economic conditions, there can be no assurance that ultimate losses will not materially exceed our claims reserves and have a material adverse eff ect on our results of operations.
The occurrence of natural or man-made disasters, including those resulting from changing weather patterns and climatic conditions, could adversely aff ect our financial condition, profitability, and cash flows
Over the past several years, changing weather patterns and climatic conditions, including as a result of global warming, have added to the unpredictability of natural disasters and created additional uncertainty as to future trends and exposures. In particular, the consequences of climate change are expected to significantly impact the insurance industry, including with respect to risk perception, pricing and modelling assumptions, and the need for new insurance products, all of which may create unforeseen risks not currently known to us.
Our competitors include mutual fund companies, a sset m anagement firms, private equity firms, hedge funds, commercial and investment banks and other insurance companies, many of which are regulated diff erently from us and off er alternative products or more competitive pricing than we do.
We employ a range of risk mitigation strategies in order to avoid or limit losses and liabilities. We use derivatives (including equity futures, Treasury bond futures, interest rates swaps and swaptions, equity options and variance swaps) to hedge certain, but not all, risks under guarantees provided to our clients, including the guarantees on variable annuities. On a substantial part of the in-force portfolio and for all new vintages of business, these hedging instruments are coupled with volatility risk mitigation techniques.
The profitability of AXA’s Variable Annuity products with guarantees depends, among other factors, on AXA’s ability to eff ectively hedge the minimum guarantees. The Company has implemented and continues to pursue a number of initiatives, including re-design and re-pricing of certain product features, designed to improve the profitability of these products and limit future hedging losses on the minimum guarantees. There can be no assurance, however, that these initiatives will succeed in meeting their objective or that the re-designed and re-priced products will continue to be attractive to their target markets which, in either case, could have an adverse impact on AXA’s business, competitive position, results of operations and financial condition.
Operational risk is inherent in our business and can manifest itself in various ways, including business interruption, poor vendor performance or default (including under significant outsourcing arrangements), systems malfunctions or failures, computer viruses, hacking incidents and/or other unauthorized access to our websites and/or systems, misappropriation of sensitive information, corruption of data or operational disruption, regulatory breaches, human errors, defective products, employee misconduct, external fraud, natural or man-made disasters and terrorist attacks. We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or other financial intermediaries we use to facilitate our securities transactions.
The increasing frequency and sophistication of hacking incidents directed at major financial institutions and other corporations recently has made clear the significance of these cyber-risks and the damage, both financial and reputational, they can potentially inflict. Systems failures or outages could compromise our ability to perform necessary business functions in a timely manner, which could harm our ability to conduct business and hurt our relationships with our customers and business partners. In the event of a disruption, our systems may be inaccessible, and our employees unable to perform their duties, for an extended period of time.
Despite the Group’s implementation of a variety of security measures, the Group’s systems may in the future be subject to unauthorized intrusions, such as physical or electronic break-ins, unauthorized tampering or other security breaches. Like other global financial institutions and companies, the Group has, from time to time, experienced threats to its data and systems, including malware attacks, unauthorized access, systems failures and disruptions. Management has put in place internal controls and procedures designed to protect client data as well as the Group’s proprietary information from hacking or other types of unauthorized intrusions into the Group’s information technology systems. There is no guarantee, however, that these measures will be eff ective and prevent all attempted intrusions into the Group’s information systems and any such intrusion could result in operational disruption, loss of sensitive client data and/or proprietary information.
The Group’s or its insurance subsidiaries’ failure to meet their solvency capital requirements could have a material adverse eff ect on our business, liquidity, ratings, results of operations and financial position
We and our subsidiaries are subject to evolving solvency and capital adequacy requirements, including the Solvency II framework, which is currently undergoing a review by the European Commission and the European Insurance and Occupational Pensions Authority (“EIOPA”), including regarding internal models used by certain insurers, such as AXA, to calculate their solvency capital requirement. It is difficult to predict the ultimate outcome of discussions regarding changes to these requirements and how they could aff ect our results of operations, financial condition and liquidity and the insurance industry more generally. The AXA Group’s solvency ratio is also sensitive to capital market conditions (including the level of interest rates, the level of equity markets and foreign exchange impacts) as well as other economic factors generally. In addition, regulators may become more conservative in the interpretation, application and enforcement of these rules, as a result of which they may, for example, impose increased reserving requirements for certain types of risks, greater liquidity requirements, higher discounts/“haircuts” on certain assets or asset classes, more conservative calculation methodologies or take other similar measures which may significantly increase regulatory capital requirements. In particular, the French insurance regulator, the Autorité de contrôle prudentiel et de résolution (“ACPR”), may impose changes to the internal model we use to calculate our solvency capital which may adversely aff ect our solvency ratio. In the event of a failure by our insurance subsidiaries to meet minimum regulatory capital requirements, insurance regulators have broad authority to require or take various regulatory actions including limiting or prohibiting the issuance of new business, prohibiting payment of dividends or other shareholder distributions, and/or putting a company into rehabilitation or insolvency proceedings. A failure of the Group and/or any of its insurance subsidiaries to meet its regulatory capital requirements and/or a deterioration of its solvency position negatively impacting its competitive position, may also result in our deciding to inject significant amounts of new capital into such insurance subsidiaries which could adversely aff ect our liquidity position, results of operations and financial position. Regulatory restrictions that inhibit our ability to freely move excess capital among our subsidiaries or which otherwise restrict fungibility of the AXA Group’s capital resources may, depending on the nature and extent of the restrictions, adversely affect the capital position of our operating insurance subsidiaries which may have a consequent negative impact on us and the perception of our financial strength. Additional regulatory developments regarding solvency requirements, including changes to the Solvency II framework, may adversely aff ect our prudential regime as well as increase associated costs. There can be no assurance that contingency plans developed by M anagement will be eff ective to achieve their objectives and any failure by us and/or our insurance subsidiaries to meet minimum regulatory capital requirements and to maintain regulatory capital at competitive levels could have a material adverse eff ect on our business, liquidity, credit ratings, results of operations and financial position.
Risks associated with acquisitions to expand or complement our business could adversely aff ect our business, future profitability and growth
Our businesses are subject to extensive regulation and regulatory supervision in the various jurisdictions in which we operate
The AXA Group operates in 64 countries around the world and our operations are subject to a wide variety of insurance and other laws and regulations. Our regulatory environment is evolving rapidly and supervisory authorities around the world are assuming an increasingly active and aggressive role in interpreting and enforcing regulations in the jurisdictions in which we do business, resulting in significant compliance challenges. While M anagement cannot predict whether or when future legislative or regulatory proposals may ultimately be enacted and the final form they will take, certain of these proposals, if enacted, could have a material adverse impact on our business activities, results of operations and financial conditions. We expect that new laws and regulations will increase the cost of doing business, including our operating costs, as well as our legal and compliance costs.
In recent years there also has been an increase in legislative and regulatory initiatives and enforcement actions in the areas of financial crime compliance, anti-money laundering, international trade sanctions and anti-bribery laws and regulations (including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and the French Sapin II Act of 2016) and consumer protection (including the Insurance Distribution Directive (2016/97), the revised Markets in Financial Instruments Directive (2014/65/ EU) and Regulation (EU) No 1286/2014 on key information documents for packaged retail and insurance-based investment products). Implementation of these and any future regulations may increase the costs of compliance, limit or restrict our ability to do business or subject us to the possibility of civil or criminal actions or proceedings, all of which carry significant financial and reputational risk.
We expect the scope and extent of applicable laws and regulations, as well as regulatory oversight, to continue to increase over the coming years. While M anagement proactively manages legal and regulatory risks and has adopted policies and procedures designed to ensure compliance with applicable laws and regulations in the various jurisdictions where it does business, we cannot predict with any certainty the potential effects that a change in applicable laws or regulations, their interpretation or enforcement (or of the potential effects of any new regulation or legislation in the future) may have on the business, financial condition or results of operations of our various businesses. Any failure by us to remain in compliance with regulations applicable to us could result in fines, penalties, injunctions or other similar restrictions, any of which could negatively impact our earnings and reputation.
For a description of the regulations and supervision framework applicable to the Group, please refer to Section 6.3 “General information – Regulation and Supervision” of this Annual Report.
As a global business, we are exposed to various local political, regulatory, business and financial risks and challenges
The global nature of our business exposes us to a wide variety of local political and regulatory, business, and financial risks and challenges which may aff ect the demand for our products and services, the value of our investment portfolios, the levels of capital and surplus that we are required to hold, and the credit quality of our counterparties. These risks include, for example, political, social or economic instability in the countries in which we operate, including the risk of nationalization, expropriation, price controls, capital controls, restrictions on foreign trade and investment (such as changes to authorized levels of foreign ownership, which may aff ect our ability to conduct business in certain countries through joint ventures), fluctuations in foreign currency exchange rates, credit risks of our local borrowers and counterparties, lack of local business experience in certain markets, risks associated with exposure to insurance industry insolvencies through policyholder guarantee funds or similar mechanisms and, in certain cases, risks associated with the potential incompatibility with foreign partners, especially in countries in which we are conducting business through joint ventures or other entities that we do not control.
We have been and may become in the future subject to lawsuits and/or regulatory investigations which may aff ect our image, brand, relations with regulators and/or results of operations
Regarding transfer of data to the United States of America, following invalidation in 2015 of the European Commission’s Safe Harbour Decision by the European Union Court of Justice, which allowed for the transfer of personal information for commercial purposes from companies in the EU to companies in the United States which had signed up to the U.S. Department of Commerce “Safe Harbor Privacy Principles,” transatlantic data flows between companies continued using other mechanisms, such as standard contractual clauses with U.S. companies and binding corporate rules for transfers within a multinational corporate group. While a new safe harbor, referred to as the “EU-U.S. Privacy Shield,” was adopted in July 2016, banks and insurance companies are generally not currently eligible to register on the EU-U.S. Privacy Shield list and the AXA Group has accordingly been relying on the above-mentioned mechanisms to transfer personal data from the Company or its EU-based aff iliates to its banking and
Changes in tax laws or uncertainties in the interpretation of certain tax laws may result in adverse consequences on our business and our results of operations
The Mutuelles AXA, which comprise two French mutual insurance companies, together held 14.13% of the Company’s outstanding shares and 23.97% of its voting rights as of December 31, 2017. The Mutuelles AXA have stated their intention to collectively vote their shares in AXA and may have interests conflicting with other shareholders’ interests. For example, even though the Mutuelles AXA do not hold a majority of the total voting power in AXA, eff orts by the Mutuelles AXA to decline or deter a future off er to acquire control of AXA, which other shareholders may find attractive, may prevent other shareholders from realizing a premium for their AXA ordinary shares. The Mutuelles AXA may decide to increase their ownership interest in AXA or to sell all or a portion of the ordinary shares they own at some future date.
3rd line of defense responsible for providing independent assurance on the eff ectiveness of the internal control system
The four key functions are: ■ the risk-management function, which is, in particular, responsible for coordinating the second line of defense, ensuring that the risk appetite is implemented with respect to all risks, and in charge of the design, implementation and validation of AXA Group economic capital model which is the basis for the Group Solvency II internal model (“Internal Model”), the documentation of the Internal Model and any subsequent changes made to it as well as the analysis of the performance of this model and the production of summary reports thereof. The holder of the risk-management function, including the internal control function, at Group level is the Group Chief Risk Officer and responsible of the Group Insurance Off ice; ■ the compliance function (the “Compliance function”), which is, in particular, responsible for advising on compliance with the laws, regulations and administrative provisions regarding insurance and reinsurance activities as well as ensuring that compliance is eff ective. The compliance function holder at Group level is the Group Chief Compliance Off icer; ■ the internal audit function, which is, in particular, responsible for performing an evaluation of the adequacy and eff ectiveness of the Group’s internal control system and other elements of the system of governance. The internal audit function must be objective and independent from the operational functions. The internal audit function holder at Group level is the Global Head of Internal Audit; and
■ the actuarial function, which is, in particular, responsible for overseeing the calculation of technical provisions (including ensuring the appropriateness of the methodologies and underlying models used as well as the assumptions made in the calculation of technical provisions), assessing the suff iciency and quality of the data used in this calculation and comparing best estimates against experience, expressing an opinion on the overall underwriting policy and on the adequacy of reinsurance arrangements. The actuarial function holder at Group level is the Group Actuarial Function Holder. For further information on the actuarial function, please refer to Section 4.6 “Insurance Risks” of this Annual Report (1).
(1) Only information contained in Section 4.6 “Insurance risks” of this Annual Report and referred to in Note 4 “Financial and insurance Risk Management” in Part 5 “Consolidated Financial Statements” of this Annual Report is covered by the report of the Statutory Auditors on the Consolidated Financial Statements.
The scope of the ARCC covers all of the Group’s operations and include among others: ■ the Group’s overall risk appetite, material breaches of risk limits and proposed remedial actions, the Group’s risk framework as well as action plans proposed to reduce or otherwise modify the Group’s material risk positions when they are beyond defined limits; ■ the Group’s standards and limits to ensure they are consistent with the Group’s defined risk appetite; ■ the Own Risk & Solvency Assessment (“ORSA”) and the other Solvency II reports (Group Solvency and Financial Condition report, Group Regular Supervisory report, Actuarial Function Holders reports); ■ the systemic documentation (Systemic Risk Management Plan, Liquidity Risk Management Plan, Recovery Plan); ■ the major findings identified by internal audit; and
The control framework with three lines of defense has been designed to ensure that it operates to systematically identify, measure, manage and control the risks that the AXA Group may face.
GRM is headed by the Group Chief Risk Off icer, who reports to the Chief Executive Off icer.
The role of GRM is to identify, quantify and manage the main risks to which the Group is exposed. To this end, GRM develops and deploys a number of risk measurements, monitoring instruments and methods, including a standardized methodology and framework for stochastic modelling (through the Internal Model) including the ORSA required under Solvency II.
3. Systematic second opinion on key processes: Chief Risk Officers provide a systematic and independent second opinion on investments, ALM and reserves, product approval process and reinsurance and challenge on operational risks and strategic plan.
The Compliance section of the Group Standards contains standards and policies on significant risk areas affecting compliance activities and sets out the high-level controls and monitoring principles to which the entities must adhere. These are validated annually by the Group Management Committee. Adherence to the Standards and Policies (e.g. Anti-Money Laundering, Sanctions, Anti-Bribery…) is mandatory.
On a regular basis, the Group Compliance function reports to the Group Audit Risk & Compliance Committee, the Audit Committee, and to the Board of Directors (as required) on significant compliance matters. These include major regulatory changes that have compliance implications, results of the
The Internal Control framework of the AXA Group: ■ is based on the principle of proportionality and takes into account the nature, scale and complexity of the entities operations; ■ is aligned with the COSO “Internal Control – Integrated Framework” of the Committee of Sponsoring Organizations of the Treadway Commission; ■ is an integral part of the Risk Management thus providing the Executive Management with a view of the risk and control environment; ■ is underpinned by the Group Internal Control Standard and Group Solvency II Internal Control Policy, approved by the Audit Committee and the Board of Directors of AXA SA in December 2017; ■ encompasses Internal Financial Control, implemented since 2010 to provide reasonable assurance regarding the reliability of Internal Control Over Financial Reporting (“ICOFR”), and extended to Solvency II in 2014 to contribute to the Internal Model validation process. For more information on Internal Financial Control, please refer to the paragraphs “Financial reporting, disclosure, controls and procedures” and “Internal Model validation” below.
On a regular basis, the Group Internal Control reports to the Group Operational Audit, Risk and Compliance Committee.
Over a five year period, all applicable “Common Audit Universe” categories for each entity are expected to be audited. Any exceptions identified are notified to the Audit Committee for ratification.
PBRC’s role encompasses the following principal activities: ■ development of both accounting and reporting standards; ■ managing process instructions with the subsidiaries for the various exercises; ■ managing the Group’s financial consolidation and reporting systems; ■ producing the Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) and analyzing key performance indicators; ■ managing the Internal Financial Control (IFC) program; ■ developing and using management control tools; ■ managing and consolidating the European Embedded Value and Available Financial Resources processes, related actuarial indicators and the economic balance sheet; ■ coordinating the production of the Group’s Annual Reports filed with the AMF; ■ coordinating the production of reports filed with the ACPR related to Solvency II; ■ liaising with the Statutory Auditors and contributing to Audit Committee meetings as required; and
At entity level, AXA’s subsidiaries are responsible for recording and controlling accounting and financial data that comply with the AXA Group Accounting Manual and reflect consolidation rules under IFRS accounting standards. In this respect, the Chief Financial Off icer of each entity signs off on the accuracy of their respective contribution to the consolidated figures reported through “Magnitude” and their compliance with both the AXA Group Accounting Manual and instructions in all frameworks produced (IFRS, Embedded Value, actuarial indicators and economic balance sheet) within the internal financial control program.
The entities in IFC scope are required to document their significant processes and key controls, as well as the rationale of how the associated risk of material misstatement due to error or fraud can be reduced to an acceptable level and test the design and operational eff ectiveness of key controls, and remediate the identified control deficiencies.
At each year-end, the in-scope entities have to perform an evaluation of their ICOFR as part of an internal certification process, involving formal sign-off by process owners and with a formal management report from the entity’s Chief Financial Off icer or another senior executive stating their conclusion as to the eff ectiveness of the entity’s ICOFR.
This process is based on the following four pillars: 1. Chief Financial Officer Signs-Off Certificates, which are required to be submitted by all local Chief Financial Off icers to PBRC, together with the required subsidiary financial reporting and consolidation information; 2. IFC Management reports are required to be submitted by the Chief Financial Off icer or another senior executive of every in-scope entity, as part of the IFC program dedicated to ICOFR; 3. Disclosure Controls & Procedures Certificates, which are required to be submitted by AXA’s Management Committee members, Chief Financial Off icers and certain other senior executives pursuant to which each of these executives is required to review the Group’s Registration Document and formally certify (i) the accuracy and completeness of the information in the Annual Report with respect to the companies under his/her responsibility, and (ii) the eff ectiveness of disclosure controls and procedures and ICOFR at companies under his/her responsibility (with specific disclosure of any significant deficiencies or material weaknesses). In addition, as part of this “sub-certification” process, these executives are required to review and comment on a number of cross-sectional disclosures in the Registration Document relating to risk and other matters;
For further information, please refer to Appendix I “Management’s annual evaluation of the internal control over financial reporting” of this Annual Report.
■ risk assessment and review of strategic risk, reputation risk and emerging risk.
The ORSA report provides an assessment on: ■ the overall solvency needs through the measurement of quantifiable risks considering risk mitigation actions implemented in current economic context and approved business strategy detailed in the 2017-2020 strategic plan and within approved risk appetite limits. Stress scenario analyses are performed to ensure adequacy of the economic capital assessed. This is supported by the ERM, including the identification and monitoring of non-quantifiable risks; ■ the compliance, on a continuous basis, with regulatory capital requirements, through the assessment of the ability to meet capital requirements using the approved Internal Model, in compliance with the Solvency II regulatory standard. Stress scenario analyses are performed to ensure adequacy of the economic capital assessed. Also, the extensive use of the Internal Model outputs for key decision making processes provides a feedback loop for improving the modelling according to the evolution of the risk profile; ■ the extent to which the risk profile of the AXA Group deviates from the assumptions underlying the Solvency Capital Requirement calculated on the basis of the Internal Model. Extensive validation tests are performed to assess the relevance of the Internal Model and the model error. Limitations of the Internal Model and evolution plan resulting from the validation activities are presented.
The Solvency II ratio as of December 31, 2017, published on February 22, 2018 was estimated at 205% (2), compared to 197% as of December 31, 2016 and remains within AXA’s target range set at 170-230%.
At Group level, the governance bodies involved in the Internal Model governance are as follows: ■ the Board of Directors reviews the Internal Model, and authorizes the application for ACPR’s approval of major changes to the Internal Model; ■ the Audit, Risk and Compliance Committee; and
Apart from this fully integrated validation, sanctioned by Chief Risk Off icer’s review and sign-off , a comprehensive independent review process has been defined and implemented to provide adequate comfort to AXA Group management and Board of Directors that the model and its outputs meet a “fit for purpose” standard.
At the end of the annual validation process, the Board of Directors is provided with a report summarizing the conclusions of the internal review by Risk Management and the conclusion of the independent review by IMR and IFC as well as a review by an independent third party.
I Governance of investment strategy and Asset & Liability Management (ALM)
The Group Chief Investment Off icer (Group CIO) heads the Groupwide community of local insurance companies CIOs, the central Investment & ALM Department and reports to the Group Chief Financial Off icer. His role includes aligning AXA’s investment strategy with the broader strategy of the Group, fostering closer cooperation amongst local entities, enhancing methodology, and steering investment decisions.
At the entity level, the strategic asset allocation issued from the ALM study must be reviewed by local Risk Management, and verified against predefined risk appetite limits, before being approved by the local Investment and ALM Committee.
The IAP is completed at Group level for any significant investment, notably if several local entities are participating in the same investment. In that case, the successful completion of an IAP is done aft er the production of a second independent opinion by Group Risk Management. The IAP is used and completed at local level to cover local regulatory characteristics (including tax and statutory accounting).
Local IAP is also run for investments in new asset classes for local entities under the same principles.
The operational risk related to derivatives is measured and managed in the context of the Group’s global operational risk framework. Furthermore, execution and management of derivatives are centralized within dedicated teams, reducing the AXA Group’s operational risk.
■ in order to benefit from a more asset-specific and/or geographical expertise, the Group may also decide to invest through external asset managers. In such event, thorough due diligence analyses are performed by the Investment and the Risk Management communities and a continuous monitoring is implemented at both Group and Local levels.
Local operating units have the primary responsibility for managing their market-related risks, while abiding by the risk framework defined at Group-level, in terms of limits/thresholds and standards. This approach aims to allow reacting swiftly in an accurate and targeted manner to changes in financial markets, political and economic environments in which the Group operates.