CORPORATE GOVERNANCE 99 3.1 Corporate governance structure 100 3.2 Executive compensation and share ownership 128 3.3 Corporate Governance Code of Reference 158 3.4 Related-party transactions 159
RISK FACTORS AND RISK MANAGEMENT 163 4.1 Risk factors 164 4.2 Internal control and Risk Management 181 4.3 Market risks 195 4.4 Credit risk 202 4.5 Liquidity risk 206 4.6 Insurance risks 207 4.7 Operational risk 212 4.8 Other material risks 213
CONSOLIDATED FINANCIAL STATEMENTS 215 5.1 Consolidated statement of financial position 216 5.2 Consolidated statement of income 218 5.3 Consolidated statement of comprehensive income 219 5.4 Consolidated statement of changes in equity 220 5.5 Consolidated statement of cash flows 224 5.6 Notes to the Consolidated Financial Statements 226 5.7 Report of the Statutory Auditors on the consolidated financial statements 370
SHARES, SHARE CAPITAL AND GENERAL INFORMATION 377 6.1 AXA shares 378 6.2 Share capital 379 6.3 General information 385
CORPORATE RESPONSIBILITY 397 7.2 Social information 403 7.3 Climate change and the environment 414 7.4 Inclusive insurer 424 7.5 Business behaviour 428 7.6 Vigilance Plan 435
APPENDICES 441 Appendix I Management’s annual evaluation of internal control over financial reporting 442 Appendix II Statement of the person responsible for the Registration Document 445 Appendix III AXA parent company financial statements 446 Appendix IV Group Embedded Value and Solvency II Own Funds 474 Appendix V Glossary 475 Appendix VI Board of Directors’ report – Cross-reference table 480 Appendix VII Corporate Governance report – Cross-reference table 481 Appendix VIII European Commission regulation (EC) No. 809/2004 of April 29, 2004 –
Cross-reference table 482 Appendix IX Annual Financial Report – Cross-reference table 486
Where reference is made to a website in this Registration Document, the contents of such website do not form part of this Registration Document. No information, document or material from the website of the Company (www.axa.com) or any other source shall form part of this Registration Document, unless such information, document or material is expressly incorporated by reference into this Registration Document.
Cautionary statement regarding forward-looking statements and the use of non-Gaap Financial Measures
This Annual Report may include statements with respect to future events, trends, plans, expectations or objectives and other forward-looking statements relating to the Group’s future business, financial condition, results of operations, performance, and strategy. Forward-looking statements are not statements of historical fact and may contain the terms “may”, “will”, “should”, “continue”, “aims”, “estimates”, “projects”, “believes”, “intends”, “expects”, “plans”, “seeks” or “anticipates”, or words of similar meaning. Such statements are based on Management’s current views and assumptions and, by nature, involve known and unknown risks and uncertainties; therefore, undue reliance should not be placed on them. Actual financial condition, results of operations, performance or events may diff er materially from those expressed or implied in such forward-looking statements, due to a number of factors including, without limitation, general economic and political conditions and competitive situation; future financial market performance and conditions, including fluctuations in exchange and interest rates; frequency and severity of insured loss events, and increases in loss expenses; mortality and morbidity levels and trends; persistency levels; changes in laws, regulations and standards; the impact of acquisitions and disposal, including related integration issues, and reorganization measures; and general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of catastrophic events, including weather-related catastrophic events, or terrorist-related incidents. Please refer to Part 4 – “Risk factors and risk management” of this Annual Report for a description of certain important factors, risks and uncertainties that may aff ect AXA’s business and/or results of operations. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise, except as required by applicable laws and regulations.
The results of our US segment are presented on the basis of IFRS and are not, and should not be relied upon as representing, the US GAAP results of AXA Equitable Holdings, Inc. (“AEH”) (including AB), which, as a US public company, reports in US GAAP in accordance with the rules of the US Securities and Exchange Commission (“SEC”). For further information on AEH’s financial results and other public reports please consult the SEC website at www.sec.gov.
In 2018, we continued to place corporate responsibility at the heart of our strategy. We firmly reiterated our commitment to the fight against climate change, in particular by extending our business restrictions on coal and oil sands to the XL Group entities. This substantial eff ort
We continued the successful development of health and prevention products for emerging consumers, reaching nearly 9.3 million clients by the end of 2018.
Finally, in line with our decision to divest from the tobacco industry in 2016, we supported the launch of the “Tobacco-Free Finance Pledge (1)” initiative during the United Nations General Assembly in September 2018. This initiative aims at de-normalising the relationship between the financial community and the tobacco industry. It is supported by more than 130 investors representing USD 6,800 billion assets under management, and I am delighted that the momentum of our initial disinvestment is continuing successfully.
On behalf of myself and the Board, I would like to express my warmest thanks to all employees of the Group for their commitment and the energy invested in 2018 in this new decisive step in the Group’s transformation.
2018 was a decisive year in the history of AXA Group.
Our industry faces unprecedented transformation. New protection needs arise all over the world. Emerging risks linked to cybersecurity and climate change generate and exacerbate these new needs, as do the development of new forms of labour and the soaring healthcare costs in more and more countries.
This year, our Group delivered once again on our Ambition 2020 commitments. Our earnings increased, including in our key geographies and segments, exceeding 6 billion for the second consecutive year. Further evidence that our business priorities are reflected in our overall performance is that several of our key segments have recorded strong growth figures for 2018, like health insurance, the revenues of which grew at a healthy 7%, or P&C Commercial lines which grew by 5%. With underlying earnings per share up 3%, adjusted return of equity at 14.4%, operating free cash flows at €6.6 billion and a solvency ratio well within our target range at 193%, we have ticked all the boxes and delivered on our financial targets, confirming our trajectory to achieve our strategic plan Ambition 2020.
WE CREATE PRODUCTS AND SERVICES enabling our customers to transfer their risks. In return, they pay us contributions, premiums or deposits, investing in the future.
WE IDENTIFY, evaluate and pool risks to people, property and assets for a more stable society. We help our customers reduce their risks.
EMPLOYEES €9.3bn compensation costs of salaried employees 327,011 training days of salaried workforce 5.19% of capital owned by employees and agents
By leveraging upon its expertise and relationships with other leading players across sectors, AXA is designing innovative services in order to strengthen its relationship with its clients, through high value added interactions. This innovation philosophy notably involves building, together with companies such as Uber or ING, bespoke solutions tailored to client needs. With the set-up of its new subsidiary AXA Next, the Group now has an entity dedicated to creating disruptive business models to meet tomorrow’s needs.
In line with the strategic priorities set out in the Ambition 2020 plan, 2018 was a year of transformation leap for AXA, with a significant rebalancing of its risk profile and continued shift towards its preferred segments: Health, Protection and P&C Commercial Lines. With the transformation of the Group Life business in Switzerland, the announced sale of AXA Life Europe and, above all, the initial public off ering followed by a secondary off ering of AXA Equitable Holdings, Inc., the Group significantly reduced its exposure to financial risks, which by nature are harder to diversify as compared to insurance risks.
With the acquisition of the XL Group, AXA became the #1 global P&C Commercial lines insurer. This acquisition is aligned with AXA’s Ambition 2020 preferred segments favoring product lines with high frequency customer contacts, quality service and superior technical expertise. The XL Group provides both a premier specialty platform complementing and diversifying AXA’s existing commercial lines insurance portfolio, and reinsurance capabilities that will allow AXA an access to enhanced diversification and alternative capital. With the integration of the XL Group, AXA will be able to support different types of clients by drawing on its expertise to face the new challenges linked to globalisation, such as cyber risks or climate change.
With the transformation in 2018, the Group confirmed its Ambition 2020 strategic plan financial targets, increased its underlying ROE target from 12-14% to 14-16%, and increased its dividend payout range from 45-55% to 50-60% of adjusted earnings net of financial charges related to undated subordinated debt, XL Group preferred shares and equity components of mandatory exchangeable bonds into shares of AXA Equitable Holdings, Inc. Furthermore, the Group has repositioned the upper limit of its Solvency II ratio target range from 230% to 220%.
All of the Group’s actions are aimed at creating value and purpose, not only for its clients and partners, employees and shareholders, but for society as a whole: AXA intends to continue to act as a responsible leader in the long term. The Group continues to promote its objectives of diversity and inclusion, and its ambitious Corporate Social Responsibility policy allows it to be a leader in the sector.
(1 ) Underlying earnings per share and Adjusted ROE are alternative performance measures. (2 ) Compound annual growth rate, on a reported basis. (3) Free cash flows is a non-GAAP financial measure. (4) Proposed dividend, submitted for approval at the annual shareholders meeting, April 24, 2019.
1THE AXA GROUP Reporting changes 14 1.1 KEY FIGURES 15 IFRS indicators 15 Activity and Earnings indicators 15 Assets under management 16 Dividends and dividend policy 16 Ratings 17 1.3 BUSINESS OVERVIEW 22 France 23 Europe 24 Asia 25 AXA XL 26 United States 27 International 28 Transversal & Central Holdings 29
AXA operates primarily in six geographies: France, Europe, Asia, AXA XL, the US and International (including the Middle East, Latin America and Africa).
AXA has five operating activities: Life & Savings, Property & Casualty, Health, Asset Management and Banking. In addition, various holding companies within the Group conduct certain non-operating activities.
(2) Ranking in terms of total assets established by AXA based on information available in 2017 Annual Reports.
(3) Ranking in terms of assets under management established by AXA based on information available as of September 30, 2018.
• Asia Holding; ■ AXA XL, consisting of: • XL Group (insurance activities and holdings), as acquired on September 12, 2018,
• AXA Bank Belgium (banking activities); ■ Transversal & Central Holdings, consisting of: • AXA Investment Managers,
The IFRS indicators presented below are derived from the Consolidated Financial Statements for the year ended December 31, 2018.
(b) An annual dividend is generally paid each year in respect of the prior year aft er the Annual Shareholders’ Meeting (customarily held in April or May) and before September of that year. Dividends are presented in this table in the year to which they relate and not in the year in which they are declared and paid. A dividend of €1.34 per share will be proposed at AXA’s Shareholders’ Meeting that will be held on April 24, 2019. Subject to the Shareholders’ Meeting approval, the dividend will be paid out on May 6, 2019, with an ex-dividend date of May 2, 2019.
(a) Proposal to be submitted to the Shareholders’ Meeting to be held on April 24, 2019. (b) Individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 40% on the dividend, i.e. €0.38 per share for fiscal year 2014. (c) Individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 40% on the dividend, i.e. €0.44 per share for fiscal year 2015. (d) Individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 40% on the dividend, i.e. €0.46 per share for fiscal year 2016. (e) The gross amount of dividends was subject to a unique withholding tax liquidated at an overall rate of 30%, unless in case of option for the progressive scale on income tax which then applied to all capital income paid in 2018. The option for the progressive scale gave right to the 40% tax relief pursuant to paragraph 2° of Article 158.3 of the French General Tax Code, i.e. €0.50 per share for fiscal year 2017.
For further information on AXA’s dividend, see Note 29.4 “Other items: Restriction on dividend payments to shareholders” in Part 5 – “Consolidated Financial Statements” and Section 6.3 “General information – Bylaws – Dividends” of this Annual Report.
RobecoSAM is an investment specialist focused on “Sustainability Investing”. Each year RobecoSAM assesses over 4500 companies using criteria that are both industry-specific and financially material.
Note: the Dow Jones Sustainability Index is a reference performance indicator for AXA: its methodology serves as the basis for the Group’s internal sustainability evaluation tool since 2010, and is one of the performance metrics used to calculate long term incentives (Performance Shares) since 2016.
UN Principles for Responsible Investment (Transparency Report). The six Principles for Responsible Investment are a voluntary and aspirational set of investment principles that encourage the incorporation of ESG issues into investment practices. PRI signatories are required to report publicly on their responsible investment activities each year, using asset-specific modules in the UN PRI reporting system. Answers are then assessed and results are compiled into an annual Assessment Report.
Acquisition of (i) 50% of Tian Ping, a Chinese Property & Casualty insurance company; (ii) 51% of Grupo Mercantil Colpatria’s insurance operations in Colombia; and (iii) 77% of Mansard Insurance plc in Nigeria.
Acquisition of (i) Charter Ping An Insurance Co.; and (ii) the Polish Property & Casualty operations of Liberty Ubezpieczenia from Liberty Mutual Insurance Group; and
Announcement of the intention to list a minority stake of AXA’s US operations (expected to consist of its US Life & Savings business and AXA Group’s interest in AB) subject to market conditions, a strategic decision to create significant additional financial flexibility to accelerate AXA’s transformation, in line with Ambition 2020.
Signing of a partnership with Uber in view of strengthening the protection of independent workers using Uber technology in France.
Acquisition of (i) the XL Group , creating the #1 global P&C Commercial lines insurance platform, (ii) Maestro Health, a US health benefit administration digital company and (iii) the remaining 50% stake in AXA Tianping.
Conclusion of an agreement with Fairfax Financial Holdings Limited to sell all the insurance operations in Ukraine.
For further information concerning Group subsidiaries (including the Group’s equity interest and voting rights percentages), please see Note 2 “Scope of consolidation” in Part 5 – “Consolidated Financial Statements” of this Annual Report.
In addition, leveraging on its product and distribution expertise, AXA France is developing an Employee Benefit proposition internationally to individuals, corporates and other institutions.
In 2018, AXA France has launched several initiatives with a focus on Life and Health insurance.
In Life, in line with both the “Payer-to-Partner” and Ambition 2020 strategic orientations, many of the underwriting processes, such as individual Protection off ering, have been simplified to reflect the ongoing digital transformation. Customers can now buy online tailor-made policies to better meet their specific and everchanging needs as well as simplify the medical selection process.
In the wake of climate change and the increasing role of corporations in society, new investment products have been designed and are now being off ered to retail investors, giving customers the opportunity to opt for both environmental and social-friendly discretionary mandate investments, such as Perspectiv’ESG. Additionally, the credit life insurance off ering has been adapted to comply with the newly introduced amendment (“Bourquin Law”) reflecting the ability to keep pace with regulatory changes.
For SME, one of AXA’s main objectives is to ease administrative burden and enable customers to grow. The off ers span from a distinct new solution dedicated to micro SME (especially in Italy) to comprehensive fleet management (in Switzerland) and digital building valuation tool for brokers (in Belgium).
AXA operates primarily in Life & Savings and Health activities. Although recent years have seen the emergence of pan-Asian franchises, competition remains driven by local players in most of the countries.
• in Thailand, Indonesia and the Philippines, AXA off ers a broad range of Life & Savings and Health products including whole life, endowment, unit-linked, group term insurance, critical illness and hospital cash products and also develops a traditional Property & Casualty off er,
As in other geographies, AXA aims to become a partner for its customers, by considering the specificities of the respective markets in which it operates: ■ in Japan and Hong Kong, in line with its “Payer-to-Partner” strategy, AXA has launched new Health initiatives like chronic disease management as well as lifestyle modification support. Furthermore, AXA launched a range of new Protection, Health and Savings products, including Hong Kong’s first continuous cancer income product with long term financial support, and a new Health product in Japan providing dedicated Health services as well as protection for customers with a medical history including chronic diseases; ■ in Asia High Potentials,
In 2018, AXA XL introduced 19 new property, casualty, professional or specialty insurance coverages or coverage enhancements or r isk m anagement services. New product off erings span the globe across a wide range of businesses, including but not limited to: ■ P olitical risk, C redit and B ond insurance in France; ■ world’s first on-demand cyber insurance with Slice ICS in the United States; ■ protect and assist accident and health insurance solution in Australia; ■ corporate CPR (Crisis Prevention and Response) for corporate clients globally.
AXA off ers in the United States a full range of insurance products, including Life Insurance (term life, whole life, universal life…), investment products, retirement products (individual retirement, group retirement) and employee benefits.
On Individual Retirement, the investment options selection were enhanced across both GMxB and non-GMxB variable annuities suite of products, designed to evolve with specific customers’ needs while expanding distribution footprint across many key third-party relationships.
In International markets, AXA operates in various geographies, including 14 countries (1) within Europe, Middle East, Africa & Latin America, as well as Singapore, Malaysia, India and AXA Bank Belgium activities.
AXA distributes its insurance products through exclusive and nonexclusive channels that vary from country to country, including exclusive agents, salaried sales forces, direct sales, banks and other partnerships (e.g. car dealers), as well as brokers, independent financial advisors, aligned distributors or wholesale distributors.
In October 2018, a partnership with French Authorities addressing the issue of medical deserts through an unprecedented publicprivate cooperation has been announced. Leveraging the territory’s medical networks, digital capacities, and AXA Assistance leading expertise in telemedicine, it allows inhabitants to remotely access General Practitioners with the support of nurses in a local clinic. This project is also an opportunity for the territory to test and boost the adoption of telemedi cine by patients and independent practitioners, and to make telemedi cine a concrete and lasting solution for all patients.
Financial Market Conditions 32 Market Conditions 33 2.2 OPERATING HIGHLIGHTS 37 2.3 ACTIVITY REPORT 45 Activity Indicators 45 Underlying Earnings, Adjusted Earnings and Net Income Group share 49 Alternative Performance Measures 50 Commentaries on Group Earnings 52 Shareholders’ equity Group share 55 Solvency information 55 Shareholder value 56 Segment information 57 2.4 LIQUIDITY AND CAPITAL RESOURCES 90 Liquidity, sources and needs for Group operating subsidiaries 91 Liquidity position 91 Uses of funds 93 Impact of regulatory requirements 93 Subsequent events aft er December 31, 2018 impacting AXA’s liquidity 95 2.5 EVENTS SUBSEQUENT TO DECEMBER 31, 2018 96
In Asia, Japanese GDP growth is expected to reach 0.7%, a disappointing slowdown compared to 2017 (1.7%). The Bank of Japan adopted a neutral stance since mid-year, reducing its net asset purchases and adjusting its yield curve management actions. Elsewhere in Asia, equity markets surged to all-time highs in January and fell thereaft er, due to the escalation of the trade war between China and the United States. During the last G20 at the end of November, Presidents Donald Trump and Xi Jinping met and announced a 90-day moratorium on tariff s, delaying the next planned increase of US tariff s to March 1, 2019.
The MSCI G7 index decreased by 9.0% and the MSCI Emerging index decreased by 12.3%.
The Dow Jones Industrial Average index decreased by 5.6% and the S&P 500 index decreased by 6.2% in 2018. Equity markets in Japan and Europe posted losses in 2018: the Nikkei index in Tokyo decreased by 12.1%, the FTSE 100 index in London decreased by 12.5% and the EUROSTOXX 50 index in the Eurozone decreased by 14.4%.
In Europe, the iTraxx Main spreads increased by 43 bps to 88 bps compared to December 31, 2017, and the iTraxx Crossover increased by 122 bps to 354 bps. In the United States, the CDX Main spread i ndex increased by 39 bps to 88 bps.
The Euro interest rates implied volatility index (based on 10x10 Euro swaptions) increased from 43.4% as of December 31, 2017, to 46.5% as of December 31, 2018.
In Europe, Property & Casualty turnover increased mainly due to economic growth as well as customer centric initiatives in a context of strong competition. Profitability remained stable despite an increase in natural events early 2018 in the United Kingdom, Germany and Belgium aft er a relatively benign year in 2017. Mature markets, such as Switzerland, Germany and Belgium remained very competitive with increased pressure on pricing. In the United Kingdom, Personal Motor and Household remained price-led markets, while Commercial lines experienced limited organic growth, in a context of pressure on profitability resulting from natural events early 2018, escape of water and uncertainties related to the ‘Ogden’ legislation. On the contrary, the Irish market grew despite a slight soft ening in prices and uncertainties related to Brexit as many market players implemented cross border models. In Spain, growth experienced a slowdown aft er a strong increase in 2017. Lastly, in Italy, the continued decrease in average premium in Motor slowed down. In Life & Savings, persistent low interest rates continued to weigh on G/A Savings sales and profitability, notably in Germany, Belgium, Italy, Switzerland and Spain. Unit-Linked performance was negatively impacted by the adverse market environment late 2018 but the segment experienced growth notably in Belgium and Germany. Protection remained one of the main growth drivers in Life & Savings. The Health market also experienced significant growth in Europe, even if the number of privately insured clients decreased in Germany.
In Asia High Potentials, the insurance market remained challenged by economic and regulatory environments. In China, the Life & Savings premiums grew moderately due to the regulatory restrictions on short-term savings products. The Property & Casualty market continued to record double-digit growth in a context of market liberalization contributing to a highly competitive environment. In Thailand, the Life & Savings market declined in a context of low interest rates whereas the Property & Casualty market grew due to a favorable government scheme driving growth in the Personal Motor market. In Indonesia, the Life & Savings market remained almost flat. In the Philippines, the Life & Savings market continued to record a resilient double digit growth.
United Kingdom Health 2 29.9 n/a n/a LaingBuisson 2018 HealthCover Report as of December 31, 2017.
Ireland (Norther n Ireland) Motor 1 32.0 n/a n/a Northern Ireland Transport statistics as of December 31, 2017.
Germany 6 5.4 8 3.7 GDV (German association of Insurance companies) as of December 31, 2017.
Germany Health n/a n/a 4 7.8 PKV (Association of German private healthcare insurers) as of December 31, 2017.
Switzerland 1 13.0 2 26.0 SIA (Swiss Insurance Association) Market share based on statutory premiums and market estimations by the SIA as of January 31, 2019.
Japan n/a n/a 15 2.8 Disclosed financial reports (excluding Kampo Life) for the 12 months ended September 30, 2018.
Japan Health n/a n/a 14 2.3 Disclosed financial reports (excluding Kampo Life) for the 12 months ended September 30, 2018.
XL Reinsurance 7 2.8 n/a n/a Swiss Re and AM Best 2017 as of December 31, 2017.
United States Life n/a n/a 19 1.6 LIMRA Life sales as of September 30, 2018.
Mexico 3 11.0 9 2.4 AMIS (Asociacion Mexicana de Instituciones de Seguros) as of September 30, 2018.
Indonesia n/a n/a 3 7.7 AAJI Statistic measured on Weighted New Business Premium as of September 30, 2018.
Philippines n/a n/a 3 13.7 Insurance Commission measured on total premium income as of December 31, 2017 (for the ranking) and as of September 30, 2018 (for the market share).
With a view to optimize their return in a low margin environment, asset managers are diversifying their portfolios and tailoring their investment solutions. From traditional products to alternative credit and specialties, active to passive investing, assets managers are moving towards absolute return and cash flow driven investments and risk factor-based analyses.
Additionally, asset managers needed to meet the growing demand for responsible investment, and thus to expand their off ers in terms of Environmental, Social and Governance (ESG) investments. It has now become a global secular trend as 90% of boutiques now incorporate such vehicles in their portfolio.
AXA accelerates its “Payer-to-Partner” strategy with the acquisition of Maestro Health
On February 28, 2018, AXA announced that it had completed the acquisition of Maestro Health, Inc. (“Maestro Health”), a US health benefit administration digital company. Total consideration for the acquisition amounted to USD 155 million (or €127 million (1)).
AXA completed the acquisition of XL Group, creating the #1 global P&C Commercial lines insurance platform
Total consideration for the acquisition amounted to USD 15.3 billion (€12.4 billion (2)) fully paid in cash. Under the terms of the transaction, XL Group shareholders received USD 57.60 per share. This represented a premium of 33% to XL Group closing share price on March 2, 2018.
Founded in 1986, XL Group is a leader in P&C C ommercial and S pecialty lines with an active global network. XL Group generated USD 15 billion of GWP in FY17. It is a growing franchise with a high-quality underwriting platform and a rich and diversified product off ering. XL Group is a highly agile company renowned for innovative client solutions and has a comprehensive business model of originating, packaging and selling risks. XL Group has ca. 7,400 colleagues worldwide and has a strong presence across specialty and mid-market segments via insurance and reinsurance.
This acquisition is aligned with AXA’s Ambition 2020 preferred segments favoring product lines with high frequency customer contacts, quality service and superior technical expertise. XL Group provides both a premier specialty platform complementing and diversifying AXA’s existing C ommercial lines insurance portfolio, and reinsurance capabilities that will grant AXA an access to enhanced diversification and alternative capital. The combination of AXA’s and XL Group’s existing positions will propel the Group to the #1 global position in P&C Commercial lines with combined 2016 revenues of ca. €30 billion (3) and total P&C revenues of ca. €48 billion (4).
(2) EUR 1 = USD 1.2317 as of March 2, 2018 (source: Bloomberg).
(3) Includes P&C Commercial lines and P&C Commercial Health for comparability purposes with peers. (4) Includes P&C Health for comparability purposes with peers.
The new AXA XL division, combining XL Group operations, AXA Corporate Solutions and AXA Art, is led by Greg Hendrick, previously the President and Chief Operating Off icer of XL Group, who is CEO of the division and a member of AXA Group’s Management Committee, reporting to Thomas Buberl.
AXA to acquire the remaining 50% stake in AXA Tianping to accelerate its growth in China as the #1 foreign P&C insurer
On November 26, 2018, AXA announced that it had entered into an agreement with the current domestic shareholders (3) of AXA Tianping Property & Casualty Insurance Company Ltd (“AXA Tianping”) to acquire the remaining 50% stake (4) of the company.
In 2017, AXA Tianping ranked 15th amongst China’s P&C insurers with €1 billion (7) of GWP, and is the only foreign invested company in the top 20 P&C insurers in China. It is a leading company in Direct Motor insurance (6th in the market (8)), with Motor insurance contributing 91% of GWP, of which 41% is distributed through direct channels. It also sells short-term health insurance products.
Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approvals, most notably from the China Banking and Insurance Regulatory Commission.
On the completion of the transaction, AXA Tianping will be fully consolidated into the AXA Group’s financial statements.
(3) Shanghai Yi Ke Joint Venture Co., Ltd., Hainan Hua Ge Industrial Investment Co., Ltd., Tian Mao Industrial Group Joint Stock Corporation, Hainan Luda Technology Co., Ltd., Shanghai Rixingkang Biology Engineering Co., Ltd.
(4) AXA acquired the initial 50% stake in AXA Tianping in February 2014. (5) EUR 1 = RMB 7.8767 as of November 23, 2018 (s ource: Bloomberg). (6) Chinese GAAP.
On August 1, 2018, AXA announced that it had received an irrevocable offer from Cinven for the potential sale of AXA Life Europe (“ALE”), a specialized platform which designed, manufactured and distributed AXA’s Variable Annuity products across Europe.
Based in Dublin with over 60 employees, ALE delivers strong financial risk management capabilities and manages a portfolio of ca. 248,000 insurance contracts with ca. €5 billion reserves (2). It distributed products across Europe through the networks of AXA entities (namely Germany, France, UK, Spain, Italy, and Portugal (3)) and third-party distribution channels, and has a reinsurance arrangement with AXA Japan. ALE has been closed to new business since 2017. The German insurance contracts account for more than 70% of ALE’s portfolio (4), and the policy administration services for these contracts will continue to be provided by AXA Germany.
The proposed transaction is subject to customary conditions, including completing the information and consultation of the relevant works councils as well as obtaining required regulatory approvals.
ING and AXA announced a digital partnership to build a global insurance platform
On June 13, 2018, ING and AXA announced a long term and exclusive, multi-country bancassurance partnership to provide insurance products and related services through a central digital insurance platform. Under the partnership, ING will provide its leading digital banking experience and AXA its expertise in innovative modular insurance products and services, off ering Property & Casualty, Health and Protection insurance solutions to ING customers in six countries – France, Germany, Italy, Czech Republic, Austria (5), and Australia (5).
ING and AXA teams will together develop personalized insurance products and relevant services, accessible via the ING mobile application, that meet the forward-looking needs of ING customers towards living, mobility and wellness.
(1) Excluding Other Comprehensive Income (OCI). (2) IFRS Reserves as of FY17. (3) AXA Portugal was sold to Ageas in 2016. (4) In terms of reserves. (5) With the support of local insurance partners.
On October 4, 2018, AXA reignited its sponsorship strategy and is proud to join forces with one of the most famous names in sport.
In addition to providing excellent global brand visibility and raising AXA’s profile among sports fans around the world, the partnership is particularly good news for football supporters in Asia, as it includes a number of exclusive events that will take place in AXA’s core markets within the region. These will include various mass participation events around the region, as well as unique opportunities to get closer to the team.
Building on their shared values, AXA and Liverpool FC will create innovative experiences for clients, partners and fans in Asia, as well as making meaningful contributions to the local communities in which they both operate. Working closely with Liverpool FC’s players, manager, coaches and health professionals, AXA will also create unique and relevant content that will help support the shared goal of promoting a healthy lifestyle, delivering on the AXA brand purpose of empowering people to live a better life.
On May 24, 2018, Fitch Ratings aff irmed the financial strength rating of AXA’s core operating subsidiaries at “AA-” with a stable outlook, removing the ratings from Rating Watch negative.
AXA transformed its Swiss Group Life business, creating additional value for its customers and shareholders
AXA has been successfully offering new semi-autonomous solutions for some time, and which already represented around 60% of its new occupational benefits insurance business before the transformation. With the transformation, AXA became the largest provider of semi-autonomous solutions for SMEs in Switzerland. AXA will be focused on restoring growth to occupational benefits insurance and remaining a strong partner of Swiss SMEs into the future.
(2) Contract covering the whole off er: guaranteed savings and annuity benefits, death and disability benefits, and administration services. (3) Contract covering death and disability benefits, and administration services.
Financial impacts are the following: ■ AXA transferred most of its in-force General Account Reserves (amounting to CHF 31 billion (1) or €28 billion (2)) backing the pre-re tirement savings benefits (3) in its Group Life portfolio to the Foundations.
■ T his transfer includes CHF 3.0 billion (or €2.7 billion (2)) of excess reserves to enable a sustainable risk carrying capacity of the Foundations (Coverage Ratio (4) of 110% as of FY18).
■ I n line with the move to a semi-autonomous model, the savings portion of the premiums will no longer appear in IFRS Gross Revenues of AXA.
AXA SA received USD 3.2 billion from the completion of its US pre-IPO reorganization transactions
Consequently, AXA SA received USD 3.2 billion which contributed to the financing of the XL Group acquisition.
On May 14, 2018, AXA SA (“AXA”) announced it had successfully completed the initial public off ering (the “IPO”) on the New York Stock Exchange of its US subsidiary, AXA Equitable Holdings, Inc. (“AEH”).
The financing of the acquisition of XL Group Ltd (€12.4 billion) was fully in line with the announcement on March 5, 2018: ca. €3.5 billion from cash available at hand, €2.6 billion (8) r elated to the pre-IPO reorganization transactions, €3.3 billion (8) overall proceeds (9) fr om the IPO, and the €2 billion dated subordinated debt (out of the total planned €3 billion). Given additional existing resources, AXA considered the financing of XL Group to be secured, and not dependent on the issuance of any additional debt.
(3) In-force General Account Reserves of AXA Switzerland relating to existing annuitants will remain with AXA. (4) Coverage Ratio for Foundations = Market Value of Assets/Mandatory Reserves.
(8) EUR 1 = USD 1.23 as of March 2, 2018 (source: Bloomberg), as announced at the time of the acquisition of XL Group Ltd on March 5, 2018. (9) Overall proceeds include all AEH share transactions: the sale of AEH shares, the issuance of mandatory exchangeable bonds into AEH shares, and the exercise of the over-allotment options by the underwriters. Before fees and expenses of the off erings.
• R epresents 24.5% of total issued and outstanding AEH shares,
• A mounts to USD 2.75 billion or €2.23 billion (1) of proceeds; ■ I ssuance of bonds mandatorily exchangeable into AEH shares: • I ssuance of USD 0.75 billion, or €0.61 billion (1), mandatory exchangeable bonds,
AXA announced the successful completion of secondary common stock off ering of AXA Equitable Holdings, Inc. and related Share Buyback
On November 20, 2018, AXA announced that it had successfully completed a secondary public off ering of 60,000,000 shares (the “Secondary Off ering”), at a public off ering price of USD 20.25 per share, of its US subsidiary, AEH and the sale to AEH of 30,000,000 shares (the “Share Buyback”) (5 ) at the per share price paid by the underwriters in the public off ering.
Net proceeds (6 ) corresponding to the sale of 90,000,000 AEH shares from the Secondary Off ering and the Share Buyback, amounted to USD 1.8 billion or €1.6 billion (7 ). Following this sale, AXA’s ownership in AEH has decreased from 72.2% (8 ) (9 ) to 59.3% (9 ) (10 ).
The impact of the IPO, the Secondary Off ering and the Share Buyback on our Group consolidated shareholders’ equity was €-2.8 billion, which is the diff erence between the net proceeds to AXA Group and the consolidated book value of the divested AEH stake. Following the IPO, the Secondary Off ering and the Share Buyback, AXA Group’s ownership in AEH was reduced to 59.3% as of December 31, 2018. AEH remains fully consolidated in the AXA Group’s financial statements. The IPO, the Secondary Off ering and the Share Buyback resulted in a minority interest in shareholders’ equity of €+6.5 billion.
Any further potential divestment of our equity participation in AEH would be subject to financial markets volatility and other market-related risks, which may also impact the consolidated value of our remaining stake in AEH and adversely impact our consolidated results of operations and AXA share price.
(3) Or upon the occurrence of certain events. (4) Overall proceeds include all AEH share transactions: the sale of AEH shares, the issuance of mandatory exchangeable bonds into AEH shares, and the exercise of the over-allotment options by the underwriters. Before fees and expenses of the off erings. (5) Following the completion of the Share Buyback, AEH’s remaining authorization under its current share repurchase program of USD 800 million was approximately USD 151 million as of December 31, 2018. (6) Net of underwriting discounts and commissions. (7) EUR 1 = USD 1.1458 as of November 19, 2018 (Source: Bloomberg). (8) 558,526,870 total common outstanding shares as of September 30, 2018. (9) Including shares to be delivered on redemption of the mandatory exchangeable bonds issued by AXA in May 2018.
• I ncreased annual earnings synergies to USD 0.5 billion pretax, previously USD 0.4 billion,
• U nderlying earnings (4) of ca. Euro 1.4 billion by 2020, assuming normalized natural catastrophes; ■ AXA’s new capital management policy (eff ective as of FY18): • I ncreased dividend pay-out ratio range: 50% to 60% (5), previously 45% to 55%,
• New Solvency II ratio (6) target range: 170% to 220%, prev iously 170% to 230%,
(5) Of adjusted earnings net of financial charges on undated subordinated dest, preferred shares and mandatory exchangeable bonds into shares of AXA Equitable Holdings, Inc .
In addition, XL Group’s primary Lloyd’s syndicate will continue to be known as XL Catlin Syndicate 2003.
On February 1, 2019, AXA unveiled its new tagline, which will be rolled out across all its markets in the next year: “Know you can”. This positioning symbolizes AXA’s new promise to its customers, that of being the encouraging partner who helps them feel more confident to achieve their goals and go further. This new promise plays an integral role in the deployment of AXA’s strategic ambition to transition from payer to partner to its customers.
The new tagline will be deployed with a global campaign featuring one of history’s greatest tennis champions Serena Williams. Embodying success and self-belief, this campaign symbolizes AXA’s values and ambition. The films with Serena Williams will be at the heart of a comprehensive communications campaign also featuring Liverpool Football Club players (1) and AXA’s strategic business segments, health, protection and commercial lines insurance, and local market proofs illustrating the Group’s commitment to its customers.
On December 3, 2018, AXA announced the results of the AXA Group employee share off ering (“Shareplan 2018”), a capital increase reserved to its employees worldwide, which had been launched on August 24, 2018. Approximately 24,000 employees in 36 countries, representing over 23% of the eligible employees, subscribed to Shareplan 2018.
Following Shareplan 2018, on December 31, 2018, AXA’s employees hold 5.19% of the share capital and 6.37% of the voting rights.
The total number of outstanding AXA shares amounted to 2,424,916,626 on December 31, 2018.
The comparable basis mainly consisted in the adjustment of: (i) the acquisition of XL Group in 2018 (€-3.2 billion or -3.2 points), (ii) the foreign exchange rate movements (€+2.0 billion or +2.0 points) mainly due to the appreciation of average Euro exchange rate against USD, CHF, TRY and HKD, (iii) some investment contracts previously considered as insurance contracts in Singapore in 2017 (€+0.3 billion or +0.3 point), and (iv) the discontinuation of the partnership with BNP Paribas (Natio) in France in 2018 (€+0.1 billion or +0.1 point).
Gross revenues were up 4% on both a reported basis and a comparable basis to €102,874 million. All markets recorded a strong growth.
France gross revenues were up 3% (€+845 million) on a comparable basis to €25,175 million: ■ Life & Savings (€+392 million or +3%) to €13,542 million mainly driven by Protection (€+201 million) notably due to higher sales in Group business, and Savings (€+94 million) from Individual Savings driven by higher sales of both capital light products sold through the bancassurance channel and discretionary mandates through the proprietary channel, partly off set by lower sales in Group Pension;
Asia gross revenues were up 4% (or €+318 million) on a comparable basis to €8,973 million mainly from: ■ Japan (€+48 million or +1%) to €4,564 million mainly from Life & Savings driven by the success of Follow-up Life Protection product launched in 1Q18, partly off set by continued lower new business from the G/A capital light Single Premium Whole Life product; ■ Hong Kong (€+305 million or +10%) to €3,305 million from (i) Life & Savings mainly in Protection and G/A Savings driven by in-force growth and higher new business, and (ii) Health mainly driven by higher volumes combined with tariff increases in both Individual and Group businesses; ■ Asia - Direct (€-18 million or -2%) to €950 million mainly in South Korea (€-18 million or -3%) from Personal Motor due to continued management focus on profitability in a context of strong market competition.
Transversal & Central Holdings gross revenues were up 3% (or €+79 million) on a comparable basis to €2,684 million: ■ AXA Assistance (€+84 million or +7%) to €1,331 million mainly driven by Property & Casualty from higher volumes in NonMotor mainly in Travel and Home , as well as higher volumes and in-force growth in Motor; ■ AXA Investment Managers (€-25 million or -2%) to €1,243 million mainly driven by lower management fees and other fees, partly off set by higher performance fees including realized carried interest and transaction fees.
New business APE was up 2% on a reported basis and up 9% on a comparable basis to €6,631 million driven by growth in France, the United States, Asia, and Europe.
Europe (€1,146 million, 17% of total) up €48 million (+4%) on a comparable basis from (i) Italy (€+31 million) driven by strong sales from G/A capital light products notably thanks to the growth in sales from Banca Monte dei Paschi di Siena, (ii) Spain (€+15 million) driven by Unit-Linked, Protection and G/A capital light products, (iii) Switzerland (€+15 million) in Protection due to higher sales in Group Life semi-autonomous and autonomous businesses, and (iv) Belgium (€+8 million) mainly driven by G/A Savings due to higher sales in capital light pension products for self-employed, partly off set by (iv) Germany (€-20 million) mainly due to lower new business in Health.
The United States (€1,471 million, 22% of total) up €85 million (+6%) on a comparable basis mainly from Mutual Funds & Other (€+41 million) reflecting higher advisory sales from favorable equity market conditions through the first nine months of 2018, UnitLinked (€+15 million) following higher sales of non-GMxB Variable
International (€262 million, 4% of total) down €5 million (-2%) on a comparable basis from Singapore (€-22 million) mainly driven by lower Unit-Linked and G/A Savings sales, partly off set by India (€+14 million) and Mexico (€+5 million) mainly in Protection.
Underlying earnings before tax from insurance activities 8,547 2,313 3,260 1,159 (168) 1,400 397 186
Underlying earnings before tax from other activities (43) (0) 108 (3) (10) 496 39 (673)
Profit or loss on financial assets (under fair value option) and derivatives (463) (91) (134) (53) (63) (82) 39 (79)
Exceptional operations (including discontinued operations) (451) 40 (376) 4 (29) 16 (17) (91)
Underlying earnings before tax from insurance activities 7,758 2,018 3,180 1,187 105 836 330 101
Underlying earnings before tax from other activities (2) (7) 24 (0) - 556 49 (623)
Net capital gains or losses attributable to shareholders net of income tax 455 237 237 23 32 (60) (7) (7)
Profit or loss on financial assets (under fair value option) and derivatives (134) 31 (2) (59) (36) 96 11 (175)
Exceptional operations (including discontinued operations) 124 (252) (57) (0) (6) 268 (22) 193
Adjusted Earnings represent the net income (Group share) as disclosed in the above tables, before the impact of the following items net of policyholder participation, deferred acquisition costs, VBI, taxes and minority interests: ■ integration and restructuring costs related to material newlyacquired companies as well as restructuring and associated costs related to productivity improvement plans; ■ goodwill and other related intangibles; ■ exceptional operations (primarily changes in scope and discontinued operations); ■ profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets and liabilities.
■ cost at inception, intrinsic value and pay-off of derivatives used for the economic hedging of realized gains and impairments of equity securities backing General Account and shareholders’ funds.
The Adjusted Return on Equity (“Adjusted RoE”) is calculated as adjusted earnings net of financial charges related to undated subordinated debt, preferred shares and mandatory exchangeable bonds (recorded through shareholders’ equity as disclosed in Part 5.4 – “Consolidated Statement of Changes in Equity” and financial debt as disclosed in Part 5.6 – Note 17 “Financing Debt” of this Annual Report) divided by the weighted average shareholders’ equity. The weighted average shareholders’ equity: ■ is based on opening shareholders’ equity adjusted for weighted average impact of capital flows (including dividends); ■ without reserves relating to the change in the fair value of financial investments available for sale as disclosed in Part 5.4 – “Consolidated Statement of Changes in Equity” of this Annual Report; ■ without undated subordinated debt and mandatory exchangeable bonds as disclosed in Part 5.6 – Note 13 “Shareholders’ Equity and Minority Interests” and mandatory exchangeable bonds as disclosed in Note 17 “Financing Debt” of this Annual Report.
UNDERLYING COMBINED RATIO (APPLICABLE FOR PROPERTY & CASUALTY, HEALTH AND PROTECTION)
■ All accident year loss ratio net of reinsurance is the ratio of: • all accident years claims charge gross of reinsurance + claims handling costs + result of reinsurance ceded on all accident years excluding unwind of the discount rate used in calculating technical reserves; to
Debt Gearing refers to the level of a company’s debt related to its equity capital, usually expressed as a percentage. Debt Gearing is used by Management to measure the financial leverage of the Group and the extent to which its operations are funded by creditors as opposed to shareholders. AXA’s Debt Gearing is calculated by dividing the gross debt (financing debt as disclosed in Part 5.6 – Note 17 “Financing Debt” and undated subordinated debt as disclosed in Note 13 “Shareholders’ equity and minority interests” of this Annual Report) by total capital employed (shareholders’ equity excluding undated subordinated debt and reserves relating to the change in the fair value of financial instruments and of hedge accounting derivatives plus gross debt).
The XL Group acquisition was closed on September 12, 2018, and the XL Group was fully consolidated starting from October 1, 2018, thus contributing to Group earnings for the fourth quarter 2018. In the comments below, all indicators include the contribution of XL Group , unless otherwise specified.
On a constant exchange rate basis and excluding the contribution of XL Group , underlying earnings increased by €713 million (+12%). XL Group underlying earnings in the fourth quarter 2018 amounted to €-374 million.
XL Group investment margin in the fourth quarter 2018 amounted to €171 million.
■ O n a constant exchange rate basis and excluding the contribution of XL Group , net technical margin increased by €831 million (+7%) driven by (i) Europe (€+266 million) from Life & Savings (€+110 million) mainly driven by Switzerland due to improved disability and mortality margins from lower policyholder bonus allocation, Property & Casualty (€+82 million) driven by Germany and the United Kingdom & Ireland due to favorable prior year reserve developments, partly off set by higher Nat Cat charges, and Health (€+74 million) mainly from the United Kingdom & Ireland driven by better claims management, (ii) Transversal & Central Holdings (€+162 million) mainly from AXA Global Re driven by favorable prior year reserve developments, (iii) France (€+129 million) primarily from Life & Savings (€+72 million) driven by the improvement of mortality assumptions and a favorable development on receivables, and Property & Casualty (€+40 million) mainly driven by favorable prior year reserve developments, partly off set by higher Nat Cat charges, (iv) AXA Corporate Solutions Assurance (€+100 million) driven by lower Nat Cat charges and higher prior year reserve developments, (v) International (€+98 million) mainly in Mexico (€+68 million) driven by volume growth combined with a more favorable claims experience, and (vi) Asia (€+52 million) mainly from Japan (€+28 million) due to in-force growth.
A cquisition C ost amortization mainly due to favorable model and assumption changes in 2018, and (vi) France (€+98 million) driven by lower commissions in the Credit & Lifestyle Protection business, in line with lower sales.
XL Group expenses in the fourth quarter 2018 amounted to €-976 million.
XL Group underlying earnings before tax from other activities in the fourth quarter 2018 amounted to €-10 million.
XL Group income tax benefits in the fourth quarter 2018 amounted to €+10 million.
On a constant exchange rate basis and excluding the contribution of XL Group , minority interests increased by €291 million (+75%) to €-651 million mainly driven by a decrease in AXA Group average ownership over the period in (i) the United States Life & Savings from 100% on December 31, 2017, to 80.8% on December 31, 2018, and (ii) AB from 65.2% on December 31, 2017, to 52.6% on December 31, 2018, resulting from the IPO of AXA Equitable Holdings, Inc. completed in May 2018, the Secondary Off ering and related Share Buyback completed in November 2018.
On a constant exchange rate basis, the Property & Casualty Combined Ratio increased by 0.8 point to 97.0%. On a constant exchange rate basis and excluding the contribution of XL Group , the Property & Casualty Combined Ratio improved by 1.2 points to 94.9% driven by more favorable prior year reserve developments as well as an improved current year combined ratio.
On a constant exchange rate basis, net realized capital gains and losses attributable to shareholders decreased by €149 million due to: ■ €-317 million higher impairments to €-440 million mainly driven by equity securities (€-210 million) and other equity investments (€-84 million) due to adverse market conditions late 2018, as well as fixed income assets (€-9 million) and real estate (€-6 million); ■ €+171 million higher net realized capital gains to €+841 million mainly driven by equity securities (€+295 million to €+620 million) and fixed income assets (€+67 million to €+4 million), partly off set by alternative investments (€-162 million to €+39 million) and real estate (€-31 million to €+176 million); and
As a result, adjusted earnings amounted to €6,489 million, up €32 million (0%). On a constant exchange rate basis, adjusted earnings increased by €187 million (+3%).
Net income amounted to €2,140 million, down €4,069 million (-66%). On a constant exchange rate basis, net income decreased by €4,072 million (-66%) from: ■ higher adjusted earnings (€+187 million); more than off set by: ■ higher impact of goodwill and other related intangibles (€- 3,153 million) to €-3,102 million due to the United States goodwill impairment of AXA Equitable Holdings, Inc. (€- 3,006 million); ■ higher impact from exceptional and discontinued operations (€-593 million) to €-451 million mainly due to transformation initiatives executed in 2018: • the one-time negative impact linked to the transformation of the in-force Group Life business model to a semi-autonomous model in Switzerland (€-428 million), and
As of December 31, 2018, Shareholders’ e quity Group share totaled €62.4 billion. The movements in Shareholders’ e quity Group share since December 31, 2017, are presented in the table below: (in Euro million) Shareholders’
Share Capital (1) Capital in excess of nominal value 951 Equity-share based compensation 39 Treasury shares sold or bought in open market 22 Change in equity component of compound financial instruments Deeply subordinated debt (including accumulated interests charges) (887) Fair value recorded in shareholders’ equity (4,396) Impact of currency fluctuations 1,869 Payment of N-1 dividend (2,998) Other (4,562) Net income for the period 2,140 Actuarial gains and losses on pension benefits 608 Reserves relating to changes in fair value of financial liabilities measured at fair value through profit and loss that are attributable to changes in own credit risk 31
(1) Prudential information related to solvency, including the Solvency II ratio and the Eligible Own Funds (“EOF”) disclosed in the note and the table below, will be detailed in the Group’s 2018 SCFR that is expected to be published at a later stage and for which Group’s auditors will issue a report.
As of December 31, 2018, the Group’s Eligible Own Funds (“EOF”) amounted to €58.1 billion and the Solvency II ratio to 193%, compared to €57.8 billion and 205% as of December 31, 2017.
Expected existing business contribution 3.3 4.4 4.6 Value of new premiums 1.7 2.0 2.5 Operating variance and change in assumptions (0.1) 1.9 1.5
Exchange rate impact 0.9 0.8 (3.6) Dividend to be paid in year N+1 - (3.2) (3.0) Subordinated debts and others (a) (3.9) (0.1) (2.3)
Adjusted earnings (Euro per Ordinary Share) 2.61 2.61 2.60 2.59 0.5% 0.6%
Underlying earnings (Euro per Ordinary Share) 2.48 2.48 2.41 2.40 3.1% 3.2%
Underlying ROE 13.6% 13.4% 0.2 pt Underlying earnings (a) 5,920 5,773
Net capital gains or losses attributable to shareholders net of income tax 266 237
Profit or loss on financial assets (under fair value option) and derivatives (134) (2)
In the comments below, the comparable basis includes (i) for APE, the underwritten savings contributions from semi-autonomous and autonomous solutions in 2017, and (ii) for NBV, the net investment fees related to the underwritten savings components of semi-autonomous and autonomous solutions in 2017, that have been included in 2018 APE and NBV.
NBV Margin decreased by 13.4 points to 53.0%. On a comparable basis, NBV Margin increased by 0.1 point as a result of an improved product mix within Group Protection towards both semi-autonomous and autonomous businesses, offset by modelling changes and tariff reduction linked to the Swiss Group Life transformation.
Underlying earnings decreased by €46 million (-6%) to €762 million. On a constant exchange rate basis, underlying earnings decreased by €17 million (-2%).
On October 1, 2018, AXA Germany increased its ownership in Roland Rechtsschutz from 41% to 60%. As a result, Roland Rechtsschutz has been consolidated from October 1, 2018. Property & Casualty 2017 comparable basis has been adjusted to include Roland Rechtsschutz gross revenues in the last quarter of 2017.
APE decreased by €21 million (-6%) to €340 million. On a comparable basis, APE decreased by €20 million (-6%) mainly due to lower new business in Health.
Profit or loss on financial assets (under fair value option) and derivatives (42) 16
NBV Margin decreased by 8.8 points to 66.5% mainly driven by a higher share of pension products for self-employed clients.
Underlying earnings before tax decreased by €3 million (-1%) to €528 million: ■ Life & Savings (€+28 million or +11%) to €281 million driven by higher investment margin (€+14 million) mainly due to lower credited interests and policyholder bonus allocation, as well as a higher net technical margin (€+12 million) mainly due to favorable prior year reserve developments; ■ Property & Casualty (€-40 million or -14%) to €246 million mainly driven by a higher current year combined ratio (+2.0 points) due to less favorable weather conditions and higher large losses, partly off set by a lower expense ratio (-0.8 point) resulting from the cost savings program; ■ Other (€+3 million) to €1 million; ■ Health (€+7 million) to €0 million due to an improved current year combined ratio (-9.2 points) driven by an improved claims experience.
■ Health (€+74 million or +68%) to €184 million. On a constant exchange rate basis, Health underlying earnings before tax increased by €76 million (+69%) driven by an improved combined ratio (-3.7 points) mainly due to better claims management and a lower expense ratio (-1.3 points); ■ Life & Savings – Architas (€-10 million or -78%) to €3 million. On a constant exchange rate basis, Life & Savings – Architas underlying earnings before tax decreased by €10 million; ■ Other (€+10 million) to €0 million. On a constant exchange rate basis, Other underlying earnings before tax increased by €10 million mainly due to lower expenses at AXA UK Holdings.
Income tax expenses decreased by €2 million (-4%) to €-56 million. On a constant exchange rate basis, income tax expenses decreased by €2 million (-3%) as the impact of the increase in pre-tax underlying earnings was more than off set by positive tax one-off s (€+9 million).
(€+64 million), G/A Savings (€+26 million) from capital light products, and Protection (€+21 million); ■ Health (€+14 million or +7%) to €202 million. On a comparable basis, Health gross revenues increased by €14 million (+7%) driven by higher volumes and tariff increases.
NBV Margin decreased by 4.7 points to 79.5% mainly driven by a higher share of Savings products sales.
Net income increased by €8 million (+5%) to €147 million mainly driven by higher adjusted earnings, partly offset by higher restructuring costs driven by a voluntary leave plan.
Net capital gains or losses attributable to shareholders net of income tax 8 6
APE increased by €31 million (+11%) to €315 million. On a comparable basis, APE increased by €31 million (+11%) driven by strong sales of G/A capital light products (€+28 million) notably from the recovery in sales from Banca Monte dei Paschi di Siena.
Income tax expenses decreased by €4 million (-4%) to €-101 million as the impact of the increase in pre-tax underlying earnings was more than off set by higher positive tax one-off s (€+11 million).
Minority interests increased by €3 million (+4%) to €-75 million as a result of the increase of AXA MPS underlying earnings.
Net income decreased by €6 million (-4%) to €158 million as higher adjusted earnings were more than off set by an unfavorable change in the fair value of derivatives not eligible for hedge accounting and higher restructuring costs resulting from pre-retirement plans.
Net capital gains or losses attributable to shareholders net of income tax (34) 23
(a) Net of intercompany eliminations. (b) Other corresponds to the holding.
Net capital gains or losses attributable to shareholders net of income tax 8 9
Profit or loss on financial assets (under fair value option) and derivatives (40) (8)
Gross revenues decreased by €83 million (-2%) to €4,564 million. On a comparable basis, gross revenues increased by €48 million (+1%): ■ Life & Savings (€-49 million or -2%) to €3,203 million. On a comparable basis, Life & Savings gross revenues increased by €43 million (+1%) mainly due to the success of Follow-up Life Protection product (€+145 million) launched in 1Q18, partly off set by continued lower new business from the G/A capital light Single Premium Whole Life product (€-109 million); ■ Health (€-34 million or -2%) to €1,361 million. On a comparable basis, Health gross revenues increased by €5 million (0%) mainly from Medical Whole Life products, notably due to the success of New Medical Care products, partly off set by lower new business from the Medical Term product.
APE increased by €105 million (+24%) to €546 million. On a comparable basis, APE increased by €121 million (+27%) mainly due to the success of Follow-up Life Protection product launched in 1Q18.
■ Life & Savings (€+2 million or +1%) to €300 million. On a constant exchange rate basis, Life & Savings underlying earnings before tax increased by €10 million (+3%) primarily driven by higher fees & revenues (€+54 million) mainly due to both inforce growth and new business as well as a higher net technical margin (€+12 million) mainly due to in-force growth, partly off set by higher expenses (€-54 million) mainly due to volume growth combined with the non-repeat of the restructuring of a pension scheme.
Net capital gains or losses attributable to shareholders net of income tax (2) 2
Gross revenues increased by €135 million (+4%) to €3,305 million. On a comparable basis, gross revenues increased by €305 million (+10%): ■ Life & Savings (€+137 million or +6%) to €2,521 million. On a comparable basis, Life & Savings gross revenues increased by €266 million (+11%) mainly from Protection (€+176 million) and G/A Savings (€+67 million) driven by in-force growth and higher new business, as well as Unit-Linked (€+23 million) driven by growth in single premium new business; ■ Health (€+15 million or +3%) to €545 million. On a comparable basis, Health gross revenues increased by €43 million (+8%) mainly driven by higher volumes combined with tariff increases in both Individual and Group businesses; ■ Property & Casualty (€-16 million or -6%) to €240 million. On a comparable basis, Property & Casualty gross revenues decreased by €4 million (-1%) mainly due to lower new business in Personal Motor linked to repricing measures and lower renewals in Commercial lines.
Underlying earnings before tax decreased by €8 million (-2%) to €404 million. On a constant exchange rate basis, underlying earnings before tax increased by €12 million (+3%): ■ Life & Savings (€-9 million or -2%) to €358 million. On a constant exchange rate basis, Life & Savings underlying earnings before tax increased by €9 million (+2%) mainly due to volume growth and the non-repeat of an accounting mismatch, partly off set by higher project costs; ■ Health (€-2 million or -8%) to €25 million. On a constant exchange rate basis, Health underlying earnings before tax decreased by €1 million (-3%) mainly driven by higher project costs; ■ Property & Casualty (€+3 million or +18%) to €22 million. On a constant exchange rate basis, Property & Casualty underlying earnings before tax increased by €4 million (+24%) mainly due to the non-repeat of 2017 unfavorable claims experience in Personal Motor, partly off set by the negative impact from T yphoon Mangkhut.
Net income decreased by €17 million (-4%) to €357 million. On a constant exchange rate basis, net income increased by €1 million (0%) driven by higher adjusted earnings, partly off set by higher restructuring costs and an unfavorable change in the fair value of m utual funds and derivatives not eligible for hedge accounting.
Net capital gains or losses attributable to shareholders net of income tax (40) 14
Profit or loss on financial assets (under fair value option) and derivatives (8) (54)
APE decreased by €96 million (-16%) to €517 million. On a comparable basis, APE decreased by €74 million (-12%): ■ China (€-54 million or -20%) to €215 million. On a comparable basis, APE decreased by €49 million (-18%) due to lower sales of traditional G/A Savings products (€-65 million), partly off set by increased sales of higher margin Protection products (€+11 million);
NBV Margin decreased by 7.9 points t o 37.9%. On a comparable basis, NBV Margin decreased by 5.0 points as a favorable change in business mix in China and Thailand was more than off set by unfavorable assumptions updates.
Income from affiliates and associates increased by €6 million (+3%) to €171 million. On a constant exchange rate basis, income from associates and aff iliates increased by €13 million (+8%): ■ China (€+43 million) to €57 million mainly due to a favorable change in business mix, as well as the positive impact of financial assumptions update on the net technical margin; ■ Thailand (€-32 million or -38%) to €54 million mainly due t o the adverse impact of assumptions update on technical reserves; ■ Indonesia (€-1 million or -1%) to €39 million; ■ The Philippines (€+2 million or +11%) to €22 million mainly from higher fees & revenues and a higher investment margin as a result of portfolio growth, as well as a more favorable claims experience.
Underlying earnings increased by €5 million (+3%) to €176 million. On a constant exchange rate basis, underlying earnings increased by €14 million (+8%).
Net capital gains or losses attributable to shareholders net of income tax (27) 32
Profit or loss on financial assets (under fair value option) and derivatives (63) (36)
The Company is reported as part of a new segment named AXA XL , gathering XL Group, AXA Corporate Solutions Assurance and AXA Art . In the comments below, the comparable basis includes the XL Group contribution for the 4Q17 gross revenues.
■ Life & Savings reported earnings were €5 million; ■ Other reported earnings were €-10 million, mainly driven by interests expense on financing debt.
Adjusted earnings reported were €-260 million, reflecting underlying earnings (€-233 million) as well as realized capital gains being more than off set by impairment charges, mainly on equity instruments in the United States.
Net income reported was €-428 million, reflecting adjusted earnings (€-260 million), integration and restructuring costs associated with the acquisition of XL Group (€- 67 million), unfavorable change in the fair value of m utual funds (€-37 million), exceptional operations (€-29 million) mainly driven by the repurchase of external debt in the context of the acquisition of XL Group and amortization of distribution networks acquired (€-10 million).
Health Combined Ratio 169.6% 146.9% Protection Combined Ratio 106.2% 112.7% Average exchange rate: €1.00 = US Dollar 1.18 1.13
(a) Net of intercompany eliminations. (b) Other corresponds to asset management activities and holdings.
The results of our US segment are presented herein on the basis of IFRS and are not, and should not be relied upon as representing, the US GAAP results of AXA Equitable Holdings, Inc. (“AEH”) (including AllianceBernstein), which, as a US public company, reports in US GAAP in accordance with the rules of the US Securities and Exchange Commission (“SEC”). For further information on AEH’s financial results and other public reports please consult the SEC website www.sec.gov.
Profit or loss on financial assets (under fair value option) and derivatives (82) 96
APE decreased by €328 million (-18%) to €1,471 million. On a comparable basis, APE increased by €85 million (+6%) mainly in Mutual Funds & Other (€+41 million) reflecting higher advisory sales from favorable equity market conditions through the first nine months of 2018, Unit-Linked (€+15 million) following higher sales of non-GMxB Variable Annuity products notably in 2H18, and Protection (€+14 million) following higher sales in employee benefit products.
NBV Margin decreased by 0.4 point to 23.0% mainly driven by a less favorable product mix within Unit-Linked, partly off set by favorable financial assumptions updates.
Underlying earnings increased by €2 million (0%) to €853 million. On a constant exchange rate basis, underlying earnings increased by €40 million (+5%).
Adjusted earnings increased by €50 million (+6%) to €842 million. On a constant exchange rate basis, adjusted earnings increased by €88 million (+11%) driven by higher underlying earnings and lower net realized capital losses.
Net income decreased by €1,310 million to €-305 million. On a constant exchange rate basis, net income decreased by €1,324 million driven by a goodwill impairment (€-1,057 million), an unfavorable change in the fair value of m utual funds and interest rate derivatives not eligible for hedge accounting backing structured products (€-181 million) as well as higher restructuring costs and exceptional operations (€-128 million) incurred in connection with the IPO and the Secondary Off ering of AXA Equitable Holdings, Inc.
(a) Net of intercompany eliminations. Gross Revenues amounted to €2,821 million before intercompany eliminations as of December 31, 2018.
Asset under Management (“AUM”) decreased by €10 billion from December 31, 2017, to €459 billion at the end of December 31, 2018, driven by €-25 billion unfavorable market eff ects following markets turmoil at the end of 2018, as well as €-7 billion net outflows as inflows in Private clients were more than off set by outflows on lower-margin Institutional retirement products, partly off set by a €+23 billion favorable foreign exchange rate impact.
Management fee bps increased by 0.9 bps to 40.7 bps mainly due to a more favorable business mix with higher average AUM in Retail and Private clients.
Gross revenues increased by €6 million (0%) to €2,706 million. On a comparable basis, gross revenues increased by €129 million (+5%) driven by higher management fees (€+118 million) due to both higher average AUM and higher average management fee bps, higher performance fees, and higher distribution fees mainly from retail Mutual funds.
Underlying earnings before tax increased by €6 million (+1%) to €691 million. On a constant exchange rate basis, underlying earnings before tax increased by €37 million (+5%) mainly driven by higher revenues and the non-repeat of 2017 one-off charges linked to the reduction of real estate footprint (€+33 million), partly off set by higher expenses in line with volume growth.
Income tax expenses decreased by €29 million (-19%) to €-123 million. On a constant exchange rate basis, income tax expenses decreased by €24 million (-16%) as the impact of the increase in pre-tax underlying earnings was more than off set by the impact of the decrease in the corporate tax rate from 35% to 21%.
Net income decreased by €2,091 million to €-1,681 million. On a constant exchange rate basis, net income decreased by €2,167 million mainly driven by a goodwill impairment (€- 1,949 million) following the Secondary Off ering of AXA Equitable Holdings, Inc.
Net capital gains or losses attributable to shareholders net of income tax (4) (7)
Gross revenues decreased by €499 million (-7%) to €6,535 million. On a comparable basis, gross revenues increased by €249 million (+4%) mainly driven by insurance activities (+5%), partly off set by a decrease in banking revenues (-28%): ■ Property & Casualty (€-76 million or -2%) to €3,722 million. On a comparable basis, Property & Casualty gross revenues increased by €194 million (+5%): • Mexico (€+56 million or +7%) to €807 million mainly driven by new business in Motor,
• Singapore (€-24 million or -11%) to €184 million reflecting selective underwriting; ■ Health (€+60 million or +5%) to €1,295 million. On a comparable basis, Health gross revenues increased by €138 million (+11%) stemming from volume and tariff increases in both Mexico (€+84 million or +14%) to €657 million and the Gulf Region (€+23 million or +7%) to €315 million, and Singapore (€+6 million or +6%) to €111 million; ■ Life & Savings (€-394 million or -23%) to €1,285 million. On a comparable basis, Life & Savings gross revenues increased by €7 million (+1%): • Singapore (€+22 million or +8%) to €278 million mainly driven by higher fees from in-force growth in Unit-Linked as well as higher sales in Protection,
Management fee bps decreased by 0.8 bps to 17.1 bps. On a constant exchange rate basis, management fee bps decreased by 0.8 bps mainly due to an unfavorable change in product mix.
The underlying cost income ratio increased by 1.3 points to 72.1%. On a constant exchange rate basis, the underlying cost income ratio increased by 1.4 points.
Income from affiliates and associates increased by €1 million (+7%) to €19 million. On a constant exchange rate basis, income from aff iliates and associates increased by €2 million (+9%) mainly due to higher AUM in Korean joint venture.
Net income decreased by €147 million (-46%) to €175 million. On a constant exchange rate basis, net income decreased by €147 million (-46%) mainly driven by the non-repeat of 2017 positive adjustment to the deferred consideration linked to the disposal of AXA Private Equity in 2013 (€+61 million), an exceptional tax charge related to the transfer of AB shares to AXA US in the context of the IPO of AXA Equitable Holdings, Inc. completed in May 2018 (€-51 million), as well as higher restructuring costs mainly due to the voluntary leave plan in France (€-25 million).
Net capital gains or losses attributable to shareholders net of income tax (2) 0
Income tax expenses remained stable at €-16 million as the impact of the decrease in lower pre-tax underlying earnings was off set by an increase in corporate tax rate due to a less favorable country mix.
Net income decreased by €25 million to €-11 million mainly driven by lower adjusted earnings.
Net capital gains or losses attributable to shareholders net of income tax (23) (0)
Profit or loss on financial assets (under fair value option) and derivatives (68) (197)
Underlying earnings increased by €24 million to €-703 million mainly driven by lower general expenses and an improved performance of the non-consolidated entities, partly off set by higher financial charges and hedging costs in the context of the acquisition of XL Group.
Adjusted earnings increased by €1 million to €-726 million mainly driven by higher underlying earnings off set by the impact of the cost derivatives set up to reduce the Group exposure to equities.
Net income increased by €3 million to €-819 million due to (i) a favorable change in the fair value of derivatives not eligible for hedge accounting, (ii) a one-off benefit from the tax paid on dividends received from European subsidiaries held for more than 95% following the decision from the European Court of Justice, partly off set by (iii) the non-repeat of the 2017 one-off benefit relating to the reimbursement of the 3% tax on dividend paid to the shareholders, as well as (iv) acquisition and integration costs related to the acquisition of XL Group.
Information in this section should be read in conjunction with Note 4 “Financial and insurance Risk Management” in Part 5 – “Consolidated Financial Statements” of this Annual Report. The report of the Statutory Auditors on the Consolidated Financial Statements covers only the information included in Note 4.
Liquidity needs of Life & Savings subsidiaries can be aff ected by a number of factors including fluctuations in the level of surrenders, withdrawals, maturities and guarantees to policyholders including guarantees in the form of minimum income benefits or death benefits, particularly in the Variable Annuity business.
The financing needs of Asset Management subsidiaries arise principally from their activities, which require working capital, in particular to finance prepaid commissions on some mutual fund-type products at AB or to constitute seed money for new funds at both AB and AXA Investment Managers.
■ a debt profile characterized by (i) debt that is mostly subordinated, with a long maturity profile. Over the next two years, €1.9 billion of debt repayments (1) are expected to reach call date and anticipated to be repaid out of total financing debt of €24.2 billion at year-end 2018; and (ii) a temporary increase in the debt ratios (i.e. debt gearing (2): 32.1% at yearend 2018, versus 24.8% at year-end 2017; interest coverage (3): 10.4x at year-end 2018, versus 14.9x at year-end 2017).
AXA has put in place a robust liquidity Risk Management framework which is reviewed on a regular basis through a quarterly monitoring of liquidity and solvency requirements in stressed environments both at local and Group level. For additional information, please refer to Section 4.2 “Internal control and Risk Management” (4) and Section 4.5 “Liquidity risk” (5) of this Annual Report.
At year-end 2018, Group entities held, in the aggregate, more than €236 billion of government and related bonds of which €145 billion issued by Eurozone countries, which enables them to address local liquidity needs through highly liquid assets. AXA SA also held €12.3 billion of committed undrawn credit lines at year-end 2018. AXA has its own liquidity requirements resulting mainly from solvency needs of Group entities under severe stress scenarios and collateralized derivatives held by AXA SA. The derivatives book is monitored and managed on a daily basis by the AXA Group Treasury Department.
On a consolidated basis, AXA’s total outstanding financing debt excluding derivatives amounted to €5,096 million at December 31, 2018 (€5,096 million including derivatives), an increase of €4,041 million from €1,055 million at the end of 2017 (€1,013 million including derivatives) driven by AXA Equitable Holdings new debt issuance (€3,594 million) and AXA XL debt integration (€607 million).
(1) Estimated taking into account the first date of step-up calls on subordinated debt. (2) Debt gearing is an alternative performance measure a nd is defined in the Glossary set forth in Appendix V of this Annual Report. (3) Including interest charge on undated subordinated debt, preferred shares and mandatory exchangeable bonds. (4) Only information contained in Section 4.2 “Internal control and risk management” of this Annual Report and referred to in Note 4 “Financial and insurance risk management” in Part 5 – “Consolidated Financial Statements” of this Annual Report is covered by the report of the Statutory Auditors on the Consolidated Financial Statements.
For several years, the AXA Group has off ered to its employees, in and outside France, the opportunity to subscribe for shares issued through a capital increase reserved for employees. In 2018, approximately 15.4 million new shares were issued for a total amount of €330 million. To eliminate the dilutive impact of the newly issued shares, AXA bought back the equivalent number of such shares to cancel them.
Interest paid by the Company in 2018 amounted to €1,049 million (€1,129 million in 2017), of which interest on undated subordinated debt of €338 million (€359 million in 2017).
The Group’s operating (re)insurance subsidiaries are subject to local regulatory capital requirements which are designed to protect policyholders and to monitor capital adequacy.
EOF are split into three diff erent tiers, based on the quality of each component as defined under Solvency II regulations. The classification depends upon the extent to which the own fund item is immediately available to absorb losses including in case of a winding-up (permanent availability) and subordinated to all other obligations including towards policyholders and beneficiaries. Capital elements of the highest quality are classified in Tier 1.
Eligibility limits apply to these components to cover the Solvency Capital Requirement (“SCR”).
Pursuant to the terms and conditions of AXA’s TSDI, the Company may, at its option, under certain circumstances and shall, in other circumstances, defer interest payment (e.g. no dividend declared or paid in the preceding Annual Shareholders’ Meeting or receipt by the Company or by certain of its principal insurance subsidiaries of a regulatory demand to restore their solvency position). Payment of deferred interest may become due in certain specified cases (e.g. payment of a dividend, notification of the end of a regulatory demand to restore solvency, liquidation of the Company or redemption of the TSDI).
(1) Pay out ratio range: 50% 60% of Adjusted Earnings net of financial charges related to undated subordinated debt, preferred shares and equity components of mandatory exchangeable bonds into shares of AXA Equitable Holdings, Inc.
Finally, own funds which cannot be deemed available at Group level are included in the Group’s own funds as long as they are eligible for covering the SCR of the entity which holds them.
The ACPR currently considers that AXA SA is not subject to requirements relating to financial conglomerates.
For additional information on regulation and capital requirements, please refer to Section 6.3 “General Information – Regulation and Supervision – Regulatory Capital and Solvency Requirements” of this Annual Report (1).
ACTIVITY REPORT AND CAPITAL MANAGEMENT 2 2.5 EVENTS SUBSEQUENT TO DECEMBER 31, 2018 2.5 EVENTS SUBSEQUENT TO
(1) AXA Insurance in Ukraine is a joint venture between AXA (50% shareholding) and Ukrsibbank. (2) Through it subsidiary FFHL Group Ltd.
AXA remains focused on the delivery of its Ambition 2020 plan and on the transformation of its business model across all major geographies, with a key priority being the successful integration of XL Group. Anticipating the rapidly evolving needs of its customers, AXA’s strategy is articulated around its preferred segments (Health, P&C Commercial lines and Protection) and a focus on partnerships and innovation, seizing opportunities arising from new technologies to off er products and services beyond insurance and becoming a trusted partner for its customers.
A significant shift in strategic profile of the Group is well underway, and is accelerating with the successful IPO and subsequent selldown of AXA Equitable Holdings, Inc. in 2018, in combination with the acquisition of XL Group to become the #1 global P&C Commercial lines insurer, leading to reduced sensitivities to financial markets and higher proportion of technical margin earnings. This change in profile, along with continued strong operational delivery across all geographies has led to a review of the Group’s capital management policy, notably increasing the dividend payout ratio target range to 50% to 60% and lowering the upper bound of our Solvency II ratio target range, which now stands at 170% to 220%. These changes demonstrate our commitment to sustainable value creation for our shareholders.
AXA’s Solvency II position and free cash flow generation should remain strong and resilient to external shocks thanks to robust underwriting policies, a high quality asset portfolio and disciplined capital allocation. The intended subsequent sell-downs of AXA Equitable Holdings, Inc., strong operating cash generation, upcoming cash proceeds from the announced disposal of AXA Life Europe and the transformation of the Swiss Group Life business, should provide AXA with additional cash flexibility over the next years. The Group’s first priority for using this cash flexibility will be to reduce leverage.
With its clear Ambition 2020 strategy, a simplified organization designed to foster growth across its preferred segments, a significant shift in strategic profile and a strong balance sheet with financial flexibility, AXA is well positioned to create lasting shareholder value and off er an attractive return.
Implementing sound corporate governance principles has been a priority at AXA for many years. In this context, AXA chose to adopt, in 2008, the Corporate Governance Code for French corporations (Code de gouvernement d’entreprises des sociétés cotées) published by the Afep (Association française des entreprises privées) and the Medef (Mouvement des entreprises de France) (the “Afep-Medef Code”). The Board of Directors believes that AXA’s corporate governance practices are in line with the recommendations of the Afep-Medef Code (revised in June 2018 and available on AXA’s website – www.axa.com) and its accompanying guide and have followed the evolution of corporate governance practices in France and abroad, as well as the recommendations and standards of shareholders, regulators, the French High Committee for Corporate Governance (Haut Comité de Gouvernement d’Entreprise), proxy advisors, rating agencies and other stakeholders.
Since April 2010, AXA has operated with a unitary Board of Directors.
Separation of the positions of Chairman of the Board of Directors and Chief Executive Off icer
Non-French d irectors : ■ 44% of directors are non-French nationals ■ 8 nationalities are represented on the Board ■ Appointment of 3 non-French directors in 2018
Balanced and complementary composition in terms of tenure on the Board (average tenure between 4 and 8 years) (Target met)
Directors’ tenure at December 31, 2018: ■ Less than 4 years: 9 directors (versus 4 in 2017) ■ Between 4 and 8 years: 3 directors (versus 7 in 2017) ■ Between 8 and 12 years: 4 directors (versus 3 in 2017) ■ 5 new members joined the Board of Directors in 2018 ■ Directors’ average tenure on the Board at December 31, 2018: 5 years
Less than 4 years Between 4 and 8 years More than 8 years
Age of directors No more than one-third of directors over the age of 70 (Target met)
The Chief Executive Off icer, the member of the Board representing the employee shareholders and the members of the Board representing the employees (i.e. 4 directors), are by definition not independent.
The skills matrix below presents the number of directors with skills and expertise considered critical for AXA’s Board of Directors: 13/16 10/16 11/16 5/16 7/16 10/16 7/16
Board of Directors 43% of women, excluding directors representing the employees
Denis Duverne (65) Chairman of the Board of Directors of AXA 25, avenue Matignon – 75008 Paris – France French nationality
Martine Bièvre (59) Director of AXA representing the employees AXA France - 203-205 rue Carnot – 94138 Fontenay-sous-Bois – France French nationality
Jean-Pierre Clamadieu (60) Chairman of the Board of Directors of ENGIE Chairman of the Executive Committee and director of Solvay (c ) (Belgium) 1, place Samuel de Champlain - 92930 Paris la Défense Cedex – France French nationality
Independent director Member of the Compensation & Governance Committee 9,000 October 2012/2019 Annual Shareholders’ Meeting
Irene Dorner (64) Companies’ director AXA – 25, avenue Matignon – 75008 Paris – France British nationality
Independent director Member of the Audit Committee 6,700 April 2016/2020 Annual Shareholders’ Meeting
Independent director Member of the Compensation & Governance Committee Member of the Finance Committee 7,842 December 2016/2022 Annual Shareholders’ Meeting
Independent director Member of the Audit Committee 7,250 April 2016/2020 Annual Shareholders’ Meeting
Stefan Lippe (63) Co-founder and Chairman of the Board of Directors of yes.com AG (Switzerland) and co-founder and Vice-Chairman of the Board of Directors of Acqupart Holding AG (Switzerland) Baarerstrasse 8 – CH 6300 Zug – Switzerland German and Swiss nationalities
François Martineau (67) Attorney at Law at Lussan / Société d’avocats 282, boulevard Saint Germain – 75007 Paris – France French nationality
Doina Palici-Chehab (61) Executive Chairman of AXA Corporate Solutions, AXA Matrix Consultants and AXA ART AXA – 61, rue Mstislav Rostropovitch – 75017 Paris - France German and French nationalities
Elaine Sarsynski (63) Companies’ director AXA – 25, avenue Matignon – 75008 Paris – France American nationality
The Shareholders’ Meeting to be held on April 24, 2019 will be asked to vote on (i) the re-appointment of a member of the Board of Directors whose term of off ice is ending (Mr. Jean-Pierre Clamadieu) and (ii) the ratification of the cooptation of a member of the Board of Directors (on May 24, 2018, the Board of Directors appointed Mrs. Elaine Sarsynski as a Board member, replacing Mrs. Deanna Oppenheimer, until the 2021 Shareholders’ Meeting).
Expertise and experience Mr. Denis Duverne is a graduate of the École des Hautes Études Commerciales (HEC). Aft er graduating from the École Nationale d’Administration (ENA), he started his career in 1979 at the Tax Department of the French Ministry of Finance, and aft er 2 years as commercial counsellor for the French Consulate General in New York (1984-1986), he became director of the Corporate Taxes Department and then responsible for tax policy within the French Ministry of Finance from 1986 to 1991. In 1991, he was appointed Corporate Secretary of Compagnie Financière IBI. In 1992, he became a member of the Executive Committee of Banque Colbert, in charge of operations. In 1995, Mr. Denis Duverne joined the AXA Group and assumed responsibility for supervision of AXA’s operations in the US and the UK and managed the reorganization of AXA companies in Belgium and the United Kingdom. From February 2003 until December 2009, Mr. Duverne was the Management Board member in charge of Finance, Control and Strategy. From January 2010 until April 2010, Mr. Denis Duverne assumed broader responsibilities as Management Board member in charge of Finance, Strategy and Operations. From April 2010 to August 31, 2016, Mr. Denis Duverne was director and Deputy Chief Executive Off icer of AXA, in charge of Finance, Strategy and Operations. Mid-2014, Mr. Denis Duverne became a member of the Private Sector Advisory Group (PSAG), which brings together international leaders of the private sector whose shared goal is to help developing countries improve their corporate governance, co-founded in 1999 by the World Bank and the Organisation for Economic Co-operation and Development (OECD). Since September 1, 2016, Mr. Denis Duverne has been non-executive Chairman of the Board of Directors of AXA. Since September 2018, he has been Chairman of the Insurance Development Forum (IDF). The IDF is a public-private partnership led by the insurance industry and supported by the World Bank and the United Nations, aiming to enhance the use of insurance to build greater resilience against disasters and to help achieve the United Nations Global 2030 Agenda.
Thomas Buberl Member of the Board of Directors and Chief Executive Off icer of AXA
Born on March 24, 1973 German and Swiss nationalities Appointed on
Term expires at the 2022 Shareholders’ Meeting First appointment on September 1, 2016
Directorships held outside the AXA Group Chairman of the Board of Directors: Cité de la musique Philharmonie de Paris Chairman: Temaris & Associés, Zoé SAS Director: Fnac Darty*, Pernod Ricard* (Lead Independent Director), Total* (Lead Independent Director), Yves Saint Laurent
Directorships held during the last five years Chief Executive Officer: Artémis Chairwoman & Chief Executive Officer: Christie’s International Plc (United Kingdom) Vice-Chairwoman: Christie’s International Plc (United Kingdom) Vice-Chairman of the Board of Directors: Kering Chief Executive Officer (non-executive) and member of the Supervisory Board: Financière Pinault Member of the b oard of managers: Société Civile du Vignoble de Château Latour Managing Director and director: Palazzo Grassi (Italy) Director and member of the Supervisory Board: Air France-KLM, Artémis, Bouygues, Fonds Stratégique d’Investissements, Peugeot S.A, Ponant, Société Nouvelle du Théâtre Marigny, TF1, Gucci Group NV (The Netherlands) Permanent representative of Artémis to the b oards of: Agefi, Collection Pinault Paris, Sebdo le Point
Expertise and experience Mrs. Martine Bièvre graduated with a Master’s degree in law specialized in insurance law from the University of Lyon (France). From 1984 to 1988, Mrs. Martine Bièvre was a damage regulations and civil liability editor at the UAP branch in Lyon (France). Since 1988, she held various functions such as claim inspector – adjuster, at the UAP Rhône-Alpes delegation (from 1988 to 1999), at the UAP Bassin Parisien Delegation (from 1990 to 1999), at the AXA Bourgogne Franche-Comté Region (from 1999 to 2004), at AXA Entreprises - IARD Department (from 2004 to 2011) and at AXA Particuliers and IARD Entreprises (since 2011). From 2015 to 2018, she was director representing the employees on the Board of Directors of AXA France IARD. In June 2018, Mrs. Martine Bièvre was appointed director representing the employees on AXA’s Board of Directors.
Directorship held within the AXA Group Director representing the employees: AXA*
Directorship held during the last five years Director representing the employees: AXA France IARD
Expertise and experience Mr. Jean-Pierre Clamadieu is a graduate of the Ecole Nationale Supérieure des Mines of Paris and ingénieur du Corps des Mines. He began his carrier in various positions within the French Civil Service, in particular for the Ministry of Industry and as technical adviser in the Ministry of Labour. In 1993, he joined the Rhône-Poulenc Group and held various executive positions. In 2003, he was appointed Chief Executive Off icer of the Rhodia Group and in 2008, Chairman & Chief Executive Officer. In September 2011, further to the combination between the groups Rhodia and Solvay, Mr. Jean-Pierre Clamadieu became Vice-Chairman of the Executive Committee of Solvay and Chairman of the Board of Directors of Rhodia. From May 2012 to March 1, 2019, Mr. Jean-Pierre Clamadieu was Chairman of the Executive Committee and member of the Board of Directors of Solvay. Since May 18, 2018, Mr. Jean-Pierre Clamadieu has been Chairman of the Board of Directors of ENGIE.
Directorships held outside the AXA Group Chairman of the Board of Directors: ENGIE*, Opéra National de Paris Vice-Chairman of the Executive Committee: World Business Council for Sustainable Development (WBCSD) (Switzerland) Director: Airbus*, France Industries
Jean-Pierre Clamadieu Member of the Board of Directors of AXA (independent)
Chairman of the Board of Directors of ENGIE Born on August 15, 1958 French nationality Appointed on
Expertise and experience Mrs. Bettina Cramm is a graduated Medical Educator from the Martin-Luther University (Halle/Saale - Germany). She started her career in 1984 as a Medical Technical Assistant at the German Klinik of Diagnostik of Wiesbaden (Germany). In 1991, she joined German-Civil-Servants-Insurance (DBV), known today as AXA Konzern AG. From 1991 to 1994, she was Power Clerk General Private Health Insurance at DBV and from 1994 to 2002, Operational Paramedic at DBVWinterthur Wiesbaden. From 2002 to 2007, Mrs. Bettina Cramm was a Healthcare Consultant at DBV-Winterthur. In 1995, she joined the Works Council at DBV-Winterthur and was a member of the Supervisory Board of DBV-Winterthur Health Insurance (2006-2008) and member of the Supervisory Board of DBV Vermittlungsgesellschaft für Versicherungen und Vermögensbildung mbH (2007-2008). From 2008 to 2013, she was responsible for the prevention and health promotion at the company medical service at AXA Konzern AG. From 2013 to June 2018, Mrs. Bettina Cramm held various functions as member of the Works Council, Central Works Council, European Works Council and their commissions and member of Supervisory Boards of AXA entities in Germany. Since May 2017, she has been a member of the Supervisory Board of AXA Konzern AG. In June 2018, Mrs. Bettina Cramm was appointed member of the Board of Directors of AXA representing the employees.
Directorships held within the AXA Group Director representing the employees: AXA* Member of the Supervisory Board: AXA Konzern AG (Germany)
Directorships held outside the AXA Group Director: Rolls-Royce Holdings plc* ** (United Kingdom), Rolls-Royce plc* ** (United Kingdom) Chairman: Control Risks Group Holding Ltd (United Kingdom) Trustee: SEARRP (the South East Asia Rainforest Research Partnership) (Malaysia) Honorary fellow: St. Anne’s College, Oxford (United Kingdom) Member of the Advisory Board: University of Nottingham for Asia (United Kingdom)
Directorships held during the last five years Chief Executive Officer & President: HSBC USA (United States) Chief Executive Officer and member of the Management Board: HSBC Holdings plc (United Kingdom) Chairman: British American Business (United States), Virgin Money (United Kingdom) Director: City of New York Partnership (United States), Committee Encouraging Corporate Philanthropy (United States), Financial Services Roundtable (United States), The Clearing House (United States) Member of the Advisory Board: Outleadership (United States)
Irene Dorner Member of the Board of Directors of AXA (independent)
Companies’ director Born on December 5, 1954 British nationality Appointed on
Expertise and experience Mr. Jean-Martin Folz is a graduate of the École Polytechnique and ingénieur du Corps des Mines. Between 1975 and 1978, he has held various French government cabinet positions, his last position being head of cabinet of the Secretary of State for Industry. In 1978, he joined Rhône-Poulenc to run the Saint-Fons plant, and was then promoted to Senior Executive Vice-President of Rhône-Poulenc for the Specialty Chemicals business unit. In 1984, he became Senior Executive Vice-President and then Chairman & Chief Executive Off icer of Jeumont-Schneider (a Schneider subsidiary). In 1987, he was appointed Chief Executive Off icer of Péchiney and Chairman of Carbone Lorraine (in 1988). In 1991, he became Group Chief Executive Officer of Eridania Béghin-Say and Chairman & Chief Executive Off icer of Béghin-Say. Mr. JeanMartin Folz joined PSA Peugeot Citroën in 1995 and became Chairman of the Management Board in 1997. He left PSA in February 2007. From June 2007 to March 2010, Mr. JeanMartin Folz was Chairman of the Afep. From November 2011 to September 2013, Mr. Jean-Martin Folz was Chairman of the Board of Directors of Eutelsat Communications. On December 2016, the AXA Board of Directors appointed Mr. Jean-Martin Folz as Senior Independent Director.
Jean-Martin Folz Member of the Board of Directors and Senior Independent Director of AXA
Companies’ director Born on January 11, 1947 French nationality Appointed on
Directorship held during the last five years Chairman and Chief Executive Officer: LMBO Europe SAS
Expertise and experience Dr. Angelien Kemna graduated with a Master of Arts in Econometrics and a Ph. D in Finance from Erasmus University Rotterdam (the Netherlands). She has a visiting scholar at the Sloan School, MIT (United States). Dr. Angelien Kemna began her career as Associate Professor in Finance at the Erasmus University from 1988 to 1991. In 1992, she joined Robeco NV and held various positions, notably Investments and Account Management Director from 1998 to 2001. During this period, she was also part-time Professor of Financial Markets at the University of Maastricht (the Netherlands) (1993–1999). From 2001 to July 2007, she worked for ING Investment Management BV (the Netherlands), where she initially held the position of Global Chief Investment Off icer and subsequently Chief Executive Off icer for the European region. In the period 2007-2011, Dr. Angelien Kemna was part-time Professor of Corporate Governance at the Erasmus University and had also various non-executive and advisory positions, most notably Vice-Chairman of the Supervisory Board of the Dutch regulatory institution (AFM). In 2009, Dr. Angelien Kemna joined APG Group N.V. as member of the Executive Board with the responsibility of Chief Investment Off icer. From September 2014 to November 2017, Dr. Angelien Kemna was Chief Finance & Risk Off icer of APG Group (the Netherlands).
Directorships held during the last five years Chairman of the Supervisory Board: Yellow&Blue Investment Management B.V. (The Netherlands) Director or member of the Supervisory Board: Duisenburg School of Finance (The Netherlands), Stichting Child and Youth Finance International (The Netherlands)
Companies’ director Born on November 3, 1957 Dutch nationality Appointed on
Directorships held outside the AXA Group Chairman of the Board of Directors: CelsiusPro AG (Switzerland), yes.com AG (formerly YES.com AG) (Switzerland) Chairman of the Advisory Board: German Insurance Association for Vocational Training (BWV) (Germany) Vice-Chairman of the Board of Directors: Acqupart Holding AG (Switzerland)
Directorships held during the last five years Vice-Chairman of the Board of Directors: Acqufin AG (Switzerland) Director or member of the Supervisory Board: Commerzbank AG (Germany), Extremus Insurance Ltd. (Germany)
Co-founder and Chairman of the Board of Directors of yes. com AG (formerly YES.com AG) (Switzerland) and co-founder and ViceChairman of the Board of Directors of Acqupart Holding AG (Switzerland) Born on October 11, 1955 German and Swiss nationalities Appointed on
Chairman of the AXA Audit Committee Member of the AXA Finance Committee
Directorships held outside the AXA Group Vice-Chairman and member of the Supervisory Board: Associations Mutuelles Le Conservateur**, Assurances Mutuelles Le Conservateur** Vice-Chairman and director: Bred Banque Populaire Co-Managing Partner: Lussan / Société d’avocats Director: AXA Assurances IARD Mutuelle, AXA Assurance Vie Mutuelle, Conservateur Finance**
Expertise and experience Mr. Ramon de Oliveira is a graduate of the University of Paris and of the Institut d’Études Politiques (Paris). Starting in 1977, Mr. Ramon de Oliveira spent 24 years at JP Morgan & Co. From 1996 to 2001, Mr. Ramon de Oliveira was Chairman & Chief Executive Off icer of JP Morgan Investment Management. Mr. Ramon de Oliveira was also a member of the firm’s Management Committee since its inception in 1995. Upon the merger with Chase Manhattan Bank in 2001, Mr. Ramon de Oliveira was the only executive from JP Morgan & Co. asked to join the Executive Committee of the new firm with operating responsibilities. Between 2002 and 2006, Mr. Ramon de Oliveira was an Adjunct Professor of Finance at both Columbia University and New York University. Mr. Ramon de Oliveira is the Managing Director of the consulting firm Investment Audit Practice, LLC, based in New York.
Directorships held within the AXA Group Director: AXA*, AllianceBernstein Corporation* (United States), AXA Equitable Holdings, Inc.* (United States)
Directorships held within the AXA Group Chairman of the Board of Directors: AXA Corporate Solutions Assurance, AXA Matrix Risk Consultants SA Chairman of the Supervisory Board: AXA ART Versicherung AG (Germany) Director representing the employee shareholders: AXA* Director: Sayata Labs Ltd (Israel), XL Group Ltd (Bermuda), XLICSE (Ireland)
Doina Palici-Chehab Member of the Board of Directors of AXA representing the employee shareholders
Expertise and experience Mrs. Elaine Sarsynski graduated with a Bachelor of Arts degree (BA) in Economics from Smith College of Northampton (United States) and a Master of Business Administration (MBA) in Accounting and Finance from Columbia Business School, New York (United States). Mrs. Elaine Sarsynski started her career in 1977 as Real Estate Analyst at Morgan Stanley (New York, United States). In 1981, she joined Aetna Life and Casualty (Hartford, United States), where she held various positions, notably Head of the Corporate Finance Department (1991-1992), Unit Head of Mortgage Finance (1992-1995) and Head of the Real Estate Investments Department (1995-1998). From 1998 to 2001, she worked for Sun Consulting Group, LLC (Hartford, United States) as Partner and founding principal. During this period, she was an Economic and Community Development Director (1999-2001) and became first Selectman for the town of Suff ield (United States) in 2001. In 2005, Mrs. Elaine Sarsynski joined Massachusetts Mutual Life Insurance Company (Springfield, United States), where she was Managing Director at Babson Capital Management LLC, a MassMutual subsidiary. In 2006, she became Executive Vice President, Chief Administrative Off icer, President & Chief Executive Off icer of MassMutual International and in 2008, Executive Vice President, member of the Off ice of the Chief Executive Off icer and President of MassMutual Retirement Services as well as Chairwoman of MassMutual International. In early 2017, Mrs. Elaine Sarsynski retired from Massachusetts Mutual Life Insurance Company.
Directorships held outside the AXA Group Director: Horizon Technology Finance Corporation* (United States), TI Fluid Systems Plc* (United Kingdom) Trustee: Hopkins Academy (United States)
Directorships held during the last five years Chairman: MassMutual International (United States) Trustee: MassMutual Fund Boards (United States)
Each year, the Board of Directors assesses the independence of each of its members on the basis of the recommendations set out in the Afep-Medef Code.
The following table summarizes the position of each director of the Company with regard to the criteria of the Afep-Medef Code at December 31, 2018.
Criterion (the criterion is considered to be met when it is identified by ✔)
On February 20, 2019, the AXA Board of Directors determined that, at December 31, 2018, ten of the sixteen Board members were independent aft er assessing the criteria of the Afep-Medef Code: Mmes Patricia Barbizet, Irene Dorner, Rachel Duan, Angelien Kemna and Elaine Sarsynski and Messrs. Jean-Pierre Clamadieu, Jean-Martin Folz, André François-Poncet, Stefan Lippe and Ramon de Oliveira.
This representative is appointed by shareholders every four years from a list of candidates selected by the Group’s employee shareholders, following an internal selection process.
In addition, in June 2018, two directors representing the employees, Mmes Martine Bièvre and Bettina Cramm, were appointed as members of the AXA Board of Directors.
The Board of Directors does not have any non-voting members (censors).
* The Company considers that the fact that certain members of the AXA Board of Directors hold non-executive directorships in one or more Group subsidiaries owned, directly or indirectly, by AXA does not automatically (i) place them in a situation of conflict of interest, or (ii) impair their independence in any way. The Board believes that permitting its members to sit on the Boards of certain Group subsidiaries is beneficial to the Board’s overall knowledge and appreciation of the Group’s operations, strategy and risk profile. Directors who also serve on the Boards of Group subsidiaries, however, are required to abstain from participating in the debates and decisions of the AXA Board which could aff ect the interests of the entity in which they hold a directorship to prevent any conflict of interest or potential independence issues.
** As Mr. Martineau is Chairman of the AXA Mutuals’ Strategy Coordination Committee, the Board of Directors concluded that he was no longer independent.
The Board is collectively responsible for determining the strategic orientations of the Company, ensuring their implementation, and establishing the internal framework for oversight of Executive Management, subject to relevant laws and regulations and the Bylaws of the Company. In addition, the Board inter alia: ■ chooses the appropriate corporate governance framework; ■ appoints and dismisses the Chairman, any Vice-Chairman/ Senior Independent Director, the Chief Executive Off icer, any Deputy Chief Executive Off icer, any dirigeant effectif (executive who eff ectively runs the Company as required by Solvency II), and determines their respective compensation; ■ convenes Shareholders’ Meetings; ■ proposes directors for appointment to the Shareholders’ Meeting and/or coopts directors to the Board; ■ reviews and endorses (arrête) the Company’s and the Group’s half-year and annual financial statements; ■ presents a report on corporate governance to the Shareholders’ Meeting; ■ fulfills all the Board obligations set out in Solvency II; ■ adopts and oversees the general principles of the Group’s compensation policy; ■ reviews the strategies and the policies on the taking, management and monitoring of risks as well as the conclusions of the internal assessment of risks and solvency (ORSA - Own Risk and Solvency Assessment - report); ■ proposes Statutory Auditors for appointment to the Shareholders’ Meeting and approves non-audit services.
The Chief Executive Off icer, who is also a Board member, is vested with the broadest powers to act in all circumstances on behalf of the Company and to represent the Company in its relationships with third parties. However, the Board of Directors also reserves the approval of certain material transactions to itself in its Terms of Reference, including sales or acquisitions (over €500 million), significant financing operations and other material transactions outside the strategy announced by the Company.
To ensure that the personal interests of the members of the Board of Directors and those of the Company are appropriately aligned, the Board’s Terms of Reference provide that each member of the Board of Directors (with the exception of the directors representing the employees) must hold, within two years following his/her first appointment, a number of AXA shares with a value at least equal to the director’s gross fees earned in respect of the previous fiscal year (1).
Following its decision to appoint Mr. Denis Duverne as Chairman, the Board decided, in light of his experience and knowledge of the AXA Group, to extend the role of the Chairman as follows (2): ■ promote the Company’s values and culture in particular in relation to corporate responsibility and professional ethics; ■ upon request by the Chief Executive Off icer, represent the Company in its relations, nationally and internationally with public bodies, institutions, regulators, shareholders and the Company’s main strategic partners and stakeholders; ■ consult with the Chief Executive Off icer on major topics and events relating to the Company (including the Company’s strategy, major acquisition or divestment projects, significant financial transactions, major community projects and the appointment of the most senior executives of the Group); ■ upon invitation of the Chief Executive Off icer, take part in internal meetings with Group executives and teams to provide his opinion on strategic issues or projects; ■ assist and advise the Chief Executive Off icer.
In this context, in 2018, the Chairman of the Board of Directors, notably: ■ represented the Company at various national and international events attended by certain of the Group’s main partners and strategic stakeholders; ■ had discussions with the main institutional shareholders of the Company, in particular prior to the Shareholders’ Meeting; and
In addition, the Senior Independent Director may convene meetings of independent members of the Board, without the presence of the Chairman and Executive Management, in particular, to assess the performance of the Chairman, review his compensation and prepare his succession plan. He may also request the Chairman to convene the Board on a specific agenda.
The Senior Independent Director reports on his activities to the Shareholders’ Meeting.
In 2018, Mr. Jean-Martin Folz, also acting as Chairman of the Compensation & Governance Committee: ■ maintained regular dialogue with the Chairman of the Board and with the Executive Management (i.e. the Chief Executive Off icer and the Deputy Chief Executive Off icers (Directeurs Généraux Adjoints)); ■ was actively involved in the preparation of Board meetings, working closely with the Chairman of the Board of Directors and the Executive Management; ■ led the selection process of the future members of the Board of Directors and its Committees; ■ worked closely with the Chairman of the Board on the organization of the annual self-assessment of the Board; ■ contributed to the review of all communications made to shareholders in particular on corporate governance topics and Executive Management compensation.
Following Mr. Jean-Martin Folz’s decision not to run for a new term as director, the Board of Directors, in accordance with the provisions of its Terms of Reference, decided to appoint Mr. JeanPierre Clamadieu as Senior Independent Director, subject to his reappointment as director by the Shareholders’ Meeting of April 24, 2019, with eff ect from such date and for the duration of his term of off ice as director, i.e. until the 2023 Shareholders’ Meeting.
In 2018, the Board of Directors met twelve times and sessions without the presence of Executive Management were scheduled at four Board of Directors’ meetings.
In 2018, the Board notably focused on the review of the Group’s strategy, the examination of the 2017 financial statements and the 2018 half-year financial statements, the review of proposed significant acquisitions and disposals (including the acquisition of the XL Group and its integration, the initial public off ering “IPO” of the US subsidiary, AXA Equitable Holdings, Inc. and subsequent off ering), the review of the Board Committees’ reports, the review of the ORSA report and AXA’s Internal Model as well as other written policies required under Solvency II, the Group’s Recovery Plan, Systemic Risk Management Plan and Liquidity Risk Management Plan, the Group’s dividend policy, internal control and r isk m anagement, approval of non-audit services, the self-assessment of the Board of Directors and the appointment, re-appointment and independence of its Board members.
Since 2013, the Board of Directors, upon recommendation of its Compensation & Governance Committee, has periodically entrusted the annual assessment of the Board of Directors to an external consultant.
In 2018, the Board self-assessment was carried out by a consultant (SpencerStuart) who collected each of the individual director’s inputs, views and suggestions on the Board work and its performance. Each director’s view on other members’ participation and contribution to the Board work was also collected.
The individual assessment reports on each member’s contribution were shared only with the Chairman of the Board who provided individual feedback during dedicated one-on-one meetings with each Board member. The report on the Chairman’s personal contribution was transmitted to the Senior Independent Director who shared the results with the Chairman.
In 2018, the Board met twelve times and the average attendance rate was 97.2%. Board meetings lasted approximately four hours on average.
To ensure a well-balanced governance, the Board’s Terms of Reference go beyond the requirements of French law and specifically provide that independent directors have a major role in all Board Committees, as follows: ■ each of the three Committees is chaired by an independent director; ■ all members of the Audit Committee are independent directors; ■ all members of the Compensation & Governance Committee are independent directors, with the exception of the director representing the employees who sits on the Committee pursuant to the Afep-Medef recommendations; ■ none of AXA’s corporate officers may be members of the Committees.
Composition: Stefan Lippe (Chairman) - Irene Dorner - Angelien Kemna - Ramon de Oliveira – Elaine Sarsynski
The Committee focused, in particular, on the following issues: ■ the 2017 financial statements; ■ the 2017 Annual Report (Registration Document); ■ the 2018 half-year financial statements; ■ internal control and r isk m anagement (reports on the financial and operational risks, on compliance, on litigation, on Group IT security – cyber risk, on the Group’s Internal Financial Control (IFC) function, and on the Group’s Standards…); ■ risk management, risk appetite and reporting framework; ■ compliance with the Solvency II regulations and the review of the
Composition: Ramon de Oliveira (Chairman) - André François-Poncet - Stefan Lippe - Doina Palici-Chehab
Company’s financial structure; ■ to examine any plan to perform a financial operation of significant size for the AXA Group; ■ to examine any subject relating to the financial management of the AXA Group including: – the policy on financial r isk m anagement, – the liquidity and financing of the Group, – solvency and capital management; ■ to examine the impact of the main orientations and limits of Asset Liability Management policy on the Group’s capital and solvency; and
The Group Deputy Chief Executive Off icer (Directeur Général Adjoint) & Chief Financial Off icer and the Group Chief Risk Off icer attend each Finance Committee meeting.
Composition: Jean-Martin Folz (Chairman) - Jean-Pierre Clamadieu - Bettina Cramm - André François-Poncet
The Committee also prepares, with the Chairman of the Board of Directors and the Chief Executive Off icer, the succession of the Executive Management. The members of the Committee are also kept informed of the appointments of the main executives of the Group, and in particular the members of the Management Committee; ■ to issue proposals to the Board of Directors on: – the compensation of the Chairman of the Board of Directors and the Chief Executive Off icer and the preparation of their annual assessment,
The Chief Executive Off icer also informs the Committee of the compensation of the main executives of the AXA Group; ■ in depth analysis of certain Group human resources topics, including the annual review of the Company’s policy with respect to professional equality and equal pay; ■ to examine the Group’s strategy on corporate responsibility and other related issues; ■ in depth analysis certain governance matters relating to the operation and organization of the Board of Directors and the organization of the periodic self-assessment of the Board of Directors; and
■ to review the AXA Compliance & Ethics Code . The Group Deputy Chief Executive Off icer (Directeur Général Adjoint) & General Secretary attends each Compensation & Governance Committee meeting. The Chairman of the Board of Directors, as well as the Chief Executive Off icer, although not members of the Committee, contribute to the work of the Committee and attend its meetings, except when their personal situation is discussed. The Committee prepares, with the Chairman of the Board of Directors and the Chief Executive Off icer, the succession of the Executive Management, including in the case of emergency succession, and reports regularly to the Board of Directors. It also regularly ensures the existence of succession plans, at diff erent time horizons (short, medium, long), for each member of the Management Committee.
The Chief Executive Off icer is assisted in the day-to-day operational management of the Group by a Management Committee and a Partners group.
The Chief Executive Off icer is vested with the broadest powers to act in all circumstances on behalf of the Company and to represent the Company in its relationships with third parties. He exercises these powers within the scope of the Company’s corporate purpose and subject to the powers expressly assigned by law to the Shareholders’ Meetings and the Board of Directors. In addition, the Board’s Terms of Reference provide for specific limitations of the powers of the Chief Executive Off icer and require, in addition to legal requirements, prior Board approval for certain significant transactions as indicated in the Section “Board of Directors” above.
The Management Committee meets fortnightly to discuss Group strategic, financial and operational matters. The Management Committee has no formal decision-making authority and is advisory in nature.
The Partners group is composed of the members of the Management Committee and approximately thirty other senior executives from across the Group. Its principal role is to assist the Chief Executive Off icer and the Management Committee in the definition and implementation of key strategic initiatives in the context of the Ambition 2020 plan and to contribute to a permanent strategic dialogue throughout the Group. It has no formal decision-making authority and is advisory in nature. The Partners group meets twice a year.
Mrs. Doina Palici-Chehab, who is the employee shareholder representative on AXA’s Board of Directors, is currently an employee of the GIE AXA (France).
Mrs. Bettina Cramm, who is also an employee representative on AXA’s Board of Directors, is currently an employee of AXA Konzern AG, which is one of AXA’s main German subsidiaries.
According to the Board’s Terms of Reference and the recommendations of the Afep-Medef Code, each member of the Board of Directors is required to inform the Chairman of the Board of Directors and/or the Senior Independent Director of any situation concerning her/him which may create a conflict of interest with the Company or the companies of the AXA Group, and to abstain from voting on any related resolution.
Absence of any conviction in relation to fraudulent off ences, any off icial public incrimination and/or sanctions, or any responsibility in a bankruptcy for the last five years
To the best of the Company’s knowledge, none of the members of its Board of Directors have been, during the last five years (i) subject to any conviction in relation to fraudulent off ences or to any official public incrimination and/or sanction by statutory or regulatory authorities, (ii) disqualified by a court from acting as a member of the administrative, management or supervisory body of an issuer or from acting in the management or conduct of the aff airs of any issuer, or (iii) associated as a member of the administrative, management or supervisory body with any company that has declared bankruptcy or been put into receivership or liquidation, provided, however, that AXA has from time to time sold, discontinued and/or restructured certain business operations and voluntarily liquidated aff iliated companies in connection with these or similar transactions and certain members of AXA’s Board of Directors may have been associated with other companies that have undertaken similar solvent liquidations.
The table below sets forth the number of salaried employees of the AXA Group over the past three years broken down by segment: Salaried employees (Full time equivalent) At December 31, 2016 restated (a) At December 31, 2018
AXA XL (o) 1,514 1,544 9,071 United States (p) 7,596 7,636 7,959 International (excluding AXA Bank Belgium) 13,915 13,852 13,854 Transversal & Central Holdings 20,645 19,201 17,954 Of which AXA Investment Managers 2,424 2,399 2,356
Of which AXA Services and AXA Business Services (r) 7,393 7,061 6,170
(b) A portion of the employees of AXA’s French aff iliates is included in GIEs. (c) In 2018, the increase by 644 in France was mainly driven by recruitments in both sales platform and call centers in Morocco, as well as in regulatory projects and business initiatives in France.
(d) In 2018, the increase by 138 in Switzerland was mainly due to recruitments in compliance and regulatory projects, as well as in Health following the launch of the business in 2017.
(o) In 2018, the increase by 7,528 in AXA XL was mainly due to the acquisition of XL Group in September 2018. (p) In 2018, the increase by 323 in the United States was mainly driven by the temporary increase due to geographical reorganization in AB, as well as the integration of employees from AXA S ervices and continued growth in Employee Benefits in the United States - Life & Savings. (q) In 2018, the decrease by 235 in Group Management Services reflected the simplification of central functions. (r) In 2018, the decrease by 891 was mainly due to the internal transfer of employees from AXA Services to AXA Insurance entities. (s) In 2018, the decrease by 96 in AXA Global Re was mainly driven by restructuring measures.
COMPENSATION OF THE CORPORATE OFFICERS AND MANAGEMENT COMMITTEE MEMBERS ON DECEMBER 31, 2018
Most of the members of the Compensation & Governance Committee are independent. Their independence is assessed annually by the Board in accordance with the criteria set forth in the Afep-Medef Code. The Senior Independent Director is the Chairman of the Committee and presents the compensation policy of the Company each year at the Shareholders’ Meeting.
■ achievement of the Group’s overall financial and operational objectives over the short, medium and long term as well as execution against medium and long-term strategic objectives as a prerequisite to fund any mid-to-long term award.
The requirements set out in the Group Remuneration Policy may be supplemented in order to comply with local regulatory requirements or best practices. The Policy is reviewed and updated annually to mirror, as the case may be, changes in the internal organization and the nature, scale and complexity of the risks inherent to AXA’s business and to reflect exchanges with the French insurance regulator (Autorité de Contrôle Prudentiel et de Résolution (ACPR)).
The Board of Directors, upon recommendation of its Compensation & Governance Committee, has decided to maintain unchanged in 2018 the total annual cash compensation target of the Chief Executive Off icer, Mr. Thomas Buberl, at €2,900,000.
This total target compensation is composed of a fixed annual compensation and a target annual variable compensation.
The fixed annual compensation of the Chief Executive Off icer amounts to €1,450,000 and the variable component of his compensation is set at €1,450,000, i.e. 100% of his fixed annual compensation.
The total amount of compensation of the Chief Executive Off icer and the balance between its diff erent components (fixed and variable) are mainly based on a study by an external advisory firm (Willis Towers Watson) on compensation practices for similar positions within a sample of CAC 40 companies as well as the main European companies in the financial sector (insurance companies, banks), and follows the recommendations of the Afep-Medef Code, the G20, the European Commission and the Financial Stability Board in terms of compensation.
The Board of Directors upon recommendation of its Compensation & Governance Committee and pursuant to the recommendations of the Afep-Medef Code considered that the compensation structure best suited for the Chairman of the Board of Directors was to limit his compensation to a sole fixed annual compensation.
The individual performance of the Chief Executive Off icer is assessed on the basis of various indicators and qualitative and quantifiable objectives set by the Board of Directors through a written target letter drawn up at the beginning of each calendar year, as well as on the basis of demonstrated leadership abilities by the Chief Executive Off icer before the beginning of the performance period. This letter includes detailed objectives about the Group’s progress in the elaboration of its strategic plan as well as other performance indicators and objectives designed to assess the level of achievement of global strategic initiatives and/or relating to certain geographic areas, and the evolution of certain investments contributing to the development of the Group’s operations.
• develop and implement strategies focused on growth (e.g. new strategy for Asia and China focused on growth),
• implement longer term thinking on AXA’s vision and ambition regarding robotization and AI (Artificial Intelligence); ■ further strengthen the talent pipeline as well as the development of the Group Senior Executive (GSE) population (15%): • accelerate the reinforcement of the talent pipeline with an emphasis on gender diversity and emerging markets talents: implement higher diversity in the GSE population (4-5% new promotions at GSE level either externally or coming from emerging markets and reach 33-35% of women in the GSE Group) and within the Partners Group,
• support the development of the Management Committee members; ■ further strengthen the i nternal control and IT security (10%): • continue to strengthen the internal control environment in the largest entities,
• IT security: reach the first quartile of AXA’s peers by 2020 for Group’s largest entities.
The total eff ective variable compensation of the Chief Executive Off icer may not exceed 150% of his variable target compensation, i.e. 150% of his fixed annual compensation.
Performance conditions applicable to the other members of the Management Committee
Management Committee members’ performance with operating business responsibilities is determined according to the following metrics: [Group performance (50%) + operating business performance (50%)] x individual performance (100%).
The variable compensation of Management Committee members who hold Group key functions as defined under the Solvency II regulations is exclusively determined by the individual performance.
Group performance is measured by the (i) underlying earnings per share, (ii) return on equity (adjusted Return on Equity – ROE), (iii) gross revenues in both Commercial Property & Casualty and Protection & Health and (iv) Net Promoter Score (customer recommendation index). Individual performance is evaluated considering predetermined objectives specifically deriving from strategic initiatives.
Thomas Buberl Chief Executive Off icer as of September 1, 2016
Total of the other Management Committee members (e) 8,795,152 9,029,203 103% 5,032,997 6,128,763 122% 8,691,210 10,453,693 120%
(e) At December 31, 2018, the Management Committee was comprised of 11 members (compared to 9 at December 31, 2017).
ANNUAL DEFERRED VARIABLE COMPENSATION Since 2013, the Board of Directors has implemented a deferral mechanism for 30% of for the executive officers’ variable compensation over a two-year period.
Under this mechanism, the Chief Executive Off icer’s deferred amount of variable compensation for the 2018 fiscal year will be paid out in two tranches, in 2020 and 2021. The actual amount to be paid will vary depending on the AXA share price performance over the deferral period and will be subject to a minimum of 80% and a cap at 120% of the deferred amount; provided, however that no deferred variable compensation would be paid in the event (i) that the Group’s underlying earnings are negative for the year ending immediately prior to the year of scheduled payout, or (ii) of resignation or dismissal, for gross or willful misconduct prior to the payout date (clawback provision).
In relation with previous terms of off ice as Chairman & CEO and Deputy CEO, respectively, Messrs. Henri de Castries and Denis Duverne received the second tranche of their deferred variable compensation for the 2016 fiscal year (i.e. an amount of €263,881 for Mr. Henri de Castries and €162,820 for Mr. Denis Duverne).
Total of the other Management Committee members (d) 10,308,268 720,239 1,817,463 2,061,639 14,907,609 19,886,304 1,506,333 (c) 2,617,521 7,636,604 (c) 31,646,763
(c) This amount includes grants to Mark Pearson in the form of AXA Equitable Holdings, Inc. options and performance shares. (d) At December 31, 2018, the Management Committee was comprised of 11 members (compared to 9 at December 31, 2017).
On each date of grant, the fair value of stock options and performance shares is determined in accordance with IFRS standards. This is a historical value on the date of grant, calculated for accounting purposes as described in Note 26.3.1 “Share-based compensation instruments issued by the Group” in Part 5 “Consolidated Financial Statements” of the Annual Report. This value does not represent a current market value, a current valuation of these options and performance shares, nor the actual amounts that may be paid to beneficiaries if and when the options are exercised or the performance shares are acquired.
(a) This amount does not include the part of the variable compensation with respect to 2018, which has been deferred in accordance with the mechanism described on page 133 . (b) Director’s fees are deducted by 70% from the variable compensation. (c) Pursuant to Articles L.225-37-2 and L.225-100 of the French Commercial Code, the payment of the Chief Executive Off icer’s 2018 variable compensation is withheld until the approval of the Shareholders’ Meeting on April 24, 2019.
Board fees indicated in the above tables were paid in 2018 for Board memberships held in AXA Group companies and are deducted by 70% (of their net value) from the variable compensation of the same year in accordance with the Group policy applicable to all employees who benefit from Board fees. This principle of deduction of 70% of the paid directors’ fees is meant to compensate the absence of contribution (e.g. life insurance disability insurance, retirement) on behalf of the beneficiary, because of the decrease of the gross compensation. The only “benefit in kind” for Messrs. Thomas Buberl and Denis Duverne is a company car.
During the fiscal year 2018, the members of the Board of Directors, except for the corporate off icers, only received directors’ fees as compensation from the Company. The amount of directors’ fees paid to each AXA Board member is indicated in the table below.
Current members of the Board of Directors Denis Duverne – Chairman of the Board of Directors 0 0
The total annual maximum amount of directors’ fees to be allocated to the members of the Board of Directors was set by the Shareholders’ Meeting of April 25, 2018 at €1,900,000.
The total maximum amount of directors’ fees is determined by the Shareholders’ Meeting, in accordance with applicable laws, and apportioned by the Board of Directors to its members in accordance with its Terms of Reference (in accordance with the recommendations of Afep-Medef Code, a minority part of the fees is distributed evenly among the members of the Board of Directors as a fixed fee): ■ a fixed amount determined by the Board of Directors shall be paid annually to the Senior Independent Director (set to €80,000); ■ 65% of the remaining amount shall be allocated to the Board as follows: 40% shall be divided equally among Board members and paid as a fixed fee and 60% shall be paid according to Board attendance;
(1) Part of Mrs. Doina Palici-Chehab cash compensation was paid in HKD.
Usually, annual grants are made during the first half of the year. In 2018 the option grant took place on June 27, 2018. The strike price, equal to the average of the closing AXA share price during the 20 trading days before the grant date, was set at €21.60.
The Board of Directors also decided that the total number of options granted to the executive off icers of the Company each year may not exceed 10% of the aggregate number of options granted during the same year, to avoid an excessive concentration of options granted to the executive off icers.
In 2018, 2,730,217 subscription or purchase options with a strike price of €21.60 were granted to 117 employees, representing 0.11% of the outstanding share capital as at December 31, 2018 (disregarding the dilution related to the potential future exercise of these options).
Since 2010, all options granted to all members of the Management Committee were subject to performance condition. This performance condition also applies to the last tranche of each option grant (i.e. the last third of the options granted), for all other beneficiaries of options.
Pursuant to this performance condition, the options become fully exercisable only if the AXA share price performs at least as well as the stock reference index of the insurance sector (1). No option submitted to such performance condition can be exercised as long as this criterion has not been reached. This external performance condition subjects the acquisition of the right to exercise the options to the achievement of a fully objective and public performance and allows to measure the relative performance of AXA compared to its main European competitors over a period of at least three years.
(1) SXIP index (StoxxInsurance Index): a capitalization-weighted index, which includes European companies that are involved in the insurance sector. On December 31, 2018, this index included 35 companies of the sector.
Date of the Shareholders’ Meeting 20/04/2005 20/04/2005 22/04/2008 22/04/2008 22/04/2008 22/04/2008 22/04/2008 22/04/2008 22/04/2008 22/04/2008
or purchased, from which to be subscribed corporate off icers: Start date of exercise 01/04/2010 01/04/2010 19/05/2010 19/05/2012 22/09/2010 22/09/2012 24/11/2012 20/03/2011 20/03/2011 02/04/2011 Expiry date of options 01/04/2018 01/04/2018 19/05/2018 19/05/2018 22/09/2018 22/09/2018 24/11/2018 20/03/2019 20/03/2019 02/04/2019 Subscription or purchase price of options (a) 21.00 21.00 23.42 23.42 21.19 21.19 13.89 9.76 9.76 9.76 Exercise schedule of options 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y Number of options exercised at 31/12/18 4,080,691 545,980 0 0 0 12,525 16,117 3,555,253 254,581 57,045
Grant date (Board of Directors or Management Board) 13/10/2010 22/12/2010 18/03/2011 18/03/2011 04/04/2011 16/03/2012 13/06/2012 22/03/2013 24/03/2014 19/06/2015
or purchased, from which to be subscribed corporate off icers: Start date of exercise 13/10/2014 22/12/2014 18/03/2013 18/03/2015 04/04/2013 16/03/2014 13/06/2014 22/03/2015 24/03/2017 19/06/2018 Expiry date of options 13/10/2020 22/12/2020 18/03/2021 18/03/2021 04/04/2021 16/03/2022 13/06/2022 22/03/2023 24/03/2024 19/06/2025 Subscription or purchase price of options (a) 13.01 12.22 14.73 14.73 14.73 12.22 9.36 13.81 18.68 22.90 Exercise schedule of options 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 33% aft er 3 y 66% aft er 4 y 100% aft er 5 y 33% aft er 3 y 66% aft er 4 y 100% aft er 5 y Number of options exercised at 31/12/18 7,121 5,582 5,196,172 77,300 249,715 3,182,600 76,089 2,114,619 574,219 8,191
Grant date (Board of Directors or Management Board) 06/06/2016 21/06/2017 27/06/2018 Total number of beneficiaries 158 144 117 Total number of shares to be subscribed (a)
or purchased, from which to be subscribed or purchased by: 3,323,259 3,070,397 2,730,217 corporate off icers: Thomas Buberl 175,917 196,366
Subscription or purchase price of options (a) 21.52 23.92 21.60 Exercise schedule of options 33% aft er 3 y 66% aft er 4 y 100% aft er 5 y 33% aft er 3 y 66% aft er 4 y 100% aft er 5 y 33% aft er 3 y 66% aft er 4 y 100% aft er 5 y
This value does not represent a current market value, a current valuation of these options, nor does the actual proceed if and when the options are exercised. On June 27, 2018, the fair value of one option was €1.27 for options without performance conditions and €1.17 for options with performance conditions.
Chief Executive Off icer 27/06/2018 subscription or purchase 27/06/2028 100% of options: SXIP
The nature of these criteria as well as the associated targets are defined and reviewed on a regular basis by the Board of Directors, depending on the evolution of the Group’s strategic objectives and aft er consideration of market practices as well as changes in regulations. Thus, during the last few years, the performance criteria used for this purpose have been linked to (i) the underlying earnings and the adjusted earnings to measure the operating businesses’ performance and (ii) the adjusted earnings per share to measure the AXA Group performance.
The performance of the operating business weighs for 50% of the total performance while the AXA Group performance weighs for 40%. For beneficiaries in Group functions (including AXA executive off icers), the considered operating business is the AXA Group.
Since the 2016 grant, two relative performance criteria were introduced in the calculation of the global performance: ■ one criterion linked to Corporate Social Responsibility – CSR (based on the Dow Jones Sustainability Index - “DJSI”) which weighs for 10% of the global performance rate. Accordingly, the average of the scores achieved by AXA according to the DJSI during the acquisition period is compared to the average of the scores achieved by the other companies included in the DJSI over the same period. Consequently, under this indicator: • no share shall be granted if AXA’s score is lower than the 75th percentile (1),
• 80% of the shares shall be granted if AXA’s score is equal to the 75th percentile,
• a maximum of 130% of the shares shall be granted if AXA’s score is equal or greater than the 95th percentile; Between these minimal and maximal performance levels, the number of shares definitely granted are calculated on a linear basis depending on the performance achieved; ■ one financial criterion of relative performance is meant to compare the growth of the total return of the AXA share (Total Shareholder Return – “TSR”) with the growth of the TSR of the stock reference index of the insurance sector (SXIP) in order to adjust upwards or downwards within the limit of 5 points the global performance rate. Thus, AXA’s outperformance (150% or more) compared to the SXIP index shall trigger a maximum increase of the global performance rate of 5 points (subject however to the upper limit of 130% of the global performance rate) and AXA’s under-performance (75% or less) compared to the SXIP index shall trigger a maximum decrease of 5 points of the global performance rate.
Since the 2017 grant, the performance target setting is aligned with the financial targets of the strategic plan over the performance period (i.e. 3 years).
In the event of 100% achievement of the strategic plan targets (“target”), the number of shares definitively granted at the end of the acquisition period would be equal to the number of performance shares initially granted.
For the executive off icers and members of the Management Committee, should the performance be: ■ lower than the average cumulated results achieved over the 3 years immediately prior to the grant date, no share would be delivered to the beneficiary at the end of the acquisition period; consequently, in the absence of growth, no shares would be granted, and no potential underperformance would be rewarded; ■ equal to 100% of the average cumulated results achieved over the 3 years immediately prior to the grant date, the number of shares definitively granted would be equal to 50% of the number initially granted; ■ equal to 100% of the performance required to reach the target, the number of shares definitively granted would be equal to 100% of the number initially granted; ■ equal to or higher than 130% of the performance required to reach the target, the number of shares definitively granted would be equal to 130% of the number initially granted.
Between the diff erent levels of performance listed above, the number of shares definitively granted to beneficiaries is calculated on a linear basis.
Floor 100% of the average AE + UE over the 3 years immediately prior to the grant date 50% Floor 80% of the performance required to reach the target
Target AE + UE target 100% Target AE + UE target 100%
Calculation of the global performance rate = [40% Group Performance + 50% Operating Business Performance + 10% CSR criterion] +/- 5 points according to AXA’s score vs a relative performance criterion (TSR)
Performance rate divided by 2 should no dividend be paid during any of the fiscal years of the acquisition period. In any event the total number of shares definitely acquired is capped at 130% of the initial grant.
As far as p erformance s hares are concerned: ■ the p erformance s hare grants are conditioned on a minimal 3-year acquisition period allowing the measurement of the performance determining the definitive grant of the shares over a longer period, i.e. at least 3 years; ■ shares acquired at the end of the acquisition period are restricted from sale during a 2-year period (“holding period”). As from the 2019 grant, this holding period will no longer apply (except for Management Committee members, including the Chief Executive Off icer).
As far as i nternational p erformance s hares are concerned: ■ the i nternational p erformance s hares are subject to a 3-year performance period followed by a 1-year deferred acquisition period. As from the 2019 grant, the 1-year deferred acquisition period will no longer apply (except for Management Committee members), aligning all grants worldwide on one single vesting schedule. The payment is made in shares. Should this type of payment not be possible for legal, tax or any other reason, the payment could be made in cash; ■ the amounts corresponding to i nternational p erformance s hares are expensed each year under the variable accounting method. They do not create any dilution for shareholders since no new shares are issued.
Number of International Performance Shares cancelled 1,232,039 960,902 898,207 396,615 116,789
(a) In 2016, i nternational p erformance s hares were granted to Mr. Thomas Buberl prior to his appointment as AXA Chief Executive Off icer. (b) 50% of shares acquired on March 24, 2017 and 50% aquired on March 24, 2018. (c) 8,110 units of the June 19, 2015 plan acquired by anticipation. (d) 421 units of the June 6, 2016 plan acquired by anticipation.
Total number of Performance Shares granted 2,662,849 2,459,256 2,358,236 2,486,368 2,979,171 from which granted to: Corporate off icers: Acquisition date of the shares 24/03/2016 (a) 19/06/2018 (b) 06/06/2019 21/06/2020 (c) 27/06/2021 (d)
(a) 50% of shares acquired at March 24, 2016, 50% at March 24, 2017, except for the Chairman & CEO, and the Deputy CEO at grant, 100% of shares have been acquired at March 24, 2017 and will become unrestricted at March 24, 2019.
(d) Four employees have chosen the 4+0 vesting calendar (acquisition at June 26, 2022 with no restricted period), based on the plan rules as they have moved out of France during the acquisition period.
Under the AXA Compliance & Ethics Code, all employees (including the executive off icers of the Company) are prohibited from engaging in any transaction designed to hedge the value of equitybased compensation awards (stock options and performance shares) granted under any plan or arrangement maintained by AXA or any of its subsidiaries. This restriction applies from the date of grant until such time as the beneficiary receives the securities underlying the award upon, for example, the exercise of a stock option or the lapse of restrictions on performance shares. In accordance with the recommendations of the Afep-Medef Code, the executive off icers of the Company make a formal commitment to not resort to hedging transactions.
Representative of employee shareholders to the Board of Directors 27/06/2018 Performance Shares 18,644 0.001% 253,372 27/06/2021 27/06/2023 adjusted earnings per share adjusted earnings underlying earnings
(b) The performance rate of 103% is composed of: 1/3 x 106% (Adjusted earnings per share) + 2/3 x 101% (Adjusted earnings and Underlying earnings). (c) The performance rate of 123% (Asia region) is composed of: 1/3 x 109% (Net income per share) + 2/3 x 130% (Net income and Underlying earnings).
Doina Palici-Chehab Representative of employee shareholders to the Board of Directors 24/03/2014 5,163 24/03/2018
Pursuant to Articles L.225-197-1 and L.225-185 of the French Commercial Code, the Supervisory Board and later the Board of Directors have decided that, as long as the Chief Executive Off icer has not met his Minimum Shareholding Requirement, all Stock Options and Performance Shares granted to him will be subject to the following restrictions: ■ upon each exercise of these stock options granted, the Chief Executive Off icer must continue to hold in registered form a number of shares obtained upon exercise equal in value to at least 25% of the pre-tax capital gain realized upon exercise. These shares shall be held during his entire term of off ice as Chief Executive Off icer; ■ for Performance Shares granted, the Chief Executive Off icer must, at every performance share acquisition date, hold in registered form at least 25% of the Performance Shares acquired during his entire term of off ice as Chief Executive Off icer.
These restrictions do not apply if the Chief Executive Off icer complies with his Minimum Shareholding Requirement.
On December 31, 2018, based on the AXA share value on that date (€18.86), the Chief Executive Off icer meets his Minimum Shareholding Requirement such as described in the above Section “Share ownership policy for executives of the Group”.
On December 31, 2018, based on the AXA share value on that date (€18.86), the members of the Management Committee held, on average, 2 times the equivalent of their fixed annual compensation, it being specified that 10 out of 11 Management
To the best of the Company’s knowledge and based on the information reported to it, several members of the Board of Directors made the following disclosures in the course of 2018 concerning their transactions involving Company securities. Detailed information about all of these transactions, as well as individual disclosures filed in accordance with Articles 223-22 and 223-25 of the AMF General Regulations, are published on the Company’s website (www.axa.com) and on the AMF website (www.amf-france.org).
Savings Plan of dividends attached to shres held in the Company Savings Plan
(a) Transaction performed by an independent financial intermediary pursuant to a discretionary mandate. (b) AXA shares locked in under the AXA employee-stock purchase plan (Plan d’Épargne d’Entreprise du Groupe).
Mr. Denis Duverne as former Deputy Chief Executive Off icer of the Company participated, as all other executive employees (directeurs) of AXA Group entities in France, in a mandatory and collective supplementary pension scheme with defined benefits on the condition that they terminate their career in the AXA Group in accordance with the provisions of Article L.137-11 of the French Social Security Code.
Mr. Denis Duverne, who retired from his position as Deputy Chief Executive Off icer on August 31, 2016 and was appointed Chairman of the Board of Directors as of September 1, 2016, claimed his pension rights according to the collective defined benefit pension scheme as of September 1, 2016. However, Mr. Denis Duverne decided to waive payment of the annuities amounting to circa €750,000 per year before taxes and social security charges, until termination of his term of off ice as Chairman of the Board without any retroactive payment.
Since December 2016, AXA has implemented a retirement performance shares plan which benefits to all executive employees (directeurs) of AXA Group entities in France including Mr. Thomas Buberl, AXA’s Chief Executive Off icer.
It provides beneficiaries with portable pension benefits until retirement in line with Directive 2014/50/UE/of the European Parliament and of the Council of April 16, 2014 on minimum requirements for enhancing worker mobility between Member States by improving the acquisition and preservation of supplementary pension rights.
These performance shares are subject to (i) an acquisition period of three years and (ii) an obligation to hold the shares until retirement, provided that the beneficiaries may sell all or part of their shares for diversification purposes (following the three-year acquisition period), as long as the sale proceeds are invested in a long-term savings plan until the beneficiary’s retirement.
The definitive acquisition of these shares is subject to (i) the beneficiary’s presence in the Group on December 31 of the year during which the grant is decided and (ii) the achievement of a performance condition related to the average AXA Group Solvency II ratio calculated during the acquisition period and subject to diff erent performance levels: to benefit from the totality of performance shares initially granted, the average AXA Group Solvency II ratio calculated during the acquisition period must be greater than or equal to 170%. However, if the average ratio is 150%, only half of the shares initially granted will be acquired. Between these performance levels, the number of shares definitely acquired will be calculated, on a linear basis depending on the achieved performance.
At the Company’s Board of Directors meeting on December 13, 2018, the Board of Directors approved a grant of retirement performance shares. Accordingly, 758,076 retirement performance shares were granted to 474 off icers, which represent 0.03% of the outstanding share capital on the date of the grant, of which 24,936 retirement performance shares were granted to AXA’s Chief Executive Off icer representing 3.3% of the total grant.
Denis Duverne Chairman of the Board of Directors Beginning of current mandate: 25/04/18 Term of off ice: 2022
(a) Mr. Thomas Buberl is a beneficiary of the retirement performance shares plans. (b) Mr. Denis Duverne decided to waive payment of the annuities he is entitled to under the collective defined benefit pension scheme, until termination of his term of off ice as
In accordance with the recommendations of the Afep-Medef Code, Mr. Thomas Buberl decided to renounce his employment contract as of the date of his appointment as Chief Executive Off icer.
I Report of the Board of Directors on the compensation policy of the Company’s corporate off icers (Ordinary and Extraordinary Shareholders’ Meeting of April 24, 2019)
This report was prepared in accordance with Article L.225-37-2 of the French Commercial Code and presents the principles and criteria for determination, distribution and allocation of all elements of compensation of the corporate off icers of the Company as approved by the Board of Directors during its meeting held on February 20, 2019, upon recommendation of its Compensation & Governance Committee.
Thus, the Board of Directors, upon recommendation of its Compensation & Governance Committee, and following a comparative review of national, European and industry practices, decided to maintain unchanged, for 2019, the Chief Executive Off icer’s target annual variable compensation, at €1.45 million, i.e. 100% of the amount of his annual fixed compensation.
The Chief Executive Off icer’s total eff ective variable compensation may not exceed 150% of his variable compensation target, i.e. 150% of his annual fixed compensation.
The determination of the actual amount of variable compensation to be paid to the Chief Executive Off icer will therefore be based on the addition of two components: the Group performance for 50% and the individual performance for 50%.
Under this mechanism, payment of 30% of his actual annual variable compensation will be deferred over the course of two years and will be subject to performance conditions. Thus, the actual deferred amount will vary depending on changes in the AXA share price over the deferral period, within a minimum of 80% of the deff ered amount and a maximum of 120% of the deferred amount. However, no deferred variable compensation will be paid in the event that the Group’s underlying earnings are negative for the year ending immediately prior to the year of the scheduled payout, or in case of resignation or dismissal for gross or willful misconduct, prior to the payout date.
However, the value of the stock options and performance shares granted to the Chief Executive Off icer as determined in accordance with the IFRS standards may not in any event exceed half of his total compensation.
Given the principles presented above and following an analysis of practices observed on the market for similar functions in CAC 40 companies of similar size and scope, the Board of Directors, upon proposal of its Compensation & Governance Committee, has decided that the total value of the LTIs to be granted to the Chief Executive Off icer during 2019, shall not exceed 150% of the amount of his annual variable compensation target.
Elements of compensation relating to the Chief Executive Off icer’s retirement
The commitments made to the benefit of the Chief Executive Off icer regarding social benefits and unemployment benefits are presented in more detail in the Statutory Auditors’ special report on regulated agreements and commitments as well as in the 2018 Annual Report.
APPOINTMENT OF A NEW CHIEF EXECUTIVE OFFICER AFTER THE SHAREHOLDERS’ MEETING TO BE HELD ON APRIL 24, 2019 For purposes of this report only, and in accordance with applicable regulations, the Board of Directors has also considered the hypothetical appointment of a new Chief Executive Off icer following the Shareholders’ Meeting to be held on April 24, 2019.
■ the experience, skills and individual compensation history of the executive would also be taken into account.
II. Compensation policy for the Chairman of the Board of Directors
STRUCTURE AND CRITERIA FOR DETERMINATION OF THE CHAIRMAN OF THE BOARD OF DIRECTORS’ COMPENSATION The Board of Directors, upon recommendation of its Compensation & Governance Committee, and in accordance with the recommendations set forth in the Afep-Medef Code, has considered that the most appropriate compensation structure for the Chairman of the Board of Directors would be the payment of a sole fixed compensation.
The Board of Directors has also taken into account the extensive role it decided to entrust Mr. Denis Duverne with as Chairman of the Board of Directors. This role is presented in detail in the Board’s Terms of Reference as well as in Section 3.1 of this Annual Report and goes beyond the statutory duties of a Chairman under French law.
Accordingly, the Board of Directors has decided, upon recommendation of its Compensation & Governance Committee, to maintain the amount of the fixed annual compensation of the Chairman of the Board of Directors unchanged, for 2019, i.e. at €1.2 million.
APPOINTMENT OF A NEW CHAIRMAN OF THE BOARD OF DIRECTORS AFTER THE SHAREHOLDERS’ MEETING TO BE HELD ON APRIL 24, 2019 For purposes of this report only, and in accordance with applicable regulations, the Board of Directors has also considered the hypothetical appointment of a new Chairman of the Board of Directors following the Shareholders’ Meeting to be held on April 24, 2019.
Under such circumstances, the compensation structure applicable to a new Chairman of the Board of Directors would comply with this policy and the Board of Directors would perform a comprehensive review of the situation of the relevant executive, provided that: ■ the amount and criteria of his compensation would be determined in accordance with existing practices within the Company by reference to compensation practices for similar functions in a sample of CAC 40 companies and in the main European companies in the financial sector; and
In December 2008, AXA adopted all of the Afep-Medef recommendations, including the recommendations on the compensation of corporate officers of October 2008, as its Corporate Governance Code of reference.
AXA complies with the recommendations of the Afep-Medef Code that are in line with the long-established corporate governance principles initiated by the Company. Details are presented in Sections 3.1 “Corporate governance structure” and 3.2 “Executive compensation and share ownership” of this Annual Report describing corporate governance mechanisms and containing information about executives’ compensation.
The Company implements all the recommendations of the Afep-Medef Code. However, in order to take into account certain specificities of its business and governance practices, AXA has decided to adapt in certain provisions of the Afep-Medef Code while remaining in line with the principles of the Afep-Medef Code: ■ Section 8.5 of the Afep-Medef Code relating to the independence of parent company directors holding a directorship in a Group subsidiary: although certain members of the AXA Board of Directors hold a non-executive directorship in one or more Group subsidiaries owned, directly or indirectly, by AXA, the Company considers that this does not automatically (i) place them in a situation of conflict of interest, or (ii) impair their independence in any way. The Board believes that permitting its members to sit on the Boards of certain Group subsidiaries is beneficial to the Board’s overall knowledge and appreciation of the Group’s operations, strategy and risk profile. Directors who also serve on the Boards of Group subsidiaries, however, are required to abstain from participating in the decisions of the AXA Board which could aff ect the interests of the entity in which they hold a directorship to prevent potential independence issues.
For information concerning related-party transactions, please see Note 28 “Related-party transactions” included in Part 5 – “Consolidated Financial Statements” of this Annual Report.
To the shareholders of AXA 25, avenue Matignon 75008 Paris, France
Furthermore, we are required, if necessary, to provide information, in accordance with Article R. 225-31 of the French Commercial Code, on agreements and commitments previously approved by the Shareholders’ Meeting which remained in force.
We performed our work in accordance with the standards of our profession applicable in France. These standards consisted in the verification of the consistency of the information we received with the basis documentation from which they are extracted.
AGREEMENTS AND COMMITMENTS AUTHORIZED SINCE THE YEAR ENDED DECEMBER 31, 2018 We hereby inform you that we have not been advised of any agreements nor commitments authorized since the year ended December 31, 2018 to submit for approval to the Shareholders’ Meeting in accordance with Article L. 225-38 of the French Commercial Code.
AGREEMENTS AND COMMITMENTS APPROVED DURING THE PAST FISCAL YEAR Furthermore, we were advised of the following agreements and commitments concluded in the past fiscal year and which were already approved by your Shareholders’ Meeting of April 25, 2018, upon the special report of the Statutory Auditors of March 19, 2018.
The amount of severance benefit to be paid to the beneficiary would be adjusted in accordance with the level of achievement against these performance conditions: • 100% of the severance benefit will be paid if at least two of the three performance conditions are met,
• 40% of the severance benefit will be paid if only one performance condition is met,
Notwithstanding the foregoing, if only two of the three performance conditions are met, the amount of severance benefit will be reduced by 50% if performance condition (1) is not met or if AXA’s consolidated net income for the preceding fiscal year is negative.
This commitment is in force since the eff ective renunciation by Mr. Thomas Buberl to his employment contract. It shall last for the duration of his current position as a corporate off icer of AXA (i.e. since September 1, 2016), including under renewed mandates.
In accordance with Article L. 225-42-1 of the French Commercial Code and in the context of the reappointment of Mr. Thomas Buberl by the Shareholder’s Meeting of April 25, 2018, this severance benefit commitment has been authorized by the Board of Directors of February 21, 2018 and approved to the Shareholder’s Meeting of April 25, 2018.
AGREEMENTS AND COMMITMENTS APPROVED DURING PRIOR FISCAL YEARS THAT REMAINED IN FORCE DURING THE PAST FISCAL YEAR In accordance with Article R. 225-30 of the French Commercial Code, we were advised of the following commitments and regulated agreements, approved during previous fiscal years, which remained in force during the past fiscal year.
Consequently, the Supervisory Board took the following decision: ■ the Supervisory Board authorized the Company to take all appropriate commitments to ensure that, as a corporate off icer, Mr. Denis Duverne would continue to have social benefits (health and disability insurance…) identical or on terms equivalent to those applicable to AXA Group director-level employees in France, including by amending Group benefit plans in terms of health and disability insurance.
4.1 RISK FACTORS 164 Financial Risks 164 Risks related to the Company and its business 169 Risks related to the ownership of the Company’s shares 180 4.2 INTERNAL CONTROL AND RISK MANAGEMENT 181 Governance and Risk Management organization 182 Own Risk and Solvency Assessment (“ORSA”) 189 Internal Model 190 Governance of investment strategy and Asset & Liability Management (ALM) 193 4.3 MARKET RISKS 195 Market risks: definition and exposure 195 Risk control and risk mitigation 196 Focus on main market risks and sensitivity analyses 197 4.4 CREDIT RISK 202 Credit risk: definition and exposure 202 Risk control and risk mitigation 202 4.5 LIQUIDITY RISK 206 4.6 INSURANCE RISKS 207 Insurance risks: definition and exposure 207 Risk control and risk mitigation 208 4.7 OPERATIONAL RISK 212 4.8 OTHER MATERIAL RISKS 213 Strategic risk 213 Reputation risk 213 Emerging risks 214 Regulatory risks 214 Sustainability risks 214
You should carefully consider the following risk factors together with other information contained in this Annual Report. Any of these risks could materially affect our business, financial condition or results of operations, cause the trading price of our ordinary shares to decline materially or our actual results to diff er materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company.
Where the risks described in this Section 4.1 have given rise to quantifiable and material financial impacts and/or material contingent liabilities, those financial impacts and/or contingent liabilities are reflected in the Consolidated Financial Statements. You should also refer to Section 4.3 et seq. of this Annual Report for quantitative information on the material risks to which the Group is exposed. For avoidance of doubt, references to “insurance”, “(re)insurance”, “Property & Casualty” and “Life & Savings” in this section also refer to “Health” activities as appropriate.
These factors and others have had and may continue to have an adverse eff ect on our revenues and results of operations, in part because we have a large investment portfolio. Our investment income is an important part of our profitability, and our sales of insurance and Asset Management products (as well as the level of product surrenders and lapses) are dependent upon financial market performance, customer behavior and confidence as well as other related factors. Our ability to make a profit on insurance and investment products, for example, depends in part on the returns on investments supporting our obligations under those products, and the value of specific investments may fluctuate substantially depending on the foregoing conditions. In addition, certain types of insurance and investment products that we off er expose us to risks associated with fluctuations in financial markets, including certain types of interest sensitive or variable products such as guaranteed annuities or variable annuities, which have crediting or other guaranteed rates or guaranteed minimum benefits not necessarily related to prevailing market interest rates or investment returns on underlying assets. Although we use hedging techniques to help mitigate our exposure under certain of these guarantees, not all risks can be eff ectively hedged against and volatility in the financial markets, combined with unanticipated policyholder behavior, may increase our cost of risk and/or negatively aff ect our ability to hedge against certain of these risks, which may in turn adversely aff ect our profitability.
Accordingly, during a period of declining interest rates or a prolonged period of low interest rates, our profitability may suff er as the result of a decrease in the spread between interest rates credited to insurance policyholders and annuity contract owners and the rates we are able to earn on our fixed-income investment portfolio. In addition, certain regulatory capital and reserve requirements are based on formulas and models, such as the Group’s Internal Model, that consider interest rates, and an extended period of low interest rates may increase the regulatory capital we are required to hold and the amount of assets we must maintain to support our reserves, while decreasing the amount of our EOF .
Conversely, in periods of increasing interest rates, the estimated fair value of certain of our fixed-income investments may decrease, which could negatively impact our Solvency II ratio and net income; surrenders of life insurance policies and fixed annuity contracts may accelerate, as policyholders seek higher returns, which may cause us to accelerate amortization of deferred policy acquisition costs or to liquidate fixed maturity investments in order to obtain liquidity to satisfy such obligations, which may result in realized investment losses; our fee income may decrease due to a decline in the value of Variable Annuity account balances invested in fixed income funds; and we may be required, as an issuer of securities, to pay higher interest rates on debt securities, debt and bank facilities, which may increase our interest expenses.
For a description of the sensitivity of our EOF to changes in interest rates, please refer to Note 4.2 “Market risks (including sensitivity analysis)” in Part 5 “Consolidated Financial Statements” of this Annual Report. For additional information on the sensitivity of our Solvency II ratio to financial shocks on interest rates, please refer to the AXA Group’s SFCR, available on AXA’s website (www.axa.com) (1).
Our exposure to changes in credit spreads primarily relates to the impact of such changes on market prices and cash flow variability. A widening of credit spreads will generally reduce the value of fixed income securities we hold (including credit derivatives where we assume credit exposure) and increase our investment income associated with purchases of new fixed income securities in our investment portfolios; and, as issuer, we may be facing increased interest expenses. Conversely, credit spread tightening will generally increase the value of fixed income securities we hold and reduce our investment income associated with new purchases of fixed income securities in our investment portfolios. For additional information on the sensitivity of our Solvency II ratio to financial shocks on corporate bond spreads, please refer to the AXA Group’s SFCR, available on AXA’s website (www.axa.com) (1).
Due to the geographical diversity of our business, we are subject to the risk of exchange rate fluctuations since a significant portion of our shareholdings and investments, revenues and expenses are denominated in currencies other than Euro, while our Consolidated Financial Statements are published in Euro. Likewise, the part of our debt and other obligations denominated in currencies other than Euro is subject to foreign currency exchange rate fluctuations.
Inflation or deflation in our principal markets would have multiple impacts on AXA and may negatively aff ect our business, solvency position and results of operations
We are subject to inflation risk in certain of our principal markets, especially in Europe, through our holdings of fixed interest and other instruments, and as a result of the potential for claim payments and expenses to rise faster than anticipated in our reserving and pricing assumptions.
(1) The AXA Group’s SFCR for the year ended December 31, 2017 is available on AXA’s website, and the AXA Group’s SFCR for the year ended December 31, 2018 is expected to be published on May 23, 2019 on AXA’s website.
Adverse business and market conditions as well as accounting rules may impact the amortization of our Deferred Acquisition Costs (“DAC”), Value of Business In-Force (“VBI”) and other intangibles and/or reduce deferred tax assets and deferred policyholders participation assets, which could materially aff ect our results of operations and financial statements
In recent years, the capital and credit markets have at times experienced high levels of volatility and disruption which, during certain periods, have significantly limited the availability of additional liquidity in the markets and credit capacity for most issuers, including AXA.
We need liquidity to pay our operating expenses (including claims and surrenders), dividends and interests on our debts and to refinance certain maturing debts and other liabilities. In addition, we need liquidity in connection with derivatives transactions to which we are party which require us to transfer cash collateral and/or subject us to margin calls in certain circumstances. The availability of additional financing to supplement internal liquidity resources will depend on a variety of factors such as market conditions, the overall availability of credit to the financial services industry, our credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of our long-term or short-term financial prospects if we incur large investment losses or if the level of our business activity decreases due to a market downturn. While M anagement has put in place a liquidity r isk m anagement framework that includes active monitoring of the Group’s liquidity position and contingency plans for accessing liquidity, liquidity constraints over a prolonged period may have a material adverse eff ect on our business, results of operations and consolidated financial position.
Downgrades in our insurer and reinsurer financial strength and credit ratings could adversely impact our competitive position and damage our relationships with creditors or trading counterparties
We have significant exposure to third parties that owe us money, securities or other assets and which may fail to perform or default on their obligations to us due to bankruptcy, insolvency, lack of liquidity, operational failure, fraud, or other reasons. Such third parties include private sector and government (or government-backed) issuers whose securities we hold in our investment portfolios (including mortgage-backed, asset-backed, government bonds and other types of securities), borrowers under mortgages and other loans that we extend, reinsurers and capital market counterparties to which we have ceded (directly or indirectly) our insurance risks, customers, ceding companies, service providers, partners, trading counterparties, counterparties under swap and other derivative contracts, and other counterparties including brokers and dealers, commercial and investment banks, hedge funds, other investment funds, clearing agents and market exchanges. We may also have exposures to such counterparties under insurance policies that we have written, including in respect of D&O, surety and similar coverages. Moreover, we are exposed to counterparty risk with respect to certain policies we write that provide coverage to our policyholders for their credit risk exposures to third parties.
There can be no assurance that defaults by the foregoing or other counterparties would not materially and adversely aff ect our business, results of operations and financial condition.
In our Property & Casualty business, we establish reserves for claims (either reported or unreported) and claims expenses in accordance with industry practices and accounting, actuarial and regulatory requirements. Reserves do not represent an exact calculation of liability, but instead represent expectations of what the ultimate settlement and administration of claims will cost based on our assessment of facts and circumstances then known, review of historical settlement patterns, estimates of trends in claims severity and frequency, actuarial experience on past events, legal liability and other factors. While we continually review the adequacy of our claims reserves, because the establishment of claims reserves is an inherently uncertain and complex process involving numerous estimates, including the impacts of any regulatory and legislative changes, court interpretations, medical condition of claimants, emerging trends and theories of liability, including with respect to environmental, medical and products liability exposures, and changes in economic conditions (including inflation changes and discount rates used for evaluation of settlements), there can be no assurance that ultimate losses will not materially exceed our claims reserves and have a material adverse eff ect on our results of operations. The estimation of claims reserves may also be more diff icult during times of adverse economic conditions due to unexpected changes in behavior of claimants and policyholders, including an increase in fraudulent reporting of exposures and/or losses, reduced maintenance of insured properties or increased frequency of small claims.
In our Life & Savings business, our earnings depend significantly upon the extent to which our actual claims experience is consistent with the assumptions we use in setting the prices for our products and establishing the liabilities for obligations for technical provisions and claims. In certain cases, product features such as minimum guarantees or options to swap between underlying funds in certain savings products may with time result in higher realized losses than anticipated in initial assumptions. In particular, assessing the impact of minimum guarantees which are contained within certain of our Variable Annuity products and the adequacy test performed on the reserves for life policies (which encompasses the recoverability of DAC, VBI and deferred participation assets) involve a significant degree of M anagement judgment. While we use both our own experience and industry data to develop products and to estimate future policy benefits, including information used in pricing the insurance products and establishing the related actuarial liabilities, there can be no assurance that actual experience will match these estimates and that emerging risks would not result in loss experience inconsistent with our pricing and reserve assumptions.
Furthermore, while our NBV and EEV calculations are done on a market consistent basis, changes in assumptions used in calculating these measures may have a material adverse eff ect on the level of our NBV and/or EEV. For example, our NBV is sensitive to interest rate movements and, consequently, an adverse evolution of interest rates relative to our assumptions may have a significant impact on our NBV and a corresponding impact on the trading price of our securities.
Catastrophic events are inherently unpredictable. Our exposure to natural and man-made disasters depends on various factors and is often more pronounced in certain geographic areas, including major urban centers, with a high concentration of customers, employees and/or insured property and assets.
The occurrence of catastrophic events may also result in an increase of our reinsurance/retrocession for own account and limit or prevent us from obtaining adequate types and amounts of reinsurance/retrocession (or entering into adequate risk transfer transactions to capital markets) for certain risks or regions. While we seek to reduce our exposure to catastrophic events, through diversification and incremental reinsurance, we have experienced and could in the future experience material losses from these types of risks, which may exceed our reinsurance and retrocessional protection (or similar protection aff orded through risk transfer transactions to capital markets) or such protection may otherwise be inadequate to protect us against losses or uncollectible reinsurance when due. In particular, we may enter into risk transfer transactions to capital markets that off er reinsurance protection based on an industry loss index rather than on our actual incurred losses, which may result in our residual losses not being covered to the extent they are not fully correlated with the relevant share of the related industry loss.
In addition, regulatory initiatives, including at French, European Union and international levels, regarding climate change may affect our operations and those of our counterparties, and potentially limit our investments or aff ect their value, as certain companies struggle to adapt to these regulations. These may include: (i) new investment requirements; (ii) new disclosure requirements; or (iii) new requirements relating to the inclusion of environmental, social and governance considerations into insurance and Asset Management products and advice. These and similar regulatory requirements, as well as any further regulations regarding the transition to a lower-carbon economy, climate change or our energy-related investments, could increase our legal and compliance costs and adversely aff ect our business or the value of our investments. For further information on investment-related climate risk analysis, please refer to Section 7.3 “Climate c hange and the e nvironment – Investments” of this Annual Report.
Our r isk m anagement programs may be inadequate to protect us against the full extent of the exposure or losses we seek to mitigate and may leave us exposed to unidentified, unanticipated or incorrectly quantified risks that could result in significant losses
Furthermore, the operation of our hedging program is based on models involving numerous estimates and M anagement judgments, including, among others, mortality, lapse rates, election rates, volatility and interest rates and correlation among various market movements. Our hedging program may change over time and there can be no assurance that actual experience will not diff er materially from our assumptions, which could adversely impact our results of operations and financial condition.
The profitability of AXA’s Variable Annuity products with guarantees depends, among other factors, on AXA’s ability to effectively hedge the minimum guarantees. The Group has implemented and continues to pursue a number of initiatives, including the re-designing and re-pricing of certain product features, designed to improve the profitability of these products and limit future hedging losses on the minimum guarantees. There can be no assurance, however, that these initiatives will succeed in meeting their objectives or that the re-designed and re-priced products will continue to be attractive to policyholders and will not lead to disputes with policyholders, which could have an adverse impact on AXA’s business, competitive position, results of operations and financial condition.
Despite the Group’s implementation of a variety of security measures, the Group’s computer systems, technologies and networks, as well as the services we provide or rely on (including mobile and cloud services), may in the future be subject to unauthorized intrusions, such as physical or electronic breakins, cyber attacks, unauthorized tampering or other security breaches. Like other global financial institutions and companies, the Group has, from time to time, experienced threats to its
data, systems, technologies and networks, including malware attacks, unauthorized access, systems failures and disruptions. Management has put in place internal controls and procedures designed to protect client data as well as the Group’s assets from hacking or other types of unauthorized intrusions into the Group’s computer systems, technologies and networks. There is no absolute guarantee, however, that these controls and procedures will be suff icient, properly implemented or eff ective, and prevent all attempted intrusions into the Group’s systems, technologies and networks. Any such intrusion could result in operational disruption, financial losses, unauthorized access to or loss of sensitive personal data and/or proprietary information and lead to regulatory actions, proceedings or sanctions against us. In addition, due to our reliance on certain infrastructures and interconnectivity with third-party providers, exchanges, clearing houses, financial institutions and other third parties, we could also be adversely impacted by any successful cyber attack or other security event aff ecting any of them.
External growth transactions involve risks that could adversely aff ect our operating results, including the substantial amount of M anagement time that may be diverted from operations to carry out such transactions and related integration eff orts. Such transactions could also result in new debt or equity issuances, financing arrangements, and the incurrence of additional costs, contingent or unforeseen liabilities or risks and impairment and amortization expenses relating to goodwill and other intangible assets, and failure to mitigate the risks and uncertainties arising from such transactions through due diligence and indemnification provisions, all of which could materially and adversely affect our business, financial condition, results of operations and growth.
Furthermore, we may be exposed from time to time to certain risks relating to the integration of newly acquired companies, which include, for instance, XL Group Ltd in 2018. Such risks include diff iculty or delay in integrating such companies, their IT, operations, employees and areas of expertise in an eff icient and eff ective manner, which may result in the loss of certain key employees and/or customers of the acquired companies. As a result, we may not be able to eff ectively integrate acquired companies and achieve all of the expected strategic objectives, anticipated synergies, expected cost savings, impact on solvency capital requirements (including contributions to the Group’s Solvency II ratio, if any), innovation, operational efficiencies and business development from acquisitions within the forecast periods or at all, or we may be required to spend additional time and money on integration, any of which could adversely aff ect our business, financial condition, results of operations and growth. We may also be exposed to liabilities and risks that were not known or assessed correctly at the time of the transaction and/or need to address capital, regulatory, tax or accounting issues that arise aft er transactions have closed, which may not be covered by, or exceed the amounts of, any indemnities provided to us by the sellers and could adversely aff ect our business and results of operations.
An ongoing challenge we face is the eff ective adaptation to a constantly changing technological landscape. If we are not eff ective in anticipating the impact on our business of changing technologies, such as driverless cars, drones, connected devices, artificial intelligence or roboadvisors, our ability to successfully operate our business may be impaired. Technologies that facilitate ride or home sharing could disrupt the demand for our products from current customers, create coverage issues or impact the frequency or severity of losses. These changes could also aff ect our ability to accurately price our products and might significantly aff ect our margins in certain lines of business. For example, the advent of driverless cars, connected devices and usage-based insurance could materially alter the way that automobile, health or other p ersonal lines insurance is marketed, priced and underwritten. In addition, the market for coverage for so-called “cyber risks” or similar emerging threats is a rapidly evolving one, and any failure by us to provide innovative products relative to our competitors or new entrants in the market may result in a competitive disadvantage.
We have entered into contractual outsourcing arrangements with third-party service providers for a wide variety of services required in connection with the day-to-day operation of our insurance, reinsurance and Asset Management businesses (including policy administration, claims related services, securities pricing and other services) and our product distribution. Such arrangements expose us to operational and regulatory risks incurred by these third parties, including employee misconduct or negligence, fraud, internal control failure, contract error, disruption to distribution arrangements, failures in processing policies and handling claims, and non-compliance with applicable laws and regulations.
There can be no assurance that any of our contractual arrangements with third parties will not expose us to operational, financial and reputational risk, which could materially adversely impact our business, results of operations and financial condition. We may also not be fully indemnified for the contractual breaches of our third parties.
The Group’s or its (re)insurance subsidiaries’ failure to meet their solvency and capital adequacy requirements could have a material adverse eff ect on our business, liquidity, ratings, results of operations and financial position
We and our subsidiaries are subject to evolving solvency and capital adequacy requirements, including the Solvency II framework, which is currently undergoing a review by the European Commission and the European Insurance and Occupational Pensions Authority (“EIOPA”), including regarding (re)insurance group supervision and internal models used by certain (re)insurers, such as AXA, to calculate their solvency capital requirement. It is diff icult to predict the ultimate outcome of discussions regarding changes to these requirements and how they could aff ect our results of operations, financial condition and liquidity.
In the event of a failure by us, the Company or our (re)insurance subsidiaries to meet applicable regulatory capital requirements, insurance supervisory authorities have broad authority to require or take various regulatory actions including limiting or prohibiting the issuance of new business, prohibiting payment of dividends or other shareholder distributions, and/or putting a company into rehabilitation or insolvency proceedings. In particular, under the French recovery and resolution framework for the insurance industry (the “French Resolution Framework”), the ACPR has broad resolution powers with respect to insurance groups, insurance holding companies, such as AXA SA, and (re)insurance companies, including prohibiting payment of dividends and ordering portfolio transfers.
(2) Please also refer to the AXA Group’s SFCR for the year ended December 31, 2018, which is expected to be published on May 23, 2019 on AXA’s website.
Regulatory restrictions that inhibit our ability to freely move excess capital among our subsidiaries or which otherwise restrict fungibility of the AXA Group’s capital resources may, depending on the nature and extent of the restrictions, adversely aff ect the capital position of our operating (re)insurance subsidiaries, which may have a consequent negative impact on the perception of the AXA’s Group financial strength.
The multiplicity of diff erent regulatory regimes, capital standards and reporting requirements resulting from work on new capital standards led by the IAIS such as the Insurance Capital Standard, and the development by IAIS of the ComFrame, which would apply to IAIGs, including AXA, could increase operational complexity and our regulatory costs and competitive pressures. In this regard, in November 2018, the IAIS published a public consultation document proposing a holistic framework comprising a set of enhanced supervisory measures and an ongoing, annual global monitoring exercise by the IAIS (the “Holistic Framework”). The supervisory policy measures included in the Holistic Framework will be integrated in the IAIS insurance core principles and the ComFrame and applied in a proportionate manner. The Holistic Framework is currently expected to be completed in 2019 and implemented in 2020.
In addition to the recently enacted French Resolution Framework, there are continuing discussions regarding the development of recovery and resolution frameworks and strategies in the insurance industry, as the Financial Stability Board (the “FSB”), in consultation with IAIS, is currently developing guidance on eff ective recovery and resolution tools and strategies for the insurance industry, and EIOPA is working towards harmonization and strengthening of recovery and resolution frameworks within the EU. While it is diff icult to predict the impact of the French Resolution Framework, or the ultimate outcome of discussions regarding recovery and resolution in the insurance sector, they may result in an increase of our legal and compliance costs, regulatory sanctions or damage to our brand or reputation.
Following the acquisition of XL Group in 2018, we have been managing, through Catlin Underwriting Agencies Limited, Syndicate 2003, one of the largest underwriting syndicates in Lloyd’s and, as a result, are exposed to a variety of Lloyd’srelated regulatory risks. For instance, the Council of Lloyd’s has wide discretionary powers to regulate members of Lloyd’s, and may vary the method by which the capital solvency ratio is calculated, or impose additional or special levies on members. In addition, if Lloyd’s fails to satisfy the Financial Conduct Authority (the “FCA”)’s and the Prudential Regulation Authority’s annual solvency test in any given year, Syndicate 2003 could be required to cease or reduce underwriting through Lloyd’s. A downgrading of the Lloyd’s market could also impair Syndicate 2003’s ability to trade in certain classes of business at current levels. As a Lloyd’s syndicate providing coverage to US policyholders and covering US risks, we could also be required by US regulators to increase the level of funding required as minimum deposits for the protection of US policyholders. Any Lloyd’s-related risks could have an adverse eff ect on our business, financial condition and results of operations.
We expect the scope and extent of applicable laws and regulations, as well as regulatory oversight, to continue to increase over the coming years. While M anagement proactively manages legal and regulatory risks and has adopted policies and procedures designed to ensure compliance with applicable laws and regulations in the various jurisdictions where we do business, we cannot predict with any certainty the potential eff ects that a change in applicable laws or regulations, their interpretation or enforcement (or of the potential eff ects of any new regulation or legislation in the future), or any determination we make regarding compliance with conflicting regulations, may have on our business, financial condition or results of operations. Any failure by us to remain in compliance with regulations applicable to us could result in fines, penalties, injunctions or other similar restrictions, any of which could negatively impact our earnings and reputation. For a description of the regulations and supervision framework applicable to the Group, please refer to Section 6.3 “General Information – Regulation and Supervision” of this Annual Report.
We may also be adversely aff ected by a change in applicable laws or regulations, their interpretation or enforcement impacting, or regulatory decisions, authorizations or approvals relating to, third parties with which we do business. For instance, certain of our letter of credit facilities for cedants are eff ective only if the banks issuing the letters of credit are on the list of banks approved by the National Association of Insurance Commissioners (the “NAIC”). If some or all of the issuing banks under our credit facilities cease to be NAIC approved and we are unable to replace them with NAIC approved banks, our letter of credit facility capacity could be significantly diminished, especially in situations of adverse capital and credit market conditions where the cost of replacement facilities may be significantly increased or prohibitive. See the paragraph above “Adverse capital and credit market conditions may significantly aff ect our ability to meet liquidity needs, our access to capital and increase our cost of capital”.