risks), a sustained increase in infl ation with a resulting increase in market interest rates may result in (i) claims infl ation (i.e. an increase in the amount ultimately paid to settle claims several years after the policy coverage period or event giving rise to the claim), coupled with (ii) an underestimation of corresponding claims reserves at the time of establishment due to a failure to fully anticipate increased infl ation and its effect on the amounts ultimately payable to policyholders, and, consequently, (iii) actual claims payments signifi cantly exceeding associated insurance reserves which would negatively impact our results of operations.
We expect that dividends received from subsidiaries and other sources of funding available to us will continue to cover our operating expenses, including (i) interest payments on our outstanding fi nancing arrangements and (ii) dividend payments with respect to our outstanding ordinary shares. We expect that future acquisitions and strategic investments will be funded from available cash fl ow remaining after the payment of dividends and operating expenses (including interest expenses), cash on hand from previous securities offerings, proceeds of future offerings of securities, and proceeds from the sale of non-core assets. Certain of our signifi cant subsidiaries, including AXA France Assurance,
(or no) dividends and we expect that some of our subsidiaries will be dependent on the Company for capital resources and funding which may require us to provide signifi cant amounts to our subsidiaries through loans, capital injections or other mechanisms. In addition, as noted above, currency hedges used by AXA to manage foreign exchange rate risk may signifi cantly impact the statutory results (parent only) of the Company and the amounts available for distribution as dividends to its shareholders because unrealized exchange rate gains and losses under these derivatives are recognized in the Company’s income statement. These factors may adversely impact the Company’s liquidity position and capacity to pay dividends on its ordinary shares. For further details, see the Section “Liquidity and c apital r esources” included in Part 1 and the Part 4 – Note 28.3 “Other items: Restrictions on Dividend Payments to Shareholders”, and of this Annual Report. See also “Risks relating to the fi nancial markets, our fi nancial strength ratings and fi nancial condition, the valuation of our assets and related matters – Our consolidated solvency margin and the regulatory capital requirements of our insurance subsidiaries may be negatively impacted by adverse capital market conditions, evolving regulatory interpretations and other factors, which could have a material adverse e ffect on our business, liquidity, credit ratings, results of operations and fi nancial position”.
Variable Annuity products (the “accumulator guarantees”). These hedging techniques are designed to reduce the economic impact of unfavorable changes to our exposures under the accumulator guarantees due to movements in the equity and fi xed income markets and other factors. In certain cases, however, we may not be able to apply these techniques to effectively hedge our risks because the derivative market(s) in question may not be of suffi cient size or liquidity. The operation of our hedging program is based on models involving numerous estimates and management judgments, including among others, mortality, lapse rates, election rates, volatility and interest rates and correlation among various market movements. There can be no assurance that ultimate actual experience will not differ materially from our assumptions, which could adversely impact results of operations and fi nancial condition. In 2008, for example, we incurred substantial losses under the Accumulator guarantees principally because (i) the assumptions underlying our hedging models did not adequately anticipate the extreme levels of market volatility and the rapid decline of interest rates experienced in 2008 and early 2009; and (ii) indices used in our hedging program did not adequately refl ect the underlying separate account investment options available under these annuity contracts (basis risk).
Variable Annuity products, the adequacy test performed on the reserves for life policies (which encompasses the recoverability of DAC, Value of Business Inforce and deferred participations assets) and the establishment of DAC, NBV and EEV are inherently uncertain processes involving assumptions about factors such as policyholder behavior (e.g. lapses, persistency, etc.), court decisions, changes in laws and regulations, social, economic and demographic trends, infl ation, investment returns and other factors, and, in the life insurance business, assumptions concerning mortality and morbidity trends. The use of different assumptions about these factors could have a material effect on insurance reserves and underwriting expenses as well as on our
and a corresponding impact on the trading price of our securities.
We have established reserves for insurance and reinsurance contracts related to environmental pollution and asbestos at
Unpredictable events, such as hurricanes, windstorms, hailstorms, earthquakes, fi res, explosions and fl oods, as well as other natural or man-made disasters, including acts of terrorism, have the potential to adversely affect our operating results.
signifi cant global outbreak could have a material adverse effect on our life insurance business, operating results and liquidity due to increased mortality and morbidity rates.
We follow the evolution of these risks closely and generally seek to manage our exposure to them through individual risk selection, monitoring risk accumulation, purchase of reinsurance and use of available data in estimating potential catastrophic risks. However, we have experienced in the past and could experience in the future material losses from the types of risks discussed above and these losses could have a material adverse effect on our fi nancial
The Property & Casualty insurance business is cyclical, which may impact our results
The Property & Casualty insurance business is cyclical. Although no two cycles are the same, these cycles have typically lasted for periods ranging from two to six years. Periods of intense price competition due to excessive underwriting capacity, periods of shortages of underwriting capacity permitting more favorable rates, consequent fl uctuations in underwriting results and the occurrence of other losses characterize the conditions in these cycles. Historically, Property & Casualty insurers have experienced signifi cant fl uctuations in operating results due to volatile and sometimes unpredictable developments, many of which are beyond the direct control of the insurer, including competition, frequency or severity of catastrophic events, levels of capacity, general economic conditions and other factors. This may cause a decline in revenues during certain cycles if we choose not to reduce our Property & Casualty product prices in order to maintain our market position and profi tability. We may therefore experience the effects of such cyclicality, changes in customer expectations of appropriate premium levels, the frequency or severity of claims or other loss events, or other factors affecting the Property &
Casualty insurance business, which could have an adverse effect on our results of operations and fi nancial condition.
The strong growth of our insurance and Asset Management businesses in recent years, both organically and through acquisitions, may not be sustainable in future years. Continued volatility in the fi nancial markets and reduced availability of credit coupled with recession and increasingly negative consumer sentiment in many of our major markets pose signifi cant risks to our ability to achieve continued growth at rates consistent with the recent past and our ability to continue growing through acquisitions. In addition, our ability to sustain growth consistent with rates we have achieved in the recent past may be adversely affected by regulatory changes, including changes in the tax laws applicable to our Life & Savings products and operations. The
Group has implemented global product “reuse” and distribution initiatives designed to drive product innovation and reuse of successful products, such as our “Accumulator” line of Variable
Continuing diffi cult conditions in the global fi nancial markets and the economy may materially adversely affect our business and profi tability, and these conditions may continue ”
Operational risk is inherent in our business and can manifest itself in various ways, including business interruption, poor vendor performance, information systems malfunctions or failures, regulatory breaches, human errors, employee misconduct, and external fraud. We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or other fi nancial intermediaries we use to facilitate our securities transactions.
These events can potentially result in fi nancial loss, an impairment to our liquidity, a disruption of our businesses, regulatory sanctions or damage to our reputation. Management attempts to control these risks and keep operational risk at low levels by maintaining a sound and well controlled environment in light of the characteristics of our business, markets and regulatory environment in which we operate. Notwithstanding these measures, operational risk is part of the business environment in which we operate and we may incur losses from time to time due to these types or risks.
Our reserves for these types of obligations and liabilities may be inadequate which could cause us to take additional charges that could be material to our results of operations. We may also, from time to time and in the course of our business provide guarantees and enter into derivative and other types of off-balance sheet transactions that could result in income statement charges. For additional information, see Part 4 – Note 28 “Contingent assets and liabilities and unrecognized contractual commitments” and also Note 19 “Derivative i nstruments” of this Annual Report.
Our insurance operations are subject to insurance laws and regulations, which are generally intended to protect policyholders, not our shareholders or creditors. Changes in existing insurance laws and regulations may materially affect the way in which we conduct our business and the products we offer. In addition, changes in pension and employee benefi t regulation, social security regulation, fi nancial services regulation, taxation and the regulation of securities products and transactions may also adversely affect our ability to sell new policies or our claims exposure on existing policies. Our asset management operations are also subject to extensive regulation in their respective jurisdictions. These regulations are primarily intended to protect investors in the securities markets or investment advisory clients and generally grant supervisory authorities broad regulatory powers. Changes to these laws and regulations may adversely affect our asset management operations. We are also subject to increasing regulation under various laws and regulations governing the solvency of insurers and other fi nancial institutions including with respect to such matters as capital adequacy, intragroup transactions, “double-gearing” of capital at multiple levels within a consolidated group (e.g. at the consolidated Group, holding company and operating company levels). As a large, multinational fi nancial services provider we are also increasingly subject to detailed and comprehensive regulations governing such matters as money laundering, “know your customer,”
any certainty the potential effects that any change in applicable laws or regulations, their interpretation or enforcement, or that any enactment of new regulation or legislation in the future may have on the business, fi nancial condition or results of operations of our various businesses.
Please see Part 4 – Note 30 “Litigation” and the “Additional
Factors which may affect AXA’s business” included in the Part 1,
From time to time, governments in the jurisdictions in which we operate, have considered or implemented proposals for changes in tax law that could adversely affect our products. These projects have included proposals to levy tax on the undistributed increase in value of life insurance policies or annuities or similar proposals that affect the tax-favored status of life insurance products and annuities in certain jurisdictions as well as other changes that could adversely affect the attractiveness of the insurance, asset management and other products we offer. For example, in the UK, recently adopted modifi cations to the capital gains tax regime are expected to reduce the attractiveness of certain products we sell including life insurance bonds and adversely impact sales of these products. In addition legislation enacted in the United States in the spring of 2001 increased the size of estates exempt from the federal estate tax. This legislation is phasing in reductions in the estate tax rate between 2002 and 2009 and repeals the estate tax entirely in 2010. Under the legislation, however, the estate tax will be reinstated, without the increased exemption or reduced rate, in 2011 and will be in effect thereafter. This legislation, and possible future changes to it such as extending or making permanent its repeal or reform to reduce the impact of estate taxes, could have a negative impact on the sales of estate planning products by US life insurance companies, including our US subsidiaries. The enactment of these or other similar types of legislation in the various countries where we operate, including proposals in the US to create or favor alternative tax-favored long-term savings vehicles, could result in a signifi cant decrease in sales of our currently taxfavored products. In addition, sales of certain of our asset management products may be negatively impacted to the extent that future legislative or regulatory proposals create tax incentives or disincentives to investing in certain asset classes or product types or affect investor sentiment towards or risk-appetite for certain asset classes or products generally.
Potential changes to International Financial Reporting Standards as adopted by the European Union may adversely affect our consolidated results of operations and fi nancial condition.
Standards Board (IASB). Note 1.2 to the Consolidated fi nancial statements for the year ended December 31, 2009 included in Part 4 of this Annual Report summarizes the signifi cant amendments and interpretations of the Standards effective in 2009. There are continuing discussions at the IASB concerning possible modifi cations to the Standards and certain of these modifi cations may have potentially signifi cant impacts on insurers and other fi nancial institutions, including AXA, that prepare their consolidated accounts in accordance with the Standards. These modifi cations include, among others, the following: ■ F inancial assets and liabilities held by the AXA Group are recognised and measured under IAS 39 which is currently the subject of major potential amendments. Mandatory adoption dates range from 2013 to 2014. Optional adoption by issuers may be applicable in 2010 (depending on endorsement by the European Union). These amendments, which relate primarily to classifi cation of fi nancial assets and liabilities, impairment and hedge accounting principles, may have potentially signifi cant impacts on the Company’s future fi nancial statement presentation, shareholders equity and earnings and may also affect prior year comparatives depending on the adoption date.
■ I nsurance contracts – Phase II (IFRS 4 amendment) and
Management cannot predict with any certainty at this time the potential impact of these proposed changes (or of other potential future modifi cations to the Standards) given the on-going nature of the discussions at the IASB; however, any signifi cant modifi cations to the Standards may adversely impact the
The terrorist attacks and responsive actions in recent years have signifi cantly adversely affected general economic, fi nancial and political conditions, increasing many of the risks in our businesses.
Such attacks and actions may have a continuing negative effect on our businesses and results of operations over time.
As a global business, we are exposed to various local political, regulatory and economic conditions, business risks and challenges which may affect the demand for our products and services, the value of our investment portfolios and the credit quality of local counterparties
We offer our products and services in Europe, North America, the Asia/Pacifi c Region, the Middle East and Africa through wholly-owned and majority-owned subsidiaries, joint ventures, companies in which we hold non-controlling equity stakes, agents and independent contractors. Our international operations expose us to different local political and regulatory, business, and fi nancial risks and challenges which may affect the demand for our products and services, the value of our investment portfolios, the required levels of capital and surplus, and the credit quality of local counterparties. These risks include, for example, political, social or economic instability in countries in which we operate, including the risk of nationalization, expropriation, price controls, capital controls, fl uctuations in foreign currency exchange rates, credit risks of our local borrowers and counterparties, lack of local business experience in certain markets, risks associated with exposure to insurance industry insolvencies through policyholder guarantee funds or similar mechanisms set up in foreign markets and, in certain cases, risks associated with the potential incompatibility with foreign partners, especially in countries in which we are conducting business through entities we do not control. Our expansion in emerging markets requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global business depends, in part, upon our ability to succeed in different economic, social and political conditions. We may not continue to succeed in developing and implementing policies and strategies that are effective in certain locations where we do business.
We may, in the future, offer rights, warrants or similar securities at prices below the thencurrent market price which may adversely affect the market price of our ordinary shares, and our ADSs, and dilute the positions of existing shareholders.
The Mutuelles AXA, two French mutual insurance companies, acting as a g roup, owned at December 31, 2009, approximately 14.12% of the issued ordinary shares of AXA representing approximately 22.20% of the voting power of AXA’s shares. Many of the shares owned by the Mutuelles AXA have double voting rights pursuant to the provisions of AXA’s charter (statuts) , see
Section “Voting rights ” included in the Part 5 of this Annual Report.
The Mutuelles AXA have stated their intention to collectively vote their shares in AXA. We cannot assure you that the interests of the Mutuelles AXA will not, from time to time, confl ict with your interests as a shareholder. For example, even though the
dollars may affect the value of AXA ADSs. Specifi cally, as the relative value of the Euro against the US dollar declines, each of the following values will also decline: ■ T he US dollar equivalent of the Euro trading price of AXA
AXA ADSs would receive upon the sale in France of any AXA
The depositary for the AXA ADSs may not receive voting materials for AXA ordinary shares represented by AXA ADSs in time to ensure that holders of AXA ADSs can instruct the depositary to vote their shares. In addition, the depositary’s liability to holders of AXA ADSs for failing to carry out voting instructions or for the manner of carrying out voting instructions is limited by the
Deposit Agreement governing the AXA ADRs facility. As a result, holders of AXA ADSs may not be able to exercise their right to vote and have limited recourse against the depositary or AXA if their shares are not voted according to their request.
(1) On January 25, 2010, AXA announced its intention to voluntarily delist its ADSs from the NYSE and to voluntarily deregister with the US Securities and
In the event that we offer rights, warrants or similar securities to the holders of our ordinary shares or distribute dividends payable, in whole or in part, in securities, the Deposit Agreement provides that the depositary (after consultation with AXA) shall have discretion as to the procedure to be followed in making such rights or other securities available to ADR holders including disposing of such rights or other securities and distributing the net proceeds in US dollars to ADR holders. Given the signifi cant number of AXA ADR holders in the US, AXA generally would be required to register with the SEC any public offering of rights, warrants or other securities made to its ADR holders unless an exemption from the registration requirements of the US securities laws is available. Registering such an offering with the SEC can be a lengthy process which may be inconsistent with the timetable for a global capital raising operation. Consequently, we have in the past elected and may in the future elect not to make such an offer in the US, including to our ADR holders in the US and rather only conduct such an offering in an “offshore” transaction in accordance with “Regulation S” under the US Securities Act of 1933, as amended. Therefore, there can be no assurance that our ADR holders will be able to participate in such an offering in the same manner as our ordinary shareholders.
As a “foreign private issuer” in the United States, AXA is exempt from certain rules under the US securities laws and is permitted to fi le less information with the SEC than US companies
Moreover, AXA is not required to fi le periodic reports and fi nancial statements with the SEC as frequently or as promptly as US
AXA will no longer be required to reconcile its IFRS fi nancial statements to US GAAP provided that AXA continues to publish its primary IFRS fi nancial statements in accordance with IFRS as published by the IASB. In addition, AXA is not required to comply with Regulation FD, which restricts the selective disclosure of material information. Accordingly, there may be less publicly available information concerning AXA than there is for US public companies.
3.2 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND RISK FACTORS
Management Board or CEOs of local entities. Based on risk reports presented by the Group Risk Management together with other central teams, including AXA Cessions for insurance risks, they recommend actions to mitigate risks; ■ Group Risk Management (GRM), which reports to the
Section Market Risks); ■ D efi ne and coordinate a decentralized review of risk-adjusted pricing and profi tability for new products prior to launch (the
Board; ■ D efi ne and run the Group risk appetite process (framework, limits) and monitor the consistency between group and local frameworks;
Group and local interests. The missions of local Risk Management are set in accordance with the responsibilities stated above. The minimum missions required for all Risk Management teams are: ■ P erforming a systematic second opinion on P&C reserves,
Local operating units have the primary responsibility for managing their fi nancial risks (market risk, credit risk, liquidity risk), while abiding by the risk framework defi ned at Group level in terms of limits/ thresholds and standards. This approach allows operating units to react swiftly in an accurate and targeted manner to changes in fi nancial markets, political and economic environment in which they operate.
AXA Bank Europe and AXA Equitable for the heldging program of GMxB Guarantees; ■ R einsurance also offers solutions to mitigate certain risks; it is for instance used to de-risk part of the in-force GMIB products.
AXA’s exposure to market risk is reduced by: ■ I ts broad range of operations and geographical positions, which provides good diversifi cation; and
■ A rise in yields on fi xed-income investments (linked to interest rates or in spreads) reduces the market value of fi xed-income investments and could impact adversely the solvency margin, and increase the number of surrenders on some policies with competitive pressures; ■ A decline in asset market value (equity, real estate, alternatives, etc.) could impact adversely the solvency margin, as well as available surplus ; ■ A rise in fi nancial market volatility may increase the cost of hedging the guarantees associated with some Variable Annuity products and decrease the Embedded Value; ■ A change on the foreign-exchange rates would have limited impact for the operating units since foreign-currency commitments are matched to a large extent by assets in the same currencies, except that it could decrease earnings contribution.
The breakdown of life insurance reserves by product type and thus by AXA’s obligations to its policyholders, is as follows: ■ 25% at the end of 2009 (23% at the end of 2008 and 30%
Overall, therefore, they present only a limited market risk for the
Equitable for the US business and AXA Bank Europe for the
Related risks are managed in the following ways: • products that are not surrender-sensitive are usually backed by fi xed-income investments with maturities and interest rates generally suffi cient to cover guaranteed benefi ts, so as to reduce as much as possible the reinvestment risk,
Property & Casualty and International Insurance technical reserves break down as follows: Technical liabilities
TOTAL – PROPERTY & CASUALTY INSURANCE INCLUDING INTERNATIONAL INSURANCE 58,109 58,351 58,018
(a) Assets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3 of Part 4).
The market risks to which Property & Casualty operating units are exposed to arise from: ■ I nfl ation may increase the compensation payable to policyholders, so that the actual payments may exceed the associated reserves set aside. This risk can be signifi cant for long-tail businesses but is managed through regular pricing adjustments or specifi c protections against peaks of infl ation; ■ A sustained fall in yields on fi xed-income investments would generally not present a material risk. The exceptions would be policies implicitly providing a guaranteed rate (disability income, workers’ compensation) – but the risk is mitigated by duration management; ■ A rise in yields on fi xed-income investments (linked to interest rates or spreads) reduces the market value of fi xed-income investments and could impact adversely the solvency margin; ■ A decline in asset market values (equity, real estate, alternatives, etc.) could impact adversely the Group’s solvency margin, as well as available surplus ; ■ A change on the foreign-exchange rates would have limited impact for the operating units since foreign-currency commitments are matched to a large extent by assets in the same currencies, except that it could decrease earnings contribution.
The investments of Property & Casualty insurance companies are managed so as to optimize the return on assets while considering all of the aforementioned risks and the requirements in terms of regulatory solvency. A large portion of investments is made in liquid fi xed maturities to secure the capacity to pay unexpected exceptional benefi ts and claims. The capacity to have diversifi ed investments (real estate or equity securities) also offers a partial natural hedge against infl ation.
AXA manages its fi nancial risks through a disciplined investment and reporting process within an appropriate governance structure.
At Group level, an ALM co ordination Committee, chaired by the
This work is carried out by local teams and then consolidated by
ALM studies are based on the modeling of commitments resulting from insurance policies, and aim to defi ne asset allocation so that these commitments can be met with a high degree of confi dence while maximizing the expected investment return. This work is carried out by local ALM Departments and takes the form of detailed analyses that use consistent methods based on deterministic and stochastic scenarios. The aim of these analyses is to maximize the expected investment return, net of the cost of the economic capital required to support the strategy, while complying with a series of constraints: stability of earnings, protection of the solvency margin, and preservation of the liquidity. Due care is given to monitoring and analyzing local and consolidated capital adequacy and solvency margin requirements. It is intended to ensure that AXA complies with its regulatory commitments and makes optimum use of capital resources at all times.
These studies are carried out by all signifi cant insurance operating units.
fi nancial fl exibility. The results are presented to the Finance
ALM constraints are also taken into account when new products are being designed as part of the product approval process (see
Investment Managers and AllianceBernstein) are responsible for the day-to-day management of investments. Processes have been put in place in these companies to manage investments without exceeding agreed risk tolerance thresholds imposed by their client insurance companies in the investment management agreements. This organization makes the skills required in these activities available for the benefi t of all Group insurance companies.
The main fi nancial risks for the AXA Group are as follows: ■ I nterest-rate and equity risk related to the operating activities of Group subsidiaries; ■ C redit risk. Please read the next part “Credit risk” included in the Part 3 – Section 3.2 – “Quantitative and Qualitative
Disclosures about Market Risk and Risk Factors”; ■ E xchange-rate risk related to the operating activities of Group subsidiaries; ■ R isks relating to the management of holding companies’
foreign exchange exposure and debt; ■ L iquidity risk. Please read “Liquidity position and risk management framework” included in Part 1 – Section 1.4 –
INTEREST RATES & EQUITY RISK RELATED TO THE OPERATING ACTIVITIES OF GROUP SUBSIDIARIES
The AXA Group analyzes sensitivity to movements in interest rates and equity markets in two main ways: ■ S ensitivities of European Embedded Value (EEV) in the Life &
States, the United Kingdom, Belgium, Switzerland, Germany, the Mediterranean and Latin American Region (Spain, Portugal,
Australia, Hong Kong and Japan. At December 31, 2009, these subsidiaries represented 98% of AXA’s consolidated invested assets within its insurance operations.
Net unrealized capital gains/ losses, not included in IFRS shareholders’ equity 906 1,656 2,561 1,846 1,535 3,381 1,846 1,846
Unrealized capital gains projected in VIF & other stat-GAAP adjustments (2,687) (2,687) (965) (965) (965) (965)
The Group EV is not an estimate of AXA’s «fair value», regardless of how one might defi ne “fair value”. It does not include the value of business to be sold in the future, nor does it include any value for future profi ts from existing business of other-than-life businesses (Property & Casualty, International Insurance, Asset
The Life & Savings “Adjusted Net Asset Value” (ANAV) is derived by aggregating the local regulatory (statutory) balance sheets and reconciling with the Life & Savings IFRS shareholders’ equity on the following main adjustments: ■ A ddition of unrealized capital gains/losses not included in shareholders’ equity; ■ E limination of the value of intangibles; ■ E limination of unrealized capital gains/losses included in the projection of future cash-fl ows (VIF); ■ A djustment for the differences between AXA’s consolidated accounting basis and local regulatory bases.
The sensitivities of the Group EV to changes in major economic assumptions were calculated as follows for the 2008 and 2009 values: ■ Upward parallel shift of 100 basis points (bps) in reference interest rates simulates a sudden shock to the initial conditions. This means changes to: 1) the current market values of fi xed-interest assets, with related possible changes to projected capital gains/losses and/or fee revenues, 2) future reinvestment rates for all asset classes, and 3) riskdiscount rates. Infl ation rates are not changed. Policyholder and management behaviors are adjusted following normal behavioral modeling. As noted in the defi nitions, these calculations refl ect discount rate changes in Life & Savings and for other-than-life discounted reserves, as well as changes to the value of fi xed-income assets, but no changes in value for asset classes such as equities or real estate are assumed to accompany the reference interest rate movements (although for Life & Savings future returns are impacted as these equal the risk-free rate on average across scenarios in the market consistent valuation). In reality, changes in value of other asset classes would probably lead to different results than shown here. It is also possible that a gradual movement in interest rates would produce different results than a sudden shock, especially for dynamically hedged variable annuities business where a sudden shock tends to overestimate the sensitivities
Upward parallel shift of 100 bps in risk-free rates 831 3% (1,321) -4% (490) -2% 1,293 4% (1,814) -6% (521) -2%
Downward parallel shift of 100 bps in risk-free rates (2,253) -7% 1,273 4% (980) -3% (2,639) -8% 1,948 6% (692) -2%
10% higher value of equity markets at start of projection 1,118 4% 575 2% 1,693 6% 1,085 3% 264 1% 1,348 4%
2009 interest rate sensitivities (% of Group EV) for Life & Savings business of 3% to upward 100 bps and -7% to downward 100 bps (2008: 4% and -8%) show an asymmetry predominantly driven by guaranteed interest rates having higher value when interest rates decrease, while higher reinvestment rates would need to be shared with policyholders limiting shareholders’ gains in a higher rate environment. However this classical pattern is not followed in some entities (e.g., the UK and the Mediterranean and Latin American Region), where the business has signifi cantly less interest rate guarantees and the EEV behaves more like a portfolio of fi xed-income assets. In addition, higher interest rates affect the value both positively through higher investment rate and negatively through lower starting value of fi xed income assets and higher discount rates for future profi ts. For different product types these interactions produce different results.
2009 equity market sensitivities (% of Group EV) for Life &
2009 equity market sensitivities (% of Group EV) for other-thanlife businesses of 2% to upward 10% or -2% to downward 10%
In France, AXA is exposed to exchange-rate risk through the units it owns in certain investment funds partly invested in foreign currencies (particularly US dollar: €1,323 million vs. €483 million in 2008 and €1,645 million in 2007, pound sterling: €148 million vs.
In the United Kingdom, the Life & Savings segment is exposed to exchange-rate risk in both non-profi t and with-profi t funds.
AXA Belgium was exposed to foreign exchange risk but the loan was reissued in 2009 and denominated in Sterling; ii. Other foreign-currency investments with a market value of €283 million (€443 million in 2008 and €161 million in 2007), of which (a) €178 million are hedged through foreign exchange derivative instruments, and (b) €105 million represent strategic investments that are not hedged.
UK with-profi ts funds hold some foreign exchange derivative instruments (including swaptions held in connection with
Japanese yen (€46 million in 2009, €103 million in 2008, and €178 million in 2007). Exchange-rate risk exposure is hedged using forwards (notional €3,071 million vs. €3,146 million in 2008 and 2,542 million in 2007) and currency swaps (notional of €681million vs. €314 million in 2008 and €430 million in 2007).
due to limited investment possibilities in Switzerland. As a result, they have foreign exchange exposure on equity securities as well as on fi xed maturities denominated in currencies other than Swiss Francs. However, the main part of the exposure is hedged back into Swiss Francs with foreign exchange forwards.
These countries accounted for 96% at the end of 2009 (96% at the end of both 2008 and 2007) of the Group’s Life & Savings companies’ assets.
France controls and limits its exposure to exchange-rate risk by using forwards in all these currencies (notional of €210 million vs.
In Belgium, parts of AXA Belgium’s reinsurance portfolio liabilities are in USD. The foreign exchange risk associated to these liabilities is fully hedged through investments in USD. The US
dollar exposure was €100 million at the end of 2009 (€106 million in 2008 and €110 million in 2007).
Germany is exposed to US dollar exchange-rate risk on certain investment funds for €1,143 million (€808 million in 2008 and €829 million in 2007). Remaining exchange-rate risk exposure, mainly concerning the pound sterling for €126 million (€57 million in 2008 and €211 million in 2007) and the Japanese yen for €29 million (€22 million in 2008 and €62 million in 2007), is incurred for the purpose of diversifying investments. Germany controls and limits its exchange-rate risk by using forwards
(notional €688 million vs. €836 million in 2008 and €785 million in 2007) and currency swaps (notional of €175 million vs.
In Switzerland, foreign exchange exposure amounted to €3.8 billion (circa 36% of assets) at the end of 2009, of which €3.5 billion were hedged with foreign exchange forwards
These countries accounted for 95% at the end of 2009 (95%
€1,319 million in 2008 and €1,075 in 2007) and, to a lesser extent, pound sterling (€539 million at the end of 2009 vs.
€474 million in 2008 and €590 million in 2007). The Company carries assets denominated in foreign currencies to ensure the balance sheet congruence. The congruence between the company’s foreign-currency assets and liabilities is regularly adjusted, but is subject to unpredictable loss occurrence and the corresponding movements in reserves.
At December 31, 2009, the main hedging positions were as follows: Foreign currency hedging
In respect of the Swiss business, in the form of cross-currency swaps
Australian Dollar 1.3 n/a n/a 0.8 n/a n/a Mainly in form of currency options and swaps
RISKS RELATING TO THE MANAGEMENT OF HOLDING COMPANIES’ FOREIGN EXCHANGE EXPOSURE AND DEBT
These reports, together with information about hedging strategies, are sent to and reviewed by the Finance Committee of AXA’s Supervisory Board on a quarterly basis.
In addition, the Group Central fi nance Department closely monitors risks resulting from regulatory or other restrictions on dividend payments from the Group’s operating subsidiaries or limitations on AXA’s ability to reduce these subsidiaries’
shareholders’ equity. The Group’s operating subsidiaries must comply with local regulations in the various countries where they operate, including minimum solvency requirements and restrictions on related party transactions. These regulations impose a variety of restrictions and may restrict the ability of the Company’s operating subsidiaries to pay dividends to the
ASSESSMENT: ■ V ariability analyses assess the change in interest expenses over the duration of the strategic plan resulting from a 100bp rise in interest rates; ■ I nterest rate sensitivity analyses assess changes in the value of interest rate positions by currency and by maturity following a 100bp upward shift in the yield curves.
appreciation in the Euro against all other currencies together with the impact on shareholders’ equity, gearing ratio and European solvency margin.
should be read in conjunction with Note 4 to the consolidated fi nancial statements included in Part 4 of this Annual Report which is covered by the Statutory Auditor’s Report on the consolidated fi nancial statements .
Counterparty credit risk is defi ned as the risk that a third party in a transaction will default on its commitments. Given the nature of its core business activities, AXA monitors two major types of counterparties, using methods suitable to each type: ■ I nvestment portfolios held by the Group’s insurance operations
These tools allow Group Risk Management to ensure compliance with limits defi ned by the Group, among which asset allocation, credit risk concentration or counterparty risk for derivatives. The
At December 31, 2009, the economic breakdown of the total value of ABS (€10.4 billion excluding Australia, CMOs and ABS
At December 31, 2009, AXA’s invested assets included an exposure to US subprime residential and Alt-A mortgage loans of approximately €0.7 billion (30% equaling or above AA rating and 59% estimated policyholders’ participation).
At December 31, 2008, the economic breakdown of the total value of ABS (€11.8 billion excluding CMOs and ABS held through with-profi t funds) was: 23% in CLO, 15% in Consumer ABS, 12%
At December 31, 2008, AXA’s invested assets included an exposure to US subprime residential and Alt A mortgage loans of approximately €0.8 billion (68% equaling or above AA rating and 56% estimated policyholders’ participation).
At December 31, 2007, the economic breakdown of the total value of ABS (€16.2 billion excluding CMOs and ABS held through with-profi t funds) was: 18% in CLO, 15% in Consumer ABS, 11%
in CDO, 18% in Commercial MBS, 23% in Prime Residential, 10% in US Subprime & Alt-A, and 5% in Non conforming RMBS.
At December 31, 2007, AXA’s invested assets included an exposure to US subprime residential and Alt A mortgage loans of approximately €1.6 billion (84% equaling or above AA rating and 54% estimated policyholders’ participation).
Trades, which allows AXA to capture the excess spread of the physical instrument over the corresponding CDS.
ii. €4.4 billion of CDS protections bought to hedge credit risk with regard to certain investments in corporate bonds mainly in Japan (€2.5 billion) and Switzerland (€1.2 billion); iii. €19.0 billion of CDS protections sold and bought to manage our credit exposure, which corresponds to a €13.0 billion (1)
For these €13.0 billion CDS, the credit risk taken by the AXA
(debt securities or credit derivatives). Note that the CDOs are consolidated in AXA‘s balance sheet, in line with IFRS rules, even though AXA‘s investments in these CDO s assets are limited.
Limits are set specifi cally for each authorized counterparty, based on an internal scoring system. This policy also includes daily to weekly collateralization for the majority of the Group’s exposure.
(“Monolines”) was insignifi cant and the indirect exposure (debt securities enhanced by Monoline reinsurers) in the general account (excluding the UK with-profi t) was €454 million, of which €149 million to Ambac and €151 million to MBIA (versus €306 million indirect exposure at the end of 2008, of which €113 million to Ambac and €135 million to MBIA).
and its subsidiaries have no exposure left to this portfolio and no credit exposure to MBIA.
At December 31, 2008, the breakdown of reserves ceded to reinsurers (€11.7 billion) by reinsurer rating was: 9% in AAA, 43% in AA, 25% in A, 2% in BBB/BB/B, and 21% in other.
At year end 2009, the total balance sheet of the bank activities
Republic and Slovakia) was at €25 billion (€23 billion in 2008).
(1) This fi gure represents an economic view i.e. 100% of assets held in consolidated ”core block” and “satellite” funds and assets held by non consolidated funds.
Group level but performed jointly by central and local teams: ■ P rofi tability analysis mainly through procedures governing pre-launch product approval (new product risk control) that complement strong and basic underwriting rules; ■ R egular exposure analysis to ensure that the Group’s current exposure is within our risk appetite at Group level; ■ O ptimization of reinsurance strategies to mitigate the risks in order to cap the Group’s peak exposures to protect our
The aim is twofold: ■ F or pre-launch business, to ensure that new risks underwritten by the Group have undergone a rigorous process before the products are offered to customers and show adequate profi tability adjusted for the cost of capital; ■ F or post-launch business, to ensure the appropriate profi tability and risks control of the in-force P&C underwritings; ■ T his profi tability framework complements strong and basic underwriting rules to ensure that no risks are taken outside the Group tolerances and that value is created by adequately pricing the risk.
has developed and deployed common models/ metrics to measure risks homogeneously throughout the Group. This is designed to check that the Group’s current exposure is within the Group’s consolidated risk appetite limits.
For the Property & Casualty and Life & Savings operations, reinsurance programs are set up as follows: ■ R einsurance placement is mainly handled centrally by AXA
Cessions; ■ P rior to ceding risks, in-depth actuarial analyses and modeling are conducted on each portfolio by AXA Cessions and GRM
Although these software products are key to allow objective discussions with reinsurers, they are regularly assessed within GRM and adjusted to the specifi c features of AXA’s portfolio. Experience shows that these software products give imperfect estimates of real exposure, and can underestimate some important factors such as infl ation following a major catastrophe or the effects of climate change. In addition, they do not factor in risks relating to legal developments requiring an insurer retrospectively to cover a risk that, it believed, was excluded from its policies.
& Casualty business. Certain Group companies now arrange reinsurance through AXA Cessions, which has set up a retention pool protected by Group covers placed on the Reinsurance Market.
In order to build adjusted and optimized protection, the Group’s various operating entities place 100% of their reinsurance treaties with AXA Cessions. Only a small part (10-20%) of most local treaties is placed directly on the reinsurance market through
Coverage is arranged through the reinsurance market or potentially in the fi nancial market through securitization (cat or mortality bonds).
All local Group companies ceding reinsurance are collectively protected by this Group coverage. The net fi nancial results of this
Finally, in addition to the analyses described above, AXA regularly monitors its exposure to its main reinsurers, to ensure that consolidated limits remain within Group risk tolerance (please see the Section “Credit Risk – Receivables from reinsurers”)
In addition to controlling upstream risks through prior product approval and analyzing the reinsurance strategy, operational entities specifi cally monitor reserve risks, both in Life & Savings and Property & Casualty businesses. Reserves have to be booked for claims as they are incurred or reported. These reserves are measured individually for each fi le by the claims departments.
Additional reserves for incurred but not reported (IBNR) claims, along with reserves for incurred but not enough reported (IBNER)
claims are also booked. Various statistical and actuarial methods are used in these calculations. Calculations are initially carried out locally by the technical departments in charge, and are then reviewed for a second opinion by local risk management teams or external technical experts.
Claims Department and other entity specialists, performs indepth reviews on specifi c portfolios to re-assess all underlying assumptions, methods and processes driving the exercise
(claims management, actuarial, underwriting, etc.) and to check the compliance with the Group standard on reserving, which covers, among other matters, the independency of opinions, the documentation of the escalation process (meant to solve signifi cant differences of opinion between fi rst and second assessments) and the reconciliation process.
using triangulation methods (e.g. chain ladder and link ratio) for which past experience is applied to each loss occurrence or underwriting year, in order to make reserves projections until their estimated fi nal development; ■ M ethods based on claims ratios (such as the ultimate claims ratio or the additional claims ratio); ■ H ybrid methods (such as Bornhuetter-Ferguson and Cape
However, it must be kept in mind that estimates are based mainly on assumptions that may prove different from subsequent experience, particularly in the event of changes in the economic environment (e.g. a rise in infl ation), in the legal environment
(case law) and in the social environment (class action suits), and especially if they affect the Group’s main portfolios simultaneously.
As part of its mortality risk management, AXA issued in 2006 a
“mortality” bond which provided the Group with some protection against mortality shocks. The redemption amount of this bond depended on general mortality thresholds. This instrument was transformed, where needed, by AXA Cessions into reinsurance capacity for AXA Group subsidiaries. This bond matured in
AXA has developed a common operational risk typology listing around a hundred risks classifi ed in the following seven risk categories: ■ I nternal fraud; ■ E xternal fraud; ■ E mployment practices and workplace safety; ■ C lients and business practices; ■ D amage to physical assets; ■ B usiness disruption and system failures; ■ E xecution, products, delivery and process management.
■ Across the Group, the most critical operational risks of each entity are identifi ed and assessed following a forward-looking and expert opinion approach. These risks are then aggregated using actuarial methods to estimate the capital allocation needed to cover operational risks based on models inspired by those proposed by the Basel Committee for banking supervision. Moreover, Operational Risk profi le is embedded into local governance through senior management validation to ensure adequate corrective and pre-emptive action of the main risks.
Guide”) in February 2004. The Guide, which was updated in 2006, covers all of the Group’s worldwide employees. It defi nes rules for day-to-day professional conduct and covers a variety of matters including specifi c rules concerning confl icts of interest, transactions involving AXA securities and those of its listed subsidiaries, anti-money laundering, confi dentiality and control of sensitive information.
AXA is engaged in regulated business activities on a global basis through numerous operating subsidiaries and the Group’s principal business activities of insurance and asset management are subject to comprehensive regulation and supervision in each of the various jurisdictions where the Group operates. AXA
SA, the ultimate parent holding company of the AXA Group, is
also subject to extensive regulation as a result of its listing on
Paris, France, this supervision is based to a signifi cant extent on
AXA operates including regulatory risks, please see Section 1.2 “Additional factors which may affect AXA’s business” of this
(both class actions and individual litigations), investigations, and other actions arising in the various jurisdictions where they do business. For AXA SA, these lawsuits include actions brought by former shareholders of two German subsidiaries,
liability, professional liability and fraud and are: ■ Group-wide insurance programs covering all AXA Group entities with the exception of AXA Asia Pacifi c Holdings and
AXA Financial and their subsidiaries, which traditionally arrange cover within their local market; ■ R eviewed and approved annually by the Management Board to ensure that AXA has achieved competitive terms and conditions. The insurers used by the Group are acknowledged international leaders and fi nancially solid.
(1) As of March 9, 2010, the Autorité de contrôle des assurances et des mutuelles (ACAM) is replaced by the Autorité de contrôle prudentiel (ACP), a new authority resulting mainly from a merger of the Banking Commission (Commission bancaire) and the ACAM.
The Company has paid dividends on its shares for the past fi ve years. The Company pays dividends in Euro. Future dividends will depend on AXA’s earnings, fi nancial conditions and various other factors. Proposals for dividend payments are made at the discretion of the Management Board, subject to prior approval by the Supervisory Board, and are submitted for fi nal approval to the
AXA determines its dividend policy on the basis of its adjusted earnings minus interest charges on undated debt, and, in each of the past several years, except in 2009, has paid aggregate dividends in a general range of 40% to 50% of this amount. While management currently intends to maintain this dividend policy over the long-term, the dividend proposed by management in any particular year depends on a variety of factors (including the
For further information on the dividends declared and paid in the most recent fi ve years and on the Company’s dividend policy, see Part 1 – “The AXA Group: Our global business operations, recent fi nancial performance and fi nancial condition”, Section 1.1
NOTE 10 Investments in associates accounted for using the equity method 296
NOTE 28 Contingent assets and liabilities and unrecognized contractual commitments 396
Assets backing contracts where the fi nancial risk is borne by policyholders (c) 155,457 131,990 182,827 9 Investments from insurance activities 560,027 514,123 584,237 9 Investments from banking and other activities 12,323 12,615 13,703 10 Investments in associates - Equity method 1,044 1,018 147
Other long-term assets 386 548 564 14 Deferred policyholders’ participation assets 678 2,232 965
(d) AXA Japan closes its book at September 30. To refl ect exceptional market condition in 2008, AXA Japan’s accounts were adjusted accordingly and translated using December 31, 2008 exchange rates. No adjustment was booked at the end of September 2009.
Share capital and capital in excess of nominal value 24,339 22,077 21,366
Derivative instruments relating to insurance and investment contracts (321) (1,176) (187)
Non-controlling interests of controlled investment funds and puttable instruments held by non-controlling interest holders 6,516 5,108 7,751
(a) Ass ets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
(b) Also includes liabilities arising from contracts where the fi nancial risk is borne by policyholders with Guaranteed Minimum features.
Liabilities arising from investment contracts with discretionary participating features and where the fi nancial risk is borne by policyholders 5,767 7,840 10,414
Total Liabilities arising from contracts where the fi nancial risk is borne by policyholders 155,797 132,436 183,241
Liabilities arising from investment contracts with discretionary participating features 39,650 38,081 40,121
Total Liabilities arising from other insurance and investment contracts 370,583 369,936 352,283
Fees and charges relating to investment contracts with no participating features 547 662 740
Change in unearned premiums net of unearned revenues and fees (192) (321) (612)
21 Net investment result excluding fi nancing expenses 36,157 (36,068) 25,891
Income from operating activities before tax 6,124 1,070 8,152 10 Income arising from investments in associates - Equity method 8 21 13
Split between: Net consolidated income - Group share 3,606 923 5,666
(e) Offset by a balancing entry in technical charges relating to insurance activities.
(g) The Income tax line item in 2008 includes an out-of-period adjustment related to the prior years’ double recognition of Deferred tax liabilities in relation with the changes in fair values of assets held by some consolidated investment funds (€188 million). The Group evaluated the impact for each individual year and in aggregate and concluded that they were immaterial to the fi nancial statements for all years in which they were included. The prior years’ Income tax expense recognised since the transition to IFRS was overstated by €13 million as at December 31, 2004, €51 million as at December 31, 2005, €36 million as at December 31, 2006, €88 million as at December 31, 2007.
(h) AXA Japan closes its full year accounts at September 30. According to IFRS principles whereby the fi nancial statements of the subsidiary shall be adjusted to refl ect the effects of signifi cant events that would have been recognised with a closing date aligned with the AXA Group, AXA Japan’s 2008 accounts were adjusted by €-106 million with the provisional loss refl ecting the further increase of the credit spreads from October to December 2008. This adjustment was reversed in 2009. No adjustment was booked at the end of September 2009.
Reserves relating to changes in fair value through shareholders’ equity 5,116 (5,173) (3,016)
Net gains and losses recognized directly through shareholders’ equity 4,096 (7,158) (3,959)
(a) AXA Japan c loses its full year accounts at September 30. According to IFRS principles whereby the fi nancial statements of the subsidiary shall be adjusted to refl ect the effects of signifi cant events that would have been recognized with a closing date aligned with the AXA Group, AXA Japan’s 2008 accounts were adjusted by €-106 million with the provisional loss refl ecting the further increase of the credit spreads from October to December 2008. This adjustment was reversed in 2009. No adjustment was booked at the end of September in 2009.
Capital in excess of nominal value - - - 1,971 -
Change in scope or method of consolidation (b) (c) - - - - -
Employee benefi ts actuarial gains and losses through CI (d) - - - - -
(c) Including the relution impact on internal AllianceBernstein units sales transactions €-62 million, and the dilution impact on 2009 AllianceBernstein deferred compensation plans (€+186 million) which are offset in group share.
(d) Actuarial gains and losses accrued since opening January 1, 2009.
Accrued interests - Undated subordinated debt - - - - -
(b) Actuarial gains and losses accrued since opening January 1, 2008.
Shareholders’ equity as at December 31, 2007 2,060,753 2.29 4,719 17,363 (716)
NB: amounts are presented net of impacts of shadow accounting and of its effects on policyholders’ benefi t, deferred acquisition costs, and value of business in force.
Reserves relating to the change in fair value of hedge accounting derivatives (cash fl ow hedge)
Change in goodwill impairment and other intangible assets impairment (c) 113 126 4
Net increase/(write back) in impairment on investments, tangible and other intangible assets 2,210 5,732 963
Change in fair value of investments at fair value through profi t or loss (k ) (27,451) 49,759 (4,547)
Dividends recorded in profi t or loss during the period (1,022) (2,048) (2,543)
Adjustment of transactions from accrued to cash basis (12,726) (22,838) (18,780)
Net cash provided by other assets and liabilities (g) 1,106 (1,043) 430
Disposal of subsidiaries and affi liated companies, net of cash ceded 8 (150) 2,735
Sales of investment properties held directly or not (g) 1,112 1,794 2,802
Purchases of equity instruments and non controlled investment funds (f) (g) (13,230) (21,939) (33,114)
Purchases and/or issues of loans and other assets (g) (h) (40,722) (48,155) (44,917)
Increase in collateral payable / Decrease in collateral receivable 8,656 3,287 5,766
Other investing cash impact and non cash adjustment (673) 809 (15)
CASH AND CASH EQUIVALENT AS AT JANUARY 1 (j ) 30,811 17,192 19,831
Net impact of foreign exchange fl uctuations and reclassifi cation on cash and cash equivalents (l ) (1,384) (161) (494)
(a) Includes premium/discount capitalization and relating amortization, amortization of investment and owner occupied properties (held directly).
(c) Includes impairment and amortization of intangible assets booked during business combinations.
(e) Includes impact of asset lending/borrowing and equivalent relating to banking activities.
(i) Includes net cash impact of interest margin relating to hedging derivatives on fi nancing debt.
(k) AXA Japan closes its full year account at September 30. According to IFRS principles whereby the fi nancial statements of the subsidiary shall be adjusted to refl ect the effects of signifi cant events that would have been recognized with a closing date aligned with the AXA Group, AXA Japan’s 2008 accounts were adjusted by €-106 million with the provisional loss refl ecting the further increase of the Credit spreads from October to December 2008. This adjustment was reversed in 2009. No adjustment was booked at the end of September in 2009.
(l ) The assets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
AXA SA, a French “Société Anonyme” (the “Company” and, together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company for an international fi nancial services group focused on fi nancial protection. AXA operates principally in Europe, North America and Asia-Pacifi c. The list of the main entities included in the scope of the AXA’s consolidated fi nancial statements is provided in Note 2 of the notes to the consolidated fi nancial statements.
AXA operates in the following primary business segments: ■ Life & Savings,
Exchange (NYSE). On January 25, 2010, AXA announced its intention to voluntarily delist its American Depositary Shares
These consolidated fi nancial statements including all Notes were fi nalized by the Management Board on March 8, 2010.
December 31. However, certain entities within AXA have a different reporting year end, in particular AXA Life Japan, which has a September 30 fi nancial year end.
Board (IASB). The adoption date of IFRS 9, including its different phases and its method of enforcement are currently being reviewed within the Group.
AMENDMENTS TO STANDARDS AND INTERPRETATIONS PUBLISHED AND ADOPTED ON JANUARY 1, 2009
The standard requires the entity to explain the basis on which segments are determined, and provide a reconciliation between consolidated balance sheet and income statement amounts. The segmental information provided by AXA in its previous consolidated fi nancial statements already complied, for the major part, with IFRS 8 requirements; ■ T he amendment to IAS 23 – Borrowing Costs, published on
March 29, 2007, makes it compulsory to capitalize borrowing costs and removes the option to expense these costs. The amendment excludes eligible assets measured at fair value from the revised standard’s scope of application; ■ R evised IAS 1 – Presentation of fi nancial statements, published on September 6, 2007, represents the fi rst step in the IASB’s comprehensive project on reporting fi nancial information. The new standard requires to present the statement of changes in equity as a primary statement and all non-owner changes in equity either in one statement of comprehensive income or in two statements. A statement of fi nancial position (balance sheet) is also required as at the beginning of the earliest comparative period in a complete set of fi nancial statements when the entity applies an accounting policy retrospectively or makes a retrospective restatement. Furthermore, income tax relating to each component of other comprehensive income and reclassifi cation adjustments relating to components of other comprehensive income should be disclosed. Finally, revised IAS 1 changes the titles of fi nancial statements; ■ R evised IFRS 3 – Business Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements, published on January 10, 2008 and effective for fi nancial years beginning on or after July 1, 2009 with earlier adoption
permitted, represent the second phase of the IASB business combination project. In the context of its 2009 annual consolidated fi nancial statements, the Group decided to early adopt it from January 1, 2009. The decision was not yet taken for the interim consolidated fi nancial statements at June 30, 2009. Revised IFRS 3 introduces a number of changes in the accounting of business combinations that can impact the amount of goodwill to be recognized, the net income of the period of the acquisition and future results. The amendments to IAS 27 require that a change in the ownership interest of a subsidiary be accounted for as an equity transaction, with no impact on goodwill or net income. In addition, they introduce changes in the accounting for losses incurred by subsidiaries and the loss of control of an entity. These new principles are detailed in § 1.3.2. The changes apply prospectively for combinations (including step acquisition transactions) on or after January 1, 2009. Additionally, the new rules regarding the accounting for additional purchases and sales of noncontrolling interests in a controlled subsidiary and the treatment of realizable deferred taxes subsequent to acquisition date are effective for transactions occurring after January 1, 2009
Financial Instruments, published on March 5, 2009, introduces a three-level fair value disclosure hierarchy that distinguishes fair value measurements by the signifi cance of the inputs used
(such as quoted prices, observable market data, and other inputs). It also enhances disclosure requirements on the nature and extent of liquidity risk arising from fi nancial instruments to which the entity is exposed; ■ T he amendments to IFRIC 9 and IAS 39 related to Embedded
July 31, 2008 and applicable for the Group from January 1, 2010, clarifi es how the existing principles underlying hedge accounting should be applied. Additional guidance is given to illustrate how hedge accounting should be applied in (a) a one-sided risk in a hedge item, and (b) infl ation in a fi nancial hedged item. These amendments are not expected to have a signifi cant impact on the Group’s consolidated fi nancial statements.
IFRIC 17. Distribution of Non-cash Assets to Owners, published on November 27, 2008 and applicable to the Group from
The Improvements to IFRSs, published on April 16, 2009, include amendments that will not be part of another major project. They are presented in a single document rather than as a series of piecemeal changes. They are generally applicable from
January 1, 2010 unless otherwise specifi ed. These amendments are not expected to have a signifi cant impact on the Group’s consolidated fi nancial statements.
At initial recognition, an entity can use the option to designate a fi nancial asset at fair value through profi t or loss if doing so eliminates or signifi cantly reduce an accounting mismatch. For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of the instruments
AXA chose not to restate past business combinations based on the option available in IFRS 1. As a result, past business combinations prior to January 1, 2004 are accounted for on a previous GAAP basis in the IFRS fi nancial statements, except: ■ G oodwill has been denominated in the functional currency of the acquired entity under IFRS since January 1, 2004
■ A ny item recognized under previous GAAP that did not qualify for recognition as an asset or liability under IFRS was reclassifi ed into goodwill.
Companies in which AXA exercises control are known as subsidiaries. Under the current defi nition of IAS 27, control is the power to govern the fi nancial and operating policies of a company so as to obtain benefi ts from its activities. Subsidiaries are fully consolidated from the date on which control according to the IAS 27/SIC 12 current model is transferred to AXA. Control is presumed to exist when AXA directly or indirectly holds more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are also considered when assessing whether AXA controls another entity.
IAS 27/SIC 12 listed above they satisfy. For fully consolidated investment funds, non-controlling interests are recognized at fair value and shown as liabilities in the balance sheet if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted by equity method are shown under the balance sheet caption “Financial investments”.
Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements from January 1, 2009, the principles described below are those that apply from that date.
Upon fi rst consolidation, all assets, liabilities and contingent liabilities (unless they are not present obligations) of the acquired company are estimated at their fair value. However, in compliance with an exemption permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profi ts emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI). The present value of future profi ts takes into consideration the cost of capital and is estimated using actuarial assumptions based on projections made at purchase date but also using a discount rate that includes a risk premium.
of the IASB’s insurance project such as described above, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature.
Other identifi able intangible assets such as the value of customer relationships should be recognized. The value of customer relationships intangible represents the value of future cash fl ows expected from renewals and the cross-selling of new products to customers known and identifi ed at the time of the acquisition.
Direct transaction costs related to a business combination are charged in the income statement when incurred.
In step acquisitions, any previously non-controlling interest held by the Group is measured at fair value and the resulting adjustment is recognized through the net income. Similarly, when an additional purchase changes the control from signifi cant infl uence or joint control to control, any investment pre-existing in a former associate/joint venture is re-measured to its fair value with the gain or loss through net income (consequently also resulting in a change in the previous recognized amount of goodwill).
According to a decision taken for each acquisition, any noncontrolling interest may be measured at fair value or as its proportionate interest in the acquiree’s identifi able net assets.
Purchase and sale transactions of non-controlling interests in a controlled subsidiary that do not change the conclusion of control are recorded through shareholders’ equity (including direct acquisition costs).
for a put granted after January 1, 2009, to the extent there is no immediate transfer or risks and rewards. Similarly, subsequent changes in the liability are recorded against goodwill for puts existing before January 1, 2009 and against equity (Group share)
(with a balancing entry recorded in non-controlling interests). This impact is identifi ed in the “other” changes of the consolidated statement of shareholders’ equity.
The results and fi nancial position of all Group entities that have a functional currency (i.e. the currency of the primary economic environment in which the entity operates) different from the Group presentational currency are translated as follows: ■ A ssets and liabilities of entities in a functional currency different from Euro are translated at the closing rate;
AXA performs an impairment test of goodwill at least annually based on cash generating units, using a multi-criterion analysis with parameters such as the value of assets, future operating profi ts and market share, in order to determine any signifi cant adverse changes. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of fair value less costs to sell and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units’ future cash fl ows. The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value fi gures published by AXA or similar calculations for other activities. Fair values less costs to sell are based on various valuation multiples.
The value of purchased insurance contracts and investment contracts with discretionary participating features recognized in a business combination (see section 1.3.2) is amortized as profi ts emerge over the life of the contracts’ portfolio. In conjunction with the liability adequacy test (see section 1.13.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions.
Investments include investment in real estate properties and fi nancial instruments including equity instruments , debt instruments securities and loans.
Investment in real estate properties (excluding investment in real estate properties totally or partially backing liabilities arising from contracts where the fi nancial risk is borne by policyholders and from “with-profi t” contracts) are recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated.
If, in subsequent periods, the appraisal value rises to at least 15%
Investment in real estate properties that totally or partially back liabilities arising from: ■ C ontracts where the fi nancial risk is borne by policyholders; ■ “with-profi t” contracts where dividends are based on real estate assets; are recognized at fair value with changes in fair value through profi t or loss.
accounted for at amortized cost; ■ A ssets held for trading and assets designated as at fair value with change in fair value through profi t or loss; ■ A vailable-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders’ equity.
Portfolios” are accounted for at fair value with changes in fair value recognized through income statement.
Assets designated as available-for-sale, trading assets, investments designated as at fair value through P&L and all derivatives are measured at fair value, i.e. the amount for which an asset could be exchanged, between knowledgeable, willing parties in an arm’s length transaction. The Group applies the
Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value. Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i)
The Group documents, at inception, the hedge relationship, as well as its risk management hedging objectives and strategy. The
Group also documents the hedge effectiveness, both at inception and on an ongoing basis, indicating the actual or expected effi ciency level of the derivatives used in hedging transactions in offsetting changes in the fair values or cash fl ows of hedged underlying items.
aggregate) or as liabilities depending on contract clauses without taking into consideration the prospect of redemption under economic constraints (e.g. step up clauses or pressure from shareholders to pay a dividend).
The Group issues contracts that transfer an insurance risk or a fi nancial risk or both.
The Group classifi es its insurance and investment contracts into six categories: ■ L iabilities arising from insurance contracts; ■ L iabilities arising from insurance contracts where the fi nancial risk is borne by policyholders; ■ L iabilities arising from investment contracts with discretionary participating features; ■ L iabilities arising from investment contracts with no discretionary participating features; ■ L iabilities arising from investment contracts with discretionary participating features where the fi nancial risk is borne by
policyholders; these relate to unit-linked contracts or multifunds contracts containing a non-unit-linked fund with discretionary participating features; ■ L iabilities arising from investment contracts with no discretionary participating features where the fi nancial risk is borne by policyholders.
The main characteristics of the accounting principles applied prior to IFRS and retained after the conversion to IFRS are as follow: ■ R eserves must be suffi cient; ■ L ife reserves cannot be discounted using a discount rate higher than prudently estimated expected assets yield; ■ A cquisition costs are deferred to the extent recoverable and amortized based on the estimated gross profi ts emerging over the life of the contracts; ■ C laims reserves represent estimated ultimate costs. Post claims reserves are generally not discounted, except in limited cases (a detail of discounted reserves is shown in Note 14.9).
“savings contracts” in AXA’s accounting principles) that carry low mortality and morbidity risk are calculated using a prospective approach based on discount rates set at inception (similar to the retrospective approach, i.e. “account balance” methodology).
FRS 27 and in line with the practice used by UK insurance companies with respect to these contracts.
Liabilities within the UK with-profi t funds are supported by assets designated as investments at fair value through profi t or loss.
Some guaranteed benefi ts such as Guaranteed Minimum Death or Income Benefi ts (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a risk management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee level projections and takes into account interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. This change in accounting principles was adopted on the fi rst time application of IFRS on January 1, 2004 for contracts portfolios covered by the risk management program at that date. Any additional contracts portfolios covered by the risk management program after this date are valued on the same terms as those that applied on the date the program was fi rst applied.
In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business in force to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss of invested assets. When unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded.
AXA does not need to ensure the liability recognized for the whole contract is not less than the amount that would result from applying IAS 39 to the guaranteed element.
When a net unrealized loss (unrealized change in fair value, impairment, expense related, …) is accounted, a deferred participating asset (DPA) may be recognized only to the extent that it is highly probable that it can be charged to policyholders, by entity, in the future. This could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or the DPL netted against value of businesses in force or indirectly through deduction of future fees on premiums or margins.
When net deferred participation asset is recognized, the Group uses liquidity analyses performed by the entities to assess the capacity to hold assets showing unrealized loss position, if any, generating such debits. The Group then performs projections to compare the value of assets backing policyholders contracts with expected payments to be made to policyholders.
■ S uch tests are based on the intention and capacity of entities to hold fi nancial assets according to various sets of scenarios, excluding the value of new business; ■ T hey include projections of future investments sales according to estimated surrender patterns; ■ A nd the extent to which resulting gains/losses may be allocated/charged to policyholders, i.e. profi t sharing between policyholders and shareholders.
Depending on the type of business, the future investment cash fl ows and discounting may be based on a best estimate and risk free rates, with corresponding participation, or in the case of Guaranteed Minimum Benefi ts, stochastic scenarios. Testing is performed either by a comparison of the reserve booked net of related assets (DAC, VBI) to a reserve directly by discounting the cash fl ows, or by ensuring that the discounted profi t net of participation from release of the technical provisions exceeds net related assets.
Any identifi ed defi ciency is charged to the income statement, initially by respectively writing off DPA, DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DAC
In order to meet those obligations, some regulatory framework have allowed or enforced the set up of dedicated funds (plan assets).
Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identifi ed at the time of a business combination (see section 1.3.2).
Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: ■ T he Group directly recognizes the consideration received as a deposit fi nancial liability rather than as revenues; ■ C laims paid are recognized as withdrawals with no posting in the income statement apart from potential fees.
The Group unbundles the deposit component of contracts when required by IFRS 4, i.e. when both the following conditions are met: ■ T he Group can measure separately the “deposit” component
Changes in unearned premiums reserves net of unearned revenues and fees include both the change in the unearned premium reserve reported as a liability (see “Unearned premium reserves” in section 1.13.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see “Unearned revenues reserves” in section 1.13.2) and investment contracts with no discretionary participating features (see section 1.13.3 “Unearned fees reserves”).
Revenues from other activities mainly include: ■ I nsurance companies revenues from non insurance activities, notably commissions received on sales or distribution of fi nancial products; ■ C ommissions received and fees for services relating to asset management activities; and
The net investment result includes: ■ I nvestment income from investments from non banking activities, net of depreciation expense on real estate investments
Any gain or loss arising from a decrease in AXA’s ownership interest in a consolidated entity is recorded in the net investment result, to the extent it does not result from an internal restructuring within the Group. The gain or loss corresponds to the change in
AXA’s share of the subsidiary’s shareholders’ equity before and after the subsidiary equity transaction.
(b) “MedLA” country is part of the Mediterranean and Latin American Region.
AXA China Region Limited (including MLC Hong-Kong) (a) 100.00 54.07 100.00 53.42
At December 31, 2009, consolidated investment funds represented total invested assets of €104,097 million (€89,139 million at the end of 2008 and €110,162 million at the end 2007), corresponding to 298 investment funds mainly in France, the United Kingdom,
At December 31, 2009, the 27 consolidated real estate companies corresponded to total invested assets of €7,145 million
In most investment funds (particularly open-ended investment funds), non-controlling interests do not meet the defi nition of shareholders’ equity. They are therefore presented as liabilities under “Non-controlling interests of controlled investment funds and puttable instruments held by non-controlling interest holders”.
Fonds Immobiliers Paris Offi ce Funds 50.00 49.91 50.00 49.91 2.1.3. Investments in companies accounted for using the equity method
(a) “AXA Minmetals Assurance Co Ltd” and “PT AXA Mandiri Financial Services” are accounted for using the equity method as their shareholders’ agreements don’t provide the Group with suffi cient controlling power.
France Vie assets/liabilities adequacy ratio by ceding receivables resulting from eligible insurance operations against cash. The main impact is a €234 million increase in the AXA Group’s other liabilities, and a parallel increase in receivables.
In 2008, AXA France invested in Arche Finance, an investment vehicle dedicated to credit investment, which entered the scope of consolidation in June 2008 with a loan of €200 m illion. The fair value of the vehicle was assessed at €1,078 million as at
In 2009, AXA set up a new intra-group fi nancing and cash management company which benefi ted from a loan of £673 million.
Given the activities of AXA, the operating results that are regularly reviewed by the Management Board of the Group for the assessment of the performance and for decisions purposes are presented on the basis of fi ve operating business segments: Life
Solutions Assurance. These products provide coverage to large national and international corporations. This segment also includes assistance activities, life reinsurance activities in runoff primarily AXA Corporate Solutions Reinsurance Life, and the group’s run-off managed by AXA Liabilities Managers, including risks underwritten by Colisée RE (ex AXA RE) relating to 2005 and prior underwriting years. Years after 2005 are covered by a treaty ceding 100% of the reinsurance business to Paris Ré.
Change in unearned premiums net of unearned revenues and fees (117) (103) 19 - - - 8 (192)
Net realized investment gains and losses (418) 195 68 (358) - 165 - (349)
Change in tangible assets impairment (1) (1) - - - - - (2)
Split between: Net consolidated income - Group share 2,075 1,516 326 409 (17) (703) - 3,606
Fees and charges relating to investment contracts with no participating features 662 - - - - - - 662
Change in unearned premiums net of unearned revenues and fees (348) (244) 272 - - - (1) (321)
Change in fair value of other investments at fair value through profi t or loss (b) (51,579) (775) (77) (543) - 1,000 (19) (51,994)
Net investment result excluding fi nancing expenses (37,528) 414 483 (272) (1) 1,578 (743) (36,068)
Amortization of the value of purchased business in force (393) - - - - - - (393)
Change in tangible assets impairment (3) (1) - - - - - (5)
Other operating income and expenses (22,022) (25,021) (3,647) (3,127) (413) (237) 707 (53,761)
Result from discontinued operations net of tax - - - - - - - -
Split between: Net consolidated income - Group share (446) 926 103 396 (38) (19) - 923
Fees and charges relating to investment contracts with no participating features 740 - - - - - - 740
Net revenues from banking activities - - - - 369 6 (39) 336
Change in unearned premiums net of unearned revenues and fees (278) (362) 28 - - - - (612)
Net investment result excluding fi nancing expenses 23,129 2,687 385 64 4 217 (595) 25,891
Net result from outward reinsurance 32 (599) (553) - - - 74 (1,046)
Change in tangible assets impairment - 3 - - - - - 2
Income arising from investments in associates – Equity method 6 5 1 - - 2 - 13
Split between: Net consolidated income - Group share 2,899 2,218 243 588 6 (287) - 5,666
All of the following paragraphs form an integral part of the Group fi nancial statements. They appear in Section 3.2 “Quantitative and Qualitative Disclosures About Market Risk and Risk Factors”
Please refer to pages 193 to 194 of the “Quantitative and
Please refer to pages 203 to 206 of the “Quantitative and
section, except for the breakdown of CDS by underlying debt instruments’ rating on page 205 .
Please refer to pages 94 to 99 , “Liquidity and capital resources”
Bluefi n Insurance Group Ltd (previously Venture Preference limited) (d) 2007 & 2008 - - -
Bluefi n Advisory Services Limited (previously Thinc Group) (d) 2006 & 2008 130 - 130
Royale Belge (AXA Belgium) 1998 452 - 452 of which: In this table, goodwills exclu de goodwills related to entities accounted for using the equity method (see Note 10).
Belgium (€563 million); ■ Asset Management net goodwill (€3,987 million) was
Eastern Europe and presented in the Winterthur item of the above table totaled €65 million at December 31, 2009
(€81 million at December 31, 2008 and December 31, 2007); ■ T he amount relating to the puts owned by non-controlling interests in Sanford C. Bernstein and presented in the Sanford
C. Bernstein item of the above table totaled €0 million as at
ELLA Bank (AXA Bank Hungary) 59 - - - - - 59
Bluefi n Advisory Services Limited (previously Thinc Group) (d) 122 - (2) - 10 - 130
Rosenberg and other AXA IM transactions 99 - - - (3) 5 101
Of which: (a) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group adjusted certain items impacting the allocation of Seguros ING (Mexico) purchase price, resulting in a €33 million increase in the goodwill to €512 million. Most of this increase in goodwill was due to adjustments to provisions for liabilities and claims reserves.
(b) Includes the impact of exercises and revaluations of non-controlling interest buyout commitments.
Oyak (AXA Turkey - minority buyout) - 278 - - (31) - 247
Bluefi n Advisory Services Limited (previously Thinc Group) (c) 58 94 - - (29) - 122
SLPH (AXA UK Holdings) (minority buyout) 1,388 - - - (279) - 1,109
Of which: (a) Includes the impact of exerci ses and revaluations of non-controlling interest buyout commitments.
Increase in Impairment relating to goodwill created on acquisitions during the period
Of which: An impairment loss is recognized for a cash-generating unit if, and only if, the recoverable amount of the unit or group of units is less than the carrying amount of the unit or group of units. The recoverable amount of each cash generating unit or group of units is the higher of
(i) the cash generating unit or group of units’ fair value less costs to sell and (ii) its value in use.
The value of new business is computed either on the basis of multiples of a standardized year of new business contribution
(present value of projected future distributable profi ts generated from business written in a year) or on a projection of each of the expected annual future earnings when multiples are not appropriate because of future growth specifi c patterns.
Management businesses, the calculation uses cash fl ow projections based on business plans approved by management covering a three to fi ve year period and a risk adjusted discount rate. Cash fl ows beyond that period have been extrapolated using a steady growth rate and terminal value.
Discount rates used in these tests range from 8% to 12% and growth rates where applicable from 2% to 4%.
The results of these projections exceed the carried amount of each of the generating unit or group of units. However, the estimated amount of excess in the US Life & Savings markets (goodwill noted above)
At December 31, 2009, the goodwill had a net value of €248 million.
On March 19, 2008, AXA UK completed the purchase of 100%
to AXA MPS Assicurazioni Vita, of 100% of Quadrifoglio Vita’s shares, was concluded (purchase price of €142 million). The closing of the transaction occurred on December 12, 2008. The purchase accounting was completed with an opening balance sheet as at December 31, 2008 and gave rise to a goodwill of €68 million. No other material intangibles were recognized.
At December 31, 2009, the goodwill had a net value of €123 million.
This company’s main business is brokerage of Life & Savings products.
At December 31, 2009, the goodwill had a net value of €45 million.
On May 22, 2007, AXA acquired 75% of Kyobo Auto for an amount of KRW 88 billion (€70 million). At the end of 2007, the
Group’s ownership had reached 90% following the buyback of non-controlling interests.
On July 27, 2007, AXA Holdings Belgium SA acquired 100% of the Hungarian retail bank ELLA and its affi liates for €123 million.
At December 31, 2009, the goodwill had a net value of €59 million.
MPS Danni (Property & Casualty), and 50% of BMPS open pension funds business.
Kölnische Verwaltungs-AG für Versicherungswerte AG on July 20 and July 21, 2006, respectively. In parallel, AXA Konzern fi nalized in 2007 the squeeze-out of the non-controlling interests of its life insurance companies AXA Lebensversicherung AG (0.86% of the share capital) and Deutsche Ärzteversicherung AG (2.13% of the share capital). These squeeze-out resolutions are now effective and AXA holds 100% of the shares of these four subsidiaries.
Following registration of these squeeze-outs, further litigation with non-controlling interests on valuation issues were concluded in a court review procedure (Spruchverfahren) under German law.
The impact of acquisitions and disposals of subsidiaries and portfolios amounted to: ■ €-188 million in 2009, due to the classifi cation of the Australian and New Zealand operations as held for sale; ■ €97 million in 2008, driven by the acquisitions of Seguros ING
in Mexico (€50 million) and of the fi nancial advisor Genesys in
Net deferred acquisition costs relating to Life & Savings (c) 16,202 15,867 14,045
(c) Applicable to Life & Savings insurance contracts and investment contracts with discretionary participation features according to IFRS 4. Amounts are net of accumulated amortization.
Life & Savings deferred acquisition costs and equivalent net carrying value as at January 1 15,952 1,074 13,754 1,236 13,047 1,152
Amortization and impairment for the period (2,248) (84) (2,000) (125) (2,121) (180)
Acquisitions and disposals of subsidiaries and portfolios (340) (33) (7) 3 (281) -
Unearned revenues and unearned fees reserves 2,109 501 2,072 382 1,823 409 of which shadow unearned revenues reserves (151) - (162) - (138) -
DAC net of unearned revenues and unearned fees reserves 13,716 725 13,880 692 11,931 827
Intangible assets recognized in business combinations 2,942 344 - 2,598 2,572 2,718
Bluefi n Insurance Group Ltd (previously Venture Preference limited) - - - -
Bluefi n Insurance Group Ltd (previously Venture Preference limited) 94 (21) - 72
Bluefi n Advisory Services Limited (previously Thinc Group) 59 (13) - 47
Bluefi n Insurance Group Ltd (previously Venture Preference limited) 72 - - -
Bluefi n Advisory Services Limited (previously Thinc Group) 47 - - (7)
In 2009, acquisition during the period was mainly related to the purchase of branches of former Banca Antonveneta by AXA MPS.
Bluefi n Insurance Group Ltd (previously Venture Preference limited) 77 32 - (16)
Bluefi n Advisory Services Limited (previously Thinc Group) 36 33 - (9)
Bluefi n Advisory Services Limited (previously Thinc Group) - 45 - (7)
Assets backing contracts where the fi nancial risk is borne by policyholders 155,457 155,457 27.76%
(in Euro million) Fair value Carrying value % (value balance sheet)
Investment in real estate properties designated as at fair value through profi t or loss (a) 2,398 2,398 0.47%
Debt instruments designated as at fair value through profi t or loss (a) 44,199 44,199 8.60%
Non controlled investment funds designated as at fair value through profi t or loss (a) 2,187 2,187 0.43%
Loans designated as at fair value through profi t or loss (a) 45 45 0.01%
Investments (excluding those backing contracts where the fi nancial risk is borne by policyholders) 387,685 382,133 74.33%
Investment in real estate properties designated as at fair value through profi t or loss (a) 4,137 4,137 0.71%
Debt instruments (at cost) that are not quoted in an active market - - -
Equity instruments designated as at fair value through profi t or loss (a) 19,322 19,322 3.31%
Other assets designated as at fair value through profi t or loss, held by controlled investment funds 4,358 4,358 0.75%
(b) The amortization increase in other activities corresponds to the transfer of a building to the US holding.
Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): Impairment - Investment in real estate properties
(a) Assets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
The table below sets out the debt instruments portfolio by issuer type, excluding macro hedging derivatives and other derivatives but including the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges). Details of the effect of derivatives are provided in section 19.3.
Additional information on the credit ri sk associated with debt instruments is provided in Note 4 “Financial and insurance risks management”.
The tables below set out the contractual maturities of debt instruments held by the Group. Effective maturities may differ from those presented, mainly because some assets include clauses allowing early redemption, with or without penalty or duration extention features.
Debt instruments designated as at fair value through profi t or loss (a) 3,709 10,405 18,183 32,296
Loans designated as at fair value through profi t or loss (a) 2 1 42 45
Loans designated as at fair value through profi t or loss (a) - 7 - 7
TOTAL - FINANCIAL INVESTMENTS EXPOSED TO CASH FLOW INTEREST RATE RISK 6,920 7,137 13,932 27,989
Loans designated as at fair value through profi t or loss (a) 5 39 (4) 40
Loans designated as at fair value through profi t or loss (a) - 17 59 77
Excluding th e effect of derivatives (detailed in section 19.3) and equity instruments of real estate companies, the breakdown by industry of equity instruments (including P rivate E quity instruments) owned across the Group is as follows: (in Euro million) Finance Consumer goods Energy Communications
TOTAL EQUITY INSTRUMENTS AS AT DECEMBER 31, 2009 10,823 4,149 2,357 1,633
Equity instruments held by controlled investment funds (a) 1,514 753 718 197
TOTAL EQUITY INSTRUMENTS AS AT DECEMBER 31, 2008 8,202 3,553 3,451 1,349
Equity instruments held by controlled investment funds (a) 5,519 433 218 139
Non controlled investment funds available for sale mainly holding equity instruments (c) 1,405 1,187 - - 1,405 1,187
Non controlled investment funds trading mainly holding equity instruments 10 - - - 10 -
Non controlled investment funds mainly holding equity instruments 2,058 - 13 - 2,071 -
Non controlled investment funds available for sale mainly holding debt instruments (c) 1,218 1,080 - - 1,218 1,080
Other non controlled investment funds held for trading 61 - - - 61 -
Non controlled investment funds - Equity method (d) 1,160 - 72 - 1,231 -
Derivatives (hedge accounting) and other derivatives 2 (6) - - 2 (6)
Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. Details of the effect of derivatives are provided in section 19.3.
(a) Assets and liabilities of the Australian and New Z ealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
(b) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale.
9.8.2. Change in impairment on invested as sets (excluding investment in real estate properties)
Impairment - non controlled investment funds 834 386 (156) - 13 1,077
The amount of assets for which fair value is determined in whole directly by reference to an active market is disclosed in column (1)
Equity instruments quoted on exchange traded markets and bonds actively traded on liquid markets for which prices are regularly provided by external pricing services that represent
Impairment - non controlled investment funds 77 38 (24) - 7 97
consensus with limited dispersion and for which quotes are readily available are generally considered as being quoted in an active market. Liquidity may be defi ned as the possibility to sell or dispose of the asset in the ordinary course of business within a certain limited time period at approximately the price at which the investment is valued. Liquidity for debt instruments is assessed using a multi criteria approach including the number of quotes available, the place of issuance and the evolution of the widening of bid ask spreads.
A fi nancial instrument is regarded as not quoted in an active market if there is little observation of transaction prices as an inherent characteristic of the instrument, when there is a signifi cant decline in the volume and level of trading activity, in case of signifi cant illiquidity or if observable prices can not be considered as representing fair value because of dislocated market conditions. Characteristics of inactive markets can therefore be very different in nature, inherent to the instrument or indicative of a change in the conditions prevailing in certain markets.
External pricing services may be fund asset managers in the case of non consolidated investments in funds or brokers. To the extent possible, the Group collects quotes from external pricing providers as inputs to measure the fair value of assets held. Prices received may form tight clusters or dispersed quotes which may then lead to the use of valuation techniques. The dispersion of quotes received may be an indication of the large range of assumptions used by external pricing providers given the limited number of transactions to be observed or refl ect the existence of distress transactions. In addition, given current market conditions and the persistency of complete inactivity of some markets, many fi nancial institutions closed their desks dedicated to structured assets deals and are no longer in a position of delivering meaningful quotes.
Internal mark to model valuations are therefore normal market practices for certain assets inherently scarcely traded or exceptional processes implemented due to specifi c market conditions.
Amounts presented exclude the impact of all derivatives (set out in Notes 19.3 and 19.5) and investment funds accounted for using the equity method. Investment funds accounted for using the equity method represented assets of €1,231 million at
The breakdown by valuation method of fi nancial assets recognized at fair value is as follows: Methods applied to determine the fair value of held assets measured at fair value in the fi nancial statements are described in section 9.9.1 above. The group applies the IAS 39 fair value hierarchy.
Fair values for assets not quoted in an active market/No active market (column (2)) include: ■ V alues provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active; and
■ A ssets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data.
Most of the equity instruments traded on exchange markets, government debt instruments , government related debt instruments and corporate debt instruments were considered in 2007 as quoted in an active market, with quotes or consensus prices readily available. Quotes provided by external pricing services are presented in column (1) if readily, regularly and publicly available and if related markets are considered as active. Brokers and vendors quotes are presented in column (2) if there is no active market due to the inherent characteristic of the instrument or if the market is no longer active. As at December 31, 2008, a signifi cant portion of debt instruments (mainly corporate debt instruments ), although still measured using the same valuation
Other assets held by controlled investment funds designated as at fair value through profi t or loss 4,304 5,044 9,348
TOTAL FINANCIAL INVESTMENTS AND LOANS ACCOUNTED FOR AT FAIR VALUE 235,442 135,810 371,252
b) Fair values of assets not quoted in an active market – no active markets (column (2))
Assets such as certain unquoted debt instruments, instruments issued on private markets such as P rivate E quity instruments or private loans were always considered as not quoted in active markets as an inherent characteristic of these investments and were included in column (2) in all periods presented. Valuations are based either on external pricing providers or internal models using techniques commonly used by market participants.
Valuation teams make the maximum use of current transaction prices if any and observable data but some of the underlying sectors to which the investment relate may be so particular that signifi cant adjustments are performed or unobservable data are used. Private E quity funds of funds are measured on the basis of the latest Net Asset Values of funds provided to the Group.
Valuation sources were however unchanged, even if market participants recognize that available quotes include more than expected credit defaults and an adequate associated risk premium, i.e. such prices/spreads refl ect liquidity premiums in excess of credit risks and funding costs associated with the inherent characteristics of the instruments. As at December 31, 2009, a signifi cant portion of such corporate debt instruments were categorized back in the fi rst column following the narrowing of bid ask spreads over the period.
For the purpose of the modeling, ABS and CDOs were ranked according to their underlying risks characteristics such as their underwriting and origination year for example to determine the appropriate set of assumptions to be used, giving consideration to market conditions in pricing these instruments. Cash fl ows were developed based on current observable inputs refl ecting the credit metrics of each type of underlying assets: for example weighted average rating factors – WARF – provided by rating agencies, historical default rates or third parties credit defaults studies, with loss severity assumptions and recovery lag, adjusted with adequate risk margins to refl ect the uncertainty related to these inputs and the historical dimension of some of these data. Risk adjusted discount rates have been based on interest rates and discount margins derived from observations of implied rates of return adjusted considering the current evolution of available quotes which refl ect spreads widening due to increased liquidity risks. The objective of these models is to arrive at the price at which an orderly transaction would take place between market participants (a willing buyer and a willing seller)
would impact net income by €-7.4 million, net of tax and policyholders’ participation related adjustments, and the
December 31, 2009, €153.9 billion as at December 31, 2008 and €67.2 billion as at December 31, 2007), fair values determined in whole or in part using a valuation technique based on assumptions that are not supported by a majority of prices from observable current market transactions in the same instrument or a majority of available observable market data represented as at December 31, 2009 less than 2.6% (3.4% as at December 31, 2008 and 2.2% (1) as at December 31, 2007) of fi nancial invested assets held by the Group excluding assets backing contracts where the fi nancial risk is borne by policyholders (including an estimation of the extent to which external quotes on inactive markets are based on observable data). The identifi cation of such assets among column (2) representing assets not quoted in an active market involves a signifi cant level of judgment. Are considered as observable: inputs provided by external pricing services, information observable on data providers screens, rating agencies, external surveys. The extent to which such data are external to the Group and not assessed by internal valuation teams is one of the main criteria applied in assessing whether data are observable or not. Should those data be signifi cantly adjusted or would they be outdated because of the lack of new available factors, such inputs would be deemed unobservable.
Another area of judgment is the assessment of the signifi cance of an input against the fair value measurement in its entirety. As a result, a different cut between observable and unobservable data and variances in the weighting of the signifi cance of each input against the fair value measurement in its entirety could produce a different categorization.
Among such assets, the amount of P rivate E quity investments moved from €4.6 billion as at January 1, 2009 to €4.2 billion as at December 31, 2009. Private E quity investments held directly through consolidated mutual funds categorized in Level 3 represent mainly shares of funds based on values determined
E quity investments is often based on observable data but with signifi cant adjustments performed by funds managers, such assets were allocated to Level 3. The decrease in the value in such held assets mainly relate to gross changes in fair value through income (€-0.6 billion) and new acquisitions (€0.3 billion).
Other main movements related to Level 3 assets to be noted are: ■ €+0.2 billion of changes in fair value through equity and €-0.2 billion of changes in fair value through income; ■ €-0.4 billion following the reclassifi cation of Australian Level 3 assets in the Held for Sale category; ■ €+0.4 billion of new acquisitions/new entries (deconsolidated participations); ■ €-0. 5 billion following a mispresentation of real estate loans measured at cost previously presented under the available for sale category in 2008, and therefore out of the assets levelling scope; ■ €-0.5 billion of sales and redemptions of hedge funds and structured assets.
are measured at fair value through profi t or loss. Financial assets included in these investments are stated at fair value through profi t or loss under the fair value option.
As described in Note 4 (Financial and insurance risks management), the fi nancial risk associated with these contracts is borne by policyholders, except for contracts that offer some investment-related guarantees.
Banque de marchés et d’arbitrage 1 - - - (1) -
AXA Asia Pacifi c Holdings associates (a) 17 - 2 - (19) -
Neufl ize Vie (previously NSM Vie) 93 - 4 - 3 100
(a) The assets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
Neufl ize Vie (previously NSM Vie) - - 4 - 89 93
Philippines AXA Life Insurance Corporation 14 - 4 (1) - 17
Company Limited. This company is newly consolidated; ■ T he change in consolidation method of Aragon AG
(€-40 million). This company is now deconsolidated; ■ T he reclassifi cation of AXA Canada associates (€27 million)
AXA Affi n General Insurance Berhad 29 - - - (29) -
Pt AXA Mandiri Financial Services 6 - 4 (1) (1) 8
AXA Asia Pacifi c Holdings associates 14 2 9 - (5) 20
(b) Following its sale to AXA Asia Pacifi c Holdings, this entity is now fully consolidated.
Insurance Berhad. This company is now fully consolidated (€29 million); ■ T he entry in the scope of consolidation of AXA Minmetals at
In the years ended December 31, 2009, 2008 and 2007, AXA
received cash dividends from companies accounted for using the equity method t otaling, respectively, €3 million, €3 million and €5 million.
Receivables arising from direct insurance and inward reinsurance operations 13,063 (376) 12,687
Receivables relating to investments under lending agreements and equivalent 114 - 114
(d) Includes separate assets related to employee benefi ts (see Note 25.2).
At December 31, 2009, t otal consolidated net cash and cash equivalents amounted to €18,210 million, net of €1,356 million bank overdrafts classifi ed under “Other debt instrument issued and bank overdrafts” in the consolidated statement of fi nancial position.
According to the specifi c market condition in 2008, the cash position was high compared to other years. Net cash and cash equivalents decreased by €12,601 million compared to 2008 mainly due to: ■ T he US Life & Savings (€-5,159 million) notably refl ecting to cash margin calls transferred on GMxB hedging (€-4,025 million) in line with market evolution; ■ AXA SA (€-1,432 million) following repayment of commercial paper (€-4,565 million), partly offset by €+2,421 million capital increases; ■ France Life & Savings (€-1,076 million) due to investments operations (€-7,957 million), including reinvestment in debt instruments , offset by cash collected from operating activities
(€+6,669 million); ■ Japan Life & Savings (€-710 million) mainly due to group pension products outfl ows following a reduction of guarantee interest rate from 1.25% to 0.8%; ■ C ash in Australia/New Zealand (€-988 million) reclassifi ed as
Regarding to the consolidated statement of cash fl ows, net cash provided by operating activities t otaled €16,777 million in 2009, as compared to €21,319 million in 2008, mainly due to cash margin calls transferred on GMxB hedging (€-4,025 million) in line with market evolution.
Cash and cash equivalents as at December 31 19,565 32,227 18,684
(a) The a ssets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statemenf of fi nancial position as at December 31, 2009 (See Note 5.3.3). Thus the cash held by Australia and New Zealand (€988 million) is excluded from cash and cash equivalents.
(c) The “Cash and cash equivalents” balances shown in the statement of consolidated cash fl ows do not include cash balances of consolidated investment funds from the Satellite Investment Portfolio (see Note 1.7.2). The “Cash and cash equivalents” item in the statement of consolidated cash fl ows excludes cash backing contracts where the fi nancial risk is borne by policyholders (unit-linked contracts).
Net cash relating to fi nancing activities t otaled €-3,529 million in 2009 mainly due to: ■ D ividends payments of €-1,090 million; ■ C apital increases of €+2,698 million including €2,421million in
AXA SA; ■ €-4,350 million of net cash related to Group fi nancing, including €-4,565 million repayment of commercial paper by the Company.
Net cash relating to fi nancing activities t otaled €-308 million in 2008 mainly due to: ■ D ividends payments of €-2,887 million, partly offset by; ■ €2,319 million of net cash related to Group fi nancing, including €2.3 billion issue of commercial paper by the Company.
I Note 13 Shareholders’ equity and non-controlling interests 13.1. IMPACT OF TRANSACTIONS WITH SHAREHOLDERS
At December 31, 2009, the Company and its subsidiaries owned approximately 26.4 million AXA shares, representing 1.15% of the share capital, a decrease of 2.8 million shares or €42 million compared to December 31, 2008.
In 2009, the change in other reserves was due to the redemption of undated subordinated debt (€-151 million) in accordance with the redemption option granted to the issuer ten years after the issue date, €-288 million in interest expense on the undated subordinated debt (net of tax), and €+147 million in exchange rate differences.
Value of the u ndated subordinated debt in currency of issuance
Undated notes – variables rates in € 693 693 844 844 844 844
Undated notes – (of which 500 M US$ at 7. 1%) in US$ 875 607 875 629 875 594
Equity component of convertible debt (2017) 95 95 95 95 95 95
At the April 30, 2009 Shareholders’ Meeting, shareholders approved a dividend distribution of €836 million with respect to the 2008 fi nancial year.
(including €57 million in nominal share capital); ■ E xercise of stock options and share subscription rights for a t otal of €72 million (including €8 million in nominal share capital).
At December 31, 2008, the carrying value of treasury shares and related derivatives was €451 million. This fi gure included €2.1 million relating to AXA shares held by consolidated mutual funds (0.1 million shares) not used to back contracts where fi nancial risk is borne by policyholders.
This caption also included a €96 million premium paid in 2007 for call options on AXA shares.
At December 31, 2008, 2.6 million treasury shares backing contracts where fi nancial risk is borne by policyholders held in controlled funds were not deducted from shareholders’ equity.
In 2008, the change in other reserves was due to €-299 million in interest expense on the undated subordinated debt, and €-420 million in exchange rate differences.
At the April 22, 2008 Shareholders’ Meeting, shareholders approved a dividend distribution of €2,473 million with respect to the 2007 fi nancial year.
In 2007, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: ■ C apital reduction of € 1. 899 million by cancelling shares acquired under the share buyback program (including €-145 million in nominal share capital); ■ E mployee share offering (November 2007) for €552 million
During the year, AXA pursued its share purchase program to control dilution arising from share-based compensation and employee Shareplan program, and purchased 70.4 million shares for a t otal amount of €2,125 million (including “AXA
Miles”). Of these €2,125 million, €1,899 million were cancelled by a decrease in share capital.
In 2007, the change in other reserves was due to: ■ (i) a €1,749 million issue of undated subordinated note, a €-833 million repayment of undated subordinated debt, €-289 million in interest expense, and €-388 million in exchange differences. The undated deeply subordinated notes were issued to fi nance the repayment of maturing borrowings, and comprised the following: • a €750 million undated subordinated note placed on
At the May 14, 2007 Shareholders’ Meeting, shareholders approved a dividend distribution of €2,218 million with respect to the 2006 fi nancial year.
The change in reserves for unrealized gains and losses on assets available for sale t otaled €+5,044 million (net Group share), mainly attributable to the United States (€+1,092 million),
The increase of gross unrealized gains and losses on assets available for sale t otaled €+11,102 million, mainly due to debt instruments (€+7,072 million) resulting from the strong credit spread tightening and by improvement of the equity markets
The following table shows reconciliation between gross unrealized gains and losses on available for sale fi nancial assets and the corresponding reserve recognized in shareholders’ equity: (in Euro mi llion)
Less unrealized gains and losses attributable to: Shadow accounting on policyholders’ participation (b) (5,685) (1,894) (1,832)
Shadow accounting on Value of purchased Business In force (369) (146) (266)
(d) Including unrealized gains and losses on assets held for sale.
Less unrealized gains and losses attributable to: Shadow accounting on policyholders’ participation (b) (3,670) (327) (294)
Shadow accounting on Value of purchased Business In force (37) - (16)
The change in reserves related to changes in fair value of available for sale fi nancial instruments included in shareholders’ equity relating to changes in fair value of assets in 2009, 2008, and 2007 broke down as follows: (in Euro millio n)
Unrealized gains and losses (net of tax) 100%, as at January 1 (443) 4,753 7,966
Investments bought in the current accounting period and changes in value 5,538 (7,026) (1,659)
UNREALIZED GAINS AND LOSSES (NET OF TAX) 100%, AS AT DECEMBER 31 4,687 (443) 4,753
The translation reserve for group share (€-30 million) mainly correspond to the United States (€-228 million), the Company
The total impact of employee benefi ts actuarial gains and losses was €-1,021 million (of which group share was €-1,032 million and non-controlling interest was €+11 million).
was mainly due to the United Kingdom (€-1,206 million) and the Company (€-1,213 million driven by change in fair value of currency hedges set up to hedge net investments in foreign operations), partially offset by Japan (€+890 million), Switzerland
Company (€-240 million). The reduction in gross unrealized gains of available for sale fi nancial assets t otaled €-10,048 million, mainly due to debt instruments (€-8,128 million) following a rise in interest rates during the year, and equity instruments (€1, 798 million).
The main contributors to the €612 million increase in actuarial gains and losses on employee benefi t obligations were the United
States (€+53 million) and France (€+51 million). Pension liabilities often have longer duration that the assets held. In the 2007 context of rising interest rates and stability of equity markets, pension liabilities declined more that the corresponding assets, leading to a positive impact on Group shareholders’ equity.
Under IFRS, non-controlling interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. Please refer to Note 17 – Debt (other than fi nancing debt). The same is true for puttable instruments held by non-controlling interest holders.
The € 635 million increase in non-controlling interests to €+3,693 million was mainly due to: ■ N et income attributable to non-controlling interests for €+428 million; ■ C hange in the scope of consolidation mainly due to a capital increase in AXA Asia Pacifi c Holding (€+290 million) and a dilution impact on a deferred compensation in AllianceBernstein
The €+331 million increase in non-controlling interests to €3,272 million was mainly due to: ■ P ositive net income for the period (€+725 million); ■ C hanges in the scope of consolidation (€+449 million), mainly due to the acquisition of 50% of MPS Vita and Danni
Reinsurers’ share in future policy benefi t reserves 5,182 - (17) 5,165
Reinsurers’ share in liabilities arising from insurance contracts 5,966 2,296 2,966 11,227
Of which measured at current assumptions (e) - - - -
Reinsurers’ share in future policy benefi t reserves 26 - - 26
NB: Liabilities relating to unearned revenues and fees (see Note 7.3), to policyholders participation (see Note 14.8), and derivative instruments (see Note 19.4) are excluded from the table above.
The following table shows a segmental breakdown of liabilities arising from investment contracts, including those where the fi nancial risk is borne by policyholders: (in Euro million)
Liabilities arising from investment contracts with discretionary participating features 39,650 39,650 38,081 38,081 40,121 40,121
Of which measured at current assumptions (c) - - - - - -
Liabilities arising from investment contracts where the fi nancial risk is borne by policyholders 52,516 52,516 46,520 46,520 69,587 69,587
Reinsurers’ share in future policy benefi t reserves 14 14 15 15 13 13
Reinsurers’ share in unearned premium reserves - - - - - -
Reinsurers’ share in liabilities arising from investment contracts with discretionary participating features 14 14 15 15 13 13
Reinsurers’ share in future policy benefi t reserves - - - - - -
NB: Liabilities relat ing to unearned revenues and fees (see Note 7.3), to policyholders’ participation (see Note 14.8), and derivative instruments (see Note 19.4), are excluded from the table above. Reinsurance’s share in investments contracts liabilities relating to policyholders’ participation (none in 2009, 2008, and 2007), as well as derivatives instruments (none in 2009, 2008, and 2007) are excluded from the table above.
At the end of 2009, investment liabilities relating to UK with-profi t investment contracts excluding the FFA (Fund for Future Appropriation)
amounted to €5,354 million versus €5,374 million at the end of 2008, and €8,515 million at the end of 2007.
Gross claim reserves as at January 1 (b) 34,701 9,614 44,315 34,813 9,860 44,673 35,039 10,534 45,573
Change in scope of consolidation and change in accounting method (74) (31) (105) 587 226 813 (919) (275) (1,195)
Claim reserves as at December 31 33,678 8,776 42,454 33,306 9,365 42,672 33,426 9,598 43,024
GROSS CLAIM RESERVES AS AT DECEMBER 31 (b) 34,916 9,017 43,933 34,701 9,614 44,315 34,813 9,860 44,673
(b) Excluding “other policy benefi ts liabilities” (mainly mathematical annuity reserves), which t otaled €3.3 billion in 2007, €4.1 billion in 2008 and €4.2 billion in 2009.
Reinsurers’ share in claim reserves as at January 1 1,988 3,436 5,424 1,964 3,861 5,825 1,964 4,348 6,312
Reinsurers’ share in claim payments (639) (763) (1,401) (618) (1,245) (1,863) (576) (1,151) (1,727)
Surrenders, maturities and other claims and benefi ts paid net of charges and penalties (-) (41,591) (11,170) (52,762) (40,910) (15,740) (56,650) (42,418) (14,200) (56,618)
Unit-l inked technical res erves value adjustment (+/-) 16,442 7,009 23,452 (32,396) (9,943) (42,338) 5,473 3,953 9,426
Change in reserves relating to technical and actuarial items (+/-) (d) 2,306 479 2,785 11,393 (322) 11,071 6,533 (55) 6,477
Change in scope of consolidation, portfolio transfers and change in accounting principles (1,738) (6,604) (8,342) (2,103) 1,767 (336) (8,734) 12,689 3,955
(c) Includes: future policy benefi ts reserves (including shadow accounting reserves), unearned premium reserves, unexpired risk reserves, claims reserves, claims expense reserves, other policy benefi ts reserves. Excludes: unearned revenues and unearned fees reserves, liabilities from policyholders’ participation.
(d) Notably includes interests credited and policyholders’ participation credited to reserves, fees on account balance and investment management fees and change in reserves relating to other technical and actuarial items.
In 2009, changes in the scope of consolidation t otaled €-8,342 million, of which €8,438 million due to the classifi cation of the Australian and New Zealand operations as held for sale.
In 2008, changes in the scope of consolidation t otaled €-336 million, mainly due to: ■ I n France, €-3,297 million corresponding to the change in consolidation method of Neufl ize Vie (previously NSM Vie)
In 2007, changes in the scope of consolidation t otaled €3,955 million, mainly due to: ■ T he entries in the scope of consolidation of AXA-MPS Vita
Opening reinsurers’ share in technical reserves (b) 5,723 20 5,744 4,630 22 4,653 4,840 20 4,861
Reinsurers’ share in surrenders, maturities and other claims and benefi ts paid net of charges and penalties (-) (921) (2) (923) (885) - (885) (863) (1) (864)
Reinsurers’ share in change in reserves relating to technical and actuarial items (+/-) (c) (248) 2 (246) 938 (3) 936 (11) 1 (10)
Change in scope of consolidation and change in accounting principles 330 - 330 (7) - (7) 45 - 45
(b) Includes: future policy benefi ts reserves (including shadow accounting reserves), unearned premium reserves, unexpired risk reserves, claims reserves, claims expense reserves, other policy benefi ts reserves. Excludes: unearned revenues and unearned fees reserves, liabilities from policyholders participation.
Investment contracts with Discretionary Participation Features (DPF) measured with current assumptions (c) - - -
(Unit-l inked) – Liabilities arising from contracts where fi nancial risk is borne by policyholders: Investment contract with Discretionary Participation Features (DPF) measured according to existing accounting policies (b) & (d) 5,767 7,840 10,414
Features in investment contracts with Discretionary Participation Features (DPF) measured with current assumptions (c) - - -
N.B.: This information is pre sented net of the impact of derivatives, which is described in Note 19.4.1.
(b) In accordance with IFRS 4 standards which allow, under certain conditions, to continue to use a previous system of reference to liabilities arising from contracts with discretionary participating features.
In Phase I, the IAS Board acknowledged the diffi culties involved in the recognition and the measurement of discretionary participating features. In addition, the IAS Board has numerous projects underway that could infl uence the defi nition of fair value of discretionary participating features. Discussions on these issues are highly complex, and are not yet suffi ciently advanced, particularly with regard to other projects also currently being discussed. Phase II discussions regarding insurance and investment contracts with a discretionary participating features, even if re-activated at the IASB level soon after the issuance of IFRS 4, are still insuffi ciently developed. Even though the
Phase II Discussion Paper was published in May 2007, there are too many remaining uncertainties and AXA cannot reliably disclose fair value or value ranges for investment contracts with a discretionary participating features.
The loss reserves development table shows movements in loss reserves between 1999 and 2009, based on previously applied accounting standards, in accordance with IFRS 4. All contracts concerned are insurance contracts as defi ned by IFRS.
The fi rst line entitled “Gross reserves for unpaid claims and claim expenses developed initially at the booking date” represents the loss reserves developed in the balance sheet on the reporting date for the year indicated in the column heading. For example, the amount of €31,168 million appearing in the fi rst line of the table in the 2005 column represents all loss reserves developed in all years of occurrence prior to and including 2005, recognized on the company’s balance sheet at December 31, 2005.
Group’s existing portfolios, it is not always technically possible to distinguish, within payments made in a given year in respect of prior occurrence years, between those relating to the historical portfolio and those relating to the recently-acquired portfolio.
In these cases, the merged scope is used to prepare the last diagonal of the table, even in the columns corresponding to years before the one in which the most recent portfolio was acquired.
With effect from the development of loss reserves at end of 2006, however, AXA uses the method which consists in completing each column of the table using the same scope as that used for
shows, for a given column N, the cumulative amount of payments related to years of occurrence prior to and including N, made since December 31 of year N.
shows, for a given column N, an estimate of the fi nal cost of liabilities carried at December 31 of year N in respect of all years of occurrence prior to and including N, at each future period end.
The surplus (shortfall) of the initial reserve with respect to the reestimated (gross) fi nal cost for each year represents, for a given year N, the difference between the amount shown in the second line (gross reserves for unpaid claims and claims expenses developed in 2009 adjusted for changes in exchange rates and scope of consolidation) and the amount shown in the fi nal diagonal under “Reserve re-estimated”.
Gross reserves for unpaid claims and claims expenses developed initially at the booking date (c) 26,656 26,916 28,636 28,465 27,825 29,128 31,168 41,301 44,020 44,046 44,470
(b) AXA acquired GRE in May 1999. GRE’s operations have been integrated within AXA. At the time of acquisition, GRE’s gross reserves t otaled €5.6 billion.
(d) In 2006, Winterthur’s operations were integrated within AXA. Total loss reserves developed amounted to €41.3 billion including €8.7 billion in respect of Winterthur (fi nal fi gure after PGAAP re-opening).
Gross reserves for unpaid claims and claims expenses developed initially at the booking date (a) 3,396 3,455 5,868 4,778 4,200 3,314 4,523
Re-estimated net claims reserves - - - - - - -
Property & Casualty and International Insurance (excluding Colisée RE (ex AXA RE)) (b) 44,470 44,046 44,020
■ of which future policy benefi ts annuity reserves 3,629 3,530 3,321
AXA continues to receive claims from policies written in prior years asserting damages from asbestos-related and environmentalrelated exposures. These asbestos claims relate primarily to bodily injuries suffered by those who came in contact with asbestos, while environmental claims relate primarily to pollution related clean-up costs.
There is considerable uncertainty as to the future cost of A&E
claims. The ultimate cost of claims is very much dependent on legal factors that are diffi cult to predict with any certainty. There have been in the past, and continue to be, frequent occurrences of inconsistent court decisions and judicial interpretations regarding the extent of liability and the level of damages awarded.
Managers focuses specifi cally on fi nal resolutions of exposures, either through commutations or other solutions.
The calculation of reserves for A&E risks raises specifi c diffi culties as conventional reserving techniques cannot be used for evaluating IBNR. As a result, AXA evaluates the future cost of those claims using a range of specifi c methods based either on exposure analysis, frequency/cost projections or reserving benchmarks. A&E reserves are reviewed on a yearly basis to ensure that they adequately refl ect the latest claims experience, as well as legal and economic developments. Consistent with
AXA has taken good note of the most recent developments in the
Data in € million, unless otherwise stated Gross Net Gross Net Gross Net
Claims reserves at beginning of year (a) 1,005 961 1,172 1,124 1,176 1,123
Impact of change in exchange rates 20 20 (109) (112) (86) (90)
Claims reserves at end of year 1,064 1,027 1,005 961 1,172 1,124 3 - Year survival ratio excluding commutations (c) 36 years 38 years 32 years 33 years 36 years 38 years
Cumulative Payments to date / Projected Ultimate Cost 36% 34% 36% 33% 31% 29%
(c) Reserves at the end of the year / Average yearly payments over the last 3 years (excluding in respect of commutations).
Claims reserves at beginning of year (a) 82 69 82 68 102 92
In 2009, AXA paid an amount of €44 million for claims and legal costs (including €35 million in respect of asbestos and €9 million in respect of environmental pollution). This was lower than last year (€56 million) as last year was impacted by large settlements in both asbestos and environmental liabilities.
This is primarily due to the implementation of the revised market model for estimating the future costs of our asbestos claims in the United Kingdom, in accordance with the Asbestos Working
Conversely, reserve adequacy ratios have slightly worsened this year for environmental liabilities due to a few exceptional claims settlements. The ultimate estimate for environmental pollution claims remains nevertheless stable.
In the tables presented in section 14.9.1 and 14.9.2, liabilities arising from Life & Savings and Property & Casualty insurance and investment contracts exclude contracts where the fi nancial risk is borne by policyholders. These liabilities are not exposed to interest-rate or duration risk, except unit-linked contracts with performance guarantees. Subsidiaries hold unit-linked assets backing the corresponding liabilities arising from these contracts.
Liabilities arising from insurance and investment contracts 24,708 72,466 425,131 522,305 25,772 77,813 406,587 510,172 of which Life & Savings liabilities relating to contracts including a surrender option with some surrender benefi t before maturity 13,398 53,104 308,279 374,781 13,032 56,341 310,085 379,458
As shown in the table below, as at December 31, 2009: 90%
of Life & Savings reserves (excluding unit-linked contracts) were discounted, of which 13% were subject to a revision of the discount rate and 77% retained the rate set at inception, subject to the liability adequacy test described in Note 1.
By convention, contracts with zero guaranteed rates are deemed not-discounted, except for products offering guaranteed rates updated annually and for one year: these contracts are presented in discounted reserves. Reserves for savings contracts with nonzero guaranteed rates are discounted at the technical interest rate. Contracts for which the assumptions are revised in the fi nancial statements at closing mainly consist of certain UK
In the Property & Casualty and International Insurance business, most reserves (92% at December 31, 2009) are not discounted, with the exception of disability annuities and worker’s compensation liabilities that are deemed structured settlements and where the discount rate is revised regularly. Such reserves are not sensitive to interest rate risks in fi nancial statements.
The rates presented in the table below are weighted average rates for all the portfolios under consideration. They should be analyzed with care. For contracts with guaranteed rates that are revised annually, rates are crystallized at the closing date. The risk factors associated with the contracts are set out in Note 4.
Life & Savings – unlocked discount rate 40,722 3.23% 37,968 3.34% 39,094 3.19%
Non Life – locked-in discount rate (c) 3,958 3.99% 4,407 4.18% 2,385 4.25%
Sub-total – Non Life and International Insurance 58,110 - 58,351 58,018
Amounts are presented excluding the impact of derivatives on insurance and investment contracts (presented in section 19.4) and excluding liabilities related to unearned revenues and fees, and to policyholders’ participations. Liabilities relating to contracts where the fi nancial risk is borne by policyholders are also excluded.
The tables in Note 20 set out the Group’s major insurance business areas, and refl ect the Group’s high level of diversifi cation.
Note 4. They are not embedded derivatives which AXA reports separately at fair value because: ■ M any of the features would be considered clearly and closely related to the host contract, and
This note describes the features that are embedded derivatives and meet the defi nition of an insurance contract on a standalone basis. The primary features can be divided into two main categories: Guaranteed Minimum Death Benefi ts (GMDBs) or
AXA also manages the risk through a combination of reinsurance programs and active fi nancial risk management programs including investment in exchange-traded futures contracts and other instruments.
Guaranteed annuity purchase rates provide contract-holders with a guarantee that at a future date the accumulated balance on their contract will be suffi cient to purchase a lifetime annuity at currently defi ned rates. The risk to AXA in these features is either that longevity will improve signifi cantly so that contract-holders electing to exercise this benefi t will live longer than assumed in the guaranteed purchase rates, or that investment returns during the payout period will be lower than assumed in the guaranteed purchase rates. Reserves are established for these features on the basis of actuarial assumptions related to projected benefi ts and related contract charges. The determination of this estimated liability is based on models which involved numerous estimates and subjective judgments, including those regarding expected rates of return and volatility, contract surrender rate, mortality, and benefi t election rates. There can be no assurance that ultimate experience will not differ from management’s estimates. In addition to providing for risk through establishing reserves, AXA also manages these risks through asset-liability management programs including interest rate fl oors to protect against a decline in interest rates.
At December 31, 2009, the “Other Provisions for risks and charges” were composed of the following elements: ■ P rovision for tax liability of €519 million notably driven by a reclassifi cation of current tax to provision for tax liability in the United States as the timing and amount related to these liabilities are uncertain; ■ O ther provisions for risks and charges for €395 million, including various amounts, in particular run offs management reserves, reinsurance agreements, or past ceded activities.
15.2. CHANGE IN PROVISIONS FOR RISKS AND CHARGES (EXCLUDING EMPLOYEE BENEFITS AND SHARE-BASED COMPENSATION)
Write back after fi nal cost review (15) (51) (1) - (29) (97)
Impact of change in scope of consolidation and changes in accounting method 13 40 1 - 402 456 342
Impact of foreign exchange fl uctuations 2 (5) (3) - (53) (58) (56)
Debt component of subordinated notes due 2014 (€) 1,835 1,773 1,714
U.S. registered redeemable subordinated debt, 8.60% 2030 (US$) 820 848 797
Euro Medium Term Notes, 6.0% due through 2013, and BMTN 894 912 955
Other fi nancing debts instruments issued under euro 100 million 143 143 36
December 31, 2008 and December 31, 2009, or by €4,351 million at constant exchange rates, to €10,210 million. The decrease at constant exchange rates was mainly due to AXA SA: i. a €4,635 million decrease from commercial paper repayment; ii. a repayment of a €1,000 million credit line (“club deal”
Financing debt instruments issued at cost 2,999 3,213 6,666 6,643 4,698 4,722
Derivatives on fi nancing debt instruments issued (a) (62) (62) (103) (103) (163) (163)
Data used when calculating the fair value of fi nancing debt
The fair value of subordinated convertible bonds is equal to the quoted price for these instruments at the end of the period.
Therefore, reported fair value includes the value of the conversion option, which is included as a component of equity.
The fair value of fi nancing debt at December 31, 2009, excluding accrued interests, was €10,870 million, including related hedging derivative instruments. The fair value was €660 million above the carrying value mainly due to the decrease of AXA’s own credit spread.
Movements in the “Non-controlling in terests in controlled investment funds and other puttable instruments held by non-controlling interest holders” caption depend on: ■ C hanges in non-controlling interests in controlled investment funds and changes in their fair value. An identical change in invested assets held by these funds is also recorded; ■ B uyouts of non-controlling interests for which the Group holds an unconditional commitment and changes in value of related puttable instruments. Entries balancing these movements are recorded in goodwill.
Non-controlling interests in funds under this caption, t otaled €6,370 million at December 31, 2009 (€4,847 million at
“Debts relating to investments under lending agreements and equivalent” totaled €18,436 million at December 31, 2009, a decrease of €7,086 million mainly due to less short-term repurchase agreement transactions.
Non-controlling interests of controlled investment funds and other puttable instruments held by non-controlling interest holders 6,516 5,108 7,751
Payables arising from direct insurance and inward reinsurance operations 6,761 7,167 7,033
(a) Assets and liabilities of the Australian an d New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
(b) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group adjusted certain items impacting the allocation of Seguros ING (Mexico) purchase price.
Derivatives on other debt instruments issued (other than fi nancing debt) – CDO (Collateralized Debt Obligations) 35 - -
Derivatives on other debt instruments issued (other than fi nancing debt) – Other - 6 -
OTHER DEBT INSTRUMENTS ISSUED (OTHER THAN FINANCING DEBT) 951 966 1,560
Derivatives on other issued debt (excluding fi nancing debts) – Other fi nancial services in Belgium 28 26 -
APIV+EHV: mortgage loan based on Euribor 3M + 120bps, due 2015 94 44 -
Derivatives on other issued debt (other than fi nancing debt) – Other - - 2
OTHER DEBT INSTRUMENTS ISSUED, NOTES (OTHER THAN FINANCING DEBT) AND BANK OVERDRAFTS 5,217 6,676 6,260
The fair value of other debt instruments issued and bank overdrafts
(other than fi nancing debt) was €5,266 million at December 31, 2009. Among the elements included in the preceding table, fair value is only calculated for other debt instruments issued. Other items mainly comprise repository agreements balances or shortterm interbank liabilities carried by Group banks. By nature, their fair value is very similar to their nominal value.
17.3.1. Other debt instruments issued and bank overdrafts (other than fi nancing debt) by accounting method
Other debt instruments issued designated as at fair value through profi t or loss 490 403 895
Other debt owed to credit institutions held at cost 2,882 4,268 3,205
Other debt instruments issued designated as at fair value through profi t or loss - 490 490 - 403 403 202 693 895
Other debt instruments issued (other than fi nancing debt) (a) - 490 490 - 403 403 202 693 895
Other debt owed to credit institutions designated as at fair value through profi t or loss - - - - - - - - -
The fair value option is used to measur e debt other than fi nancing debt designated as at fair value through profi t or loss included in the table above. The increase in debt measured at fair value through profi t or loss is mainly due to the CDO’s market value increase.
(b) Includes a quota share reinsurance treaty between Colisée RE (ex AXA RE) and Paris Ré (€2,036 million in 2009, €2,518 million in 2008 and €2,431 million in 2007) as part of the Group’s sale of AXA RE’s business in 2006.
At December 31, 2009, payables arising f rom direct insurance and inward reinsurance operations t otaled €6,761 million, a decrease of €406 million compared to December 31, 2008.
A deferred tax expense of €1,096 million in 2009 ( €-2,646 million in 2008 and €-344 million in 2007), corresponding to tax due on foreign income is disclosed in the table above, including €+346 million related to policyholders’ tax ( €-1,249 million in 2008 and €-189 million in 2007).
Income from operating activities, gross of tax expenses (excluding discontinued activities and result from investments consolidated using equity method) 5,555 385 7,681
Impact of differences in tax rate and impact of taxes not linked to pre-tax income (b) 289 (932) (45)
Tax losses of prior years used in the current year without DTA recognized previously (15) (22) (45)
Deferred tax assets recognized on tax losses of prior years (95) (95) (9)
Deferred tax assets not recognized on tax losses of the year 4 74 13
Derecognition of deferred tax assets on tax losses of prior years (a) 1 1 1
Permanent differences on fi nancial incomes and expenses (65) 166 (555)
The -215.57% effective tax rate as at December 31, 2008 was mainly due to the signifi cant effect of the policyholders’ tax (€843 million in 2008 versus €284 million in 2009 and €82 million in 2007), mainly in the United Kingdom.
The impact of rate differences on notional tax charge represents the difference between the expected tax calculated at each entity level with the applicable standard rate and the tax calculated using the 34.43% AXA SA holding rate. As at December 31, 2009, the blended standard rate was 30% versus 34% in 2008 and 33% in 2007.
The tax loss impact as at December 31, 2009 mainly included the recognition of deferred tax assets in the context of the early adoption of Revised IFRS 3 – Business Combinations
Permanent differences on fi nancial income and expenses mainly represented the impact in some countries of non-deductible fi nancial impairments and realized capital losses on equity instruments , or non taxable dividends and realized capital gains on equity instruments .
The income from operating activities gross of tax break down as follows: (in Euro million)
(b) Income including Ireland. Standard tax rate applicable for the UK only.
■ Deferred tax through reserves relating to the fair value adjustment of available for sale assets 2,143 3,542 (1,399) 99 (701)
■ Deferred tax through reserves relating to the revaluation of tangible assets - 1 (1) (1) (1)
■ Deferred tax through reserves relating to stock options 11 1 10 16 97
Policyholder tax – Net deferred tax assets/ (liabilities) 246 524 (279) 50 (982)
(a) Assets and liabilities of the Australian and New Zeala nd operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
and deferred tax liabilities (DTL) carried on the Group’s consolidated statement of fi nancial position . Note that the breakdown of DTA/
The change from a net asset position in 2008 to a net liability position in 2009 was mainly due to the recovery of the market value of investments.
Net deferred tax assets/(liabilities) excluding policyholders’ tax 1,737 (915) (1,096) 132 (806) (947)
Deferred tax through profi t or loss (725) 1,950 - (54) 198 1,369
Deferred tax through reserves relating to the fair value adjustment of cash fl ow hedge derivatives (3) - (41) - - (44)
Deferred tax through reserves relating to gains and losses on defi ned benefi ts pension plans (67) - 361 8 (4) 298
Deferred tax through reserves relating to stock options 97 - (70) 1 (12) 16
Net deferred tax assets/(liabilities) excluding policyholder tax (1,401) 1,950 1,090 (87) 185 1,737
Policyholder tax – Deferred tax through reserves relating to the fair value adjustment of available for sale assets 2 - 2 (1) - 3
Policyholder tax – Net deferred tax assets/ (liabilities) (982) 962 2 69 - 50
Deferred tax through profi t or loss (897) 363 - 53 (244) (725)
Deferred tax through reserves relating to the fair value adjustment of available for sale assets (1,833) - 1,048 31 53 (701)
Deferred tax through reserves relating to gains and losses on defi ned benefi ts pension plans 224 - (283) (1) (7) (67)
Deferred tax through reserves relating to stock options 142 - 1 (13) (34) 97
Net deferred tax assets/(liabilities) excluding policyholder tax (2,395) 363 792 70 (232) (1,401)
TOTAL NET DEFERRED TAX ASSETS/ (LIABILITIES) (3,663) 547 795 164 (226) (2,383)
The tables below break down: (i) in the fi rst part the maturity by which the Group expects to use the Deferred Tax Assets (DTA) accounted at year end; (ii) in the second part, the “expiration date” of the DTA, i.e. the latest date at which the Group could use them.
DTA recognized on tax loss carryforward 13 12 17 14 42 8 152 221 1,017 1,496
(a) Assets and liabilities of the Australian and New Zealan d operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
DTA recognized on tax loss carryforward 38 23 37 14 56 5 81 95 615 963
DTA recognized on tax loss carryforward 5 39 12 20 9 8 5 4 369 470
Unrecognized DTA on tax losses carryforward 14 15 4 4 2 5 3 89 152 288
The table above includes current liabilities net of current receivables towards the tax administrations. It also includes some receivables and liabilities with non-consolidated entities members of a tax group which are classifi ed in “other receivables” and “other payables” on the face of the statement of fi nancial position.
Maturity of notional amount as at December 31, 2009 (a) & (b) Notional amount
(in Euro million) < 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years > 5 years
Positive fair value Negative fair value Net fair value Change in fair value
NB: This table includes all derivatives (assets and liabilities), i.e. hedging, macrohedging and other, in an asset or a liability position.
are described briefl y below, along with details of any items that qualify for hedge accounting in the meaning of IAS 39.
AXA’s local operations. Such economic hedging strategies include (i) managing interest-rate exposures on fi xed maturity investments, long-term debt and guaranteed interest rates on insurance contracts, (ii) managing foreign-currency exposures on foreign-currency denominated investments and liabilities, and (iii) managing liquidity positions (including the ability to pay benefi ts and claims when due) in connection with asset-liability management and local regulatory requirements for insurance and
While notional amount is the most commonly used measure of volume in the derivatives market, it is not used as a measure of risk because the notional amount greatly exceeds the possible credit and market loss that could arise from such transactions. The AXA
of all swaps used by AXA (versus 67% at the end of 2008 and 61% at the end of 2007). They are used mainly by: (i) the Company to limit the variability of its future net interest expenses resulting from its interest-rate exposure on debt issued or amounts borrowed (notional value of €47,212 million compared to €60,338 million and €46,481 million respectively at the end of 2008 and 2007); (ii) AXA Germany Life & Savings (notional amount of €13,143 million versus €8,136 million and €884 million at the end of 2008 and 2007 respectively) due to the active fi nancial risk management program associated with the guaranteed minimum benefi ts on variable annuity products; (iii) AXA Japan (notional amount of €10,472 million versus €4,751 million and €3,226 million respectively at the end of 2008 and 2007) to manage interest rates on its fi xed income assets and to hedge guaranteed minimum benefi ts features included in Variable Annuity products. The increase in notional value in 2009 was mainly driven by new investments in US corporate debt instruments , as well as the new sales of Variable Annuity products; (iv) AXA Bank Europe to hedge interest-rate risk exposures arising in the context of its ordinary banking activities, in order to achieve an appropriate interest-rate spread between its interest-earning assets and interest-bearing liabilities
(notional value of €6,499 million versus €8,470 million and €10,799 million respectively at the end of 2008 and 2007); (v) AXA France Life & Savings (notional amount of €4,794 million versus €4,715 million and €2,552 million at the end of 2008 and 2007) to adjust the duration of the fi xed income portfolio.
Currency swaps constitute another part of AXA’s hedging strategies to manage foreign currency cash fl ow exposures, and are primarily used by the Company (€31,910 million at end 2009 versus €36,615 million and €28,698 million respectively at the end of 2008 and 2007), AXA Japan mainly to hedge the foreign currency exposure related to internal debts and loans (€1,263 million versus €1,475 million and €1,259 million respectively at the end of 2008 and 2007) and AXA Bank
Variable Annuity guarantees’ exposures, as part of the active fi nancial risk management program.
At December 31, 2009, 81% of the t otal notional amount of swaps was not subject to hedge accounting under IAS 39 (81%
at the end of 2008 and 2007), and included €63,774 million for the
Company (€75,573 million at the end of 2008 and €61,291 million at the end of 2007), €8,061 million for AXA Bank Europe (versus €10,352 million at the end of 2008 and €13,901 million at the end of 2007), and €12,878 million for AXA Germany Life & Savings
(versus €7,871 million and €618 million respectively at the end of
The notional amounts of swaps used in cash fl ow hedge relationships t otaled €1,473 million (€1,447 million at the end of 2008 and €1,578 million at the end of 2007), including €601 million in Germany Life & Savings in CDO investments and €501 million of interest-rate swaps in Belgium Life & Savings.
The option portfolio consists mainly of caps and fl oors. Interest rate caps and floors are options agreements where the seller agrees to pay the counterparty an amount equal to the difference, based on a notional amount, between the interest rate of the specifi ed index and the interest rate cap or fl oor. These products are used to hedge against interest rate increases (caps) or decreases (fl oor). Caps and fl oors are used predominantly by Life
respectively at the end of 2008 and 2007).The net fair value of caps and fl oors was €190 million (€500 million at the end of 2008 and €11 million at the end of 2007).
December 31, 2009) of the t otal notional amount of options as at December 31, 2009, mainly (i) in Germany Life & Savings
(€6,690 million in 2009 versus €2,000 million at the end of 2008)
to hedge interest rate risk on the fi xed income portfolio and
Other options represented 29% (€24,464 million at December 31, 2009) of the t otal notional amount of options as at December 31, 2009 and notably included: (i) options on various currencies principally in the Company to manage foreign currency cash fl ow exposures; (ii) equity protection programs, notably: • in the US Life & Savings where €5,338 million protections were taken on the S&P 500 index consisting in put spread collar strategies. These positions were implemented to mitigate the impact of a decline in equity markets on AXA
• in the Company to reduce equity exposure; (iii) call options in the Company to neutralize the dilutive impact of the 2017 convertible bonds (see Note 26).
Savings futures are also used to hedge Variable Annuities for a t otal notional amount of €10,399 million (versus €24,780 million in 2008 and €4,204 million in 2007) consisting in (i) equity and currency futures (notional amount of €5,665 million versus €10,085 million in 2008) and (ii) treasury futures (notional amount of €4,735 million versus €14,695 million in 2008). The decrease in treasury futures is primarily explained by new hedging strategies using t otal return swap and reverse repo.
The AXA Group, as part of its investment and credit risk management activities, may use strategies that involve credit derivatives (Credit Default Swaps or CDS), which are mainly used as an alternative to corporate debt instruments portfolios, when coupled with government debt, instruments, but also as a protection on single corporate names or specifi c portfolios.
At December 31, 2009, the notional amount of credit derivatives carried by the Group was €32,341 million (including €7,430 million held through CDOs), of which: ■ €1,269 million relating to exposures held within investment funds of the “satellite investment portfolio” (see Note 1.7.2)
not detailed in this note. Such credit default swaps were used mainly in AXA France (€866 million) and AXA Belgium
Non controlled investment funds designated as at fair value through profi t or loss 2,088 - 9 2,096
Assets backing contracts where fi nancial the risk is borne by policyholders 155,421 - 36 155,457
Investment in real estate properties at amortized cost 12,793 - 66 12,859
Non controlled investment funds held for trading 147 - - 147
Loans designated as at fair value through profi t or loss 45 - - 45
Investment in real estate properties designated as at fair value through profi t or loss 4,137 - - 4,137
Non controlled investment funds available for sale 3,446 3 - 3,449
Non controlled investment funds designated as at fair value through profi t or loss 2,260 - 38 2,298
Non controlled investment funds held for trading 135 - - 135
Assets backing contracts where the fi nancial risk is borne by policyholders 182,726 - 101 182,827
Derivative instruments hedging net investment in a foreign operation (assets) (g) - - - -
Liabilities arising from investment contracts where the fi nancial risk is borne by policyholders 52,516 - (1) 52,515
Payables arising from direct insurance and inward reinsurance operations 6,761 - - 6,761
Derivative instruments hedging net investment in a foreign operation (liabilities) (e) - - - -
(d) Other debts are presented excluding the effect of derivatives on the face of the consolidated statement of fi nancial position .
Total net value of derivative instruments – assets (3 ) - 1,371
Other derivatives on insurance & investment contracts (b) (18) (301) (319)
Total derivative instruments relating to insurance and investment contracts (20) (301) (321)
Derivative instruments relating to fi nancing debt, operating debt and other fi nancial liabilities 11 171 182
Among amounts presented in column (2), fair values determined in whole or in part using a valuation technique based on assumptions that are not supported by a majority of prices from observable current market transactions in the same instrument or a majority of available observable market data represented as at
December 31, 2009 net fair values of €-290 millions of derivatives held by the Group (including an estimation of the extent to which external quotes on inactive markets are based on observable data), in comparison with net fair values of €367 millions as at
December 31, 2008. There was no transfer in or out of the level 3 category and all changes relate to changes in fair value through income or expirations.
of which direct premiums 53,338 53,731 55,330 of which reinsurance assumed 2,562 2,340 2,442 of which fees and charges on investment contracts with no participation features 547 662 740 of which revenues from other activities 1,174 1,244 1,332
Mediterranean and Latin American Region 6,473 4,813 1,918 of which direct premiums 25,874 25,807 24,727 of which reinsurance assumed 223 130 210 of which revenues from other activities 77 102 79
Given the Group’s scale and diversity, none of its clie nts accounts for more than 10% of its business.
Fees and charges relating to investment contracts with no participating features (c) 547 - 47,666
Contracts with fi nancial risk borne by policyholders (unit-linked) 13,167 103,281 56,493
Fees, commissions and other revenues 77 102 79 - - -
Change in fair value of investments designated at fair value through profi t or loss (19) 119 (7)
Equity instruments designated as at fair value through profi t or loss (b) 281 (1,375) 1,609 - 514
Loans designated as at fair value through profi t or loss 2 - (129) - (126)
Investment in real estate properties designated as at fair value through profi t or loss 211 46 (685) - (428)
Equity instruments designated as at fair value through profi t or loss (b) 657 (581) (4,365) - (4,289)
Non controlled investment funds held for trading - (8) 1 - (7)
Loans designated as at fair value through profi t or loss 2 - 555 - 557
(c) Net investment result included an impact of €-2.7 billion related to Asset Backed Securities, of which €-0.8 billion was due to impairment charges, and €-1.9 billion was related to change in fair value of investments designated as at fair value through profi t or loss. Also, note that the change in fair value of ABS had a gross impact of €-0.7 billion on shareholders’ equity.
(d) The column “change in fair value of investments designated as at fair value through profi t or loss” includes €-106 million loss recognized for AXA Japan. As a reminder, AXA Japan closes its books at September 30. According to IFRS principles whereby the fi nancial statements of the subsidiary shall be adjusted to refl ect the effects of signifi cant events that would have been recognized with a closing date aligned on the AXA Group, AXA Japan’s 2008 accounts were adjusted with the provisional loss from October to December 2008. This adjustment refl ects mainly the further increase of the credit spreads during this period. This adjustment was reversed in 2009. No adjustment was booked at the end of September 2009.
Change in fair value of investments designated as at fair value through profi t or loss
Debt instruments designated as at fair value through profi t or loss (a) 2,256 106 (1,481) - 881
Equity instruments designated as at fair value through profi t or loss (b) 785 2,585 (1,632) - 1,738
Other assets held by controlled investment funds designated as at fair value through profi t or loss 206 20 66 - 292
Loans designated as at fair value through profi t or loss - - 51 - 51
Realized investment gains and losses include write back of impairment following investment sales.
The change in fair value of investments designated as at fair value through profit or loss consists mainly of: ■ A djustments relating to investments backing contracts where the fi nancial risk is borne by policyholders which are offset by an adjustment of related policyholders reserves, as there is a full pass through of the performance of held assets to the individual contract holder; ■ C hanges in the fair value of investments designated as at fair value through profi t or loss held by funds of the “Satellite
Investment Portfolios” as defi ned in Note 1.7.2; ■ C hanges in fair value of underlying hedged items in fair value hedges (as designed by IAS 39) or “natural hedges” (i.e.
Net result of reinsurance ceded was as follows: (in Euro million) Life & Savings Property &
Premiums ceded and unearned premium ceded (1,251) (1,500) (954) 322 (3,382)
In 2009, the €822 million decrease of the net result of reinsurance ceded compared to 2008 was mainly attributable to the Life &
Financing debt expenses amounted to €685 million in 2008, and included income and expenses relating to hedging derivative instruments on fi nancing debt, mainly at AXA SA (€160 million).
Change in deferred acquisition costs and equivalents (b) (928) 46 (2) (884)
Increase/(write back) of provisions for risk and charges (58) 28 6 (24)
(a) Includes all acquisition expenses relating to insurance and investment contracts before capitalization/amortization of deferred acquisition costs and equivalents.
(a) Including redundancies and early retirement costs (triggering event = set up of the plan), and employees’ profi t sharing in France.
For any given plan, the discount rate is determined at the statement of fi nancial position date by reference to market yields for the corresponding currency on high quality corporate bonds based on the plan’s duration.
The annual change in the Defi ned Benefi t Obligation (DBO) is calculated on the basis of: ■ S ervice cost for the period (representing the increase in the
The statement of fi nancial position information for employee benefi ts captures the difference between the DBO, the fair value of the corresponding invested plan assets, and any unrecognized past service cost. When this difference is positive, a contingency and loss reserve is recognized in the statement of fi nancial position as a liability. When it is negative, a prepaid asset is recognized in the statement of fi nancial position.
Unrecognized past service cost represents non-vested benefi ts on the date of a change in the amount of benefi ts following an amendment to the plan. It is amortized on a straight-line basis over the average vesting period.
The table below presents the change in benefi t obligation and the change in plan assets associated with pension plans and other benefi t plans sponsored by AXA, together with an analysis of separate assets as at December 31, 2009.
As at January 1, 2009, in Switzerland, a part of AXA Winterthur general account assets was reclassifi ed as plan assets and the plan for the active employees is now an autonomous foundation with its own assets.
Impact of foreign currency fl uctuations 241 (493) (737) (268) 513 (9) 19 (54) (66) 113
Fair value of plan assets at the beginning of year 4,662 7,057 8,216 4,693 3,869 3 3 9 14 9
Benefi ts paid by plan assets (407) (370) (383) (246) (234) - - - (4) (6)
Impact of foreign currency fl uctuations 230 (735) (546) 28 135 - - - - -
Fair value of separate assets at the beginning of year 789 739 2,480 2,697 2,265 - - - - -
Net transfer In/(Out) (including acquisitions and disposals) (a) (b) 58 48 (1,724) (85) (82) - - - - -
Impact of foreign currency fl uctuations - (5) (69) (227) 274 - - - - -
Underfunded status (plan by plan) (7,500) (7,087) (6,098) (6,530) (6,729) (530) (507) (502) (595) (703)
Net economic funding position (including separate assets) (6,530) (6,206) (5,079) (3,950) (3,957) (529) (506) (501) (595) (703)
“Other benefi ts” includes (i) postretirement benefi ts other than pensions, principally health care benefi ts, and (ii) post employment benefi ts after employment but before retirement.
For pension plans where the benefi t obligation exceeds the fair value of plan assets, the aggregate benefi t obligation and fair value of plan assets were €13,603 million and €6,104 million, respectively, as at December 31, 2009.
Impact of foreign currency fl uctuations (11) (247) 123 83 (81) 9 (20) 54 66 (64)
Expected return on plan assets (362) (470) (489) (314) (269) - - - - -
Expected return on separate assets (34) (35) (33) (172) (189) - - - - -
PENSION AND OTHER BENEFITS EXPENSE 404 306 371 225 257 37 37 40 23 66
During 2009, the deterioration of the net economic funding position was mainly due to actuarial losses on liabilities driven by lower discount rates. The lower discount rate was mostly due to lower credit spreads.
The table shows the change in the SoCI component, before deduction of deferred tax and policyholder benefi ts, between January 1, 2005 and December 31, 2009 due to adjustments arising on plan liabilities and adjustments arising on plan assets and separate assets.
Pension and other benefi ts expense (404) (306) (371) (225) (257) (37) (37) (40) (23) (66)
Benefi ts paid through separate assets 66 64 60 168 168 - - - - -
Actuarial gains and losses recognized in the SoCI component (1,493) (1,229) 1,022 392 (667) (36) 19 54 24 (28)
Statement of fi nancial position liability at the end of the year (7,423) (6,995) (5,818) (6,430) (6,654) (529) (506) (501) (595) (703)
NET ECONOMIC FUNDING POSITION AT THE END OF THE YEAR (6,530) (6,206) (5,079) (3,950) (3,957) (529) (506) (501) (595) (703)
(c) This amount includes the effect of the reclassifi cation of assets in the United States as plan assets rather than separate assets in 2007.
Experience and assumptions adjustments on plan liabilities (1,634) 799 1,055 226 (1,053) (35) 20 57 28 (30)
equity after deduction of deferred tax and policyholder benefi ts was €-1,030 million (€-695 million in 2008, €612 million in 2007, €252 million in 2006 and €-415 million in 2005). The main driver of the change in 2008 was the negative actual return on plan assets and separate assets. As at December 31, 2009, the cumulative impact amounted to €-1,625 million (€-595 million at the end of 2008).
25.2.9. Near-term cash fl ows (benefi ts paid and employer contributions)
From year N+11 until the last benefi t payments is paid 28,910 726
These amounts are subject to uncertainty as they will be driven by economics of future years.
The table below shows the asset mix for plan assets at the end of 2009: Asset mix for plan assets Total
All fi gures 100%, gross of tax (in Euro million) 2009 2008 (a) 2007
Information on options granted after November 7, 2002 is shown in the table below: POST NOVEMBER 7, 2002 AXA SA STOCK OPTION PLANS
The option pricing assumptions and fair value for plans issued in 2009, 2008, 2007, 2006 and 2005 are as follows: Assumptions (b)
Weighted average fair value per option at grant date in Euro (a) 1.91 3.23 6.80 6.48 4.15
Black & Scholes option pricing model. The effect of expected early exercise is taken into account through the use of an expected life assumption based on historical data. AXA ADR
From 2005 on, there are no more AXA ADR grants to employees or associates, only punctual advance for immaterial options have occurred (28,827 AXA ADR options granted in 2009, 10,650 granted in 2008, 8,440 granted in 2007).
The leveraged plan allows employees to purchase, on the basis of 10 times their personal investment, to AXA shares (either through mutual funds (FCPE) or through direct share ownership) with a discount. The leverage on the employees’ personal investment is in the form of a loan (non-recourse) from a third party bank. The shares are restricted from sale during a period of 5 years (except specifi c early exit cases allowed by applicable laws). Employees who participate in the leverage plan benefi t from a guarantee on their personal investment and also receive a defi ned percentage of any upside appreciation (above the non-discounted reference price) on the full leveraged amount invested. The leveraged plan is not accessible to Management Board and Executive
The cost of this plan is valued taking into account the fi ve-year lock-up period, as recommended by the CNC (Conseil National de la Comptabilité). The CNC approach values the restricted shares through a replication strategy whereby the employee would sell the restricted shares forward at the end of the lock-up period, borrow enough money to buy unrestricted shares immediately, and uses the proceeds of the forward sale together with dividends paid during the lock-up period to fi nance the loan. For the leveraged plan, the cost also includes the opportunity gain implicitly provided by AXA by enabling its employees to benefi t from an institutional price for derivatives as opposed to a retail price.
On October 29, 2009, the AXA Group made an employee share offering at €14.92 per share for the traditional plan and for the leverage plan (discount of 20%(a) to the reference price of €18.65 representing the average over the twenty trading days preceding the date of announcement) Subscriptions amounted to 26.4 million shares, increasing the share capital by €393.7 million.
for the traditional plan and 17.30% for the leveraged plan (due to different discounts). In addition to the lock-up cost, the opportunity gain offered to the employees under the leveraged plan was measured at 2.07%.
The table below shows the main features of the plan, the amounts subscribed, valuation assumptions, and the cost of the plan for 2009,
Total number of shares subscribed (in million shares) 1.8 24.6 1.7 23.0 3.2 18.9
[B ] Cost of the lock-up for the employee 17.31% 17.30% 18.48% 13.61% 13.45% 13.15%
On July 1, 2007, AXA granted 50 free shares per employee to all employees of the Group. In total, 2.3 million shares were granted to 46,899 employees in 24 countries on the 2+2 plan (i.e.
two-year vesting period with a subsequent two-year restriction period), and 3.2 million shares were granted to 64,839 employees in 30 countries on the 4+0 plan (i.e. four-year vesting period with no subsequent restriction period).
The free shares are valued using the CNC approach described in the AXA Group Shareplan section using assumptions adapted to the structure of the plan (2+2 or 4+0 plan), based on a market price of €32 per share on July 1, 2007 and an estimated 5% prevesting lapse rate.
During the vesting period, the Performance Units initially granted are subject to non-market performance criteria. If the number of
For the cash-settled instruments, the expected payment at the maturity date of the instrument is revised at each closing dates and amortized over the vesting period (prorata temporis)
In 2009, the fair value at grant date of Performance Shares and Performance Units (equity-settled portion) was €5.14 for instruments granted in March and was €9.23 for instruments granted in June.
subsidiaries are described below: AXA ASIA PACIFIC HOLDING STOCK OPTION PLAN
The total cost of AXA Financial share-based compensation plans in 2009 included €0.2 million in respect of AXA Financial Stock
and €0.6 million in respect of AXA ADR Restricted Shares and
AllianceBernstein Units, which are valued and booked according to IFRS principles.
At the end 9,843,405 Restricted Units have been granted to acquire AllianceBernstein Units in 2009.
Moreover, options to acquire AllianceBernstein Units were granted as follows: 6,565,302 options in 2009; 13,825 options in 2008; 3,708,939 options in 2007.
Management Board in respect of 2009 totaled €14.8 million, including fi xed salary, bonuses, directors’ fees and benefi ts in kind; ■ S hare-based compensation: the expense recognized in 2009 in respect of share-based compensation granted to
Management Board in respect of 2008 totaled €9.5 million, including fi xed salary, bonuses, directors’ fees and benefi ts in kind; ■ S hare-based compensation: the expense recognized in 2008 in respect of share-based compensation granted to
Amounts provisioned or recognized by AXA SA and its subsidiaries for the payment of pensions or retirement benefi ts to its corporate offi cers (members of the Management Board, Chairman of the
At December 31, 2009, the Group employed 103,432 salaried people on a full-time equivalent basis (109,304 at the end of 2008 and 103,534 at the end of 2007).
The decrease in 2009 compared to 2008 by 5,872 salaried employees was mainly due to: ■ S taff reductions as part of cost saving programs and restructuration plans in: the United States, the United Kingdom,
Australia/New Zealand, Japan, Mexico and Alliance Bernstein; ■ D econsolidation of Property & Casualty brokers (-1,688 salaried employees), outsourcing of some Life & Savings business administration (-1,004 salaried employees) in the United Kingdom and some related activities outsourced to Capita India (-524 salaried employees) from AXA Business Services.
As a result of these factors, along with the dilutive effect of convertible bond plans, the fully diluted number of shares at
Increase in capital (excluding stock option exercised) (a) 17 2 2
■ Subordinated convertible Notes – February 8, 1999 due 2014 - - -
Fully diluted – weighted average number of shares D 2,133 2,091 2,109
Assurances Vie Mutuelle) are two mutual insurance companies engaged in the Property & Casualty insurance business and L ife
& S avings insurance business in France. At December 31, 2009, the Mutuelles AXA collectively owned 14.12% of the Company’s outstanding ordinary shares representing 22.20% of the voting rights.
The Mutuelles AXA and the Company’s major French insurance subsisiaries, AXA France IARD and AXA France Vie, have combined the means required to operate their insurance portfolios. A management agreement gives security as to legal independence and protection of their own clients’ portfolios. The
of businesses and the Mutuelles AXA 11%. Technical results are shared between these companies in proportion to their written premiums. Aggregate written premiums recorded in this coinsurance agreement amounted to €1.613 million in 2009 (of which €1.434 million was attributed to AXA France IARD).
French law, created to perform various common services for their members and to allocate associated costs and expenses among their members. The allocation of costs and expenses invoiced to
AXA has given numerous commitments and guarantees, including fi nancing commitments, guarantees given to fi nancial institutions and customers, pledged assets, collateralized commitments and letters of credit. For a detailed description of these commitments and guarantees, see Note 28 “Contingent assets and liabilities and unrecognized contractual commitments”.
(e.g. to facilitate acquisitions, integration of acquired businesses, distribution arrangements, internal restructurings, sales or other disposals of assets or businesses or similar transactions), to support their credit ratings, and/or to promote effi cient use of the Group’s capital resources. In this context, the Company may guarantee repayment of loans or other obligations between its subsidiaries, guarantee obligations of its subsidiaries to third parties, or provide other types of guarantees for the benefi t of its subsidiaries. The benefi ciaries of these guarantees are generally required to compensate the Company at a negotiated rate based on prevailing market rates and conditions for guarantees of a similar nature. In addition, from time to time, the Company may provide comfort letters or similar letters to rating agencies and/or regulators for the benefi t of its subsidiaries and affi liates for various business purposes, including facilitating specifi c transactions, achieving target ratings levels and, more generally, helping to develop the business of these subsidiaries.
To the best of the Company’s knowledge, based on information reported to it: ■ A t December 31, 2009, there were no loans outstanding from the Group to any member of AXA’s Management Board or Supervisory Board other than one loan to a member of
AXA’s Management Board (loan originated in 2002 in the original principal amount of €200,000 bearing interest at a rate of 4.58% annually and with a 10-year term). This loan was made in the ordinary course of business by one of the Group’s banking subsidiaries at prevailing market terms and conditions at the time of origination; ■ D uring 2009 the son of a member of the Supervisory Board was employed by a subsidiary of the Company on arms-length basis and remains an employee of that subsidiary as of the date of this Annual Report; ■ V arious members of the Company’s Supervisory Board and
I Note 28 Contingent assets and liabilities and unrecognized contractual commitments
Consistent with principles set forth in Note 1.3.1 “Scope and basis of consolidation” to the fi nancial statements, (i) AXA’s investments in or other arrangements with non-consolidated special purpose entities (SPEs) do not allow AXA to exercise control over such SPEs; and (ii) SPEs controlled by AXA are consolidated as disclosed in Note 2.2 to the fi nancial statements.
(a) 2007 fi gures were revised to include commitments received by AXA Bank Hungary related to the National Bank of Hungary bond and collaterals on properties (€1,990 million) and the US Life & Savings related to reinsurers (€1,519 million).
(b) 2007 fi gure was revised to include letters of credit received by the US Life & Savings related to reinsurers (€172 million).
(€524 million) from various banks and other lenders; ■ C ommitment lines granted to Japan Life & Savings as part of its operations (€411 million).
The €2,032 million increase in fi nancing commitments received was mainly due to the Company and its affi liates (€+2,208 million), and partly offset by €-196 million and €-69 million decrease in
(a) Regarding guarantee given by AXA SA to bank deposits for AXA Bank Europe in 200 8, €1,113 million was reclassifi ed from “guarantee commitments” to “other commitments”.
Financing commitments increased by €447 million, including €+359 million in AXA Bank Europe and €+230 million in German
Guarantee commitments given totaled €3,795 million at the end of 2009, and consisted in: ■ G uarantee commitments given to credit institutions
Pledged securities and collaterized commitments given totaled €10,606 million at the end of 2009, and mainly consisted in: ■ €4,737 million in Japan Life & Savings, including pledged assets for securities repurchase agreement (€3,973 million), for loaned stock (€626 million) and as part of derivative transactions (€93 million); ■ S ecurities pledged by AXA Bank Europe to fi nancial institutions in respect of security repurchase agreements (€2,794 million)
Pledged assets and collaterized commitments given decreased by €2,248 million in 2009 chiefl y due to €2,008 million decrease in
(621 million) and the UK Life & Savings (€553 million); ■ €1,609 million guarantee given by AXA SA as part of group insurance contracts; ■ €1,202 million commitments given by German Life & Savings as a commitment to purchase loans ; ■ €1,050 million given by France Life & Saving as commitments to real estate funds; ■ €863 million in AXA SA commitment given to guarantees regarding bank deposits in AXA Bank Europe; ■ €715 million of commitment given by the UK Life & Savings to third parties for long term contracts such as IT and administrative service; ■ €480 million in German Life & Savings commitment given to
“Protektor” and “Medicator”, the German insurance guarantee funds in the case of a bankruptcy of the insurance companies; ■ €764 million of unamortized balance on AXA’s subordinated debt instruments: AXA issued subordinated debts which are amortized over the life of the instrument at the effective interest rate for each debt.
The €1,071 million increase in other commitments given in 2009 mainly explained by AXA SA (€859 million) related to an increase in guarantee on a group insurance contract (€600 million).
In the case of a temporary transfer, assets and related investment income remain attributable to AXA as they will be returned when they are no longer required to support the capital requirements of the with-profi t f unds, under the stringent tests set out in the scheme.
(£846 million as at December 31, 2008). As at December 31, 2009 the transfer to the with-profi t f unds has a nil value. Under the rules of the Scheme an annual test (“the Test”) must be performed at least once in a 12 month period and may result in an additional transfer. The completion of the Test, based on an effective date of January 1, 2010, may lead to a transfer but this is not expected to be permanent.
Supervisory Board on June 29, 2005, the AXA Group and the
BNP Paribas Group entered into an agreement that replaces a prior agreement between them dated September 12, 2001.
AXA and the Schneider Group entered into an agreement that provides for the maintenance of minimal cross-shareholdings.
subsidiaries are required to indemnify their employees against certain liabilities and costs that they may incur from time to time in performing activities within the scope of their employment duties. These activities may include, for example, service as a director, offi cer, agent, general partner, or in a similar capacity for
joint ventures, partnerships, or special-purpose investment companies or funds). The potential amount of compensation relating to commitments covered by these obligations cannot be evaluated with any certainty.
(parent only) of the Company and the amounts available for distribution as dividends to its shareholders because unrealized exchange rate gains and losses under these derivatives are recognized in the Company’s income statement.
I Note 29 Fees paid to statutory auditors 29.1. STATUTORY AUDITORS
PRICEWATERHOUSECOOPERS AUDIT: 63, rue de Villiers – 92208 Neuilly-sur-Seine, represented by Messrs. Pierre Coll and Eric Dupont, fi rst appointed on
Pauly, fi rst appointed on June 8, 1994. The current appointment is for a term of 6 years, until the General Shareholders Meeting called to approve the fi nancial statements for the fi scal year 2009.
MEMBERSHIP IN A PROFESSIONAL BODY: Mazars is registered as an independent auditor with the Compagnie
Mr Jean Louis Simon: 61, rue Henri Régnault – 92075 Paris-
La Défense Cedex – 75012 Paris, fi rst appointed on April 21, 2004. The current appointment is for a period of 6 years, until the annual General Meeting of the shareholders called to approve the fi nancial statements for the fi scal year 2009.
Pursuant to Article 222-8 of the AMF General Regulations, the table below shows the fee amounts paid by AXA to each of the statutory auditors in charge of auditing the Group’s fi nancial statements, distinguishing between the fees for, on the one hand, the legal mission of statutory auditors of the statements, as well as the diligence directly related to them, and, on the other hand, for other services.
Amount (before VAT) % % % Amount (before VAT) % % %
Statutory audit and certifi cation of local and consolidated fi nancial statements 38,409 41,277 43,951 82% 82% 82% 8,234 8,202 7,160 97% 96% 91%
Legal, tax and employment consulting 4,023 4,405 4,796 9% 9% 9% 84 52 - 1% 1%
AXA SA is involved in lawsuits (both class actions and individual litigations), investigations, and other actions arising in the various jurisdictions where it does business, including the following: In 2007, AXA SA completed the squeeze-out of the minority shareholders at two German subsidiaries, AXA Konzern AG
for the year ended December 31, 2008 and subsequent reports on Form 10-Q, respectively, of AXA Financial, Inc. (SEC fi le no. 1-11166), AXA Equitable Life Insurance Company (SEC fi le no. 0-25280) and AllianceBernstein (SEC fi le no. 001-09818) fi led with the SEC (collectively, the “Subsidiary SEC Reports”). While not incorporated by reference herein, the Subsidiary SEC Reports are publicly available and management encourages readers of the fi nancial statement to consult the Subsidiary SEC Reports for a full description of all the various litigations and related matters in which these subsidiaries are involved. Copies of the Subsidiary
Among the matters discussed in the Subsidiary SEC Reports are the following: AXA FINANCIAL AND AXA EQUITABLE MATTERS
Standards Act for failure to pay minimum wage and overtime and violation of similar provisions under state labor laws in the respective states. In September 2007, the parties agreed to consolidate in the Northern District of California all four pending actions: Meola v. AXA Advisors and AXA Equitable; Lennon v. AXA Advisors, et al.; Bolea v. AXA Advisors, LLC and
Plaintiffs seek compensatory damages, restitution of all wages improperly withheld or deducted, punitive damages, penalties, and attorneys’ fees. In February 2009, the parties fi led a motion for preliminary approval of a proposed settlement agreement with the Court. In May 2009, the Court granted preliminary approval of a settlement and the settlement proceeds were turned over to the Class Administrator. In June 2009, notices were sent to the class members. In September 2009, the
and the Offi ce of the New York State Attorney General (“NYAG”)
regarding their investigations into trading practices in the shares of certain mutual funds sponsored by AllianceBernstein. In connection with this settlement, AllianceBernstein established a $250 million restitution fund to compensate fund holders for the adverse effect of market timing (the “Restitution Fund”). During 2008 an Independent Distribution Consultant (“IDC”) retained by AllianceBernstein to develop a plan for the distribution of the
Restitution Fund confi rmed that the Restitution Fund was suffi cient to compensate for the harm to mutual fund holders from market timing activities and the SEC approved the IDC’s distribution plan on May 15, 2008. The IDC began distributing payments from the
Equitable and AllianceBernstein, as well as certain of AXA’s other U.S. subsidiaries, are involved in various other types of lawsuits (both class action and individual), regulatory inquiries, investigations or actions, including in connection with the ownership and/or management of real estate, asset management activities, corporate transactions, employee benefi t disputes, alleged discrimination in employment practices, as well as other matters. For additional details on these matters, please see the
Transactions, AXA and its subsidiaries from time to time: ■ A re involved in legal actions or other claims brought by purchasers, joint venture partners, shareholders or other transaction parties asserting claims for damages on various theories (including misrepresentation, failure to disclose material information, failure to perform contractual duties, breach of fi duciary duties), seeking contractual indemnifi cation, or otherwise seeking to impose liability on AXA and/or its subsidiaries, and/or
M&A Transactions, the Group’s ordinary course business activities or other matters.
AXA and its subsidiaries are also involved in various legal actions and proceedings of a character normally incident to their business including claims litigation arising in connection with the Group’s insurance business and litigation arising from the Group’s asset management business.
and its subsidiaries are subject, from time to time, to examinations, investigations, enforcement proceedings and other actions by regulatory and law enforcement authorities (involving civil and/
Business” in Part 1 of this Annual Report, “Risk Factors” in Part 3 of this Annual Report and Note 28 to the Group’s c onsolidated fi nancial s tatements in Part 4 of this Annual Report.
States) that bear little or no relation to actual economic damages incurred by plaintiffs, AXA’s management cannot make an estimate of loss, if any, or predict whether or not these matters will have a material adverse effect on the AXA’s consolidated results of operations in any particular period.
Life. With this operation, AXA enters the Romanian Life insurance market, in line with its objective of accelerating the development of its activities in the emerging countries, notably in Central and
Eastern Europe. Created in 1997, Omniasig Life sells protection products, representing premiums of €12 million in 2008, through a network of 1,400 agents. Omniasig Life ranks 10th in Romanian
On January 25, 2010, AXA announced its intention to voluntarily delist its ADSs from the NYSE and to voluntarily deregister with the US Securities and Exchange Commission (SEC). AXA fi led its Form 25 with the SEC and the NYSE on March 16, 2010 to delist its ADSs and the delisting is expected to be effective on March 26, 2010. AXA plans to fi le its Form 15 to deregister with the SEC on March 26, 2010 and its deregistration with the
US investors to continue holding and trading AXA ADRs in the
On February 10, 2010, AXA and Banca Monte dei Paschi di
December 31, 2009, on: ■ T he audit of the accompanying consolidated fi nancial statements of AXA SA , as attached to the present report; ■ T he justifi cation of our assessments; ■ T he specifi c verifi cation required by law.
The deterioration of the economic environment and the persistence of the fi nancial crisis’ aftermaths continue to signifi cantly impact companies, and in particular their activity. This situation still gives rise to specifi c circumstances for the preparation of fi nancial statements this year, in particular with respect to the accounting estimates required by accounting principles. In this context, we have carried out our
own assessments and would like to bring to your attention the following matters, in accordance with the requirements of Article L.823-9 of the French Commercial Code: ■ Your company details in Notes 1.7.2, 4.3 and 9.9 to the consolidated fi nancial statements the valuation methods it applies to fi nancial assets. We have assessed the appropriateness of the process of the fi nancial assets valuation, as well as of the information disclosed in the above mentioned notes; ■ C ertain consolidated balance sheet items that are specifi c to insurance and reinsurance business are estimated on the basis of statistical and actuarial data, such as actuarial reserves, deferred acquisition costs and their amortization, the value of business in force and future policyholders’ benefi ts. The methods and assumptions used to calculate the carrying values of these items are described in Notes 1.13, 1.6.4 and 1.6.2 to the consolidated fi nancial statements. We have assessed the reasonableness of the assumptions used to calculate these values, particularly with respect to the Group’s experience and its regulatory and economic environments. We also assessed the overall consistency of these assumptions; ■ T he carrying values of purchase goodwill are tested at each closing for recoverability using the methods described in Notes 1.6.1 and 5.2.2 to the consolidated fi nancial statements. We have in particular ensured the valuation approaches used rely on assumptions that are consistent with the forecasts that emerge from the strategic plans established by the Group. We have also examined the elements gathered by the Group to justify the other assumptions considered as well as the sensitivity tests performed; ■ D eferred tax assets and liabilities are recorded and measured using the methods described in Note 1.16.1 of the notes to the consolidated fi nancial statements. We have verifi ed that the valuation methods used take into account the nature of tax differences, business plans established by the Group and, when accounting policies permit, its intentions; ■ D erivatives and hedging activities are recognized in accordance with the methods and procedures described in Note 1.9 to the consolidated fi nancial statements. We have assessed whether the hedging activities that abide by hedge accounting in accordance with hedge accounting rules have been duly documented, and whether this documentation includes an explanation of the hedging relationship, its effi ciency and the Group’s objective in terms of risk management and hedging strategy.
Management Board and Supervisory Board members 408 5.2 DESCRIPTION OF AXA’S SHARE CAPITAL 410
We summarize below certain material provisions of applicable French law and of our Charter (“statuts”). You may obtain copies of our
Charter in French from the Paris Trade and Companies Register (Registre du Commerce et des Sociétés).
The Company is a holding company organized under the laws of France as a Société Anonyme (SA) (a form of limited liability company), with a Supervisory Board and a Management
Paris Trade and Companies Register (Registre du Commerce et des Sociétés) under number 572 093 920.
Under Article 3 of its Charter AXA’s corporate purpose is generally to: ■ H old equity interests whatever their forms in any French or foreign companies or businesses, including insurance companies or businesses; ■ A cquire, manage and sell all listed or unlisted shares or securities, including all real and movable property, as well as all rights, listed or unlisted stock, and movable property related to said assets; and