Information relating to the management report of the Board of Directors of CNP Assurances 299
the following information is incorporated in this Registration Document: ■ the annual financial report that all listed companies are required to prepare and publish within four months of their financial year-end, in accordance with Article L.451-1-2 of the Monetary and Financial Code and with Article 222-3 of Autorité des Marchés Financiers Regulations; and
PResentation of cnP assuRances1 1.2. Providing insurance for 150 years 5 1.3. Presentation of businesses and strategy 6 1.4. selected financial information 9
Providing insurance for 150 years 1.2. Providing insuranCe for 150 years
■ CNP AssurANCes: key dATes iN The exPANsioN oF CNP AssurANCes 1850 Creation within Caisse des Dépôts of Caisse Nationale de retraite pour la vieillesse (CNRV), France’s first retirement fund.
1960 Launch of the first mutual fund-backed individual insurance policies with La Poste (the French Post Office) and the French Treasury.
Creation with Azur-GMF of Filassistance International, dedicated to the provision of local services.
2005 Establishment in Italy through the acquisition of a 57.5% stake in Fineco Vita, which became Capitalia Vita in 2006, then CNP Unicredit Vita in 2008.
2006 Extension of the shareholders’ agreement with La Poste, Groupe Caisse d’Epargne, Caisse des dépôts and the French State until 2015.
Establishment in Spain through the acquisition of a 94% stake in Skandia Vida, renamed CNP Vida.
2007 Purchase by CNP Assurances of the 49.9% of Ecureuil Vie held by Groupe Caisse d’Epargne.
As a general rule, as economies become more developed, people become more risk-averse, while longer life expectancy leads to greater needs in retirement. There is only so much that families can do to meet these needs and state pension schemes can provide only partial coverage. Insurance policies represent a complementary measure to enable policyholders to secure their own future and that of their dependents.
The personal insurer’s business is to meet these needs by leveraging several inter-locking competencies. By assessing and pooling risks among groups of insureds with similar characteristics and securing guarantees both administratively and financially, CNP Assurances attenuates the financial and day-to-day impact of adverse life events.
ll Providing solutions across the needs spectrum One distinguishing feature of CNP Assurances is that the Group works closely with each distribution partner to develop offers geared to the profiles of their respective client bases in terms of age, risk appetite and income. The wide-ranging challenges encompass helping working people to prepare for retirement, estate planning for retirees and solutions for longterm care insurance. Whatever the need, CNP Assurances can offer comprehensive, innovative solutions to its 24 million clients around the world, thanks to its expertise in insuring the various types of risk.
In response to the 2007 implementation of the Aeras convention aimed at improving access to credit for people representing an aggravated health risk, CNP Assurances has adapted its loan insurance offer by introducing new disability cover. The Group has also provided training programmes for its teams and has stepped up the provision of information to financial advisors.
individual insurance products are marketed by the networks of the Group’s two longstanding partners, La Banque Postale and the Caisses d’Epargne savings banks, which are also shareholders of CNP Assurances (La Banque Postale and BPCE Group jointly hold a 35.5% stake in CNP Assurances). Together, the two networks represent close to 20,000 outlets in France and account for 66% of CNP Assurances’ 2009 premium income (IFRS). In 2006, the distribution agreements with the two partner networks were renewed until 2015, together with the shareholders’ agreement.
Since 2004, CNP Assurances has also had a proprietary sales force, CNP Trésor, which comprises 305 advisors at the
In a constantly changing economic and social environment, personal insurance needs are wide-ranging and are steadily increasing. CNP Assurances responds to these needs by regularly adapting its product and service offer.
Presentation of businesses and strategy service of policyholders who purchased their policy through the French Treasury. Individual insurance products are also marketed by independent financial advisors.
Group insurance provides cover for a group of people through a legal entity (such as a company or a not-for-profit organisation) or a business owner, under a single policy. CNP Assurances’ group insurance products include pension and employee benefits contracts sold to over 200 financial institutions, 20,000 local governments and hospitals, 4,000 companies and numerous not-for-profit organisations. Employee savings products are sold through the Fongépar subsidiary. CNP Assurances is also a longstanding partner of France’s mutual insurance sector, notably thanks to the partnership agreement signed with the Fédération nationale de la Mutualité française in 2003. The Group also places its recognised expertise in loan insurance at the service of banking and financial institutions and their clients.
At present, CNP Assurances is the leading provider of loan insurance in France, with over one-third of the market. Group insurance policies generate nearly 17% of CNP Assurances’ premium income.
Since establishing its first foreign operation in 1995, CNP Assurances has founded its international expansion on the business model that has proved its worth in France. The expansion strategy consists of forging strategic partnerships (in the form of acquisitions or greenfield operations) with local banks with one or more distribution networks, generally of a banking nature. CNP Assurances also operates under EU freedom of services legislation in eight European countries and has two branches specialising in loan insurance, one in Italy and the other in Spain. The Group is present mainly in Europe and South America and now generates 19.3% of total premium income outside France.
The highest ethical standards are applied in every aspect of the business. Woven into the design of offers tailored to customers’ needs, these standards also inform the training given to the distribution network and influence the information provided to policyholders throughout the life of the policy. They are clearly expressed in the Group’s commitments as a member of the insurance industry and in the employee code of conduct, which applies in particular to asset managers and to the teams in charge of processing confidential information, such as medical data or the names of policy beneficiaries. These standards are further backed by an extensive internal control process and anti-money laundering procedures.
Effective policy design and administration is also essential. Life insurance policies are complex financial products governed by strict legal and tax rules. They are also very long-term, covering an average period of around ten years, but sometimes remaining in force for 50 or even 70 years. Another layer of complexity comes from the fact that the insurer deals not just with the client, but rather with three or more counterparties – the policyholder, the insured (who may not be the policyholder) and the beneficiary or beneficiaries (who may not be the insured). In addition, every policy is made to measure, with the insurer committing to comply with the insured’s wishes and to treat such wishes as strictly confidential until the termination of the contract.
In keeping with its business model, the Group has used leading-edge technologies to develop unique expertise in combining personalised service with industrial efficiency (14 million individual contracts and 13 million loan insurance contracts managed in France).
Because of the specific features of insurance business, CNP Assurances’ approach to financial management is different from that of a fund manager or a bank. It is also very different from that of a pension fund, which generally knows when liabilities will fall due. The Group pursues a responsible financial strategy, characterised by stable strategic asset allocation, very long investment horizons, and selection and management processes that take account of social, environmental and governance issues.
CNP Assurances’ corporate social responsibility strategy also includes observance of the rights and duties attached to the assets held. With €264.7 billion of technical reserves at end2009, the Group plays a major role in financing the European economy, purchasing both government and corporate paper.
CNP Assurances pursues a socially responsible policy with regard to all stakeholders – policyholders, employees and partners – and conducts its business in a spirit of environmental stewardship.
Labour and environmental information required pursuant to the law on new economic regulations (“NRE”) is presented on pages 94 to 100.
Presentation of CnP assuranCes 1 selected financial information 1.4. seleCted finanCial information (source: CNP Assurances 2009 annual results)
2008 MCEV before dividends 2008 MCEV after dividends 2009 MCEV before dividends
2.1. rePort of the chairman of the board of directors 14 2.3. corPorate governance structures 30 2.5. internal control and risk factors 52 2.6. statutory auditors’ rePort, PrePared in accordance with article l.225-235 of the french commercial code on the rePort PrePared by the chairman of the board of directors 60 2.7. statutory auditors’ sPecial rePort on related-Party agreements and commitments 62 coRPoRate goveRnance anD inteRnal contRol2
1 ComPoSItIoN of thE boARd, PREPARAtIoN ANd oRgANISAtIoN of ItS woRk
In 2009, the Board of Directors met seven times with an average attendance rate of 75%. Each meeting lasted an average of two-and-a-half hours.
The Board of Directors, which comprises 18 directors and three non-voting directors, has separated the roles of Chairman and Chief Executive Officer.
This clear distinction of responsibility between supervisory and executive roles, enacted in July 2007, clarifies the internal workings within top management. Thus, it promotes interaction between the Board of Directors, via its Chairman, and senior management.
Report of the chairman of the Board of Directors individual interviews between each Director and the Company Secretary. The findings of this assessment will be available in the first quarter of 2010.
Under this organisation of authority and skills, the Chief Executive Officer has full powers to act in the Company’s interests, within the scope of the objects of the Company and the annual budget as determined by the Board of Directors, except for some strategic operations, decisions relating to which must be submitted for prior review to the Board of Directors. These operations are listed in the Board of Directors report.
As Chairman of the Board of Directors, it is my duty to ensure that all shareholder interests are represented and that the Company’s management structures are working properly. In this respect, it is my responsibility to organise and lead the work of the Board and to coordinate the work of its different committees. I chair the Strategy Committee wherein I am entitled to handle the issues that are under my responsibility in the Board’s name.
The Audit Committee’s duties are set out on the Board’s internal rules (2) and referred to in the Board of Directors’ report.
In 2009, the Audit Committee met five times with an average attendance rate of almost 80%. Each meeting lasted on average two-and-a-half hours. The committee is comprised of five members, two of which are deemed independent: the Chairman, Tommaso Padoa-Schioppa (co-opted by the Board on 23 June 2009 to replace Alexandre Lamfalussy) and Antonio Borgès. They are joined in their duties by three other members: Patrick Werner, Franck Silvent and Alain Lemaire.
The committee examined the following main issues in 2009: ■ financial statements of the Company and the Group for 2008 and the first half of 2009; ■ disclosures concerning the Group’s investments and financial risks in light of the crisis that flared up in the summer of 2007; ■ review of the report conducted in regard to major risks resulting from financial market turmoil; ■ progress report on the “Solvency II” project; ■ overview of the Group’s unlisted interests; ■ administrative costs: actual figures for 2009 – budget for 2010; ■ information on drafting of quarterly financial statements; ■ 2009 report by the Risk Management & Compliance department; ■ 2009 report by the Internal Audit department and related programme for 2010.
The committee interviewed the persons responsible for preparing the financial statements of the Company and the Group, and also met with the Auditors without any members of management being present.
It makes recommendations concerning candidates for election as directors and the allocation of directors’ fees among the Board members, and any proposals to carry out an employee share issue or to make share grants or award stock options to employees and members of senior management.
(1) This internal rule is applicable to all natural persons, including the representatives of legal entities, but excluding representatives of the State whose status would be incompatible with this requirement.
(2) Internal rules governing the Board of Directors can be consulted on the Company’s website: www.cnp.fr
The Remunerations & Nominations Committee, comprising five members, met twice in 2009, with an average attendance rate of over 90%. On average, each meeting lasted one-anda -half hours.
Besides Henri Proglio, who chairs this committee, the members are Edmond Alphandéry (Chairman of the Board of Directors), Augustin de Romanet (CEO of Caisse des dépôts et consignations), Jean-Paul Bailly (Chairman of La Poste – the French Post Office group) and François Pérol (Chairman of the Executive Board of Banques Populaires Caisses d’Epargne) (3).
For further details, please refer to the Board of Directors’ management report.
The committee members as of 31 December 2009 were Edmond Alphandéry (Chairman), Augustin de Romanet, Franck Silvent, Marc-André Feffer, Alain Lemaire and Henri Proglio. The Strategy Committee met three times in 2009 with an average attendance rate of 75%. Each meeting lasted two hours on average.
Lastly, in late 2009 the Strategy Committee decided to launch a research project concerning customer expectations, the future shape of products and services marketed to customers and the prospective impact of regulatory changes, especially in relation to the introduction of the next set of prudential standards dubbed “Solvency II”. Conclusions are expected by the end of June 2010 at the latest.
The focus on my report regarding 2009 are the measures implemented by CNP Assurances to prepare for the postcrisis period, which though differing from the immediate aftermath of the financial crisis in 2008 is nonetheless characterised by a great deal of uncertainty.
As Chairman of the Board of Directors, I had regular opportunities to review internal control procedures and discuss them with the Chief Executive Officer, the Executive Committee, the heads of operating departments and the Auditors.
As in previous years, I also held a series of ad hoc meetings with members of the Executive Committee and senior management, in order to determine the matters that could most usefully be discussed in this report with particular emphasis on identifying and analysing risks associated with the financial crisis and the possible turns it could take in the coming years in order to assess the degree of the Company’s exposure, as well as measures implemented to mitigate such risks.
(3) Founded on 31 July 2009, BPCE is the new co-operative banking group formed through the merger of Caisses d’Epargne and Banques Populaires. Under amendment no. 5 of the Shareholders’ Agreement, BPCE has replaced the CNCE as a shareholder and assumed its full rights and obligations.
The Company’s business is governed by numerous laws and regulations, including the French Insurance Code (Code des assurances). In addition, insurance companies in France are supervised by the Autorité de Contrôle Prudentiel (ACP), previously called the Autorité de Contrôle des Assurances et des Mutuelles (ACAM).
Since 2003, CNP Assurances has applied the COSO reference framework, which is compatible with AMF recommendations. COSO defines internal control as a set of resources, behaviours and procedures geared to each company’s characteristics. The system must be designed to address the material operational, financial or compliance risks faced by the Company. Internal control can be expected to provide only reasonable, not absolute, assurance that the process will enable the entity to fulfil these objectives.
Current conditions are giving rise to uncertainty over the future and which risks require extremely close monitoring. CNP Assurances must make every effort to spot possible shifts in economic conditions (in either direction) and garner full and relevant information about risks incurred and the resilience of the systems set up to track and manage these risks.
A. Responding to the financial crisis and the different postcrisis economic scenarios
The first stage of forecasting looked into the various hypotheses on how the world economy will evolve in the next five years in terms of growth, inflation and public debt, in accordance with various macroeconomic parameters (lending, consumption, savings, wages, rates of unemployment, etc.) and financial indicators (interest rates, level of equity markets, volatility, etc.). The second stage of this impact assessment evaluated the consequences of these various hypotheses on the life insurance industry and the Company’s own positions in terms of profitability and financial flexibility. The study involved analysis of the primary risks associated with the economic and financial crisis to provide a complete inventory of exposures and the counter-measures in place.
The risks we face are multifarious but can be broadly divided up between credit risk, and risks relating to declines and volatility in financial markets.
a. Credit risk Liquidity and financial flexibility risk Risks relating to liquidity and insufficient financial flexibility denote problems that can be encountered by a life insurance company in tapping the market for short-, medium- and long-term financing as a result of a drop in unrealised gains, impairment of assets, or a rise in surrender rates.
Using the various scenarios under review, CNP Assurances analysed the conditions in which it could cover its minimum solvency margin, in the event of a downturn in the macroeconomic and financial context. The Company also participated in solvency research in the European market as required by its supervisory authority, the ACAM, and the CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors).
issuer risk Risks arising from the vulnerable condition of issuers, notably via the downgrading of their credit rating, widening spreads on their debt instruments or even default by the issuer. Even though corporate default rates were up on the whole over 2009 for financial institutions in the narrowest sense, the defaults seen in 2008 were more significant: Lehman Brothers, Washington Mutual and Icelandic banks, not to mention the problems encountered by AIG, Fannie Mae and Freddie Mac.
To offset these increasing risks, CNP Assurances invested in a diversified bond portfolio and implemented a comprehensive system for monitoring credit risk. The system is organised around regular Credit Committee meetings and the setting and tracking of highly conservative exposure limits by issuer. These procedures were supplemented by analysis of risks arising from vulnerable issuers based on a regularly updated list and regular reviews of the Company’s exposure to struggling sectors.
exposure to structured credit investments and asset-backed securities Direct and indirect exposure to structured credit investments and asset-backed securities can jeopardise the financial strength of insurance companies by negatively impacting investment yields, profit and solvency.
CNP Assurances has for many years followed a conservative investment policy in regard to this asset class. For example, since 2007, the Company has had virtually no exposure to enhanced money-market funds invested in structured credit investments.
For investing in hedge funds, our strategy relies on the use of structured funds with a capital guarantee and the establishment of diversified, dedicated funds of hedge funds. We have also developed investment rules that rely on diversification in terms of manager and fund strategy as well as stringent selection and verification by investmentmanagement teams.
To gauge its exposure to such risks, CNP Assurances uses software to simulate changes in assets and liabilities based on different market conditions. The simulations focus on: ■ the impacts on portfolio values of sharp increases or cuts in interest rates; ■ various hypotheses on the behaviour of the insurer (investment policy, profit-taking strategy, policyholder dividend policy, etc.) and of policyholders (new contracts taken out, top-up premiums, surrenders, transfers, etc.).
Findings are regularly reviewed by the Strategic Allocation Committee, which is chaired by the CFO. Furthermore, the Executive Committee is kept aware of risks at a Group level.
interest-rate risk Life insurance companies have to monitor interest rate risk very closely, especially in the midst of a financial crisis.
Faced with a possible decline in interest rates, CNP Assurances has limited loss risk on savings products offering guaranteed returns by matching liabilities to fixed-income investments with similar maturities.
To deal with the risk of rising interest rates, the Company has limited maturities on fixed-rate bonds, invested in floating-rate and index-linked bonds, amongst other investment strategies. It has also implemented medium- and long-term hedges against a sharp, sustained rise in interest rates by acquiring options from a broad range of banking counterparties. These hedging initiatives have been stepped up over the past three years.
A sharp downturn in equity markets could arise if stagflation – with its concomitant rise in interest rates – happens to set in. These two combined effects would make a simultaneous dent to the two main classes of asset generally held by insurers.
For many years, CNP Assurances has dealt with increased equity risk through an early-warning procedure under which the Executive Committee reviews equity investment strategies and either confirms, suspends or modifies them based on the various available options.
Committee) and oversight bodies (Audit Committee and the Board of Directors).
exposure to the property market Property investments account for a low share of the Group’s invested assets. Amid shallow market conditions and declining prices, CNP Assurances ventured back into the investment property market in late 2008, purchasing direct holdings.
Current market conditions afford possible opportunities for our Company in its goal to increase holdings in this asset class.
The aim of identifying and measuring recurring risks is to provide Executive Management and oversight bodies with the assessments and information needed to manage the risks inherent to each business and define an overall risk management strategy.
The Group’s insurance policies fall into three categories: ■ personal risk policies, giving rise mainly to insurance risks; ■ savings policies, giving rise mainly to financial risks; ■ pension products, giving rise to insurance and financial risks.
The procedures implemented to price and assess insurance risks, determine the amount of related technical reserves and any necessary reinsurance cover, and track the profitability of in-force business, are documented under the procedures for managing insurance risks approved by the Executive Committee.
Oversight of risks is provided by the Insurance Risk Committee, which bases its reviews on actuarial reports. For example, last year the committee monitored the threat of spiralling unemployment and invalidity claims, the coverage ratio of the French civil-servant pension fund (Préfon), the consequences of the type-A flu pandemic and coverage of unit-linked policies offering minimum guarantees.
Embedded value and the value of new business are calculated for CNP Assurances and each of its subsidiaries. These calculations are reviewed by a qualified independent actuary at each period-end and are disclosed in the annual and interim reports.
The Ethics and Compliance unit, set up in 2007 within the Risk Management & Compliance department, is responsible for monitoring compliance risks in relation to insurance products and transactions as well as the risk of ethical rules being breached. This is being pursued in two ways: ■ procedures exist to obtain approval and note reservations by all units involved in the inception or updating of a product, before final approval is granted for its marketing by the Ethics and Compliance unit; ■ existing products are revised following regulatory changes for example, to ensure compliance.
Concerning ethical risks, the Company is updating its Code of Conduct under the aegis of a special-purpose committee, which makes sure that regulatory changes are taken into account and the Company’s corporate values adhered to.
Measures to combat money laundering and verify the legality of financial flows – tasks entrusted to a special unit – were supplemented in 2009 to take into account new requirements arising from the transposition of the Third EU Money Laundering Directive.
For more than two years CNP Assurances has been running various internal projects to get ready for the new requirements, and participates in discussions by industry groups helping to define how the new regulatory framework will be applied.
Furthermore, the “Entreprise Risk Management” (ERM) project launched in 2007 will improve the existing system for risk management and strengthen controls in some areas. The main goals of this project are to: ■ cover financial, insurance, operational, strategic and emerging risks, as well as new product risks; ■ establish a benchmark based on best market practices; ■ develop action plans for areas in which procedures need to be boosted.
ongoing monitoring (Risk management & Compliance department – Internal Control unit)
We have chosen to set up a system of internal control self-assessments. This procedure, which involves all our staff, provides an annual assessment of the reliability of our controls. The self-assessments are backed up by tests performed using sampling techniques.
The procedure involves regular evaluations by the line managers responsible for controls, using a detailed and standardised questionnaire. The line managers’ direct superiors validate the assessments and, wherever necessary, suggest improvements. Findings from these assessments are then shared with the line managers and relevant members of the Executive Committee through ad hoc meetings.
In 2009, the most substantial risks arising from the economic and financial crisis were added to the assessment. In 2010, the assessment process will be expanded and internal controls in foreign subsidiaries will be reinforced.
(4) 2010 and 2020 standards of the IIA (Institute of Internal Auditors).
The Internal Audit department also held quarterly meetings with the Risk Management & Compliance department and the auditors to optimise the audit scope. An internal audit plan provides for all the businesses with material risk exposure to be audited at least once every five years. The annual internal audit programme is put forward by the Executive Committee and approved by the Audit Committee.
Lastly, in 2009, the Internal Audit department completed the alignments of its procedures to industry standards, following on from the certification of its activities awarded in November 2008.
2.3.4 CoNTrols GeAred To The ChAlleNGes rePreseNTed by The ComPANy’s Core ProCesses
The life insurance business incurs operational, legal and reputational risks. Risks emerge as soon as a product is developed and the related contractual documents are drafted, but they also concern the way that the product is presented to the public (i.e. in terms of the advice and information given to prospective policyholders). Risks can also arise in response to a new legal precedent or a change in regulations emanating from supervisory bodies.
To counter new legal risks, new case-law decisions must be identified quickly and, wherever necessary, changes enacted in contractual documents and administrative practices.
CNP Assurances has continued with efforts to find beneficiaries of unclaimed policies pursuant to the French Law of 17 December 2007. Concerning the revaluation of capital contained in unclaimed policies, the Company follows a cautious policy designed to offer fair treatments of claims relating to deaths before the above law entered into force.
The partnership agreements governing ties between CNP Assurances and its distributors define the roles and responsibilities of each party, and are a linchpin of our control environment. Precise mandates define the tasks entrusted by the insurer to the agent along with responsibility sharing, especially in the area of information and advice.
The main policy administration risks arise from the wideranging product offer, which comprises savings, pension and personal risk products, and the massive volumes involved. In all, we administered over 200 different types of product representing some 14 million individual policies at the end of 2009.
The drive to convert all paper documents to electronic form in day-to-day policy administration is being implemented at one of CNP Assurances’ distributors. This project has required major procedural and organisational makeovers but should lead to huge gains in quality and productivity as from 2010. There are plans for the project to be rolled out to all CNP Assurances’ distributors in the future.
Our procedure for providing regular information to policyholders in the context of group insurance policies benefits from ISO 9001 certification, which has been renewed for three years. The same applies to loan insurance, for which ISO 9001 certification was reiterated following an external audit in June 2009. Policy administration is set to be further enhanced by the Loan Insurance Platform, which provides managers with new software systems leading also to productivity gains. Ultimately, this tool will optimise the tasks performed by these managers, helping to improve risk and claims analysis.
Execution of the strategies is primarily outsourced, chiefly to Natixis AM and LBP AM, and is controlled by CNP Assurances via the following: (i) a contractual undertaking to implement the strategies and comply with the limits communicated by the Company; (ii) regular reporting of buy/sell transactions by portfolio managers to CNP Assurances; and (iii) more or less daily contact and monthly meetings between portfolio managers and the teams responsible for the portfolios at CNP Assurances.
CNP Assurances is also active in internal mobility and skillsset management. These days, internal mobility is the preferred manner for filling positions: in the past two years, more than a quarter of the workforce has transferred to a new position. Skill-set management has been extended to include all staff, not only those based in France. This makes it possible to keep in step with changes in business lines, identify key skills, increase mobility and map out clearer career paths for staff.
CNP Assurances was awarded the Diversity quality standard by a French government committee that also includes employee representatives.
It is one of the first seven French companies to have received this award.
Information systems play a crucial role in all our processes, both in core activities, such as policy administration and asset management, and in corporate activities, such as management and financial accounting, and actuarial analysis. They support our development and are upgraded in line with our strategy of conducting operations on an industrial scale. Information system controls are designed to guarantee systems reliability and the integrity of data accessible by our operating departments and business partners.
System security and data confidentiality is assessed with business specialists during monthly meetings of the Security Committee comprising the heads of Internal Audit, Risk Management & Compliance, IT Investment and IT Operations. The committee is required to sign off on applications that process sensitive data before they are put into production. The applications also incorporate specific preventive controls such as healthcare data encryption, and are subject to external security audits (four per year).
In line with our target to have one of the lowest cost ratios in the market and lead the field in terms of productivity gains and policy administration cost savings, we have steadily improved the related systems and applications. The difficult economic and financial conditions in place since last year mean that the different components of the Company’s business model need to be analysed more frequently and in greater detail in terms of both revenue (new premiums, life funds, investment income, etc.) and the expenses, control of which has become a central issue.
The instability in the main components of profit (new premiums, life funds, investment income, etc.) due to the financial crisis makes it more important than ever to keep both eyes on the future and to provide prudent, proactive management accounting information in these turbulent times. The management accounting function has been reorganised and refocused on strategic planning, performance tracking and budget control.
Actual performance in relation to targets, expressed in terms of revenue, business volume, allocated resources, quality and progress in implementing various projects, is monitored based on monthly performance indicators developed jointly with the departments concerned.
Budget monitoring activities are coordinated by the Planning and Performance department. These activities include: ■ preparing cost projections and general operating expense budgets; ■ tracking expenditures by unit; ■ aggregating these data by department and by company, and producing consolidated data at CNP Assurances Group level.
Rolling budget versus actual income statement projections and budgetary performance reports submitted to the Executive Committee helped CNP Assurances to steer its performance ratios throughout the year in spite of the successive shock-waves from the markets.
The control environment for international operations is based on the regulations and corporate governance principles applicable in each host country, as well as the appointment by CNP Assurances of the majority of the members of the Boards of Directors or Supervisory Boards of subsidiaries.
In the current troubled environment, it is of paramount importance that subsidiaries should use the parent company’s systems for managing their financial, insurance, legal and operational risks. In 2009, this led to the implementation of systems for the management of financial and insurance risks, in the context of the ERM project. Furthermore, internal control units were set up in all subsidiaries (and are being introduced into newly consolidated subsidiaries).
Other ways in which international operations are tracked and managed include monthly KPIs, meetings between head office and subsidiaries, finance committees and support engagements for review progress on Group-wide projects.
This monitoring mechanism makes it easier to detect critical situations earlier and implement remedial measures straight away. It also promotes dialogue with subsidiaries and supports the development of international activities.
2.4 internal control procedures covering the preparation of financial and accounting information
Internal controls on the information and calculation methods used to determine data in the accounts closing entries are described below. They fall into two broad categories: ■ determination of underwriting results; ■ bookkeeping and preparation of financial statements.
The main controls on technical reserve estimates consist of: ■ updating the calculation base to include new partnerships and products and to reflect new contractual arrangements (e.g. changes in commission rates); ■ updating and checking the contractual and financial data underlying the reserve calculations; ■ applying calculation methods that comply with the French Insurance Code, GAAP, market standards and Group practices; ■ verifying the results of automatic calculations performed by the contract administration systems; ■ performing detailed statistical and other analyses of claims data and the utilisation of technical reserves to validate or adjust loss ratios.
In 2009, additional methods were introduced to improve processes for calculating and communicating on value creation. This has led to more information being passed to the finance executive for the analysis of insurance business profitability, with a combination of “profit” and a “value creation” viewpoints.
To succeed against the challenges lying ahead, namely Solvency II and the second phase of IFRS, it will be vital to keep teams intact and finalise current hirings.
Controls over statutory accounting data include: ■ reconciliations to management accounting data; ■ consistency and completeness checks on manually transferred data; ■ reconciliations of certain accounting data to external information, such as bank statements and securities portfolio statements received from custodians.
Considerable effort has been devoted to enhancing accounting software and procedures in recent years, leading to sizeable time savings in account closing. The publication of financial statements at 31 December 2009 was brought forward by 30 days relative to the 2005 financial year. The target is to gain 40 business days for 2010 interim results in relation to those at 30 June 2006. These results have been obtained by optimising the procedures and information systems used for account closing.
Since 2008, the Roadmap programme (see above) continues to overhaul financial reporting throughout the Company to reflect regulatory changes such as the second phase of IFRS and the Solvency II directive. To meet the revised regulations, we will need to carry out simulations using detailed and expanded data, continue to bring forward the accountclosing deadline, facilitate a fair-value approach to financial reporting, and step up management accounting control and performance tracking.
In my capacity as Chairman of the Board of Directors, I will ensure that regularly improving risk management and internal control remains high on the list of the Company’s priorities.
The Board of Directors and in particular the Chairman take special care to balance membership on the Board and its committees in such a way as to guarantee shareholders and the market that the Board’s duties are carried out with the required independence and objectivity.
The Company considers that the Board’s composition complies with main principles set out in Article 6 of AFEPMEDEF Corporate Governance Code.
For the purposes of its work, the Audit Committee received up-to-date information from senior management throughout 2009, including CNP Assurances’ financial commitments under all of its policies.
This exercise will make it possible to continue to respond to the need for Audit Committee members to regularly reexamine their role in order to deal with the new constraints, requirements and uncertainties that may have an impact on the Company’s performance.
This method of operation gives directors sufficient visibility to take collective decisions within a structured environment, shows that the governance model is consistent with the Group’s activities, management and control, as well as its shareholding structure.
The committee also oversees the consistency of action plans implemented by the operating units and subsidiaries, and makes suggestions to the Chief Executive Officer concerning any necessary trade-offs between conflicting priorities. It monitors the Group’s results and financial ratios and reviews the action plans to be implemented by the Group. It focuses more particularly on ensuring the efficiency of internal control, internal audit and risk management systems, which it considers to be key drivers of good corporate governance.
The separation of the duties of Chairman of the Board of Directors from those of Chief Executive Officer, as mentioned above, dissociates the strategic policy-making, decisionmaking and control functions on the one hand from the operational and executive functions on the other.
thE lImItAtIoNS oN thE PowERS of thE ChIEf ExECUtIvE offICER ARE AS followS: ■ The issue of guarantees to secure the Company’s commitments in excess of €100 million per commitment.
■ Business acquisitions and disposals for amounts in excess of €50 million per transaction, except for disposals of assets as part of the portfolio management process.
■ Business acquisitions and disposals for any amounts that are not part of the strategy decided by the Board of Directors. These provisions do not apply to transactions carried out on an experimental basis.
■ Beginning on 25 May 2011, the Board has also authorised the Chief Executive Officer to trade in the Company’s shares, pursuant to the powers of delegation granted by the Annual General Meeting. The authorisation expires at the Annual General Meeting called to approve the consolidated financial statements for the financial year ending 31 December 2010 and may not exceed a total of 18 months.
This annual authorisation was most recently granted on 23 February 2010.
Information concerning Deputy Chief Executive Officers is not required by law and is presented voluntarily for reasons of transparency.
In the following table concerning members of the Executive Committee, the remuneration of the Chief Executive Officer paid by CNP Assurances is presented in full, and the breakdown of remuneration is described in more detail in the tables regarding the remuneration of the corporate officers.
Total variable remuneration for the Deputy Chief Executive Officers 710,874.00 715,161.00
Absence of convictions for fraud, association with bankruptcy or official public incrimination or sanctions To the best of the Company’s knowledge, at the date of publication of this document: None of the members of the Board of Directors or Executive Management has been convicted of fraud within the last five years.
Graduate of Institut d’études politiques de Paris, “agregé” teaching degree in political economics.
* There are no family ties between the members of the Board of Directors.
Edmond Alphandéry began his academic career in 1969 as a lecturer at Aix-en-Provence law school and Paris IX-Dauphine University.
He then became associate professor at Nantes University and dean of the economics department from 1972 to 1974, prior to becoming professor at Paris II (Panthéon-Assas) University until 1993.
He served as Minister of the Economy from 1993 to 1995 and as Chairman of the Board of Directors of Électricité de France from December 1995 to June 1998.
On 9 July 1998, he was appointed Chairman of the Supervisory Board of CNP Assurances. He was elected to the Board of Directors by the General Meeting of 10 July 2007 and appointed Chairman by the Board on the same day. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
He is also member of the Remunerations & Nominations Committee and Chairman of the Strategy Committee.
■ GDF Suez (SA) (previously Suez), member of the Board of Directors, Chairman of the Ethics, Environment and Sustainable Development Committee.
■ Lehman Brothers, member of the European Advisory Board (term expired in September 2008).
In 1983, he moved to the French National Audit Office (Cour des comptes) where he specialised in auditing Statecontrolled industrial enterprises such as CGE and SaintGobain.
From 1993 to July 1998, he was Company Secretary, member of the Executive Committee and Human Resources Director of the Caisse des dépôts group.
Chairman of the CNP Assurances Executive Board since 9 July 1998, he was elected to the Board of Directors by the General Meeting of 10 July 2007 and appointed Chief Executive Officer by the Board on the same day. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
■ Compagnie immobilière de la CNP-CIMO (SCI), representative of CNP Assurances, legal manager.
■ Société Civile du 136 Rue de Rennes (SCI), representative of CNP Assurances, legal manager.
■ Société Civile Immobilière Montagne de la Fage (SCI), representative of CNP Assurances, legal manager.
■ Société Civile Immobilière Parvis Belvédère (SCI), representative of CNP Assurances, legal manager.
■ Dexia SA (Belgium), Director, Chairman of the Audit Committee, Chairman of the Internal Control, Risk Management and Compliance Committee.
Business address: Caisse des dépôts et consignations, 56 rue de Lille, 75007 Paris, France.
After representing Caisse des dépôts et consignations (CDC) on the Supervisory Board of CNP Assurances since 20 March 2007, Augustin de Romanet has represented CDC on the Board of Directors since 10 July 2007.
He is also a member of the Remunerations & Nominations Committee and the Strategy Committee.
CDC was elected to the Board of Directors by the General Meeting of 10 July 2007. Its current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
■ Accor (SA), Director and member of the Strategy Committee and of the Remunerations & Nominations Committee (from May 2007 to February 2009).
■ Fonds de réserve des retraites – FRR (public administrative body), Chairman of the Executive Board.
■ Icade (previously Icade EMGP), representative of CDC, Director (from April to November 2007).
■ Crédit Agricole (SA), Deputy Director, Finance and Strategy and member of the Group’s Executive Committee (October 2006 – March 2007).
After serving on the Supervisory Board of CNP Assurances since 9 March 2004, Jérôme Gallot was elected to the Board of Directors by the General Meeting of 10 July 2007. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
■ Schneider Electric (SA), member of the Supervisory Board since 2006 (previously member of the Board of Directors 2004-2005).
■ Crédit Foncier de France (CFF) (SA), member of the Supervisory Board (term expired 20 July 2006).
CNP Assurances shares held as of 31 December 2009: 60 direCTorshiPs ANd FuNCTioNs
Pierre Hériaud was a senior executive at Crédit Agricole before serving as a member of parliament for three terms and then as Chairman of the Supervisory Board of Caisse des dépôts et consignations. He was elected to the Board of Directors by the General Meeting of 22 April 2008 to replace Étienne
Bertier for the remainder of his predecessor’s term of office. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
Mr. Hériaud is Director of the Association Groupe ESA (École Supérieure d’Agriculture) in Angers; he was the ViceChairman of this association until 2009.
Graduate of Institut d’études politiques de Paris and École nationale d’administration.
Business address: Caisse des dépôts et consignations, Direction des Fonds d’Epargne, 72 Avenue Pierre Mendès France, 75013 Paris, France.
After occupying several high-level positions at the French Ministry of the Economy, Finance and Industry, André Laurent Michelson has been a member of the Management Committee of Caisse des dépôts group and Senior Executive Vice President of the Savings Funds department since 20 June 2003.
■ Accor (SA), member of the Board of Directors, member of the Audit Committee.
■ CDC International (SA), representative of Caisse des dépôts on the Board of Directors.
■ Eiffage (SA), member of the Board of Directors, member of the Remunerations & Nominations Committee.
■ Fonds stratégique d’investissement - FSI (SA), representative of Caisse des dépôts, member of the Board of Directors, the Audit and Risk Committee, the Investments Committee and the Remunerations Committee.
■ Icade (SA), member of the Board of Directors, member of the Strategy and Investment Committee.
mAjor direCTorshiPs ANd FuNCTioNs held iN The Period 2004 To 2008
■■ Électricité Réseau Distribution France (SA), member of the Supervisory Board (term expired 31 March 2008).
■ Compagnie des Alpes – Financement (CDA- FI) (SNC), representative of Compagnie des Alpes, legal manager.
■ Compagnie Financière de Loisirs (COFILO) (SAS), Chairman (term expired 26 January 2009).
■ Musée Grévin (SA), representative of Compagnie des Alpes, Director (since 29 June 2006, previously Chairman of the Board of Directors).
■ Safari Africain de Port Saint Père (SA), representative of Compagnie des Alpes Administrateur (term expired 27 January 2009).
■ Caisse Nationale des Caisses d’Epargne (CNCE) (SA), member of the Supervisory Board (term expired 19 July 2006).
■ CDC Ixis Private Equity (renamed CDC Entreprises Capital Investissement) (SA), Director from 3 March 2004 to 23 December 2004.
■ Compagnie des Alpes Domaines Skiables (CDA-DS) (SAS), Chairman of the Supervisory Board (term expired 31 July 2008).
■ Financière Lille, Chairman of the Board of Directors from 4 July 2003 to 23 December 2004.
■ Société Forestière de la Caisse des dépôts (SA), representative of CDC, Director (term expired 10 March 2005).
■ XAnge Capital (SA), representative of CDC, member of the Supervisory Board (term expired 23 December 2004).
■ Efiposte (SA), representative of La Poste, Director (term expired 2005).
After representing Sopassure on the Supervisory Board of CNP Assurances since 9 March 2004, Marc-André Feffer became Sopassure’s representative on the Board of Directors on 10 July 2007.
Sopassure was elected to the Board of Directors by the General Meeting of 10 July 2007. Its current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
■ La Banque Postale (SA), Vice-Chairman of the Supervisory Board and Chairman of the Strategy Committee.
■ Sopassure (SA), Director, previously Chairman and Chief Executive Officer (until 28 March 2009).
■ Caisse d’Epargne Garanties Entreprises (GIE), representative of BPCE, member of the Supervisory Board (formerly representative of CEPAC, member of the Supervisory Board).
■ Arpège (SA), member of the Supervisory Board (term expired 28 October 2008).
■ Business Services (GIE), representative of CEPAC, member of the Supervisory Board (term expired 2008).
■ Caisse d’Epargne de Provence-Alpes-Corse – CEPAC (SA), Chairman of the Executive Board (term expired 2008).
■ Ecureuil Gestion (SA), Vice-Chairman of the Supervisory Board, member of the Remunerations Committee (term expired 30 June 2008).
■ Ecureuil Gestion FCP (SA), Vice-Chairman of the Supervisory Board (term expired 30 June 2008).
■ I. Selection (SA), representative of GCE I, member of the Supervisory Board.
■ La Chaîne Marseille – LCM (SA), representative of CEPAC, Director (term expired 2008).
After serving on the Supervisory Board of CNP Assurances since January 1999, Patrick Werner was elected to the Board of Directors by the General Meeting of 10 July 2007. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
■ CRSF Dom (SCI), representative of La Banque Postale, legal manager.
■ La Banque Postale Assurances Iard (previously Fédération- SF2), Chairman of the Supervisory Board from 14 September 2009 to 10 December 2009, Chairman of the Board of Directors since 10 December 2009.
■ La Banque Postale Financement (SA), Chairman of the Supervisory Board (term expired 24 April 2009).
■ La Banque Postale Gestion Privée (SA), Chairman of the Supervisory Board.
■ Société Financière de Paiements (SAS), Chairman of the Supervisory Board.
■ LBPAM Actions Indice Euro (SICAV), Chairman of the Board of Directors (term expired 28 January 2008).
■ LBPAM Actions Indice France (SICAV), Chairman of the Board of Directors (term expired 28 January 2008).
■ LBPAM Obli Court Terme (SICAV), Chairman of the Board of Directors (term expired 10 March 2008).
Appointed as the French government’s representative on the Board of Directors of CNP Assurances by ministerial order of 30 April 2009.
■ French Treasury and Economic Policy General Directorate (DGTPE), Chief Executive Officer.
■ BPCE (SA), French government’s representative, member of the Supervisory Board, member of the Remunerations & Nominations Committee.
■ Caisse des dépôts et consignations, member of the Supervisory Board, member of the Accounts Review and Risk Committee and the Savings Funds Committee.
■ Norpierre 2 (SCPI), member of the Supervisory Board. (Term expired in 2007, when the SCPI was wound up).
■ EDF (SA), Chairman and Chief Executive Officer (since 25 November 2009, formerly Director).
■ Veolia Environnement (SA), Chairman of the Board of Directors (since 27 November 2009, previously Chairman and Chief Executive Officer).
■ Dalkia France (SCA), member and Chairman of the Supervisory Board (term expired 27 November 2009).
■ Largardère (SCA), member of the Supervisory Board (term expired 16 November 2009).
■ Veolia Environmental Services (United Kingdom), Director (term expired 27 November 2009).
■ Veolia Transport Australasia (previously Veolia Transport Australia) (Australia), Director (term expired 19 October 2009).
■ Veolia Transport Northern Europe (Sweden), Director (term expired 2 September 2009).
■ Veolia Water (SA), Chairman of the Board of Directors (term expired 27 November 2009).
■ CFSP (SCA), member of the Supervisory Board (term expired June 2004).
■ Elior (SCA), member of the Supervisory Board (term expired 29 March 2007).
■ Onyx UK Holding (United Kingdom), Director (term expired February 2005).
■ Veolia Env. Serv. Asia (Singapore), Director (term expired 19 July 2007).
■ Casden Banque Populaire (Cooperative SA with a Board of Directors), Director.
Business address: Allianz, 87 rue de Richelieu, 75113 Paris Cedex 02, France.
■ Arial Assurance (SA), Chairman of the Supervisory Board (term expired July 2007).
CANdIdAtES foR ElECtIoN to thE boARd of dIRECtoRS At thE ANNUAl gENERAl mEEtINg
■ Banque FIDUCIAL, representative of CE Participations, member of the Supervisory Board.
■ Natixis Epargne Financière (SA), member of the Board of Directors.
■ Partenariat CEMM (GIE), representative of BPCE, sole Director and member of the Partnership Committee.
■ Sopassure (SA), Chairman and Chief Executive Officer, formerly Director (until 28 March 2009).
Tommaso Padoa-Schioppa is Chairman of Notre Europe, Chairman of Promontory Financial Group since June 2009.
Tommaso Padoa Schioppa was Minister of the Economy and Finance between 2006 and 2008 and member of the Executive Board of Banca d’Italia from 1984 to 1997.
CorPorate governanCe and internal Control2 Remuneration 2.4. remuneration 2.4.1. I Remuneration of corporate officers of cnP assurances CNP Assurances uses the AFEP-MEDEF Corporate Governance Code for listed companies, and in particular its recommendations of 6 October 2008 concerning the remuneration paid to executive corporate officers.
Valuation of stock options granted over the year (Table 4) No stock options granted No stock options granted
Valuation of performance shares granted over the year (Table 6) No performance shares granted No performance shares granted gilles benoist, Chief Executive officer 2008 2009
Valuation of performance shares granted over the year (Table 6) No performance shares granted No performance shares granted
290,125 (of which 209,000 as an employee and 81,125 as a corporate officer for 2007)
319,000 (of which 209,000 as an employee and 110,000, as a corporate officer for 2009)
(1) The “Payable” columns indicate the remuneration granted to each executive corporate officer for the duties performed for each year concerned, regardless of the payment date.
The directors’ fees “Payable” in 2008 correspond to the amounts granted based on decisions taken by the governing bodies of: ■■ CNP Assurances (€53,250 of which €25,100 paid in 2008 for the first half of 2008 and €28,150 paid in 2009 for the second half of 2008); ■■ Subsidiaries Caixa Seguros (€15,596) and CNP UniCredit Vita (€5,781).
The directors’ fees “Payable” in 2009 (€70,247) correspond to the amounts granted based on decisions taken by the governing bodies of: ■■ CNP Assurances (€41,850 of which €24,350 paid in 2009 for the first half of 2009 and €17,500 to be paid in 2010, for the second half of 2009); ■■ Subsidiaries Caixa Seguros (€18,397) and CNP UniCredit Vita (€10,000).
The Chairman has a company car in connection with his duties.
The Chief Executive Officer receives a fixed salary and a variable bonus linked to the overall performance of the Company and the achievement of certain objectives set at the beginning of each year. The variable bonus ranges from 0% to 80% of his salary. Based on the recommendation of the Remunerations & Nominations Committee, the Board of Directors determines the Chief Executive Officer’s bonus by reference to general and individual objectives, as follows: ■ general objectives – which also apply to the Deputy Chief Executive Officers and determine the portion of the variable bonus representing the equivalent of up to 56% of each individual’s salary – are based on two criteria related to productivity gains, as measured by the ratio of administrative expenses to net insurance revenue, and the growth in net recurring income; ■ individual objectives, which determine the portion of the variable bonus representing the equivalent of up to 24% of the Chief Executive Officer’s salary, are recommended to the Remuneration & Nominations Committee by the Chairman.
The Chief Executive Officer received €11,278.87 and €4,537.65 of accrued vacation pay in 2008 and 2009 respectively.
The directors’ fees “Payable” in 2008 correspond to the amounts granted based on decisions taken by the governing bodies of: ■■ CNP Assurances (€38,000 of which €19,000 paid in 2008 for the first half of 2008 and €19,000 paid in 2009 for the second half of 2008). ■■ Subsidiaries Caixa Seguros (€15,596), CNP UniCredit Vita (€5,781), Dexia (€40,495) and Suez Environnement Cie (€16,116).
The directors’ fees “Paid” in 2009 (€137,132) correspond to the amounts received from: ■■ CNP Assurances (€34,200 of which €19,000 for the second half of 2008 and €15,200 for the first half of 2009); ■■ Subsidiaries Caixa Seguros (€18,397), CNP UniCredit Vita (€7,680), Dexia (€43,134) and Suez Environnement Cie (€33,721).
The Chief Executive Officer benefits from CNP Assurances’ matching payment to the life insurance plan set up on behalf of all employees of the Company, representing €1,626.48 in 2008 and €1,642.68 in 2009. In 2009, he also had a company car in connection with his duties (€4,040.16).
In the 2008 Registration Document, no reference was made to accrued vacation pay in tables 1 and 2 in the section concerning remuneration payable and paid.
members of the board of directors fees paid in 2008 (in €) fees paid in 2009 (in €)
Paid to In respect of 2007 In respect of the first half of 2008
These amounts are net of withholding tax for directors not resident in France for tax purposes.
As Chairman of the Audit Committee, Alexandre Lamfalussy and then Tommaso Padoa-Schioppa, receive double the fee awarded to the other members of the committee.
■ sToCk oPTioNs GrANTed duriNG The yeAr To eACh exeCuTive CorPorATe oFFiCer
Stock options granted to each executive corporate officer by the issuer and by all group companies (list of names)
Plan no. and date type of stock options (purchase or subscription)
Number of stock options granted during the year Exercise price Exercise period
■ sToCk oPTioNs exerCised duriNG The yeAr by eACh exeCuTive CorPorATe oFFiCer
Number of stock options exercised during the year Exercise price year granted
Performance shares granted during the year to each executive corporate officer by the issuer and by all group companies (list of names)
Executive corporate officers for whom performance shares became available (list of names)
Number of shares that became available during the year vesting conditions year granted
Not applicable Not applicable None Not applicable Not applicable tAblE 8*
■ AddiTioNAl iNFormATioN CoNCerNiNG The ChAirmAN oF The boArd oF direCTors ANd The ChieF exeCuTive oFFiCer
Allowances or benefits payable or likely to be payable in the event of termination or change of duties benefits arising from noncompete clauses yes No yes No yes No yes No
Annual benefits depend on the individual’s remuneration and are determined as follows: ■ 0.2% of the individual’s salary per year of service, for the first €64,745 of remuneration; ■ 1.78% of the individual’s salary per year of service, for the portion between €64,745 and €129,491; ■ 4.5% of the individual’s salary per year of service, for the portion between €129,491 and €321,840.
They are calculated based on the individual’s total years of service with the CNP Assurances Group, up to a maximum of 15 years.
This amount and the above tranches may be adjusted in the future, to take account of changes in the average remuneration paid to eligible executives and officers.
The employment contract of the Chief Executive Officer, Gilles Benoist, includes a clause providing for the payment of a termination benefit, in the event that his contract is terminated for reasons other than serious or gross misconduct. Payment of such benefit is subject to the fulfilment of performancerelated conditions.
In accordance with the French decree of 30 March 2009, the termination benefit will be capped at 23.5 months of the total remuneration of an employee or corporate officer (monthly average of annual salary + monthly average of annual bonus). In the event of a period less than a full year, the salary and bonus of the last full year prior to the date of notification of termination shall be taken into account.”
The termination benefit will be paid if the performance conditions set out in the employment contract and approved by the Board of Directors’ meetings of 4 March 2008 and 30 July 2009, are fulfilled. These performance conditions are based on productivity gains, as well as the increase of EBIT, which is calculated before unrealised gains and relates to the full year.
The conditions are as follows: “ a) Value creation at CNP Assurances level is assessed in accordance with changes in EBIT and the market
If this assessment shows a downward market trend that is more significant in terms of absolute value than the decline reported for CNP Assurances, the performance condition, assessed as of the date of notification of termination of Gilles Benoist’s contract, shall be deemed to be fulfilled.
Changes in productivity are measured annually by the Board of Directors by means of the following ratios and sub-ratios: ■ ratio: administrative expenses/Net insurance revenue France; ■ sub-ratio 1: policy administration cost/Net insurance revenue France; ■ sub-ratio 2: information system cost/Net insurance revenue France; ■ sub-ratio 3: support function cost/Net insurance revenue France.
The performance conditions, as of the date of notification of termination of Gilles Benoist’s contract, shall be deemed to be fulfilled if the average rate of completion of the productivity objectives set by the Board of Directors for Gilles Benoist is greater than or equal to 80% over the previous three years.
Gilles Benoist will receive a percentage of his termination benefit dependant on the number of performance conditions fulfilled: If the two performance conditions are fulfilled, Gilles Benoist will receive 100% of his termination benefit; If one of the two performance conditions is fulfilled, Gilles Benoist will receive 50% of his termination benefit; If neither of the performance conditions are fulfilled, Gilles Benoist will receive 0% of his termination benefit.”
CorPorate governanCe and internal Control2 internal control and risk factors 2.5. internal Control and risk faCtors 2.5.1. Ilinternal control INtERNAl CoNtRol SyStEm
Internal control is a continuous process, effected by the management and oversight bodies, designed to provide reasonable assurance that: ■ the Company’s assets are protected; ■ transactions comply with the Company’s policies and strategies, resources are used economically and efficiently, and risks are properly managed; ■ accounting, financial and management information is reliable and its integrity is not impaired, ensuring that published financial information complies with the true and fair view principle; ■ external laws and regulations, and internal rules and procedures are complied with.
■ non-consolidated indirect subsidiaries over which CNP Assurances (or a subsidiary) exercises de facto management control,
■ unincorporated entities (such as intercompany partnerships) of which CNP Assurances is a partner with joint and several liability.
organisation of internal control at CNP Assurances The internal control organisation has been structured in the form of a three-tier pyramid spanning the entire Group.
Second-tier controls are performed by the Risk Management Compliance and Solvency departments.
1/ The Risk Management & Compliance department is responsible for identifying, measuring and managing significant risks incurred by the Group, in consultation with the management of the various entities, as well as for directly managing certain risks, overseeing the system of internal control and obtaining assurance about the existence and effectiveness of the controls embedded in the various business processes.
The Internal Audit department is responsible for performing regular assessments of our system of internal control, through targeted audits carried out according to a systematic and methodical approach. The purpose of these audits is to obtain assurance concerning the existence and relevance of control and risk management processes, and to issue recommendations to improve process efficiency.
regulatory compliance There have been numerous changes to the regulations concerning internal control since 2003. These laws and regulations – which, in France, include the Law on Financial Security (Loi de sécurité financière) of 1 August 2003, the decree of 13 March 2006 which requires insurers to submit annual internal control reports to the insurance supervisor (Autorité de contrôle prudentiel), and the Solvency II directive – require companies to improve their risk management procedures and strengthen their internal control systems.
documented financial and insurance risk management procedures The most critical risks for an insurance company are financial risk and insurance risk (in that order) as they can produce potentially devastating effects that jeopardise the continued existence of the Company.
In 2009, the Company took steps to improve the internal control system’s capacity to monitor corporate governance. A consultation process was carried out with a view to setting up a department responsible for solvency and financial and insurance risk.
ongoing assessment of risks The Company’s in-house risk assessment processes have been developed using models that have been fine-tuned over time.
Two steps are involved in modelling a process: ■ the first step consists in describing the sequence of activities in each process, the objectives of each process, the key players and the input and output data; ■ the second step consists in identifying and assessing the gross impact of risks associated with each phase of the process, identifying and assessing the related controls and assessing the residual risks.
Control assessment is a two-tiered process: ■ the first tier consists of the internal control self-assessment procedure carried out by the line managers responsible for the controls, who are required to express an opinion on whether the controls are adequately documented and evidenced, and whether any errors or omissions detected by the controls are adequately resolved; ■ the second tier corresponds to tests performed by a specialist department that is independent of line management, to verify the existence, execution and effectiveness of internal controls. Each year, tests are carried out on at least 10% of self-assessed internal controls.
The assessment of gross risk exposure is based on a combination of the potential impact of the risk were it to occur, and its actual occurrence, and both of these components are assessed on the basis of indicators defined for each risk and then classified on a scale of 1 to 4: critical, high, moderate and low.
Residual risk is what remains after the effectiveness of existing internal control systems has been taken into account and it is measured on the same scale of 1 to 4 as that used to assess gross risk exposure.
The Group has set up management information systems designed to ensure that it fulfils its commitments to shareholders.
Medium and long-term projections are used to produce financial trajectories and perform in-force and new business calculations, in connection with the annual business valuation exercise.
Forecasting models are tailored to the types of products concerned. They include: ■ asset-liability models for savings and pension products; ■ specific loan insurance models which break down the insurance book by underwriting year; ■ models tailored to individual and group personal risk products, incorporating risk measurement factors and statistical data; ■ models designed to simulate future annuity commitments.
CorPorate governanCe and internal Control 2 internal control and risk factors
Our commitments towards policyholders differ depending on the type of policy: savings contracts: mainly financial commitments Savings contracts fall into two broad categories: ■ traditional participating savings products offering a guaranteed rate of return for a fixed period, generally eight to ten years and a participation feature.
Managing savings contracts depends first and foremost on effectively matching assets and liabilities; ■ unit-linked products, where the policyholder bears the financial risk and the insurer’s commitment is limited to the additional cover provided, consisting generally of a guaranteed death benefit.
Pension products: technical and financial commitments Commitments associated with annuity-based pension products depend on: ■ the benefit payment period, which is not known in advance; ■ the interest rate, corresponding to the return on the capital managed by the insurer.
For these contracts, results are determined by long-term financial management policies and actual mortality rates compared with assumptions.
Personal risk contracts: mainly technical commitments The risk associated with these contracts is determined primarily by the insured’s age, gender and socio-professional category.
We have drawn up risk selection and reinsurance policies and we actively monitor statistical data concerning insured populations and related loss ratios.
reinsurance policy Our reinsurance policy has the following features: ■ we implement a Group-wide reinsurance policy covering business written by the Company and by its subsidiaries; ■ overall underwriting results are protected by nonproportional treaties that are geared to the size of the Group and its claims-paying ability. The treaties consist of excess-of-loss treaties by event (catastrophe cover) and by insured person; ■ sharing of risks on large-scale new business; ■ acquisition of expertise in writing aggravated risk business.
Adequacy of technical reserves The approach used to ensure that technical reserves are adequate focuses on: ■ managing the risks associated with a fall in interest rates; ■ taking into account the increase in life expectancies compared with the periods reflected in regulatory mortality tables, by using an approved experience-based table developed internally; ■ regularly assessing risks via: ■ projection-based monitoring of yield commitments, taking into account commitments in excess of regulatory limits,
Our investment strategy for each portfolio is based largely on the results of asset-liability simulations. One of the key requirements of the strategy is to ensure that we are able to fulfil our commitments towards policyholders at all times, while also optimising asset allocation and investment performance.
equity risk In 2009, 11% of Group assets were invested in equities and equity funds (based on book values, excluding unit-linked portfolios).
On the back of the stock market turnaround, at 31 December 2009 liquidity risk reserves were reduced to €10.8 million in the financial statements of French insurance subsidiaries and only concerned a very limited number of portfolios.
Currency risk The bulk of asset portfolios are invested in the securities of euro zone issuers.
The CNP Assurances Group performs regular simulations to test the behaviour of the various portfolios according to different interest rate and equity price scenarios.
Asset-liability simulations have shown that the resistance of the insurance book to a fall in interest rates is satisfactory.
liabilities: ■ combined unit-linked/non-unit-linked policies include contractual clauses limiting or banning transfers between portfolios in the case of an unfavourable change in market conditions; ■ the duration and level of yield guarantees is limited through the development of products offering guaranteed yields that are adjusted at annual intervals, thereby allowing asset managers to reduce the weighting of long-dated bonds in the managed portfolios.
Assets: ■ floating rate and index-linked bonds represent around 10% of the portfolios; ■ part of the portfolio of fixed rate bonds is hedged using caps. The hedging programme was further extended in 2009.
In the case of a sharp rise in interest rates to above certain trigger points, the hedges acquired by the Group would generate additional revenues corresponding to the difference between the trigger rate and actual long-term interest rates on the financial markets, thereby improving the return on the hedged assets in a period of rising interest rates.
We manage this risk by recording a provision for the estimated costs. At 31 December 2009, these provisions stood at €13.5 million, covering legal fees, “Article 700” claims by the plaintiffs and damages. Details of the capital to be paid out on the contracts are provided by the policy management units.
emerging insurance risks Certain issues raised in connection with lawsuits go beyond a simple dispute between CNP Assurances and the insured. These issues could have serious consequences for the entire insurance industry if the courts all ruled against the insurer.
■ a judgment handed down in late 2009 on the admissibility of the application of French consumer association UFC Que Choisir and 62 policyholders to join the proceedings. The court found that, as the purpose of Que Choisir’s application was to put an end to the Group’s alleged misconduct, the application was admissible in light of Article L.421-7 of the French Consumer Code (Code de la consommation). The court also allowed the application of 11 of the 62 policyholders who had instituted legal proceedings in this respect, insofar as such policyholders had taken out their loan with the Caisse d’Epargne Ile de France, against whom the initial action had been taken. The action against Caisse d’Epargne Ile de France is the only action deemed lawful. The other applications, to join the proceedings against other Caisses d’Epargne, were ruled inadmissible.
legal compliance and monitoring Legal compliance naturally depends on strictly applying the applicable laws and regulations – a task that can sometimes prove difficult in a highly regulated environment due to problems in correctly interpreting the various texts. However, it also entails monitoring legal developments that are in the pipeline and participating in the drafting of new legislation through insurance industry bodies.
We participate actively in the work of industry bodies to illustrate the practical impact of new legislation.
Details of the CNP Assurances system have been given to our foreign subsidiaries, which have adapted it to comply with local regulations.
insurance programme The insurance programme, which is designed to protect assets and cover liability risks, comprises both Group-wide policies and subsidiary-level policies.
The policies taken out in France concern: ■ property insurance, including comprehensive building insurance and information systems insurance; ■ liability insurance; ■ fleet insurance; ■ comprehensive site insurance; ■ personal insurance (assistance).
The contingency plan is built around three pillars : ■ the mapping and the analysis of critical activities; ■ the assessment of the resources needed to permit business to resume; ■ a crisis management structure comprising several units with specific tasks.
The contingency plan is updated quarterly and the entire system is reviewed each year by management, to take into account the Company’s changing needs and check that the earmarked resources are adequate.
In 2009, seven drills were carried out at various CNP Assurances facilities, including one with a major property management partner. Each one concerned departments comprising several dozen people performing mission-critical tasks.
The drills served to determine the time needed to notify all the people concerned and the response time of the teams responsible for implementing the contingency plan.
In mid-2009 a drill was carried out with the Chief Executive Officer and the Executive Committee, based on a situation in which a fire breaks out in a building adjoining CNP Assurances’ head office, which is not owned by the latter.
In 2001, after consulting employee representatives, we incorporated into our Code of Ethics a new rule governing competitive bidding processes. All invitations to tender now include a clause requiring bidders to provide information about their employment practices, to ensure that the Group only does business with companies that fulfil their labour law obligations. Any companies that fail to comply with this clause are excluded from the bidding process.
Furthermore, CNP Assurances was awarded the Diversity Label by a commission chaired by the French government, which includes both business and employee representatives. Seven companies were honoured with this new award.
This award is consistent with the assertive strategy that began in 1995 with the signature of the first agreement on the hiring of the disabled and the launch of the Handicap taskforce and led to the signature of our Diversity Charter at the end of 2006.
Over the last three years CNP Assurances has implemented an ambitious plan with respect to HR procedures and the training of management and employees involved in recruitment, training and career management, with the aim of promoting awareness about the importance of nondiscrimination and diversity, and of showing how diversity contributes to improving society and enhancing efficiency.
For several years, CNP Assurances has been taking measures to prevent psychosocial risk, whether through conflict management or the prevention of hardship in the workplace, harassment or discrimination. The Company has an in-house mediation department whose role is to pre-empt such risks and implement appropriate measures to deal with them upstream. These measures include advice on restoring cohesion in the workplace, individual procedures for restoring fairness, individual or group coaching, organisational analysis, and workload redistribution, when necessary.
In our capacity as Statutory Auditors of CNP Assurances, and in accordance with Article L.225-235 of the French Commercial Code (Code de commerce), we hereby report to you on the report prepared by the Chairman of your Company in accordance with Article L.225-37 of the French Commercial Code for the year ended 31 December 2009.
It is our responsibility: ■ to report to you on the information set out in the Chairman’s report on internal control and risk management procedures relating to the preparation and processing of financial and accounting information; and
INfoRmAtIoN CoNCERNINg thE INtERNAl CoNtRol ANd RISk mANAgEmENt PRoCEdURES RElAtINg to thE PREPARAtIoN ANd PRoCESSINg of fINANCIAl ANd ACCoUNtINg INfoRmAtIoN
The professional standards require that we perform procedures to assess the fairness of the information on internal control and risk management procedures relating to the preparation and processing of financial and accounting information set out in the Chairman’s report. These procedures mainly consisted of: ■ obtaining an understanding of the internal control and risk management procedures relating to the preparation and processing of financial and accounting information on which the information presented in the Chairman’s report is based, and of the existing documentation; ■ obtaining an understanding of the work performed to support the information given in the report and of the existing documentation; ■ determining if any material weaknesses in the internal control procedures relating to the preparation and processing of financial and accounting information that we may have identified in the course of our work are properly described in the Chairman’s report.
On the basis of our work, we have no matters to report on the information given on internal control and risk management procedures relating to the preparation and processing of financial and accounting information, set out in the Chairman of the Board’s report, prepared in accordance with Article L.225-37 of the French Commercial Code.
CorPorate governanCe and internal Control 2 statutory auditors’ report othER INfoRmAtIoN
This is a free translation into English of the Statutory Auditors’ special report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
In our capacity as Statutory Auditors of CNP Assurances, we present below our report on related-party agreements and commitments.
Our responsibility does not include identifying any undisclosed agreements or commitments. We are required to report to shareholders, based on the information provided, about the main terms and conditions of agreements that have been disclosed to us, without commenting on their relevance or substance. Under the provisions of Article R.225-31 of the French Commercial Code, it is the responsibility of shareholders to determine whether the agreements and commitments are appropriate and should be approved.
1.1 Amendment of the conditions of the Chief executive officer’s employment contract and corporate officer position in accordance with Article 5 of the decree 2009-348 of 30 march 2009 direCTor CoNCerNed
On 10 July 2007, the Board of Directors appointed Gilles Benoist as Chief Executive Officer of the Company. Because Mr. Benoist had an employment contract with the Company as of that date, the terms of said contract were subject to prior approval by the Board, in accordance with Article L.225-22-1 of the French Commercial Code. The Board also authorised: ■ an addendum to said employment contract stipulating the new scope of Mr. Benoist’s management responsibilities and his reporting relationships; ■ the terms of the contract concerning the remuneration and benefits that would be due or potentially due at the time of or following the termination of Mr. Benoist’s contract or a change in his position.
CorPorate governanCe and internal Control 2 statutory auditors’ special report on related-party agreements and commitments companies. Pursuant to this decree, termination benefits shall only be paid in the event of a forced termination, on condition that the beneficiary fulfils sufficiently demanding performance conditions.
■ an additional benefit equal to the difference between his net remuneration for the twelve months preceding the contract termination date and the annual net remuneration for the grade at which he returns to the civil service.
Gilles Benoist shall receive 100% of his termination benefit if both performance conditions have been achieved, and 50% if only one condition has been achieved.
Payment of variable remuneration pursuant to the employment contract shall be subject to criteria relating to recurring income and productivity gains. In accordance with Article 5 of the Decree of 30 March 2009, reference to the CNP Assurances share price within the scope of the variable share of remuneration shall be deleted from the employment contract.
In accordance with the French Commercial Code and with Article R.332-7 of the French Insurance Code, we were duly advised of the following agreements and commitments authorised in prior years that remained in force during 2009.
The compulsory plan covers the executives and remunerated officers of CNP Assurances, as follows: ■ senior executives whose terms of employment are governed by the collective bargaining agreement applicable to senior executives in the insurance industry (convention collective des cadres de direction de l’assurance) dated 3 March 1993; ■ corporate officers receiving remuneration referred to in Articles L.225-47 and L.225-53 of the French Commercial Code.
In 2009, the Company paid an aggregate premium of €1.1 million to an insurance company and booked an additional provision of €6.8 million, covering its obligation towards all of the executives participating in the plan and bringing the total provision booked in this respect to €26.4 million.
2.2 Partnership agreement between CNP Assurances, dexia Crédit local de France (dexia ClF) and soFCA
CNP Assurances, Dexia Crédit Local de France and SOFCA (collectively, Sofaxis) have signed a ten-year partnership agreement concerning cooperation in the local government market. The agreement is automatically renewable for successive periods of five years.
The amount recorded in CNP Assurances’ financial statements in 2009 in respect of this agreement consisted of brokerage fees totalling €34.1 million.
At its meeting on 7 September 2004, the Supervisory Board approved in principle the contribution by CNP Assurances to the Ixis Asset Management Group holding company of: ■ 11,655,280 Ixis Management Shares, representing 20% of issued capital; and
In payment for these contributions, valued at €203,338,318.88, CNP Assurances received 7,262,082.58 Ixis Asset Management Group ordinary shares, representing 14% of issued capital.
Pursuant to this addendum, Caisse Nationale des Caisses d’Epargne (CNCE) has granted a put option to CNP Assurances on the NGAM shares it currently owns or will own in the future.
CorPorate governanCe and internal Control 2 statutory auditors’ special report on related-party agreements and commitments
On 17 December 2009, CNP Assurances exercised the put option on its interest in NGAM, as provided for in the addendum to the memorandum of understanding signed in 2007. This generated a pre-tax gain on disposal of €367.5 million in the financial statements of CNP Assurances for the year ended 31 December 2009.
Fees paid by CNP Assurances pursuant to this contract in 2009 amounted to €11.4 million. This amount was rebilled to the subsidiaries concerned.
At its meeting on 24 June 2008, the Board of Directors authorised Gilles Benoist, in his capacity as legal representative of CNP Assurances, to enter into and sign a securities portfolio management agreement with Natixis AM.
CNP Assurances entrusted Natixis AM with the management of some of its assets, in its name and on its behalf. In light of the changes in the services provided and the merger of CNP Assurances with Ecureuil Vie, the 1998 agreement and the asset management agreement between Ecureuil Vie and Natixis AM were terminated. The original agreements were replaced by a new asset management agreement.
Fees paid by CNP Assurances pursuant to this agreement in 2009 amounted to €16.2 million.
AEW Europe receives a fee determined as follows: ■ for its real estate management services: a percentage of rents collected based on property type, exclusive of taxes and charges; ■ for its strategic asset management services: a percentage of rents collected, exclusive of taxes and charges, where AEW Europe provides rental and technical management services or a lump sum payment for the provision of strategic asset management services where AEW Europe does not provide rental and technical management services; ■ for its corporate management services: an annual lump sum payment; ■ for project management: remuneration based on the amount invoiced, excluding tax; ■ for consolidation services: an annual lump sum payment; ■ a percentage of the purchase and/or sale price of the real estate properties purchased or sold with its assistance.
At its meeting on 18 July 2006, the Supervisory Board authorised the extension until 31 December 2015 of the master partnership agreement between CNP Assurances and Groupe Caisse d’Epargne setting the terms and conditions of their cooperation in the individual life insurance and savings market through Ecureuil Vie which merged with CNP Assurances on 1 January 2007.
The remuneration received by La Banque Postale as distributor corresponds mainly to a share of the premium and asset loading and the management fees charged on financial products.
On 10 April 2002, the Board of Directors of Ecureuil Vie (which merged with CNP Assurances effective 1 January 2007) authorised the Company to underwrite a €200 million perpetual subordinated notes issue.
2.11 Agreement for the issue of perpetual subordinated notes between CNP Assurances and Caisse Nationale des Caisses d’epargne et de Prévoyance
On 20 April 2004, the Board of Directors of Ecureuil Vie (which merged with CNP Assurances effective 1 January 2007) authorised the Company to underwrite a €183 million perpetual subordinated notes issue in two tranches, in the amount of €90 million and €93 million, respectively.
Interest rate on the notes: ■ first tranche: 4.93% until 2016 then Euribor +160 bps from 15 November 2016; ■ second tranche: 3-month Euribor +0.70% until 2016.
The interest expense recorded by CNP Assurances in 2009 amounted to €4.4 million for the first tranche and €2.2 million for the second tranche.
At its meeting on 18 April 2006, the Supervisory Board of Ecureuil Vie (which merged with CNP Assurances effective 1 January 2007) authorised the Company to underwrite a €108 million perpetual subordinated notes issue.
The interest expense recorded by CNP Assurances in 2009 amounted to €1.5 million.
At its meeting on 17 September 2008, the Board of Directors authorised Gilles Benoist, in his capacity as legal representative of CNP Assurances, to sell CNP Assurances’ interest in its subsidiary, CNP Seguros de Vida, to Caixa Seguros, a subsidiary of CNP Assurances and to sell most of the other minority interests held by CNP Assurances in Argentina to the Brazilian company Brasilia Limitada (“CNP BHL”), a subsidiary of CNP Assurances.
In 2008, the following Argentine interests were sold: Provincia Seguros de Vida (€2,084,526), Previsol Compania de Seguros de Retiro (€1,000), Asociart (ARS 180,058.94), Prévisol Compania de Seguros de Vida (ARS 44,700).
The sale of the CNP Seguros de Vida and Previsol Administradora de Fondos de Jubilaciones y Pensiones interests did not take place in 2009. The sale of the CNP Seguros de Vida interest is subject to the agreement of the Caixa Economica Federal.
The Provincia Aseguradora de Riesgos des Trabajo interest was sold in 2009 for ARS 3,460.
3.1. significant events of the year 70 3.2. market and business review 73 3.3. financial review 79 3.4. embedded value 84 3.5. social and environmental information 94 2009 business anD financial Review3
2009 business and finanCial review3 significant events of the year 3.1. signifiCant events of the year 3.1.1. IlFirst half dIvERSIty lAbEl AwARd
The Diversity Label is awarded to businesses and organisations that are strongly committed to promoting diversity in the workplace by guaranteeing equal opportunities and fighting job discrimination.
Noting that the two banking groups viewed the stake in CNP Assurances as a long-term strategic asset and that they had no intention of selling it, the director representing CNCE stated that the transfer of the shares to the new central body would in no way alter the contractual relationship between the Caisses d’Epargne savings banks and CNP Assurances, or the balance of shareholders’ interests in CNP Assurances’ capital.
An indirect investment held in CNP UniCredit Life (wholly owned by CNP UniCredit Vita) was reclassified as a direct investment held by CNP Assurances. The agreement was signed on 23 December 2008 and the transaction was finalised on 31 March 2009. This operation provides CNP Assurances with a platform of cutting edge operating processes for developing its private asset management business within the scope of the free provision of services within the European Union.
Under the terms of this agreement: ■ CNP Assurances will acquire a 50% stake in Barclays’ life insurance subsidiary – Barclays Vida y Pensiones (BVP) – which operates in Spain and Portugal. The partners will also launch new insurance operations in Italy to bolster currently existing businesses. CNP Assurances will assume management control over all of these newly-created structures; ■ the partners will enter into an exclusive agreement to distribute a comprehensive range of life insurance and pension products (including savings, pensions and personal risk insurance products) through Barclays’ networks in Italy, Spain and Portugal.
Barclays and CNP Assurances are jointly committed to developing a solid life insurance business in Italy, Spain and Portugal by drawing on both Barclays’ proven experience and rapid growth in these countries and the major growth potential of Southern European insurance markets.
Gross written premiums under French GAAP 72 207 - 279 mUltI-ANNUAl PARtNERShIP AgREEmENt bEtwEEN mfP SERvICES ANd CNP ASSURANCES
The purpose of this five-year partnership agreement is twofold: ■ to develop a competitive offering of products and services in the areas of personal risk insurance, enabling mutual insurers to meet their members’ new demands while respecting mutualist ethics and values; ■ to ensure the long-term viability of their joint actions.
CNP Assurances and MFP Services’ insurance subsidiary, MFPrévoyance SA, have agreed to jointly develop a range of personal risk guarantees designed for public sector mutual insurers that meet the changing needs of their policyholders.
On 12 November 2009, CNP Assurances entered into an agreement with Rentipar Seguros SGPS for the sale of its stakes of 83.52% and 83.57% respectively in Global − Companhia de Seguros, SA and Global Vida − Companhia de Seguros de Vida, SA (together, Global Seguros), for a total consideration of €117 million, valuing both companies at €140 million for 100% of the share capital. Rentipar Seguros SGPS is a company controlled by Horácio da Silva Roque, founder and majority shareholder of Banif group, which in particular holds the Portuguese insurance company Açoreana Seguros.
Subject to the customary regulatory approvals, the transaction is expected to close during the first quarter of 2010. The price is subject to an adjustment mechanism based on the change in net asset value, and will reinforce the Group’s solvency ratio by approximately 0.7%.
CNP ASSURANCES ExERCISES PUt oPtIoN oN ItS NAtIxIS globAl ASSEt mANAgEmENt (NgAm) ShARES
On 17 December 2009, CNP Assurances exercised the put option on its 11.34% interest in NGAM, as provided for in the addendum to the memorandum of understanding concluded between CNP Assurances and Caisse Nationale des Caisses d’Epargne in 2007.
In the majority of advanced countries, governments implemented stimulus plans to support business activity, some of which were decided on in 2008. Most of the measures to sustain consumer demand were aimed at increasing purchasing power either by applying pressure on consumer prices (through car scrappage schemes and VAT cuts) or on disposable income (by lowering taxes and social security contributions and boosting welfare benefits). Other measures were aimed at easing restrictions on consumer credit and reducing the burden of interest payments. In particular, in the United States, the Federal Reserve’s direct purchases of mortgage securities significantly reduced consumer interest rates.
From May 2009, the European Central Bank held its key rate at 1% and acted on short-term rates by expanding the money supply: since July 2009, the Euro Overnight Index Average (EONIA) has hovered around 0.36%.
At the same time, many emerging markets such as China and oil-producing countries have continued to peg their currencies to the dollar, resulting in a renewed surge in currency reserves. This boosted liquidity and contributed to a sharp upturn in asset prices such as equities, commodities and bonds.
Firstly, the economic stimulus plan and related measures, which directly affected households through three channels: lower income taxes, supplementary transfer payments
(income support, child benefits) and direct subsidies (the car scrappage scheme, interest-free home loans, etc.). These ambitious policies reduced the impact of the first fall in the national payroll in modern history (a 0.1% year-on-year decline in the third quarter). In fact, once benefits in kind are factored in, household disposable income advanced 2.6% year on year.
The second factor was the decline in consumer prices. For the first time since 1957, France experienced negative inflation for several months in 2009. Consumer purchasing power thereby grew by 2.8% over the year, compared with the last recession in 1993 when it decreased. Amidst a severe economic crisis French households took a naturally cautious approach, as demonstrated by a marked rise in the savings rate from 15% of gross disposable income before the crisis to nearly 17%. The combination of factors, however, enabled French consumers to increase consumption in 2009 even while they increased savings.
Investment in money-market products declined significantly from 2008 levels due to the less attractive returns on offer. Financing facilities provided by the monetary authorities brought three-month rates down sharply to 1.23% on an annualised basis, compared with 4.60% in 2008.
With returns on non-unit-linked contracts once again far more attractive than those on money-market products, overall life insurance inflows grew 12% in 2009, restoring them to their 2007 levels.
The robust growth was led by the sharp 19.8% increase in savings premium income in France and Italy.
(1) Italian branches and Cofidis business in Italy and CNP Vita. (2) Global, Global Vida, Cofidis Portugal and BVP Portugal. (3) Based on exchange rates at 31 December 2009. (4) Spanish branches, Cofidis Spain, CNP Vida and BVP Spain. (5) Cofidis Belgium, Czech Republic, Greece and Hungary.
However, this negative trend reversed in the fourth quarter of 2009, when unit-linked sales rebounded both in France – by 92.2%, including a 127.3% increase for the Savings Banks – and internationally. In all, unit-linked sales rose by 87.1% year-on-year in the last quarter of 2009.
Premium income rose 4.9% in 2009 to €26.3 billion (up 6.1% under French GAAP). While below-market, this performance was nonetheless in line with the long-term trend (1) observed since 2007 (€24.5 billion) and 2006 (€26.6 billion). 2008 was an unusual year, when CNP Assurances served as a haven for clients seeking security during a severe financial crisis.
Net new money in France remained significantly positive at €9.5 billion (up 32.4%), representing a market share of 18.5% comparable to that of previous years. Claims and benefits expense fell 4.9%, and therefore improved considerably as a percentage of technical reserves.
Caisses d’epargne Premium income generated through the Savings Banks amounted to €10.3 billion in 2009, up 27.2%. Business was fuelled by the launch of a new Livret Assurance Vie product, as well as by two campaigns advertising promotional rates. Private banking contributed to the strong performance, led by strong sales of Nuances Privilège contracts. The personal risk business continued to grow, rising 8.3% for the year.
CNP Trésor CNP Trésor reported premium income of €673.4 million, down a slight 6.5%. Business was held back by strong competition from the banking sector and the postponement of property sales.
In 2009, premium income outside France surged 93.3% to €6.3 billion (up 65.8% under French GAAP). Growth was led by CNP Vita in Italy, Caixa Seguros in Brazil and CNP Vida in Spain. Recent acquisitions began to make a significant contribution, particularly in Cyprus, where Marfin Insurance Holdings Ltd (MIH) (1) reported premium income of €214.4 million for the year.
Loan Insurance 54.0 +0.8 54.0 +0.8 brazil – Caixa seguros Caixa Seguros’ premium income rose 23.5% to €1.9 billion in 2009 (up 26.5% in local currency). The primary growth driver was once again the pensions business, which gained 23.6% over the year and accounted for 65% of total premium income in Brazil. Personal risk and loan insurance products saw improvements of respectively 37.7% and 29.2%.
Property & Casualty 574.6 +1.6 574.6 +1.6 spain – CNP vida CNP Vida generated new money of €264 million in 2009, up 34.2%. All of the segments contributed to growth, which was mainly driven by the 71.6% increase in sales of unit-linked products by the Savings Banks.
Marfin Insurance Holdings Ltd (Cyprus) 214.4 - - 214.7 - -
ll outlook The CNP Assurances Group intends to press ahead with its value-creating initiatives.
Attributable to owners of the parent (reported) 1,004.1 730.6 37.5% (1) Excluding CNP Trésor employee benefits expense: €35.2 million in 2009 and €35.7 million in 2008. (2) EBIT: Operating profit adjusted for net fair value adjustments to financial assets and net realised gains on equities and investment property (in total, a positive adjustment of €329.2 million in 2009 and a negative adjustment of €1,287 million in 2008) and non-recurring items (a negative adjustment of €361.3 million in 2009). Excluding the reversal of the provision for disability recognised in 2008, EBIT decreased 18.2% year-on-year.
(3) Attributable recurring profit, before capital gains: profit attributable to owners of the parent adjusted for fair value adjustments to financial assets at fair value through profit (trading securities) and net realised gains on equities and investment profit, net of tax (in total, a positive adjustment of €220.1 million in 2009 and a negative adjustment of €680.7 million in 2008) and in 2009, for additional provisions presented in the income statement below attributable recurring profit (a negative adjustment of €220.5 million). Excluding the reversal of the provision for disability, attributable recurring profit before capital gains decreased 20.6% year-on-year.
insurance and financial liabilities excluding the deferred participation reserve rose 6.1% during the period under review.
Growth was driven by premium income, the increase in the value of policyholder savings, contract terminations and deferred participation in accordance with shadow accounting principles, corresponding to the portion of unrealised gains and losses attributable to policyholders.
Claims and benefits, including changes in technical reserves and policyholder participation, amounted to €42.3 billion, i.e., double the amount in 2008. In addition to higher business levels, the increase results from the impact of improved financial market conditions on fair value adjustments in respect of unit-linked contracts and on deferred participation. Claims and benefits reflected changes in the fair value of financial assets at fair value through profit (trading securities) recognised in the deferred participation reserve and movements in provisions for impairment recognised in the income statement on financial assets at fair value through equity (available-for-sale financial assets).
Compared with 2008, paid claims and benefits – including handling expenses – edged back by 0.4% and represented 7.9% of insurance and financial liabilities (excluding the deferred participation reserve) versus 8.1% in 2008. Total revenues allocated to policyholders, including credited interest and policyholder participation, amounted to €9.6 billion in 2009. Excluding deferred participation, the total was €6.8 billion.
Net investment income excluding finance costs amounted to €15.2 billion compared to net investment expense of €2.1 billion in 2008. The change reflected in particular the €4 billion net increase in the fair value of financial assets at fair value through profit compared with a €10.8 billion net decrease in the previous year and low levels of impairment on financial instruments in 2009 (€0.2 billion net of reversals, compared to €3 billion in 2008).
Administrative expenses (excluding CNP Trésor set-up expenses of €35.2 million) totalled €796.7 million, a yearon -year increase of 5.8%. These expenses are analysed in the income statement by function. While the administrative expenses for the French entities decreased 1.2%, those for entities outside of France rose 26.1% due to the firsttime consolidation of CNP Marfin and CNP Barclays Vida y Pensiones, and the Brazil business as a result of the change in the exchange rate and the taxes levied on premium income. On a like-for-like basis excluding taxes, administrative expenses for the Group’s international subsidiaries grew 6.2%.
Administrative expenses include acquisition costs, administrative expenses, claims handling expenses, investment management costs and other underwriting costs.
Statutory operating profit therefore includes the impacts of all fair value adjustments to financial assets as well as all recurring and non-recurring technical movements.
income tax expense increased by €256.3 million year-onyear due mainly to the growth in the taxable base.
These items, which are considered as being stated net of policyholder participation and the tax effect, represented a negative €60.6 million in 2009 and a negative €271 million in 2008; ■ excluding fair value adjustments to financial assets at fair value through profit (trading securities) and realised gains and losses on this category of investments (corresponding to fair value adjustments recognised in prior periods), after policyholder participation and the tax effect (representing a positive €280.7 million in 2009 versus a negative €409.7 million in 2008); ■ and before additional general provisions of €220.5 million.
Attributable recurring profit before capital gains came to €1,004.5 million in 2009, down 28.8% over 2008. Excluding the impact of the reversal of a temporary disability mathematical reserve in 2008, attributable recurring profit would have declined 20.6% in 2009 notably due to the decline in revenues from proprietary trading and in the contribution of the loan insurance business.
Profit attributable to owners of the parent amounted to €1,004.1 million in 2009, versus €730.6 million in the previous year (€585.6 million excluding the reversal of a temporary disability mathematical reserve).
Besides the effect of business levels – reflected in lower revenues on proprietary trading and a smaller contribution from the loan insurance activity – the change in attributable net profit was attributable in particular to the impact of the financial markets on trading instruments (up €691 million versus 2008), as lower levels of impairment of available-forsale assets were offset by an increase in general provisions set aside during the year.
Total assets amounted to €301.9 billion at 31 December 2009, compared with €269.6 billion at 31 December 2008, a 12% increase due to the impact of the recovery of the financial markets on investments which are for the most part recognised at fair value.
Equity now includes €2,143 million in deeply-subordinated debt, which has been reclassified from debt in accordance with the IFRIC interpretation published in November 2006.
Investments are measured at fair value, except for held-tomaturity investments and property assets not backing linked liabilities, which are measured using the cost model.
Available-for-sale financial assets at 31 December 2009 represented 75.5% of total investments and financial assets at fair value through profit (trading securities) represented 21.8%, while held-to-maturity investments and other investments (mainly investment property, loans and derivative instruments) accounted for 2.7%.
2009 business and finanCial review3 Financial review ll Financial statements of the company (French gaaP)
Group insurance products Group insurance premium income was driven by the vigorous growth in pensions revenue.
The continued high level of pensions revenue reflected the takeover of supplementary pension plan commitments. Sales of loan insurance offering whole life cover suffered from the slowdown in the property market.
Caixa seguros New money (under French GAAP) for Caixa Seguros (excluding Consorcios) came to BRL 6,051.4 million, up 23.7% year-on-year. In a highly concentrated market (where the top ten insurers account for 85% of the total) experiencing rapid growth (up 15% at end 2009), Caixa Seguros lifted its penetration rate by 0.2 point year-on-year to 5.9%, while average technical reserves surged 30%.
Operating profit for the Caixa Seguros group (including Consorcios) grew 24.4% in 2009 to BRL 1,266 million. This growth reflects the combined effect of the robust performance of operating activities, thanks to the vitality of the loan insurance, savings, personal risk and pensions businesses, non-recurring income related to the reversals of provisions on run-off contracts, a tight rein on administrative costs, and the strong performance of financial investments including fair value adjustments.
Premium income CNP Assurances’ business activity benefited from the vigour of the life insurance market in 2009.
EBIT rose 2.6% to BRL 1,158 million in 2009 after net fair value adjustments to financial assets (a positive BRL 108 million impact in 2009 compared to a negative BRL 111 million impact in 2008).
Net recurring profit under IFRS came in at BRL 693 million, after fair value adjustments to financial assets net of tax (a positive BRL 65 million impact in 2009 versus a negative BRL 67 million impact in 2008), representing a year-on-year decrease of 3.3%. The decrease in net recurring profit, in comparison with the rise in EBIT, reflects the 4% increase in the tax rate in 2009 compared to the previous year.
However, profit attributable to owners of the parent rose 16.7% year-on-year in local currency, outpacing the increase in attributable recurring profit and reflecting the stronger performance of financial investments (including fair value adjustments) in 2009.
CNP viTA The Italian life insurance market expanded vigorously during the year under review, climbing 54% year-on-year to an all time high of €68.5 billion.
CNP Vita’s EBIT, adjusted for net fair value adjustments to financial assets, fell 78% to €14 million. Excluding nonrecurring items in the amount of €41 million in 2008 (€9 million of which was due to the transfer of a group of contracts to CNP Life), the decrease was 59% and resulted from the combined effect of a 13% decline in average technical reserves and a shift in the product mix from unit-linked to non-unit-linked products, a contraction in underwriting and financial income and tight control of administrative costs.
CNP iAm At €2,052 million, CNP IAM’s revenues were broadly flat compared to 2008 (€2,075 million).
These valuations were methodologically reviewed and the consistency of the results was verified and certified by the independent actuary Milliman. As part of the certification process, Milliman noted that: (i) the methodology used for the calculations was compliant with principles 1 to 16 of the “European Insurance CFO Forum Market Consistent Embedded Value Principles” and that the calculations were performed in compliance with this methodology; (ii) that, in accordance with Principle 14, the CNP Assurances Group had retained a liquidity premium of 16 bp on its euro individual savings, individual and group retirement savings portfolios; and (iii) that the assumptions used were reasonable. Milliman noted that since most of the assumptions used were not under the control of the management of the CNP Assurances Group, actual outcomes may differ from those assumed.
viF – value of in-Force 2,760 18.6 2,369 15.9 2,369 15.9 391 16%
Present value of future profits 5,748 38.7 4,723 31.8 4,723 31.8 1,026 22% Time value of options and guarantees (1,419) (9.6) (1,012) (6.8) (1,012) (6.8) (407) 40% Frictional costs of required capital (1,132) (7.6) (943) (6.4) (943) (6.4) (188) 20% Costs of non-hedgeable risks (438) (2.9) (398) (2.7) (398) (2.7) (40) 10% mCev© - market Consistent embedded value 11,715 78.9 10,017 67.4 10,440 70.3 1,698 17% (1) Copyright © Stichting CFO Forum Foundation 2009.
The MCEV© of CNP Assurances at 31 December 2009 is €11,715 million, which represents a 17% increase year on year. This change stems from the 16% increase in the Value of In-Force and from the 17% increase in Adjusted Net Asset Value.
The 9.6% rise in mathematical reserves, combined with the upward trend of financial markets, created a 22% increase on the present value of future profits. The significant increase in the cost of financial options and guarantees, in the highly volatile context of current financial markets, dampened the increase in the VIF to 16%.
The 17% increase in the ANAV is attributable to 2009 earnings and the increase in unrealised capital gains recorded in equity.
In € millions ANAv vIf mCEv© vNb mCev - market Consistent embedded value 8,956 2,760 11,715 360 +100 bp change per year in the interest rate environment (127) 181 54 (11) -100 bp change per year in the interest rate environment 131 (353) (223) (100)
Since 2008, certain MCEV financial sensitivities are incorporated in IFRS 7 disclosures included in the notes to the consolidated financial statements.
The other contributory factors to MCEV© of €11,715 million are essentially changes in the Brazilian exchange rate, which added €208 million, and the recognition of goodwill paid on the acquisition of Barclays Vida y Pensiones (BVP) in the amount of €164 million. The Value of In-Force of BVP has not yet been included in the valuation of BVP.
The IDR rate is calculated on the basis of a 40 bp spread on long term interest rates, and a 2% equity risk premium. It stands at 8.0% at the level of the CNP Assurances Group at 31 December 2009 and 8.2% at 31 December 2008. The increase in the cost of financial options and guarantees is offset by a decrease in the benchmark rate, stemming from a fall in euro swap rates on short maturities.
The following table provides a breakdown of the VIF by country: group france International o/w brazil o/w Italy
Time value of options and guarantees (1,012) (1,011) (2) 0 (2)
Financial market movements, along with an increase in premium volumes and a strong contribution from existing business enabled CNP France to return to growth, with the VIF increasing by 9%. Furthermore, a strong contribution from international entities was observed, mainly due to Brazilian operations, whose VIF increased by 75% (up 29% at constant exchange rates). Italian operations resumed their upwards trend, largely driven by euro savings contracts.
VNB by country at 31 December 2009 group france International o/w brazil o/w Italy
Change in scope of modelling 344 12.4% 261 10.9% 83 22.2% 64 28.4% 17 13.0%
Change in financial market conditions 333 10.8% 212 8.3% 121 22.8% 90 36.4% 30 11.8%
The other entities were valued in terms of their net asset value in compliance with IFRS. This valuation concerns Global and Global Vida, CNP Seguros de Vida, BVP, Fongépar and Filassistance.
All these calculations were carried out net of external reinsurance and co-insurance.
required capital Required capital is the market value of assets allocated to covered business over and above that required to back liabilities for covered business, and whose distribution to shareholders is restricted.
Free surplus Free surplus corresponds to the market value of assets, excluding assets backing Group liabilities, after deducting required capital.
This value reflects the intrinsic value of financial options and guarantees on In-Force covered business but does not include their time value.
The time value of options and guarantees (TVOG) is generated by the asymmetric nature of the distribution of profits between the shareholders and the insured according to the different movements of financial markets. Broadly speaking, a financial loss is incurred in its entirety by the shareholders, whereas financial gains are split according to the regulatory and contractual provisions governing the sharing of profits. On the basis of multiple simulations, the use of stochastic calculations enables all possible changes in financial markets to be covered and therefore to obtain the cost associated with unfavourable market movements.
Costs of residual non-hedgeable risks In compliance with Embedded Value publication standards 6 and 9, a cost must be allocated for non-hedgeable financial and non-financial risks. This cost results from: ■ risks not taken into account in the PVFP or in the TVOG; ■ asymmetrical effect of some non-hedgeable risks on the value; ■ underlying uncertainty inherent in “best estimate” assumptions for non-hedgeable risks.
CNP Assurances uses a cost of capital approach to measure the residual non-hedgeable risks. The capital allocated to these risks is consistent with a 99.5% confidence level over a one-year time horizon (i.e., a level of capital that would cover a potential loss generated by those risks with a 99.5% confidence level).
Non-valued risks include: ■ default risk; ■ concentration risk; ■ operational risk; ■ catastrophe risk.
The asymmetrical nature of the division of risk between the insured and the shareholders, depending on the different evolutions of non-financial parameters, generates a cost that must be taken into account when determining the value of the portfolio. The asymmetrical impact of the mortality/ longevity/morbidity risk is the result of contracts that include profit sharing clauses containing a component that is based on the technical result.
Embedded Value calculations are based on several “best estimate” assumptions: claim rate, surrender risk, expenses risk. An additional cost, related to the underlying uncertainty inherent in the determination of such assumptions has been incorporated into the value.
New Business volumes only include new policies. Future regular premiums on existing contracts are included in the Value of In-Force.
In accordance with the “standalone” methodology used by CNP Assurances, no unrealised gains are allocated to New Business. New Business premiums are invested in the new assets available at the valuation date following the acquisition strategy recorded during the year. Therefore there is no sharing of unrealised gains and losses between In-Force and New Business.
Calibration of the interest rate model The volatility parameters used in the HJM model are based on the volatility structure of EUR 1 to 30 year swaptions at 31 December 2009.
In compliance with CFO Forum Guidance G15.3, in 2008 CNP Assurances retained the average of implicit volatilities over one year, on the basis that the market displayed exceptional characteristics from October 2008.
Calibration of the equities model A different volatility level for each projection level between 1 and 20 years was used. This series of parameters was determined on the basis of the volatility implied on call options on the CAC40 index at 31 December 2009. In compliance with CFO Forum Guidance G15.3, in 2008 CNP Assurances retained the average of implicit volatilities over one year on those same assets, on the basis that the market displayed exceptional characteristics from October 2008.
The euro-real exchange rate fell from 3.2590 at 31 December 2008 to 2.5084 at 31 December 2009.
The tax rate considered for the calculation of the Embedded Value corresponds to the standard corporate tax rate applied in the countries where CNP Assurance has operations: france Italy brazil
The tax credits recorded in France and that reduce the standard corporate tax rate are valued elsewhere.
The average rate applied to capital was 3.1% at 31 December 2008 and 2.9% at 31 December 2009.
expenses At the end of each reporting period, CNP Assurances carries out an analysis of costs by function: acquisition, management, claims, investment costs and other technical and non-technical expenses; by company, product family and network. The cost basis arising from this analysis was adjusted by €10.4 million to take account of non-recurring expenses, as recorded in the 2009 financial statements.
No productivity gains were included, with the exception of CNP Vita, for which the forecasts are based on a stable level of expenses until 2014 and a subsequent return to expenses increasing at inflation. The business plan from which this assumption was derived was approved and validated by the board of CNP Vita. The impact on the VIF was €5 million and the impact on the VNB was €1.6 million.
Claims and persistency assumptions Non-economic assumptions (experienced mortality, lapse rates and assumptions relating to claim rates) are determined for each entity on the basis of their best estimate at the date of valuation. They are based on the analysis of current and past experience made for each valued portfolio.
Moreover, the information disclosed in “CNP Assurances – Embedded Value report at 31 December 2009” complies with the current CFO Forum European Embedded Value principles.
As a specialist in risk management, with extensive experience in financial protection, the Group is extremely committed to long-term sustainable development. The Group has always operated with a focus on corporate social responsibility (“CSR”), completely aligned with its main shareholders and its major distribution partners, whose corporate mission is to serve the public interest.
By being among the first French companies to pledge support for the UN Global Compact in 2003, we gave new impetus to these commitments and expanded our sustainable development initiatives. The Group’s international subsidiaries share these strategies. The Group’s Portuguese subsidiary pledged support to the UN Global Compact in 2007, followed by the companies in Argentina and Brazil in 2008.
The Company has also been actively involved in drafting the Sustainable Development Charter of the French Insurance Association. The insurance industry is one of the first industries in France to work collectively on the issue of sustainable development and how it applies to the various segments of its business.
The quality of the Group’s sustainable development programme has been recognised by socially responsible investment (“SRI”) analysts. Vigéo ranks CNP Assurances among the leading European insurers. The Group’s performance is above the industry average in each of the six criteria and ranks particularly high in terms of human resources and corporate citizenship. The Group’s shares are listed on several European SRI indexes.
Pursuant to the French law on new economic regulations (NRE), social and environmental indicators are presented in the following table. The majority of these indicators concern CNP Assurances. Data regarding the subsidiaries is indicated where relevant.
emissions. Nevertheless, we do everything possible to reduce consumption, particularly with respect to the three main sources of direct emissions: ■ paper use for day-to-day operations and relations with policyholders; ■ business travel; ■ management of property for business operations.
In 2009, 97 permanent employees and 100 fixed-term employees were hired. The Group filled 418 vacant positions.
In 2009, there were four dismissals and three terminations by mutual agreement. The turnover rate dropped in all entities in 2009, with a rate of 3% for CNP Assurances (compared to 4% in 2008) and 4.8% for the Group.
5. Overtime In France, use of overtime is low. A total of 4,439 hours of overtime were worked in 2009, i.e., 0.08% of regular hours. Employees are accorded considerable autonomy to organise their work schedules in accordance with their professional obligations.
6. Outside contractors An intercompany partnership employs 325 IT engineers. The use of external contractors includes: ■■ 22 security agents; ■■ 5 receptionists; ■■ 67 cleaners and 17 maintenance staff.
2009 business and finanCial review 3 social and environmental information 12. Application of the provisions of Section IV, Book IV of the French Labour code (incentive and profitsharing plans and employee savings plans)
In 2009, the share of the payroll dedicated to discretionary (incentive) profit-sharing amounted to €5,028,030.62. The total amount of statutory profit-sharing payments made was €17,841,927.
All international subsidiaries with more than ten employees will have at least one employee representative. All employees are covered by a collective bargaining agreement, in countries where such agreements exist.
14. Health and safety CNP Assurances is concerned about the health and safety of its employees. In addition to supplementary health insurance, employees also benefit from a group policy covering death/disability and long-term care. Dedicated health professionals are available at the three main sites. These include three occupational physicians, five specialists (gynaecologist, psychiatrist, cardiologist, etc.) and eight permanent nurses. A social worker is also available. Health improvement programmes are organised on a regular basis, and include measures such as flu vaccines, anti-smoking initiatives, repetitive strain injury awareness campaigns, fire hazard e-learning, etc. The in-house mediation system was used 30 times during the year, 11 of which were for preventative reasons.
CNP Assurances employs 73 people with disabilities, on both permanent and fixedterm contracts. A certain number of workers were hired within the scope of the French CAT (Centre d’aide par le travail) mechanism for disabled workers. These workers account for 36 “credit units” (unités bénéficiaires). The Company has a CAT function on its premises. In 2009, an accessibility audit carried out at the Paris and Arcueil premises enabled the Group to identify access problems and implement a corrective action plan. In January 2009, CNP Assurances was one of the first companies in France to be awarded the Diversity Label. The CNP Assurances Group employs 87 people with disabilities.
2009 business and finanCial review3 social and environmental information 17. Social and cultural activities The works council’s budget represents 1.75% of the total payroll. In 2009, this budget was allocated as follows: Children: 41%, holiday vouchers: 24%, travel: 16%, other (sport, cultural activities, social activities): 19% Group subsidiaries implemented subsidies, in particular for employee meals and transport.
18. Relations with the community, including associations to combat social exclusion, educational institutions, environmental and consumer associations, and local residents
CNP Assurances has a long history of introducing young people to the working world. In 2009, CNP Assurances hired 61 young people on apprenticeship or workstudy programmes and 99 interns.
CNP Assurances has close ties with French insurance school ENASS. It finances training centres such as IFPASS and ADAPT, and provides financial assistance to educational institutions through the apprenticeship tax.
In Brazil, the “Jovem de expressao” project has been set up to reduce young peoples’ exposure to violence through volunteering, corporate sponsorship and apprenticeship contracts, of which there were 18 in 2009.
19. Contribution to regional development and employment 88% of CNP Assurances employees work at one of the Paris, Arcueil or Angers sites. International subsidiaries attest to our commitment to local economic initiatives. Expatriates represent 1% of Group employees. In all international subsidiaries, 57% of senior executives are hired locally (members of the Executive or Management Committee).
20. Outsourcing and the Group’s policy with subcontractors: steps to ensure that subcontractors comply with International Labour Organization (ILO) standards
NRE indicators 2009 data 21. Water consumption In 2009, water consumption amounted to 36,383 cubic metres for CNP Assurances and 69,933 cubic metres for the Group.
Throughout the Group, paper consumption for internal operations and contractual documents amounted to 152 million sheets. 84% of Group employees use certified eco-friendly paper.
27. Emissions into air, water and soil In light of its business activity, the Group did not produce any greenhouse gases other than CO2 and did not cause any ground or water pollution. In 2010, a carbon assessment will be carried out at the Group’s main sites in France to provide a more in-depth analysis.
28. Noise and odour pollution No direct impact in view of the Group’s business activity.
29. Waste treatment A waste sorting system is in place for 94% of employees. In 2009, 194 tonnes of paper and cardboard were recycled. Toner cartridges are also collected (4,289 in 2009) and recycled if possible, as are batteries (almost 500 kg in 2009). Computer hardware is given or sold to employees. Group-wide, a waste sorting system is in place for 93% of employees and 214 tonnes of paper and cardboard were recycled, as well as 5,112 toner cartridges.
CNP Assurances is France’s largest private owner of woodland with a total of 49,000 hectares. Forestry assets are subject to management plans that respect biodiversity. The corresponding carbon sink is estimated at 220,000 tonnes, down 30% on 2008 due to the effects of a major storm in south-west France in January 2009. For the past four years, CNP Assurances employees have been invited to finance the planting of trees in Brazil, with the Company matching the total amount collected by staff.
With the Group currently expanding its business abroad, the use of video and phone conferencing is being promoted in order to reduce business travel. The amount of time spent in video and phone conferences in 2009 is estimated at 6,900 hours, up 83% on 2008. Four new rooms have been equipped and several existing rooms were refurbished to meet these needs. A target was set to cut emissions by 3% per year starting in 2010.
International subsidiaries introduced various measures to reduce the impact of their business activities on the environment. In Brazil, the subsidiary pays a percentage of the premiums from its Caixacap Blue Dream product to the NGO Green Initiative to help finance the Carbono Séguro programme promoting carbon reserves in the Atlantic forest.
Environmental laws and regulations only have an impact on CNP Assurances in matters concerning building management.
financial statements4 4.1. consolidated financial statements 102 4.2. notes to the consolidated financial statements 113 4.3. statutory auditors’ rePort on the consolidated financial statements 210 4.4. comPany financial statements at 31 december 2009 212 4.5. notes to the comPany financial statements 219 4.6. statutory auditors’ rePort on the financial statements 258
finanCial statements4 consolidated financial statements 4.1. Consolidated finanCial statements 4.1.1. Ilconsolidated balance sheet ASSEtS
Financial liabilities – financial instruments with DPF (excluding unit-linked) 10 147,370.2 144,073.7 139,148.7
Financial liabilities – financial instruments without DPF (excluding unit-linked) 10 787.7 465.0 516.3
Liabilities arising from insurance and reinsurance transactions 14 2,318.5 2,101.9 2,199.1
Gains and losses on disposal of investments, net of reversals of impairment losses and amortisation 1,303.6 1,490.0 1,707.9
Change in fair value of financial assets at fair value through profit 3,982.5 (10,798.5) 16.1
Change in fair value of intangible assets 7 (104.0) 0.0 0.0
CoNSolIdAtEd StAtEmENt of INComE ANd ExPENSE RECogNISEd dIRECtly IN EqUIty – 2009
Profit for the period 1,004.1 118.2 1,122.3 gains and losses recognised directly in equity
Reclassification of impairment losses to profit or loss 570.2 9.3 579.4
CoNSolIdAtEd StAtEmENt of INComE ANd ExPENSE RECogNISEd dIRECtly IN EqUIty – 2008
NEt INComE ANd ExPENSE RECogNISEd dIRECtly IN EqUIty (870.6) (19.2) (889.8)
CoNSolIdAtEd StAtEmENt of INComE ANd ExPENSE RECogNISEd dIRECtly IN EqUIty – 2007
Equity attributable to owners of the parent minority interests total equity
Profit for the period 1,221.8 157.2 1,379.0 gains and losses recognised directly in equity
Sub-total net of deferred participation and deferred taxes (166.7) (4.6) (171.3)
Actuarial gains and losses 0.0 0.0 0.0 total income and expense recognised directly in equity (147.7) 15.2 (132.5)
NEt INComE ANd ExPENSE RECogNISEd dIRECtly IN EqUIty 1,074.1 172.4 1,246.5
finanCial statements 4 consolidated financial statements 4.1.4. Ilconsolidated statement of changes in equity CoNSolIdAtEd StAtEmENt of ChANgES IN EqUIty – 2009
Adjusted equity at 1 January 2008 – IfRS 594.2 981.5 1,972.6 2,143.0 5,605.0 109.0 11,405.3 566.9 11,972.2
■ Cash flows arising from Group investments, dividends and other transactions with associates or jointly-controlled entities accounted for by the equity method.
They include units in “ordinary” money-market funds but do not include units in dynamic funds that are highly sensitive to changes in market prices, in accordance with the guidelines of the French securities regulator (AMF).
Cash flows from investing activities correspond to cash flows from purchases and sales of investment property and securities, operating property and equipment and intangible assets.
RECoNCIlIAtIoN of CASh ANd CASh EqUIvAlENtS REPoRtEd IN thE bAlANCE ShEEt ANd IN thE CASh flow StAtEmENt
Cash and cash equivalents reported in the balance sheet 1,138.8 1,257.7 1,175.3
Cash and cash equivalents reported in the cash flow statement correspond to: ■ cash and cash equivalents reported in the balance sheet under assets; ■ operating liabilities due to banks, corresponding to shortterm bank loans and overdrafts other than financing liabilities, reported in the balance sheet under liabilities; ■ securities held for trading, consisting of money market mutual funds, reported in the balance sheet under assets.
CoNSolIdAtEd CASh flow StAtEmENt operating profit before tax 1,724.3 1,081.7 1,987.5
Acquisitions of subsidiaries and joint ventures, net of cash acquired (7.9) (77.6) (925.2)
Net cash (used) provided by divestments and acquisitions 684.1 (77.6) (925.2)
Net cash provided by sales and redemptions of investments 404,107.5 194,834.7 137,401.1
Purchases of property and equipment and intangible assets (47.3) (40.9) (41.1)
Net cash used by sales and purchases of property and equipment and intangible assets (45.9) (35.5) (21.3)
Cash and cash equivalents at beginning of period 8,769.9 5,057.3 5,795.1
CASh ANd CASh EqUIvAlENtS At thE REPoRtINg dAtE 10,304.7 8,769.9 5,057.3
The recovery on the financial markets beginning in March 2009 (the CAC 40 index finished up 22.3% for the year to stand at 3,936.33 points), coupled with lower interest rates, generated unrealised gains on financial assets measured at fair value: there was a positive impact of €281 million on consolidated profit for the year from changes in the value of financial assets measured at fair value through profit, while unrealised gains on available-for-sale financial assets recognised in equity amounted to €833.8 million (both amounts are net of deferred participation and deferred taxation).
Prior to this, the fall-out from the ongoing financial crisis continued to send shockwaves throughout the Group. Certain Italian clients had invested in contracts backed by Lehman Brothers bonds and, in the wake of the difficulties caused by the collapse of this institution in September 2008, the Italian market began to shun unit-linked and index-linked products. In late 2008, CNP UniCredit Vita launched a range of non-unit linked products which generated premium income of over €3 billion in 2009. Given the strategic change inherent in CNP UniCredit Vita’s new product mix, the Group reviewed the subsidiary’s business plan together with the value of the intangible assets recognised on the consolidated balance sheet (value of business in force and goodwill).
The Group wrote off the entire value of insurance policies acquired along with the subsidiary in November 2004, amounting to €45 million at 31 December 2009. These consisted mostly of unit-linked and index-linked products which have now been abandoned in favour of mostly nonunit -linked products. Remeasurement of the subsidiary’s business plan to reflect the higher solvency ratios required for the new products has also led the Group to record an impairment loss of €104 million on the original goodwill recognised of €366.5 million, leaving goodwill of €262.5 million at 31 December 2009. The Group is confident in the future earnings scenario developed under the new strategy and based around UniCredit’s network of 1,969 agencies (UCBdR and Banco di Sicilia). UniCredit was number two in the Italian bancassurance market in 2009. In 2010, in addition to consolidating the strong performance of its non-unit-linked products, CNP UniCredit Vita will launch a new range of combined unit-linked/non-unit-linked contracts and continue to develop its loan insurance and personal insurance offering.
On 25 June 2009, CNP Assurances (CNP) and Barclays Bank PLC (Barclays) entered into a 25-year business alliance to develop their life insurance businesses via Barclays’ networks in Spain, Portugal and Italy.
Barclays and CNP Assurances are jointly committed to developing a solid life insurance business in Spain, Portugal and Italy by drawing on both Barclays’ proven experience and rapid growth in these countries (approximately 1,000 branches at end-2009) and the major growth potential of Southern European insurance markets.
This decision was made purely for asset management reasons and will have no impact on the operating relationship between the two companies. NGAM will continue to manage CNP Assurances’ life insurance assets generated by the Caisse d’Epargne network as well as other portfolios.
1.5 ChANgE of owNERShIP of CNP UNICREdIt lIfE (RENAmEd CNP EURoPE)
The operation consisted of the buyback of UniCredit’s indirect minority interest in CNP Europe (42.5%) and generated nonmaterial negative goodwill of €2.3 million − corresponding to the difference between the cost of the minority interests and the value of the net assets acquired – which was recognised as an increase in equity.
1.6 dECISIoN by thE lyoN CoURt of APPEAl ANd ARtIClE 14 of thE NAtIoNAl CollECtIvE AgREEmENt
On 13 January 2009, the Lyon Court of Appeal handed down a decision concerning the application of Article 4 of the Evin Law stipulating that under mandatory company healthcare schemes, former employees may continue to receive the same healthcare coverage when they are retired, incapacitated or receiving unemployment benefit.
On 2 July 2009, CNP Assurances and Mutuelles de la Fonction Publique Services (through its two subsidiaries, MFPrévoyance SA and MFPrima) - extended their partnership arrangement up to 31 December 2013. They also renewed their funding arrangement for the same period.
finanCial statements 4 notes to the consolidated financial statements ll NoTe 2 subsequent events 2.1 mEmoRANdUm ISSUEd by thE CoNSEIl NAtIoNAl dE lA ComPtAbIlIté (fRENCh NAtIoNAl ACCoUNtINg boARd – CNC) CoNCERNINg thE tREAtmENt of thE NEw tERRItoRIAl ECoNomIC CoNtRIbUtIoN (CoNtRIbUtIoN éCoNomIqUE tERRItoRIAlE) UNdER IfRS
On 14 January 2010, the CNC published a memorandum concerning the accounting treatment of the new territorial economic contribution (contribution économique territoriale) for entities who prepare their consolidated financial statements under IFRS. In particular, the CNC notes that each entity should determine whether the component relating to the entity’s value added is a tax or an operating expense. Given that this memorandum has only just been published and that it is for information purposes only, the Group has not yet finalised the related treatment for 2010 and has continued to apply its existing accounting procedures.
ll NoTe 3 summary of significant accounting policies CNP Assurances, the parent company of the Group, is a société anonyme (public limited company) with a Board of Directors, governed by the French Insurance Code. It has fully paid-up share capital of €594,151,292. The Company is registered in the Paris Trade and Companies Register under no. 341 737 062.
The registered office is located at 4, place Raoul-Dautry, 75015 Paris.
The Group’s principal business is the writing of personal insurance. CNP Assurances’ corporate purpose is to: ■ write life and endowment insurance; ■ write bodily injury insurance covering accident and health risks; ■ hold majority interests in insurance companies.
The consolidated financial statements for the year ended 31 December 2009 include the financial statements of the Company and its subsidiaries, as well as the Group’s interests in the results and net assets of jointly-controlled entities and associates. They were approved by the Board of Directors on 23 February 2010.
In accordance with European directive 1606/2002/EC of 19 July 2002, the consolidated financial statements have been prepared in accordance with the IFRSs adopted by the European Union before 31 December 2009.
New accounting standards that came into force during the year ended 31 december 2009 IFRS 8 — Operating Segments, published in November 2006 and applicable for annual periods beginning on or after 1 January 2009, replaces IAS 14 — Segment Reporting. The new standard requires the operating segments used in published financial information to be identified on the basis of internal reports about the components of the entity that are regularly reviewed by the chief operating officers in order to allocate resources to the segments and assess their performance. The standard requires disclosures concerning the methods used to identify segments. Segment balances must also be reconciled to the amounts disclosed in the consolidated balance sheet and income statement. The impacts of the application of this new standard on the consolidated financial statements for the year ended 31 December 2009 are presented in Note 3.18.
Revised IAS 1 — Presentation of Financial Statements, published on 6 September 2007 and applicable for annual periods beginning on or after 1 January 2009, concludes the first phase of the IASB’s project to overhaul the presentation of financial statements. The revised standard requires an entity to i) present all non-owner changes in equity either in one statement of comprehensive income for the period or in two statements; and ii) present a statement of financial position (balance sheet) as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies an accounting policy retrospectively or makes a retrospective restatement. It also requires disclosure of income tax relating to each component of other comprehensive income as well as reclassification adjustments relating to components of other comprehensive
finanCial statements4 notes to the consolidated financial statements income. In accordance with revised IAS 1, the consolidated financial statements now include a consolidated statement of comprehensive income and a consolidated statement of changes in equity. All of this information was previously disclosed in the consolidated statement of changes in equity.
Amendment to IFRS 7 — Financial Instruments Disclosures, published on 5 March 2009, introduced a three-level hierarchy for fair value disclosures and distinguishes fair value measurement based on the significance of the inputs used in making the measurements (i.e., quoted prices, observable market data or other data). This information is presented in Note 9.2.
The following standards and interpretations are already in force but have no material impact on the Group’s consolidated financial statements: ■ amendment to IFRS 2 – Share-based Payment, adopted by the European Union on 16 December 2008; ■ amendments to IAS 32 – Financial Instruments: Presentation and IAS 1 – Presentation of Financial Statements, adopted by the European Union on 21 January 2009; ■ improvements to IFRSs, adopted by the European Union on 23 January 2009; ■ IFRIC 15 – Agreements for the Construction of Real Estate, adopted by the European Union on 22 July 2009; ■ IFRIC 16 – Hedges of a Net Investment in a Foreign Operation, adopted by the European Union on 4 June 2009; ■ amendments to IFRIC 9 and IAS 39 – Embedded Derivatives, adopted by the European Union on 15 September 2009; main accounting standards and interpretations published but not yet in force
Revised IFRS 3 – Business Combinations, and related revisions to IAS 27 – Consolidated and Separate Financial Statements, published on 10 January 2008 and applicable for accounting periods beginning on or after 1 July 2009 (early adoption is allowed) represents the second phase of the IASB’s project to review the accounting treatment of business combinations. Revised IFRS 3 introduces certain changes in the accounting treatment of business combinations that may impact the amount of goodwill recognised, or the amount of profit in the acquisition period or in subsequent periods. The related revisions to IAS 27 require that a change in the interest held in a subsidiary must be accounted for as an equity transaction and no impact is recognised in goodwill or in profit. They also introduce changes in the accounting treatment of losses generated by subsidiaries and of the loss of control of a subsidiary. The Group will apply this standard on a prospective basis to new acquisitions from 1 January 2010.
The preparation of financial statements in accordance with IFRSs requires the use of estimates and assumptions that have an impact on the application of accounting policies and on the reported amounts of assets and liabilities, income and expenses. The main balance sheet headings concerned by such estimates and assumptions include goodwill (particularly with regard to impairment testing), the value of business in force acquired, assets measured at fair value not quoted in an active market, insurance-related assets and liabilities (technical reserves, deferred participation assets and deferred participation reserves) and deferred taxes.
The effect of changes in accounting estimates are recognised in the period in which the change occurs.
The consolidated financial statements include the financial statements of subsidiaries, jointly-controlled entities and associates.
New subsidiaries are consolidated from the date when control is acquired. Divested subsidiaries are consolidated up to the date when control is relinquished.
An associate is an entity over which the Group has significant influence. Significant influence is defined as the power to participate in the financial and operating policy decisions of the associate.
The consolidated financial statements include the Group’s share of the net assets and profits of associates, recognised by the equity method, from or up to the date when the Group exercises or ceases to exercise significant influence.
3.3.2 Acquisitions of minority interests Goodwill arising on acquisition of minority interests in a subsidiary, i.e. a company that is already controlled by the Group, corresponding to the excess of the total cost of the additional shares over the additional share of the subsidiary’s net assets acquired (including fair value adjustments recognised directly in equity), is recorded as a deduction from equity.
The functional currency of subsidiaries, in which the majority of transactions are denominated, is their local currency.
Derivative instruments designated as hedges of currency risks on foreign currency transactions are recognised in the balance sheet and measured at fair value.
Positive goodwill is: ■ recognised in intangible assets when it arises on the acquisition of entities consolidated by the full-consolidation or proportionate methods; ■ included in investments in associates when it arises on the acquisition of an entity accounted for by the equity method; ■ recognised in the local currency of the acquiree and translated into euros at the closing exchange rate when it arises on the acquisition of a foreign entity (outside the euro zone).
When goodwill is positive, it is stated in the balance sheet at cost less any accumulated impairment losses. It is no longer amortised but tested for impairment: ■ each year on the same date, usually close to the reporting date; ■ or more frequently if events or changing market conditions indicate that it may be impaired since it was last tested for impairment; ■ or at the end of a period in which an acquisition has taken place if there is a marked deterioration in the business environment.
An impairment loss is recognised if the recoverable amount of the CGU to which the goodwill has been allocated is less than its carrying amount. The recoverable amount is defined as the higher of its fair value less costs to sell and value in use.
Expected future cash flows are based on the assumption that the business will continue over the long-term and that relations with banking partners will be pursued beyond the renewal date of current agreements, as well as on forecasts that have been validated by the Board of Directors and extrapolated in line with the growth rates generally used within the industry for the businesses concerned, and using conservatively estimated discount rates in line with the average weighted cost of capital.
3.8.2 life insurance portfolios The fair value of insurance contracts and financial instruments with a discretionary participation feature acquired in a business combination or a separate transaction is split into two components, as follows: ■ a liability measured in accordance with the Group’s accounting policies for insurance contracts and financial instruments with a discretionary participation feature; ■ an intangible asset (“Value of business in force”) representing the difference between the fair value of these contracts and the amount described above.
3.8.3 software Purchased software licences are recognised as an intangible asset at cost less accumulated amortisation and any accumulated impairment losses.
Directly attributable internal and external costs of developing software for internal use, integrating business applications and evolutive maintenance are capitalised if, and only if, it is probable that they will have the effect of increasing the future economic benefits to be derived from the asset and comply with the other provisions of IAS 38. Costs that do not fulfil the criteria for recognition as an asset are recorded in expenses for the period.
3.9.1 Property Investment property is property (land or building) held to earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative purposes, or for sale in the ordinary course of business.
The Group has elected to measure investment and operating properties using the cost model under IAS 40 and IAS 16, except for properties held in unit-linked portfolios which are measured at fair value.
Under the cost model, properties are measured at cost less accumulated depreciation and any accumulated impairment losses.
Borrowing costs directly attributable to acquisition or construction are included in asset cost and expensed once the building is in use.
Depreciation is calculated on a straight-line basis to write off the acquisition or construction cost of each significant part of a property over its estimated useful life.
Depreciation periods are based on the estimated useful lives of the significant parts of each property, with the exception of land which is not depreciated. These periods are as follows: ■ shell: 50 years; ■ facades and roofing: 30 years except for warehouses, factories, shopping centres and cinemas: 20 years; ■ technical installations: 20 years; ■ fixtures: 10 years.
At each period-end, properties are assessed to determine whether there is any indication that they may be impaired. One such indicator is a loss of over 20% of the building’s value measured against cost. If any such indicators are found to exist, the recoverable amount of the building in question is estimated.
The recoverable amount of a property is the higher of its value in use and its market price less costs to sell, as determined by annual independent valuations of the Group’s entire property portfolio.
Financial assets are allocated among the following four categories, based on the type of portfolio, the type of financial assets, the specific features of certain financial assets and prioritised application of the criteria defining each category: ■ financial assets at fair value through profit, corresponding to assets held for trading and assets designated at the outset as being at fair value through profit in accordance with the fair value option. Financial assets allocated to this category include assets backing unit-linked liabilities, assets with an embedded derivative that is separable from the host contract, assets of consolidated mutual funds and derivative instruments; ■ held-to-maturity investments, corresponding to fixedincome securities that the Group has the positive intention and ability to hold to maturity. This classification is applied restrictively to certain bonds, held mainly by Caixa Seguros; ■ loans and receivables, corresponding to non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than assets classified as held for trading or available-for-sale; ■ available-for-sale financial assets, corresponding to assets that are not held with the firm intention of being sold but which the Group may decide to sell, for example to meet its liquidity needs. This classification is applied to assets not classified in any of the above three categories.
Financial assets are initially recognised at fair value. The carrying amount includes directly attributable transaction costs, except in the case of financial assets at fair value through profit.
Changes in fair value of available-for-sale financial assets are recognised directly in equity, taking into account the impact on liabilities arising from insurance contracts and financial instruments with DPF (in accordance with the shadow accounting principle, see paragraph 3.12.1) and the deferred tax effect.
Loans and receivables and held-to-maturity investments are measured at amortised cost by the effective interest method. Fees and points paid or received, directly attributable transaction costs, and all other premiums or discounts are recognised in the income statement over the expected life of the instrument.
The fair value of financial instruments for which there is no active market is estimated using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.
The Group has taken account of the guidelines contained in the IFRIC (International Financial Reporting Interpretations Committee) Update of July 2009 concerning the impairment of equity instruments.
At each reporting date, available-for-sale equity instruments are reviewed to determine whether there is any objective evidence that they are impaired. This is considered to be the case when there is: ■ a prolonged decline in the fair value: the market price is less than the average carrying amount over the two years preceding the reporting date; or
When objective evidence of impairment is detected, the cumulative unrealised loss previously recorded directly in equity is recognised in profit.
Moreover, in all cases where these thresholds have not been exceeded but the market price represents less than 70% of the average carrying amount over the previous six months, the Group systematically tests all equity instruments on an assetby -asset basis to ascertain whether or not an impairment loss needs to be recognised. This approach is based on both the materiality of the decline in the fair value and the intrinsic underlying features of the valuation for each asset.
If the fair value of an available-for-sale debt instrument increases in a subsequent period due to new events, the impairment loss is reversed, with the amount of the reversal recognised in profit.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account, provided that the reversal does not result in a carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit.
Derivative instruments are classified as financial assets at fair value through profit except for instruments designated as hedges whose effectiveness can be demonstrated.
Embedded derivatives are separated from their host contract and recognised as derivative instruments when the following three conditions are met: ■ the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; ■ a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; ■ the hybrid (combined) contract is not measured at fair value with changes in fair value recognised in profit or loss.
If the Group is unable to measure the embedded derivative separately either at acquisition or at a subsequent financial reporting date, the entire combined contract is treated as a financial asset or financial liability at fair value through profit.
A financial instrument is considered as traded in an active market when quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and these prices represent actual and regularly occurring market transactions conducted on an arm’s length basis. The main criterion used in determining whether or not a market is active is how recent the quoted prices actually are.
In the case of financial instruments whose price is not quoted in an active market (i.e. no price is quoted or a price is quoted but the market does not qualify as active, as is the case for certain structured products), fair value prices are estimated using valuation techniques. These are based on: ■ prices not freely available provided upon demand by the arrangers, pricing services, or prices provided by an external agency that are freely available but where the market on which the assets are traded is not always active; ■ internal models that maximise the use of observable market data to measure financial assets.
For example, for structured products, the Group uses the price provided by the arrangers, unless: ■ the Group’s own analysis casts doubts on the reliability of said price; or
The valuation techniques used: ■ make maximum use of market inputs; ■ incorporate all factors that market participants would consider in setting a price; and
■ are consistent with accepted economic methodologies for pricing financial instruments.
■ BTAN treasury notes, at the prices quoted under the Banque de France’s centralised quotation system,
■ derivatives traded on an organised market; ■ level 2: financial instruments measured by standard valuation techniques using mainly observable inputs. These include: ■ structured products valued by the Group, arrangers or external valuers,
■ money market securities other than BTANs measured based on the zero coupon price curve plus a spread,
3.10.2 Capital management Under European insurance directives, the Group is required to comply with certain minimum solvency capital requirements at the level of the Company and of each of its European insurance subsidiaries, as well as at consolidated level.
Treasury stock, corresponding mainly to shares acquired to stabilise the CNP Assurances share price, are recorded as a deduction from equity in the IFRS accounts. The same treatment is applied to CNP Assurances shares acquired for allocation under employee share grant plans (see Note 3.14).
Contracts recognised and measured in accordance with IFRS 4 include: ■ insurance contracts (see definition below) that cover a risk for the insured. Examples include death/disability contracts, pension contracts, property and casualty contracts and unit-linked savings contracts with a guaranteed element; ■ financial instruments with a discretionary participation feature (DPF), comprising both non-unit-linked contracts with DPF and unit-linked contracts including a non-unitlinked component with DPF.
Insurance contracts and financial instruments with DPF are accounted for in accordance with Group accounting policies, as well as with the specific provisions of IFRS 4 concerning shadow accounting and liability adequacy tests. At each period-end, the Group assesses whether its recognised insurance liabilities net of its insurance assets (deferred participation asset plus other insurance-related intangible assets) are adequate, using current estimates of future cash flows under the insurance contracts and financial instruments with DPF.
Contracts under which the Group accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or another beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder or beneficiary are classified as insurance contracts.
■ that are contractually based on the performance of a specified pool of contracts or a specified type of contract, or realised and/or unrealised investment returns on a specified pool of assets held by the Group, or the profit or loss of the company, fund or other entity that issues the contract.
Certain contracts written by the Group comprise both an insurance component and a deposit component. These two components are unbundled only when the deposit component can be measured separately and, under the
In line with the policy described above, the components of combined unit-linked and non-unit-linked contracts written by the Group are not unbundled.
Insurance liabilities are discounted at a rate that is equal to or less than the contractual rate, using regulatory mortality tables or internal experience-based tables if these are more conservative. The discount rate applied to annuities takes into account the effects of a fall in interest rates when the contractual rate is considered too high compared with the expected yield from reinvested premiums.
When policyholders are entitled to participate in surplus underwriting profits and investment income in addition to the guaranteed minimum yield, any surplus not paid during the period is accumulated in the policy-holder surplus reserve.
Reserves for guaranteed yields are determined using the Black & Scholes method.
A deferred participation reserve is recorded for participating contracts, based on shadow accounting principles.
Shadow accounting procedures are designed to address the risk of an artificial imbalance between assets and liabilities valued using different valuation models. When the measurement of liabilities, deferred acquisition costs or the value of business in force is directly affected by realised gains and losses on assets, a deferred participation reserve is recorded in insurance liabilities to offset the unrealised gains or losses in financial assets. Deferred participation is accounted for in the same way as the underlying, i.e., by adjusting either profit or the revaluation reserve.
The deferred participation reserve is determined by multiplying fair value adjustments to assets by the estimated participation rate corresponding to the contractual obligations associated with each portfolio. The estimated participation rate takes into account regulatory and contractual participation clauses, as well as the Group’s profit-taking programme and policyholder dividend policy. Participation rates applied to unrealised gains and losses for shadow accounting purposes are the same as the rates applied to consolidation adjustments for the purpose of determining deferred participation.
Deferred participation assets are tested for recoverability to ensure that the amount calculated based on the participation rates estimated as described previously and in accordance with the going concern principle, is recoverable out of future actual or unrealised participations and will not result in liability inadequacy vis-à-vis the Group’s economic obligations. Recoverability testing uses the same methods as liability adequacy testing described above.
Pursuant to the recommendation of the Conseil national de la comptabilité (French national accounting board – CNC) of 19 December 2008 concerning the recognition of
finanCial statements4 notes to the consolidated financial statements deferred participation assets in the consolidated accounts of insurance companies, the recoverability of these amounts is enhanced by the Group’s conservative assessment of its ability to continue to hold its assets, in particular no future retained fund flows has been taken into account. Moreover, the Group has demonstrated the recoverability of the deferred participation assets using unprecedented surrender rates.
Premiums, claims and technical reserves are stated before reinsurance. Ceded amounts are recognised under “Reinsurance result”.
Ceded technical reserves are tested for impairment at each period-end. If there is objective evidence that these reserves are impaired, as a result of an event that occurred after initial recognition, the carrying amount of the asset is reduced by recording an impairment loss in the income statement. For reinsurance assets secured by collateral, the estimated discounted cash flows from the asset take into account cash flows from the sale of the collateral, net of the estimated cost of obtaining execution of the guarantee, regardless of whether or not such sale is considered probable.
Financial instruments without DPF are initially recorded at fair value. The premium loading is recognised in “Revenue from other activities”.
Office systems equipment is depreciated over three years and fixtures, fittings and technical installations over 10 years.
Obligations under defined benefit plans and the related costs are measured by the projected unit credit method. The amount recognised in the balance sheet for pension obligations corresponds to the difference between the projected benefit obligation and the fair value of the plan assets.
The actuarial assumptions used to measure defined benefit obligations vary depending on economic conditions in the country in which the plan has been set up.
Obligations under early-retirement plans are measured at the discounted present value of probable future benefit payments and recognised as a liability.
Financial assistance given to employees to set up a new business or acquire an existing business is recognised in the balance sheet.
For early-retirement plans, as the duration of the benefit obligation is shorter, the discount rate is based on the yield curve at a date close to the reporting date.
Assets of funded plans are segregated and managed separately from the Group’s assets, and any funding surplus or deficit is recognised in the balance sheet.
On 19 June 2007, the Executive Board added to the programme by making 52,650 share grants representing 0.035% of the Company’s share capital at that date.
■ investment management costs include all internal and external costs of managing asset portfolios and financial expenses; ■ other underwriting costs correspond to overhead expenses that cannot be allocated rationally to the other functions; ■ non-underwriting costs correspond to costs related to businesses that have no technical link to the insurance business.
Income tax expense reported in the income statement includes both current and deferred taxes.
Deferred tax assets and liabilities are offset at the level of each taxable entity or tax group. Deferred tax assets and liabilities arising from changes in asset values and from the recognition of deferred participation are calculated and tracked separately.
Deferred tax assets are recognised for tax loss carryforwards when it is probable that sufficient taxable profit will be available to permit their realisation. Net deferred tax assets resulting from the offsetting of deferred tax assets and liabilities are recognised when sufficient taxable profit can be expected to be generated to permit their realisation. Deferred tax assets and liabilities are not discounted.
■ net profit from insurance activities: premium loading recognised on insurance products, net of commissions paid,
■ fair value adjustments on the trading portfolio (corresponding to unrealised gains and disposal gains on financial instruments recognised as at fair value through profit or loss), and
■ net capital gains on equity securities and property, after non-recurring write-downs on the portfolio and goodwill (corresponding to disposal gains on equity instruments classified as available-for-sale financial assets and writedowns on financial instruments and property assets); ■ equity: equity under IFRS, broken out by reportable segment and based on each segment’s average regulatory solvency capital,
■ a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability.
finanCial statements4 notes to the consolidated financial statements ll NoTe 4 share capital 4.1 UNdAtEd dEEPly-SUboRdINAtEd NotES REClASSIfIEd IN EqUIty
Interest rate Currency Amounts deeply-subordinated notes (attributable to owners of the parent) 2,143.0
CNP Assurances June 2004 Tec 10+10 bps, capped at 9% € 250.0
CNP Assurances March 2005 year EUR CMS – 2-year EUR CMS),
CNP Assurances June 2005 7% until 2009, then 10-year EUR CMS +30 bps, cap at 10 times (10year CMS – 2-year CMS), 2% floor € 75.0
CNP Assurances Dec. 2006 3-month Euribor +95 bps until 20 December 2026, then 3-month
Diluted earnings per share are calculated by dividing profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding at the balance sheet date.
The list of subsidiaries and associates is provided in Note 5.
Material transactions between the Company and consolidated subsidiaries are presented in Note 4.6.2.
finanCial statements 4 notes to the consolidated financial statements 4.6.1 Transactions with non-Group companies 4.6.1.1 TrANsACTioNs beTweeN CNP AssurANCes ANd direCT shAreholders
Employee benefits expense corresponds to the cost of Caisse des Dépôts et Consignations employees seconded to CNP Assurances.
Financial expense corresponds to the derecognition of CNP Assurances’ put option on Natixis Global Asset Management (NGAM) shares (see Note 1.4).
The total remuneration paid to the Chairman, Chief Executive Officer, the four Deputy Chief Executive Officers and the members of the Board of Directors is presented below, together with details of their remuneration by category.
■ Long-term benefits: the cumulative amounts provided for or recognised in respect of pension or other retirement benefits for the Chairman, the Chief Executive Officer and the four Deputy Chief Executive Officers total €8,793,798.
Executive Officers and the members of the Board of Directors in 2008 amounted to €4,262,342.
■ Share-based payment: no share-based payments were made in 2008 to the Chief Executive Officer, the four Deputy Chief Executive Officers or the members of the Board of Directors.
■ Long-term benefits: the cumulative amounts provided for or recognised in respect of pension or other retirement benefits for the Chairman, the Chief Executive Officer and the four Deputy Chief Executive Officers total €2,563,987.
finanCial statements 4 notes to the consolidated financial statements ll NoTe 5 scope of consolidation 5.1 CoNSolIdAtEd ComPANIES ANd PERCENtAgE of votINg RIghtS At 31 dECEmbER 2009
LA BANQUE POSTALE PRÉVOYANCE Proportionate France Insurance 50.00% 50.00% 50.00% 50.00%
CNP SEGUROS DE VIDA Full Argentina Insurance 76.47% 76.47% 76.47% 76.47%
MARFIN INSURANCE HOLDINGS LTD Full Cyprus Insurance 50.10% 50.10% 50.10% 50.10%
BARCLAYS VIDA Y PENSIONES (2) Full Spain Insurance 50.00% 50.00% 0.00% 0.00%
UNIVERS CNP 1 FCP Full France Mutual fund 99.79% 99.79% 100.00% 100.00%
LBPAM PROFIL 50 D 5DEC Full France Mutual fund 71.24% 71.24% 80.87% 80.87%
LBPAM ACT. DIVERSIF 5DEC Full France Mutual fund 73.93% 73.93% 73.49% 73.49%
CNP ACP 10 FCP Full France Mutual fund 49.74% 49.74% 49.95% 49.95%
ECUREUIL PROFIL 90 Full France Mutual fund 54.55% 54.55% 55.22% 55.22%
VIVACCIO ACT 5DEC Full France Mutual fund 80.46% 80.46% 98.43% 98.43%
CNP ASSUR ALT. 3DEC (3) Full France Mutual fund 99.13% 99.13% 0.00% 0.00%
(1) Removed from the CNP UniCredit Vita consolidation sub-group - acquisition of minority interests by CNP Assurances. (2) Acquired on 1 September 2009. (3) Newly consolidated. (4) Sold on 17 December 2009.
5.2 ANAlySIS of thE mIh (mARfIN INSURANCE holdINgS ltd) ACqUISItIoN PRICE
Remeasured NAv at 31 december 2008 97.2 48.7 value of business in force 40.0 20.0 goodwill 85.9 5.3 ANAlySIS of thE bARClAyS vIdA y PENSIoNES ACqUISItIoN PRICE
In accordance with the timetable set out in IFRS 3, the work involved in calculating the definitive goodwill for Barclays Vida y Pensiones will be completed by 1 September 2010. The difference between the acquisition cost and the net assets acquired has been booked in goodwill at 31 December 2009.
Natixis Global Asset Management * 0 0 0 280 * Natixis Global asset Management was sold on 17 December 2009.
Natixis Global Asset Management 3,574 3,451 1,621 353 investments in associates
finanCial statements4 notes to the consolidated financial statements ll NoTe 6 segment information 6.1 bAlANCE ShEEt by bUSINESS SEgmENt At 31 dECEmbER 2009
Goodwill and value of business in force 567.0 6.5 269.7 2.5 845.7
Financial liabilities related to financial instruments (including deferred participation reserve) 156,624.1 7,328.2 551.1 164,503.4
Other liabilities 17,854.5 totAl EqUIty ANd lIAbIlItIES 301,876.7 6.2 bAlANCE ShEEt by bUSINESS SEgmENt At 31 dECEmbER 2008
Goodwill and value of business in force 537.4 96.3 247.7 0.0 881.4
Financial investments and investments in associates 216,768.7 24,366.1 12,329.4 53.6 253,517.8
finanCial statements 4 notes to the consolidated financial statements 6.3 INComE StAtEmENt by bUSINESS SEgmENt At 31 dECEmbER 2009
Net gains on equities and property (60.6) AttRIbUtAblE to owNERS of thE PARENt 1,004.1 * Related to a strengthening of technical reserves 6.4 INComE StAtEmENt by bUSINESS SEgmENt At 31 dECEmbER 2008
Adjustments relating to the deposit component of financial instruments (IAS 39)
Share in earnings of associates 29.1 Income tax expense (effective tax rate) (713.9)
Cost Amortisation Impairment losses Reversals Carrying amount value of business in force (2) 356.2 (158.3) (127.7) 0.0 70.2
(1) Prior to transition to IFRS on 1 January 2005, intangible assets were amortised under Local GAAP. (2) The amount of impairment before tax is accounted for in the income statement line item “Amortisation of value of in force business acquired”.
Cost Amortisation Impairment losses Reversals Carrying amount value of business in force 307.7 (121.3) 0.0 0.0 186.4
The recoverable amount of the CGU to which CNP UniCredit Vita has been allocated corresponds to its value in use, based on net asset value plus expected future cash flows from existing policies and new business. The value of future revenues is estimated based on the embedded value of life and investment portfolios, and new business. These are taken from the business outlook for 2010-2017, validated by management and extrapolated using a stable or decreasing growth rate for new business between 2018 and 2029, and then discounted to present value using a post-tax discount rate (between 5.4% for in-force business and 7.4% for longerterm policies). The effective interest rate of 6.5% is in line with the average weighted cost of capital.
The carrying amount was reduced to the recoverable amount as calculated at 31 December 2009. As indicated in the Group’s accounting policies, this valuation is based on the assumption that the distribution agreement will be renewed.
A 100 bps increase in the discount rate would decrease the recoverable amount by €47 million.
The recoverable amount of the CGU to which Caixa group has been allocated corresponds to its value in use, based on net asset value plus expected future cash flows from existing policies and new business. These expected future cash flows are taken from the five-year business outlook (2010-2015) validated by management and extrapolated using a stable or decreasing growth rate for new business between 2015 and 2034, and then discounted to present value using a post-tax discount rate of 12%.
Applying a range of reasonable discount rates to future cash flows does not warrant the recognition of an impairment loss.
Carrying amount at the beginning of the period 712.2 659.2 640.7
Accumulated amortisation and impairment at the end of the period (289.7) (116.9) (121.3)
It presents: ■ the gross carrying amount and accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; ■ a reconciliation of the carrying amount of investment property at the beginning and end of the period, showing
Investment property measured by the fair value model totAl INvEStmENt PRoPERty 1,284.1 1,555.8 1,499.3
Non-current assets held for sale and discontinued operations (5.2) 0.0 0.0
Post-acquisition costs included in the carrying amount of property 0.0 0.0 11.5
Net gains (losses) arising from remeasurement at fair value (40.2) (8.3) 24.5
As explained in the description of significant accounting policies, investment properties backing linked liabilities are measured at fair value, while other investment properties are measured using the cost model.
finanCial statements4 notes to the consolidated financial statements 8.2 owNER-oCCUPIEd PRoPERty owner-occupied property In € millions 31.12.2009 31.12.2008 31.12.2007
Other (including lent securities and repos) 5,836.0 (46.1) (617.7) 460.9 5,633.0
finanCial statements4 notes to the consolidated financial statements 9.1.2 investments at 31 december 2008
Other (including lent securities and repos) 5,802.0 (22.9) (529.4) 362.9 5,612.6
finanCial statements 4 notes to the consolidated financial statements 9.1.3 investments at 31 december 2007
finanCial statements4 notes to the consolidated financial statements 9.1.4 reconciliation of insurance investments in the balance sheet to investments analysed in Notes 9.1.1, 9.1.2 and 9.1.3
Balance sheet – Liabilities – Derivative instruments (negative fair value) (1,970.7) (1,268.3) (1,456.1)
Balance sheet – Assets – Insurance investments 287,077.1 253,007.7 262,565.1 9.2 mEASUREmENt of ASSEtS RECogNISEd At fAIR vAlUE
The following tables show financial assets classified as at fair value whose prices are estimated using a valuation technique.
Change in fair value through profit (2) 111.8 (39.5) 0.0 72.3
Financial liabilities at fair value through profit 0.0 0.0 0.0 0.0
(1) Includes derivative financial instruments (assets). (2) Net of deferred participation and deferred taxes but including impairment of available-for-sale financial assets. (3) Net of deferred participation and deferred taxes. (4) Disclosed at fair value.
finanCial statements 4 notes to the consolidated financial statements 9.2.2 valuation methods at 31 december 2008
Estimated market value using valuation model based on observable market inputs
Financial assets at fair value through profit (1) 50,046.3 10,091.0 219.3 60,356.7
Change in fair value through profit (2) (618.8) (553.0) 183.0 (988.8)
Change in fair value through equity (3) (1,351.7) (60.6) (63.5) (1,475.8)
Financial liabilities (unit linked) – financial instruments without DPF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.3 REPURChASE AgREEmENtS
The following table analyses the carrying amount of securities sold under repurchase agreements, by asset category and intended holding period.
The following table analyses the carrying amount of lent securities, by asset category and intended holding period.
The following table analyses derivative instruments recorded in assets (positive fair value) and in liabilities (negative fair value) by maturity.
* Mostly consists of Brazilian government bonds held by Caixa Seguros and rated below BB based on an international correlation table.
In € millions geographic area of the issuer at 31 december 2009 france germany Italy Rest of Europe USA Japan other total
Held-to-maturity investments Debt securities 249 10 42 0 0 0 909 1,210
finanCial statements 4 notes to the consolidated financial statements 9.8.2 Classification by type of asset and by geographical region at 31 december 2008
In € millions geographic area of the issuer at 31 december 2008 france germany Italy Rest of Europe USA Japan other total
In € millions geographic area of the issuer at 31 december 2007 france germany Italy Rest of Europe USA Japan other total
finanCial statements4 notes to the consolidated financial statements 9.9 foREIgN CURRENCy tRANSACtIoNS
Assets liabilities Currency to be received Currency to be delivered 9.9.3 Foreign currency transactions at 31 december 2007
Under IFRS, forward financial instruments are recognised in the balance sheet.
finanCial statements4 notes to the consolidated financial statements ll NoTe 10 analysis of insurance and financial liabilities 10.1 ANAlySIS of INSURANCE ANd fINANCIAl lIAbIlItIES
The following tables show the sub-classifications of insurance liabilities that require separate disclosure under IFRS.
■■ Liability adequacy test reserves 0.0 0.0 0.0 life technical reserves 81,069.3 75,650.3 5,419.1
finanCial statements4 notes to the consolidated financial statements 10.1.3 Analysis of insurance and financial liabilities at 31 december 2007
■■ Bonuses and rebates (including claims equalisation reserve on Group business maintained in liabilities) 33.6 32.7 0.9
■■ Liability adequacy test reserves 0.5 0.5 0.0 life technical reserves 76,346.0 71,172.8 5,173.2
Financial instruments without dPF 7,881.2 7,553.8 327.4 derivative financial instruments embedded in financial instruments with or without dPF 0.0 0.0 0.0 deferred participation reserve 8,675.0 8,675.0 0.0 totAl INSURANCE ANd fINANCIAl lIAbIlItIES 244,193.4 238,054.1 6,139.3 deferred participation asset 0.0 0.0 0.0
Net of reinsurance Reinsurance mathematical reserves at the beginning of the period 224,701.2 219,326.3 5,374.9
Non-current liabilities associated with held for sale and discontinued operations (238.2) 0.0 (0.1)
Net of reinsurance Reinsurance mathematical reserves at the beginning of the period 216,835.0 211,703.6 5,131.4
Consolidation of Marfin Insurance Holdings Ltd 467.1 467.1 0.0 mathematical reserves at the end of the period 224,701.2 219,326.3 5,374.9 10.2 ChANgE IN tEChNICAl RESERvES
This note presents changes in technical reserves by category, such as those arising from changes in the assumptions applied to measure insurance liabilities. Each change with a material impact on the consolidated financial statements is shown separately. Movements are presented before and after reinsurance.
finanCial statements4 notes to the consolidated financial statements 10.2.1.3 ChANGes iN mAThemATiCAl reserves – liFe iNsurANCe – 2007
Consolidation of CNP Vida 1,477.9 1,477.9 0.0 mathematical reserves at the end of the period 216,835.0 211,703.6 5,131.4 10.2.2 Changes in technical reserves – non-life insurance 10.2.2.1 ChANGes iN TeChNiCAl reserves – NoN-liFe iNsurANCe – 2009
Changes in scope of consolidation and changes of method 5.1 2.8 2.3
outstanding claims reserves at the end of the period 772.2 669.9 102.3
finanCial statements 4 notes to the consolidated financial statements 10.2.2.2 ChANGes iN TeChNiCAl reserves – NoN-liFe iNsurANCe – 2008
Net of reinsurance Reinsurance mathematical reserves at the beginning of the period 6,439.9 6,229.5 210.4
This note breaks down the sources of deferred participation arising from the use of shadow accounting. The amount of deferred participation calculated for each entity under shadow accounting principles is recognised either in liabilities as a deferred participation reserve, or in assets as a deferred participation asset (see Note 3.12.1). The Group recognised a deferred participation reserve amounting to €6,889.9 at 31 December 2009.
deferred participation* Amount Average rate Amount Average rate Amount Average rate Deferred participation on remeasurement at fair value through profit (5,441.1) (5,520.0) nm 1,368.4 nm Deferred participation on remeasurement at fair value recognised in equity 9,818.4 (82.8)% 2,829.7 (81.1)% 7,086.2 70.7% Deferred participation on adjustment of capitalisation reserve Deferred participation on adjustment of claims equalisation reserves 243.8 100.0% 208.4 100.0% 177.6 100.0% Deferred participation on other consolidation adjustments 2,268.7 1,663.1 42.8 * Positive and negative balances reflect positive and negative revaluation, respectively.
Deferred participation on remeasurement at fair value through profit 78.9 (6,888.4) 566.3 Deferred participation on remeasurement at fair value recognised in equity 6,988.7 (4,256.5) (3,809.7) Effect of change in recoverability rate 0.0 0.0 0.0 deferred participation at the end of the period 6,889.8 (818.7) 8,675.0 10.4 mAIN ASSUmPtIoNS
Personal risk contracts: mainly technical commitments The risk associated with these contracts is determined primarily by the insured’s age, gender, socio-professional category and job.
measurement of insurance and financial liabilities Insurance and financial liabilities are measured as follows: ■ insurance contracts are measured using the same policies as under French GAAP (or local GAAP in the case of foreign subsidiaries); ■ financial instruments with DPF are measured in accordance with local GAAP; ■ financial instruments without DPF are measured at fair value.
The following table shows changes in financial liabilities related to unit-linked contracts.
(+/-) Consolidation of Barclays Vida y Pensiones 237.2 237.2 tEChNICAl RESERvES At thE ENd of thE PERIod* 31,441.6 31,421.1 * Not including unit-linked financial instruments without DPF, accounted for in accordance with IAS 39. The table below reconciles the amounts shown in the above tables to unit-linked liabilities reported in the balance sheet.
(+/-) Consolidation of Marfin Insurance Holdings Ltd 361.3 361.3 tEChNICAl RESERvES At thE ENd of thE PERIod* 27,797.8 27,777.3 * Not including unit-linked financial instruments without DPF, accounted for in accordance with IAS 39. The table below reconciles the amounts shown in the above tables to unit-linked liabilities reported in the balance sheet.
(+/-) Consolidation of CNP Vida 507.3 507.3 tEChNICAl RESERvES At thE ENd of thE PERIod* 34,141.8 34,141.8 * Not including unit-linked financial instruments without DPF, accounted for in accordance with IAS 39. The table below reconciles the amounts shown in the above tables to unit-linked liabilities reported in the balance sheet.
Changes in financial liabilities – unit-linked other than IAS 39 31,441.6 27,797.8 34,141.8
finanCial statements4 notes to the consolidated financial statements 10.6 CREdIt RISk oN REINSUREd bUSINESS
a) Excess-of-loss contracts have been placed with reinsurers who are rated between A-and AAA; b) For quota-share treaties where the asset is not held by CNP Assurances, the breakdown of ceded insurance liabilities by reinsurer is as follows.
totAl 6,879.4 10.6.2 Credit risk on reinsured business at 31 december 2008 31.12.2008 Credit rating Ceded technical reserves
finanCial statements 4 notes to the consolidated financial statements 10.7 SUboRdINAtEd dEbt
Subordinated notes issued by CNP Assurances with a carrying amount of €403 million matured in May 2009.
finanCial statements4 notes to the consolidated financial statements 10.7.2 subordinated debt at 31 december 2008
CNP UniCredit Vita Oct. 2003 6-month Euribor * The fair value of financial liabilities (IAS 39) is disclosed in accordance with IFRS 7. If subordinated debt had been measured at fair value through profit instead of at amortised cost, the impact would have been €224 million at 31 December 2008. The fair values of unit-linked liabilities are presented in Note 10.5. The fair values of financial instruments without DPF (Note 10.1) are not presented as the amounts involved are not material. IFRS 7 includes certain exemptions from the requirement to disclose the fair values of financial instruments with DPF. The Group considers that it fulfils the exemption criteria, particularly in light of the work underway in connection with IFRS 4, Phase 2, regarding the fair value of these instruments.
finanCial statements 4 notes to the consolidated financial statements 10.7.3 subordinated debt at 31 december 2007
Interest rate Currency Amounts due within 1 year due in 1 to 5 years due in 5 to 10 years due in 10 to 15 years due beyond 15 years Undated fair value*
CNP UniCredit Vita Oct. 2003 6-month Euribor * The fair value of financial liabilities (IAS 39) is disclosed in accordance with IFRS 7. The fair values of unit-linked liabilities are presented in Note 10.5. The fair values of financial instruments without DPF (Note 10.1) are not presented as the amounts involved are not material. IFRS 7 includes certain exemptions from the requirement to disclose the fair values of financial instruments with DPF. The Group considers that it fulfils the exemption criteria, particularly in light of the work underway in connection with IFRS 4, Phase 2, regarding the fair value of these instruments.
This note discloses details of insurance and reinsurance receivables at 31 December 2009, 2008 and 2007: Earned premiums not yet written 2,406.9 2,830.2 2,717.7
In € millions due within 1 year due in 1 to 5 years due beyond 5 years
This note discloses details of insurance and reinsurance receivables at 31 December 2009, 2008 and 2007: Cash deposits received from reinsurers 244.9 228.3 340.9
finanCial statements 4 notes to the consolidated financial statements 14.3 EmPloyEE bENEfItS – IAS 19 14.3.1 main assumptions disCouNT rATe
The discount rate is based on the French government bond (OAT) rate.
liability recognised in the balance sheet – defined benefit plans 80.5 61.1 50.4
Other long-term benefit obligations* 18.6 16.0 12.3 o/w length-of-service and jubilee awards 16.6 13.1 11.6
Total liability recognised in the balance sheet for long-term benefit obligations 131.3 106.8 89.5 * Employee benefits include early retirement plans and all defined contribution plans booked by French subsidiaries and other benefit plan obligations carried on the books of foreign subsidiaries.
finanCial statements4 notes to the consolidated financial statements 14.3.3 Analysis of cost of benefit obligations
(1) Net plan assets/(liabilities) carried in the balance sheet at 1 January for defined benefit plans. (2) Translation differences on the recognition of Brazilian pension obligations. (3) Pension (charges)/revenue arising from defined benefit plans (see point (7) in the previous table). (4) Management fees paid on plan assets.
finanCial statements 4 notes to the consolidated financial statements 14.3.5 Change in actuarial gains
Actuarial gains and losses on employee benefits recognised in the balance sheet 4.3 9.2 2.4
Actuarial gains and losses recognised in equity at the end of the period 16.2 11.8 2.6 ll NoTe 15 Revenue Revenue comprises: ■ earned premiums; ■ premium loading on financial instruments without DPF, reported under “Revenue from other activities”.
On net assets 27.2 36.7 40.2 15.2 RECoNCIlIAtIoN to REPoRtEd REvENUE
finanCial statements4 notes to the consolidated financial statements ll NoTe 16 claims and benefit expenses This note shows assets, liabilities, income and expenses generated by insurance contracts.
Credited interest and policyholder dividends included in paid benefits (14.3) (28.9) 4.2
Claims and benefits expenses 42,295.2 21,086.4 37,168.8 ll NoTe 17 administrative expenses and business acquisition costs 17.1 ExPENSES ANAlySEd by fUNCtIoN
finanCial statements 4 notes to the consolidated financial statements 17.2 ExPENSES ANAlySEd by NAtURE
finanCial statements4 notes to the consolidated financial statements ll NoTe 18 Reinsurance result
Net income from available-for-sale financial assets 8,804.4 6,367.9 8,756.3 held-to-maturity investments
Net income from investment property 448.5 180.6 251.5 other investment expenses (346.2) (375.2) (426.0)
totAl INvEStmENt INComE (ExPENSE) NEt of fINANCE CoStS 14,590.6 (2,809.3) 10,791.8
Investment and other financial expenses, excluding finance costs (515.7) (559.0) (597.1)
The following tables show fair value adjustments to assets in 2009, 2008 and 2007.
finanCial statements 4 notes to the consolidated financial statements 19.2.2 Fair value adjustments to assets - 2008
finanCial statements4 notes to the consolidated financial statements 19.2.3 Fair value adjustments to assets - 2007
held-to-maturity investments (20.4) (30.6) 0.0 loans and receivables 0.0 0.0 0.0 total impairment expense (599.8) (3,356.8) (120.5)
Other (including mutual fund units) 19.8 197.1 11.3 held-to-maturity investments 0.0 0.0 0.0 loans and receivables 0.0 0.0 0.0 total impairment reversals 405.3 342.4 138.2
Shadow accounting adjustments to items recognised directly in equity 0.0 0.0 0.0
The following tables show the nominal amount of caps and floors by strike price and remaining term at 31 December 2009, 2008 and 2007.
Residual life 1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years total 21.1.2 Caps and Floors at 31 december 2008
Residual life 1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years total 21.1.3 Caps and Floors at 31 december 2007
Residual life 1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years total
This note shows effective interest rates on fixed-rate bonds and zero coupon bonds at the balance sheet date and the purchase date.
Fixed rate debt securities euro euro real euro euro 31.12.2007 france Italy brazil Portugal Spain
Index-linked fixed rate bonds 37.4 399.3 1,020.2 953.8 25.9 7,284.9 9,721.5 21.3.2 Carrying amounts by maturity at 31 december 2008
In € millions 31.12.2008 type of instrument due within 1 year due in 1 to 2 years due in 2 to 3 years due in 3 to 4 years due in 4 to 5 years beyond 5 years total
Index-linked fixed rate bonds 990.3 38.8 395.2 985.8 931.6 6,431.4 9,773.1 21.3.3 Carrying amounts by maturity at 31 december 2007
Index-linked fixed rate bonds 1.6 1.4 2.2 0.1 0.0 41.2 46.5
21.5.1 Average remaining life of securities – 31 december 2009 france Italy brazil Spain 21.5.2 Average remaining life of securities – 31 december 2008 france Italy brazil Portugal Spain 21.5.3 Average remaining life of securities – 31 december 2007 france Italy brazil Portugal Spain
(1) Corresponds to technical reserves for life insurance contracts without a guaranteed yield. (2) Technical reserves for contracts with a guaranteed yield of more than 4.5% mainly concern Caixa Seguros in Brazil, where bond rates are above 10% (see Note 21.2). (3) Comprises all other technical reserves, except for mathematical reserves and liabilities relating to unit-linked contracts, i.e. non-life technical reserves, policyholder surplus reserves and claims reserves.
finanCial statements4 notes to the consolidated financial statements guaranteed yield technical reserves
The total of these projections is higher than the liabilities reported in the balance sheet because the cash flows are capitalised.
Insurance and financial liabilities (incl. unit-linked) 14,349.0 72,657.1 56,077.0 51,159.5 166,695.3
Contracts with an immediate surrender option represented a total liability of €235.5 billion at 31 December 2009 (€216 billion at 31 December 2008). This amount, corresponding to insurance and financial liabilities recognised in the balance sheet, relates to products with a clause allowing for their surrender or transfer by the policyholder.
Loan insurance products, group personal risk products, certain annuity products and “Madelin Act” pension products do not include a surrender or transfer option.
The maximum surrender risk indicated above does not take into account the behaviour of policyholders, who tend to significantly extend the effective duration of their contracts, as reflected in Note 23.2 – Payment projections by maturity.
Total assets held to cover linked liabilities – carrying amount 36,584.7 33,776.4 41,509.5
Linked liabilities – insurance contracts and financial instruments with DPF (other than guaranteed capital reserves) 27,135.6 23,094.7 27,306.0
finanCial statements 4 notes to the consolidated financial statements ll NoTe 25 Risk management 25.1 CREdIt RISk
The credit risk management strategy approved by the Executive Committee consists of holding investment grade securities and diversifying bond portfolios to avoid concentrations of credit risks by issuer or geographic area.