The Shareholder and Financial Information sections offer downloadable information in French and English, including: ■ Share price ■ Key figures ■ Financial press releases ■ Annual and interim reports ■ Analyst presentations ■ A summary of the Annual General Meeting
Publications for shareholders The annual and interim reports are available on request in French and English. Other specialised publications are also produced for shareholders, in French only, including a guide to general meetings, a quarterly shareholders’ newsletter and a shareholder guide.
De si gn a nd p ro du ct io n: – Il lu st ra tio ns : A
Message from Edmond Alphandéry Chairman of the Supervisory Board 4 Executive Board
Interview with Gilles Benoist President of the Executive Board 6 Key figures 11 Insurance, a business rooted in sustainability 12 Diligent corporate governance 14 Efficient asset/liability management, one of the keys to sustainable growth 19 Commitments and risks identified more clearly 22 Human resources policies in line with the principles of corporate social responsibility 29 Attentively managing policyholder relations 35 A responsible corporate citizen playing an active role in society 38 Nurturing shareholder relations 43 An original business model serving individual and group insurance clients 44 Personal insurance in France, another year of strong growth 48 CNP Assurances, a bancassurer and a group insurer 50 Insurance products offered through more than 20,000 sales outlets in France 52 Protecting people with a full range of insurance products 59 Group insurance, leveraging recognised expertise 63 International ambitions focusing on Europe 64 A year of international growth 70 Glossary 73 Financial report
Beginning with the first release in 1993, the five films in the CNP Assurances advertising saga have successfully created our communications territory and established our advertising style, depicting scenes from everyday life in a way that is both entertaining and moving. Linked by a common thread, the different episodes have instilled a stable image and corporate identity in the minds of the public, contributing actively to building CNP’s brand equity.
Scenario: creation of a new life at five different epochs, from the end of the 19th century to the eve of the third millennium.
Scenario: Moments in the life of several generations, throughout the seasons under the protective shade of a tree.
At the Top Com 2005 awards ceremony on 10 February, CNP Assurances, France’s leading personal insurer, won First Prize in the multimedia category for its interactive documentary “Une saga dans l’histoire, l’histoire d’une saga”, showcasing its advertising heritage.
Produced by PROD Interactive, creator of broadband content, the documentary provides an opportunity to revisit the five films in the saga.
In France, our products are distributed primarily through the networks of our two partners, the French Post Office and the Savings Banks, together representing over 20,000 sales outlets, and also through our CNP Trésor insurance advisors. In group insurance, we have forged close ties with 250 financial institutions of all sizes, over one thousand companies, large mutual insurers, numerous local authorities and associations, and the Casino Group.
Outside France, our presence is growing steadily. We have operations in Brazil, Portugal and Argentina, and at the end of 2004 we announced the acquisition of a subsidiary in Italy. Our Madrid and Milan branches offer partnerships in loan insurance, and we are accompanying clients under the EU freedom to provide services directive, in Spain, Italy, Belgium and Portugal. Lastly, we are also in the process of entering the Chinese market.
The French personal insurance market expanded by a strong 13% in 2004, to €117 billion. This was the first year of double-digit growth since 2000, reflecting growing public awareness of the compelling need to put money aside for retirement. Improving stock market conditions combined with rock-bottom interest rates fuelled renewed interest in unit-linked products.
Our excellent stock market performance since the IPO reflects market recognition of the quality of our management and strategic choices. Investors who have stayed with us since the IPO have seen the value of their investment increase by some 250% in the space of seven years. In 2004 alone, the share price gained 27.7% compared with just 7.6% for the DJ Eurostoxx Insurance index and 7.4% for the CAC 40. The dividend yield has also remained very high.
What were the reasons behind the French personal insurance market’s robust performance in 2004?
The personal insurance market grew 13% in 2004 and the savings market expanded at a similar rate. There were three main reasons for this exceptionally strong performance compared with previous years: ■ Transfers from Livret A passbook savings accounts increased, following the reduction in the interest rate on these accounts in 2003. ■ The stock market recovery fuelled strong 35% growth in sales of unit-linked products. ■ Lastly, the 2004 launch of the new pension products created by the “Fillon” Pensions Reform Act encouraged consumers to give more thought to their retirement income and to invest more in long-term savings products, including the new Perp products and life insurance.
Why did CNP’s business grow at a slower rate than the market?
You have recently acquired Fineco Vita in Italy. What is your strategy for this business?
We completed the Fineco Vita acquisition on 17 February 2005, acquiring 57.5% of its capital from the Capitalia Group, which has retained just under 39%. The business represents a perfect extension of our French business model. The transaction enables us to return to the Italian market, which we left at the end of 2002 when we sold our interest in Carivita. We believe that Italy has significant growth potential and offers us an opportunity to deploy our expertise. 2005 will be devoted to taking over management control of the company and introducing a combined unitlinked /non-unit-linked offer. Later on, we plan to launch other offers, such as loan insurance and personal risk insurance, to gradually increase Fineco Vita’s share of the personal insurance market.
Operating profit rose 12.4% to €1,138.5 million. The effective tax rate increased to 31% from 29%, due mainly to the abolition of the avoir fiscal tax credit on French source dividends. As a result, net profit increased by a smaller 8% to €629.3 million. Caixa Seguros (Brazil) made a positive contribution of €24.5 million before financing costs.
* The Personal Risk segment includes loan insurance and health insurance.
up 8.5% in 2004 up 10.1% in 2004 up 7.3% in 2004
This good performance reflects increases in NAV and in the value of in-force business.
Assets under management at 31 December 2004 totalled €170,994 million at book value, an increase of 9.3% over the year-earlier figure. The portfolio’s market value at that date was €12,777 million higher, at €183,771 million.
CNP Assurances publishes embedded value and new business figures in line with its commitment to offering shareholders and partners clear and detailed financial information. Embedded value reflects both revalued net assets and the discounted present value of future earnings streams from in-force business, less solvency margin carrying cost. We also disclose the main assumptions underpinning the calculation and sensitivity of embedded value to changes in these assumptions.
Embedded value net of dividends at 31 December 2004, after deducting the €1,395 million solvency margin carrying cost, amounted to €6,941 million or €50.1 per share. This represented an increase of 10.1% compared with €45.5 at the previous year-end. This good performance reflects the increase in adjusted NAV to €42.3 per share, and growth in in-force business to €1,077 million or €7.8 per share versus €7.6 in 2003.
NAV per share after dividends at 31 December 2004 stood at €42.6, an increase of 11.5% over the year-earlier figure. Shareholders’ equity increased to €35.4 per share and unrealised gains on equities climbed to €7.2 per share, reflecting the combined effects of improved stock market conditions and lower interest rates.
a series of regulations and ethical rules designed to prevent management risks that could endanger a company’s long-term survival, promote greater transparency and increase management accountability.
CNP Assurances has a twotier management structure, comprising a Supervisory Board and an Executive Board. The clear segregation of powers between the five-member Executive Board, responsible for the day-to-day management of the business, and the 17-member Supervisory Board, which acts in a stewardship role, ensures that shareholders’ interests are fully protected.
The Remunerations and Nominations Committee makes recommendations to the Supervisory Board concerning the choice of candidates for appointment to the Executive Board and Supervisory Board, the choice of President of the Executive Board and Chairman of the Supervisory Board, and the remuneration to be paid to the members of both Boards.
Members Caisse des Dépôts represented by Francis Mayer Étienne Bertier Jérôme Gallot Dominique Marcel Jean-Pierre Menanteau Sopassure, represented by Marc-André Feffer Charles Milhaud Nicolas Mérindol Patrick Werner The French State represented by Denis Samuel-Lajeunesse, Philippe Baumlin Antonio Borges Henri Proglio*
Works Council representatives Frédéric Balaye Sébastien Fournier Agnès Fraizy André Daudet * Subject to approval at the 7 June 2005 Annual General Meeting.
Members Xavier Larnaudie-Eiffel, International Operations Antoine Lissowski, Finance for more details
Gérard Ménéroud, Development and Partnerships Jean-Pierre Walbaum, Management and Innovation 13Applying the principles of sustainable growth
Remunerations and Nominations Committee Edmond Alphandéry, Chairman Jean-Paul Bailly Francis Mayer Charles Milhaud
At CNP Assurances, we have chosen to break down assets into around 50 portfolios, each corresponding to a different type of commitment. This approach enables us to perform detailed asset/liability analyses, implement custom-fitted investment strategies and closely track yields and risks on a portfolio-by-portfolio basis.
Our asset/liability management processes aim to generate competitive yields, while ensuring that we are capable at all times of fulfilling our commitments and that risks are properly managed.
Our expertise and disciplined approach to asset/liability management provided us with a high level of resistance to the sharp fall in share prices in the period 2001-2003.
CNP Assurances has recently completed several subordinated debt issues. In June and September 2004, two junior subordinated bond issues were carried out for a total of €300 million, making CNP the first French insurance company to issue “Titres Super Subordonnés” – ranked as Tier 1 capital under banking regulations – through the legal framework set up by the Loi de Sécurité Financière of 1 August 2003. The floating rate bonds are undated and are junior to all other subordinated bond issues. In November 2004, Ecureuil Vie issued €183 million worth of subordinated debt. In March 2005, CNP carried out a third €250 million junior subordinated bond issue at a particularly low interest rate of Euribor +45 bps. As of 31 March 2005, the Group’s total subordinated debt amounted to €2,385 million, raised at an average cost of 4.61% including transaction fees. CNP Assurances does not have any other debt.
In the case of an abrupt surge in interest rates, yields on fixed rate bond portfolios may be too low compared with the yields obtainable on the market, leading to an increase in surrender rates that obliges the insurer to sell assets at a loss. Simulations are also performed to assess the impact of this type of scenario.
Each year since the IPO, we have disclosed full details of the breakdown of liabilities.
These simulations model the exact characteristics of liabilities and the related assets, using policyholder behaviour assumptions. Simulations are performed for different financial scenarios.
In the case of a steep fall in interest rates, the actual portfolio yield may be less than the promised yield. To manage this risk, since 1992 we have set a cap on the amount and duration of the yield guarantees offered to policyholders.
Amount at Breakdown at Amount at Breakdown at In € millions 31/12/2004 31/12/2004 31/12/1997 31/12/1997
Guaranteed rate contracts (less than 8 years) < 60% of TME(1) 71,112.3 42.5% 27,516.3 33.3%
■ Policy terms (investment period, surrender option, guaranteed yield) are crafted to improve the insurer’s visibility of future risk. ■ Reserves and unrealized gains are accumulated to cover the effects of a fall in equity prices.
Type of portfolio Equities weighting Proprietary portfolios + + + Pension portfolios + + Savings portfolios with a low guaranteed yield + Savings portfolios with a high guaranteed yield – Average, all portfolios 12.8%
Over a long period, the total yield on an investment in equities (dividends and appreciation) is generally greater than that generated by an investment in bonds.
However, the higher yield comes at the cost of higher volatility, which could potentially impact the insurer’s ability to fulfil its commitments. With non-unitlinked products, policyholders have a capital guarantee and, in many cases, a yield guarantee, and they also have a surrender option. In addition, the insurer runs the risk of incurring losses on its proprietary portfolios.
Projected asset yield over 10 years with reinvestment in fixed rate bonds at 1 or 2% as from 2006 in a stable stock market environment (in-force business at end-2004, CNP Group on a 100% basis)
In 2004, French insurers through their industry federation – FFSA – promised the Minister of the Economy and Finance that they would considerably step up their investment in private equity. We have been investing in this class of assets for some ten years and since the beginning of 2004, we have significantly increased the portfolio weighting of private equity funds to 3.5% of the total equity portfolio (at book value, excluding unit-linked).
Breakdown of the bond portfolio by rating (excluding Brazil) at 31 December 2004
■ Available for Sale securities, which are measured at fair value with gains and losses arising from remeasurement at fair value recorded in equity.
Short-term portfolios, representing some €6 billion, are managed directly, while most long-term portfolios are managed under contract by Ixis AM, based on the investment strategies decided by CNP Assurances for each insurance fund. More than two-thirds of the equity portfolio is purchased directly on the market and managed by Ixis AM, while less than one-third is invested in equity funds, some of which are managed by other managers. The funds included in the unit-linked contracts sold by the two distribution networks, the Post Office and the Savings Banks, are managed by Sogéposte and Ecureuil Gestion and represent a total of some €12 billion. CNP Assurances regularly organises competitive bidding processes for the creation of dedicated funds invested in specific asset classes such as corporate bonds and hedge funds.
Based on the guidelines drawn up by CNP Assurances, Ixis AM incorporates sustainable development criteria in its analyses, using internally-developed information such as rating grids, questionnaires, interviews, analyses of non-financial data, and information obtained externally, from sustainable development and social responsibility rating agencies, consultants, specialised websites and reviews, and NGOs.
We offer ethical investments to our group insurance clients, while the unit-linked products sold by our partner networks to individual clients include SRI funds. In 2004, assets under management in SRI portfolios totalled €56.7 million (including €27.2 million in unit-linked accounts), an increase of 40% over €40.4 million in 2003 (with €24.4 million in unit-linked). A certain proportion of our proprietary portfolio is also invested in SRI funds. Our aim is primarily to support community programmes; for example, in November 2004, Ecureuil Gestion invested €10 million in the Insertion Emploi fund which finances initiatives to help the unemployed rejoin the job market.
At the end of 2002, we implemented a risk management approach by business line and just under a year later, in the autumn of 2003, we launched a twoyear strategic project to implement a process-based approach. Combining these two approaches should ensure that all of our material risk exposures are fully covered.
Process modelling is an essential first step to clearly identifying and assessing risks, and determining the required level of control. The first phase of the modelling exercise consists of describing the sequence of activities within each process, defining the objectives of each activity, and identifying the main players as well as the process input and output data. The second phase is to identify and assess the risks associated with each step in the process, identify and assess existing controls, and then assess the residual risk.
Our business model is built around 15 mega processes, which each break down into 51 major processes.
We have responded by launching a risk mapping and process modelling project to support our integrated risk management policy.
The approach by business line will be extended to all consolidated companies by the end of this year. We began by identifying risks, analysing their impact and evaluating the effectiveness of existing controls, in order to set up a consolidated monitoring and control system backed up, where necessary, by risk reduction plans.
Each risk is measured in terms of its potential impact in the absence of any controls, and of the effectiveness of existing controls in preventing the occurrence of risk or limiting its impact. Common risk measures are used to guarantee consistency.
We have set up an anti-money laundering structure with representatives in all units that are exposed to the risk of attempts to use the insurance system to launder the proceeds of crime and finance terrorist organisations. We exercise permanent vigilance, with procedures in place throughout the organisation to detect any suspect transactions, along with specific warning indicators. Second-tier ex-post controls are also performed to identify any suspect transactions that may have slipped through the net during first-tier controls. All staff are given up-to-date information on the system and applicable procedures, and employees at the front line in the fight against money laundering receive specific training. Lastly, a specific reporting system has been set up to keep the Executive Board regularly informed about the effectiveness of the entire system.
Poor control of a low risk Poor control of a high risk
Detailed analyses – launched during 2004 Aim: to prepare the transition to IFRS, in particular by adapting information systems.
Our remuneration policy is designed to encourage loyalty and reward commitment. In addition to base salary, employees receive a statutory profit-sharing bonus and an incentive bonus, which together represented on average the equivalent of 1.5 month’s salary in 2004.
In 2004, spending on welfare facilities and leisure activities for employees represented 1.56% of the total payroll.
A new dedicated sales force has been set up to serve policyholders who purchased their contract from the former French Treasury network. During 2004, 180 former French Treasury employees were hired to create the backbone of the new sales force, supported by CNP Assurances employees transferred from other departments and external hires. At 31 December 2004, the total sales force comprised 247 people. Deployed throughout France, they review clients’ asset management and insurance needs,
■ Number of employees outside France: 1,092, mainly in Brazil and Portugal
Men: 37.5% ■ Management grade staff: 46%, non-management grade: 54% ■ Average years’ of service: 12 years; average age: 41.7 years ■ 2004 staff turnover rate: 2.34% ■ Absenteeism rate: 4.9% all causes; 3.6% excluding maternity leave.
generally during one-to-one meetings, and advise them on the best solutions, in line with our high service quality standards.
To take into account the fact that these employees spend the better part of their time on the road, in 2004 we negotiated an addendum to the 2001 working hours agreement covering their specific situation. We also worked throughout the year with employee representatives, through a specific Works Council committee, to facilitate the integration of the CNP Trésor team within our organisation.
The inclusion of these employees has strengthened our sales and marketing capability, serving partners and clients alike.
Hiring policies are driven by the selective recruitment of talented people to support our business development (for example, experienced salespersons) or to sharpen our technical capabilities (in such areas as finance, accounting, actuarial analysis and management). These policies also help to introduce diversity and balance the age pyramid.
Our business model requires a variety of different skill sets. The product offer is designed and distributed by our teams of actuaries and statisticians and sales and marketing personnel. Our finance team is responsible for financial management, while individual and group policies are managed by our more than 1,000 policy administration employees. Information systems are maintained and developed by our information systems team.
Breakdown of employees by discipline, 2004 Actuaries/statisticians 87 Finance 260 Policy administration 1,002 Sales and marketing 490 Information systems (excluding GIP) 220 Corporate functions 762 Total 2,821
France 2,821 International subsidiaries Brazil 690 Portugal 339 Argentina 36 Other countries – China 15 International branches Spain 8 Italy 4 23Applying the principles of sustainable growth
This approach benefits both managers and employees: ■ Managers find it easier to identify and develop individual team members’ capabilities.
The approach was initially tested among individual policy administration teams, focusing on administration and call centre staff who represent roughly 15% of our total workforce. By including a skills assessment in their annual performance appraisals, we were able to ascertain their level of competence and identify any skills to be developed on a priority basis. The results of the assessments were then used to draw up personalised training plans. We are now planning to roll out the approach to the entire organisation in 2005.
In 2003, 81.5% of employees had formal performance appraisal meetings with their superior. In 2004, some 1,000 career interviews were carried out – half of which concerned managers – for just over 500 employees. In all, one employee in five (excluding CNP Trésor) met with a member of Human Resources to discuss their future with the Group. These meetings provide an opportunity to inform, advise and guide employees in developing and implementing a career plan.
In 2004, a total of 354 permanent positions (excluding for the new CNP Trésor sales force) were opened to external candidates. They included positions in policy administration, finance and accounting – especially for IFRS specialists – actuaries and management accountants.
The number of staff taken on under fixed-term contracts is limited. Most contracts are for periods of three to six months, with around half in policy administration.
Our focus on promoting from within as the preferred method of filling vacant positions and the 50% increase in annual spending on training for high potential managers reflect a wider human resources strategy designed to ensure that all employees enjoy the finest skills development opportunities. In 2004, more than 45% of vacant positions – excluding CNP Trésor – were filled by current employees (including civil servants seconded to the Group). In addition, almost 6% of the workforce transferred to new positions within the organisation, in order to extend their experience and acquire new capabilities.
To strengthen this dynamic, in 2004 we implemented a skills management strategy to keep pace with the changing needs of our business, identify critical skills available within the organisation, increase opportunities for employees to transfer to new positions in order to extend their experience, and make career paths easier to track.
These sales people spend a lot of their time on the road, and we therefore also considered it important to improve their driving skills. One-day sessions were held at specialised regional driving centres, to help them identify the risks of accidents associated with their driving habits. They were then asked to drive round a circuit, to see for themselves the faults they needed to correct to limit these risks. A total of 239 employees took part in these sessions.
In 2004, we set up a Policy Administration Institute for employees responsible for administering policies and managing client relationships. The aim of the Institute is to promote the transfer of expertise in client relationship management, insurance techniques, tax and legal issues.
The corporate agreement for the period 2003-2005 includes an early-retirement plan for employees over 55 who fulfil certain criteria.
The agreement also includes special measures to enhance motivation among employees over 50. A study has been carried out of employees in the 45-55 age group, to better understand their aspirations and plans, as well as any difficulties they may be facing in their jobs. The findings of the study have been used to draw up an action plan.
last year provided a new opportunity to put the mobility policy into practice, by allowing a dozen managers to join our new Italian subsidiary and acquire international experience.
■ The Investment Advisor module, covering product information and selling techniques.
When promotions were decided in 2004, particular attention was paid to the situation of employees over 50. The Human Resources department interviewed 78 employees over 50 and 105 employees over 45 (representing 21% of all employees interviewed), to advise them on internal transfer opportunities allowing them to take their career in a new direction. Seventeen of these employees subsequently accepted transfers and 6% of them underwent skill reviews with a view to being retrained or given coaching.
26 Applying the principles of sustainable growth 65 years and over
Our human resources management policies are designed to meet the needs of the business over the medium to long-term. For several years now, we have been using human resources forecasting techniques, covering both the number of employees and the types of skills that will be needed.
A total of ten people with disabilities were hired during the last three years and the same target has been set in the 20042007 agreement. We currently have 42 disabled employees.
In 2005, a survey of working conditions for older employees will be carried out. In addition, help will be given to employees who want to obtain formal recognition of the skills they have acquired in order to take advantage of new training opportunities. Along the same lines, employees aged 45 and over will be offered the opportunity to hone their professional skills to ensure that they retain their employability.
We have a long tradition of consulting employees and social dialogue is one of the lynchpins of our human resources policy. Employee representation is organised to take account of the presence within the organisation of direct employees and civil servants seconded to the Group. ■ The Works Council representing CNP Assurances employees held 16 meetings in 2004. ■ Employee delegates representing CNP Assurances employees and civil servants seconded to the Group held 12 meetings during the year.
Each year, a large number of agreements are negotiated and signed with employee representatives. Agreements signed in 2004 concerned the government decision to abolish one bank holiday, the international employee share ownership plan and other matters. In the benchmarking data published regularly by specialised consultants, CNP Assurances consistently ranks among the top ten companies for employee benefits.
In the area of gender equality, our policies are based on an agreement that is designed to ensure that men and women have equal opportunities in terms of hiring, remuneration, promotion and access to training. Specific negotiations were launched at the end of 2004 in this area.
We have built a datawarehouse to store all insurance data in a standard format, for use by each business line’s applications. At the same time, steps have been taken to enhance data reliability. The information includes full product details and a comprehensive historical record of events in the life of all insurance policies, reformulated and aggregated to meet the recurring needs of the various units. The first uses of the data will be for statistical analyses, marketing and business monitoring. Used alongside management databases, the datawarehouse will deliver significant efficiency gains.
Our information systems teams have been working since mid-2003 to prepare for the transition to IFRS. The datawarehouse will provide our actuaries, accountants and investment managers with the information needed to perform the new calculations and apply the new valuation methods required to produce the IFRS accounts. Data are gradually being produced for input in the new account conversion application for the insurance products that are subject to different accounting treatment as from 1 January 2005. Everything must be ready for the 30 June 2005 accounts closing, when the first full set of IFRS financial statements will be published.
■ Electronic storage of all written and oral communications involving beneficiaries, notaries, the distribution network, the tax authorities, etc.
This system improves the quality of services to beneficiaries in a stressful period when they need all the help they can get. At the same time, our enhanced responsiveness helps to raise the capital reinvestment rate.
A commitment shared by all client relationship and information systems teams in Angers, Arcueil and Paris.
our goal of creating a paperless environment. Other applications will be launched over time, using a process-based approach to unite a succession of administrative tasks. For example, in November 2004 an integrated process was set up for the new Protectys Autonomie product launched by the French Post Office and the death benefit settlement application was integrated in the new system in February of this year.
Policyholder services encompass the administration of contracts, policyholder and beneficiary services, distribution network assistance, and client advice and communications. More than 170 types of contracts are managed, in partnership with a growing number of players, while relations with CNP Trésor clients are managed directly.
In 2004, we installed middleware establishing a standard link between policy administration systems and our own workstations as well as those of our partners. When they log onto their computers, client relationship managers now have immediate access to all applications, without having to connect up separately to each different system, a userfriendly solution that helps to save time. The applications include a “Tell me” knowledge management base, representing a single source of information on products, legal and tax issues and management procedures. The rollout of this insurance workstation represents a major advance in management techniques, allowing a more intuitive approach to managing files and more user-friendly screen displays. In November of last year, an electronic archiving facility was added, providing real time information about the availability of documents and document retrieval in the form of images, thereby taking us a step closer to
■ Higher quality client documents (information notice, medical questionnaires, etc.), with the guarantee of full compliance with privacy laws.
■ Higher quality insurance files, containing all necessary information and complying fully with privacy laws. ■ Real time monitoring by the bank of the status of outstanding insurance applications and claims.
The teams at the client relationship management centres in Angers, Arcueil and Paris – representing nearly one thousand people – process all transactions carried out during the life of the contract. The culture of putting the client first – which means satisfying all reasonable expectations of the insured and our partners – has led to a reorganisation of working practices. Clarification of individual roles within the process, enhanced communication with partner networks, installation of more reliable computer applications and introduction of qualitybased management systems have all contributed to firmly placing the client at centre stage.
Our client-centric policy led to the creation, in July 2003, of a dedicated consumer relations unit, which is now fully up and running. At Angers, a 28-member team processes all complaints received by mail, phone, fax or e-mail from individual clients of the French Post Office network and CNP Trésor throughout France. The aim of centralising this activity is to bring together the listening, writing and client relationship skills needed to satisfactorily settle frequently complex issues. In 2004, the team dealt with 4,000 complaints, representing a dissatisfaction rate of 0.03% for a portfolio of 12.4 million contracts. This standardised approach to complaint resolution has helped to better identify their causes, leading to a 17% reduction in the number of complaints in 2004 compared with the previous year.
As of the end of last year, our policyholder services teams managed 12.4 million individual policies.
Volumes processed in 2004 included: ■ 12.5 million management transactions (new contracts, surrenders, death benefit payments, riders, etc.).
■ More than 9 million outgoing letters, including 7 million at the beginning of the year containing information required by policyholders to fill out their tax returns.
The number of new contracts processed in 2004 rose by 47%, due mainly to the sale of some 500,000 pension contracts. These included over 300,000 Perp contracts sold to younger clients by the different networks. In addition, more than 30,000 Protectys Autonomie long-term care contracts were sold by the French Post Office network.
In 2004, we started working with new partners, including UNPMF for the Mutex Perp and Banque Casino for a savings product launched in December 2004 at the bank’s Marseilles branch. These new partnerships involved setting up operating and communication procedures to support the relationships.
Lastly, the new Partages workstation was rolled out to French post offices, enabling post office staff to process new contracts and top-up premiums immediately and issue the related paperwork during the client’s visit.
The policyholder services department has launched a quality certification process. ISO 9001 certification was recently renewed for the Crédit Agricole loan insurance acceptance process and for the department responsible for issuing tax information to policyholders at the end of each year.
An initial questionnaire was sent to clients whose complaints had been dealt with by the consumer relations department and to clients who had phoned one of the call centres. Our analysis of the completed questionnaires showed that most clients’ preferred way of having their complaint dealt with was by phone, and we have therefore set an initial target of processing at least 30% of complaints through the call centres in 2005.
The most sensitive complaints are transferred to the Mediation unit comprising a team of reviewers and an external Mediator. The task of this unit is to try to resolve disputes when all internal avenues of complaint resolution have been exhausted, with the aim of avoiding the matter being taken to court. The Mediator issues a ruling in law and in equity. Most complaints put to mediation concern group insurance contracts. Disputes with individual shareholders are handled jointly with the consumer relations unit. In 2004, the Mediation unit examined 670 complaints and issued 497 rulings, most of which were in CNP’s favour.
Lastly, the crisis management unit set up following the explosion at the AZF chemicals plant in Toulouse in 2001, was re-assembled, with additional staff, after the Sharm el Sheikh plane crash in January 2004, and again at the beginning of 2005 to help policyholders affected by the tsunami in Southeast Asia. The unit’s dedicated team is available to help victims’ relatives with the formalities to obtain contract reimbursements or settlement of guaranteed capital. Details of how to contact the unit (name of the team manager, telephone and fax numbers and e-mail address) are made available to the Ministry of Foreign Affairs crisis unit, the industry federation (FFSA) and the State department responsible for victims’ rights, which issues guidelines on the simplified procedure to be followed for people who are missing and presumed dead. Based on the list of victims issued by the public authorities, the unit launches procedures to notify beneficiaries of the existence of contracts.
At CNP, extended application of the Belorgey convention among all partners writing personal loan insurance has enabled a growing number of people to obtain insurance. Examination of insurance applications on an individual basis and recognition of medical advances has led to a threefold reduction in the loan insurance rejection rate to around 0.25%.
■ CNP Assurances must not account for more than 25% of the supplier’s turnover, to avoid any dependence risk.
■ The criteria used to assess competitive bids include environmental considerations and compliance with labour laws for the teams directly involved in delivering the service.
■ Suppliers are prohibited from outsourcing any services without obtaining CNP Assurances’ prior authorisation.
This year will be devoted to pursuing the implementation of the buying process. The purchasing leaders will take over responsibility for their respective categories, analysing current practices and determining purchasing strategies, with the aim of achieving cost savings in each category covered.
Purchases are analysed by category, such as office furniture, office supplies, office removals, hotel accommodation and outsourced services. This segmentation is then used to define buying strategies, based on category analyses, needs synergies, potential price savings and potential process cost savings.
A charter is being drawn up for suppliers, based on the principles of sustainable development. Pending finalisation of this charter, the Purchasing Coordination department is already applying the following principles: ■ CNP Assurances deals solely with suppliers that have obtained environmental certification for their manufacturing processes and also for their products (such as the PEFC label for wood).
Since 1988, we have made a sustained commitment to healthcare, providing funding through the CNP Foundation for programmes to alleviate pain and to improve pain management among patients of all ages, whether in hospitals, daytime treatment clinics or at home. The Foundation has backed 76 projects since the pain management programme was launched, representing total funding of nearly €3.8 million.
Our business of insuring people throughout their life is rooted in sustainability. We are committed to acting as a responsible corporate citizen, matching actions to words through policies that will deliver sustainable growth while ensuring that we fulfil our corporate social responsibility and also help protect the environment.
A responsible corporate citizen playing an active role in society 35Applying the principles of sustainable growth 33% Studies and clinical research 30% Information programmes for healthcare professionals and the general public 17% Improving the quality of health care 20% Development and improvement of palliative care
One project proposed by an employee that has received the backing of the CNP Foundation is Maison de la Vie Etincelle, which aims to help female cancer sufferers to regain their selfconfidence and come to terms with changes in their appearance. The house is also a place where cancer suffers can meet and provide each other with moral support in dealing with their illness. Based on their needs and concerns, women are offered free consultations and treatment from a dermatologist, a dietician, a psychologist-sexologist, a reflexologist or a beauty therapist.
Employees are also offered other opportunities to take part in our philanthropic activities. For example, we made a donation to the muscular dystrophy campaign for each employee who participated in the “Virades de l’Espoir” fund-raiser and the “Greens de l’Espoir” event. In all, we raised nearly €40,000 for this cause, making CNP Assurances the second largest corporate giver. And workplace collections raised a further €10,000 for the Téléthon.
The CNP Foundation is also actively supporting initiatives to improve the quality of care given to dependent people in their own homes and in retirement facilities, by providing funding and other assistance to Gériapa, an association set up by CNP Assurances to promote ethical practices. Gériapa has issued two sets of guidelines, for home carers and for carers working in retirement facilities, and in 2004 a procedure was developed for certifying retirement homes. The certification process should drive continuous improvement in the quality of service offered by these facilities, in line with the expectations of residents and their families. The first certificates are expected to be issued in 2005. At the same time, the CNP Foundation has stepped up the assistance given to home care associations in their NF Service certification programmes. With the CNP Foundation’s support, ten associations obtained NF Service certification in 2004.
Lastly, the CNP Foundation also supports specific initiatives, such as the project carried out by the Alma Association to combat mistreatment of the elderly, the Etablissement Français du Sang’s campaign to recruit more blood donors, and the Fondation de la Deuxième Chance’s programme to give a second chance to people who have failed in their studies or their chosen career.
In 2004, we took a more active role in encouraging employees to spread information about projects supported by the CNP Foundation and to lend their own support as well as that of people around them. Employee involvement
We do not yet have a comprehensive reporting system covering the consumption of water, energy and consumables. However, we have already adopted environmentally sound practices, including energy-saving measures and paper and waste recycling. And in 2004, we took into account sustainable development criteria when reviewing bids from furniture suppliers.
In 2004, our share price gained 27.7%, significantly outperforming the CAC 40 and DJ Eurostoxx Insurance indices, which rose 7.4% and 7.6% respectively.
In the two years from 31 December 2002 to 31 December 2004, the share price rose by 49.1%, nearly twice the increase recorded by the CAC 40 (24.7%) and DJ Eurostoxx Insurance (24.7%).
As well as publishing regular information, we also create regular opportunities to meet our private shareholders. In addition to the Annual General Meeting, which was held on 8 June last year, we organised seven regional shareholder presentations, in Bordeaux, Nice, Nancy, Tours, Lyon, Rennes and Lille.
of issued capital. As well as delivering a good stock market performance, we provide private and institutional shareholders with regular information, through meetings, publications, a dedicated section of our website, the Shareholders’
Price at 31 March 2005 €54.65 High* (16 December 2004) €58.45
CNP Assurances is included in the following stock market indices: SBF 120, Euronext 100, DJ Eurostoxx Insurance, CAC Next 20, MSCI France.
In 2004, Club members were once again offered cut-price subscriptions to financial publications. In addition, four visits to CNP Assurances forests (in the Gironde and Indre-et-Loire regions) were organised in September 2004.
Our policy towards institutional investors (companies, mutual funds, pension funds) in Europe and the United States has always been based on transparency and a constant readiness to provide the information they need.
At the key dates in the financial calendar – quarterly revenue releases, interim and annual results presentations to analysts in Paris and London – we provide detailed updates concerning our business and veys, etc.), headline news about CNP Assurances, a financial calendar and other information.
Share price and trading volumes from 31 March 2003 to 31 March 2005
Over the last two years, the CNP Assurances share price has gained 64.2%, outperforming the CAC 40 (55.4%), but underperforming the DJ Eurostoxx Insurance index (81.7%), which recovered from a very sharp drop in the period before 31 March 2003. Over the last five years, however, the CNP Assurances share price has outperformed the index, gaining 67% while the DJ Eurostoxx Insurance has lost 50%.
In the autumn of 2004, we published detailed explanatory information about the main IFRSs applicable to our business, for analysts and also for investors. Concerning the new pensions market, we published details of the new products’ characteristics and initial sales figures, for both the market and CNP Assurances, to help the financial community understand what is at stake and anticipate future developments.
These presentations, together with all of our financial disclosures to the market, are posted on our website and regularly updated. The website has been reorganised to make information on specific topics easier to find. In the Financial Information section, the “Themes” subsection contains the latest publications organised by topic (IFRS, embedded value, asset/liability management, profitability, strategy, new pension products and international development).
financial performance (results, embedded value, impact of changes in stock market conditions, etc.) and stand ready to answer questions about current issues.
Since the beginning of 2004, we have stepped up our schedule of investor roadshows in Europe and the United States. In addition to making regular presentations in France, CNP management has made around thirty trips to other European countries, including Belgium, Germany, Italy, the United Kingdom, Ireland, the Netherlands, Norway, Sweden, Denmark, Switzerland and Austria, and to the United States.
The first, carried out in June, was for employees in France.
The second, launched at the end of the year, gave employees of our subsidiaries in Argentina, Brazil and Portugal their first opportunity to become shareholders of our Company.
See p. 199 for more details 41Applying the principles of sustainable growth
Around one half of consumer savings for the year and nearly one quarter of their cumulative savings were invested in life insurance.
The insurance-based savings and pensions market grew by 13% to an estimated €104 billion (source: FFSA estimates, January 2005). The total includes the new pension products introduced in 2004.
The market was very buoyant in the first half, but lost momentum in the last six months of the year. Although savers continued to show a marked preference for non-unit-linked products, which attracted 80% of new money, improved stock market conditions fuelled a certain recovery in demand for unit-linked products; for the first time since 2001, new money invested in these products increased – by 35% (source: FFSA estimates, January 2005) – to reach €20 billion, representing nearly 20% of total new money.
17.6% of the personal insurance market 18.2% of the savings and pensions market 44 An original business model
New pension products 2004 saw a radical transformation of the French pensions market. The “Fillon” pension reform act of 21 August 2003 created the framework for new pensions offerings backed by tax incentives. These include two insurance-based product families – Perps for individuals and Peres for companies – which both function in the same way, and a third non-insurance based family – the Perco employee savings plan. At the same time, the tax rules governing the old “Article 83” contracts were amended.
After several months of awareness-raising campaigns carried out mainly by certain banking networks, including the Savings Banks, the first Perps were put on sale in April 2004, as soon as the related enabling legislation had been voted. Enabling legislation for the Percos was voted in June.
tions performed by insurance advisors at the savings banks and post offices led many clients in their late thirties and early forties, who did have any life insurance, to buy a Perp or a life insurance contract or both.
Setting up Percos takes longer, because various agreements have to be signed and the plan has to be grafted onto existing employee savings schemes. As a result, the market is not yet fully up and running, and the true level of demand will not be known until the end of this year. According to the Conseil Supérieur de la Participation, around a hundred companies have set up a Perco, covering 250,000 potential beneficiaries and representing €58 million in assets under management.
The Perp offering got off to a very good start. According to the FFSA, some 1.3 million contracts were sold in the first year, representing €500 million in managed assets. The bancassurers – including CNP Assurances and its partner networks (the Savings Banks and the French Post Office) – took nearly threequarters of the market. Pension simula-
The top ten personal insurance companies in France in 2003 – excluding reinsurance – source: FFSA, June 2004
Surrender option No surrender option. Tunnel effect Surrender option exercisable at any time
Death of the insured Choice of beneficiary during Choice of beneficiary the insured’s lifetime, and reversion option during annuity payment period
■ The annuities paid as from retirement are taxed in the same way as the basic State pension and pension benefits under government-sponsored supplementary pension schemes, and they are also subject to prélèvements sociaux surtaxes.
Savers are given added protection by the creation of an open group (known as a “Gerp”) to set up and monitor the Perp. The Gerp also permits individual transfers for greater flexibility.
Four different Perp formulas are available: two annuity products (deferred life annuity and “Article L.441” points-based annuity) and two savings products (combined unit-linked and non-unit linked and diversified non-unit-linked). Most Perps sold in the market are combined unit-linked and non-unit-linked products, with automatic adjustment of the two portfolios’ weighting as the insured moves closer to retirement age.
Promotional campaigns are developed jointly with the networks and are implemented throughout the year. Our own teams handle substantially all administrative tasks related to each contract. The file is transferred to CNP Assurances as soon as the contract is signed and we take care of all events in the contract’s life. The administrative process is managed by teams in contact with both clients and the networks, backed by integrated information systems that combine mass processing capabilities with innovation.
Based on an analysis of market needs and our Group’s strategic objectives, we develop insurance products that can be tailored to each individual client. The product offer is put together with the distribution networks, which incorporate it into their marketing policy.
Joint operating subsidiaries have been set up, such as Ecureuil Vie with Caisses d’Epargne and Assurposte with La Poste.
In the same way as for individual insurance, we are responsible for the entire management chain, from product design to the administrative and financial management of the contracts. However, in group insurance we also distribute the products directly to major clients.
With buyers of these contracts generally in their late thirties and early forties, these strong pensions sales have refreshed the client base. Ninety-five percent of sales concerned regular premium contracts.
In 2004, new money invested in products distributed by the Savings Banks network rose by 9.6% to €8,486.9 million. In the first half of the year, the network launched a major drive to promote sales of the entire pensions offering. In all, nearly 290,000 Perps were sold, with higher average monthly payments compared with the other products in the range. The average age of Perp clients was under 40, offering scope to boost sales of other Ecureuil Vie products, particularly personal risk insurance.
The upmarket Nuances Plus combined unit-linked and non-unit-linked product went from strength to strength, with new money up 73% to €1,119 million. New money invested in unit-linked products amounted to €1,501 million – versus €1,558 million in 2003 – representing 18.4% of total savings and pensions revenues.
In the personal risk segment, sales of loan insurance grew by some 11% to €290 million.
Sales by the Post Office network up by more than 12%
To ensure the broadest possible distribution of our individual insurance offer, our products are sold through post offices and savings banks located throughout France and also by our team of CNP Trésor insurance advisors.
Overall, the performance of the new sales team was highly satisfactory compared with the objectives set at the beginning of the year. CNP Trésor has amply demonstrated that it is capable of maintaining relations with policyholders and preserving the value of the insurance book, in terms of both client numbers and technical reserves.
On 13 April 2004, CNP Assurances signed a strategic agreement for the development and promotion of insurance, assistance and personal services products for customers of Casino stores in France. We have also signed a separate agreement to write loan insurance for personal loans and other credit granted by Casino’s banking subsidiary. During the year, the first Banque Casino branch, located in the Géant hypermarket in Marseilles, began selling savings products on a trial basis.
To support the strategic development of CNP Assurances and its partners, our product design teams look for solutions to help people retain a measure of independence in their sunset years, to enable savers to access new asset management styles yielding the best results in volatile stock markets, or to support a distributor ’s strategy to attract younger clients by adding personal risk or health insurance to the product line-up.
Products tailored to the needs of Caisses d’Epargne private banking clients
Nuances Plus is an upmarket combined unit-linked/non-unit-linked savings product offering a selection of 26 investment funds, including profiled funds, multi-manager funds and the “Top 10” best performing funds in the market. The minimum initial investment is set at €25,000. Marketed by investment advisors in the Savings Banks’ private banking unit, the product has been enhanced since it was first launched, with the addition of options allowing clients to optimise their investment yield through more dynamic capital management or by locking in capital gains, or to split capital and revenue rights with a different pricing scale. The flagship product in the Savings Banks’ private banking offer, Nuances Plus attracted €1,119 million in new money in 2004, an increase of 73% over the previous year. The savings offer for private banking clients was further extended at the beginning of this year, with the launch of Nuances Privilège for clients willing to make an initial investment of at least €150,000. The combination unit-linked/non-unit-linked product is backed by 80 different funds and includes numerous options tailored to the needs of private banking clients, such as discretionary asset management.
Initiatives Transmission 3,412.1 31,271.2 Initiatives Plus 211.9 2,037.1 Ecureuil Projet 142.9 4,104.0 Portuguese products 49.5 220.9 Brazilian products 113.3 260.6
They allow policyholders to build up capital which is paid out when the policy matures or upon their death if this occurs earlier. The policies are sold by insurance companies and are governed by specific income tax and inheritance tax rules. There are three main types of products.
■ Unit-linked products carry greater risks, because the entire investment risk is borne by the insured, but also potentially offer higher yields. Policyholders can choose between several different funds, including equity and bond funds, and unlisted property stocks. The number of units acquired is guaranteed, but not their value.
defined contribution plans, “Article 39” defined benefit plans, “Article 82” voluntary participation life insurance plans, and insured long-service award plans.
We also have genuine experience in managing specific pension plans, as leader of the group of insurers selected to manage the Préfon scheme for civil servants. For the self-employed, we offer “Madelin Act” pension insurance contracts, consisting of tax-deductible annuity products.
Recent innovations in the life insurance market include the new potentially taxexempt gifting products, pension products taxed as life insurance and products specially designed for more affluent savers.
Insurance-based pension products are intended to provide people with additional income in retirement, on top of their pension under the government-sponsored pay as you go scheme. For many years now, we have been offering individual annuity -based savings products taxed in the same way as life insurance. We also market a full range of group pension products, including compulsory and voluntary participation plans, “Article 83”
Main products Network Individual/ Non-unit-linked/ 2004 premium Managed Group unit-linked income in €M assets in €M
The CNP Trésor insurance advisors sold more than 300 Perps in the period following the product’s September launch.
It is still too early to assess demand for the new group pension products, because the enabling legislation was voted later than for individual products and group contracts take longer to set up. However, we believe that the fourth quarter performance of our group pensions business was boosted by the new, more favourable income tax rules applicable to the existing “Article 83” products.
As soon as the related enabling legislation was voted, during 2004, we launched a comprehensive new pensions offering: ■ The personal pensions range includes pension products taxed as life insurance, Perps and Préfon contracts which have also been distributed by the French Post Office network since August of last year.
■ The group insurance range includes pension products qualifying for taxation under the new rules applicable to “Article 83” contracts, Peres and Percos (the Percos are distributed by Fongépar, a joint subsidiary set up with Caisses d’Epargne, and they are not included in life insurance premiums).
By devising a marketing strategy that leverages the complementary features of Perps and life insurance products, and drawing on our recognised expertise in managing very long-term savings products, we achieved our goal of becoming a force to be reckoned with in this new market. We offer a comprehensive range of Perps, comprising traditional combination unit-linked/non-unit-linked products and “Article L.441” points-based products.
The quality of the administrative management of Préfon Retraite, particularly the process for issuing annual tax information to the insured, earned the scheme ISO 9001 certification at the end of 2003, for information on individual members’ accounts and on the annuities payable to retirees.
Préfon Retraite is a voluntary participation supplementary pension scheme set up on 1 June 1967 on the initiative of the civil service trade unions. Overseen by
Protectys Autonomie, pays a life annuity in the case of total dependence, and a lump sum to cover initial costs when the insured becomes partially dependent (level “IRG 3”). Additional cover can also be purchased, providing for the payment of an annuity for partial dependence (level “IRG 3”) and a lump sum at a lower level of dependence (level “IRG 4”). In this way, the insured can receive financial assistance as soon as they begin to need help to continue living in their own home. Purchasers of Protectys Autonomie, can also buy a wide range of assistance services.
Personal risk insurance – a category which also includes loan insurance and health insurance – offers protection to the insured and their families over and above that provided by the welfare system. Individual and group health insurance contracts cover healthcare costs not reimbursed by the social security system. Loan insurance protects both borrowers and banks from the risk of default due to death, disability or unemployment.
H ea lth in su ra nc e Lo an in su ra nc e Pe rs on al r is k
We have been writing loan insurance for Cofidis in France for more than ten years
and in Portugal since 2002, and at the beginning of 2004, the business was extended to include Cofidis branches in Belgium, Spain and Italy. This extension added more than €40 million to our loan insurance premium income in 2004. We will continue to partner the international expansion of Cofidis, France’s leading telephone lender, adding Greece and the Czech Republic to the list of countries served in 2005.
Premium income from the mutual insurance and local authority partnership centre totalled €1,504.7 million, up 11.1% over 2003. Premiums from local authorities rose 29%, reflecting the effect of rate increases applied to statutory insurance cover for local authority employees. New money invested in Préfon rose 9.1% to €560.7 million.
In 2004, new offers were launched under the ten-year partnership agreement signed with Mutualité Française in June 2003, covering pensions, savings, personal risk, long-term care, loan insurance, guarantees, the health insurance platform and reinsurance. These included the Mutex Perp, which was launched jointly with Union Nationale de Prévoyance de la Mutualité Française (UNPMF), and the Mansiomut combined guarantee and loan insurance contract developed jointly with Fédération Nationale des Mutuelles Interprofessionnelles (FNMI). Marketing began on 1 January 2005.
In 2004, we decided to combine the group pensions and employee savings sales forces within Fongépar, to provide more effective advice and guidance to companies in choosing the group insurance solution best suited to their needs. This choice of organisation was dictated by the legislative and regulatory changes introduced in the Pensions Reform Act. The two teams continue to exist side-by-side, but report to the same manager.
Set up in 1969, Fongépar is an employee savings plan management company that is jointly owned by CNP Assurances (which holds 65% of the capital since 1 January 2005) and Caisse Nationale des Caisses d’Epargne (with 35%). It is ranked ninth in the French employee savings plan market, managing €1.4 billion in assets for 3,700 client companies representing a total of some 250,000 employees.
We are also responsible for the technical and financial management of Fonpel, the first pension fund for elected local government officials. In addition, we manage public sector pension funds, including Préfon Retraite, which has 253,000 members and over 71,000 pensions in payment.
The tax rules applicable to these contracts was changed in the Pensions Reform Act of August 2003. Employer and employee contributions are now deductible from the income tax base, up to a maximum of 8% of gross income or eight times the ceiling for social security contributions (€19,014 for 2004), whichever is lower. Any matching payments made by the company to a Perco are taken into account to determine the deductible amount.
During the capital accumulation period, voluntary employee contributions are not deductible for income tax purposes. Payments under incentive bonus or statutory profit-sharing schemes that are reinvested in a Perco are tax-exempt, however. Any matching payments made by the company are deductible from its taxable profit and are also exempt from prélèvements sociaux surtaxes. If the capital is paid out in the form of an annuity, it is taxed at the rate applicable to this type of income. If it is paid in a lump sum, the capital gain is exempt from income tax but is subject to prélèvements sociaux surtaxes.
Employer matching contributions to a Perco are deducted from the single tax ceiling indexed to the ceiling for social security contributions that applies to all pension products.
For several years now, CNP Assurances has been expanding outside France. One of our core aims is to strengthen our position as a significant player in the European personal insurance market, leveraging the business model developed in France and our recognised expertise in bancassurance and loan insurance.
Our growth strategy is based on partnerships and acquisitions. We are focusing mainly on Southern Europe but are also keeping watch for opportunities in emerging markets representing future sources of profitable growth. All of our organic and external growth transactions have as their watchwords value creation and performance enhancement. To this end, we give our international subsidiaries the human, financial and technical resources and business expertise necessary to drive profitable growth over the long term.
Portugal, and at the beginning of this year we completed the acquisition of a company in Italy. In addition, we write loan insurance through branches in Madrid and Milan and we have a project to set up operations in China.
In 2004, premium income outside France totalled €846.2 million, an increase of 6% over the previous year. At constant exchange rates, international premiums rose 11% to €888.4 million. At the end of the year, we launched our first rights issue for the employees of our Argentine, Brazilian and Portuguese subsidiaries, recording a 60% take-up rate.
The Brazilian economy performed unevenly in 2004, with the return of inflationary pressures in the third quarter and the September increase in the Central Bank base rate undermining the nascent recovery.
separate occasions, starting with a 1.75point rise in September. The financial markets reacted calmly to these increases, which brought the rate up to 17.75% at the end of the year. However, the prospect of further hikes is causing some concern, as most players thought that the Selic would not go any higher.
at constant exchange rates. Sales in the second half of the year were adversely affected by a seven-week strike by bank workers, between mid-September and the end of October. Trends in the various business segments were uneven.
With revenues up 46%, the pensions business continued to be the main growth engine. In a buoyant market, Caixa Seguros increased its market share by 0.71 points.
The Caixa Seguros Group ended the year with net profit of BRL 324.8 million, based on local accounting standards. The 13% increased compared with the previous year was attributable to improved underwriting results at Caixa Seguros, a good performance by Caixa Consórcios, tight control over general operating expenses and high investment income (reflecting the combined benefits of the asset/liability management system set up in 2003 and the Central Bank’s policy of keeping interest rates high). Less than two years after it began operations, Caixa Consórcios was ranked number two in the market and made a positive contribution to the Group’s bottom line. Earnings growth kept profitability at more than 30%.
On 30 June 2004, Caixa Capitalização celebrated its seventh year in the savings business. Despite the difficulties experienced last year, this subsidiary has produced very satisfactory results overall, in a market where it is competing against companies that have been around for much longer. In the seven years since its launch, Caixa Capitalização has sold more than 10 million investment certificates, including 36% with regular premiums and 64% with single premiums.
Over the period, it has generated cumulative premium income of BRL 2.7 billion and profits of BRL 319.6 million. It has also paid out some BRL 162 million to nearly 10,000 clients selected by random draw.
of BRL 250, in the case of temporary or permanent disability, as a result of an accident, accidental death or, with certain restrictions, unemployment. In November, Mapfre Seguros and Caixa Consórcios decided to join forces to explore the property market, leading to the launch of Mapfre Consórcio Imobiliário for individuals and companies looking to purchase residential or commercial property. The product covers both new and old properties, including both principal residences and weekend or holiday homes.
At the end of May, VGBL Coletivo was launched in the SME market. Although the product contributed less than 1% of Caixa Seguros’s 2004 premium income, 2,750 plans were sold in the first seven months representing premiums of more than BRL 5.3 million.
A new single premium endowment product, CapMilhão, designed for more affluent clients, was introduced in August. A total of 10,219 contracts were sold in the product’s first four months on the market.
Caixa Seguros key figures 11% growth in premium income in local currency, to BRL 2,455.3 million, and 4.2% growth in euros.
Marisa, a chain of 145 womenswear stores, to launch Seguro Emprego Marisa for holders of the Marisa store card. This insurance product covers the outstanding balance on the card, up to a maximum 66 International ambitions
In 2004, distribution agreements were signed with new partners, such as Mutual Vida Activa, representing 15,000 potential new clients in loan insurance and personal risk insurance. In September, an agreement was signed with Fecotel (a cooperative with 600,000 members, including 100,000 potential clients) for the distribution of a loan insurance product. A similar agreement was entered into with another cooperative. At the end of 2004, an agreement was signed with Banco Ciudad for the distribution of per67International ambitions
The Global Group reported net profit of €8.8 million based on local accounting standards. The year-on-year increase of 2.7% reflected sound property and casualty loss ratios.
In 2004, Global launched a new generation of personal risk products, including a new loan insurance policy and Protecção e Sucesso Escolar insurance to pay for children ’s schooling. The launch was supported by a promotional campaign and initial sales were in line with Global Vida’s targets.
The Global Group has 340 employees, 71% of whom work in the 38 regional offices responsible for leading the activities of the agent network.
The Fineco Vita acquisition, taking the European growth strategy a step further
The accident and health insurance market, up 2.1% to €1.26 billion, accounts for 12.1%. Lastly, the property and casualty market, up 5.3% to €2.9 billion, represents 28.1%.
59.8% Life 12.1% Accident and health 28.1% Property and casualty 68 International ambitions
The 10-year partnership is based on the existing exclusive distribution agreements between Fineco Vita and the Capitalia network comprising 2,000 branches (Banca di Roma, Bipop Carire and Banco di Sicilia), backed by the 1,600-strong Fineco Bank sales force. The aim is to grow Fineco Vita’s market share and increase its penetration rate among Capitalia clients, which currently stands at around 15%. The agreement gives CNP Assurances control over the day-today management of the business, as well as a majority of the seats on the Board of Directors.
The Chinese market is steadily being opened up to foreign insurers, to help meet the growing demand for pension products, personal risk insurance and loan insurance, confirming the timeliness of our strategic decision to enter this market.
The Madrid branch devoted the second half to putting in place the human and technological resources needed to begin operations at the beginning of 2005. In the space of just a few months, we have demonstrated our ability to enter into partnerships with major local players, giving them the benefit of our expertise in managing risks. Premiums written by these two branches are reported under premium income for France.
Asset/Liability management (ALM) The purpose of asset/liability management is to match fund the insurer’s liabilities towards the insured with assets, so that the insurer’s financial risk is covered at all times.
Fédération Française des Sociétés d’Assurance (FFSA) Professional federation whose members include the majority of French insurance companies and subsidiaries of foreign groups, operating in the life or non-life business or both. The federation examines proposed regulatory changes and also produces statistics on the French market.
Individual insurance Class of personal insurance allowing an individual to take out insurance cover (endowment, whole life) with an insurance company.
Loan insurance Insurance policy whereby an insurer commits to making loan repayments on behalf of the insured following the occurrence of an insured risk.
Long-term care insurance Insurance policy covering individuals against the risk of loss of autonomy in old age.
Mathematical reserves Amounts that the insurer records in its balance sheet, under liabilities, corresponding to its commitments towards the insured.
Each insurance company has its own method of calculating unrealised gains attributable to shareholders. At CNP Assurances, the NAV included in the calculation of embedded value corresponds to book NAV less the unamortised value of in-force business and the Brazilian tax benefit, recorded under assets.
New business (value of) Discounted present value of future earnings streams from business written during the year less the cost of the capital needed to comply with solvency margin requirements.
Non-unit-linked contracts Insurance policy for which the surrender value and benefit payments correspond to a cash amount.
PERCO (Plan d’épargne retraite collective) New product introduced in the 2003 Pensions Reform Act to replace the PPESV employee savings plan. Group pension product, accounted for as an employee savings plan not as life insurance. Benefits are payable as a lump sum or an annuity. Early withdrawal of the capital is allowed in a limited number of circumstances.
ROE (return on equity) Financial ratio corresponding to net profit expressed as a percentage of shareholders’ equity. ROE measures the return on the funds invested by shareholders.
Savings products (insurance) Unit-linked or non-unit-linked insurance policy allowing the policyholder to build up capital. The capital may be recovered by the policyholder, by surrendering the policy.
Unit-linked contracts Insurance policy for which the surrender value and benefit payments are expressed in units, generally corresponding to the number of units in a mutual fund.
on the report of the Executive Board and the 2004 financial statements Annual and Special General Meeting held on 7 June 2005
We regularly checked the reliability and clarity of the financial information given to shareholders and the market, paying close attention to the transparency and appropriateness of information produced by the Company on any matters likely to impact the Company’s overall financial position.
Candidates for election to the Supervisory Board are selected based on the recommendations of the Remunerations and Nominations Committee, in consideration of their expertise and their ability to make a long-term commitment to overseeing the activities of the CNP Assurances Group. Every effort is made to select candidates with differing backgrounds, to provide the Supervisory Board with a broad spread of experience.
The expanded Supervisory Board rules formally recognise the right of Board members to use the services of independent experts, who have the same powers of investigation as the Supervisory Board in the areas submitted to them for review.
As in prior years, embedded value was calculated based on a detailed analysis of all in-force business. At 31 December 2003, embedded value per share stood at €45.5, an increase of 8% compared with €42 at the 2002 year-end.
We obtained assurance from the Auditors that the Chairman’s report complies with the requirements of the law and accurately reflects the internal control situation within the Company.
The Audit Committee recommended appointing two separate accounting firms – one international firm and one French firm – as opposed to three previously. The criteria applied to select candidates included each firm’s environment, understanding of the issues facing CNP Assurances, service proposal, marketing approach, relations with CNP Assurances and independence from the Company, and fee proposal.
Based on all these criteria, at the 2004 Annual General Meeting we recommended to shareholders to renew the appointments of Mazars & Guérard and KPMG SA.
Having observed that certain specific factors have an impact on results in every six-month period, we passed on to the Executive Board the Audit Committee’s request to examine an alternative presentation of the accounts.
The aim was to provide us with a profit and loss account prepared according to management accounting principles, in addition to the one presented in the regulatory format.
During its review of the interim report and the Auditors’ review report, the Audit Committee examined in detail group personal risk business and the results of our Brazilian subsidiary, Caixa Seguros.
One of the main audit issues reported to the Committee in respect of group personal risk business concerned delays in entering certain portfolio transactions in the Company’s information systems. The Committee also noted that certain manual procedures (particularly the recording of inward reinsurance business) created an additional level of risk.
After discussing the issue with the Executive Board members responsible for these activities, the Committee reported to us that the Executive Board had implemented corrective measures in 2003, which had yielded satisfactory results. A series of additional measures were taken in 2004, the effects of which should be visible in 2005. We supported this rationalisation of group personal risk operations and encouraged the Executive Board to pursue the action taken in the first half of 2004.
• Although we are generally pleased with the results of measures to contain costs and effectively manage risks, Caixa Seguros needs to improve its ability to win additional market shares.
In addition to these recurring reviews, the Audit Committee also looked at several specific issues.
At its meeting on 18 May 2004, the Audit Committee discussed with the heads of Internal Control and Risk Management the internal control implications of the Loi de Sécurité Financière.
We were also informed of the launch, by the Executive Board in October 2003, of a major process modelling exercise that will lay the foundations of an enhanced internal control database. The President and his fellow Executive Board members are paying close attention to ensuring that the entire system of internal control functions on a coordinated and consistent basis.
Concerning the necessary upgrades to information systems, we were informed that these were in progress and that all systems would be converted to IFRS by April 2005 at the latest.
At its meeting on 21 December 2004, the Audit Committee reviewed in detail two reports on internal audit and internal control comprising, in each case, a review of activities in 2004. The report on internal audit also included details of the internal auditors’ main findings and related recommendations. The Committee also examined internal audit and internal control plans for 2005.
Concerning the 2005 internal audit plan, we noted that two of the key priorities will be to check compliance with the Company’s obligation to provide information and advice to buyers of its policies and to obtain assurance concerning the effective application of anti-money laundering procedures. Internal audits in this area will be conducted jointly with the internal audit teams of the French Post Office and the Savings Banks. We support this proposed cooperation between our internal auditors and those of our distribution partners.
In May 2002, the Committee recommended that the variable remuneration paid to members of the Executive Board, in their capacity as Board members and under their contract of employment, should represent up to 50% of their total remuneration. We adopted this recommendation.
On 4 March 2004, the Remunerations and Nominations Committee met to draft proposals concerning the variable remuneration to be paid to Executive Board members based on general and personal objectives.
• The CNP Assurances share price. • Growth in recurring net profit.
The Committee recommended that no changes should be made to the fixed remuneration of Executive Board members, as decided on 4 June 2002. We also decided that their variable remuneration would continue to represent up to 50% of their fixed remuneration.
However, based on the Committee’s recommendation, we decided to increase the gross fixed remuneration of the President of the Executive Board to €330,000. This amount includes the value attributed to the President’s company car and the Company’s matching payment to the EPI plan (a group life insurance plan covering all employees).
The Remunerations and Nominations Committee was called on in March 2005 to make proposals for 2004 concerning the allocation among Supervisory Board members and the censors of the total directors’ fees approved by shareholders at the Annual General Meeting of 6 June 2000.
Full information about the remuneration paid to the members of the Executive Board and Supervisory Board is provided in the Executive Board’s report, in accordance with legal requirements and the Company’s disclosure policy.
In connection with a restructuring operation, control of the Ixis Group was transferred to Caisses d’Epargne, giving it 80% of the capital of Ixis AM. Following this restructuring of its asset management division, Caisses d’Epargne set up a holding company named Ixis Asset Management Group (IAMG). At the same time, the Ixis AM convertible bonds were redeemed and IAMG issued new shares for an amount equal to the value of the redeemed bonds.
In September 2004, we examined the two options available to CNP Assurances in connection with the project: • Either CNP Assurances remained an ordinary shareholder of Ixis AM and became a bit-part player in the new group that was in the process of being created; or
• The Company decided to transfer its Ixis AM shares to IAMG in exchange for a 14% stake in the new holding company, with an option to raise its interest to 20%.
CNP Assurances, of the fairness of the valuations and exchange ratios.
• The company distributes bancassurance products through the 2,000-branch Capitalia banking network and the 1,600 sales agents in the Fineco Bank network.
• Capitalia is Italy’s fourth largest banking group, with some 6% of the retail banking market and 5 million clients. Capitalia remains a shareholder of Fineco Vita, with around 39% of the capital.
On the marketing side, the aim of the partnership would be to extend the product offering by launching a steady stream of innovative personal risk, loan insurance and pension products and building sales of combined unitlinked /non-unit-linked products, which are currently still something of a novelty in the Italian market.
After making enquiries of the Executive Board about the financial aspects of the project – in terms of goodwill, dilution and business plan objectives – and the compatibility of Fineco Vita’s information systems with those of our Company, we pointed out that the project’s success would depend to a large extent on CNP’s ability to take effective control of this new subsidiary and on the active cooperation of the Capitalia banking networks.
At our meeting on 18 May 2004, we reviewed the annual report on the Company’s investment policy prepared in accordance with the Insurance Code.
This report described in detail the Company’s investment processes and management policy. Prepared for 2003, it also described the main effects of the transition to IFRS on the management of investments.
In reviewing the report, we paid particular attention to the discussion of the Company’s strategies to deal with a possible sharp rise in interest rates. We noted that certain aspects of the investment policy are clearly designed to strengthen the balance sheet in order to better withstand this risk: • A significant proportion of portfolios (around 10%)
• CNP Assurances has set up a hedging programme based mainly on the use of caps with fairly long maturities (5 to 10 years). This protection is ideally suited to the Company’s needs, because if interest rates go up, the caps can be used to generate either additional revenue, thereby improving asset yields, or capital gains if the Company is faced with a wave of surrenders.
We noted with interest several aspects of the Company’s human resources policy: • Although there is no legal requirement in Brazil to publish a corporate report on human resources issues, the management of Caixa Seguros – our Group’s largest subsidiary – has taken the initiative of preparing such a report. We supported this initiative, which was called for by employee representatives.
Lastly, we noted that CNP Assurances has consistently maintained its commitment to helping school-leavers to find employment and meeting the sometimes complex challenge of integrating disabled employees.
We are kept regularly informed of information systems projects and the systems action plan in place since 2003. In 2004, we examined attentively the information systems changes made to support the transition to IFRS.
Rather than focusing almost exclusively on future accounting needs, the systems upgrades currently in progress are based on an open architecture and are designed to build a model capable of being adapted to a variety of scenarios and future developments. The Company has deliberately chosen an open system built around fairly sophisticated applications.
6. Specific matters examined by the Supervisory Board in 2005 2004 financial statements of the company and the group
CNP Assurances performed well in 2004, reporting improvements in all its indicators. Operating profit rose by more than 12% and net profit was up by 8%. Embedded value was at a record high of €50.1 per share, while the value of new business grew by 31% to €0.8 per share.
In light of this good performance, we concur with the Executive Board’s recommendation to increase the dividend by 8.5% to €1.66 per share, representing a payout rate of just over 36%.
At the Annual General Meeting, the customary resolutions will be tabled concerning approval of the financial statements of the Company and the Group and the appropriation of profit. In addition, based on the recommendation of the Remunerations and Nominations Committee, shareholders will be asked to: • Re-elect Alexandre Lamfalussy as member of the
Any proposals to make stock grants to members of the Executive Board would be subject to the prior approval of the Supervisory Board, based on the recommendation of the Remunerations and Nominations Committee.
We have been kept fully informed by the Executive Board about all matters relating to the Company’s strategic development and earnings performance.
Based on this information, we recommend that shareholders approve the 2004 financial statements of the Company and the Group, the proposed appropriation of net profit and all the other resolutions tabled at the Annual General Meeting.
In accordance with Article L. 225-68 of the Commercial Code, corresponding to Article 117 of the Loi de Sécurité Financière, in my capacity as Chairman of the Supervisory Board I am required to report to shareholders on the procedures for the preparation and organisation of the work of the Board and the internal control procedures in place within the Company in 2004.
1. Procedures for the preparation and organisation of the work of the Board
The Supervisory Board’s internal rules describe: • The Board’s organisation and procedures, including the frequency of meetings, relations with the Executive Board, traceability of the Supervisory Board’s decisions and the positions taken by individual members.
• The role of the Supervisory Board, including that of closely monitoring the Executive Board’s management of the Company.
Report of the Chairman of the Supervisory Board (internal control report)
Meetings of the 17-member Board are held according to the annual timetable adopted at the end of the previous year.
Supervisory Board members have differing backgrounds, providing us with the range of expertise and experience needed to assess the Company’s fundamentals and its sensitivity to changes in the business environment, monitor legal and regulatory compliance and ensure that all shareholders are treated fairly.
In line with the recommendations of the Viénot and Bouton corporate governance reports, two Committees of the Board have been set up – the Audit Committee and the Remunerations and Nominations Committee. These Committees’ terms of reference and rules of procedure are described in their respective internal rules.
• Changes in CNP Assurances and Caixa Seguros general operating expenses and operating budgets.
In connection with its examination, the Committee made enquiries of the managers responsible for preparing the financial statements of the Company and the Group, as well as the external auditors.
The only matter submitted to the Committee in 2004 concerned the fixed and variable remuneration of the members of the Executive Board.
Significant extracts from the internal rules of the Executive Board, Supervisory Board and Committees of the Board have been published in previous annual reports(2). The Supervisory Board considers that these internal rules represent a means of defining corporate governance policies. They enable the Company to clearly identify and express its core values and to benchmark them against best practice in this area in France. The additions made when these internal rules were updated in March 2004 reflect the Supervisory Board’s unflagging commitment to protecting stakeholders’ interests.
(1) Effective from 21 December 2004, with the Supervisory Board’s approval, Dominique Marcel took over from Jean-Pierre Menanteau as Caisse des Dépôts’ representative on the Audit Committee
The descriptions of internal control procedures have been updated and extended to cover all businesses and products, taking into account the work carried out under the “LSF-IC” project to produce detailed descriptions and assessments of internal control procedures and processes, which is being led by the Executive Board. Launched in 2003 and scheduled for completion in 2006, the project’s aim is to draw up detailed risk maps by process, document existing controls and verify that they are duly implemented.
This year’s report also includes a detailed discussion of internal controls in four key areas: • Cost containment: control over general operating expenses.
As Chairman of the Supervisory Board and a member of the Audit Committee, I have regular opportunities to review the Company’s internal control procedures and discuss these procedures with the Executive Board, the heads of operating departments and the external auditors.
To prepare these meetings, each department manager sent me a written report describing his or her department’s internal control organisation and activities.
In addition, I had a meeting with the external auditors to discuss internal control issues.
Second-tier controls are the responsibility of the Internal Audit and Risk & Internal Control departments.
The Risk & Internal Control department is tasked with: • Analysing reporting data to identify and assess material risks incurred by the Group and working with the heads of the various units to ensure that they are properly addressed.
• Checking, each year, the existence and effectiveness of controls embedded in processes for the preparation and processing of financial information.
The Internal Audit department assesses the quality and effectiveness of the internal control systems of the Company and the Group, on behalf of the Executive Board and Supervisory Board, based on a rolling 5-year plan.
2.2.2.1 Risk & Internal Control Department The Risk & Internal Control Department, which reports directly to the President of the Executive Board, is organised around three units: • The Risk Control unit is responsible for providing the Executive Board and Supervisory Board with the necessary data and assessments to oversee the risks inherent in the business and to define an overall risk management policy for the entire Group.
It helps the operating units to identify, assess and manage risks by providing methodological guidance, tracking indicators and sharing best practices, based on a five-point approach (prevention, detection, reduction, retention and transfer).
Risks are identified through enquiries made of department managers and the leading members of their teams, while a detailed questionnaire is used to collection information to measure their potential impact and the extent to which they are controlled. The results are used to produce and regulate update a series of risk maps, organised by level of priority and by type of risk.
• The Internal Control unit set up in February 2004 will ultimately be responsible for assessing internal controls over the preparation and processing of financial information, by verifying the existence and effectiveness of control procedures embedded in the various processes. Further information about this unit is provided in section 2.3 of this internal control report.
• The Fund Flows Monitoring and Security unit is responsible for checking the validity of fund movements, for example by reconciling collection and disbursement data to the data recorded by CNP’s partners in order to detect any discrepancies. The unit also tasked with determining the procedures to be followed to prevent money laundering and the financing of terrorist organisations, overseeing their implementation and monitoring their effectiveness. It reports once a year to the Executive Board on the action taken and the results obtained.
2.2.2.2 Internal Audit Department The Internal Audit Department also reports to the President of the Executive Board. Its activities are based on annual internal audit programmes designed to ensure that all functions within the organisation are audited at least once every five years. Internal audit procedures are designed to verify: • The quality of the information produced by the Company and the Group (in terms of reliability, fairness, timeliness, etc.).
• The effectiveness and efficiency of operations, and compliance with the applicable laws and regulations.
• Proper implementation of the strategy decided by the Executive Board.
2.2.3.1 Policy administration: individual policies Individual policy administration teams deal with a wide variety of products, covering savings, pensions, personal risk, long-term care and comprehensive accident insurance.
The main policy administration risks are due to the massive volumes involved, with 170 different types of policy representing some 14 million individual contracts and around three million administrative transactions.
Procedures in this area are designed to strengthen controls over processing operations and transactions, and to guarantee client service quality. They consist primarily of controls over collections and disbursements, performed when data are entered and policies are issued; examples include consistency tests, manager sign-off and automatic reconciliations.
The quality programme developed with the distribution networks also helps to contain risks, by standardising and optimising management processes (for example, risk acceptance, benefit payments, production of policyholder tax information).
Firstly, policy administration teams have access to a knowledge base containing information on products, legal and tax issues and management procedures.
• Analyse client complaints to detect recurring problems and any difficulties experienced by clients and/or the networks in understanding certain products.
In 2004, an initiative was launched to measure the perceived quality of policyholder services, based on satisfaction surveys conducted among clients whose complaints had been dealt with by the consumer relations department and clients who had phoned one of the call centres. Similar surveys will be carried out at regular intervals in future.
The network of “Quality” controllers set up at the end of 2003 and trained in 2004 carried out ten audits during the year, to: • Detect weaknesses in the application of procedures and guidelines by the policy administration teams.
Lastly, two types of oversight structure have been created: • The Complaints Review and Monitoring Committees set up at each policy administration centre meet at quarterly intervals to analyse complaints due to administrative errors and to monitor the related corrective action.
Specific procedures have been set up to control the activities of these partners: • Formal delegations of authority are issued, describing the respective responsibilities of CNP and the partner in the execution of administrative transactions; these documents are updated regularly to take into account regulatory changes, acquired experience and any problems that have been encountered.
For administrative transactions executed directly by CNP Assurances’ staff, specific control procedures are carried out by managers and by the control teams.
The main risks managed by the Investment Department are interest rate risk, currency risk, counterparty risk and operational risk affecting the execution of strategies or compliance with exposure limits.
CNP is organised and equipped to accurately measure these risks and implement appropriate strategies to limit them.
CNP’s exposure to currency risk is measured using a detailed schedule that lists all exposures by currency. The Company’s largest exposure to currency risk currently concerns the Brazilian real (due to the investment in Caixa Seguros), which is particularly volatile. The risk associated with Caixa Seguros goodwill is partially hedged through a programme of euro/real currency options, the objectives of which are reviewed at annual intervals.
• Monthly reporting of buy/sell transactions by portfolio managers to CNP Assurances, evidencing implementation of the strategy.
• Almost daily contacts and monthly meetings between portfolio managers and the teams responsible for the portfolios at CNP Assurances.
Under CNP Assurances’ business model, the presentation of insurance offerings and some aspects of policy administration are handled primarily by the distribution networks owned by certain shareholders. Specific controls are necessary to manage the risks associated with these decentralised processes.
• The Legal and Tax Guidance department is required to sign off on the general and specific contract terms and conditions for new products, before products are introduced in the market.
Control activities include reconciliations between interim and annual management reporting and accounting data, the definition of standards, data analyses and the development of reporting systems.
To guarantee the quality, reliability and completeness of data, regular exchanges take place between the head office management accountants and their counterparts in the subsidiaries, to ensure that the subsidiaries fully master reporting systems and methods. Quarterly site visits are organised to review the accounts closing process and results for the quarter, and to decide on any corrective action to be taken.
New control systems and procedures will be rolled out to support the Company’s ongoing international development.
2.2.4 Internal control over the preparation of financial and accounting information
The operating departments are responsible for internal controls over routine management transactions leading to the generation of recurring accounting data. Examples include the issuance of premium notes, the collection of premiums, benefit assessments and payments, purchases and sales of investments and the collection of interest and dividends. The main internal controls over recurring data are described earlier in this report, in the section dealing with first-tier controls.
Procedures are implemented, mainly by the Actuarial Analyses department, to measure these insurance risks, determine the amount of related technical reserves and also of any necessary reinsurance cover. The main control procedures concern: • Projections of underwriting results before general operating expenses, produced for all Group entities (other than foreign subsidiaries) covering several years.
• Application of calculation methods that comply with the Insurance Code, generally accepted accounting principles, market standards and Group practices.
• Implementation of a Group reinsurance programme covering policies written by CNP Assurances and its subsidiaries. The programme provides overall protection of underwriting results and a specific treaty has been set up to cap losses on comprehensive insurance cover for accident victims.
The most significant technical items in the balance sheet and profit and loss account include the value of the insurance books of acquired subsidiaries and the related amortisation. At each period-end, results projections and simulations are produced to verify that the carrying value of these intangible assets will be recovered through future profits and, where recovery is not assured, to calculate the related provision for impairment in value.
The analyses produced by the Actuarial Analyses department are also used for the calculation of embedded value and the value of new business, including for foreign subsidiaries. These calculations, which are used to perform profitability analyses and to manage business-related risks, are reviewed by an independent actuary at each period end and are disclosed in the annual and interim reports.
To track performance in these areas, CNP Assurances has developed a certain number of management accounting applications.
2.2.4.3 Statutory accounting Transaction data related to policy administration, financial and property investments and general operating expenses are managed by the operating processes and systems and are then fed into the general ledger system.
Various controls are performed over the data fed into the general ledger system: • Insurance data (premiums, commissions, benefits and claims): reconciliation of accounting and actuarial data.
• Reconciliation of certain accounting data to external data such as bank statements.
Controls over technical choices are based on: • Participation in national workgroups set up by the insurance federation (FFSA), the French accounting authorities (CNC) and other bodies.
The Group is in the final stages of preparing the opening IFRS balance sheet at 1 January 2004, together with detailed information about the effects of the transition. This information is being audited by the external auditors, who will issue a specific report on their audit.
The initiatives launched by the Executive Board in the area of internal control mainly concerned the risk mapping exercise and the documentation of internal controls under the LSF-IC project led by the Risk & Internal Control and Internal Audit departments.
The Internal Control department, which is acting as joint leader of the LSF-IC project, will be responsible for developing a testing methodology and planning and implementing the tests.
Lastly, during 2004 the Executive Board continued the action initiated in the operating departments, by extending the scope of the quality certification project to new policy administration processes. An incidents database has also been set up and will come on stream at the end of this year.
The quality certification project will be extended to other critical policy administration processes.
In my capacity as Chairman of the Supervisory Board, I will ensure that regularly improving the system of internal control remains high on the list of the Company’s priorities.
The marketing strategy should help to refresh the Group’s policyholder base and although initial premiums are low, they are expected to rise steadily over time. Nearly twothirds of buyers of these pension products are new clients who have not purchased any life insurance.
Créfidis’s offering includes an automobile loan and a revolving credit facility sold by retailers to enable customers to finance their purchases.
The partnership leverages the expertise of Casino’s banking subsidiary in designing and marketing financial products and services for the Group’s customers, and CNP Assurances’ insurance expertise.
The French Post Office launched Protectys Autonomie, its first long-term care product for the retail market. Protectys Autonomie is offered directly to clients interested in taking out insurance to finance their needs or those of their parents in the event of a loss of autonomy. The Post Office has scored a first in the market by launching long-term care insurance that can be taken out either by the insured or, for example, by a son or daughter on behalf of his or her parents.
Protectys Autonomie is a straightforward monthlypremium product. It covers a total loss of autonomy, with optional cover for partial loss of autonomy.
This subordinated bond is junior to all other subordinated debt issues launched previously by CNP Assurances. The Company is the first French insurer to issue “Titres Super Subordonnés” through the legal framework set up by the Loi de Sécurité Financière of 1 August 2003.
The issue achieved pan European distribution. In response to strong demand from Benelux and Swiss investors, who took up three-quarters of the issue, the deal size was raised from €200 million to €250 million.
A total of 731,402 new shares were issued to employees, raising the number of CNP Assurances ordinary shares outstanding to 138,585,466 from 137,854,064 previously. The new capital stands at €554,341,864 versus €551,416,256 prior to the issue. The issue proceeds totalled €23,434,120.08.
• CNP Assurances life insurance products won several awards attributed by Le Revenu magazine, in the following categories: Products distributed by the French Post Office: – Ascendo: 2004 Gold Medal in the combination unit-linked/non-unit-linked (diversified funds) category.
CNP Assurances among the winners at the Journal des Finances awards
• CNP Assurances won awards in four categories: – Nuances Plus: Gold Medal in the Innovative products category.
– Véga Liberté: Gold Medal in the Combined unit-linked/non-unit-linked contract (no profile) category.
– Ascendo: Silver Medal in the Combined unit-linked/non-unit-linked profile fund category.
In terms of products, the aim of the partnership is to expand the offering by gradually introducing innovative personal risk, loan insurance and pension products, as well as by developing combined unit-linked/non-unitlinked products which are currently still something of a novelty in the Italian market.
Launch of a combined loan insurance and guarantee product for homebuyers in partnership with FNMI and Mutlog
The guarantees will be written by CNP Caution, the CNP Assurances subsidiary specialized in this business.
On 22 December 2004, CNP Assurances carried out a rights issue for employees of its subsidiaries in Brazil, Portugal and Argentina, to give them the opportunity to become shareholders of the Company by investing in the CNP International Employee Share Ownership Plan. The issue was authorised at the Annual General Meeting of 4 June 2002.
A total of 49,836 new shares were issued to employees, raising the number of CNP Assurances ordinary shares outstanding to 138,635,302 from 138,585,466 previously. The new capital stands at €554,541,208 versus €554,341,864 prior to the issue. The issue proceeds totalled €1,877,820.48.
The world economy grew by a strong 5% in 2004, driven by an increase of some 8.5% in international trade. Economic performance improved in all regions, but to varying degrees.
In the euro zone, the recovery that began in mid-2003 faltered in the third quarter of 2004 due to weaker consumer spending and the adverse effect on exports of slower economic growth among the region’s main trading partners. Business confidence was sapped by higher raw materials costs and the increasingly strong euro, leading companies to put their capital spending plans on hold while they focused on improving productivity. The lack of business confidence also affected job creation and the unemployment rate, which stayed at 8.9%. At the same time, the recovery in consumer confidence was held back by the lacklustre job market, combined with limited growth in purchasing power, uncertainty about future tax rates and concerns about pensions. As a result of all of these factors, the euro zone turned in a fairly dismal economic performance, registering growth of just 2%.
These trends encouraged savers to keep their money in easy-access accounts, particularly passbook savings accounts that are used to stockpile cash pending other investment decisions. Demand accounts at regulated rates and time deposits also benefited, albeit to a lesser extent. However, while the volume of savings in easy-access accounts remains generally high, it is showing signs of declining because of the very low short-term rates, with the Livret A passbook savings account paying just 2.25%. Growth in retail investment in financial products is slowing as consumers take advantage of low long-term interest rates and buy-to-let tax incentives to invest in property.
The volume of new money was boosted by strong momentum in the pension business, with the launch of a new range of individual products and robust sales of group products to companies. CNP Assurances responded to a number of calls for bids for corporate pension plans in 2004 and won several of the largest contracts, which made a significant contribution to last year’s growth in the pensions business.
At constant exchange rates – with 2004 premium income in Brazil and Argentina translated at the average exchange rate for 2003 – premium income rose by 10.4%. Changes by business segment were similar to those reported at current exchange rates.
Savings premium income rose 7.6% (of which 7.9% in France) year-on-year and 14% in the fourth quarter. The solid fourth quarter performance was driven by impressive marketing performances by CNP’s partner networks, particularly the Post Office.
These rose by 104.7% to €497.3 million following the launch of an entire new product range comprising products taxed in the same way as life insurance (launched in January 2004), and Perps (introduced in April 2004).
In total, the new pension products offered in France since 1 January 2004 generated premium income of €260 million. All told, 492,000 contracts were sold, including 308,000 Perps sold by the networks and Solésio Préfon contracts sold by the Post Office representing €85 million in premiums. The pensions marketing strategy, which mainly targets clients in their late thirties and early forties, is helping to refresh the CNP Group’s policyholder base and although initial premiums are generally low, they should increase steadily.
Personal risk premium income advanced 8.4 % year-onyear (8.8% at constant exchange rates).
The 9.5% increase recorded in France was driven by strong demand in the credit market, led by consumer loans, and by the 1 January 2004 launch of a loan insurance offering with French partners in Belgium, Italy and Spain in addition to Portugal. This growth initiative brought in more than €40 million of premiums in 2004.
Premium income from sales of health insurance expanded 6.8% following the rate hike in the mutual insurers/local authorities and companies segments. Completys Santé, the health insurance product marketed by 50%-owned Assurposte, contributed €6.4 million to CNP’s premium income in 2004, an increase of 33% year-on-year.
Caixa Seguros in Brazil developed its Credito Interno (consumer credit insurance) and comprehensive homeowners insurance businesses, reporting a 16% increase in premiums based on home loans.
Premium income in France totalled €20,596.0 million in 2004, an increase of 10.4% compared with 2003.
Premium income by partner network breaks down as follows: (1) Average exchange rate: Argentina: €1 = ARS 3.74868 Brazil: €1 = BRL 3.70882 (2) French Treasury network until 31 December 2003 * The branches started to contribute to the Group’s premium income from 4 quarter 2004
Premium income generated by the CNP Trésor network totalled €614 million, compared with €738 million for the former French Treasury network in 2003. Sales in the fourth quarter were just 2% below French Treasury sales in the year-earlier period, with a 247-strong sales force at 31 December. CNP Trésor’s full year sales represented 83% of the French Treasury’s prior year total, significantly outstripping the target of at least 75%. Sales of unit-linked products rose by 5.2% to €51.2 million, representing 8.7% of savings and pensions premium income, helped by the “3 in 1” promotional offer in JuneJuly. A new Perp was introduced in September, leading to the sale of 300 contracts by the end of the year. Overall, the performance of the new sales team was highly satisfactory compared with the objectives set at the beginning of the year.
The Group’s subsidiaries in Portugal (Global, Global Vida), Argentina and Brazil contributed €846.2 million to consolidated premium income in 2004, representing a 5.9% increase. At constant exchange rates, premium income rose 11.2% to €888.4 million.
In Portugal, premium income generated by Global and Global Vida rose 12.7% to €181.3 million.
In Argentina, premium income totalled ARS 9.4 million (€2.5 million). This represented an increase of 13.8% on a reported basis and 26% at constant exchange rates, reflecting strong growth in the individual personal risk business.
In Brazil, Caixa Seguros reported premium income of BRL 2,455.3 million (€662 million), representing an increase of 10.9% in local currency and 4.2% in euros. Business was hurt in the second half by the seven-week strike by bank workers between mid-September and endOctober. The continued success of the VGBL product fuelled a 46% increase in pensions business to the detriment of the savings business, reflecting an ongoing trend. A new group pension product in the VGBL market targeting small – and medium-sized businesses was introduced at the end of the first half and contributed BRL 5 million to premium income, with 2,700 new contracts. The recovery of the loan insurance business observed in the third quarter lost momentum in the fourth quarter, following an increase in Brazil’s interest rates to 17.75%.
In € millions Savings Pensions Personal risk Loan Health Property Total insurance insurance & Casualty 2003 premium income by country and market segment
(1) Including €123.8 million reclassified from Personal Risk to Pensions (2) Including €55.2 million reclassified from Personal Risk to Savings
In € millions Savings Pensions Personal risk Loan Health Property Total insurance insurance & Casualty 2002 premium income by country and market segment
The consolidated financial statements are presented in accordance with the Government order of 17 January 2001, which approved the French Accounting Standards Committee (CRC) standard concerning the consolidated financial statements of insurance companies.
Administrative expenses (excluding CNP Trésor set-up costs in 2004 and information system migration costs in 2003) 577.3 558.7 3.3% 541.8
Average technical reserves, which generate over 60% of revenues, were up by 9% overall and 8.8% in France. Technical reserves for the Savings business increased by 9.2%, a rate slightly above that for the French savings and pensions market as a whole which, according to FFSA estimates, stood at 9%. The year-on-year change reflects the net impact of invested premiums for the year, portfolio appreciation (see below, Net investment income), and policy surrenders (see below, Claims expenses and change in technical reserves).
Net investment income excluding mark-to-market adjustments of assets held to cover linked liabilities and ceded investment income rose by 7.7% to €7.3 billion. The investment yield – excluding assets held to cover linked liabilities and ceded investment income – stood at 4.9% versus 5.0%. Realised capital gains included in net profit amounted to €81 million (€61 million after tax).
Acquisition and administrative expenses were 10.5% higher. Commissions represented 72% of the total, despite the replacement of commissions paid to the French Treasury network with the personnel costs of the CNP Trésor network. The 15.9% increase in these expenses was due to the fact that certain group insurance partners chose to be paid a commission rather than receiving a share of profits.
The costs incurred on the information systems migration project since its launch were recognized in full in expenses in 2003.
Income tax rose by 20.6% over the 2003 amount excluding the effect of changing stock market prices. The increase stemmed mainly from the abolition of the avoir fiscal tax credit on French-source dividends, which added €23 million to the Group’s tax bill.
Consolidated net profit of €629.3 million, up 8% over 2003, represented 12.5% of average equity after dividends, the same rate of return as the previous year.
At 31 December 2004, the Group had total assets of €182.2 billion, compared with €167.3 billion one year earlier, an increase of 8.9%.
Technical reserves totalled €167.3 billion, up €13.5 billion or 8.8% over the year-earlier figure. The increase reflected higher mathematical reserves and policyholders’ surplus reserves.
In 2004, the Group’s solvency margin – including total subordinated debt and after deducting intangible assets – represented 1.16 times the minimum margin required under insurance regulations, before taking into account unrealised gains. This was higher than the 2003 coverage rate of 1.11 times, following the issuance in 2004 of €483 million worth of subordinated debt securities, including €300 million by CNP and €183 million by Ecureuil Vie. Including unrealised gains, the margin requirement was covered 2.74 times.
At 31 December 2004, the total investment portfolio had a book value of €171 billion, up 9.3% over the end-2003 figure. The estimated market value, including unrealised gains of €12.8 billion, was €184 billion.
The ratio of unrealised gains to the net book value of the portfolio climbed to 7.5% from 5.5%, reflecting lower interest rates and higher equity prices.
CNP Assurances has been preparing actively for the transition to IFRS, effective from 2005.
CNP Assurances’ consolidated financial statements are currently prepared in accordance with the consolidation rules applicable to insurance groups, as set out in the French Insurance Code. The main accounting principles and policies are described in the notes to the consolidated financial statements. These principles and policies differ in certain respects from the principles laid down in IFRS.
In accordance with the European regulation on consolidated financial statements, the Group’s consolidated financial statements for the year ending 31 December 2005 will be prepared in accordance with the International Accounting Standards and International Financial Reporting Standards (IAS/IFRS) applicable at 31 December 2005 that have been endorsed by the European Union. Accordingly, the Group’s first IFRS financial statements will be those for 2005 and will include comparative data for 2004 prepared according to the same standards including IAS 32/39 and IFRS 4 which the Group has elected to apply as from 1 January 2004.
In 2003, the Group launched an IFRS project to: • Identify the main differences between the Group’s current accounting policies under French GAAP and IFRS.
The Group is currently finalising the opening IFRS balance sheet at 1 January 2004. The IFRS adjustments are being reviewed by the Auditors who will issue a specific report on their review.
The changes arising from the transition to IFRS concern both issues that are common to all companies and issues that only affect the financial services and life insurance sectors.
Goodwill Under IFRS 1, first-time adopters may elect not to retrospectively adjust goodwill on business combinations carried out prior to the IFRS transition date. The Group has elected to benefit from this exemption.
In addition, under IFRS – unlike French GAAP –, goodwill is not amortised but is tested annually for impairment. Another requirement is to measure goodwill in the currency of the acquired company and not that of the acquirer. Consequently, the Caixa Seguros goodwill will be adjusted in the opening IFRS balance sheet, to reflect its value in Brazilian reals.
Issues that are specific to the financial services and life insurance sectors
• Investment contracts with a discretionary participation feature, corresponding to non-unit-linked and combined unit-linked and non-unit-linked savings contracts where the Group has discretion over the amount and/or timing of distributions to policyholders.
Measurement of liabilities (IFRS 4) Under IFRS 4, insurers may measure their liabilities in accordance with local GAAP, provided that a liability adequacy test is performed at each period end based on current estimates of future cash flows under the company’s insurance contracts. CNP Assurances applies a stochastic approach, using its existing asset/liability modelling tools to measure liabilities according to a wide variety of economic scenarios. According to this method, the economic value of liabilities corresponds to the average of the stochastic trajectories. One of the key aspects of the model concerns the surrender option associated with savings contracts, which is valued by modelling policyholder behaviour.
In this regard, assets and liabilities fall into three categories: • Assets attributable to shareholders, for which gains and losses are recognised in equity.
• Assets attributable to without-profits contracts, for which gains and losses are also recognised in equity. • Assets attributable to with-profits contracts, for which remeasurement at fair value generates rights for both policyholders and shareholders. The allocation between policyholders and shareholders is performed using the same principles as for the calculation of the Group’s embedded value.
The Group is currently finalising the opening IFRS balance sheet at 1 January 2004 and the detailed disclosures of the effects of the transition. This information is being reviewed by the Auditors who will issue a specific report on their review.
In a home-buying market buoyed by low interest rates, sales of whole-life guarantees included in loan insurance contract continued to rise. Sales of group pension products also rose strongly, fuelled by robust sales to companies and growth in new money invested in Préfon.
CNP Assurances ended the year with net profit of €523.1 million. The Company’s contribution to consolidated net profit came to €408.3 million versus €380.9 million the previous year.
Ecureuil Vie’s premium income rose 9.6% to €8,156 million. Growth continued to be driven by the success of Initiatives Transmission, Nuances 3D and the high-end Nuances Plus, which together accounted for 87% of premiums.
Net profit came to €216 million. After consolidation adjustments, contribution to consolidated net profit amounted to €90 million. In accordance with the accounting standards applicable since 2001, the transfer of €5 million in capital gains on bonds to the capitalisation reserve was eliminated in consolidation. The balance of the difference corresponds to changes in deferred taxes, which are recognised in the consolidated financial statements but not in the accounts of Ecureuil Vie.
Premium income rose 11% in local currency. Strong 46% growth in sales of pension products, leading to a 20% decline in savings premium income. After conversion to euros, the overall growth in premium income came to 4.2%.
• In group insurance, CNP will partner clients’ international development, especially in the area of loan insurance, set up new branches and take further action to improve the profitability of local authority business.
The Group’s top priority is to successfully integrate its new Italian subsidiary, Fineco Vita, by taking over management control of the company, launching a steady stream of innovative personal risk, loan insurance and pension products, and promoting sales of combined unitlinked /non-unit-linked products.
The Group will actively pursue the transition to IFRS and will adapt its financial communications to comply with the new disclosure requirements.
• 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.
• Monitoring of internal control by the Executive Board and Supervisory Board.
• It addresses all material financial, insurance and operational risks incurred by the Group.
• Second-tier controls are performed by the internal auditors and the Risks and Internal Control department, reporting directly to the President of the Executive Board. The internal auditors are responsible for performing regular assessments of the Group’s 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.
The Risks and Internal Control department is responsible for two core tasks. The first is to identify, measure and manage significant risks incurred by the Group, in consultation with the management of the various entities and under the supervision of the Executive Board. The second consists of overseeing the system of internal control and obtaining assurance about the existence and effectiveness of the controls embedded in the various business processes.
In addition, specialist control structures are responsible for overseeing procedures to monitor the quality and effectiveness of the Group’s system of internal control.
To comply with the provisions of the Act, the Group launched a strategic project (the LSF project) in the autumn of 2003, which is scheduled for completion at the end of 2005.
Substantially all components of the project planned for 2004 were being carried out on schedule.
The entire system is scheduled to be rolled out to all Group companies by the end of 2005.
Each risk is assessed according to two criteria – the seriousness of the potential gross impact and the extent to which the risk is controlled, representing a measure of the effectiveness of measures taken to avoid the occurrence of the risk or to reduce the related cost.
A standard measurement scale has been adopted and is applied to all risks, whatever their nature or origin, providing a common framework for assessing exposures.
The Group risk map at the end of 2004 was produced from around fifty detailed maps (versus around thirty at end-2003) for the companies viewed as being the most significant due to the nature of their business and/or their impact on the accounts.
It represents one of the fundamental components of the risk reporting system, to the Executive Board in the first instance, but also to the Audit Committee and the Supervisory Board.
This comprehensive approach to managing risks operates alongside existing specific approaches, mainly in the areas of financial and insurance risks, and is being enhanced by the work undertaken in connection with the LSF project.
• The second consists of 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.
Identified gross risks are analysed according to the 150 basic risk categories used for the approach by business. Three assessment thresholds are also applied, based on an appraisal of their financial impact and frequency. Controls are assessed in terms of their relevance to the risks covered and their “maturity”, determined mainly by the level of documentation, evidencing and supervision. The residual risk is measured based on the results of risk and control assessments.
The business process approach provides an extremely detailed view of risks. This is illustrated by the fact that the 10 processes with the most significant impact on the accounts that had been modelled as of end-2004 comprise around 1,200 basic risks.
Action plans will be drawn up to reduce those residual risks that are considered too high. In addition, tests will be performed on risks that appear to be properly controlled to ensure that this judgement is correct; if it is proved wrong, action plans will be implemented to remedy the situation.
The Group has established management information systems designed to ensure that it fulfils its commitments to shareholders.
• Track the progress made by each business in meeting these objectives, in order to allow corrective action to be taken on a timely basis.
Budgets and business plans provide the basis for analysing the components of profit, assessing forecast profitability and measuring the impact of product decisions on future profits. Embedded value and new business calculations reflect the Group’s current “capital” and its ability to create value. Each year, differences between forecast and actual value creation are analysed and presented at the same time as the financial statements.
Medium and long-term projections are used to produce financial trajectories and perform embedded value and new business calculations, in connection with the annual business valuation exercise.
• Models tailored to individual and group personal risk products, incorporating risk measurement factors and statistical data.
CNP Assurances’ commitments towards policyholders differ depending on the type of policy: Savings products: primarily financial commitments Savings products fall into two broad categories: ➜ With-profits products offering a guaranteed rate of return for a fixed period, generally 8 to 10 years.
These contracts have been classified by level of commitment, as follows: • Contracts offering a guaranteed rate of return and a guaranteed share of investment income. • Contracts offering a higher fixed rate of return (generally 75% of the TME rate) over a maximum of 8 years. • Contracts offering a guaranteed rate of return representing less than 60% of the TME rate at the time of payment.
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 pension products depend on: • The period of benefit payments which cannot be determined in advance.
The Group has drawn up risk selection and reinsurance policies and monitors statistical data concerning insured populations and related loss ratios.
• 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: – Monitoring of yield commitments based on projections taking into account commitments in excess of regulatory limits.
In the schedule listing the entire investment portfolio and the other regulatory reporting schedules, only assets required to be segregated in application of the Insurance Code (assets held to cover linked liabilities and liabilities related to pension products governed by article L. 441-1 of the Insurance Code) are shown separately. In practice, however, the CNP Group manages a number of different portfolios.
For each portfolio, CNP defines an investment strategy covering: • Asset allocation, • The choice of maturities and any hedging instruments, • The profit-taking policy.
The policy is based primarily on asset/liability management results and includes analyses of future treasury gaps and interest rate mismatches, as well as medium and longterm simulations of the portfolio’s sensitivity to differing trends in the financial markets.
The equity portfolios comprise units in diversified funds invested in European and international equities, and direct investments in euro zone equities.
No liquidity risk reserve was recorded in CNP Assurances’ accounts in 2004, as the market value of all of the Company’s assets governed by Article R. 332.20 exceeded their book value at the year-end.
As of 31 December 2004, the Group’s bond portfolio (excluding Caixa Seguros) was 98% invested in bonds rated A to AAA by the leading rating agencies, including 60% rated AAA.
As a result, the exposure of portfolios to currency risks is very limited. Less than 1% of the investments of the French companies in the Group are denominated in currencies other than the euro.
Asset/liability simulations have shown that the resistance of the insurance book to a fall in interest rates is satisfactory. This situation is the result of the following measures, implemented in recent years: • Revision of general policy terms to limit the duration and level of yield guarantees.
• Extension and annuitisation at 0% of single premium policies with a guaranteed rate of return. • Conservative approach to determining technical reserves for annuity products.
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.
In the case of a sharp rise in interest rates to above certain trigger points, the hedges acquired by CNP would generate additional revenues corresponding to the difference between the trigger rate and actual longterm interest rates on the financial markets, thereby improving the return on the hedged assets in a period of rising interest rates.
The hedging programme is extended each year, to keep pace with the growth in assets under management.
7.7.1 Risk of lawsuits being brought by the insured and their families
Just over two-thirds of lawsuits concern temporary disability clauses and a smaller number concern death benefits.
In the majority of cases, the courts have found in favour of CNP Assurances. This was the case in 2004 and in prior years, and the number of successful outcomes has also remained stable over time. The percentage of lawsuits won by CNP Assurances (or abandoned by the plaintiff) increases on appeal. Over 60% of suits are won or abandoned in the first instance, and 92% on appeal. These figures testify to the fact that CNP goes to court only where it is convinced of the merits of its position, in all good faith, a policy that avoids any risk of being accused of using the courts in an attempt to avoid fulfilling its obligations.
At the end of 2004, the Supreme Court issued landmark rulings confirming that endowment policies with whole life cover qualified as insurance contracts. This classification had been contested by certain disgruntled heirs, who had attempted to have the policies requalified as “savings contracts” and thus to bypass the principle whereby the amounts paid out under the contract may be freely assigned to any beneficiary of the policyholders’ choice.
• The body of case law generally favouring the consumer, which could give rise to an escalation of lawsuits based on actual or alleged mis-selling. The mis-selling argument is often used when the search for a loophole in the contract has proved fruitless.
• A campaign to increase staff awareness of money laundering risks, combined with additional training for front-line employees.
Available media are used to communicate extensively about the anti-money laundering system within the organisation. Conferences have been organised for management personnel and the members of the antimoney laundering unit have received specific training. In 2005, the training effort will be kept up, focusing on employees who are the most directly concerned.
In addition, contingency plans have been drawn up to ensure that in the event of a major incident, immediate action is taken to allow business to resume and to offer clients and partners an adequate level of service without delay.
The simulations 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.
CNP Assurances has a strong sustainable development culture. As a personal insurer, we are constantly focused on the long-term. Savings contracts, for example, frequently extend well beyond the eight-year minimum investment period to qualify for tax incentives, while commitments under pensions and annuity contracts can last for forty years or more. Products with an insurance risk also give rise to long-term commitments, by pooling individual risks among the insured over the insurance period.
For these reasons, it was natural for CNP Assurances to be among the first French companies, in mid-2003, to support the Global Compact for responsible corporate citizenship launched by the UN Secretary General.
At the beginning of this year, one of the leading corporate social responsibility rating agencies, Vigeo, recognized the quality of our initiatives, ranking CNP Assurances in the top 50% of insurance companies for the four key criteria of human resources, customers and suppliers, community and society and human rights.
The highlight of 2004 was the launch of new pensions products following the adoption, in 2003, of the “Fillon” Pensions Reform Act. We immediately established a high profile in this market, responding to requests from our distribution partners for Perp contracts tailored to the needs of their clients. We also supported our partners by developing simulation software and helping to train their sales teams, to ensure that clients fully understand these new products.
Age d’Or Services, our personal services subsidiary, advanced swiftly towards its objective of offering nationwide coverage, with the opening of 27 new agencies. The company also developed new home services, particularly for people who have just been released from hospital.
Another innovation unveiled in 2004 was a product to take the risk out of home buying, combining traditional and financial guaranty insurance. The new product will be sold to members of Mutuelles Interprofessionnelles mutual insurance companies from the beginning of 2005.
In 2004, we set up our own sales force to take over managing relations with policyholders who purchased their contract from the former French Treasury network. This was an opportunity to put into practice our policy of offering clients high quality advice and administrative services throughout the life of each contract. The members of the sales force were given comprehensive training in the product offer and dedicated teams were set up at the management centres to serve these clients.
A major quality issue for buyers of loan insurance and long-term care insurance concerns the processing of medical questionnaires. In 2004, questionnaires continued to be processed within an average of three days, despite a further increase in volumes. A new system set up with one of our partners enables decisions to be obtained online in 70% of cases.
In 2004, an automated assistance procedure was developed for the processing of death benefit claims. The new procedure has helped to reduce processing time, representing a major source of efficiency gains for a task that accounts for 40% of the management centres’ activities.
The extended scope of ISO certification testifies to the considerable strides made by CNP Assurances and Préfon in improving the quality of their administrative processes. In 2004, ISO certification was obtained for the entire process of producing year-end tax information for policyholders. ISO certification was also renewed for the administration of Crédit Agricole loan insurance business, with an extension to the insurance acceptance process.
Our policy administration teams strengthened their clientcentric approach, based on the results of surveys conducted since 2002, often in coordination with our distribution partner, among sales people and new and long-standing policyholders. In 2004, the scope of the surveys was extended to measure the gap between perceived and expected service quality. Teams were reorganised where this was seen as delivering improvements and new workstations were installed, incorporating online information services and electronic archiving functions, to reduce response times.
Our strong risk discipline is embodied in the asset/liability management system developed some fifteen years ago and regularly enhanced since then. The sharp rise in sales of pensions products in 2004 has led us to implement investment strategies covering significantly longer periods and to fine-tune our asset/liability management accordingly.
Forests and real estate account for 2.3% of the total asset portfolio. These assets are managed by specialised companies – Société Foncière de la Caisse des Dépôts and GFF – in accordance with sustainable development principles. Timber from our forests is certified as coming from sustainably-managed woodland and simple forest planning rules include criteria that protect biodiversity. In line with the same commitment, GFF is gradually converting all the properties in the portfolio to energyefficient systems, while safety has been placed higher on the list of building managers’ priorities.
Concerning our equity portfolios, we have set up a dedicated team to ensure that we actively fulfil our role as shareholder on a fully independent basis. We systematically vote at Shareholders’ Meetings, taking positions that are consistent with the interests of our policyholders.
As well as boosting employee numbers, the creation of this sales force has also changed the average profile of our human resources. Made up of experienced managers working outside the office, the average age of the team is higher than for the Company as a whole and men are in the majority. As a result, managers (“cadres”) have risen to 46% of the workforce from 39% in 2003, the proportion of men has increased to 37.5% from 36%, and the average age of the work force is now four years older.
With our history of serving the public, we recognise that service quality depends first and foremost on the competence of our team. For this reason, we have always placed considerable emphasis on nurturing the CNP Assurances corporate community.
Our programmes to encourage staff mobility and internal promotions are one of the cornerstones of this policy. Fulfilling the aims of the agreement signed with employee representatives in 2003, more than 45% of vacancies arising in 2004 were filled internally (not including the CNP Trésor sales force). Forty-four employees were promoted to management positions, 63% more than in 2003. These figures testify to our commitment to offering employees genuine career opportunities, backed by training where necessary.
In 2004, we invested the equivalent of 4.4% of the payroll in staff training, the same proportion as the previous year. Two-thirds of employees received training during the year, for an average of 3.5 days and 4.7 days for members of the new CNP Trésor sales force.
Two other fundamental aspects of our human resources policy are equal opportunities and active social dialogue.
We were one of the first French companies to sign an agreement with employee representatives for the integration of disabled workers, in 1993 and have maintained this commitment down the years. The policy has been taken a step further in the 2004-2007 agreement, which not only sets targets for the hiring of disabled employees, but also includes a raft of measures to ease their integration through training, workplace improvements and mentoring. At the same time, outsourcing to companies that employ disabled workers has been stepped up, representing billings of some €1 million in 2004.
Negotiations were launched at the end of the year with employee representatives to set medium-term gender equality objectives, based on the results achieved to date.
Our commitment to social dialogue is reflected in the corpus of agreements signed with employee representatives, covering all fundamental issues in the life of the Company, and in the frequency of meetings. In 2004, as in prior years, the number of meetings of the Works Council and the Health, Safety and Working Conditions Committee exceeded the statutory minimum by more than 50%.
We naturally wanted to extend our culture of nurturing human resources to our new subsidiaries outside France. The management of our main foreign subsidiary, in Brazil, shares our values and its corporate report on employee issues published each year reflects a satisfactory situation.
External hires 354 permanent employees Difficulties were encountered in hiring and 100 under fixed-term contracts sales staff in certain regions
Use of subcontractors Information systems development: and temporary staff 352 people
We set high standards for transparent financial disclosure and are always ready to answer questions from our 240,000 private shareholders as well as from institutional investors. In 2004, we were once again rewarded for our efforts, winning the Top Com silver medal for corporate communications at the Top Com Corporate Business awards.
Information is available in our financial publications, on the www.cnp.fr website and via a toll-free number available to private shareholders in France. In addition, private shareholders are invited to meetings organized in France’s main towns and cities and have an opportunity to ask questions at presentation meetings, as well as during the sessions organised to explain the workings of the economy and the stock market.
In many cases, we have acted as a catalyst. For example, in elderly care – a highly fragmented sector in France with vastly differing levels of quality – the Gériapa Association set up and managed by CNP Assurances was the driving force behind several national initiatives in 2004. They include developing the new retirement home certification system introduced by the government during the year, and providing advice and assistance to ten home care and assistance associations in obtaining “NF Services” certification.
To promote increased employee participation, in 2004 a corporate philanthropy was created section on the Company intranet, providing news about projects supported by the Foundation.
In Brazil, our Caixa Seguros subsidiary helped finance several projects to combat child abuse in 2004, with the support of many employees and, in most cases, the joint backing of its distribution partner, Caixa Econômica Federal. Initiatives included the staging of plays and the creation of CDs with children from the favelas. In addition, various dental health care awareness campaigns were launched.
As a services company whose products are distributed by partner networks, our consumption of raw materials and renewable energy is very low. Consequently, the environmental aspects of sustainable development were not initially at the top of our list of priorities. However, we are now in the process of setting up a comprehensive reporting system for raw material and renewable energy consumption, which should be largely operational in the course of this year.
Without waiting to have detailed information, in 2004 we stepped up our drive in favour of environmentally sound practices. At our largest site, we have installed lowenergy light bulbs and sensors in common areas to turn off the lights automatically when the rooms are empty, and upgraded the air-conditioning system.
The corporate governance rules applied since the IPO regulate and optimise decision-making processes, in particular by striking an appropriate balance of powers between shareholders, the Supervisory Board and operations management.
The new procedure for appointing the Auditors is also designed to promote increased confidence in financial information. In accordance with the Loi de Sécurité Financière, at the Annual General Meeting held on 8 June 2004, resolutions were tabled by the Supervisory Board concerning the appointment of the Auditors. The proposals were approved by the French securities regulator (AMF), and the insurance regulator (Commission de Contrôle des Assurances) and were voted by the shareholders.
The first and second resolutions concern approval of the financial statements of the Company and the Group for the year ended 31 December 2004.
Consolidated net profit for the year amounted to €629.3 million, an increase of 8% compared with €582.6 million in 2003.
Including unappropriated income brought forward from 2003, in the amount of €816,139.73, total profit to be appropriated amounts to €523,960,542.60.
The Executive Board is recommending an 8.5% increase in the dividend, to €1.66 per share, representing a payout rate of just over 36%. The dividend will be paid as from
Under the amended 2004 Finance Act (article 39-IV), amounts held in the long-term capital gains reserve, up to a maximum of €200 million, must be transferred to an ordinary reserve account no later than 31 December 2005. We are therefore asking the General Meeting for a formal authorisation to make this transfer.
In accordance with the applicable tax rules, the 2.5% exit tax due on the transfer will be deducted from the ordinary reserve account.
• Transactions authorised on 7 September 2004 by the Supervisory Board, which approved in principle the contribution of the Company’s interest in Ixis Asset Management to the Ixis Asset Management Group (IAMG) holding company, and investment in IAMG shares of the proceeds from the redemption of Ixis Asset Management convertible bonds.
The transactions led to the signature of a shareholders’ pact, on 16 November 2004, between CNP Assurances and Caisse Nationale des Caisses d’Epargne, in the presence of Ixis Asset Management Group, and of an asset contribution agreement, on 26 November 2004, between CNP Assurances and CDC Finance-CDC Ixis.
Re-election/election of two members of the Supervisory Board (5th and 6th resolutions)
• Elect Henri Proglio, to replace Compagnie Suisse de Réassurances, which informed the Company that it will be resigning from the Supervisory Board on 7 June 2005.
Biographical information about the members of the Supervisory Board is included in the information sent out to shareholders in advance of the Annual General Meeting.
Renewal of the authorisation given to the Executive Board to trade in the Company’s shares. Maximum purchase price: €80 (7th resolution)
The purpose of this resolution, tabled at each Annual General Meeting, is to authorise the Executive Board to buy back up to 10% of the Company’s shares in accordance with the provisions of the EU regulation dated October 2004 concerning buyback programmes. The authorisation may be used: • To maintain a liquid market in the shares, under a liquidity contract entered into with an investment firm that complies with a code of ethics recognised by the Autorité des Marchés Financiers.
At 31 December 2004, the Company held 222,467 of its own shares, compared with 488,222 shares at the previous year-end.
The decision to make stock grants to employees and/or officers of the Company must be authorised in advance by a special resolution of the General Meeting, which may delegate to the Executive Board responsibility for implementing the plan. This is the purpose of the sole special resolution tabled at the Annual General Meeting.
The 2005 Finance Act introduced a new formula to promote employee share ownership, in the form of stock grants without consideration for employees and officers.
As well as helping to increase employee share ownership, stock grants without consideration represent a medium term deferrred remuneration system to be added to traditional forms of remuneration (basic salary, annual bonus).
The system does not replace rights issues for employees who are members of an employee share ownership scheme, which are open to all employees.
• For grantees, who will receive free shares whatever the share price.
Report of the Executive Board 11. Corporate governance structures 11.1 MEMBERS OF THE SUPERVISORY BOARD AND EXECUTIVE BOARD OF CNP ASSURANCES AND OTHER DIRECTORSHIPS HELD
Gilles Benoist - President of the Executive Board - Member of the Supervisory Board Born 12 December 1946 - Permanent representative of CNP of CDC Ixis SA First appointed: 9 July 1998 Assurances on the Board of Directors - Permanent representative of CNP Assurances Current term expires: June 2007 of CNP Caution SA on the Supervisory Board of Gimar CNP shares: 2,559 - Director of Caixa Seguros (Brazil) Finance SCA CNP corporate mutual - Representative of CNP Assurances, - Director of Dexia (Belgium) fund units: 639.97 Legal Manager of the following - Member of the Supervisory Board non-trading property companies: of Compagnie Internationale Société Foncière de la CNP; Société Civile André Trigano SA (since 29 March 2004) du 136, rue de Rennes; Société Immobilière de Construction et d’Acquisition de la CNP - Sicac; CNP Immobilier; Compagnie Immobilière de la CNP – Cimo; Société Civile Immobilière de la CNP; Vendôme Europe; Issy Desmoulins; Rueil Newton
Assurances on the Board of Directors of: Ecureuil Vie SA; Gespre Europe SA
Other directorships and functions within the CNP Group • Chairman of the Remunerations and Nominations
• Chairman of the Board of Directors of CNP International SA.
Member and Vice Chairman of the Supervisory Board of CNP Assurances. First elected: 19 November 2002/current term expires: June 2007.
Other directorships and functions • Chairman of La Poste SA. • Member of the Supervisory Board of Sogeposte SA. • Director of: Sopassure SA; Systar SA; Geopost SA; Sofipost SA; Efiposte SA; SF2 SA; Poste Immo SA. • Permanent representative of La Poste, director of: Geopost; Sofipost; Efiposte; SF2; Poste Immo. • Permanent representative of La Poste, Legal Manager of the following non-trading property companies: Les Iles; Galilée; Marengo; Bachelard.
• Permanent representative of RATP, Managing Partner of Financière Systra SNC.
Permanent representative of Caisse des Dépôts on the Supervisory Board of CNP Assurances since 16 January 2003.
Entreprises Equity Capital SAS • Member of the Supervisory Board of Caisse des Dépôts
Etienne Bertier Born on 25 February 1960. Member of the Supervisory Board of CNP Assurances. First elected: 9 September 2003/current term expires: June 2008.
Foncier de France SAS (GFF). • Member Steering Committee of Icade Pierre pour Tous
SAS. • Director of Financière Lille SA • Permanent representative of Icade on the Board of
Directors of Capri SA; EMGP SA; SCET SA; SCIC Habitat SA.
Directorships and functions within the CNCE Group • Member of the Supervisory Board of CNCE SA; Crédit
Foncier de France SA (CFF). • Permanent representative of Société Civile Immobilière
Other directorships and functions • Member of the Supervisory Board of Compagnie
Nationale du Rhône SA (CNR). • Chairman of SICAV Austral. • Permanent representative of Caisse des Dépôts on the
• Censor on Financière Lille SA. • Chairman of Caisse des Dépôts DI (Germany).
Directorships and functions within the CNCE Group • Member of the Supervisory Board of Crédit Foncier de
France SA (CFF). • Permanent representative of Caisse des Dépôts on the
Directorships within the SNCF Group • Director, Finance, Purchasing, Information and Telecommunication Systems, SNCF. • Member of the Board of Directors of: SOCRIF; SNCF
Directorships and functions within the CNCE Group • Chairman of the Executive Board of CNCEP. • Chairman of the Board of Directors of Erixel SAS. • Vice Chairman of the Board of Directors of Perexia SA. • Member of the Supervisory Board of Ixis Asset Management Group SA; CDC Entreprises SAS.
Board of CDC Ixis AM SA; CDC Ixis PCM SA; Ixis Corporate and Investment Bank SA.
• Legal Manager of CM Investissements SARL. • Director of Banque Internationale des Mascareignes
Other directorships and functions • Chairman of the Supervisory Board of: Crédit Foncier de France SA; Financière Océaor SA.
Directorships that expired in 2004 • Vice Chairman and Chief Operating Officer of Compagnie
Exploitation SAS; SFPMEI SAS. • Chairman of the Supervisory Board of Sogeposte SA; Xange Private Equity.
Member of the Audit Committee of CNP Assurances. Holds 50 shares.
Directorships and functions within the CNCE Group • Member of the Executive Board of CNCEP. • Chairman and Chief Executive Officer of Holgest SA. • Chairman of the Supervisory Board of: Banque San
Paolo SA; Ecureuil Gestion SA; Ecureuil Gestion FCP SA; Ixis Private Capital Management SA; Vega Finance SA.
• Member of the Supervisory Board of: Perexia SA; Ixis Corporate and Investment Bank SA (ex-CDC Ixis Capital Markets); Ixis Asset Management SA; Ixis Asset Management Group SA; Ixis Investor Services SA; Ecufoncier SCA.
• Director of: Erixel SAS; Vigéo SAS. • Permanent representative of Perexia on the Supervisory
Board of Gestrim SA. • Permanent representative of CNCE, director of: CEFI
• Director of Editions de l’Epargne SA. • Permanent representative of CNCE on the Board of
Other directorships and functions • Chief Executive Officer of Agence des Participations de l’Etat.
• Permanent representative of the State on the Boards of: Air France SA; France Télécom SA; Thalès SA; Alstom SA; Gaz de France SA.
• Director and Treasurer of: Mutuelle Générale de l’Education Nationale (MGEN); MGEN Union; MGEN Vie; MGEN Action Sanitaire et Sociale; MGEN Filia; MGEN Centres de Santé.
• Director of: Arts and Vie; Parnasse Maif SA; Parnasse Immo Scpi; Casden Banque Populaire (variable capital cooperative society) and the following Sicav mutual funds: Valorg; Natexis Convertibles Europe; MRC Titrisation.
Other directorships and functions • Member of senior management of Compagnie Suisse de
Great Britain Plc; Swiss Re Life & Health Ltd; Swiss Reinsurance Company UK Ltd; The Mercantile & General Reinsurance Company Ltd.
Member of the Supervisory Board of CNP Assurances. First elected: 6 June 2000/current term expires: June 2005. Chairman of the Audit Committee of CNP Assurances. Holds 50 shares.
Other directorships and functions • Vice Chairman of Goldman & Sachs International. • Director of: Scor SA; Caixa Seguros (Brazil); Jeronimo
Sicav mutual funds: Patrimoine Retraite; BP Obli 1re. • Director of Société d’Assurances Mutuelles La Mondiale.
• Chairman of Campus Veolia Environnement SAS. • Member and Chairman of the Supervisory Board of
• Legal Manager of Compagnie Générale des Eaux. • Permanent representative of CSP on the Board of
Transport AB (Sweden); Onyx Environmental Group Plc (United Kingdom); Collex Pty (Australia).
Other directorships and functions outside the Véolia Environnement Group • Director of Casino Guichard-Perrachon SA; EDF SA; Thales SA.
The members of the Executive Board who represent CNP Assurances on the boards of other companies do not receive any directors’ fees from these companies. To date, no stock options have been granted to members of the Executive Board. Each member of the Executive Board receives a fixed remuneration and a variable remuneration pegged to the overall financial performance of the Company and the achievement of certain personal objectives set at the beginning of each year. The amount of their variable remuneration ranges from 0% to 50% of their fixed remuneration. On the recommendation of the Remunerations and Nominations Committee, made on 4 March 2004, the Supervisory Board set the variable remuneration of
– Growth in the CNP share price. – Growth in recurring profit.
The total fees awarded to the Supervisory Board by the Annual General Meeting of 6 June 2000 (for 2000 and subsequent years) amounted to €426,857.25. Based on the recommendations of the Remunerations and Nominations Committee and the notifications received by the Company, the Supervisory Board allocated the 2004 fee among its members as shown in the table below.
In € TOTAL Chairman of the Fixed Fixed Directors’ Benefits Stock remuneration Supervisory Board remuneration CNP remuneration CNPI fees(1) in kind options paid in 2004
CNP employee-shareholders association (2) Philippe Baumlin decided to transfer his total fees (net of the tax cost) to CDC Tiers-Monde, a charity operating in developing countries.
Director Amount paid in 2005 in respect Paid to of 2004 (in €)
Michel Liès, representing Cie Suisse de Réassurances 3,050 Cie Suisse de Réassurances
Censors Amount paid in 2005 in respect Paid to of 2004 (in €)
“Other audit and special engagements” concern services such as the validation of subordinated debt issues and employee rights issues.
In-force 100 bps increase in bond and equities yield +489 +3.5 100 bps increase in discount rate –371 –2.7
Embedded value (NAV + In-force) 100 bps increase in bond and equities yield +384 +2.8 100 bps increase in discount rate –371 –2.7
The value of new business in 2004 was €110 million or €0.8 per share, an increase of 31% over the previous year.
Value of new business 0.69 Improved loss ratio – temporary disability 0.63 Employee benefit commitments –0.16 Tax 0.32 Financial management 0.56 Issuance of shares –0.08 Other 0.11 - Change in economic conditions +0.90 Change in financial markets 0.58 Change in tax rates 0.33 - One-year rollforward +2.90 In-force rollforward 0.54 Expected return on solvency margin 2.08 Return on equity (excluding solvency margin) 0.33
= New business after solvency margin carrying cost 110.0 0.79 84 0.61 2.2 BREAKDOWN BY COUNTRY AND APE (ANNUAL PREMIUM EQUIVALENT) MARGIN
Consolidated Financial Statements at 31 December 2004 144 Consolidated Financial Statements
Insurance company investments: 154,192.7 141,975.3 131,462.6 - Land and buildings 3,104.8 3,151.5 3,001.4 - Investments in non-consolidated companies and participating interests 6.6 46.6 77.4 71.6 - Other investments 151,041.3 138,746.4 128,389.6
Debtors resulting from insurance and reinsurance transactions 8 2,235.5 2,392.4 1,893.5
Other assets: 10 160.4 154.4 199.1 - Tangible fixed assets 47.2 48.2 52.8 - Other 113.2 106.2 146.3
Liabilities and shareholders’ equity - Issued share capital 554.5 551.4 551.4 - Share premium account 321.5 299.3 299.3 - Reserves and consolidated net profit 4,706.2 4,307.8 3,928.3 - Other 12.1 and 12.4 (89.3) (103.4) (80.2)
Consolidated profit and loss account In € millions 31/12/2004 31/12/2003 31/12/2002
• Ecureuil Vie issued €183 million worth of subordinated debt in November.
In all, 781,238 new shares were issued, raising the total number of shares to 138,635,302 from 137,854,064. After the two issues, the new capital stood at €554,541,208 compared with €551,416,256 previously. The total issue proceeds came to €25,311,940.56.
Pursuant to the 27 May 2003 announcement by the Minister of the Economy and Finance that the French Treasury would stop distributing CNP Assurances products at the end of the year, since 1 January 2004, CNP Assurances has been managing relations with policyholders who purchased their policy via the Treasury network.
Completion of the Fineco Vita acquisition On 17 February 2005, CNP Assurances and Fineco (Capitalia Group) completed the Fineco Vita transaction announced on 10 November 2004.
CNP Assurances has acquired 57.5% of Fineco Vita for €575 million, alongside Fineco which continues to hold 38.8%.
The consolidated financial statements include all companies that are at least 20%-owned by CNP Assurances or over which CNP Assurances exercises control or significant influence (Note 4.1), with the exception of entities whose shares are held in investment portfolios qualified as admissible assets, assets held to cover linked liabilities or other holdings that are not material in relation to the Group as a whole. The main non-consolidated entities are investment funds and partnerships set up to hold and manage rental properties.
Companies that are exclusively controlled by CNP Assurances are fully consolidated. Exclusive control is considered as being exercised where CNP Assurances holds, directly or indirectly, an absolute majority of voting rights at general meetings of the companies concerned.
Companies that are controlled jointly with one or several other shareholders are consolidated by the proportional method.
The balance sheets of foreign subsidiaries operating outside the euro zone have been translated at the period-end exchange rate and their profit and loss accounts have been translated at the average exchange rate for each halfyearly period.
At the time of acquisition of consolidated companies, fair value adjustments are made to the identifiable assets and liabilities acquired, based on their value in use at the date of acquisition.
These transactions are eliminated from the consolidated balance sheet and profit and loss account.
• Asset disposals Capital gains on intercompany sales of assets are neutralised.
• Share issue expenses are charged to the share premium account.
• Properties acquired since 1 January 1982: residential and office properties are depreciated over a period of 50 years and warehouses are depreciated over 15 years; • Fixtures and fittings are depreciated over 10 years. • The cost of property improvements is depreciated over the residual life of the properties concerned. • Provisions are booked to cover the cost of major repairs in accordance with the estimates contained in the tenyear plan drawn up when the property is delivered or at the end of the previous ten-year period.
Provisions for permanent impairment in value were recorded for the first time in 1995, following a change in insurance accounting principles. Provisions for permanently impaired assets carried in the balance sheet at 1 January 1995 were charged directly to reserves in the accounts of the individual Group companies and therefore had no impact on 1995 profit.
Provisions for permanent impairment in value of securities are recorded in accordance with the 18 December 2002 guidelines of the French National Accounting Board (Conseil National de la Comptabilité), which lay down the following calculation parameters: • All securities (i) that have already been written down by means of a provision, or (ii) for which there is objective evidence that all or part of the book value of the asset may not be recovered, or (iii) that have persistently traded at a discount of at least 20% over the last six months or 30% in periods of high market volatility, must be tested for impairment. This criterion applies to French or foreign equities and investment funds.
Bonds and other fixed income securities Premiums and discounts, corresponding to the positive or negative difference between the redemption price of securities and their cost excluding accrued interest at the date of acquisition, are amortised over the residual life of the securities. Decree of 28 December 1991. This method is applied to all portfolios. Amortisation is calculated by the yield-to-maturity method for fixed rate securities and by the straight-line method for floating rate securities.
Capital gains and losses on shares sold in connection with public tender offers are calculated by reference to either: • The bidder’s average share price for the period between the date on which the offer is launched and the date on which the target’s shares are exchanged for shares in the bidder, or
Net investment income (excluding mark-to-market adjustments to assets held to cover linked liabilities) is broken down by business segment between: (a) income generated by the investment of funds corresponding to technical reserves, which is included in the technical account and (b) income generated by the investment of funds corresponding to shareholders’ equity, included in the non-technical account.
• Swaps and asset swaps that convert fixed or adjustable rate revenue streams to adjustable rate.
Equity hedging • CNP uses put options to partially hedge its equity portfolio.
Currency hedging • CNP hedged against the Brazilian real at the time of the Caixa Seguros acquisition.
• Swaps and asset swaps are used to convert fixed or adjustable rate revenue streams to adjustable rate in different currencies.
Accounting treatment All financial instruments are reported in the notes detailing investments, in the same category as the underlying investment. When full ownership is not transferred, securities given or received as collateral are recorded at the recoverable amount in off-balance sheet commitments given and received.
Investment and disposal strategy: • The portion of the premium corresponding to underlying value is recorded in an accruals account until the strategy is completed. However, for interest rate caps or floors, the premium is recognised over the life of the instrument.
• Margin payments, other periodic flows and equalisation payments are held in an accruals account over the time frame for the strategy.
• When the strategy is completed, the balances of the accruals account or the results obtained on the financial futures are included in the cost of the purchased investments or in the sale price of sold investments.
• However, the straight-line method has been applied because the resulting amounts recognised in each period do not differ materially from the calculations performed based on the instrument’s effective yield.
Premiums on in-force business are recorded in the profit and loss account after the following adjustments: • Premiums not yet written on group policies including whole-life cover are recorded in the profit and loss account based on an estimate of the portion of the premium earned during the period.
The reserve for policy administration expenses was set up in application of section A. 331-1 of the Insurance Code, which was subsequently amended by Government order dated 29 December 1998. The reserve is calculated in accordance with the provisions of the Government order. It also complies with the tax-deductibility rules contained in the amended Finance Act of 30 December 1998.
The claims reserve includes claim settlements, benefits and endowments payable at the period-end.
Premium income corresponds to earned premiums for the period, including: • Estimated earned premiums not yet written at the period end.
• Changes in unearned premium reserves (corresponding to the portion of written premiums not earned during the period).
Claims reserves are determined based on the estimated cost net of recoveries, if any.
• Business acquisition costs include all selling, logistics and administrative expenses incurred in connection with the writing of new business.
Other expenses represent expenses corresponding to activities that are not directly related to the insurance business.
Expenses are accounted for and allocated as follows: • Operating expenses are initially accounted for by type before being re-allocated according to cost accounting principles.
• Expenses that relate directly to a cost accounting section are allocated in full to the section concerned.
Deferred tax assets and liabilities expected to reverse in the same period and governed by similar tax rules are netted off at the level of each taxable entity or tax group. Deferred tax assets corresponding to tax loss carryforwards are not recognised unless their recovery is considered highly probable. Net deferred tax assets are recognised only when their recovery is considered reasonably possible in the foreseeable future. Deferred tax assets and liabilities are discounted only when the discounted amounts are material and the period in which timing differences are likely to reverse can be reasonably estimated.
In accordance with these rules and the framework agreement signed by the CDC Group on 7 July 1999, all employee benefit commitments are now recognised in the balance sheet, including for employees who have civil servant status.
Note 4 Scope of consolidation 4.1 CONSOLIDATED COMPANIES AND PERCENT INTEREST
Investissement Trésor Vie F France 100.00% 100.00% Insurance 347 932 436
Ixis Asset Management Group(3) EQ France 14.10% 20.00% Finance co. 329 450 738
Companies accounted for by the equity method Ixis Asset Management Group 14.10% 196.0 (101.5) 2.6 Previsol AFPJ 29.84% 7.2 (6.3) (0.7) Previsol Seguros de Retiro 29.82% 0.8 0.7 0.2 Previsol Seguros de Vida 29.87% 0.8 (0.1) 0.3 Provincia Seguros de Vida 40.00% 5.0 (4.0) 0.2
Companies accounted for by the equity method CDC Ixis Asset Management 20.00% 145.0 (114.7) 8.6 Previsol AFPJ 29.84% 7.2 (5.5) 0.0 Previsol Seguros de Retiro 29.82% 0.8 0.5 0.2 Previsol Seguros de Vida 29.87% 0.8 (0.2) (0.2)
AT 31 DECEMBER 2002 Fully consolidated companies Assurbail 99.07% 194.4 27.4 12.1 Caixa (sub-group) 51.75% 472.4 (52.3) 10.5 CNP Assurances (parent company) 100.00% 4,066.3 486.4 CNP IAM 100.00% 245.6 201.0 24.8 CNP International 100.00% 23.3 8.9 1.2 CNP Seguros de Vida 76.47% 6.1 (3.4) 1.4 Ecureuil Vie 50.00% 451.7 336.5 57.0 Global 83.52% 50.5 (0.1) 1.2 Global Vida 83.57% 26.3 (1.3) 0.3 Investissement Trésor Vie 100.00% 22.4 27.1 7.1 Préviposte 100.00% 125.8 167.1 25.4 SCI CNP Immobilier 100.00% 0.8 (9.2) (4.2) SCI Sicac 100.00% 5.1 37.8 7.7 Proportionally-consolidated companies
Companies accounted for by the equity method Carivita 20.00% 20.7 14.4 4.4 CDC Ixis Asset Management 20.00% 145.0 (95.7) (62.2)
Previsol Seguros de Retiro 29.82% 0.8 0.3 1.0 Previsol Seguros de Vida 29.87% 0.8 0.0 0.6 Provincia Seguros de Vida 40.00% 5.0 (4.2) 0.3
Value of acquired in-force business Caixa Seguros (Brazil) in-force business 122.6 (49.4) (45.1) 28.1 35.7 45.0
Unrealised gains correspond to the difference between estimated market value and net book value. Realisation of these gains will give rise to certain entitlements, including for policyholders, and the gains may also be taxable.
The unrealised gains and losses shown in the above table include minority interests.
Securities sold under repurchase agreements are carried under assets at historical cost. The assets acquired with the corresponding loan are also included in investments. The debt corresponding to the loan is recorded under “debt securities”.
Equities and other variable income securities 511.1 426.5 242.7 Bonds and bond funds 155.2 103.2 105.1
Equities and other variable income securities 11.1 11.1 14.6 Bonds and bond funds 7.3 5.0
Note 8 Debtors resulting from insurance and reinsurance transactions * Including €26.2 million in deferred tax assets for 2004, €26.3 million for 2003 and €41 million for 2002
The contribution of Ixis AM Group to 2004 consolidated profit breaks down as folllows: In € millions
Note 10 Other assets * In 2004, premiums paid on options were reclassified as assets in the amount of €277.1 million
Note 12 Shareholders’ equity 12.1 CHANGES IN SHAREHOLDERS’ EQUITY IN 2004
Shareholders’ equity attributable to the Group * Including effect of a change of method (employee benefits) deducted from equity in the amount of €22.5 million ** The recommended dividend for 2004 amounts to €1.66 (2003: €1.53, 2002: €1.49, 2001: €1.39, 2000: €1.08 and 1999: €0.88).
SHAREHOLDERS’ EQUITY AT 31 DECEMBER 2004 AFTER APPROPRIATION 554.5 321.5 4,476.1 (122.2) 32.9 (89.3) 5,262.8
In € millions Other Reserves Profit for Cumulative Revaluation Total Total the year translation reserve shareholders’ adjustment equity - Change in capital - Net profit for the year 139.3 139.3
Shareholders’ equity attributable to the Group * The dividend for 2003 amounted to €1.53 (2002: €1.49, 2001: €1.39, 2000: €1.08 and 1999: €0.88). No dividends are paid on treasury shares
In € millions Other Capital Share Reserves Profit for Cumulative Revaluation Total Total premium the year translation reserve shareholders’ adjustment equity - Change in capital - Net profit for the year 582.6 582.6
Foreign currency Total Attributable to the Group Minority interests At 31 Dec. 2004 At 31 Dec. At 31 Dec. 2004 At 31 Dec. At 31 Dec. 2004 At 31 Dec.
Issuer Type Currency 2004 2003 2002 Interest rate paid Maturity 11 May 1999 CNP Assurances Subordinated notes € 450.0 450.0 450.0 4.625% 11 May 2009
CNP Assurances Perpetual bonds 5.75% until 2011 From and Euribor +157 bps 11/04/2011 from 11/7/2011 to 2021 5.25% until 2013 From and Euribor +200 bps 16/05/2013 from 11/7/2013 to 2023 4.7825% until 2013 From and Euribor +200 bps 24/06/2013 from 24/06/2013 to 2023 and Euribor +160 bps Undated from 15/11/2016
The policyholders’ surplus reserve is payable on demand and, in accordance with the Insurance Code (Article A. 331-9) must be paid out to policyholders or transferred to the mathematical reserve within eight years.
The change in other technical reserves between 2002 and 2003 primarily reflects the reversal of the liquidity risk reserve and the reclassification of certain Caixa Seguros reserves in life premium reserves.
Gross technical reserves: 149,805.2 343.8 1,053.8 151,202.8 - Life technical reserves 145,491.0 220.9 947.7 146,659.6 - Non-life technical reserves 4,314.2 122.9 106.1 4,543.2
Note 15 Liabilities resulting from insurance and reinsurance transactions * For 2003, reclassification of unpaid benefits in claims reserves
Other liabilities are denominated essentially in euros and are mainly due within one year.
Note 18 Off-balance sheet commitments * Including, in 2004, off-balance sheet financial instruments in the amount of €977.2 million
In € millions Amount Remaining lives Appreciation Commitments Commitments Due within Due in 1 Due beyond received given 1 year to 5 years 5 years
CNP Assurances also holds an option on an additional 20% of the capital of Ixis AM Group.
Market to market gains on assets held to cover linked liabilities 1,414.2 1,668.9 1,181.4
In 2004, “Other businesses” includes the turnover of Caixa Consorcio, a provider of insurance-related services. This company reported operating profit of €5.2 million in 2004, three times the 2003 amount.
Note 20 Premium income 20.1 PREMIUM INCOME BY BUSINESS SEGMENT AND TYPE OF POLICY
GROSS PREMIUM INCOME 21,441.8 19,460.9 18,360.5 20.2 PREMIUM INCOME BY PARTNERSHIP CENTRE
* Reclassification in 2002 of an Ecureuil Vie product from Personal Risk to Savings and a Caixa Seguros product from Personal Risk to Pensions
GROSS PREMIUM INCOME 21,441.8 19,460.9 18,360.5 20.5 BREAKDOWN BETWEEN DIRECT BUSINESS AND INWARD REINSURANCE
* Including LPS and branches for €44.3 million in 2004 and €7.3 million in 2003
Gross premium income by geographic area 31/12/2004 31/12/2003 31/12/2002 In € millions
Note 21 Claims expenses and change in technical reserves 21.1 CLAIMS EXPENSES
The tax rate differential primarily concerns items taxed at a reduced rate.
In accordance with the terms of our appointment at the Annual Shareholders’ Meeting, we have audited the accompanying consolidated financial statements of CNP Assurances and its subsidiaries for the year ended
In our opinion, the consolidated financial statements give a true and fair view of the consolidated assets and liabilities and financial position of CNP Assurances and its subsidiaries at December 31, 2004 and the consolidated results of operations for the year then ended, in accordance with French generally accepted accounting principles.
In accordance with the professional standard dealing with accounting estimates, we assessed the appropriateness of the methods and assumptions used by reference to the Group’s regulatory environment, its experience and other considerations. These procedures formed the basis of our assessment of the reasonableness of the estimates.
• Provisions for permanent impairment in value of securities held in the portfolio are determined by the method described in note 3.3.2 to the consolidated financial statements.
Report of the Auditors on the consolidated financial statements Year ended 31 December 2004
• In connection with our assessment of the accounting policies applied by the Company, we obtained assurance concerning the validity of the change of accounting method referred to above and the description thereof.
These assessments were made in connection with our audit procedures on the consolidated financial statements, taken as a whole, and contributed to the formulation of the unqualified audit opinion expressed in the first section of this report.
Off-balance sheet commitments In € millions 31/12/2004 31/12/2003 31/12/2002 2a. Loan guarantees 20.0 40.0 2b. Securities and other assets purchased under resale agreements 136.3 420.8 2c. Other commitments related to securities, assets or income 747.0 949.0 863.2 2d. Other commitments given 488.3 403.3 327.1 3. Securities lodged as collateral by reinsurers 4,108.2 3,518.4 2,978.2
Profit and loss account Non-life technical account Net amounts In € millions 31/12/2004 31/12/2003 31/12/2002
Life technical account Net amounts In € millions 31/12/2004 31/12/2003 31/12/2002
Change in life premium reserves and other technical reserves (3,234.9) (2,713.0) (785.9)
Profit before tax, depreciation, amortisation and provisions (EBTDA) 822,744.3 718,873.4 309,106.9 594,615.2 452,553.1
Total payroll including benefits (in € thousands) 201,760.2 191,473.3 172,176.8 149,483.0 150,593.4
Subsidiaries and affiliates Head office Currency Capital Reserves and In € thousands retained earnings
CDC Ixis Asset Management 7, place des 5 martyrs du lycée Buffon BP 541 - 75725 EUR 51,516 618,153 CDC Ixis Italia Holding(1) 56, rue de Lille 75007 EUR NAv NAv Centre Commercial La Défense 15, parvis Défense 92800 EUR 3,048 0 Europe Partners(1) Forum House - Grenville Street JE24UF St Helier EUR 67,887 NAv Foncière CNP 4, place Raoul Dautry 75716 EUR 15 (4,380) Foncière Image 42, avenue Raymond Poincaré 75116 EUR 42,980 20,867 Holdco(1) 26-28, rue Neuve Tolbiac 75658 EUR 15,108 29,919 Ilôt A5B 42, avenue Raymond Poincaré 75116 EUR 42,199 8,948 Inparsa(1) Lugar do Espido Via Norte, Maia Portugal EUR NAv NAv JV-Sino-French-Postal(1) RMB 200,000 NAv L’Amiral 31, rue de Mogador 75009 EUR 30,490 0 LL Porto Retail(1) Praceta Henrique Moreira n°244, 2° floor, Afurada,
The financial and accounting information on pages 183 to 187 has been extracted from the annual financial statements of CNP Assurances for the years ended 31 December 2004, 2003 and 2002. These financial statements were approved by the Executive Board. With Calan Ramolino, we issued true and fair view opinions on the financial statements for the years ended 31 December 2003 and 2002 in our statutory auditors’ reports dated, respectively, 26 April 2004 and 7 April 2003. We issued a true and fair view opinion on the financial statements for the year ended 31 December 2004 in our statutory auditors’ report dated 25 April 2005.
We have no comments as to the conformity of this financial and accounting information with the annual financial statements.
on the report of the Chairman of the Supervisory Board of CNP Assurances on internal control procedures related to the preparation and processing of accounting and financial information.
The Chairman of the Supervisory Board is required to report on the conditions applicable for the preparation and organization of the work carried out by the Supervisory Board and the internal control procedures implemented within the Company.
We conducted our work in accordance with the professional guidelines applicable in France. Those guidelines require that we perform procedures to assess the fairness of the information given in the Chairman’s report about internal control procedures related to the preparation and processing of accounting and financial information. These procedures included: • Reviewing the internal control objectives, general organization and procedures related to the preparation and processing of accounting and financial information, as described in the Chairman’s report.
Auditors’ report prepared in application of Article L. 225-235 of the Commercial Code,
Special report of the Auditors Year ended 31 December 2004 on regulated agreements
• a €50,936,122.14 receivable arising from the early redemption of Ixis Asset Management convertible bonds held by CNP Assurances.
AGREEMENTS AUTHORISED IN PRIOR YEARS THAT REMAINED IN FORCE DURING THE YEAR
Under the terms of the Framework Agreement (as amended by the addenda of 14 December 2000, 25 March 2002 and 16 December 2003), the network distributes life insurance polices marketed by Ecureuil Vie and CNP manages the said policies.
Two secondary agreements have been signed: • A Service Agreement between CNP Assurances and Ecureuil Vie, which specifies the services to be performed by CNP Assurances with respect to the administrative management of the policies written by Ecureuil Vie and the corresponding remuneration, and therefore deals with the financial arrangements between CNP Assurances and Ecureuil Vie.
• A Commission Agreement between Ecureuil Vie and CNCEP, which sets out the method to be used to determine the commission to be paid to the network for the distribution of Ecureuil Vie products and therefore deals with the financial arrangements between Ecureuil Vie and CNCEP.
The Framework Agreement has been extended to 31 December 2008, after which it is automatically renewable for successive two-year periods.
On 28 June 1995, CNP and Ecureuil Vie signed a Service Agreement (as amended by the addenda of and 16 December 2003) specifying CNP Assurances’ remuneration for the administrative management of Ecureuil Vie products.
In exchange for its administrative management services, CNP Assurances receives an annual fee based on the value of assets under management and the type of contract. For the administrative management of whole life policies, the annual fee corresponds to a percentage of annual premiums paid by policyholders.
Partnership agreement between CNP Assurances, Dexia Credit Local de France (Dexia CLF) and Sofca
Amounts recorded in CNP Assurances’ accounts in 2004 in respect of this agreement consisted of: • A €7.8 million working capital advance, and
The interest rate on the notes is 5.595% per year. It is adjustable every ten years at the option of the issuer, on the basis defined in the issue agreement. Annual interest payments are made only in cases where Ecureuil Vie’s financial statements for the year ended immediately prior to the interest payment date show a book profit. Failing that, or if the amount of book profit is not sufficient, settlement of the unpaid fraction of the interest will be deferred. Deferred interest will bear interest at the nominal annual rate for the period plus 3%.
• Variable fee calculated at a declining rate based on the value of assets under management, with different rates applying according to the type of securities held.
Fees paid by CNP Assurances in respect of 2004 amounted to €11.9 million.
This agreement did not have any financial impact on the 2004 accounts of CNP Assurances.
CNP Assurances 4, place Raoul Dautry 75716 Paris cedex 15 Registered in Paris under no. 341 737 062 APE business identifier code: 660 A
CNP Assurances is a société anonyme (public limited company) with a two-tier management structure (Executive Board and Supervisory Board). It is governed by articles L. 225-57 to L. 225-93 of the French Commercial Code and by the French Insurance Code.
Its activities are supervised by the French insurance industry watchdog (Commission de Contrôle des Assurances).
The origins of the Company date back to 1850 when Caisses Nationales d’Assurances was founded. CNP Assurances was created in 1959 as a public sector company. It was transformed into a société anonyme on 16 July 1992. It has a 99-year term expiring on 15 July 2086.
The Company’s purpose is to write life insurance and bodily injury insurance business and to hold majority interests in insurance companies.
The Annual General Meeting may decide to appropriate all or part of net profit for the year to any reserve accounts or to distribute all or part of net profit in the form of dividends, based on recommendations made by the Executive Board.
The Annual General Meeting may also decide to offer shareholders the option to receive all or part of the dividend or any interim dividends in the form of shares.
To be entitled to attend General Meetings in person or be represented by proxy, holders of bearer shares are required to obtain from the bank or broker that manages their share account a certificate stating that their shares have been placed in a blocked account preventing their sale up to the date of the meeting. This certificate must be delivered to the Company at least five days prior to the date of the meeting.
In the case of non-compliance with this requirement, the shares that should have been disclosed may be stripped of voting rights for a period of two years as from the date on which the omission is remedied.
The above disclosure thresholds are in addition to those provided for by law.
2. General information about the Company’s capital 2.1 SHARE CAPITAL, PAR VALUE OF THE SHARES
The main terms of the authorisation given to the Executive Board at the Annual General Meeting of 4 June 2002 are as follows: Five-year authorisation to issue up to €10 million worth of shares to the management and employees of the Group who participate in a CNP Group Employee Savings Plan.
At the Annual General Meeting of 3 June 2003, the authorisation given at the 2002 Annual General meeting was amended. The main terms of the current authorisation are as follows: 38-month authorisation to grant stock options to management and key employees, or all employees, of the Group. The options will be exercisable for shares at an exercise price equal to the market price on the date of grant (or the average price paid for the shares held in treasury for allocation on exercise of the options). The total number of options granted will not be exercisable for shares representing more than 0.5% of CNP Assurances’ capital. The exercise period will end at the latest six years after the date of grant.
The number of CNP Assurances shares that may be held by the Company at any given time is limited to 10% of the capital. The maximum purchase price of the shares is set at €80 and the amount that may be invested in the programme is capped at just over €1.1 billion.
The authorisation may be used: • To maintain a liquid market in the shares, under a liquidity contract entered into with an investment firm.
• To buy back shares for cancellation, in order in increase return on equity and earnings per share, or to offset the dilutive effect of share issues.
CNP has been a company limited by shares since 1992. Changes in the Company’s capital since 1992 are presented below: General information
23 April 1993 Issuance of shares for cash 3,170,000 FRF 317,000,000.00(1) FRF 538,900,000.00 27 October 1994 4-for-1 stock-split 126,880,000 FRF 3,172,000,000.00(2) 18 September 1998 Issuance of shares for cash 9,803,922 FRF 245,098,050.00(2) FRF 1,244,619,067.00 31 December 2000 Employee rights issue 443,786 FRF 11,094,650.00(2) FRF 67,620,016.00 1 January 2001 Capital increase paid up by capitalising reserves, carried out in connection with the conversion of the capital into euros - €25,886,223.98(3) 22 December 2004 International employee rights issue 49,836 €199,344.00 €1,678,476.48
On 16 September 1998, the Conseil des Marchés Financiers ruled that the signatories of the agreement constitute shareholders acting in concert.
• In October 2000, the signatories of the agreement submitted to the Conseil des Marchés Financiers a plan to reorganise their interests in CNP Assurances, as follows: – Acquisition by the Caisse d’Epargne Group of 5.5% of CNP Assurances’ capital from Caisse des Dépôts (3%), La Poste (2%) and the
French State (0.5%). – Transfer of the interests held by La Poste and the Caisse d’Epargne Group (18% each) to a joint holding company, Sopassure, 50.1%owned by La Poste and managed on an equal basis. – Reduction in the interests of CDC from 40% to 37% and of the French State from 1.7% to 1.2%.
• In an addendum signed on 26 May 2003, the parties agreed to extend the duration of the pact until 31 December 2008. The extension of the pact was announced by the French securities regulator (CMF) on 30 May 2003 (CMF No. 203C0823).
TOTAL SHARES HELD BY THE SIGNATORIES OF THE SHAREHOLDERS’ PACT* 101,393,501 73.14% 73.25%
General information 2.6 CHANGES IN OWNERSHIP STRUCTURE OVER THE LAST FIVE YEARS
• Following the transfer of CNP Assurances to the private sector, the French State continued to hold 2.24% of the Company’s capital. A total of 61% of CNP Assurances’ capital was still in the hands of public sector shareholders, including the interests held by Caisse des Dépôts et Consignations and La Poste.
• Using the authorisation given at the Special General Meeting of 18 September 1998, the Executive Board decided on the same day to increase the Company’s capital by FRF 245,098,050 to FRF 3,417,098,050, through the issuance of 9,803,922 shares with a par value of FRF 25. The new shares were issued at a price of FRF 153, including a premium of FRF 128, and are in the same class as existing shares. The issue price was determined by reference to the prices at which the shares held by the French State were sold to private sector shareholders and the price spread of FRF 149 to FRF 153 set by the Ministry of the Economy for the CNP Assurances initial public offering.
• On 19 December 2000, the main shareholders of CNP Assurances – Caisses des Dépôts et Consignations, La Poste, Caisse d’Epargne Group and the French State – decided to reorganise their interests. The process was completed on 5 January 2001, at which point the respective 18% interests of La Poste and the Caisse d’Epargne Group were held by a joint holding company, Sopassure, which thus owns 36% of the capital of CNP Assurances, the interest of Caisses des Dépôts stood at 37% versus 40% prior to the reorganisation and the interest of the French State came to 1.2% versus 1.7%.
The issue proceeds totalled €23,434,120.08, including €2,925,608 credited to the capital account and €20,508,512.08 to the share premium account. Following this issue, the share capital amounted to €554,341,864, divided into 138,585,466 ordinary shares.
The issue proceeds totalled €1,877,820.48, including €199,344 credited to the capital account and €1,678,476.48 to the share premium account. Following this issue, the share capital amounted to €554,541,208, divided into 138,635,302 ordinary shares.
CNP Assurances was floated on the Paris Stock Exchange on 6 October 1998. The shares are traded on the Euronext Paris market, ISIN code FR0000120222. CNP Assurances is included in the following indices: SBF 120, DJ Eurostoxx Insurance, CAC Next 20 and MSCI France.
Dividends not claimed within five years are statute-barred and are paid over to the State.
3. Supervisory Board, Executive Board and Auditors 3.1 MEMBERSHIP OF THE SUPERVISORY BOARD AND EXECUTIVE BOARD
3.3 AGREEMENTS INVOLVING MEMBERS OF THE EXECUTIVE BOARD AND THE SUPERVISORY BOARD
3.4 LOANS AND GUARANTEES GRANTED TO MEMBERS OF THE EXECUTIVE BOARD AND THE SUPERVISORY BOARD
The net profit-share attributable to each eligible employee is held in a blocked account managed by Fongépar for five years and bears interest at the rate of 5% per year (from 1 April of the payment year). The profit-share and related interest are exempt from tax. Early withdrawals are allowed only in certain specific circumstances, but employees may apply at any time within the 5-year lockup period to transfer the entire amount to the employee share ownership plan.
KPMG SA 1992 AGM to approve the 2009 1, cours Valmy financial statements 92923 Paris-La Défense Cedex represented by Régis Tribout Substitute: Gérard Rivière 1992 AGM to approve the 2003 financial statements
Substitute: SCP Jean-Claude Andre 2004 AGM to approve the 2009 financial statements
Substitute: Franck Boyer 2004 AGM to approve the 2009 financial statements 1.4 STATEMENT BY THE AUDITORS DOCUMENT DE RÉFÉRENCE DATED 26 APRIL 2005
In our capacity as statutory auditors of CNP Assurances and as required by the Autorité des Marchés Financiers’ General Rules (Article L. 211-5-2 of Book II), we have examined in accordance with French professional standards the information about the financial position and the historical accounts included in this Document de Référence.
“To the best of our knowledge, the information disclosed in this Document de Référence is correct. It includes all the information required by investors to form an opinion on the assets and liabilities, business, financial condition, results and outlook of the issuer. No information has been omitted that would be likely to alter an investor’s opinion.”
With the exception of embedded value, this document does not contain any forward looking information determined according to a structured process.
We also audited the financial statements of the Company and the Group for 2004 prepared in accordance with French generally accepted accounting principles, as approved by the Executive Board. Our reports on these consolidated financial statements did not contain any qualifications or emphasis of matter. They included an observation concerning the change of accounting method for employee benefits, described in the notes to the financial statements.
Antoine Lissowski Member of the Executive Board 4, place Raoul Dautry 75716 Paris Cedex 15
The Company’s headquarters 4, place Raoul Dautry 75716 Paris Cedex 15 Shareholder Relations Department www.cnp.fr
This document includes: • The Statement by the Auditors on the extracts from the Company financial statements for the years ended 31 December 2004, 2003 and 2002, and the Auditors’ Report on the consolidated financial statements for the year ended 31 December 2004, including the justification of their assessments, prepared in accordance with Article L. 225-235 of the Commercial Code (see pages 188 and 181-182).