• 140,000 employees and distributors worldwide working to deliver the right solutions and top quality service
orporate management trends come and go. The first major movement was Taylorism, originally applied in factories and then later extended to office work. While it led to unprecedented gains in productivity, which in turn increased corporate profits and employee wages, it was also Charlie Chaplin’s Modern Times: working man, dehumanized by the machine and the Industrial Age, reduced to performing repetitive and demoralizing tasks. The role of management was limited to supervision.
This situation could not last indefinitely. A number of management gurus – the most famous of whom is undoubtedly Peter Drucker – who had the intuition that greater gains in productivity could be achieved by motivating workers than by applying Taylor’s scientific division of labor into a series of tasks. The era of “participatory management by objectives” was born, and none too soon: an increasingly well-educated workforce was beginning to balk at the old working methods. The resulting tension was particularly acute in the 1960s and 1970s. Then along came the Japanese, touting discipline, rigor, and the new buzzwords “quality” and “zero defect.”
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And so another fad is born. Like its predecessors, this one is useful and has arrived at just the right time. The notion of “shareholders only” has been replaced by the notion of “stakeholders.” And this makes sense. Businesses need clients to survive, and they need motivated employees to compete in the marketplace. Without shareholders, except in certain types of social market economies, they cannot grow. And if they do not take the environment into account, social life will quickly become unbearable and life on our planet will ultimately become impossible.
even if the word “ethics” has come to mean different things to different people.
Claude Bébéar Chairman of the Supervisory Board hairman a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page III Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
In the final analysis, this storm left a number of positive elements in its wake.
– such as quality of service – are also important. Clients now fully understand the importance of establishing effective prevention programs. Ultimately, this will help reduce both the number of claims and their severity.
In the area of savings and investment, market volatility and economic uncertainty have only served to underscore the importance of sound investment advice. Increasingly, our clients will need the advice of qualified specialists to guide them through the waters of finance and investment. Here we have genuine added value to offer.
Henri de Castries President of the Management Board a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page IV Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
AXA Financial, and in particular when we sold DL J. In general, however, these overreactions don’t last long.
What do you see as the key challenges in the months and years ahead? H. de C: We have to go down the road that will lead us to excellence in our relationship with our three key stakeholders: our clients, our employees and our shareholders. We will also focus on further developing and coordinating our commitments in the areas of the environment and civil society in general. These are related challenges, in the sense that they all contribute to the same objective, which is to improve the way we do business in order to ensure the long-term survival of AXA. Our performance should improve now that the operating environment appears to have stabilized and economies are taking off again. Three key factors will combine to support higher performance for AXA: investments in customer service quality improvements, efforts to reduce our costs and the improvement of our underwriting results. These objectives are within our reach, and we will succeed if every single AXA employee plays a genuine role in meeting these challenges, and if every single AXA employee brings the highest standards of professionalism and team spirit to the endeavor.
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For our clients, the AXA brand is synonymous with proximity and expertise.
Although the AXA Group’s performance in 2001 was impacted by the global economic slowdown and an exceptionally difficult operating environment, several positive points warrant mention: • AXA Group operations have become more efficient, as reflected in the 28%
increase in operating earnings, from 1.2 billion euros in 2000 to 1.5 billion in 2001.
• AXA’s earnings have become less dependent on capital gains attributable to shareholders, the level of which is directly linked to financial market trends. From 48% of earnings in 2000 to only 19% in 2001.
• AXA’s debt to equity ratio fell by 14 percentage points in one year.
In 2001, the global economy took an even sharper turn for the worse compared with 2000. In the space of three years, the world economy and its financial markets suffered four major setbacks, the full impact of which were felt in 2001: • Restrictive monetary policies between August 1999 and October 2000
The European Central Bank also cut its rates, from 4.75% to 3.25%, and the other large central banks followed suit.
While there was some recovery in the markets in the fourth quarter, all the major indices produced negative returns for the second year in a row.
In Europe, the CAC 40 (Paris), the FTSE 100 (London) and Eurostoxx 50 all closed down on the year, by 22%, 16% and 20%, respectively. In the United
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The insurance industry, which was naturally one of the hardest hit by the financial consequences of the terrorist attacks, under-performed the general indices, with the DJ
AXA’s share price declined by 39% in 2001 due to several factors: • AXA’s geographic diversification. While this gives AXA a strategic advantage over the medium to long term, in 2001 it exposed the Group to the economic difficulties in Japan and the US.
• Focus on AXA’s balance sheet. Historically, the Group has focused on optimizing its financial structure rather than running a high excess capital position. All of AXA’s ratings were reaffirmed (see Form 20-F “Item 3 - Information on the Company -
• Falling gross premiums and financial services revenues in respect of the life & savings operations in the US and France.
At the end of February, the chairman of the US Federal Reserve Bank cautiously remarked that the US recession was coming to an end. This was supported by economic data showing a reduction in unemployment and an increase in productivity.
As a result, equity markets have rebounded, with the Dow Jones increasing by 6.1%
AXA’s full-year earnings for 2001 were announced on March 14, 2002. The net adjusted earnings were in line with the estimate given at the end of December. On an operational basis, that is, excluding net realized gains and the impact of the US
• The debt to equity ratio decreased from 63% at year-end 2000 to 49% 12 months later, reassuring analysts of the capital strength of the Group.
• The 4% decline in net asset value was lower than expected, confirming the resilience of AXA’s capital in the face of volatile equity markets.
Four analysts upgraded their recommendations on AXA following the release of the 2001 results: CSFB, JP Morgan, Merrill Lynch and Cazenove. As of May –, 2002, of the 38 analysts following AXA, 26 rate AXA a buy, six are neutral and three have under-perform recommendations.
Net dividend per share that was approved by the shareholders at the annual general meeting of the Shareholders held on May 3, 2002, as compared to €0.55 paid in 2001 in respect of the 2000 financial year.
TOTAL ASSETS UNDER MANAGEMENT AS AT DECEMBER 31, 2001: €910 BILLION (€895 billion as at December 31, 2000)**
Adjusted earnings 1,201 2,292 of which: Life & Savings 1,225 1,401
** December 31, 2000 financial data (as reported) have been presented under a new basis of presentation following the implementation of new French Regulations effective *** Per ordinary share financial data for 2000 and prior years have been restated to take account of the 4-for-1 the effect of the 4-1 stock split approved by the shareholders at the annual general meeting held on May 9, 2001.
Introduction Item 2 Item 3 Item 4 Item 5 Item 6 Item 7
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2001
Securities registered or to be registered pursuant to Section 12 (g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15 (d) of the Act: None
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of March 26, 2002 was: 1,734,510,252 Ordinary Shares of euros 2.29 nominal value, including 61,423,314 American Depositary Shares
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d)
Item 13 Defaults, Dividend Arrearages and Delinquencies ........................................... 189 Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds ...189
States Securities and Exchange Commission (referred to in this annual report as the “U.S. SEC”).
In this annual report, the “Company” refers to AXA, a société anonyme organized under the laws of France, and “AXA” refers to the Company and its direct and indirect subsidiaries. The Company’s ordinary shares are referred to in this annual report as “Shares” or “ordinary shares”. The principal trading market for the Company’s ordinary shares is the Premier Marché of the Euronext Paris SA (which resulted from the merger of the Paris,
“ADSs” and “ADRs”, respectively. The ADSs and ADRs are listed on the New York Stock Exchange (referred to in this annual report as “NYSE”).
At the annual general meeting of shareholders of AXA held on May 9, 2001, the Company’s shareholders approved a 4-for-1 stock split of its outstanding ordinary shares. Immediately following this stock split, which became effective on May 16, 2001, the ratio between the AXA ordinary share and the ADS was changed from one ADS representing one-half of an ordinary share to one ADS representing one ordinary share. Unless otherwise indicated, all information contained in this annual report is on a post-stock split basis and reflects the corresponding ratio change between the ADS and ordinary share.
This annual report includes AXA’s consolidated financial statements for the years ended December 31, 2001, 2000 and 1999 and as at December 31, 2001 and 2000. AXA’s consolidated financial statements, including the notes thereto, are included in “Item 18 - Financial Statements” and have been prepared in accordance with accounting principles generally accepted in France, which we refer to in this annual report as “French
European regulations that are described in notes l and 2 to the consolidated financial statements. French
In this annual report we use the term “Adjusted Earnings” which represents AXA’s consolidated net income before goodwill amortization and exceptional operations. Adjusted Earnings is a non-GAAP measure, which management believes provides a meaningful understanding of the results. It should be noted that “Adjusted
Earnings” as defined may not be comparable with similarly-titled measures reported by other companies as it is not defined under either French GAAP or U.S. GAAP. “Adjusted Earnings” was formerly referred to as
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AXA’s exposure to other contingent liabilities; • adverse political developments around the world, particularly in the principal markets in which AXA and its subsidiaries operate; • the performance of others on whom AXA relies for distribution, investment management, reinsurance and other services; and
Operating and Financial Review and Prospects”; and “Item 11 - Quantitative and Qualitative Disclosures About
Item 3: Key Information Selected Consolidated Financial Data The selected historical consolidated financial data presented below have been derived from AXA’s consolidated financial statements and related notes for the years ended December 31, 2001, 2000, 1999, 1998 and 1997.
AXA’s consolidated financial statements have been prepared in accordance with French GAAP. At January 1, 2001, new French Regulations became effective in respect of consolidated financial statements prepared by
French insurance companies and groups (Regulation No. 2000-05 of the “Comité de la Réglementation
French Regulations prescribed certain presentational changes, which required certain reclassifications to be made to the consolidated balance sheets and statements of income included in AXA’s consolidated financial statements for the year ended December 31, 2001 included elsewhere in this annual report. Consequently, certain financial data under French GAAP presented in the tables below as at and for the years ended
December 31, 2001, 2000 and 1999 have been restated unless otherwise indicated.
November 3, 2000, revenues and net income generated by the Other Financial Services Segment have decreased significantly in 2001. In respect of the U.S. GAAP financial data, the historical income statement data, including the net income per ordinary share, and the balance sheet data presented in the tables below have been restated to reflect the treatment of DLJ as a discontinued operation. The restated financial data for the years ended December 31, 2000 and 1999 were derived from the audited consolidated financial statements included elsewhere in this annual report. All other restated U.S. GAAP income statement data presented in the table below in respect of the discontinued operations have not been audited.
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September 30, however, the financial year-end was changed to December 31 in 2001. Therefore, AXA’s 2001 consolidated financial statements included 15 months of operating results beginning October 1, 2000 for this group of companies.
Income before income tax expense12 1,532 1,721 9,176 4,816 3,811 3,312
In accordance with US GAAP: Gross premiums, net of reinsurance3 35,692 40,099 35,538 29,341 27,140 23,496
Basic Income from continuing operations (after tax and minority interest) 0.78 0.88 0.63 0.62 0.47 0.13
Net dividend distribution (in currency millions)3 864 971 926 713 595 455
(1) Includes investment income net of investment expenses and interest expense on short-term and long-term debt (other than interest expense relating to bank operating expenses of AXA’s other financial services operations), net realized investment gains, and losses and net unrealized investment gains and losses on separate account (unit-linked) assets and on trading securities, including assets supporting the UK “with-profit” business.
(3) Gross premiums received from policyholders in respect of life & savings products which are classified as “universal life” or “investment contracts” (such as, separate account (unit-linked) products) for U.S. GAAP, are recorded as revenue under French GAAP. Under U.S. GAAP, such amounts received are recorded as deposits, and only the policy-related fees charged to the policyholders for cost of insurance, administration, investment management, etc, are recorded as revenue.
(5) An annual dividend generally is paid each year in respect of the prior year after the annual ordinary general meeting of shareholders (customarily held in May or June) and before September of that year. Dividends are presented above in the year to which they relate not the year in which they are declared and paid. At the annual general meeting of shareholders of AXA held on May 3, 2002, the shareholders approved the declaration of a dividend in respect of 2001 of €0.56 per ordinary share. Dividends per ordinary share do not include any French avoir fiscal which may be receivable from the French Treasury. In general, dividends per ordinary share are based on the number of ordinary shares outstanding at the end of the year for each year presented.
(unit-linked) liabilities. At December 31, 2001, 2000 and 1999, such liabilities are presented gross of reinsurance in accordance with the new French Regulations adopted by AXA on January 1, 2001.
(9) Net dividend (excluding tax credit) divided by adjusted earnings, that is, net income before exceptional operations and goodwill amortization. (10) As a result of the sale of DLJ in 2000 and in accordance with U.S. GAAP accounting treatment of discontinued operations, the income statement data in accordance with U.S. GAAP for 2000, 1999, 1998 and 1997 have been restated in respect of “total revenues” and “net income” from continuing operations. In respect of the balance sheet data in accordance with U.S. GAAP, “Total assets” data have been restated to include net assets of DLJ discontinued operations (which is reported as a single line item under total assets). See note 34 to the consolidated financial statements included elsewhere in this annual report, which provides AXA’s condensed statements of income for the years ended December 31, 2000 and 1999, as the impact of DLJ was presented separately.
(11) Adjusted earnings, that is, net income before exceptional operations and goodwill amortization, divided by average shareholders’ equity for the period. (12) In 2001, “Income before income tax expense” excludes the amortization of goodwill whereas in prior years it included amortization of goodwill. Consequently, prior years have been restated accordingly.
(in millions, except per ordinary share amounts)(in millions, except per ordinary share amounts)
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Other financial and real estate companies 1,168 1,128 1,074 1,136 5.0% 5.0%
(1) Presented gross and net of intercompany eliminations. (2) On a comparable basis, revenues for the year ended December 31, 2001 were restated using the prevailing foreign currency exchange rates for the corresponding prior year, in this case for the year ended December 31, 2000 (constant exchange rate basis) and eliminated the results of acquisitions, disposals, business transfers (constant structural basis) and changes in accounting principles (constant methodological basis), in one of the two periods being compared.
(In euro millions except per ordinary share amounts) Proforma1 As reported Life & Savings
Adjusted earnings per ordinary share (basic)2,3 0.70 1.51 1.67 1.45 Adjusted earnings per ordinary share (diluted)2,3 0.70 1.44 1.60 1.37
(1) Proforma New French GAAP as if the New French Regulations, which became effective on January 1, 2001, had been in force since January 1, 2000. (2) Adjusted earnings represents AXA’s consolidated net income before goodwill amortization and exceptional operations. Adjusted earnings is a non-GAAP measure, which management believes provides a meaningful understanding of the results. It should be noted that “Adjusted earnings” as defined may not be comparable with similarly-titled measures reported by other companies as it is not defined under either French GAAP or U.S. GAAP.
(3) 2000 and 1999 per share data are restated to take account of the 4-for-1 stock split approved by the shareholders on May 9, 2001. (4) The exceptional operations include: In 2000: – the consolidated net realized gain on the sale of DLJ (euro 2,071 million net group share and net of realized and unrealized losses on Credit Suisse Group shares received in respect of that transaction of euro (67) million), totaling euro 2,004 million net group share; – realized losses and valuation allowances of euro 236 million (net group share) relating primarily to the Equitable Life high yield bond portfolio as a result of broad weaknesses in credit markets from a slowing economy during the third and fourth quarter of 2000, coupled with a review of investment strategy following AXA’s acquisition of the minority interests in AXA Financial, Inc.; and
– provision of euro 125 million recorded during the period in connection with the sale of Banque Worms, which was completed in April 2001. In 1999: – euro 156 million (net group share) related to the acquisition of Guardian Royal Exchange (GRE), which was acquired in May 1999.
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Exchange rate information The year end and average exchange rates used in the preparation of the consolidated financial statements, to translate into Euro the results of operations of its principal subsidiaries and affiliates that are not denominated in euro, are set out in the table below.
Buying Rate of one Euro to U.S. dollars in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York, which we refer to in this annual report as the “Euro Noon Buying
(1) The average of the Noon Buying Rates on the last business day of each full month during the relevant period. (2) Effective January 1, 1999, the French Franc became a component of the Euro. As such, the Euro Noon Buying Rates for the years prior to 1999 are the Noon Buying Rates for the French Franc converted into Euro at a rate of euro 1.00 = French franc 6.55957.
Given the change in the ratio of one AXA ordinary share to one AXA ADS in 2001 (in connection with the shareholders approval of the 4-for-1 stock split at the annual general meeting held on May 9, 2001), dividend per ADS information is no longer provided.
THE RECENT CONSOLIDATION IN THE GLOBAL FINANCIAL SERVICES INDUSTRY HAS INCREASED COMPETITION IN ALL OF OUR BUSINESS LINES We face strong and increasing competition in all our business lines. Our competitors include mutual funds companies, asset management firms, commercial banks and other insurance companies, many of which are regulated differently than we are and offer alternative products or more competitive pricing than we do. The recent consolidation in the global financial services industry has also enhanced the competitive position of some of our competitors by broadening the range of their products and services, and increasing their distribution channels and their access to capital. In addition, development of alternative distribution channels for certain types of insurance and securities products, including through the internet, may result in increasing competition as well as pressure on margins for certain types of products. These competitive pressures could result in increased pricing pressures on a number of our products and services, particularly as competitors seek to win market share, and may harm our ability to maintain or increase our profitability.
Mutuelles AXA have double voting rights pursuant to the provisions of AXA’s statuts, see “Item 10 - Additional
French insurance subsidiaries use similar distribution channels but are managed in such a way as to maintain the legal distinctions between their respective businesses. There are no agreements between the Mutuelles
The Mutuelles AXA, which have no employees, use employees of the Company’s French insurance subsidiaries.
FLUCTUATIONS IN CURRENCY EXCHANGE RATES MAY AFFECT OUR EARNINGS AXA’s obligations are denominated either in Euro or other currencies, the value of which is subject to exchange rate fluctuations. AXA’s interest obligations on its outstanding debt, however, are generally matched to cash dividends to be received by AXA in the same currencies. Approximately €410 million of the cash dividends received by the Company in 2001 were paid in currencies other than the Euro (2000: €350 million). In 2001, approximately €238 million and €692 million of interest payments in currencies other than the Euro were made by the Company and AXA Group, respectively (2000: €52 million and €526 million, respectively).
AXA publishes its consolidated financial statements in Euro. For the year ended December 31, 2001, approximately 53% of AXA’s gross premiums and financial services revenues and 45% of AXA’s benefits, claims and other deductions were denominated in currencies other than the Euro, primarily U.S. dollars, Pounds sterling, Japanese Yen and Australian dollars (2000: 57% and 55% primarily in U.S. dollars, Pounds sterling and Australian dollars, respectively). Consequently, fluctuations in the exchange rates used to translate these currencies into Euro may have a significant impact on AXA’s reported results of operations from year to year.
The level of volatility in the financial markets in which we invest and the overall investment returns earned in those markets also affect our profitability. Our investment returns, and thus our profitability, may be adversely affected from time to time by conditions affecting our specific investments and, more generally, by stock, real estate and other market fluctuations and general economic, market and political conditions. Our ability to make a profit on insurance products, fixed annuities and guaranteed products depends in part on the returns on investments supporting our obligations under these products and the value of specific investments may fluctuate substantially depending on the foregoing conditions. During the latter half of the 1990s our assets, our earnings and our ability to generate new sales increased due to significant growth in retirement savingsrelated products and very strong stock market appreciation, coupled with solid bond market appreciation spurred by declining interest rates. The current uncertain trends and investment climates in many of our major markets have adversely affected our businesses and profitability in 2001, and can be expected to continue to do so unless conditions improve.
LOSSES DUE TO DEFAULTS BY OTHERS AND IMPAIRMENT OF OUR INVESTMENT ASSETS COULD REDUCE OUR PROFITABILITY OR NEGATIVELY AFFECT THE VALUE OF OUR INVESTMENTS Third parties that owe us money, securities or other assets may not pay or perform under their obligations.
The default of a major market participant could disrupt the securities markets or clearance and settlement systems in our major markets which could in turn cause market declines or volatility. A failure of a major market participant could also cause some clearance and settlement systems to assess members of that system, including our broker-dealer subsidiaries, or could lead to a chain of defaults that could adversely affect us.
LOSSES DUE TO INABILITY OF OUR REINSURERS TO MEET THEIR OBLIGATIONS In the normal course of business, AXA seeks to reduce the loss that may arise from catastrophes or other events that cause unfavorable underwriting results through reinsurance. Under the reinsurance arrangements, other insurers assume a portion of the losses and related expenses. The availability, amount and cost of reinsurance depends on general market conditions and may vary significantly. Any decrease in the amount of our reinsurance will increase our risk of loss. Reinsurance does not relieve the ceding insurance company of its primary obligation to the policyholder in a reinsurance transaction and, therefore, the inability of the reinsurer to meet the financial obligation could impact on our results of operations. Although we evaluate periodically the financial condition of our reinsurers to minimize our exposure to significant losses from reinsurer insolvencies, it is possible that certain of our reinsurers may become financially unsound by the time their financial obligation becomes due.
INTEREST RATE VOLATILITY MAY ADVERSELY AFFECT OUR PROFITABILITY During periods of declining interest rates, life insurance and annuity products may be relatively more attractive to consumers, resulting in increased premium payments on products with flexible premium features, and a higher percentage of insurance policies remaining in force from year to year. During such a period, our investment earnings may be lower because the interest earnings on our fixed income investments likely will have declined in parallel with market interest rates. In addition, mortgages and bonds in our investment portfolio will be more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates, and we may be required to reinvest the proceeds in securities bearing lower interest rates. Accordingly, during periods of declining interest rates, our profitability may suffer as the result of a decrease in the spread between interest rates credited to policyholders and returns on our investment portfolio.
returns. Obtaining cash to satisfy these obligations may require us to liquidate fixed income investments at a time when the market prices for those assets are depressed because interest rates have increased. This may result in realized investment losses. Regardless of whether we realize an investment loss, these cash payments would result in a decrease in total invested assets, and may decrease our net income. Premature withdrawals may also cause us to accelerate amortization of policy acquisition costs, which would also reduce our net income.
ELIMINATION OF TAX BENEFITS FOR OUR PRODUCTS AND OTHER CHANGES IN LAWS AND REGULATIONS MAY ADVERSELY AFFECT SALES OF OUR INSURANCE AND INVESTMENT ADVISORY PRODUCTS Changes to tax laws may affect the attractiveness of certain of our products, which currently have favorable tax treatment. For example, an unfavorable change in the tax treatment of life insurance products in France in 1998 had an adverse impact on the market for these products. From time to time, governments in the jurisdictions in which we do business, including the United States government, have considered proposals for tax law changes that could adversely affect our products. These proposals have included, for example, proposals to tax the undistributed increase in value of life insurance policies. The enactment of any such tax legislation would likely result in a significant reduction in sales of our currently tax-favored products.
In addition, changes in pension and employee benefit regulation, social security regulation, financial 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. For example, in 2000, the U.K. government adopted new legislation relating to employee pension schemes, which became effective in April 2001. The new legislation imposed a limit on the fee that insurance companies are allowed to charge for administering
Stakeholders’ Pensions, the simplified individual pensions promoted by the new legislation. As a result of this legislative change and the ensuing pricing and competitive pressure, the profitability of operating in the U.K.
IF OUR ESTABLISHED CLAIMS RESERVES ARE INSUFFICIENT OUR EARNINGS WILL BE ADVERSELY AFFECTED In accordance with industry practice and accounting and regulatory requirements, we establish reserves for claims and claims expenses related to our property & casualty and international insurance businesses. We do not discount our insurance reserves for claims and claims-handling expenses unless final settlement has been agreed and the payments are generally fixed over a period of time.
The process of estimating the insurance claims reserves is based on information available at the time the reserves are originally established. However, claims reserves are subject to change due to the number of variables which affect the ultimate cost of claims, such as: b • Items 1-4 (V5) 1/07/02 11:42 Page 16 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
As a result, actual losses may deviate from the original gross reserves established. Consequently, the reserve may be re-estimated reflecting those changes resulting in loss reserve redundancies (in cases where the original gross claims reserve was overstated) or deficiencies (in cases where the original gross claims reserve was understated). In addition, certain of our property & casualty operations are required by local regulations in the countries in which they operate to establish equalization reserves for catastrophe risks characterized by high costs and low frequency.
rather than on growth through acquisitions, in recent years we have completed a number of acquisitions around the world and we may make further acquisitions in the future. Growth by acquisition involves risks that could adversely affect our operating results, including the substantial amount of management time that may be diverted from operations to pursue and complete acquisitions, difficulties in managing and integrating the additional operations and personnel of acquired companies, significant delays in completing the integration of acquired companies and the potential loss of key employees or customers of these companies.
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WE MAY BE UNABLE TO RETAIN PERSONNEL WHO ARE KEY TO OUR BUSINESS As a global financial services enterprise with a decentralized management structure, we rely to a considerable extent on the quality of local management in the various countries in which we operate. The success of our operations is dependent, among other things, on our ability to attract and retain highly qualified professional personnel. While management believes that it has been able to attract and currently has in place local management personnel of the highest quality, competition for key personnel in most countries in which we operate is intense. Our ability to attract and retain key personnel, in particular senior officers, experienced portfolio managers, mutual fund managers and sales executives, is dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent, which, may offer compensation packages that include considerable equity based incentives through stock option or similar programs.
The non-exclusive license grants us the right, subject to the prior written approval of Finaxa, to grant sublicenses to companies controlled, directly or indirectly, by us. Finaxa has no obligation to grant any such approval. Over the past several years, a number of our principal subsidiaries around the world have begun to use the AXA name pursuant to sublicenses granted by us. We are obligated to pay Finaxa pursuant to the licensing agreement an annual fee of €762,245 as well as 50% of any net royalties we receive from sublicensees. The non-exclusive license to us may be terminated at any time by either party, three months after delivery to the other party of a written notice of termination. Finaxa has, however, agreed not to exercise its right to terminate the license to us so long as Finaxa is our largest shareholder. Upon termination, we and our subsidiaries are required to cease utilization of the AXA trademark and any sublicenses will immediately terminate. In the event that Finaxa ceases to be our single largest shareholder, Finaxa may decide at a future date to terminate the non-exclusive license of the AXA trademark to us or to seek to alter the terms upon which the license is granted in a way unfavorable to us. Our inability to use the AXA trademark or any adverse change to the terms of the license could have a negative impact on the marketing of our products and services and on our profitability.
AS A HOLDING COMPANY, WE ARE DEPENDENT UPON OUR SUBSIDIARIES TO COVER OUR OPERATING EXPENSES AND DIVIDEND PAYMENTS Our insurance and financial services operations are generally conducted through direct and indirect subsidiaries.
As a holding company, our principal sources of funds are dividends from subsidiaries and funds that may be raised from time to time through the issuance of debt or equity securities or through bank or other borrowings.
As of December 31, 2001, the Company had amounts owed to credit institutions of €145 million, outstanding subordinated debt instruments issued, including accrued interest, of €7,885 million and outstanding nonsubordinated debt instruments issued, including accrued interest, of €2,084 million (2000: €186 million, €7,236 million and €2,277 million, respectively).
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Certain of our significant subsidiaries, including AXA France Assurances, AXA Financial, AXA UK Holdings
(formerly, Sun Life & Provincial Holdings), AXA Japan, AXA Asia Pacific Holdings, and AXA Germany are also holding companies and are dependent on dividends from their own subsidiaries for funds to meet their obligations. In addition, certain of our principal insurance subsidiaries are subject to restrictions on the amount of dividends and debt repayments that can be paid to us and our affiliates. While we do not believe that these restrictions constitute a material limitation on our ability to meet our obligations or pay dividends on our shares, these restrictions may constitute a material limitation in the future.
WE HAVE RETAINED CONTINGENT LIABILITIES FROM DISCONTINUED, DIVESTED AND RUN-OFF BUSINESSES THAT MAY RESULT IN INCOME STATEMENT CHARGES We have retained insurance or reinsurance obligations and other contingent liabilities in connection with our divestiture, liquidation or run-off of various businesses, and our reserves for these obligations and liabilities may prove to be inadequate. For example, in connection with the sale, liquidation or run-off of certain of our operations including Banque Worms and various subsidiaries of Guardian Royale Exchange, we have retained certain liabilities and/or given contractual indemnities or other guaranties against certain types of potential liabilities. The costs and liabilities associated with our divested and run-off businesses and other contingent liabilities could cause us to take additional charges that could be material to our results of operations.
• exercise or fail to exercise discretion under the deposit agreement, or
In addition, the depositary and AXA only have the obligation to participate in any action, suit or other proceeding with respect to the AXA ADSs which may involve them in expense or liability only if they are indemnified. These provisions of the deposit agreement will limit the ability of holders of AXA ADSs to obtain recourse if AXA or the depositary fail to meet their obligations under the deposit agreement or if they wish to involve AXA or the depositary in a legal proceeding.
b • Items 1-4 (V5) 1/07/02 11:42 Page 21 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
(2) Adjusted earnings represents AXA’s consolidated net income before the impact of exceptional operations and amortization of goodwill. Adjusted earnings is a nonGAAP measure, which management believes provides a meaningful understanding of the results. It should be noted that this information may not be comparable with similarly-titled measures reported by other companies as it is not defined under either French GAAP or US GAAP.
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(1) Adjusted earnings: refer to footnote (2) in the preceeding table. (2) The per ordinary share price data in the table for 2000 and 1999 have been restated to take account of the 4-for-1 stock split approved by AXA
shareholders at the general meeting of the shareholders held on May 9, 2001.
Prospects – Operating Results by Segment” and note 31 to the consolidated financial statements included in
AXA’S strategy AXA aims to be the world leader in financial protection and wealth management.
AXA capitalizes on its core strengths: over 50 million clients worldwide; a 44,000-strong captive distribution force; a global brand; unique product skills in areas as diverse as insurance underwriting, long-term investments, and financial advice, all on a scale that enables AXA to leverage best practices and operations platforms across the group.
• Employees and sales associates. AXA values courage, loyalty, team spirit, pride, ambition, imagination, pragmatism and commitment to excellence. By promoting these values, AXA strives to attract, develop and reward talent in its core activities so as to be a leader in each local market in terms of compensation, training, coaching and mobility, as well as one of the most attractive companies to work for in the global financial services industry.
• opportunistic acquisitions centered on Western Europe, the United States and selected Asian markets.
(whereby AXA sells its own products plus the products of third parties, and vice versa) whenever it is a source of competitive advantage; b • Items 1-4 (V5) 1/07/02 11:42 Page 24 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
• Financial priorities: increasing the market capitalization of the Company to rank among the five largest global financial services firms, and generating steady improvement in returns as measured by growth in adjusted earnings per share, adjusted return on equity, annual growth in embedded value, and a lower consolidated combined ratio (in respect of our property & casualty business).
History and development The founding predecessor of AXA was organized under the laws of France in 1852. The Company’s corporate existence will continue, subject to dissolution or prolongation until December 31, 2059.
• In 1986, AXA obtained control of Groupe Présence and, in 1988, transferred its insurance businesses to
name. Two years later, the French insurance operations were reorganized to operate by distribution channel.
Exchange acquisition allowed AXA to further establish its positions in both the United Kingdom and Germany.
• In 2000, AXA acquired a majority ownership interest in “Nippon Dantaï Life Insurance Company”, resulting in a new company called “AXA Nichidan”. In addition, in July 2000 AXA increased its interest in
SLPH from 56.3% to 100%. In August 2000, AXA sold its interest in Donaldson Lufkin & Jenrette to Credit
AXA Financial, acquired the U.S. asset management company Sanford C. Bernstein. In December 2000, AXA
Prospects – Year 2001 Operating Highlights” and note 4 to the consolidated financial statements included in
with a Management Board and a Supervisory Board. The Company’s headquarters are located at 25, avenue Matignon 75008 Paris, France and its telephone number is (331) 40 75 57 00. For information on AXA’s principal trading market for its ordinary shares and ADSs, see “Item 9 – The Offer and Listing”
Item 10 b • Items 1-4 (V5) 1/07/02 11:42 Page 25 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
(1) Donaldson, Lufkin & Jenrette was sold on November 3, 2000, see “Significant Divestitures” below. (2) AXA from time to time acquires AXA Konzern shares through open market purchases and, as a result, AXA’s ownership interest in AXA Konzern has increased from 69% at December 31, 1997 to 91% at December 31, 2001. In addition, in connection with the acquisition of Guardian Royal Exchange in 1999, AXA Konzern acquired an 83.7% interest in Albingia. During 2000, AXA Konzern increased its ownership interest in Albingia to 99%.
(3) Represents investment in property & casualty direct marketing operations (France, Germany, Spain and Japan) and life & savings operations in Japan (prior to its integration with the Nippon Dantaï operations acquired in March 2000) and in China.
• In 2001, there have been no significant acquisitions undertaken by AXA. However, on January 2, 2001 the acquisition of the minority interests in AXA Financial was completed. AXA Merger Corp., a company created to effectuate the transaction, was merged with and into AXA Financial. The remaining minority interests in AXA Financial were converted into US$35.75 in cash and 0.295 of an AXA ADS, which increased AXA’s shareholders’ equity by €737 million, and AXA Financial became a wholly-owned subsidiary of AXA.
• In 2000: – AXA acquired over 95% of Nippon Dantaï Life Insurance Company Ltd. (“Nippon Dantaï”) in March 2000.
As a result of this acquisition, AXA increased significantly its presence in the Japanese Life & Savings market as Nippon Dantaï was the 13th largest life insurance company and the 2nd largest stock life (non-mutual)
Life Insurance Co. Ltd. and AXA Group Life Insurance Co. Ltd., referred to as AXA Life Japan.
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– Alliance Capital Management L.P (“Alliance Capital”), a subsidiary of AXA Financial, acquired substantially all of the assets and assumed substantially all of the liabilities of Sanford C. Bernstein, Inc., a U.S. based asset manager with assets under management of approximately US$90 billion (€96 billion) at the date of the acquisition (October 2, 2000).
AXA UK Holdings (formerly Sun Life & Provincial Holdings). Based in London, GRE’s principal operations were in the United Kingdom, Ireland, and Germany. As a result of this acquisition, AXA increased its presence in the property & casualty insurance markets in these countries and in the UK health insurance market.
• In 1998, AXA acquired the 51% minority interest in Royale Belge through a public exchange offer.
Royale Belge is now a wholly-owned subsidiary of AXA. In addition, Royale Belge acquired ANHYP
Holdings), in connection with the demutualization of its subsidiary National Mutual Life Association of
• In 1991, AXA invested U.S. $1.0 billion in The Equitable Life Assurance Society of the United States (“Equitable
• In 2000, the Company, AXA Financial and certain of its affiliates sold their 71% equity interest in Donaldson,
Lufkin & Jenrette to Credit Suisse Group for U.S.$7.3 billion (approximately €8.4 billion at transaction date1).
The consideration included cash in the amount of U.S.$2.4 billion and 25.7 million shares of Credit Suisse
• AXA has sold certain non-strategic GRE subsidiaries, including Guardian Life in the United Kingdom (July 1999), and Le Foyer Finance in Luxembourg and Guardian National Insurance in South Africa (December 2000).
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(a) Holding company that owns The Equitable Life Assurance Society of the United States. (b) Holding company that owns AXA Assurances, AXA Courtage, AXA Conseil, AXA Collectives and Direct Assurance. (c) Holding company that owns The National Mutual Life Association of Australasia. (d) New corporate name as at February 1, 2002.
For additional information concerning subsidiaries of the Company, please see note 3 to the consolidated financial statements.
Insurance rating agencies focus on the financial strength of the insurance company and its capacity to meet the obligations arising on insurance policies. Certain of these agencies and their respective insurance rating scales are set out below.
Debt ratings focus on the likelihood that the company will make timely payments of principal and interest.
Ratings of the Company’s Long Term and Short Term Debt Senior Debt Standard & Poor’s A+
Segment Market Segment Market Segment Market contribution contribution contribution contribution contribution contribution
(1) Represents the 71% equity interest held in Donaldson, Lufkin & Jenrette that was sold on November 3, 2000.
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Gross premiums and financial services revenues Gross insurance liabilities Years ended December 31, at December 31, 2001
Represented by: (1) Includes revenues from other activities (commissions and related fees associated with the management of AXA’s general account assets and mutual funds sales).
Market During 2001, several factors have impacted the Life & Savings markets in which AXA operates, in particular, the U.S. terrorist attacks on September 11, 2001. At the time of these events, the global economy was already showing signs of an economic slowdown, which was adversely affecting the stock markets. However, the terrorist attacks and the resulting aftermath had an unprecedented effect on the global financial markets.
It is difficult to quantify specifically the direct effects of this specific event on the markets in which AXA
operates. However, it would be expected that consumers would reassess the sufficiency of their life insurance coverage and their exposure to volatility in the financial markets, which may lead to a return to traditional financial protection business such as life insurance and similar contracts that provide guaranteed rates of return at the detriment of unit-linked savings-related investment products. This change in consumer demand did become apparent in 2001. For a discussion of the impact of the U.S. terrorist attacks on AXA’s Life & Savings operations, see “Item 5 – Operating and Financial Review and Prospects – Operating Results by Segment”.
United States: Equitable Life and its insurance and distribution subsidiaries and affiliates.
Commentary on the 2001 market conditions in the geographical markets in which AXA operates is provided in “Item 5-Operating and Financial Review and Prospects-Market Conditions in Year 2001”.
In addition to the principal markets discussed above, AXA offers life, health and retirement products in other countries in Europe (Netherlands, Luxembourg, Italy, Spain, Portugal, Austria, Hungary, Switzerland and
Turkey), Morocco, Canada, Singapore, and China, as well as other countries in South America, Africa, the
Middle East and the Asia Pacific region. The products offered in these markets are tailored to the specific country market and are offered through various distribution channels, depending on the country, including general agents, salaried sales forces, bank networks and brokers.
Many other insurance companies offer one or more products similar to those offered by AXA, in some cases using similar marketing techniques. In addition, AXA competes increasingly with banks, mutual funds, investment advisers and other financial institutions for sales of savings-related investment products and, to a lesser extent, life insurance products.
The principal competitive factors affecting the Life & Savings Segment’s business include: • price,
• ratings for financial strength and claims-paying ability, as ratings are an increasingly important factor in establishing the competitive position of insurance companies,
(1) Source: Swiss Re Sigma report 6/2001 “Worldwide insurance in 2000”, measured in U.S. dollars. (2) In general, based on 2000 market data for each specific country or an estimate for 2001. (3) Relates to the variable annuity products. (4) Based on annualized new business premium equivalent (regular premium plus one-tenth of new business single premium). (5) Represents market ranking and market share for life insurance products. For savings-related investment products, AXA’s Australian operations were ranked 12th.
Total includes: – Separate Account (Unit linked) contracts 35% 16,767 19,612 15,080 115,305
Certain of AXA’s life & savings products provide features which enable the policyholders to participate in the excess assets over the liabilities (the surplus) of the life company issuing the contract through an interest or bonus crediting rate. AXA offers participating contracts in all of its principal life & savings operations.
(explained below), are treated as dividends that may either increase the present value of future policy benefits or be paid in cash to the policyholder in the year the bonus is credited.
Specific to the United Kingdom, the participating contract, also known as the with-profit contract, is offered by many life insurance companies in the United Kingdom, including AXA Sun Life. For with-profit contracts, policyholders’ premiums are paid into a life insurance company’s participating (with-profit) fund, which is part of a company’s long-term insurance business fund. In the participating (with-profit) fund, the premiums are invested in a range of assets, including fixed maturity and equity securities, real estate and loans. The participating
The policyholders’ share of the profits, referred to as bonuses, are paid on or credited to with-profit contracts held in the fund as recommended by the company’s actuary and approved by its board of directors.
(which we refer to in this annual report as the “inherited estate”) have been attributed to AXA as the shareholder less a portion allocated to the with-profit policyholders in the form of a reorganization bonus, based on the number of eligible policyholders that elected in favor of this plan. For further information on the financial reorganization, please refer to “Item 5-Operating and Financial Review and Prospects-Year 2001 Operating Highlights” and note 4 to the consolidated financial statements included elsewhere in this annual report.
Distribution AXA distributes its life & savings products through a number of channels that vary from country to country.
The majority of individual retirement products and individual life & savings products issued by AXA may be surrendered for a cash surrender value. Most of the individual life and retirement products issued by AXA
Agents and direct Intermediaries / Other networks, sales force independent including direct marketing/
(2) In 2001, AXA Asia Pacific Holdings changed its accounting year-end from September 30 to December 31 and therefore, the data above includes 15 months of activity for 2001.
The table below summarizes AXA’s consolidated gross premiums and financial services revenues (after intersegment eliminations) and claims reserves for the Property & Casualty Segment for the periods and as at the dates indicated.
(1) In accordance with the new French Regulations effective from January 1, 2001, the claims reserves are before reinsurance ceded and includes unearned premiums reserves and equalization reserves.
During 2001, several factors have impacted the property & casualty insurance markets in which AXA operates in particular, the U.S. terrorist attacks on September 11, 2001. As a result, it has been expected that (i) cover for terrorist attacks either has been or will be excluded from property & casualty insurance contracts or subject to separate cover, and (ii) premium rate increases would be activated by most insurers, especially if insurers have difficulty in obtaining reinsurance coverage at fair prices. For a details of the impact of the U.S. terrorist attacks on AXA’s property & casualty insurance operations, see “Item 5 – Operating and Financial Review and
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(1) Source: Swiss Re Sigma report 6/2001 “Worldwide insurance in 2000”, measured in U.S. Dollars. (2) In general based on 2000 market data for each specific country or an estimate for 2001.
(3) Based on 2000 gross property & casualty premiums written in Germany, AXA is ranked as follows: third in liability insurance (8.5% market share), third in homeowners’ insurance (5.1% market share), fourth in automobile insurance (4.0% market share). (4) The UK product lines are ranked as follows: third in personal automobile insurance (7.6% market share), fifth in homeowners’ insurance (5.3%
market share), fifth in commercial vehicle (5.4% market share) and third in total commercial property (10.3% market share).
Based on worldwide gross property & casualty premiums written in 2000
South America, the Middle East, Africa and the Asia Pacific region. The products offered in these markets are tailored to the specific country market and are offered through various distribution channels, including brokers and direct sales force.
& casualty insurance industry in each of AXA’s principal markets is highly competitive, with surplus underwriting capacity leading to low premium rates. The principal competitive factors are as follows: • price,
In the United Kingdom, industry-wide consolidation across the sector, which has affected both major insurance companies and brokers, has led to increased concentration among the top few players in recent years.
The table below presents gross written premiums and gross insurance liabilities by major product for the periods and as at the dates indicated.
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Ceded Reinsurance AXA’s property & casualty insurance operations use various types of reinsurance, primarily to limit their maximum exposure to catastrophic events, environmental pollution risks and certain other types of risks. Certain insurance exposures are ceded internally to AXA Cessions (included within the International Insurance Segment), which organizes external reinsurance programs. Total gross premiums ceded by the property & casualty operations to third party reinsurers for 2001 was €1,178 million (2000: €1,146 million).
For the ten-year loss development of AXA’s international insurance claims reserves, see “Property and Casualty
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Singapore. The operations of AXA Corporate Solutions are focused on niche markets and specialize in providing insurance coverage for catastrophe risks. AXA Corporate Solutions also provides specialized products, such as (i) asset-based reinsurance products (such as guarantees on death, investment returns, etc), as well as (ii) alternative risk transfer products (such as climatic bonds and CAT bonds, that is, bonds where payment is based on climatic changes or the occurrence of catastrophes) whereby the liability of the reinsurer is capped to a maximum loss and on which anticipated investment income is expressly acknowledged as part of the underwriting result.
The global reinsurance market place has been significantly effected by exceptional major losses in 2001, in particular from the U.S. terrorist attacks on September 11, 2001. Consequently, the level of traditional underwriting capacity has been or will be greatly reduced. Reinsurers are seeking new underwriting conditions that will specifically exclude risks to terrorism, will generally attempt to restrict reinsurance coverage through improved documentation and controls and will increase premiums significantly. These changes in the reinsurance environment should impact the 2002 renewal season.
terrorist attacks. In addition, it is likely that the market will see a trend towards (i) alternative risk transfer products as discussed above, as reinsurance companies seek to transfer risk to the capital market and (ii) the creation of captive insurance companies in tax free countries (by reinsurance companies and brokers) to benefit from the upturn in the market. As a result of these events, further industry consolidation may occur, with weaker companies potentially disappearing from the reinsurance market or merging with other competitors. For a details of the impact of the U.S. terrorist attacks on the results of AXA’s international insurance operations, see “Item 5 – Operating and Financial Review and Prospects – Operating Results by
AXA Corporate Solutions Insurance. These operations underwrite large insurance risks for large national and international corporations. The principal insurance products underwritten include property & casualty; marine, aviation and transport; construction risk; financial risk; and directors and officers liability.
Ceded Reinsurance AXA Corporate Solutions Reinsurance reviews its exposures to ensure that the risks underwritten are diversified geographically and by line of business in order to avoid risk of concentration. Exposure to single events is limited through reinsurance outwards to third-party reinsurers (retrocession contracts). In 2001, AXA Corporate
Solutions and its subsidiaries ceded €1,600 million (2000: €1,020 million) to third-party reinsurers (through retrocession agreements). Of this amount in 2001, approximately €480 million, or 30% of total reinsurance ceded to third parties, was placed externally by AXA Cessions on behalf of AXA’s insurance subsidiaries.
ASSET MANAGEMENT SEGMENT Asset management conditions were difficult in 2001 as the stock markets suffered sizeable losses in particular, following the U.S terrorist attacks, that reduced the market value of assets under management and consequently, the fees collected on funds managed by asset management companies. Markets experienced a general trend away from speculative equity investments towards more secure, historically stable, high quality investment options.
after excluding the results of Donaldson Lufkin & Jenrette that was sold in November 2000).
AXA’s principal asset management companies are Alliance Capital and AXA Investment Managers. The asset management companies are responsible for the vast majority of AXA’s insurance-related assets under management as well as assets managed on behalf of third parties. AXA has asset management specialists in each of its major markets: western Europe, the United States and the Asia/Pacific region.
The asset management industry is highly fragmented, as the global asset management market has not yet fully evolved. No single competitor, or any small group of competitors, dominates the worldwide market.
As at December 31, 2001, Alliance Capital had €517 billion of assets under management, including €452 billion of assets managed on behalf of third party clients (2000: €483 billion and €418 billion, respectively).
During 2001, AXA provided notice to AXA Rosenberg, an entity that specializes in quantitative equity security analysis, that it would exercise its option to acquire an additional ownership interest in that company.
that was sold in November 2000. Consequently, revenues and net income from this segment have decreased significantly in 2001.
At December 31, 2001, the net book value of the insurance-related invested assets supporting the general account life & savings operations, including those specific assets allocated to the UK “with-profit” business, primarily consisted of fixed maturity investments and equity investments of 58% and 25%, respectively
(2000: 51% and 23%, respectively). At such date, the insurance-related invested assets supporting the property & casualty operations primarily consisted of fixed maturity investments and equity investments of
At December 31, 2001 Life & Savings Property & Casualty International Insurance Total % of total
(in euro millions, Net carrying Market Net carrying Market Net carrying Market Net carrying Market Net carrying Market except percentages) value1 value value1 value value1 value value1 value value1 value
(1) Amounts are net of valuation allowances. For details on valuation allowances see note 6 to AXA’s consolidated financial statements. (2) These amounts exclude separate account (unit-linked) assets and investments in affiliated companies accounted for under the equity method. Assets allocated to UK with-profit business are carried at estimated fair value in the consolidated balance sheet of AXA.
(3) Trading securities are carried at estimated fair value and represent assets that support insurance liabilities, in which the value of such liabilities is determined in part in reference to the market value of such assets.
Insurance - Related invested assets b • Items 1-4 (V5) 1/07/02 11:42 Page 48 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
each of the three years ended December 31, 2001, see notes 6, 7, 8 and 20 to the consolidated financial statements included elsewhere in this annual report.
At December 31, 2001, AXA did not have any equity and/or fixed maturity investment in any one issuer, that was in aggregate 10% or more of AXA’s total shareholders’ equity, or €2,478 million.
Net investment return on insurance-related assets. The net investment return on insurance-related assets by major operating entity are presented within the segment information provided in “Item 5 –
Item 10 b • Items 1-4 (V5) 1/07/02 11:42 Page 49 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
• development in claims (frequency, severity and pattern of claims) between the amount estimated and actual experience; • changes arising from the time lag between the occurrence of the insured event, notification of the claim
With respect to AXA’s foreign property & casualty and international insurance operations, the claims reserves are established and monitored in the local currency in which the property & casualty entity operates. The claims reserves are translated into AXA’s reporting currency (Euro) at the year-end closing rates. The effect of foreign exchange on the claims reserves is presented in note 15 to the consolidated financial statements included elsewhere in this annual report.
(ii) AXA’s reinsurance operations within AXA Corporate Solutions included in the International Insurance
(iii) a portion of this business is reinsured to other reinsurers through retrocession programs which are monitored separately within the reinsurance operations, and
(iv) the claims are accounted for on an underwriting year basis covering a 24-month period rather than on an accident year basis covering a 12-month period.
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AXA does not discount its reserves for claims and claims expenses except disability claims for which final settlement has been agreed and the payments are generally fixed over a period of time. The disability claims reserves have not been included in the Loss Reserve Development Table, as these are similar to structured settlements.
AXA’s French property & casualty operations underwrite construction coverage with a ten-year contract term.
Item 10 b • Items 1-4 (V5) 1/07/02 11:42 Page 51 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Loss Reserve Development The loss reserve development table presents the claims reserve development for calendar years 1991 through 2001, as determined in accordance with French GAAP. The top line entitled “gross reserves for unpaid claims and claims expenses” represents the original gross claims reserve liability reported at the balance sheet date for the year indicated. The upper portion of the table entitled “paid (cumulative)” represents the cumulative amount paid as of the end of each succeeding year with respect to the original gross claims reserve liability reported. The lower portion of the table entitled “Reserve re-estimated” represents the previously recorded liability as adjusted (that is, re-estimated) based on claims experience as of the end of each succeeding year.
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Gross reserves for unpaid claims and claims expenses developed initially 4,064 4,665 4,932 5,595 5,712 5,847 20,371 20,941 26,656 26,916 28,636
Gross reserves for unpaid claims and claims expenses developed in 2001 11,263 12,581 13,827 15,467 15,208 19,338 22,338 23,251 26,287 27,202 na
(2) AXA acquired Compagnie UAP (“UAP”) on January 1, 1997. The operations of AXA and UAP were integrated in 1998. At the date of acquisition, UAP had net reserves of euro 13.7 billion. The outstanding claims reserves and claim expenses of UAP’s property & casualty operations are included in the year end reserves as at December, 31, 1997 and thereafter. Cumulative payments and reserve development for the 1998 year and thereafter include the development of the integrated property & casualty liabilities of AXA, including UAP, as loss development data specific to UAP is not available and there is no reasonable basis of allocating cumulative payments and reserves re-estimated between AXA and UAP post-acquisition.
(3) AXA acquired GRE in May 1999. The operations of GRE have been integrated within AXA. At time of acquisition the gross reserves totaled euro 5.6 billion.
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The majority of the business of the property & casualty insurance operations is short tail and, therefore, losses develop and are paid relatively quickly. In 2001, approximately 42% of the claims reserves were paid in the year that the claim event occurred (2000: 40 %).
Note 15 to the consolidated financial statements includes: (i) a reconciliation of beginning to ending gross outstanding claims reserves including claim expenses for each of the three years ended December 31, 2001 and (ii) the effect on income relating to changes in claims reserves for each of the three years ended
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(3) Represents premium earned subsequent to the accounting year end and premium reinstatements / experience-rated premiums received and accrued from the ceding insurers as assumed losses were incurred.
Loss Reserve Development Table: AXA Corporate Solutions Reinsurance b • Items 1-4 (V5) 1/07/02 11:42 Page 55 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
(1) Due to a change in accounting principle following a change in French accounting legislation effective January 1, 2001, equalization provisions that do not cover catastrophic risk (characterized by high cost and low occurence) are no longer permitted to be recognized under French GAAP and, therefore, not included in the 2001 figure reported. Therefore, the equalization reserves at December 31, 2001 were lower than at December 31, 2000, as certain reserves are no longer permitted to be recognized as a liability. In 2000, such reserves totalled euro 374 million.
Environmental, Asbestos and Other Exposures Environmental, asbestos and other related exposures are not material to AXA. Further details are provided in note 15 to the consolidated financial statements included elsewhere in this annual report.
REGULATION AXA’s principal operations are located in Western Europe, North America and the Asia-Pacific region, and to a lesser extent, in Africa, South America and the Middle East. In these jurisdictions, AXA is generally subject to comprehensive regulation and supervision, particularly with respect to its insurance and investment management operations.
Insurance Operations While the extent and nature of regulation varies from country to country, most jurisdictions in which AXA’s insurance subsidiaries operate have laws and regulations governing standards of solvency, levels of reserves, permitted types and concentrations of investments, and business conduct to be maintained by insurance companies as well as agent licensing, approval of policy forms and, for certain lines of insurance, approval or filing of rates. In certain jurisdictions, regulations limit sales commissions and certain other marketing expenses that may be incurred by the insurer. In general, insurers are required to file detailed annual financial statements with their supervisory agencies in each of the jurisdictions in which they do business. Such agencies may conduct regular examinations of the insurers’ operations and accounts and make requests for particular information from the insurer. Certain jurisdictions also require registration and periodic reporting by b • Items 1-4 (V5) 1/07/02 11:42 Page 56 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
holding companies that control a licensed insurer. This holding company legislation typically requires periodic disclosure concerning the corporation that controls the licensed insurer and other affiliated companies, including prior approval of transactions between the insurer and other affiliates such as intercorporate transfers of assets and payment of dividends by the controlled insurer. In general, these regulatory schemes are designed to protect the interests of policyholders rather than security holders. For further information refer to note 29 to the consolidated financial statements included as Item 18 in this annual report.
In Europe, AXA’s insurance operations are subject to a comprehensive regulatory scheme based on the
European Union (‘’EU’’) insurance directives on life insurance and insurance other than life insurance which were implemented in France, the United Kingdom, Germany and certain other jurisdictions through legislation which became effective in July 1994. These directives are founded on the ‘’home country control’’
principle according to which the ongoing regulation of insurance companies, including their non-home insurance operations (whether direct or through branches), is the responsibility of the home country insurance regulatory authority. The home country insurance regulator monitors compliance with applicable regulations including regulations governing solvency, actuarial reserves and investment of assets. Selling activities of non-home insurance operations, however, are generally regulated by the regulator in the country in which the sale of the insurance product takes place. As a result of the implementation of these directives, an insurance company that has been licensed to conduct insurance business in one jurisdiction of the EU may do business directly or through branches in all other jurisdictions of the EU without being subject to licensing requirements under the laws of the additional jurisdictions.
In France, the United Kingdom, Germany and certain other jurisdictions, equalization reserves are required to protect the insurer against the impact of large claims and catastrophes. The basis on which these equalization reserves are established is set out in the local country regulations based on pre-established formulas applicable to certain lines of business and may be capped at a maximum level. In the United Kingdom, AXA’s life insurance operations, like other UK insurers, have been subject to, and have participated fully in, an ongoing review by UK regulatory authorities of pension sales practices. Provisions have been established, based on actuarial assumptions and current information available to management, in order to cover the cost of the review and required compensation to policyholders. This review is scheduled for completion by the UK
regulator by June 2002. In addition, there have been several changes to the UK regulatory environment following the implementation of the “Financial Services & Market Act 2000” and the issuance of the regulator’s
Handbook of Rules and Guidance in December 2001. At this stage, the most significant changes relate to the management and conduct of business, however, major changes to prudential regulation are also planned when an integrated regime for insurers, banks and investment managers is introduced, probably in 2004.
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Gramm-Leach-Bliley Act became fully effective in 2001. These provisions establish new consumer protections regarding the security and confidentiality of nonpublic personal information and require full disclosure of the privacy policies of financial institutions to their consumer customers. There is also legislation pending in the
Several U.S states, including New York, regulate transactions between an insurer and its affiliates under insurance holding company acts. These acts contain certain reporting requirements and restrictions on provision of services and on transactions, such as asset transfers, loans and shareholder dividend payments by insurers. State insurance regulators also have the discretionary authority to limit or prohibit new issuances of business to policyholders within their jurisdiction when, in their judgment, such regulators determine that the issuing insurer is not maintaining adequate statutory surplus or capital. Life insurers in the United States are also subject to risk-based capital (“RBC”) guidelines which provide a method of measuring the adjusted capital (statutory capital and surplus plus asset valuation allowance and other adjustments) that a life insurance company should have for regulatory purposes taking into account the risk characteristics of the company’s investments and products. Equitable Life and AXA’s other U.S. life insurance subsidiaries expect that the statutory surplus will continue to be in excess of the minimum RBC levels required to avoid regulatory action.
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which they operate. These regulations are generally designed to safeguard client assets and insure adequacy of disclosure concerning investment returns, risk characteristics of invested assets in various funds, suitability of investments for client investment objectives and risk tolerance, as well as the identity and qualifications of the investment manager. These regulations generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply with such laws and regulations. In such event, the possible sanctions that may be imposed include the suspension of individual employees, limitations on engaging in business for specific periods, the revocation of the registration as an investment adviser, censures and fines.
The Company also has major operating subsidiaries with headquarters located in other countries including
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Item 5: Operating and Financial Review and Prospects You should read the following discussion together with AXA’s audited consolidated financial statements and the related notes included elsewhere in this annual report. The audited consolidated financial statements have been prepared in accordance with French GAAP, which differ in certain material respects from U.S. GAAP.
Market Conditions in Year 2001 Financial Markets The global financial markets conditions in 2001 were a bleaker version of 2000. The stock market performance deteriorated for the second consecutive year, more or less on a worldwide basis, in contrast to the performance in the bond markets.
• The unprecedented terrorist attacks in the U.S. on September 11, 2001.
STOCK MARKETS The fall in corporate earnings, coupled with cutbacks in corporate spending and layoffs, had a significant impact on the global stock markets. In Paris, the CAC 40 plunged 22%; in Frankfurt, the DAX index fell by 20%; London’s FTSE 100 fell by 16%; the Eurostoxx 50 lost 20%; and the Japanese Nikkei tumbled by 24%.
However, following the record low of September 21, 2001, the fourth quarter 2001 saw a dramatic rebound in the global stock markets. For example, in the fourth quarter 2001, the Dow Jones increased by 20% and the Eurostoxx 50 shot up by 33%.
The 10-year US Treasury bonds yield fell to 5.02% at December 31, 2001 (5.10% at December 31, 2000) and the 10-year Japanese bonds yield decreased to 1.35% at December 31, 2001 (1.64% at December 31, 2000).
FOREIGN CURRENCY The value of the U.S. dollar remained strong in 2001 compared with other major currencies, consistent with 2000. In particular, the yen and the euro lost 13% and 5% respectively against the U.S. dollar, which appreciated 8% in the trade-weighted exchange rate index.
Despite the 2001 changes in financial markets, the longer term view is of increasing demand for insurance products. In Europe, the post-World War II “baby boom” generation is creating an ageing population and, as a result, more countries are reducing the level of state funded welfare systems. This trend has led to an increase in retirement and other savings-oriented product advice and services in respect of financial, tax and estate planning.
France. In 1999 and 2000, the French life & savings market had experienced renewed growth in gross premiums of 13% and 20%, respectively. The growth was primarily attributable to savings-oriented retirement products and in particular multi-support contracts that offer diversified investment strategies, including separate account/unit-linked options. In 2001, the French life & savings market was adversely affected by unfavorable investment conditions in the stock markets. During this period, total gross premiums in the market fell by 8%, or a 40% decrease in total gross premiums on unit-linked contracts that was partly offset by an increase in premiums on general account insurance contracts.
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savings plans (which allow employees to choose from a variety of investment options) is expected to continue.
Stakeholder Pensions following new legislation that became effective in April 2001 and imposed a 1% limit on annual charges levied by an insurance company for administering such products.
– Australia. The predominant product in the Australian life insurance market place is the retirement-type product, which represented 79% of total premiums in 2001. In general, it is expected that savings-related investment products will continue to be the growth area of the Australian life & savings market due to the aging of the population and continued government support for self-funded retirement.
December 2000 has created a pension saving vehicle for two thirds of the work force which was not previously involved in voluntary retirement schemes.
Germany. In 2001, the German life & savings market experienced moderate growth of approximately 2%
(2000: 2%). The development in the life sector has been dominated mainly by the preparations for the
German pension reform involving the creation of new privately funded pension schemes that becomes effective in 2002: companies will be required to provide all employees with the opportunity to participate in corporate pension schemes. Some companies have already started to sell private pension products without certification by the supervisory authority; however, the level of sales were below industry expectations given that large groups of clients are generally taking a “wait and see” attitude until 2002.
Belgium. There has been a general boom in unit-linked savings-related products since 1998, of up to 69%
in 2000. This trend changed in 2001: whilst the overall Belgian life & savings market grew by 4.8%, some consumers returned to traditional financial protection savings-related products not directly linked to investment performance. This trend away from unit-linked products was due to the deterioration in stock market performance even before the impacts of the U.S. terrorist attacks on September 11, 2001.
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PROPERTY & CASUALTY After several years of intense competition and, consequently, low premium rates, principally in the automobile and commercial risk products lines, premium rates in European countries increased over the past 3 years, notably in 2001. This improvement has minimized the unfavorable effects resulting from (i) a general deterioration in claims experience due to a number of natural catastrophes that have occurred over the last 3 years, (ii) an increase in the cost of claims, in particular relating to bodily injury due to changes in legislation or arising from judicial decisions, and (iii) a general increase in the frequency of claims, in particular relating to automobile insurance cover.
primarily due to (i) estimated increase in sales in the French automobile industry and (ii) continued increases in premium rates on homeowners and commercial risk insurance cover.
Germany. Since 1996, there has been a low level of growth. In 2001, the market expanded by 3%. This growth was attributable to a 5% increase in gross premiums written on automobile insurance cover, which represented 43% of the total gross premiums written in the German property & casualty market in 2001.
Market growth continued at approximately 3% in 2001 after annual growth of 4% during 2000. The personal automobile and commercial property insurance products continued to be characterized by low profitability and, as a result, premium rate increases applied in 2001 are expected to continue in 2002. Insurance premiums from worker’s compensation products continue to be adversely effected by intense competition, with premiums remaining stable during 2001.
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ASSET MANAGEMENT Asset management business conditions were difficult in 2001 as stock markets around the world suffered sizeable losses, reducing the market value of assets under management and, consequently, the fees collected on funds managed by asset management companies. Markets experienced a general move away from speculative equity investments towards more secure, historically stable, high quality investment options, like fixed income and money market funds.
(before tax and net of reinsurance), or €561 million impact against the net income.
life & savings operations (€30 million before tax and net of reinsurance, or €16 million net group share) and the German operations in respect of their property business and art insurance covers (€55 million before tax and net of reinsurance, or €30 million net group share).
In addition, AXA had investment holdings (primarily in fixed maturity securities) in Enron, which filed bankruptcy in early December 2001. Consequently AXA recorded valuation allowances and realized losses of €68 million net group share.
ACQUISITIONS In the United States, on January 2, 2001 the acquisition of the minority interests in AXA Financial was completed as a result of the subsequent merger of AXA Merger Corp., a company created to effectuate the transaction, and AXA Financial. The outstanding minority shares in AXA Financial were converted into $35.75 c • Item 5 (V5) 1/07/02 11:42 Page 64 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
in cash and 0.295 of AXA American Depository Share (ADS). Consequently, AXA shareholders’ equity increased by €737 million (19.7 million ordinary shares on a post 4-for-1 stock split basis) and AXA Financial became a wholly owned subsidiary of AXA.
December 31, 2000 for the purposes of preparing the consolidated financial statements.
DISPOSALS On April 2, 2001, following a letter of intent signed in October 2000, AXA completed the sale of Banque
Capital and Financing Operations This is only a summary and should be read in conjunction with “–Liquidity and Capital Resources” for further information on capital and financing operations.
Since 1994, AXA has regularly offered shares to its employees. In 2001, AXA employees invested a total of €321 million in the employee stock ownership program (€25 million on July 20, 2001 and €296 million on December 14, 2001) resulting in the issuance of 18.3 million of AXA ordinary shares. At December 31, 2001, AXA employees held 2.3% of AXA shares (including ADSs) compared to 1.3% at December 31, 2000, with two employees out of five being shareholders of AXA.
AXA ORDINARY SHARES HELD IN TREASURY In 2001, the number of AXA ordinary shares held in treasury has increased by 12 million. As at December 31, 2001, AXA held approximately 30.5 million of its ordinary shares at a book value of €489 million or 1.7 % of the total outstanding ordinary shares. Theses shares are allocated principally to the AXA Financial stock option program, where options have been granted to AXA Financial employees to acquire AXA ADSs.
In June 2001, AXA issued €1.0 billion notes under its €3.0 billion European Medium Term Note program.
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AXA EQUITY & LAW INHERITED ESTATE In July 2000, AXA Equity & Law (a wholly-owned subsidiary in the United Kingdom) proposed a plan for its financial reorganization (“the Plan”) to its eligible participating (with-profit) policyholders. The Plan addressed principally the attribution of the “Inherited Estate” (assets in excess of the amount required to meet the policyholders reasonable expectations) held in the with-profit fund of AXA Equity & Law.
Approximately 74% of eligible policyholders (by policy value) elected in favor of the Plan. In December 2000, the Plan was approved by the High Court of Justice in the United Kingdom and it became irrevocable in
The French GAAP carrying value of the Inherited Estate amounted to £958 million (€1.5 billion) after deducting
This Inherited Estate has been attributed as follows: (i) £777 million (€1,235 million) to AXA and (ii) £181 million (€288 million) remaining in the participating (with-profit) fund. According to the terms and conditions of the Plan, the portion of the Inherited Estate attributed to AXA, along with the non-participating insurance business, was transferred out of the participating (with-profit) fund into separate legal non-participating funds in which 100% of the operating results will accrue to AXA in future periods.
CHANGES IN ACCOUNTING PRINCIPLES A new basis for preparing and presenting consolidated financial statements in France for insurance companies
(Regulation No. 2000-05 of the Comité de la Réglementation Comptable) became effective as of January 1, 2001. Most of the accounting policies set forth in the new regulation were already in effect at AXA and, therefore, the adoption had limited impact to the consolidated operating results and financial position of AXA.
compared to €2,540 million reported under previous accounting principles. The significant changes in accounting principles for the AXA Group related to : • the accounting for equalization reserves, which are now recognized under French GAAP only if such reserves relate to catastrophe risk reserves; • the change of principles for the U.S. and Asia Pacific financial information, previously established and included on a U.S. GAAP basis is no longer accepted in New French GAAP. Consequently, (i) certain assets previously booked at market value under U.S. GAAP are now stated at historical cost or amortized cost under
French GAAP, and (ii) the cost of the Disability Income reinsurance treaty placed by the U.S. life & savings operations in 2000 was previously amortized against income over the term of the contract whereas the cost is taken as an immediate charge in New French GAAP.
• treasury shares, under certain circumstances, are to be reported as a reduction of shareholder’s equity and, consequently, 2000 realized capital gains on treasury shares have been restated.
The impact of New French GAAP on 2000 net income and adjusted earnings is summarized in the tables below: Item 1
basis that takes into account the changes in accounting principles to enable a comparison on a constant methodological basis.
Events Subsequent to December 31,2001 DEFINITIVE CHANGEOVER TO EURO All the operational entities of the Group involved in the conversion to Euro have successfully completed this complex and multiform operation. Since January 1, 2002, the management reporting systems, the accounting systems and the customer administration systems have been operating fully in the Euro currency.
2001 DIVIDEND The Management Board recommended a dividend in respect of 2001 of €0.56 per ordinary share. This recommendation was subsequently approved by the shareholders at the annual general meeting held on c • Item 5 (V5) 1/07/02 11:42 Page 68 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Equity in income (loss) from affiliated entities 17 22 22 (10)
(2) Adjusted Earnings represents AXA’s consolidated net income, before goodwill amortization and exceptional operations. Adjusted Earnings is a nonGAAP measure, which management believes provides a meaningful understanding of the results. It should be noted that “Adjusted Earnings” as defined may not be comparable with similarly-titled measures reported by other companies as it is not defined under either French GAAP or U.S. GAAP.
(3) Following the disposal of Donaldson, Lufkin & Jenrette (DLJ) in the second half of 2000, these items are significantly lower in 2001. (4) In 2000, the net investment result disclosed in the year 2000 financial statements was euro 20,863 million. Difference with the above reported amount of euro 10,089 million relates to presentational changes as (i) it did not include a euro (6,052) million impact of change in fair value of separate accounts and UK “with-profit” assets but included (ii) euro 4,721 million related to exceptional operations (100%, pre-tax). Under the new presentation (adjusted earnings and New French GAAP presentation but with Old French GAAP data), the amount of net investment result was euro 10,089 million.
In 2001, the change in fair value of separate accounts had adversely impacted the net investment result for euro (11,613) million.
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Consolidated Gross Revenues Consolidated gross revenues comprise gross insurance premiums, revenues arising from asset management fees earned and other financial service operations revenues.
in 2000. On a comparable basis, life & savings consolidated gross revenues decreased by 1.6% mainly due to a fall in premiums on unit-linked savings business, adversely affected by the decline in the global stock markets. The decrease was attributable to France (–12%) and the United States (– 9%), and was partially offset by growth in Belgium (+ 53%) and in the United Kingdom (+16%).
Gross written premiums increased by 2.4%, with growth in all major countries (except in the United Kingdom)
International Insurance Segment represented 8% of total consolidated gross revenues in 2001 compared to 5% in 2000 and reported a 53% increase due to (i) growth in assumed business, and (ii) a significant increase in premium rates and reinstatement premiums following the U.S. terrorist attacks on September 11.
Asset Management Segment represented 5% of total consolidated gross revenues in 2001 compared to 4% in 2000. On a comparable basis, the consolidated gross revenues decreased by 1.6%, mainly due to lower fees earned on assets under management as a result of the depreciation in value of the global stock markets in 2001.
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YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 2000 consolidated gross revenues totaled €80.0 billion, or an increase of 20.2% compared to 1999. On a comparable basis, the increase was 10.8%. Excluding DLJ, consolidated gross revenues totaled €69.3 billion in 2000.
Revenue growth from the insurance operations was driven by the Life & Savings Segment (an increase of 8.4% on a comparable basis). Certain countries or regions reported double-digit revenue growth, in particular
The International Insurance Segment had revenue growth of 10.5%. This increase was mainly due to reinsurance premiums, which increased by 34.1% and related to significant rate increases on natural catastrophe business. This growth was offset by a 15.6% decrease in Large Risks business, mainly attributable to the adoption of a more selective underwriting policy.
The Asset Management Segment had a growth in revenues of 21.3% (19.7% for Alliance Capital and 34.2% for AXA Investment Managers), which increased in line with growth in assets under management and efforts to shift to higher yielding investments, such as equities.
The Other Financial Services Segment was effected by the sale of DLJ whereby only nine months of DLJ
operating results were included in AXA’s 2000 consolidated operating results. Compared with the nine-month period ended September 30, 1999, DLJ’s revenues increased by 39.3% in the nine-month period ended
• The increase in goodwill amortization of €402 million (net group share) in 2001 was mainly due to full year of amortization recorded in 2001 for significant acquisitions undertaken in 2000, including AXA’s buyout of minority interests in Sun Life & Provincial Holdings (subsequently renamed AXA UK Holdings) and in AXA
Adjusted earnings totaled €1,201 million in 2001, or €1,091 million lower than in 2000. The decrease was primarily attributable to : • the impact of the September 11 U.S. terrorist attacks of €561 million (net of reinsurance and tax, and after adjustment to DAC); • lower level of net investment gains (€229 million in 2001 as compared to €1,096 million in 2000), principally due to the significant decline in the global stock markets, which resulted in (i) lower level of realized capital gains on sale of investments, and (ii) valuation allowances in respect of securities, consisting of €636 million impairment on equity securities and €68 million in respect of fixed maturity investments in
Enron; • the increase in interest expense of AXA (the Company) of approximately €200 million due to new borrowings and debt issued in 2000 to partly finance the acquisitions in 2000; and
These unfavorable items were only partially offset by: • the €199 million impact of the tax reform in Germany: effective from January 1, 2001, realized capital gains on equity securities are no longer taxable in Germany and, therefore, the corresponding deferred tax liabilities have been released; and
Sun Life & Provincial Holdings), which issued ordinary shares to partly finance the acquisition of GRE (€469 million, group share); • the exceptional amortization of goodwill relating to inadequacies in the technical reserves in connection with British, Irish and Portuguese Property & Casualty activities (€259 million, group share); and
Adjusted earnings totaled €2,540 million in 2000, or €495 million higher than in 1999. This increase was primarily attributable to: • the Life & Savings Segment (up by €316 million) mainly due to (i) the contribution of the six-month postacquisition results of the Japanese operations following AXA’s acquisition of Nippon Dantaï in March 2000,
• A dividend of €97 million received by AXA (the Company) in respect of a non-consolidated equity investment
• These favorable items were partially offset by the decrease of Property & Casualty Segment contribution to adjusted earnings, mainly due to significant reserves strengthening recorded in the UK, Ireland and Italy.
– Other bond conversions and exercise of stock options 35 3
– Impact of change in methodology (AXA Equity & Law Inherited Estate) (79) –
December 31, 2001 (before net income for the year) 24,259 1 ,734
(2) In connection with the buyout of minority interests in AXA Financial, 25.8 million of ordinary shares of AXA were issued: 20.9 million upon completion of the exchange offer in December 2000 and 19.7 million in January 2001 when the subsequent merger of AXA Merger Corp, (a whollyowned subsidiary of AXA) with and into AXA Financial was completed.
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EARNINGS PER SHARE (“EPS”) DILUTED Based on AXA’s consolidated net income of €520 million and weighted average number of outstanding ordinary shares of 1,716 million in 2001, basic net income per ordinary share was €0.30 (2000: €3,904 million, 1,518 million and €2.57, respectively, and 1999: €2,021 million, 1,412 million and €1.43, respectively, both on a post 4-for-1 stock split basis). Diluted net income per ordinary share takes into account the potential dilution of convertible debt (on an “if converted” basis) and outstanding share options. Diluted net income per ordinary share in 2001 was €0.32 (2000: €2.44 on a post 4-for-1 stock split basis and 1999: €1.35 on a post 4-for-1 stock split basis).
RETURN ON EQUITY (ROE) ROE based on net income was 2.1% in 2001 as compared to 21.1% reported in 2000 (or 18.6% on a restated proforma basis).
ROE based on adjusted earnings (“Adjusted ROE”) was 4.9 % in 2001, or a 8.8 point decrease as compared to reported 2000 cash ROE of 13.7% (7.4 point decrease compared to 2000 adjusted ROE on a restated Pro forma basis of 12.4%) for the year 2000 restated.
SHARE PRICE In 2001, the AXA share price decreased by 39%, underperforming the CAC 40 (which decreased by 22%), the
Euro Stoxx 50 (decreased by 19%) and the Euro Stoxx Insurance index (decreased by 30.5%).
The AXA share price at December 31, 2001 was €23.47 as compared to €38.50 (on a post 4-for-1 stock split basis) at December 31, 2000.
In the last five years, the AXA share price total annual return has been + 16.06%, as compared to an annual total return of +17.1% for the CAC 40, +14.9% for the Euro Stoxx 50 and +14.6% for the Euro Stoxx Insurance.
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The following tables present the operating results for the Life & Savings Segment as well as the gross revenues, adjusted earnings and net income contributed by the principal geographical regions for the periods indicated.
(1) Before intercompany transactions. (2) Pro forma New French GAAP according to the new French Regulations that became effective on January 1, 2001, as if New French GAAP had been applied since January 1, 2000. The pro forma financial information was not subject to audit.
(3) In 2000, the net investment result disclosed in the year 2000 financial statement was Euro 14,724 million. Difference with the above reported amount of Euro 7,018 million only relates with presentation changes as (i) it did not include a Euro – 6,052 impact of change in fair value of separate accounts and with profit-profit assets but included (ii) Euro 1,802 million related to exceptional operations (100%, pre-tax) and (iii) the net impact of intercompany transactions for Euro -148 million. Under the new presentation (adjusted earnings and New French GAAP presentation but with old French GAAP data), the amount of net investment result was Euro 7,018 million.
The restatements from Old French GAAP to New French GAAP (mainly deriving from realized capital gains on restatements of treasury shares and of assets at historical costs) amounted to Euro 106 million (100%, pre-tax). Under New French GAAP and under New Presentation, the net investment result amounted to Euro 6,912 million in 2000.
The net income contributed by the Life & Savings segment in 2000 included €700 million arising from exceptional operations: €936 million realized capital gains on the DLJ sale and €236 million realized losses and valuation allowances on high yields bonds held in the investment portfolio of the U.S. operations. Under new French GAAP, such items amounted to €488 million, since it also included the cost of the cession of the
Disability Income portfolio in the U.S. life & savings operations in 2000, which would have been recorded as a charge in the period under new French GAAP.
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Fixed maturity investments: Related assets at year end 123,296 112,203 100,353
Total General Account assets: Total General Account assets at year end 222,830 225,351 185,197
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MARGIN ANALYSIS FOR LIFE & SAVINGS OPERATIONS In prior years, AXA’s commentary on the Life & Savings operations by country has been provided on the basis of presentation set out in the Statement of Income. In 2001, AXA has changed the basis for which it provides commentary on the operating results of the Life & Savings operations to follow “Margin Analysis” (please refer to the Margin Analysis glossary provided at the end of this document). Margin Analysis is used by AXA
As a result, the operating income under Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment. There are certain material differences between the detailed line-by-line presentation in the
(i) Gross premiums (net of deposits), fees, commissions and other revenues are allocated in the Margin
Consolidated gross written premiums amounted to €11,001 million (before intercompany eliminations).
• Investment & Savings (71% of total gross written premiums): individual premiums (64% of total gross written premiums) were down by 18% mainly due to weak financial markets, as well as a strong prior year comparison basis (as PEP products had matured). Individual unit-linked premiums (48% of the individual premiums versus 62% in 2000) declined by 37% in a market that was down by approximately 40%.
Investment margin increased by €14 million in 2001 as compared to 2000. The level of realized capital gains decreased by €208 million in 2001 as compared to 2000, of which €147 million related to equity securities. This negative impact was more than offset by (i) an increase in investment income of €133 million received in 2001 mainly due to the performance of European listed companies in 2000, and (ii) a decrease in rates credited to policyholders on certain products (impact of €88 million) as a result of the volatility of the financial markets in 2001. However, the decrease in rate still provided policyholders with a rate of return greater than the average market rate in particular for the Euro multi-support savings type products. As the majority of the portfolio has been held for a number of years, no impairment was necessary.
This decrease was partly offset by a €27 million rise in fees and revenues from group life and health business, in line with the increase in gross written premium of + 6% in 2001 as compared to the prior year.
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The cost income ratio was stable in 2001 as compared to the prior year (respectively 77.5% versus 77.6%)
Adjusted earnings decreased by €47 million to €345 million in 2001 as compared to 2000. As the operating income was mainly stable in 2001 as compared to the prior year (respectively €494 million and €499 million), the decrease in adjusted earnings was primarily attributable to income tax expense (decrease of €43 million).
• Investment & Savings (61% of gross revenues) premiums decreased by 14% compared to 2000, mainly driven by an industry-wide decline in variable annuity sales, a consequence of the general slowdown in the economy and the drop in equity markets. This decrease was experienced by all distribution channels, the wholesale channel (– 19%) being less resilient than the retail channel (– 12%). In the variable annuities market, notwithstanding the decline in premiums, AXA maintained its market share with a number six ranking.
(2) As disclosed in the 2000 annual report. 2000 figures are presented excluding one-off items : realized gain on the sale of DLJ (€2,483 million or €936 million after tax and minority interest), realized losses and valuation allowances relating to high-yield bonds in the second half of 2000 (€604 million or €236 million after tax and minority interest).
The cost income ratio amounted to 91% as compared to 79% in 2000 mainly due to (i) the non-recurring severance costs in 2001 and to (ii) the strong declines in investment margin and in fees and revenues.
The amount of adjusted earnings attributable to minority interests decreased by €252 million in 2001 as compared to 2000, as a result of AXA’ s buyout of the minority interests in AXA Financial in December 2000.
(excluding minority interests in 2000 and on a constant exchange rate basis), adjusted earnings decreased by €122 million, primarily due to a lower level of fees and revenues earned, lower investment margin, and higher severance costs, partially offset by the improvement in Individual Health results in 2001 compared to 2000, reflecting the cession of the Disability Income line to a reinsurer in July 2000. Excluding net capital gains and claims associated with the September 11, 2001 terrorist attacks, adjusted earnings decreased by €102 million compared to 2000.
As at January 1, 2001, the basis of profit recognition in respect of the UK participating (with-profit) funds has been changed under French GAAP to better reflect the policyholders’ rights. This new basis is consistent with the basis of determining such liabilities used by the UK life companies to prepare their financial statements.
As a result of the change in accounting method, the profit recorded during the period from UK participating funds represents only 10% of the bonus declared in that period, with the remaining 90% allocated to policyholders. In prior years, profits from UK participating funds were determined as the sum of 10% of the results of the funds (including non-participating business within the “with-profit” fund) and 100% of the investment result on assets in excess of the “with-profit” policyholders’ liabilities. The basis of profit recognition for non-participating business, not included in the “with-profit” funds, is unchanged and represented 100% of all revenues and expenses incurred in respect of this business. In addition, as a result of the financial reorganization effective on April 1, 20014, the AXA Equity & Law (AEL) non-participating business within AEL’s
“with-profit” fund, together with AEL’s Inherited Estate attributed to AXA, were transferred into separate legal non participating funds in AXA Sun Life.
liabilities, whereas 2001 included 100% of the investment result of the new non participating funds.
• €–14 million VBI amortization attributed to the unit-linked business transferred to the new non participating funds in 2001.
(resulting from the launch in June of an international With Profit bond contract) and an “Invest for Income”
campaign launched in the summer, which aims to provide regular income by using a combination of products.
(4) See “–Year 2001 Operating Highlights”. (5) Annual Premium Equivalent (APE) is total of 100% of new regular premiums and 10% of new single premiums.
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• Health revenues (13% of all UK Life & Savings revenues) increased by 6%, with individual premiums up by 3% and group premiums up 7% mainly due to higher pricing.
Investment margin decreased by €70 million in 2001 as compared to 2000, or €63 million on a constant exchange rate basis. Excluding the impact of the financial reorganization (€-47 million), the investment margin decreased by €16 million. This decrease is primarily related to lower investment income as a result of reduction in interest rates and lower shareholder assets, partly offset by a €8 million increase in shareholders’ profit from participating “with-profit” funds which resulted from bonus payments on higher volumes of new business and on terminating policies.
Fees and revenues increased by €18 million in 2001 as compared to 2000, or €26 million on a constant exchange rate basis. Excluding the impact of the financial reorganization (€+ 44 million), fees and revenues decreased by €18 million. This decrease is mainly attributable to the unit-linked business as discussed below.
Expenses, net of policyholder allocation6 increased by €75 million in 2001 as compared to 2000, or €86 million on a constant exchange rate basis. Excluding the impact of the financial reorganization (€–39 million), expenses increased by €47 million. 2001 expenses included (i) an €89 million investment in strategic initiatives to reengineer systems and processes to face the new competitive environment as compared to €46 million incurred in 2000, and (ii) a €14 million investment in the development of an internet capability for the sale of mutual funds. Following a review of long term assumptions, the DAC/VBI amortization expense increased by €5 million in 2001 as compared to 2000. Excluding these costs, expenses net of policyholder allocation decreased by €17 million whilst business volumes increased by 16%.
Consequently, the ratio of gross operating expenses to total gross insurance reserves increased from 1.33% to 1.41% in 2001 mainly due to the investment in strategic initiatives. As at December 31, 2001 insurance reserves totaled €71 billion. During the year 2001, they have been adversely affected by €4.1 billion due to the change in fair value of unit-linked and with-profit reserves. Excluding this negative impact, the ratio of gross operating expenses to total gross insurance reserves remained constant at 1.33%.
The cost income ratio increased by 11 points to 74% as a result of the increase in expenses combined with a lower level of investment margin.
The health operating income reported by AXA PPP healthcare decreased by €4 million in 2001 as compared to 2000, or €3 million on a constant exchange rate basis. The strong pricing strategy undertaken in 2001 to increase profitability improved the underlying health margin. However, the favorable results were more than offset by a valuation allowance of €24 million (pre-tax) recorded in respect of certain impaired equity securities and a provision of €11 million (pre-tax) for industry levies necessary to fund UK insurance company insolvencies during the year.
(6) Part of these expenses are incurred by the “with-profit” funds and are therefore borne by policyholders.
of activity of the new AXA Japan entity that was created following the acquisition of Nippon Dantaï. Therefore, 2000 and 2001 results are not comparable.
– Health (17% of gross written premiums): gross written premiums grew by 5% due to the revision of commission scales as well as to a sales campaign that increased the focus of the sales force towards medical products.
The investment margin in 2001 amounted to a loss of €368 million. The loss included a €510 million valuation allowance (pre-tax) on impaired assets, of which €478 million (€255 million net group share) were related to certain impaired equity securities as a result of the deterioration in the stock markets and €32 million
The net technical margin of €148 million in 2001 benefited from favorable mortality experience and profits arising from higher than expected surrenders of unprofitable investment contracts.
Excluding the valuation allowance on impaired assets, the cost income ratio improved from 79% in 2000 to 70% in 2001 due to a strong focus on expense control especially in personnel and marketing costs.
The companies in the AXA Asia Pacific Holdings group (Australia/New Zealand, Hong Kong and Singapore)
Consolidated gross revenues totaled €2,590 million for the 15 months ended December 31, 2001, of which €505 million related to the fifth quarter. On a comparable basis, revenues increased by 6.5% for the 12 months ended September 30, 2001.
– Investment & Savings (55% of gross revenues): gross written premiums grew 2% primarily driven by singlepremium retirement contracts due to product improvements.
– Life including income protection (20% of gross revenues): gross written premiums increased by 4% as a result of the 7% growth in income protection, primarily due to rate increases (on average + 20% on new business and in-force policies, effective December 2000) partially offset by higher lapse rates for some segments.
Mutual fund net inflows were €572 million for the 15 months ended 31 December 2001, of which €110 million related to the fifth quarter. Net inflows increased by 45% (on a constant exchange rate basis) for the 12 months to September 2001due to continued growth and the successful launch of new retail products during the year.
Adjusted earnings for the 15 months ended December 31, 2001 totaled €29 million7: • Adjusted earnings for the 12 months ended September 30, 2001 were €36 million (versus €1 million in 2000).
– Health operations’ adjusted earnings improved by €+19 million to €32 million in 2001, as a result of (i) the increase in volume mentioned above and (ii) a reduction in the loss ratio from 83% to 79% due to a lower age profile of the new members.
– Life & Savings adjusted earnings for the twelve months ended September 30, 2001 increased to €4 million compared to a loss of €12 million in 2000. This increase was mainly attributable to a decrease in expenses, due to a reduction in administrative expenses and an exceptional VBI write-off in 2000. This increase was partially offset by a deterioration of the technical margin (€26 million) mainly due to poor claims experience on Income Protection in 2001.
• Adjusted earnings for the 3 month period ended December 31, 2001 was a loss of €6 million, comprising a profit on the health operations of €8 million, offset by a loss on life & savings operations of €14 million, This loss was mainly due to a €53 million strengthening (€18 million net group share) of income protection reserves as a result of a change in the rate used to discount reserves and poor claims experience on such business.
Gross written premiums including internal replacement (transfers from pre-existing retirement products to
new business and from the successful launch of a closed-end guaranteed bond in November 2001.
China Region invested in longer duration fixed income securities with higher yields, (ii) a reduction in realized losses of €9 million, and (iii) a reduction in bonus crediting rates (€4 million) in line with market trends.
Gross written premiums for the 15 months ended December 31, 2001 were €216 million. For the 12 months ended September 30, 2001, they amounted to €182 million, a 43% increase compared to the same period in 2000, mainly due to the successful launch of a new single-premium index-linked product in the second quarter of 2001.
China Gross written premiums reached €9 million, a 109% increase on a constant exchange rate basis from last year, which can be mostly explained by the increase in agent numbers (an increase of 26% from last year at the end of December). Adjusted earnings amounted to a loss of €2 million in 2001 as in 2000.
(8) AXA China Region is part of the AXA Asia Pacific Group, which is 51% owned by AXA. (9) AXA Life Singapore is part of the AXA Asia Pacific Group, which is 51% owned by AXA.
(1) Excluding health insurance business. (2) Pro forma New French GAAP as if New French GAAP had been in force since January 1, 2000.
Gross written premiums amounted to €2,998 million (before intercompany eliminations). Net of intercompany, German revenues (6% of total Life & Savings) rose 3% to €2,997 million compared to market growth of 1.5%.
• Investment & Savings (18% of gross written premiums): premiums went up 1% to €527 million mainly driven by unit-linked product sales. Non unit-linked premiums decreased by 1% due to the “wait-and-see”
• Life (62% of gross written premiums): Life premiums grew by 1% to €1,865 million mainly driven by unitlinked product sales (up 45%, representing now 6% of premiums), which offset the 1% decline in non unitlinked product sales.
• Health (20% of gross written premiums): rate increases continued to drive health premiums growth of 12%, largely outperforming the estimated market growth of 5%. The new business was still strong at €75 million.
(gross of policyholder participation) in 2001. Unlike in 2000 in which €229 million dividends from mutual funds were distributed, only €32 million dividends (gross of policyholder participation) were distributed in 2001. Higher capital gains of €30 million were realized in order to partially offset the lower revenues.
In addition, the investment margin was affected by policyholder participation paid on internal dividends, which were higher than in 2000 (€6 million).
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The investment margin decreased by €45 million in 2001 as compared to 2000, primarily due to a valuation allowance of €91 million before tax (€74 million net of policyholder bonuses before tax) recorded in respect of an impairment of certain equity securities. Excluding the impairment, the investment margin would have increased by €29 million mainly explained by: • Investment income on fixed maturities and equity securities were up by €51 million, as a result of an increase in invested assets.
• A €49 million increase of realized capital gains on fixed maturity securities was due to sales in connection with the implementation of a new investment strategy for more fixed maturity securities with a longer duration in order to improve the asset-liability matching.
• Due to the weak performance of stock markets, the bonuses credited to policyholders decreased by €27 million.
Expenses increased by €24 million in 2001 as compared to 2000, primarily due to an increase in the volume of new business written that mainly affected acquisition expenses and due to significant information technology projects that impacted administration costs.
The ratio of gross operating expenses to total gross insurance reserves was stable at 1.94%. The cost income ratio amounted to 58.4% as compared to 48.3% in 2000. The deterioration was due to (i) the increase in expenses and (ii) the lower level of the investment margin. Excluding the valuation allowance, the cost income ratio was stable as compared to 2000.
The Netherlands. Gross revenues decreased by 1% to €912 million in 2001 as compared to 2000. Life insurance (67% of total gross premiums) decreased by 7% to €609 million, mainly due to radical modification of tax legislation in the Netherlands, stronger competition and poor performance in both the equity market and mortgage market. Gross revenues on health business increased by 14% and was mainly due to premium rate increases of 11% on average, in line with market trends, and continued success of the individual disability product.
Other countries’ adjusted earnings remained stable as compared to 2000. The €2 million increase for Portugal was attributable to a deferred tax credit following a change in the tax regulation, partially offset by a valuation allowance on impaired equity securities. In Switzerland, the adjusted earnings were also affected by an impairment of equity securities.
In Life insurance, adjusted earnings were up by €15 million to €70 million in 2001 as compared to 2000. The increase was due primarily to a €21 million increase of the investment margin mainly resulting from €44 million in realized capital gain (net of an exceptional €5 million amortization of the value of business inforce) on the sale of the private loans, partly offset by realized losses on the sale of equity securities of €27 million.
In Health, the adjusted earnings decreased by €3 million to €0 million primarily due to the bankruptcy of a large broker.
Adjusted earnings increased by €8 million in 2001, primarily due to an increase in AXA’s ownership interest from 70% to 100% in December 2000. On a comparable basis, adjusted earnings increased by €1 million, mainly due to a €3 million after tax increase in the investment margin. The increase of the investment margin was a result of a release of deferred policyholders bonuses due to an asset/liability matching review
Adjusted earnings decreased by €8 million to €36 million in 2001, as compared to 2000 : – The investment margin decreased by €17 million, mainly due to (i) a €7 million impairment on South
American government bonds now fully depreciated to market value, and to (ii) a €10 million decrease of the financial revenues and realized capital gains (net of policyholder participation).
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Equity in income (loss) from affiliated entities 5 1 1 4
Gross written premiums (before intercompany elimination) amounted to €4,167 million. Net of inter company elimination, gross written premiums increased by 4% to €4,171 million, due to steady sales throughout all business lines and higher pricing. Direct Assurance premiums increased by 11%, with 14%
of new business being written via the Internet, showing an increasing trend throughout the year.
increased by 2% due to higher average premiums. Non-automobile insurance (40% of personal lines)
– The net current accident year loss ratio improved by 0.8 point to 81.0% in 2001 compared to 2000. The net technical result on current accident year improved by €59 million. The improvement was principally due to
(i) the increase of gross written premiums by €27 million, (ii) to the personal and commercial motor lines, as a result of premium rate increases, and due to improved risk-selection policies in commercial lines.
The industrial risks line benefited from lower costs of large claims (or a decrease of 13% in 2001 as compared to 2000). The AZF claim (Toulouse, explosion in September 2001) had a minimal impact with a pre-tax cost net of reinsurance of €8 million. These improvements were partly offset by higher reinsurance costs in 2001, mainly due to rate increases.
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The loss ratio for all accident years net of reinsurance improved by 0.1 point to 82.1% in 2001.
Expenses increased by €31 million to €1,047 million, or 3.1% in 2001 as compared to 2000.
Due to a lower than expected cost of an agent termination agreement finalized in 2001, a €48 million provision was released. Excluding this release, expenses increased by €79 million or 7.8%. Distribution costs increased by €41 million due to volume impact, product mix and higher bonuses granted to tied agents.
Other expenses increased primarily due to €55 million of costs mainly related to the reengineering of insurance processes as part of the AXA France strategic change program.
The combined ratio slightly improved to 107.3% in 2001 as compared to 107.6 % in 2000.
Net investment result increased by €50 million in 2001. Investment income increased by €53 million, mainly attributable to higher dividends received in 2001 due to the performance of European listed companies in 2000 (increase of €33 million). Income from real estate also increased by €18 million.
Income tax expense increased by €8 million to €124 million in 2001 as compared to 2000, in line with the operating income increase, which is partly offset by a higher level of realized gains in 2001 on the sale of long term equity investments. The latter are subject to a low tax rate in France (20.77% in 2001), which explains a lower corporate tax rate of 31.8% in 2001 (2000: 34.5% ).
Gross written premiums amounted to €3,165 million (before intercompany eliminations). Net of intercompany, Germany revenues (20% of total Property & Casualty) grew 2% to €3,142 million as rate increases, mainly in commercial lines, were partially offset by stricter underwriting policies.
• Personal (57% of gross written premiums): Premiums decreased slightly (–1%) as moderate growth in personal motor premiums (47% of personal lines) was offset by a decrease in non-motor premiums (53%
of commercial lines) as a result of tariff increases in Property (+ 4%) and new business in liability (+ 8%).
• Other (14% of gross written premiums): Premiums were stable. A 10% growth in Art insurance and a slight 2% premium increase from foreign business offset the 17% decrease from planned contract terminations in the former Albingia portfolio.
• Excluding the exceptional impact of the U.S. terrorist attacks claim, the all accident year loss ratio net of reinsurance deteriorated by 1.3 point, mainly due to unfavorable reserve developments in professional liability, marine and assumed business. In all other business lines, and particularly in motor, favorable reserve developments resulted from continued tariffs adjustments throughout 2001, as well as further risk selection to prune the business portfolio and improve its profitability.
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The combined ratio increased by 3.3 points to 118.3% in 2001.
Net investment result decreased by €44 million to €383 million in 2001 as compared to 2000 on a comparable basis. The decrease was mainly due to €73 million lower dividends from mutual funds, as compared to €24 million distributed in 2001. Higher net capital gains by €16 million were realized on equity investments.
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• The decrease in personal lines business was primarily attributable to a 34% decline in personal automobile business (50% of personal lines business) following the application of a more selective underwriting policy and the cancellation of non-profitable distribution partners.
• Commercial lines business includes €89 million of gross written premiums generated from targeting
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basis of which €95 million related to former GRE subsidiaries and was therefore charged against the shareholders’ equity as a purchase accounting adjustment. This reserve strengthening was mainly attributable to the increase of bodily injury costs in the automobile and casualty business in the UK market. In 2001, the reserves strengthening amounted to €116 million gross of tax of which €47 million related to the continuing business and €69 million to the discontinued book of business. In respect of the continuing business, €33 million of reserve strengthening related to new legislation enacted in June 2001 that decreased the discount rates applicable to some personal injury awards from 3.0% to 2.5%, and €14 million related to a deterioration of the Public and Employer’s liability reserves. In respect of the discontinued book of business, the reserve strengthening related to further development of asbestos and pollution exposures.
Expenses decreased by €57 million in 2001 as compared to 2000, or a decrease of €37 million on a constant exchange rate basis. The decrease was mainly due to (i) lower commission rates paid on new business gained from former customers of Independent and a change in business mix to business with lower commission rates, and (ii) lower costs related to the integration of Guardian Royal Exchange and UK information technology services incurred in 2001 compared to 2000. As a consequence, the expense ratio improved by 0.7 point to
Net investment result decreased by €181 million to €203 million in 2001 as compared to 2000, or €177 million on a constant exchange rate basis. The decrease was principally due to a valuation allowance of €133 million before tax recorded in 2001 in respect of certain impaired equity securities, and a lower level of realized capital gains, which reduced the net investment result by €47 million compared to 2000.
The net income attributable to minority interests decreased by €74 million in 2001 as compared to 2000 due to AXA’s buy-out of the minority interests in Sun Life & Provincial Holdings plc (now AXA UK plc) in July
Adjusted earnings improved by €17 million in 2001 as compared to 2000. On a constant exchange rate basis and before minority interests, the increase amounted to €87 million. This improvement related mainly to an improved net technical result and lower expenses, which were partly offset by a decrease in the net investment result. Excluding net realized capital gains, adjusted earnings increased by €117 million in 2001 as compared to 2000. On a constant exchange rate basis and before minority interest, the increase amounted to €214 million.
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compensation new business. Motor lines (19% of commercial lines) by increased by 3% with contrasting trends in Third Party liability (down due to the loss of an important contract) and Motor damage (up due to the extension of several important contracts).
The net technical result decreased by €23 million to €205 million in 2001 as compared to 2000: • The current year loss ratio net of reinsurance improved by 3.4 points to 94.5% in 2001. It had largely deteriorated due to various large claims in 2000 but improved in 2001, also due to measures taken to improve profitability (mainly due to a portfolio review primarily in automobile insurance and to an improved underwriting result on new business).
compensation of 112.8% in 2001 as compared to 111.0% in 2000).
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operating income before tax, since the realized capital gains on equity securities and valuation allowance on such investments were not taxable.
Adjusted earnings decreased by €205 million due to (i) a decrease in the net investment result of €197 million and (ii) deterioration in the net technical result of €23 million. Excluding the realization of capital gains and impairment, adjusted earnings decreased by €56 million to €5 million mainly due to a deterioration in the net technical result of €23 million and a lower interest income.
Italy. Gross written premiums increased by €43 million, or 4.1% on a comparable basis to €1,081 million in 2001 as compared to 2000 in spite of the closing of non-profitable agencies and an insurance portfolio review.
The increase was mainly attributable to growth in Automobile insurance lines following premium rate increases of 15% on average in the second half-year.
Adjusted earnings improved from a loss of €66 million in 2000 to a loss of €6 million in 2001.
– An improvement of 12.6 points on prior years loss ratio attributable to (i) reserve strengthening in 2000 following changes in legislation concerning bodily injury claims (7.3 points) and to (ii) favorable loss reserve development in several lines of business in 2001 (5.3 points).
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impairment on equity securities of €11 million, and on South American government bonds of €4 million, and
As a result, the combined ratio amounted to 108.5% as compared to 124.7% in 2000.
Canada. The consolidated gross revenues increased to €693 million, or 7.6% on a constant exchange rate basis, in 2001 as compared to 2000. The increase was principally due to increases in premium rates. Increased premiums were recorded in both automobile insurance (42% of gross written premiums) and commercial lines business (40% of gross written premiums), whereas personal household insurance (17% of gross written premiums) slightly declined as premium rate increases were offset by a decrease in the portfolio due to policy cancellations following a review of the insurance portfolio.
and a 22% increase in commercial lines business (20% of gross written premiums). This growth includes a 12% average increase in premium rate for both personal and commercial automobile insurance, combined with an increase in the volume of commercial automobile business written.
Adjusted earnings increased by €47 million in 2001 as compared to 2000 or an increase of €61 million before minority interests, which were eliminated following AXA’ s buy-out of the minority interests in Sun Life & Provincial
adjustment. In 2001, reserves were strengthened by just €13 million following a reduction in the interest rate at which personal injury claims are to be assessed. Expenses increased by €6 million after tax, or 13% in 2001 as compared to 2000, partly due to an increase in commission payments from an increased proportion of Household business. As a result of these factors, the combined ratio improved by 17.7 points to 103% in 2001.
and a deterioration in the run-off business (€8 million after tax). The expense ratio deteriorated from 39.8% to 42.8%, reflecting an increase in commissions, partly offset by a decrease in management expenses.
The significant changes were related to (i) Morocco (€+ 28 million) as 2000 was impacted by an allowance on non-consolidated equity investments of €31 million, to (ii) Portugal (€–16 million) mainly attributable to a valuation allowance on impaired equity securities of €7 million in 2001 and to higher commissions paid to tied agents, to (iii) Hong Kong, affected by a deterioration of claim experience on the construction disability business, which is currently in run-off, and by the decrease in investment result due to the deterioration of financial markets.
Fixed maturity investments: Related assets at year end 4,506 4,688 4,279
Total invested assets: Total Invested assets at year end 8,249 7,894 7,195
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• Insurance (32% of gross revenues): premiums and fees increased by 11% to €1,698 million due to the strong increase in aviation lines following significant rate increases after the September 11, 2001 U.S. terrorist attacks.
• The cost of cover programs increased by €127 million, as a result of the purchasing of new protections.
• Favorable loss reserve development on prior years were recorded in 2001 (€56 million), improving by €135 million as compared to 2000, mainly due to an increase in Insurance reserves in 2000 related to 1999 and prior accident years.
• In addition, €35 million of catastrophe equalization reserves were released in 2001 as compared to a €49 million release in 2000, primarily due, in both years, to the cost reassessment of Western Europe December 1999 storms.
September 11, 2001 U.S. terrorist attacks, this ratio would have shown a 5.5 point improvement to 90.9%
General expenses were stable at €514 million in 2001 as compared to 2000. The administrative expenses increased by €37 million in 2001 due to (i) investments in start-up insurance operations abroad, (ii) the development of new activities (such as the program business) and (iii) the launch of AXA Liabilities Managers.
Adjusted earnings decreased by €482 million to €–350 million in 2001 as compared to 2000. The decrease was mainly due to (i) a €515 million decrease in the net technical margin and (ii) a €173 million decrease in the net investment result which were partly offset by a €205 million decrease in the income tax expense.
Excluding the cost of September 11, 2001 U.S. terrorist attacks and net realized capital gains, adjusted earnings amount to €117 million in 2001 as compared to €–36 million in 2000.
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YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Gross revenues were €3,297 million and increased by 10.7% as compared to 1999 (on a comparable basis): • Reinsurance (67% of gross revenues): Premiums increased by 53.4% in 2000 as compared to 1999, or 34.1% on a comparable basis. Property insurance premiums increased by 38% and accounted for 92% of gross premiums, mainly due to the launch of a new program on natural catastrophe coverage in the United
Operating income improved by €199 million to a profit of €151 million in 2000 as compared to the €48 million loss recorded in 1999, mainly due to the significant improvement in underwriting result in corporate risks insurance.
Net underwriting result improved by €160 million to €–437 million, with the combined ratio improving by 1160 basis points down to 120.6% in 2000 as compared to 132.2% in 1999 due to: • a significant business growth, benefiting from the beginning of the market recovery in catastrophe coverage, combined with a significant decrease in the cost of attritional claims for the current year and the absence of major losses in 2000; • partly offset by (i) the increase in the cost of cover programs as a result of purchasing new protections,
December 1999 storms in Western Europe) as compared to 1999 and (iii) an increase in general expenses in line with increase in premiums. Such increase also includes the costs associated with the creation of the single entity AXA Corporate Solutions (formerly AXA Reinsurance and AXA Global Risks), the development of Information Technology systems and the acquisition of expertise in the new strategic businesses.
ASSISTANCE 2001 compared to 2000. Gross written premiums amounted to €434 million (before intercompany elimination). After intercompany elimination, gross written premiums increased by 15% to €381 million in 2001. The increase was mainly due to (i) the placement of a large contract with the NHS (the UK National
Healthcare Service) and (ii) an increase in new business relative to travel and home assistance insurance.
The net technical margin increased by €17 million or 15% to €132 million in 2001, in line with the increase in gross written premiums. This increase was offset by an increase in expenses of €14 million, mainly due to the PPP healthcare business transferred into these operations in 2001 and to the NHS contract. However the combined ratio improved to 95.3% in 2001, as compared to 95.7% in 2000 (95.9% excluding PPP Healthcare and NHS contract, as compared to 96.1% in 2000).
The contribution to AXA’s consolidated adjusted earnings increased by 3% to €13 million.
OTHER 2001 compared to 2000. Net adjusted earnings from the other International Insurance operations decreased by €8 million to a €41 million loss in 2001 as compared to 2000. This 2001 net loss was primarily due to: • Saint Georges Ré: a €34 million net loss was recorded in 2001, stable as compared to 2000, related to the
• English & Scottish: a €10 million net loss was recorded in 2001, or a deterioration of €11 million as compared to 2000, due to the strengthening of claims reserves related to asbestos and environmental risks.
2000 compared to 1999. Net income from the other International Insurance companies increased by €9 million, reflecting net income contributed by Créalux of €43 million in 2000, or a €40 million increase as compared to 1999. This improvement was due to the release of equalization reserve surpluses, which was partially offset by losses attributable to Saint Georges Ré (€33 million, or a deterioration of €34 million as compared to 1999) related to the acceptance of a treaty covering the non-consolidated GRE businesses in run-off.
Adjusted Earnings & Net Income c • Item 5 (V5) 1/07/02 11:42 Page 113 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Institutional business was boosted by 336 new client accounts, including a large sub-advisory mandate from an important U.S. asset manager, contributing €14 billion in new assets. This increase in assets under management was partly offset by market depreciation of 9% (S&P 500 fell 13% during 2001). Despite a challenging market, investment results generally exceeded client benchmarks. Value equities performed well, while growth and fixed income portfolios outperformed their benchmarks by modest amounts.
Fees, commissions and other revenues, including those earned from AXA insurance companies eliminated in consolidation, increased by €604 million in 2001 as compared to 2000, or by 19% on a constant exchange rate basis. The increases were primarily due to the impact of the Sanford C. Bernstein acquisition, which contributed to full-year results in 2001, and only to one quarter in 2000 in addition to a mix shift from higher fee equities to lower fee equity, fixed income and cash management products.
Adjusted earnings increased by €113 million in 2001 as compared to 2000 or an increase of €105 million on a constant exchange rate basis. Excluding the impact of the increase in AXA’ s ownership interest in
December 2000, adjusted earnings remained stable on a constant exchange rate basis.
Sanford C. Bernstein), revenues increased by 19.7% in 2000 as compared to 1999, due to growth in average assets under management of 21% coupled with a more profitable product mix that was partially offset by a decrease in fund performance-related fees. At December 31, 2000, assets under management totaled €483 billion, or an increase of €91 billion as compared to 1999. The increase was attributable to the acquisition of Sanford C. Bernstein. Excluding the impact of this acquisition, assets under management decreased by €5 billion, with the positive net inflow of €32 billion more than offset by market depreciation of €37 billion, particularly during fourth quarter 2000. Notwithstanding, the net income impact of financial market depreciation was limited.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 Assets under management increased by 8%, or 2% on a comparable basis, as compared to 2000 to €277 billion at December 31, 2001, the effect of net new money (€12 billion) and of the inclusion of AXA Real
Fees, commissions and other revenues, including those earned from AXA insurance companies eliminated in consolidation, reached €696 million, an increase of 11% on a comparable basis, while contribution to AXA’s consolidated gross revenues reached €504 million, a 15% increase on a comparable basis. This growth was attributable to (i) 3.3% growth in total average assets under management in 2001, and (ii) an increase in average fees from 15 to 16 basis points in large part due to increased sales of higher fee products.
Investment Managers UK following AXA’s buyout of its minority interests in SLPH subsequently renamed AXA
Revenues and income growth was attributable to (i) a 7.4% increase in assets under management to €18 billion at December 31, 2000, or a 17% increase in average assets under management in 2000, and (ii) an increase in separate account products, which command higher fees, and (iv) a more profitable asset mix.
AXA’s consolidated net income was €383 million in 2000, or an increase of 34.2% as compared to 1999 and on a comparable basis. The increase included the following items: • the recording of tax savings of €15 million related to tax consolidations in France and the United Kingdom in 2000; and
NATIONAL MUTUAL FUNDS MANAGEMENT (“NMFM”) NMFM has changed its year-end date from September 30 to December 31 in 2001 in line with the rest of the AXA APH group.
Adjusted earnings improved by €10 million relative to full year 2000. This result was driven by the sale of
NMFM’s property funds management business in June (€15 million group share). On February 1, 2001 a joint venture was formed between AXA Australia and New Zealand and Alliance Capital Management whose results are consolidated within the Alliance Group.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 In 2000, the net income included €125 million of exceptional operations, in connection with the sale of
Other financial services’ adjusted earnings decreased by €129 million in 2001 as compared to 2000, mainly attributable to the sale of Donaldson, Lufkin & Jenrette (DLJ), the contribution of which amounted to €197 million in 2000.
Net income from AXA Bank Belgium decreased by €9 million in 2000 to €24 million due to a decrease in margins on credit transactions resulting from the policy aimed at reducing surplus shareholders’ equity, and to the sale of its commercial banking portfolio in 1999.
The decline in net income from the French financial companies of €72 million resulted in a net loss of €122 million. This loss included a net loss of €60 million attributable to Banque Worms as compared to a net loss of €80 million in 1999, and a net loss of €62 million for the other subsidiaries of the CFP as compared to net income of €30 million in 1999.
AXA, represented by CFP, which had become the only shareholder of the Banque Worms, undertook a complete review of the financial arrangements associated with Banque Worms. Consequently, all guarantees and subsidies were cancelled and replaced by a single global subsidy and recapitalization of Banque Worms for €82 million. The net loss reported by Banque Worms was attributable to continued adverse development of certain of its risks outside of France and amounted to €45 million in the second half of 2000. In addition,
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Financial for €1,010 million and by a Belgian holding company for €50 million.
AXA (the Company) The Company’s adjusted earnings deteriorated by €245 million to a loss of €218 million primarily due to: – (i) an increase in net interest expense of €118 million after tax due primarily to debt borrowed or issued to partly finance AXA’s buyout of the minority interests in AXA Financial and the acquisition of Nichidan, (ii)
In addition, 2000 adjusted earnings were favorably impacted by an €81 million release of a real estate impairment allowance, a dividend of €97 million received in respect of a non-consolidated equity investment and by a €41 million dilution gain on AXA Financial.
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Other foreign holding companies. Adjusted earnings decreased by €56 million to €–83 million primarily attributable to (i) an increase in income tax expenses of €78 million in Germany, due to tax optimization in 2000 leading to high distribution of dividends with attached tax credit, (ii) an increase of €13 million in adjusted earnings in Belgium as a result of tax savings following the merger of some Belgium holding companies.
AXA (the Company) The increase in the Company’s net income was due to the following items in 2000: • the release of a €81 million real estate impairment provision that was deemed no longer necessary in light of prevailing market trends; • a €30 million increase in interest expense relating to the financing of certain acquisitions; • a dividend of €97 million received in respect of a non-consolidated equity investment (former GRE subsidiary in Guernsey); • a dilution gain of €41 million related to the exercise of stock options in AXA Financial by its employees before the closing of the exchange offer relating to the buyout of minority interests; • realized gains of €38 million were recorded in 2000 on the sale of BNP equity securities and contingency value rights (compared with €37 million in 1999).
AXA France Assurances. The decrease of €76 million in net income was primarily attributable to the nonrecurring gain of €101 million realized in 1999 on the sale of BNP equity securities that was partially offset by a €19 million (after tax) writedown of shares in the Australian Property & Casualty subsidiary (which was not consolidated).
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AXA UK Holdings. The stability in the net income contribution was due to the combined effect of the decrease in the investment result and the release of tax provisions deemed no longer necessary.
Other foreign holding companies. The contribution of other foreign holding companies to AXA’s consolidated net income decreased by €8 million in 2000, primarily due to a decrease in investment income in Belgium. The 2000 tax reform in Germany resulted in an increase of €17 million (group share) in the net income of German holding companies.
Over the past several years, AXA has expanded its insurance and asset management operations through a combination of acquisitions, joint ventures, direct investments and internal growth. This expansion has been funded primarily through a combination of (i) proceeds from the sale of non-core businesses and assets, (ii)
The Company, as the holding company for the group AXA, will from time to time arrange for and participate in financing the operations of subsidiaries. Certain of AXA’s subsidiaries, including AXA France Assurance,
AXA Financial, AXA Asia Pacific Holdings, AXA UK Holdings (formerly Sun Life & Provincial Holdings) are also holding companies and are dependent on dividends received from their own subsidiaries for funds to meet their obligations. In addition, certain of AXA’s principal subsidiaries are subject to restrictions on the amount of dividends and debt repayments that can be paid (see note 29 to the consolidated financial statements included elsewhere this annual report). AXA does not believe that such restrictions constitute a material limitation on its ability to meet its obligations or pay dividends.
AXA’s insurance operations. The principal sources of funds for AXA’s insurance operations are premiums, investment income and proceeds from sales of invested assets. The major uses of these funds are to pay policyholder benefits, claims and claims expenses, policy surrenders and other operating expenses and to purchase investments. The liquidity of insurance operations is affected by, among other things, the overall quality of AXA’s investments and the ability of AXA to realize the carrying value of its investments to meet policyholder benefits and insurance claims as they come due. For an analysis of AXA’s insurance-related invested assets, excluding separate account (unit-linked) assets, see “Item 4 – Information on the Company
• In respect of AXA’s Life & Savings Segment, the liquidity needs can also be affected by fluctuations in the level of surrenders and withdrawals (see “Item 4 – Information on the Company -Life & Savings Segment-
(the investment yield) and the estimated duration of its investments with expected payments on the insurance contracts. AXA regularly monitors the valuation and duration of its assets, market conditions that might affect the level of surrenders and withdrawals on its life insurance policies, and changes in projected immediate and long-term cash needs. AXA adjusts its investment portfolios to reflect such considerations.
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(2000 restated: €29 billion). The Company had cash and cash equivalents in the amount of €43 million
(2000: €3,910 million). The decrease of €3,867 million for the Company was principally due to the fact that at December 31, 2000 funds were set aside to finance the completion of the AXA Financial minority buyout transaction in January 2001, as the tender offer was completed on December 29, 2000 and the squeeze out merger occurred on January 2, 2001.
SUBORDINATED DEBT AND MANDATORILY CONVERTIBLE BONDS AXA has obligations that are not, under French GAAP, characterized or classified in the consolidated balance sheet as debt or equity capital. These funds are referred to as mezzanine capital and include only subordinated debt at December 31, 2001. The mandatorily convertible bonds and notes previously included in this category were converted into AXA ordinary shares at maturity in 2001 and 2000.
At December 31, 2001, the Company had outstanding subordinated debt of €7,885 million as compared to €7,236 million at December 31, 2000, which included the 4.5% mandatorily convertible bonds and notes.
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• In January 2001, the outstanding 4.5% mandatorily convertible bonds matured. The debt was converted into 28.7 million of AXA ordinary shares (on a post 4-for-1 stock split basis), of which 11.2 million ordinary shares are held by AXA subsidiaries. As a consequence, consolidated debt decreased by €192 million
• In Australia, the National Mutual Life Association of Australasia repaid its subordinated debt facility in
NON-SUBORDINATED DEBT INSTRUMENTS ISSUED At December 31, 2001, the Company had non-subordinated debt instruments outstanding, including accrued interest, of €2,084 million, or a decrease of €193 million from €2,277 million at December 31, 2000 (on a restated basis). On a consolidated basis as at December 31, 2001, AXA’s total outstanding issued debt obligations were €6,140 million, or a decrease of €757 million from €6,897 million at December 31, 2000 (on a restated basis). The €757 million decrease was primarily due to the activities set out below.
• The repayment of a £300 million variable rate syndicated loan by AXA UK Holdings that matured in
• An increase of €183 million relating to Alliance Capital’s operations. In August 2001, Alliance Capital issued
US$ 400 million 5.625% notes due in 2006 under a US$ 600 million U.S. registered senior debt program filed with the U.S. SEC. The proceeds were used partly to reduce commercial paper, partly reduce the credit facility borrowings and for other general purposes.
Of AXA’s total issued debt obligations outstanding at December 31, 2001, the amount related to short term debt was €1,802 million, of which €826 million related to AXA the holding company (2000: €3,703 million and €2,076 million, respectively).
AMOUNTS OWED TO CREDIT INSTITUTIONS On a consolidated basis at December 31, 2001, amounts owed by the Company and its subsidiaries to credit institutions totaled € 6,608 million as compared to € 9,412 million at December 31, 2000 (on a restated basis). The decrease of € 2,804 million was attributable primarily to the following items: • A decrease of € 3,011 million due to the repayment of the three-year variable rate term loan facility due in 2003. This loan facility was part of a US$5.0 billion multi-currency, dual tranche credit facility that was used c • Item 5 (V5) 1/07/02 11:42 Page 123 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
registered debt program in February 2001 (refer to “Subordinated Debt and Mandatorily Convertible Bonds “
• A repayment of an outstanding credit facility of approximately €300 million by Alliance Capital, part of which was refinanced by US$ 400 million 5.625% notes issued by Alliance Capital in August 2001. See “Nonsubordinated Debt Instruments Issued“ above for further information.
• The cancellation of an outstanding US$250 million credit facility, or €315 million as reported at December 31, 2000, by AXA Financial.
• An increase of €571 million attributable to the French financial services operations, which was primarily attributable to funds obtained to refinance activities of Banque Worms that were not part of the operations sold to Deustche Bank in connection with the sale completed in April 2001.
Of the total amounts owed to credit institutions on a consolidated basis, nearly all of the arrangements are payable on demand.
ISSUANCE OF ORDINARY SHARES On May 9, 2001, at AXA’s annual general meeting of shareholders, the shareholders approved a four-for-one split of AXA’s ordinary shares and two-for-one split of AXA’s American Depository Shares (ADS). As a result, the ratio of AXA ADSs to AXA ordinary shares has changed from one ADS representing one-half of an ordinary share to one ADS representing one ordinary share.
• On January 1, 2001, the outstanding 4.5% mandatory convertible bonds matured. The debt was converted into 28.7 million of AXA ordinary shares, of which 11.2 million ordinary shares are held by AXA subsidiaries.
• On January 2, 2001, the acquisition of the minority interests in AXA Financial was completed as a result of the subsequent merger of AXA Merger Corp., a company created to effectuate the transaction, with and into AXA Financial. Each of the outstanding minority shares in AXA Financial were converted into
Financial stock option program, where options have been granted to AXA Financial employees to acquire
(2000: €350 million and 1999: €264 million). The increase in dividends received in 2001 related principally to
AXA Konzern AG (Germany) of €349 million compared to €95 million in 2000, and a €199 million dividend from AXA Financial. The dividends received from the financial services operations decreased by €153 million.
The Company is not subject to legal restrictions on the amount of dividends it may pay to its shareholders provided that accumulated earnings available for distribution are sufficient. However, certain of AXA’s subsidiaries, principally insurance companies, are subject to restrictions on the amount of funds they may transfer in the form of cash dividends or otherwise to their shareholders. For further information on dividend restrictions as it relates to AXA’s principal insurance operations in France, the United States, the United Kingdom,
Japan, Germany and Belgium, see note 29 to the consolidated financial statements.
Uses of Funds AXA’s debt activities in 2001 were primarily used for the purpose of refinancing existing short-term debt. This is in contrast to the level of debt and equity financing activities in 2000 which: – Approximately €15 billion was spent by AXA and its subsidiaries to acquire the minority interests in AXA
– Approximately €3.7 billion was spent by AXA and its subsidiaries to acquire Nippon Dantaï (Japan) and
Sanford C. Bernstein (a U.S. asset manager) funded partly by the issuance of subordinated debt.
In respect of the Company, interest paid in cash for 2001 was €635 million (2000: €267 million and 1999: €214 million). Annual interest expense is expected to be approximately €600 million during each of the next three years. On a consolidated basis, total interest paid in 2001 was €913 million (2000: €713 million and
Dividends paid to AXA shareholders in 2001 totaled €926 million in respect of the 2000 financial year, or €0.55 per ordinary share on a post 4-for-1 stock split basis (2000: €0.50 per ordinary share on a post 4-for-1 stock split basis was paid in respect of the 1999 financial year). All dividends in respect of the financial years ended in 2000 and 1999 were paid in cash. See “Subsequent Events after December 31 affecting AXA’s liquidity” for further information.
In addition, a European Directive dated October 27, 1998, requires a consolidated solvency calculation effective for periods ending on or after December 31, 2001. This directive was transposed by France under an ordinance dated August 29, 2001 and decreed on March 14, 2002 and applicable from 2002.
AXA’s financial services subsidiaries must comply with various French and European regulations that require each to maintain, depending on its area of activity (bank, credit establishment or other), a minimum liquidity ratio or a minimum risk ratio.
Net cash used in investing activities was €20.8 billion for the year ended December 31, 2001 (2000: net cash used of €15.2 billion) and primarily related to the activities as set out below.
• There was an overall increase in net cash outflows for insurance-related invested assets in 2001 as the cost of acquiring additional investments, funded by new net money received on new policies or through ordinary reinvestment, was affected by the global financial market conditions, characterized by decreasing equity security prices and increasing fixed maturity security prices given the central banks in the principal countries in which AXA operates lowered interest rates in response to signs of slowing economic conditions, as the investment mix in AXA’s insurance investment portfolios has been, generally, more weighted to fixed maturity investments (more than 50% of the AXA’s consolidated insurance-related invested asset portfolio).
The net impact of the foreign currency fluctuations was a decrease of approximately €0.5 billion in net cash for the year ended December 31, 2001 (2000: increase of €1.0 billion). The net change was due to a weakening of the Euro against the United States dollar, partially offset by the strengthening of the Euro against the Japanese yen and, to a lessor extent, the Australian dollar in 2001.
At December 31, 2001, total consolidated gross cash and cash equivalents amounted to €18 billion, or net cash and cash equivalents of €16.0 billion after deducting bank overdrafts that were classified under
(nearly €3.7 billion) and AXA Financial (nearly €6.6 billion, which was not fully paid in 2000), the acquisitions of Nippon Dantaï (approximately €2.0 billion) and Sanford C. Bernstein (approximately €1.7 billion); and
(1999: net cash provided of €2.2 billion) and was mainly attributable to the following items: • net cash proceeds of € 3.7 billion in connection with the issuance of AXA ordinary shares in June 2000 to fund the buyout of minority interests in SLPH; and
Financial and the acquisitions of Nippon Dantaï and Sanford C. Bernstein.
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The operating, investing and financing activities described above, as well as the impact of foreign exchange and change in scope of consolidation (primarily the sale of DLJ and the acquisition of Nippon Dantaï), resulted in an increase in net cash and cash equivalents of €11.9 billion in 2000 (1999: increase of €3.7 billion).
At December 31, 2000, total consolidated cash and cash equivalents amounted to €29.0 billion on a restated gross basis, or net cash and cash equivalents of €26.0 billion after deducting bank overdrafts that were classified under “amounts owed to credit institutions” in AXA’s consolidated balance sheet and as reported in prior year (1999: €16.5 billion on a restated gross basis and € 14.0 billion net of bank overdrafts as reported in prior year, respectively).
AXA's principal invested assets are in fixed maturity and equity securities, including holdings in mutual funds.
Under French GAAP these invested assets are held at amortized cost and historical cost, respectively, net of valuation allowances except for certain fixed maturity and equity securities that are stated at estimated fair value, as they are held to support participating insurance contracts whereby the unrealized gains and losses on such invested assets are included in the determination of the insurance liabilities in respect of participating insurance contracts. For publicly listed fixed maturity and equity securities, fair values are determined based on quoted market prices. For non-publicly listed fixed maturity and equity securities and other invested assets, the basis for measuring fair value may require utilization of investment valuation methodologies such as discounted cash flow analysis and/or reference to quoted prices for similar securities.
DAC/VBI amortization, minority interests and taxes. AXA records an investment impairment charge when it believes an investment has experienced a decline in fair value that is other-than-temporary. Identifying those situations requires judgement by management and includes an assessment of subjective as well as objective factors including, but not limited to, the duration and extent to which the fair value of a particular security has been depressed; the financial condition, cash flows, and near term earnings potential of the issuer; and any particular problems affecting the issuer’s industry sector, as well as AXA’s ability and intent to retain the c • Item 5 (V5) 1/07/02 11:42 Page 128 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Item 10 investment to allow sufficient time for any anticipated recovery in fair value. These impairment charges were recorded based on management’s evaluation of the facts and circumstances specific to individual fixed maturity and equity securities and, in the judgement of management, such facts and circumstances did not impact the carrying values of other material investments held by AXA's operations. Increases in defaults, credit downgrades, and overall declines in the global financial markets have contributed to an increase in impairments on AXA’s investment assets in 2001.
Recorded impairments represent the best judgement of management at the time they are made based on the facts and circumstances known to management at that time. Consequently, the amount of any valuation allowance in respect of individually identified impaired fixed maturity and equity investments can be expected to change over time. Based on new information available in future periods, management may adjust the valuation allowance to reflect improvements or further deterioration in economic, financial market, credit or other conditions. Such adjustments are recorded as credits to or charges against AXA’s consolidated operating results.
In addition, the amount of such unrealized gains and losses may not represent the actual impact on AXA’s consolidated operating results in any one period, as such amounts are presented before allocation to participating life insurance contracts (as a change in future policy benefits), DAC / VBI amortization, minority interests and taxes.
CONSOLIDATED NET INCOME IN ACCORDANCE WITH U.S. GAAP 1,484 3,248 1,209
Consolidated net income in accordance with U.S. GAAP 1,484 3,248 1,209
Consolidated net income in accordance with U.S. GAAP, except for adjustment for the change in unrealized investments gains and losses on assets allocated to UK with-profit contracts N/a 2,771 2,239
Instruments and Hedging Activities” (“FAS 133”) adopted by AXA on January 1, 2001 as set out below: • An after-tax cumulative-effect-type credit to income of €2,698 million from “Other comprehensive income” (a separate component of shareholders’ equity), representing the after-tax net unrealized investment holding gain for the fixed maturity and equity securities backing the UK with-profit business at January 1, 2001. This adjustment was in accordance with the transition rules of FAS 133 whereby AXA reclassified £19,806 million
Future policy benefits (Life & Savings Segment): As a result of the fundamental restructuring of AXA
GAAP 100% of the change in the UK “with-profit” fund is included within future policy benefits, only 10% of the cost of bonus is included in AXA’s consolidated net income. Under U.S GAAP 10% of all changes in the UK
Other relating to holding company activities: The U.S. GAAP result included charges related to (i) sharebased compensation associated with the 2001 employee share purchase program whereby the ordinary shares were issued at a discount below market price, (ii) the recognition of additional interest expense, being the amortization of premium on the subordinated convertible debt issued by the Company in 1999 and 2000, as AXA has the right of early redemption at a stipulated price greater than the original issue price per note, and (iii) the impact of the accounting for derivatives and hedging activities in accordance with FAS 133.
“Other comprehensive income” a separate component of shareholders’ equity under U.S. GAAP. As a consequence, the adjustment to U.S. GAAP net income in 2000 was an increase of €477 million net of tax and related to AXA’s Life & Savings Segment only (1999: decrease of €1,030 million).
In the event that there is a specific plan by the parent company to repurchase such shares, the realized gain or loss (net of tax) will be recorded in shareholders’ equity under U.S. GAAP. As a consequence, U.S. GAAP
• Catastrophe equalization reserves. These reserves are recorded under French GAAP pursuant to local statutory regulations in the countries of operations whereas under U.S.GAAP such reserves are not established until the loss event occurs. As a consequence, the adjustment to U.S. GAAP net income was a decrease of €246 million in 2000 (1999: decrease of €141 million), and was attributable to both AXA’s
For information on significant new accounting pronouncements not yet adopted see note 34 to the consolidated financial statements.
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Adjusted earnings per share (adjusted EPS) represents the AXA’s consolidated net income before the impact of exceptional operations and amortization of goodwill, divided by the weighted average number of outstanding ordinary shares,
Adjusted earnings per share diluted (adjusted EPS diluted) represents the AXA’s consolidated net income before the impact of exceptional operations and amortization of goodwill, divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding stock options, that are not anti-dilutive, being exercised and conversion of existing convertible debt into shares, assuming the impact is not anti-dilutive).
LIFE & SAVINGS MARGIN ANALYSIS Investment margin includes the following items: (i) Net investment income.
(iv) Interests and bonuses credited to policyholders and unallocated policyholder bonuses, relating to the net investment result.
Fees & Revenues include: (i) Revenues derived from mutual fund sales (which are part of consolidated revenues).
(ii) Loading charged to policyholders on premiums and on funds under management for separate accounts
(iii) Loading on (or contractual charges included in) premiums received on all non unit-linked product lines
(iii) Policyholder bonuses: If the policyholder participates in the risk margin and the expenses of the company.
Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales).
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(iii) DAC: amortization of acquisition expenses on current year and prior years new business. This amortization also includes the impact of interest capitalized and is net of the corresponding change in URR in the period.
LIFE & SAVINGS EXPENSE RATIO Two types of expense ratio are calculated: (i) Ratio of gross operating expenses to total gross insurance reserves: gross operating expenses /
(ii) Cost income ratio: expenses / operating margin, where: – expenses are total expenses, excluding expenses related to mutual fund business (mainly fees paid to the sales force), gross of deferral and amortization of Deferred Acquisition Costs (DAC) and gross of amortization of Value of purchased life Business In-force (VBI),
PROPERTY & CASUALTY Net investment result includes the following items: (i) Net investment income.
(iii) Change in claims reserves, including claims handling costs reserves and equalization reserves, gross of reinsurance.
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All accidents year loss ratio (Property & Casualty) net of reinsurance, is the ratio of: (i) [all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years], to
AXA CORPORATE SOLUTIONS Covers are specific reinsurance treaties, bought to protect all or a portion of the company’s portfolio against major losses. If such losses do not occur over the insured period, a profit commission (or “no-claim bonus”)
is paid to the ceding company. In general, the cost of a cover is accrued (or by extension “earned”) ratably over the treaty period.
Net technical margin includes: (i) Earned premiums, net of reinsurance (cession / retrocession and covers).
The general principles of organization, the mode of functioning and the compensation of the Supervisory
Board are formalized in a code of internal operating rules and procedures.
Following the General Assembly of May 9, 2001, Messrs. Antoine Bernheim, Henri de Clermont-Tonnerre,
Patrice Garnier, Friedel Neuber and Didier Pineau-Valencienne did not have their terms as Supervisory Board members renewed and Mr. Theirry Breton was named a member of the Supervisory Board.
Board proposed to name Mr. Edward Miller to the Supervisory Board and to the Selection Committee in replacement of Mr. Richard Jenrette, who resigned, and to name Mr. Christopher Condron, member of the
Vice Chairman of the Management Board of Aventis; Director of Schneider Electric; Pernod-Ricard, La Poste, Rhodia, EADS and AXA Financial, Inc.
Chairman of the Supervisory Board of Thomsom SA and Thomson Multimedia; Director or Supervisory Board Member of Bouygues Telecom, Cnes, Dexia, La Poste; Rhodia, and Schneider Electric.
Senior Advisor to Lazard Frères; Chairman of Parande Développement (Groupe Euris); Director or Supervisory Board Member of Lazard Frères Banque, Casino and Club Méditerranéee
Chairman of Fox-Pitt, Kelton Group and of AXA UK Plc; Director of AXA Financial, Inc. and Supervisory Board Member of Eldon Capital Management Ltd. (UK)
Chairman of the Supervisory Board of Crédit Suisse Hottinguer and Emba NV (Netherlands); Vice Chairman and Executive Officer of Financière Hottinguer; Vice Chairman of Gaspee (Switzerland); Director of Finaxa and Intercom
(2) Th. Breton became a member of the Supervisory Board in May 2001. (3) E. Miller became a member of the Supervisory Board in July 2001.
Board may be removed from office at any time without notice or indemnity by decision of a majority of shareholders present at a shareholders’ meeting. Pursuant to French company law, any change in the composition of the Management Board or the Supervisory Board caused by the removal, resignation or death of one or more of their members must be disclosed to the public within one month of that change. French company law does not allow for cumulative voting.
The Supervisory Board has an oversight role and is not responsible for day-to day management of the Company which is the responsibility of the Management Board. In accordance with French laws and regulations, specified transactions, such as the sale of real property and the granting of collateral, warrants or guarantees must be approved by the Supervisory Board. In addition, according to the Company’s statuts certain decisions of the Management Board, including decisions on the establishment of share repurchase programs, mergers and acquisitions, strategic partnership agreements, or the distribution of dividends are subject to the prior authorization of the Supervisory Board.
Supervisory Board Committees Since 1990, AXA has established special committees of the Supervisory Board which have implemented the corporate governance principles of the Group.
Each Committee issues opinions, proposals and recommendations and is empowered to undertake or cause to be undertaken such reviews as it deems necessary to clarify Supervisory Board proceedings. Each
Reports on Committee findings are delivered by Committee Chairmen at the ensuing Supervisory Board meeting.
The Audit Committee is composed of the following 5 members: Jacques Calvet (Chairman), David
• The role of the Audit Committee is to examine the Company’s interim and annual financial statements before they are presented to the Supervisory Board, as well as other financial documents of the Company in connection with the accounts for each reporting period.
• The Committee supervises the application of the different tools available.
• The Finance Committee reviews proposed sales of securities, assets or real estate when the sale price exceeds the authority delegated to the Management Board by the Supervisory Board.
The Compensation Committee is composed of the following four members, all of whom are independent: Henri Hottinguer (Chairman), David Dautresme, Jean-René Fourtou, and Anthony Hamilton.
• The Compensation Committee reviews all Management Board recommendations pertaining to the principles and procedures governing the compensation of AXA executives and proposed grants of AXA stock options
• The Compensation Committee is also informed by the Management Board of compensation levels set by the
The Selection Committee is composed of the following five members, of whom three are independent: Jean-René Fourtou (Chairman), Edward Miller, Gérard Mestrallet, Michel Pébereau, Bruno Roger.
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Management Board The Company’s business is managed by a Management Board (Directoire) currently consisting of five members.
The Management Board is currently composed of the following 5 members: Name and Age Principal Occupation or Employment and Principal Outside Directorships
Gérard de La Martinière (58) In charge of Finance, Control, and Strategy
Removal of a member of the Management Board does not automatically result in the termination of that member’s employment contract with AXA. The Chairman of the Management Board may be removed from his position as Chairman (but not from his position as a member of the Management Board) by a vote of the majority of the members of the Supervisory Board, at a valid meeting of the Supervisory Board.
Management Board must submit the final accounts and the consolidated financial statements of AXA to the
Committee is the body responsible for executing the Group’s strategy. Its composition reflects the structure of the Group because the Executive Committee is composed of members of the Management Board, the heads of the operating business units discussed below, and the principal heads of the Group’s central support functions.
The table below sets forth the names of the Company’s executive officers, their current principal position within the AXA Group and the year of their initial designation as executive officers.
Bruce Calvert Chairman and Chief Executive Officer of Alliance Capital 2001
Claude Brunet Executive Officer responsible for transnational operations and projects 2001
Christopher Condron Member of the Management Board Chief Executive Officer of AXA Financial (United States) 2001
Philippe Donnet Chief Executive Officer of AXA Corporate Solutions and responsible for the Mediterranean Region 2001
François Pierson Member of the Management Board Chairman of AXA France Assurance 2001
Michael W. Short Chairman and Chief Executive Officer of AXA Life Insurance Company (Japan) 2001
Directors Service Contracts In connection with AXA’s acquisition of the minority interest in AXA Financial, AXA Financial entered into continuity agreements with certain executives of AXA Financial, including Edward Miller, who was then Chief
Mr. Miller with medical, dental, vision and life insurance coverage for a period ending three years after his date of termination of employment with AXA Financial (June 15, 2001). Mr. Miller’s continuity agreement is filed as Exhibit 10.6 to AXA’s Form F-4 Registration Statement (no. 533-50438) dated November 21, 2000.
In addition to the employees noted in the table above, AXA has numerous sales agents. Taken together, AXA
executives will be in the upper range of the going market rate.
The presentation in the table below also permits a comparison of the variable compensation amounts paid for services rendered in 2001 versus amounts paid for services rendered in 2000.
(1) C. Condron joined the AXA Group July 4, 2001, and has been a member of the Management Board and Executive Committee since that date. His fixed salary equals €1,120,000 per year, prorated over 6 months for 2001. His variable compensation for 2001 was a guaranteed amount of €4,480,000. Mr. Condron also received a €2,688,000 bonus when he joined AXA.
(2) F. Pierson has been a member of the Management Board and Executive Committee since November 28, 2001. (3) C. Brunet joined the AXA Group April 2, 2001 and has been a member of the Executive Committee since that date. His fixed salary equals €274,410 per year prorated over 9 months for 2001.
(4) B. Calvert has been a member of the Executive Committee since July 4, 2001. (5) The variable compensation for 2001 will be determined in the second quarter of 2002.
(6) P. Donnet has been a member of the Executive Committee since November 28, 2001. (7) D. Holt joined the AXA Group September 4, 2001, and has been a member of the Executive Committee since that date. His fixed salary equals €603,750 per year, prorated over 4 months for 2001. His variable salary for 2001 was a guaranteed amount of €442,750. (8) M. Short has been a member of the Executive Committee since July 4, 2001. (9) This amount includes an exceptional amount of €8,960,000 paid in connection with AXA’s acquisition of the minority interest in AXA Financial and €335,979 paid in connection with cancellation of certain AXA Financial stock options.
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Due to the different tax systems in various countries where the Company’s executive officers are located, the comparison of compensation is difficult. For example, following is a list of the marginal tax rates in the noted countries: Germany: 51.2% (excluding Church tax of 8-10% depending on the state); Australia: 48.50%; Belgium: 57.20%; United States (New York and Philadelphia): 45.01% and 43.12; France: 62.75
The aggregate compensation paid or accrued in 2001 by the Company or its subsidiaries for Executive Officers of the Company including the members of the Management Board (17 persons in total) was €45,331,348.
The aggregate compensation of the members of the Supervisory Board of the Company as directors’ fees paid in 2001 by the Company (14 persons in total) was €401,289.
Shares owned by the Management Board Members at December 31, 20011
(1) Excludes interests in AXA Actionnariat, an employee investment plan investing in AXA ordinary shares in which certain members of the Management Board participate, and shares subject to options, which are set forth in the table below.
The following table presents the ordinary shares of AXA and AXA ADRs owned by the members of AXA’s
(1) Excludes interests in AXA Actionnariat and options on AXA Ordinary shares or AXA ADRs held by certain Supervisory Board Members.
No member of the Company’s Supervisory Board, Management Board or executive officer of the Company beneficially owned one percent or more of the Company’s total outstanding ordinary shares at March 31, 2002.
At December 31, 2001, options to purchase a total of 40,402,000 ordinary shares of the Company had been granted by the Company and were outstanding, representing 2.3% of the Company’s total outstanding share capital at that date. In addition, at December 31, 2001, 968,000 options to purchase shares of MOFIPAR
The table below sets forth information on stock options held by the Company’s executive officers including members of the Management Board at December 31, 2001. For additional information on share options including options granted by AXA Financial on AXA ADRs, please see note 30 to the consolidated financial statements included in Item 18 of this annual report.
Beneficiaries OPTIONS AXA OPTIONS AXA ADR OPTIONS OPTIONS OPTIONS OPTIONS GRANTED EXERCISED GRANTED EXERCISED
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Mutuelles AXA as a Group (directly and indirectly through FINAXA) 358,275,612 20.6% 33.2%
Over the past three years, the direct and indirect percentage ownership of the Mutuelles the Company in AXA
has decreased from 23.9% at December 31, 1998 to 20.6% at December 31, 2001. Over the same period, the direct and indirect percentage ownership of FINAXA in the Company has decreased from 20.8% at
• Mutuelles AXA (as a group, shares held directly and indirectly) 23.5% 21.0% 20.6%
The ordinary shares of the Company held by Mutuelles AXA and FINAXA are entitled to double voting rights under the Company’s statuts because those shares have been held in registered form for the requisite period.
• 61,423,317 ADSs outstanding, representing approximately 3.5% of the outstanding ordinary shares, held by 22,931 registered holders.
Substantially all of the AXA ADSs were held by U.S. residents. As of the date of this annual report to the best of the Company’s knowledge based on the information available to it, approximately 11% of the Company’s total outstanding ordinary shares were held by US residents.
The Mutuelles AXA are parties to agreements pursuant to which they have stated their intention to collectively exercise majority control over FINAXA. These agreements affirm the intention of the Mutuelles AXA to utilize the synergies between the Mutuelles AXA and the Company’s insurance subsidiaries so as to enhance their d • Items 6-7 (V5) 1/07/02 11:41 Page 150 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Board. The strategy committee is generally consulted on all significant matters relating to FINAXA. Under these agreements, each of the Mutuelles AXA has also granted a right of first refusal to the other Mutuelles
AXA in the event of any sale or other disposition of shares of FINAXA (or subscription or other rights or options relating thereto) and agreed not to purchase additional shares of FINAXA without the prior consent of the strategy committee.
The Mutuelles AXA are engaged directly in the life & savings business and the property & casualty businesses in France. These insurance businesses, which are the Mutuelles AXA’s only significant operating business activities, generated gross premiums of €1,386 million in 2001.
Company’s French insurance subsidiaries pursuant to management agreements between the Mutuelles and those subsidiaries. There are no agreements between the Mutuelles AXA and the Company’s insurance subsidiaries that restrict in any way their ability to compete with one another.
Mutuelle, one of the Mutuelle’s AXA engaged in the property & casualty business, allocate between them the underwriting results of the property & casualty insurance business generated in France by insurance brokers.
This allocation is achieved through a co-insurance agreement implemented through a GIE.
Related Party Transactions For information concerning related party transactions, see note 28 “Related Party Transactions” to the consolidated financial statements included as Item 18 in this annual report.
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Item 8: Financial Information Legal Proceedings Please see note 27 “Litigation” to the consolidated financial statements for the year ended December 31, 2001 included as Item 18 in this annual report.
Dividend Policy The Company has paid dividends on its ordinary shares in each for at least the past five years. The Company pays dividends in Euro. Future dividends will depend on AXA’s earnings, financial condition and other factors.
Proposals for dividend payments are made by the Management Board, subject to prior approval by the
The information contained in this Item 9 is on a post-split basis and reflects the corresponding ratio change between the Company’s ordinary share and ADS. Amounts for years prior to the effective date of the split have been adjusted accordingly.
The ParisBourse was created as a result of the merger of the Paris, Brussels and Amsterdam Stock Exchanges on October 27, 2000 and is a self regulatory organization responsible for supervision of trading in listed securities in France. The Company’s ordinary shares are also quoted on the Stock Exchange Automatic
The table below sets forth, for the periods indicated, the reported high and low closing prices in Euro for the
(1) The high and low closing prices adjusted to reflect the 4-for-1 split of AXA’s outstanding ordinary shares effective May 16, 2001. (2) The Euro was not in existence during these periods and, consequently market prices were not quoted in Euro. The Euro amounts shown have been calculated by converting the historic French franc amounts to Euro at the legal rate of conversion of FF 6.55957 per 1.00, established in connection with the launch of the Euro on January 1, 1999.
Official trading of listed securities on the ParisBourse, including the Company’s ordinary shares, is transacted through French stockbrokers (sociétés de bourse) and other authorized financial intermediaries, and takes place continuously on each business day from 9:00 a.m. to 5:30 p.m. with a pre-opening session from 7:45 a.m.
CAC 40 index and an additional 80 of the most actively traded stocks listed on the ParisBourse, or show market capitalization of at least €1 billion and daily trading averaging at least €1 million on the ParisBourse.
(2) High and low closing prices adjusted to reflect the 4-for-1 split of AXA’s outstanding ordinary shares and the change in parity between the AXA ordinary share and the ADS effective May 16, 2001.
Item 10: Additional Information Memorandum and articles of association The Company is a holding company organized under the laws of The Republic of France as a Société
Supervisory or Management Board, or in which the members of the Management or Supervisory Board are directors or officers or sit on their Management or Supervisory Board, and (iii) entered into between the
Management or Supervisory Board liable for any damages it suffers as a result of such agreement.
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Also, article 12.4 of AXA’s statuts provides that the Supervisory Board may set up one or more special committees which shall carry out their mandate as determined by, and under the supervision of, the
to issue any guarantee in connection with any other matter than those described in item (i) through (iii) above whenever such guarantee exceeds a specified amount (currently 80 million Euros per transaction).
Management Board must be reexamined each year when the annual financial statements of the Company are reviewed. In addition the Management Board must also obtain the authorization of the Supervisory Board prior to engaging in certain types of transactions including, without limitation, (i) the sale of real estate or all or part of the shares, securities or other interest in any entity whenever any such sale exceeds 500 million
Euros per transaction, (ii) the acquisition of assets whenever any such acquisition exceeds 500 million Euros per transaction, (iii) the entry by AXA into any strategic partnership agreements, (iv) financing transactions that are likely to substantially alter the financial structure of AXA, or (iv) the issuance of instruments giving direct or indirect access to the equity capital of AXA. The approvals or prior authorizations granted to the Management
Board under article 12-3 of AXA’s statuts must be listed in the minutes of the meetings of the Supervisory
Management Board reaches that age, the Supervisory Board may choose to extend his term one or more times, provided that the total extended period does not exceed three years. Members of the Supervisory
Board may not stay in office past the age of seventy. However, this rule may be waived by the Supervisory
• upon the exercise of share warrants or other similar securities consisting of rights to subscribe for ordinary shares or of stock options, or
The increase in share capital effected by capitalization of reserves, profits or share premium, requires a simple majority of the votes cast at an extraordinary meeting of shareholders. In the case of an increase in share capital in connection with the payment of a stock dividend (instead of a cash dividend) the voting and quorum procedures of an ordinary meeting of shareholders will apply.
shareholders may also delegate to the Management Board the powers required to effect any decrease in share capital previously authorized by them. Such a decision is subject to the prior authorization of the
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That approval remains valid for a period of no more than 18 months from the date of the general shareholders’ meeting granting the approval.
DIVIDENDS AXA may distribute dividends to its shareholders from net income in each fiscal year after deductions for depreciation and provisions, as increased or reduced by any profit or loss carried forward from prior years, and as reduced by the legal reserve fund allocation described below. These distributions are also subject to the requirements of French company law and the statuts of AXA.
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Should a distribution of dividends be decided as described above the Company’s statuts requires that AXA
ownership rights are represented by book entries instead of share certificates.
French publicly quoted companies and a central depositary system through which transfers of shares and other securities in French publicly quoted companies between accredited financial intermediaries are recorded.
However, in the special case of ordinary shares held in bearer form by a beneficial owner who is not a resident of France, SICOVAM may agree to issue, upon request by AXA, a bearer depository receipt (certificat représentatif) with respect to such ordinary shares for use only outside France. In this case, the name of the holder is deleted from the accredited financial intermediary’s books. Title to the ordinary shares represented by a bearer depository receipt will pass upon delivery of the relevant receipt outside France.
Item 10 exceeding this amount, capped at 610 euros per transaction. This tax is subject to a rebate of 23 euros per transaction. However, non-residents of France are not required to pay this tax. In addition, a fee or commission is payable to the broker involved in the transaction, regardless of whether the transaction occurs within or outside France. Normally, no registration duty is payable in France, unless the transfer instrument has been executed in France.
REQUIREMENTS FOR HOLDINGS EXCEEDING SPECIFIED PERCENTAGES French company law provides that any person or entity that, directly or indirectly, acting alone or in concert with other shareholders, becomes the owner of more than 5%, 10%, 20%, 33 1/3%, 50% or 66 2/3% of the outstanding share capital or voting rights of AXA (including through ADSs), or whose holding falls below any of these levels, must notify AXA within fifteen calendar days and the CMF within five trading days of exceeding or falling below the relevant level. This notification has to be made by written notice of the shareholder that states the number of ordinary shares and voting rights held by it.
AXA pursuant to the above conditions each time an additional 0.5% threshold is passed.
French company law imposes additional reporting requirements on persons who, acting alone or in concert with others, acquire more than 10% or 20% of the outstanding shares or voting rights in AXA. These persons must file with the CMF, the COB and AXA a report disclosing their intentions for the 12-month period following the acquisition. The report must provide information as to whether the acquirer intends to continue purchasing shares, acquire control of AXA or seek nomination to the Management or Supervisory Board. This report must be filed within fifteen calendar days of the date either of these thresholds has been crossed. The
In order to permit holders of ordinary shares to give the notices required by law and the statuts of AXA, AXA is obligated to publish in the Bulletin des Annonces Légales Obligatoires (“BALO”) not later than fifteen calendar days after AXA’s annual ordinary general meeting of shareholders, information with respect to the total number of voting rights outstanding as of the date of the meeting. In addition, if the number of outstanding voting rights changes by 5% or more, AXA is required to publish in the BALO, within fifteen calendar days of a change, the number of voting rights outstanding and provide the CMF with a written notice. In order to facilitate compliance with the notification requirements, a holder of ADSs may deliver any such notification to the depositary with respect to ordinary shares represented by ADSs and the depositary will, as soon as practicable, forward the notification to AXA and the CMF.