We follow the evolution of these risks closely and generally seek to manage our exposure to them through individual risk selection, monitoring risk accumulation, purchase of reinsurance and use of available data in estimating potential catastrophic risks. However, we have experienced in the past and could experience in the future material losses from the types of risks discussed above and these losses could have a material adverse effect on our fi nancial position and results of operations. For additional information, please see Section 3.3 of this Annual Report “Quantitative and qualitative disclosures about market risk and risk factors”.
These events can potentially result in fi nancial loss, an impairment to our liquidity, a disruption of our businesses, regulatory sanctions or damage to our reputation. Management attempts to control these risks and keep operational risk at low levels by maintaining a sound and well controlled environment in light of the characteristics of our business, markets and regulatory environment in which we operate. Notwithstanding these measures, operational risk is part of the business environment in which we operate and we may incur losses from time to time due to these types of risks.
For example, on December 21, 2006, we completed the disposition of AXA RE’s (now called “Colisée RE”) business, our reinsurance subsidiary, but retained the risk related to adverse deviation of claims reserves for all accident years prior to January 1st, 2006.
Our reserves for these types of obligations and liabilities may be inadequate which could cause us to take additional charges that could be material to our results of operations. We may also, from time to time and in the course of our business provide guarantees and enter into derivative and other types of off-balance sheet transactions that could result in income statement charges. For additional information, see Part 4 –
Note 29 “Contingent assets and liabilities and unrecognized contractual commitments” and also Note 20 “Derivative instruments” of this Annual Report.
Our business depends signifi cantly on effective information systems, and we have many different information systems for our various businesses. We must commit signifi cant resources to maintain and enhance our existing information systems, and develop new ones in order to keep pace with the evolving information technology, industry and regulatory standards and customer preferences. In addition, we, like other institutions, are subject to risks such as hacking, cyber-attack and similar activities that may impair our information systems.
If our systems are signifi cantly impaired for any length of time and/or we do not maintain adequate information systems, we may not be able to gather and rely on adequate information to base our pricing, underwriting and reserving decisions. We may also have diffi culties in attracting new customers and preserving our existing customer base. In addition, underperforming information systems could cause us to become subject to a higher number of customer, provider and agent disputes which may increase our litigation and regulatory exposure and make us incur higher administrative expenses, including remediation costs.
We face strong and increasing competition in all our business lines. Our competitors include Mutual fund companies, asset management fi rms, private equity fi rms, hedge funds, commercial and investment 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. 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 profi tability. The fi nancial crisis resulted in a number of
Financial crisis related legislative and regulatory initiatives designed to reform the regulation of fi nancial institutions, such as the Dodd-Frank Act and recent reforms in France and the European Union, may adversely impact AXA’s business, results of operations and fi nancial condition
We have been and may become in the future subject to regulatory investigations which, together with the civil actions often following these investigations, may affect our image, brand, relations with regulators and/or results of operations.
We cannot predict with any certainty the potential effects that any change in applicable laws or regulations, their interpretation or enforcement, or that any enactment of new regulation or legislation in the future may have on the business, fi nancial condition or results of operations of our various businesses.
Changes in tax laws and regulations, including elimination of tax benefi ts for our products, may adversely affect sales of our insurance and investment advisory products, and also impact our deferred tax assets and liabilities
Recent changes in United States federal withholding tax and information reporting requirements may adversely affect sales of our insurance and investment advisory products and may increase our compliance costs
Revenue Service (the “IRS”). In general, non-publicly traded debt and equity interests in investment vehicles would be treated as accounts and subject to the reporting requirements.
In addition, the IRS has stated that certain insurance policies and annuities will be considered accounts for these purposes, and therefore information would be required to be reported in respect of certain US policyholders and annuitants. For non-
payments of US-source interest and dividends and the gross proceeds from the sale or other disposition of property that may produce US-source interest and dividends. The IRS has issued guidance stating that this withholding tax is expected to take effect on a “phased” schedule, starting in January 2014.
(including as a result of local laws prohibiting information sharing with the IRS, as a result of contracts or local laws prohibiting withholding on certain payments to accountholders, policyholders, annuitants or other investors or as a result of the failure of accountholders, policyholders, annuitants or other investors to provide requested information), certain payments to the Group including dividends from its US
subsidiaries may be subject to US withholding tax under the legislation. The possibility of such withholding tax and the need for accountholders, policyholders, annuitants and investors to provide certain information may adversely affect the sales of certain of the Group’s products. In addition, entering into agreements with the IRS and compliance with the terms of such agreements and with the legislation and any regulations or other guidance promulgated there under may substantially increase the Group’s compliance costs. The future impact of this law on the Group is uncertain at this point in time because signifi cant regulatory guidance remains to be written.
“Standards”). These Standards are subject to interpretation and evolution on a continuing basis and there are a number of currently proposed and potential changes (including those described in Section 3.1 “Regulation” of this Annual Report) to these Standards.
RISKS RELATED TO THE OWNERSHIP OF ORDINARY SHARES OR AXA ADS (1)
The Mutuelles AXA, two French mutual insurance companies, acting as a group, owned on December 31, 2011, approximately 14.54% of the issued ordinary shares of AXA
AXA’s shares. Many of the shares owned by the Mutuelles AXA
ADS are traded on the US over-the counter market and are quoted on the OTCQX platform. Quotes are available on www.otcqx.com under the symbol AXAHY.
The trading price of AXA ADS and dividends paid on AXA ADS may be materially adversely affected by fl uctuations in the exchange rate for converting Euros into US dollars
AXA has delisted the AXA ADS from the New York Stock Exchange, potentially reducing liquidity in the AXA ADS
Exchange was voluntarily terminated and AXA deregistered with the SEC in June 2010. Since then, the AXA ADS have traded on the over-the-counter market. While US OTC markets have become more sophisticated and liquid in recent years, no assurance can be given as to the liquidity of the OTC market for
AXA ADS or that persons wanting to buy or sell AXA ADS will at all times be able to fi nd a willing seller or buyer at an acceptable price and volume. Illiquidity in the OTC market for the AXA ADS
Since the delisting of the AXA ADS from the NYSE on March 26, 2010 and the deregistration with the SEC in June 2010, AXA
has no longer been required to comply with the reporting and corporate governance requirements of the SEC and
SEC oversight. AXA continues to comply with the corporate governance standards and reporting requirements applicable to listed companies in France and is subject to the oversight of the French securities regulator, the AMF. While French and
US governance and reporting standards are similar in many respects, there are a variety of signifi cant differences. AXA
The depositary for the AXA ADS may not receive voting materials for AXA ordinary shares represented by AXA ADS in time to ensure that holders of AXA ADS can instruct the depositary to vote their shares. In addition, the depositary’s liability to holders of AXA ADS for failing to carry out voting instructions or for the manner of carrying out voting instructions is limited by the
Deposit Agreement governing the AXA ADS facility. As a result, holders of AXA ADS may not be able to exercise their right to vote and have limited recourse against the depositary or AXA if their shares are not voted according to their request.
The Deposit Agreement expressly limits the obligations and liability of AXA and the depositary. Neither AXA nor the depositary will be liable if they: ■ are prevented from or delayed in performing any obligation by circumstances beyond their control; ■ exercise or fail to exercise discretion under the Deposit
■ take any action based upon the advice of, or information from, legal counsels, accountants, any person presenting ordinary shares for deposit, any holder or owner of an AXA ADS or any other person believed by AXA or the depositary in good faith to be competent to give such advice or information.
In addition, the depositary and AXA have the obligation to participate in any action, suit or other proceeding with respect to the AXA ADS which may involve them in expense or liability only if they are indemnifi ed.
AXA) shall have discretion as to the procedure to be followed in making such rights or other securities available to ADS
Given the signifi cant number of AXA ADS holders in the US,
AXA generally would be required to register with the SEC any public offering of rights, warrants or other securities made to its ADS holders unless an exemption from the registration requirements of the US securities laws is available. Registering such an offering with the SEC can be a lengthy process which may be inconsistent with the timetable for a global capital raising operation. Consequently, we have in the past elected and may in the future elect not to make such an offer in the
US, including to our ADS holders and rather only conduct such an offering in an “offshore” transaction in accordance with “Regulation S” under the US Securities Act of 1933, as amended (the “Securities Act”), or in the US in transactions exempt from the registration requirements of the Securities Act.
sector; ■ regulatory developments in the principal markets in which we operate; ■ international or local political, economic and market conditions; and
Judgments of United States courts may not be enforceable against us
Auditor’s Report on the consolidated fi nancial statements. In this section, Risk Management refers to the function aiming at effectively managing local and global risks, described bellow. Within the AXA Group, Risk Management is the main responsibility of the Group Risk Management (GRM)
(DCFG, PBRC and GIA). It is coordinated by the central team, and is supported by local Risk Management teams within each operational entity.
■ Group Risk Committees include fi ve Committees covering the following risk categories: For Financial risks: • the Asset-Liability Management Supervisory Committee, chaired by the Group Deputy CEO.
For Operational and Reputation risks: • Risk & Compliance Committee, co-chaired by the Group
Group Deputy CEO. GRM develops the risk framework in terms of limits/thresholds (fi nancial, insurance and operational risks), standards, minimum requirements or processes, and oversees the operating entities’ adherence to the framework, supported by the local risk management teams; ■ each of the main operating subsidiaries or region’s Board of Directors must establish a local Risk Committee which approves the local/regional risk appetite when it has a delegation or review it for approval by the local Board of
GIA). The missions of Risk Management Department are: ■ steer the Risk Management family and develop a risk culture throughout the Group; ■ conduct, at local level, regular reviews of the technical reserves and of the model established by the operating units and regular reviews of models implemented throughout the
Group in order to ensure the consistency between actuarial and fi nancial standards; ■ defi ne and propose to the Management Committee, with the support of AXA Global P&C and AXA Global Life, the main features of the Group’s reinsurance coverage program; ■ monitor the Group asset allocation: (i) monitor risk concentration in assets, (ii) perform regular studies and reporting on exposure and performance, and (iii) defi ne standards in terms of Asset Liability Management (see
Section Market Risks); ■ defi ne and coordinate a decentralized review of risk-adjusted pricing and profi tability for new products prior to launch (the
Casualty. For Variable Annuity products with guarantees, the review is centralized, and submitted to the Management
Committees of local entities and the Group Chief Risk Offi cer to ensure a better alignment of Group and local interests. The missions of local Risk Management teams are set in accordance with the responsibilities stated above. The minimum missions required for local Risk Management teams are: ■ performing a second opinion on P&C reserves, ALM
These techniques include: ■ a regular monitoring of the fi nancial risks on the solvency, and economic position of the Company; ■ Asset Liability Management (ALM), i.e. defi ning an optimal strategic asset allocation with respect to the liabilities’
structure, to reduce the risk to a desired level. Please refer to next paragraphs for further details on ALM; ■ hedging of fi nancial risks when they exceed the tolerance levels set by the Group. Operational management of derivatives has stringent rules and is mainly performed by AXA SA and Group asset managers, AXA Investment
Managers and AllianceBernstein as well as AXA Bank Europe and AXA Equitable for the hedging program of Variable
AXA’s exposure to market risk is strictly monitored. It is mitigated by: ■ its broad range of operations and geographical positions, which provides good diversifi cation; and
The market risks to which Life & Savings operating units are exposed arise from a variety of factors including: ■ a decline in returns on assets (linked to a sustained fall in yields on fi xed income investments or to lower equity markets) could reduce investment margins or fees on unitlinked contracts; ■ a rise in yields on fi xed-income investments (linked to interest rates or in spreads) reduces the market value of fi xed-income investments and could impact adversely the solvency margin, and increase policyholder’s surrenders due to competitive pressures; ■ a decline in asset market value (equity, real estate, alternatives, etc.) could impact adversely the solvency margin, as well as available surplus; ■ a rise in fi nancial market volatility may increase the cost of hedging the guarantees associated with Variable Annuity products and decrease the Group’s Value; ■ a change in foreign-exchange rates would have limited impact for the operating units since foreign-currency commitments are matched to a large extent by assets in the same currency or covered by hedges, but it could affect the earnings contribution in euros.
Group’s Life & Savings technical reserves cover separateaccount (unit-linked) products that do not materially affect
Variable Annuities. Suitable risk management policies have been put in place with respect to these products: • derivatives are used as part of the dynamic management of risks related to guaranteed benefi ts, in order to cover market risks linked to Guaranteed Minimum Death Benefi ts
GMDB, GMIB, GMAB and GMWB due to movements in equity, fi xed income and foreign exchange markets.
US business and AXA Bank Europe for the European and Asian business manage the market risks on these products,
Group’s Life & Savings technical reserves cover products without guaranteed cash values upon surrender: • annuities in the payout phase are usually backed by fi xedincome assets with maturities that match the underlying payout schedules, thereby avoiding reinvestment and liquidity risks; ■ 21% at the end of 2011 (20% at the end of 2010) of the
Group’s Life & Savings technical reserves are related to products offering one-year guaranteed rates that are updated every year. The risks arising from a sustained fall in interest rates in the fi nancial markets are limited for these types of products. Hedging programs have been implemented to cover long-term fi xed maturities from the risk of an increase in interest rates; ■ 36% at the end of 2011 (37% at the end of 2010) of the
Group’s Life & Savings technical reserves cover other products. These reserves cover surrender guarantees and, in some cases, a guaranteed long-term rate. Related risks are managed in the following ways:
• other products are managed with the surplus required to cover guarantees,
Property & Casualty and International Insurance technical reserves break down as follows: (in E uro million)
TOTAL – PROPERTY & CASUALTY INSURANCE INCLUDING INTERNATIONAL INSURANCE 58,480 60,401
(a) Assets and liabilities related to the Australian and New Zealand operations and some UK Life & Savings portfolios for which the disposal process was not fi nalized as of December 31, 2010 were classifi ed as held for sale.
Investment Committee defi nes the implementation of investment strategy, steers tactical asset allocation, evaluates new investment opportunities and monitors the Group’s investment performance. The Group Investment Committee meets on a monthly basis. This Committee actively governs
AXA as an insurance company follows an investment strategy that is largely driven by A sset-L iability M anagement (ALM), which is described below. The overall objective of all investment decisions is to ensure that our obligations to policyholders are met at all times, to protect the solvency of our c ompanies , and to generate superior returns over time.
Chief Investment Offi cer (Group CIO) leads the Group-wide community of local CIOs. His role encompasses aligning AXA’s investment strategy with the broader Group strategy, fostering closer co-operation among local entities, and enhancing methodology and decision support. The Group CIO leads the central Investment & ALM Department. Dedicated central teams support local entities by developing new investment ideas, providing investment analysis and decision support, and making investment recommendations, mainly in the fi xed income asset class. The central team also manages close relationships with the Group asset managers and other central departments, like GRM, PBRC and DCFG.
The local CIO manages the local portfolios, maintains his reporting line to the Group, and manages close relationships with the asset managers and with local stakeholders. The local
CIO is in particular responsible for the investment performance and for a sound asset-liability management. ALM starts with an in-depth analysis of local company’s liabilities, and results in a strategic asset allocation that is optimal vis-à-vis the given liabilities’ structure. This strategic asset allocation is derived by taking into account the long-term outlook for the various asset classes, as well as short-term constraints.
At local entity level, the strategic asset allocation needs the validation of the local Investment & ALM Committee, subject to an opinion from local risk management and respecting all predefi ned risk appetite limits. At Group level, the strategic asset allocation is approved by the quarterly Group ALM
IM and AllianceBernstein. Local CIOs continuously monitor, analyse, and challenge asset managers’ performances.
ALM aims at matching our assets with the liabilities we assumed by selling insurance policies. For doing so, we attempt at defi ning the optimal asset allocation in a way that all liabilities can be met with the highest degree of confi dence, while maximizing the expected investment return.
Departments of all major local insurance companies, with the support of internal asset managers and local Risk Management
Departments. They use methodologies and modelling tools that develop deterministic and stochastic scenarios of the possible behaviour of our liabilities on one side, and of the behaviour of fi nancial markets and the related impacts on our assets on the other side. On the asset side in particular, such studies attempt to maximize the expected investment return of the portfolio, while reducing the required cost of economic capital. Furthermore, a series of additional constraints needs to be considered, such as earnings stability, protection of the solvency margin, preservation of liquidity, as well as local and consolidated capital adequacy.
Department consolidates these results, enabling to assess operating units’ fi nancial fl exibility. The results are presented to the Finance Committee of AXA’s Board of Directors on a regular basis.
AXA local companies mandate the day-to-day management of their asset portfolios primarily to the two AXA subsidiaries AXA
Managers, one of the world’s largest asset managers, offers customised investment solutions across all major asset classes and regions. AllianceBernstein provides solutionbased diversifi ed investment management services worldwide.
Disclosures about Market Risk and Risk Factors”; ■ exchange-rate risk related to the operating activities of
The AXA Group analyzes sensitivity to movements in interest rates and equity markets looking at two different measures: ■ sensitivities of European Embedded Value (EEV) in the Life &
Savings business, as described below; ■ sensitivities of the Tangible Net Asset Value (TNAV) for otherthan -life businesses.
(Spain, Portugal, Italy, Mexico, Morocco, Turkey, the Gulf Region and Greece), Hong Kong and Japan. At December 31, 2011, these subsidiaries represented 99% of AXA’s consolidated invested assets within its insurance operations.
In addition to Life & Savings EEV, AXA calculates a “Group EV”
which adds to the Life & Savings EEV the Tangible Net Asset
Unrealized capital gains projected in VIF & other stat-GAAP adjustments (2,125) - (2,125) (2,058) - (2,058)
Group EV = AXA Life & Savings EEV + Other Businesses IFRS SHE at December 31 38,154 (6,606) 31,548 40,476 (6,324) 34,152
The Group EV equals the Life & Savings EEV plus the other businesses TNAV (Tangible Net Asset Value). The TNAV
average infl ation rate was assumed in 2011 (2.0% in 2010); ■ expenses are adjusted for non-recurring expenses and onetime strategic spending; ■ some benefi t from future mortality improvement on Life business is included, while annuity business does have an allowance for the costs of longevity increasing in all markets;
■ non-fi nancial risks are provided for through the cost of holding capital consistent with the necessary amount to obtain a AA rating at each entity level; ■ a weighted average tax rate of 31.0% was assumed in 2011
(31.6% in 2010); ■ consistent with previous years, AXA used, at the end of 2011, reference rates which included, where applicable, liquidity premia over the swap curves for some of its entities.
The sensitivities of the Group EV to changes in major economic assumptions were calculated as follows for the 2010 and 2011 values: ■ upward parallel shift of 100 basis points (bps) in reference interest rates simulates a sudden shock to the initial conditions. This means changes to: 1) the current market values of fi xed-interest assets, with related possible changes to projected capital gains/losses and/or fee revenues, 2) future reinvestment rates for all asset classes, and 3) risk-discount rates. Infl ation rates are not changed; ■ downward parallel shift of 100 basis points in reference interest rates is the same as above but with a shift downward. Where the shift of 100 basis points would drop rates below 0%, they are fl oored at zero; ■ 10% higher value of equity markets at the start of the projection simulates a shock to the initial conditions just for equities. This means changes to current market values of equities, with related possible changes to projected capital gains/losses and/or fee revenues. Policyholder and management behaviors are adjusted to be consistent with these conditions. As noted in the defi nitions, these calculations refl ect a shock to the initial conditions for equities, but no changes in value for asset classes such as fi xed maturities or real estate are assumed to accompany the equity change. In reality, changes in value of other asset classes would probably lead to different results than shown here. It is also possible that a gradual movement in equity would produce different results than a sudden shock; ■ 10% lower value of equity markets at the start of the projection same as above but a decrease.
Upward parallel shift of 100 bps in risk-free rates 1,231 4% (1,487) (5%) (256) (1%) 781 2% (1,667) (5%) (886) (3%)
Downward parallel shift of 100 bps in risk-free rates (3,456) (11%) 1,597 5% (1,859) (6%) (2,440) (7%) 1,718 5% (722) (2%)
10% lower value of equity markets at start of projection (1,031) (3%) (373) (1%) (1,404) (4%) (1,536) (4%) (727) (2%) (2,263) (7%)
Group Embedded Value (Group EV) is defi ned on page 211.
Savings business of 3% to upward 10% or -3% to downward 10% (2010 4% and -4%) are more nearly symmetrical, with no complicating effects from changes of discount rates. The limited asymmetries refl ect the impact of guarantees and profi t-sharing rules, along with some hedging programs to limit potential losses. The impacts of equity market value changes can come through general account exposures or through changing asset balances impacting future fee revenue on separate account business.
AXA Japan’s investment strategy is to invest when relevant outside the Japanese market in order to diversify investments.
AXA Germany hold investments denominated in foreign currencies €3,799 million (€3,671 million in 2010,), both directly and indirectly through investment funds, with the aim of diversifying their investments and taking advantage of foreign markets’ performance. These investments are mainly in
Exchange-rate risk exposure is hedged using forwards for a notional amount of €3,459 million (notional €3,308 million in 2010) and currency swaps for a notional amount of €403 million
In Belgium, in the United States, in the United Kingdom and in the Mediterranean and Latin American Region, the Group’s
These countries accounted for 99% at the end of 2011 (97%
at the end of 2010) of the Group’s Life & Savings companies’
■ Property & Casualty business: 9% of Group assets at the end of 2011 (9% at the end of 2010): In France, AXA is exposed to exchange-rate risk through the units it owns in certain investment funds partly invested in foreign currencies mainly US Dollar (€244 million vs.
€390 million in 2010) and to a much lesser extent Pound
Germany P&C is exposed to US Dollar exchange rate risk on certain investment funds for €1,156 million (€1,096 million in 2010) and to a lesser extent on Pound Sterling, Australian
Dollar and Swiss Francs. AXA Germany controls and limits its exchange rate risk by using forwards for a notional amount of €949 million (notional €967 million in 2010), currency swaps for a notional amount of €227 million (notional €143 million in 2010)
AXA Ireland but have diversifi ed their investment portfolios in line with asset liability management objectives as follows: ■ directly owned foreign-currency investments and cash of €635 million (€511 million in 2010), of which €583 million
forward or cross currency swaps; ■ investments totaling €177 million (€139 million in 2010)
of CLO funds and other investment funds which invest in foreign-currency investments, of which €140 million is hedged through FX forward, and the remaining €37 million mitigates the FX exposure in AXA PPP liabilities.
These countries accounted for 93% at the end of 2011 (94% in 2010) of the Group’s Property & Casualty companies’ assets.
At December 31, 2011, the main hedging positions were as follows: Foreign currency hedging
Japanese Yen 956.3 956.3 9.5 8.8 In respect of the Japan activities, mainly in the form of derivatives
Pound Sterling 3.1 2.2 3.7 2.5 In respect of the UK business, mainly in the form of debt
Canadian Dollar 1.7 1.2 In respect of the Canadian business in the form of derivatives
AXA SA’s assets accounted for most of the assets of Group holding companies at the end of 2011.
Central Finance Department has defi ned and implemented formal management standards, as well as guidelines for monitoring and assessing fi nancial risks. These standards, which have been approved by the Management Committee, are designed to permit a consistent measurement of the positions of each affi liate.
Synthetic reports, including information about hedging strategies, are sent to and reviewed by the Finance Committee of AXA’s Board of Directors on a quarterly basis.
In addition, the Group Central Finance Department closely monitors risks resulting from regulatory or other restrictions on dividend payments from the Group’s operating subsidiaries or limitations on AXA’s ability to reduce these subsidiaries’
ASSESSMENT: ■ Variability analyses assess the change in interest expenses over a medium term horizon resulting from a 100 bp rise in interest rates; ■ Interest rate sensitivity analyses assess changes in the value of interest rate positions by currency and by maturity following a 100 bp upward shift in the yield curves.
DEFINITION: exchange-rate risk results from a mismatch between the currency of an asset (particularly net foreign currency investments in subsidiaries) and the currency in which it is fi nanced.
POLICY: the objective is to limit variations in net foreign currency-denominated assets resulting from movements in exchange rates. The purpose of the policy is therefore to protect partially or in full the value of AXA’s net foreigncurrency investments in its subsidiaries and thus reduce the variability of Group consolidated shareholders’ equity against currency fl uctuations, but also of other key indicators such as liquidity, gearing and solvency ratios. AXA regularly monitors its exchange rate hedging strategy and will continue to review its effectiveness and the potential need to adapt it taking into account impacts on earnings, value, solvency, gearing ratio and liquidity.
as well as by banks and holding companies. These portfolios give rise to counterparty risk through the debt securities and derivative products held within them; ■ receivables from reinsurers resulting from reinsurance ceded by AXA.
“consolidated fi nancial statements” sets out the debt securities portfolio by issuer type.
These tools allow Group Risk Management to ensure compliance with limits defi ned by the Group, among which asset allocation, credit risk concentration or counterparty risk for derivatives, in addition to local existing processes. The
CRO and meets on a monthly basis. In addition, a Group Credit
At December 31, 2011, the breakdown of the debt security portfolio (€372.6 billion) by credit rating category was as follows: BBB
At December 31, 2011, the breakdown of government and government related bonds fair values (€213 billion) by country was as follows: Switzerland
Amounts are referring to Government and government related bonds. Net amounts are presented at 100% share
Greek government bonds that are subject to private sector initiatives to support Greece involving voluntary exchanges and roll-overs of existing Greek government bonds were impaired at fair value o n March 9, 2012, resulting in €-387 million net charge for the period ended December 31, 2011.
At December 31, 2011, the economic breakdown of the total value of ABS (€9.0 billion excluding assets held for sale as well as CMOs and agency pool ABS) was: Prime Residential
At December 31, 2011, AXA’s invested assets included a net exposure to US subprime residential and Alt-A mortgage loans of approximately €0.7 billion (10% equalling or above AA
At December 31, 2010, the economic breakdown of the total value of ABS (€10.3 billion excluding assets held for sale, as well as CMOs) was: 29% in CLO, 12% in Consumer ABS, 17%
At December 31, 2010, AXA’s invested assets included a net exposure to US subprime residential and Alt-A mortgage loans of approximately €0.8 billion (17% equaling or above AA rating).
The positive gross fair value evolution of the ABS assets over the year 2011 was evaluated at €0.1 billion, mostly recognized in net income (versus €0.7 billion in 2010, of which €0.3 billion in net income and €0.4 billion in shareholders’ equity).
Net of policyholders’ participation, tax and VBI/DAC reactivity, the fair value evolution of ABS assets over the year 2011 was lower than €0.1 billion with a limited impact on both net income and shareholders’ equity (versus €0.3 billion in 2010, of which €0.1 billion in net income and €0.2 billion in the shareholders’
AXA Group through these instruments is included in analyses of debt security portfolios as described in the previous
derivatives through a specifi c Group-wide policy. This policy includes a limit framework and an exposure monitoring process.
AXA banking operations are mostly limited to retail banking activities, distributing simple investment and credit products.
Credit risks in the banks may be split between: ■ retail credit risk, resulting from the commercial activity – sales of mortgages and other type of loans to retail clients and small enterprises. Credit risk management is done through careful risk selection (“Internal Rating Based” scoring models regularly monitored to ensure a risk selection consistent with each bank’s risk appetite, “Retail Credit Committees” that meet every month) and a regular monitoring of portfolios by product management teams and risk management teams; ■ other than retail credit risk, resulting from investment activity.
European Central Bank’s refi nancing operations due to its primary purpose to serve as a buffer of liquid assets for the commercial activities of the Bank.
that complete well-established underwriting rules; ■ regular exposure analysis to ensure that the current exposure is within our risk appetite at Group level; ■ optimization of reinsurance strategies to mitigate the risks in order to cap the Group’s peak exposures to protect our
Global P&C and AXA Global Life; ■ prior to ceding risks, in-depth actuarial analyses and modeling are conducted on each portfolio by AXA Global
(mortality, geographical concentration risk). Trend risks such as longevity also fall in the scope of such actuarial studies and reinsurance undertakings. These analyses provide guidance for determining the most appropriate reinsurance cover (retention levels and scope of cover) for each portfolio and for each type of risk, in accordance with objectives and capital allocation constraints; ■ estimates of P&C catastrophic risks are carried out on the basis of several pieces of several modeling softwares available in the market. Although these softwares are key to foster discussions with reinsurers, they are regularly assessed within GRM and adjusted to the specifi c features of AXA’s portfolio. Experience shows that these softwares may provide imperfect estimates of real exposure, and may underestimate some important factors such as infl ation following a major catastrophe or the effects of climate change. In addition, they do not factor in risks relating to legal developments requiring an insurer retrospectively to cover a risk that, it believed, was excluded from its policies.
Coverage is arranged through the reinsurance market or potentially in the fi nancial market through securitization (cat bonds).
In 2011, four pools were managed by AXA Global P&C: ■ Property (Catastrophe and per risk + Personal Accident); ■ General Liability; ■ Marine; ■ Technological innovation.
(IBNR) claims, along with reserves for incurred but not enough reported (IBNER) claims are also booked. Various statistical and actuarial methods are used in these calculations. Calculations are initially carried out locally by the technical departments in charge, and are then reviewed for a second opinion by local risk management teams or external technical experts.
Actuaries in charge of assessing reserves for claims payable do not use a single method but a selection of approaches such as: ■ methods based on the development of claims (paid or incurred) using triangulation methods (e.g. chain ladder and link ratio) for which past experience is applied to each loss occurrence or underwriting year, in order to make reserves projections until their estimated fi nal development; ■ methods based on claims ratios (such as the ultimate claims ratio); ■ hybrid methods (such as Bornhuetter-Ferguson and Cape
Aside from the immediate destruction caused mainly by fl ooding, and to a lesser extent by drought, climate change will have major implications for most human activities, particularly agriculture, timber production, healthcare and water activities, and therefore for the insurance used to protect them (property, agricultural, business interruption, civil liability, marine and aviation, life, health, etc.). The insurance sector thus faces major challenges in the coming years in the form of potential increases in Property & Casualty claims, the emergence of new liability claims and growing uncertainties about the size of maximum possible losses, which have become harder to assess and to predict on the basis of past events.
Gradual premium rate adjustments will be required to widely refl ect these risk factors, but may not be suffi cient to cover risks underwritten in the most exposed areas to fl ood or cyclone. By seeking to develop new solutions, acting as an advisor on risk management and actively contributing to the overall debate about the issues involved – particularly as part
of the Carbon Disclosure Project – AXA, along with other major market players, intends to promote a better understanding and better forecasting of the risks resulting from global warming and to support sustainable development.
In past years developments relating to bird fl u attracted increasing attention across governments and industry to the risks associated with pandemics. After a lowering of the level of public attention in 2008, 2009 saw the emergence of a new infl uenza virus strain which spread very quickly but fortunately has so far been relatively mild compared to other major infl uenzas. Although assessing pandemic risks involves a signifi cant amount of various assumptions, it requires the development and implementation of an appropriate risk management strategy.
Life into reinsurance capacity for AXA Group subsidiaries. This bond matured in January 2010, and AXA continues to monitor conditions while considering whether to issue another bond.
AXA has developed a common operational risk typology listing around a hundred risks classifi ed in the following seven risk categories: ■ internal fraud; ■ external fraud; ■ employment practices and workplace safety; ■ clients, products and business practices; ■ damages to physical assets; ■ business disruption and system failures; ■ execution, delivery and process management.
At Group level, both quantitative and qualitative requirements have been defi ned.
In the light of the 2008-2009 global fi nancial crisis, AXA
reinforced measures in place to protect its reputation, and communicated to shareholders, customers, staff, and more broadly the fi nancial community, on its strength and fi nancial soundness through: ■ a tailored and daily basis communication at both internal and external levels (AXA’s intranet and specifi c hotline to answer questions of shareholders and staff, letters sent to customers and articles posted on AXA’s website); ■ a continuous monitoring of our online reputation (web and media monitoring system); ■ an extensive communication of our management team to international media.
Several years ago, AXA adopted the AXA Group Compliance and Ethics Guide (“the Guide”). The Guide has been updated in 2006 and then again partly in 2011. The current version of the
Anti-Money Laundering charter that was initially adopted in 2002. In line with this charter, each AXA Group company is required to maintain procedures based on Group standards and principles, in addition to those required by applicable local regulations, and to appoint an anti-money laundering offi cer.
des marchés financiers (“AMF”), which is the French fi nancial market regulator, and the Autorité de Contrôle Prudentiel
AXA SA and/or some of its subsidiaries are involved in lawsuits
“Consolidated Financial Statements” – Note 31 “Litigation” of this Annual Report.
liability, professional liability and fraud and are: ■ Group-wide insurance programs covering all AXA Group entities with the exception of AXA Financial and its subsidiaries, which traditionally arrange cover within local market; ■ reviewed and approved annually by the Management
The Company has paid dividends on its shares for the past fi ve years. The Company pays dividends in Euro. Future dividends will depend on AXA’s earnings, fi nancial condition as well as various other factors. Proposals for dividend payments are made at the discretion of the Board of Directors, after examination and opinion of its Finance Committee, and are submitted for fi nal approval to the Shareholders’ Meeting.
AXA determines its dividend policy on the basis of its adjusted earnings minus interest charges on its outstanding undated debt securities, and, in each of the past several years, with the exception of 2009, AXA has paid aggregate dividends in a general range of 40% to 50% of this amount. While
Management currently intends to maintain this dividend policy over the long-term, the dividend proposed by Management in any particular year depends on a variety of factors (including the Company’s performance, prevailing fi nancial market conditions and the general economic environment) and, consequently, may fall outside the target 40% to 50% range in certain years. In assessing the dividend to be paid in any given year, Management tries to strike the appropriate balance between (i) prudent capital Management, (ii) reinvestment of previous results to support business development and (iii) an attractive dividend for shareholders.
For further information on the dividends declared and paid in the most recent fi ve years and on the Company’s dividend policy, see Part 1 – “The AXA Group: Our global business operations, recent fi nancial performance and fi nancial condition”, Section 1.1 “Dividends” and Part 5 – “Certain additional information – Description of AXA’s Share Capital”,
For a description of certain developments since the date of the annual fi nancial statements included in this Annual Report, please see Part 4 – “Consolidated Financial Statements” –
NOTE 29 Contingent assets and liabilities and unrecognized contractual commitments 394
(in Euro million ) Notes 6 Value of purchased business in force (c) 3,074 3,105 7 Deferred acquisition costs and equivalent 21,785 19,641 8 Other intangible assets 3,382 3,648
Assets backing contracts where the fi nancial risk is borne by policyholders (d) 134,230 137,757 9 Investments from insurance activities 569,056 563,137 9 Investments from banking and other activities 35,264 31,416 10 Investments in associates – Equity method 1,139 1,168
Tangible assets 1,410 1,517 14 Deferred policyholders’ participation assets 1,247 636 19 Deferred tax assets 3,052 4,097
Receivables arising from direct insurance and inward reinsurance operations 13,346 13,468
Assets held for sale including discontinued operations (e) 360 22,848 12 Cash and cash equivalents 31,072 22,095
(d) Includes assets backing contracts where the fi nancial risk is borne by policyholders with Guaranteed Minimum features.
Liabilities arising from investment contracts with no discretionary participating features and where the fi nancial risk is borne by policyholders 26,336 25,006
Minority interests of controlled investment funds and puttable instruments held by minority interest holders 3,896 4,855
(d) Also includes liabilities arising from contracts where the fi nancial risk is borne by policyholders with Guaranteed Minimum features.
(f) In 2010, Australian and New Zealand operations and some UK Life & Savings portfolios for which the disposal process was not fi nalized as of December 31, 2010 were classifi ed as held for sale (see Note 5.3).
Liabilities arising from investment contracts with discretionary participating features and where the fi nancial risk is borne by policyholders 3,621 4,700
Total Liabilities arising from contracts where the fi nancial risk is borne by policyholders 134,599 138,293
Liabilities arising from investment contracts with no discretionary participating features 380 720
(a) In 2010, Australian and New Zealand operations and some UK Life & Savings portfolios for which the disposal process was not fi nalized as of December 31, 2010 were classifi ed as held for sale. (see Note 5.3)
Fees and charges relating to investment contracts with no participating features 350 518
Net realized gains and losses relating to investments at cost and at fair value through shareholders’ equity (d) 3,153 1,894
Net realized gains and losses and change in fair value of investments at fair value through profi t and loss (e) (3,406) 15,427 of which change in fair value of assets with fi nancial risk borne by policyholders (f) (4,977) 13,788
Amortization of the value of purchased business in force (249) (256)
Change in goodwill impairment and other intangible assets impairment (1,206) (111)
5 Charges related to the partial disposal of UK Life & Savings operations (38) (1,642)
Net consolidated income – Minority interests 193 342 27 Earnings per share (i) 1.75 1.08
(h) Includes net balance of income and expenses related to derivatives on fi nancing debt (however excludes change in fair value of these derivatives).
(i) Refer to Note 27 for the split of earning per share between continuing and discontinued operations.
Reserves relating to changes in fair value through shareholders’ equity (1,634) 1,588
Net gains and losses recognized directly through shareholders’ equity (2,052) 2,395
Notably include €2.5 billion reduction in shareholders’ equity related to the buy-out of minority interests in AXA APH Asian operations, and relution impact from AllianceBernstein deferred compensation (€+107 million Group share, offset in minority interests) and €-165 million from open-market purchase of AllianceBernstein holding units (€-106 million Group share and €-59 million minority interests).
(c) Actuarial gains and losses accrued since opening January 1, 2011.
Others (including impact on changes in scope) (b) - - - - -
(a) Undated subordinated debts (TSS, TSDI), and equity components of compounded fi nancial instruments (e.g. convertible bonds) (see Note 13.1.1.c).
CONSOLIDATED FINANCIAL STATEMENTS/FULL YEAR 2011 4 4.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Change in goodwill impairment and other intangible assets impairment (d) 1,092 117
Net change in liabilities arising from insurance and investment contracts (e) 6,446 27,360
Adjustment of non cash balances included in the operating income before tax 16,309 10,719
Dividends recorded in profi t or loss during the period (3,034) (1,181)
Investment expense (excluding interests on fi nancing and undated subordinated debts, margin calls and others) (2,733) (1,455)
Change in operating receivables and payables and net operating cash from banking activities (8) 653
Net cash impact of transactions with cash impact not included in the operating income before tax 20,600 22,176
Purchase of subsidiaries and affi liated companies, net of cash acquired 11 (159)
Net cash related to changes in scope of consolidation 1,381 2,098
Sales and/or repayment of loans and other assets (g) (i) 24,484 38,445
Purchases of investment properties held direct or not (g) (1,087) (624)
Net cash related to purchases and issuance of investments (h) (g) (i) (141,739) (151,295) Sales of tangible and intangible assets 10 16
Net cash related to sales and purchases of tangible and intangible assets (363) (381) Increase in collateral payable/Decrease in collateral receivable 74,602 31,604
Acquisition/sale of interests in subsidiaries without change in control (m) (3,456) -
Net cash related to transactions with shareholders (5,359) (1,863) Cash provided by fi nancial debts issuance 15 1,386
Net cash related to Group fi nancing (202) (1,199) Other fi nancing cash impact and non cash adjustment - 5 NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES (5,560) (3,057) NET CASH PROVIDED BY DISCONTINUED OPERATIONS 1,910 CASH AND CASH EQUIVALENT AS OF JANUARY 1 (K) 21,097 18,210 Net cash provided by operating activities 15,384 19,103
CASH AND CASH EQUIVALENT AS OF DECEMBER 31 (K) 30,042 21,097
(i) Includes sales/purchases of assets backing insurance & investment contracts where the fi nancial risk is borne by policyholders.
(l) In 2010, Australian and New Zealand operations and some UK Life & Savings portfolios for which the disposal process was not fi nalized as of December 31, 2010 were classifi ed as held for sale. (see Note 5.3).
(m) To be looked in conjunction with “Disposal of subsidiaries and affi liated companies, net of cash ceded” for the AXA APH transaction (see Note 13.1.1).
The disposal of Australian and New Zealand operations and the buy-out of minority interests in AXA APH Asian operations are presented in the Consolidated Statement of Cash fl ows in the following rows: ■ “disposal of subsidiaries and affi liated companies, net of cash ceded” for an amount of €1,306 million; ■ “acquisition/sale of interests in subsidiaries without change in control” for an amount of €-3,296 million.
AXA SA, a French “société anonyme” (the “Company” and together with its consolidated subsidiaries, “AXA” or the
operates principally in Europe, North America and Asia. The list of the main entities included in the scope of the AXA’s consolidated fi nancial statements is provided in Note 2 of the notes to the consolidated fi nancial statements.
These consolidated fi nancial statements including all notes were fi nalized by the Board of Directors on March 7, 2012.
IFRS Interpretations Committee that are defi nitive and effective as of December 31, 2011, as adopted by the European
The application of the following amendments to standards and interpretations as of January 1, 2011, had no material impact on the Group’s consolidated fi nancial statements: ■ Revised IAS 24 – Related Party Disclosures, published on
July 1, 2011. It is not expected to have a material impact on the
A package of fi ve new and revised standards were published on May 12, 2011 addressing the accounting for consolidation, involvement in joint arrangements and disclosure of involvements with other entities. Each of the fi ve standards have an effective date for annual periods beginning on or after
January 1, 2013, with earlier application permitted so long as each of the other standards in the package is also early applied. The analysis of the potential impact on the Group’s consolidated fi nancial statements with regard to the package of fi ve new and revised standards is currently underway.
June 16, 2011, addresses the presentation of changes in assets and liabilities arising from defi ned benefi t plans, including requiring remeasurements to be presented in other comprehensive income. The amendment also eliminates the corridor method deferral of recognition of gains and losses, which is not applied by the Group. The amendment is effective for annual periods beginning on or after January 1, 2013, with early application permitted. The analysis of the potential impact on the Group’s consolidated fi nancial statements is currently underway.
The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014 and the IFRS 7 disclosure amendments are required for annual periods beginning on or after January 1, 2013. The amendments are not expected to have a material impact on the Group’s consolidated fi nancial statements.
AXA’s share of equity associates’ post-acquisition profi ts or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”.
Investment contracts with no discretionary participating features do not benefi t from the exemption permitted by IFRS 4 in phase I of the IASB’s insurance project such as described above, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature.
To the extent that these other intangible assets can be estimated separately, they can also be measured by looking at the purchased marketing resources that will allow to generate these future cash fl ows. The nature of the intangible assets recognized is consistent with the valuation methods used when purchasing the acquired entity.
For business combinations on or after January 1, 2009, any change to the estimate of the contingent element between the acquisition date and the amount actually subsequently paid is recognized in the income statement. Direct transaction costs related to a business combination are charged in the income statement when incurred.
Adjustments can be made to goodwill within twelve months of the acquisition date, if new information becomes available to complete the initial accounting. In this case, comparative information is presented as if the initial accounting had been completed from the acquisition date. If, after the period of twelve months, a deferred tax asset, initially considered as not recoverable, fi nally meets the recognition criteria, the corresponding tax benefi t is recorded in the consolidated statement of income without a corresponding adjustment in goodwill.
Since the balancing entry to this liability is not specifi ed by current IFRS, the Group’s method is (i) to reclassify minority interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the difference either as an increase in goodwill for puts existing before January 1, 2009 or as a decrease in equity (Group share)
In the event of an internal sale of an asset that is not intended to be held on the long term by the Group, deferred tax is recognized as the current tax calculated on the realized gain or loss is eliminated. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the statement of fi nancial position.
At the local entity level, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except where hedge accounting is applied as explained in Section 1.9.
Foreign exchange differences arising from monetary fi nancial investments available for sale are recognized as income or expense for the period in respect of the portion corresponding to amortized cost. The residual translation differences relating to fair value changes are recorded in shareholders’ equity.
In case of unrealized loss over 15%, an impairment is recognized for the difference between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without offsetting with unrealized gains) represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-by-line approach until the 10% threshold is reached.
For fi nancial investments accounted for at amortized cost, including loans and assets classifi ed as “held to maturity” or assets designated as “Loans and receivables”, the impairment test is fi rst performed at the asset level. A more global test is then performed on groups of assets with similar risk profi le.
Interest expense from repurchase and security lending transactions is accrued over the duration of the agreements.
Derivatives are initially recognized at fair value at purchase date and are subsequently re-measured at their fair value.
The Group documents, at inception, the hedge relationship, as well as its risk management hedging objectives and strategy.
The effective portion of changes in the fair value of derivatives designated and qualifying as cash fl ow hedge is recognized in shareholders’ equity. The gain or loss relating to any ineffective portion is recognized in the income statement. Cumulative gain or loss in shareholders’ equity is recycled in the income statement when the hedged underlying item impacts the profi t or loss for the period (for example when the hedged future transaction is recognized). When a hedging instrument reaches its maturity date or is sold, or when a hedge no longer qualifi es for hedge accounting, the cumulative gains or losses in shareholders’ equity are held until the initially hedged future transaction ultimately impacts the income statement.
Undated subordinated debts and any related interest charges are classifi ed either in shareholders’ equity (in the “other reserves” aggregate) or as liabilities depending on contract clauses without taking into consideration the prospect of redemption under economic constraints (e.g. step up clauses or shareholders’ expectations).
According to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions, selective changes as permitted by IFRS 4 (see below), the extension of shadow accounting and except where
For insurance and investment contracts with discretionary participating features, if the contracts include a minimum guaranteed rate, any potential reserve defi ciency caused by insuffi cient future investment return is immediately booked.
Claims reserves (life and non life contracts) The purpose of claims reserves is to cover the ultimate cost of settling an insurance claim. Claims reserves are not discounted, except when relating to disability annuities.
Shadow accounting and Deferred policyholders Participation Asset (DPA) or Liability (DPL) In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business in force to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss of invested assets. When unrealized gains or losses are recognized, a deferred participating liability (DPL)
Unrealized gains and losses on assets classifi ed as trading or designated at fair value through profi t and loss, along with any other entry impacting the income statement and generating a timing difference, are accounted in the income statement of the income with a corresponding shadow entry adjustment in the statement of income. The shadow accounting adjustments relating to unrealized gains and losses on assets available-forsale (for which change in fair value is taken to shareholders’
Deferred participation When net deferred participation asset is recognized, the Group uses liquidity analyses performed by the entities to assess the capacity to hold assets showing unrealized loss position, if any, generating such debits. The Group then performs projections to compare the value of assets backing policyholders’ contracts with expected payments to be made to policyholders.
■ such tests are based on the intention and capacity of entities to hold fi nancial assets according to various sets of scenarios, excluding the value of new business; ■ they include projections of future investments sales according to estimated surrender patterns; ■ and the extent to which resulting gains/losses may be allocated/charged to policyholders, i.e. profi t sharing between policyholders and shareholders.
Contract specifi c risks (insurance risk, asset return risk, infl ation risk, persistency, adverse selection, etc.) directly related to the contracts that might make the net liabilities inadequate, are also considered. Depending on the type of business, the future investment cash fl ows and discounting may be based on a best estimate and risk free rates, with corresponding participation, or in the case of Guaranteed Minimum Benefi ts, stochastic scenarios. Testing is performed either by a comparison of the reserve booked net of related assets (DAC, VBI…) to a reserve directly by discounting the cash fl ows, or by ensuring that the discounted profi t net of participation from release of the technical provisions exceeds net related assets.
Deferred tax assets and liabilities emerge from temporary differences between the accounting and fi scal values of assets and liabilities, and when applicable from tax loss carry forwards. Deferred tax assets are recognized to the extent that it is probable that future taxable profi t will be available to offset the temporary differences.
All equity-settled share-based compensation plans granted after November 7, 2002 and not fully vested as of
Restructuring provisions other than those that may be recognized on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those affected or to their representatives.
Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identifi ed at the time of a business combination (see Section 1.3.2).
1.18.2. Fees and revenues from investment contracts with no discretionary participating features
1.18.5. Change in unearned premiums reserves net of unearned revenues and fees
Changes in unearned premium reserves net of unearned revenues and fees include both the change in the unearned premiums reserve reported as a liability (see “Unearned premiums reserves” in Section 1.13.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see “Unearned revenues reserves” in Section 1.13.2) and investment contracts with no discretionary participating features (see Section 1.13.3
Net revenues from banking activities include all revenues and expenses from banking operating activities, including interest expenses not related to fi nancing, banking fees, capital gains and losses on sales of fi nancial assets, change in fair value of assets under fair value option and related derivatives.
The net investment result includes: ■ investment income from investments from non banking activities, net of depreciation expense on real estate investments (depreciation expense relating to owner occupied properties is included in the “administrative expenses” aggregate); this item includes interest received calculated using the effective interest method for debt instruments and dividends received on equity instruments; ■ investment management expenses (excludes fi nancing debt expenses); ■ realized investment gains and losses net of releases of impairment following sales; ■ the change in unrealized gains and losses on invested assets measured at fair value through profi t or loss; ■ the change in impairment of investments (excluding releases of impairment following sales).
■ This resulted for example in disclosed loans now limited to debt instruments originated by the Group while other interest rates driven assets are shown as debt instruments.
Overall, reclassifi cations do not materially affect the presentation of the statement of fi nancial position and the notes to the fi nancial statements.
Total assets and liabilities have been reduced by €263 million from what was published in the 2010 Annual Report, principally because of actions described above.
AXA Australia New Zealand Disposal of Australian and New Zealand operations
(b) Mainly Spain, Italy, Portugal, Morocco, Turkey, Gulf Region, Greece, Mexico.
Kyobo AXA General Insurance Co. Ltd. (South Korea) 94.13 94.13 92.82 92.82
AXA Non Life Insurance Co. Ltd. (Japan) 100.00 98.94 100.00 98.72
(a ) UK Direct activities are held by AXA Insurance UK Plc.
(a) AXA also holds indirectly 100% of the general partner of AllianceBernstein L.P.
As of December 31, 2011, consolidated investment funds represented total invested assets of €95,961 million
(€95,045 million at the end of 2010), corresponding to 234 investment funds mainly in France, Germany and Japan and in majority relating to the Life & Savings segment.
As of December 31, 2011, the 21 consolidated real estate companies corresponded to total invested assets of €6,689 million (€6,642 million at the end of 2010), mainly in
December 31, 2011, minority interests in controlled investment funds amounted to €3,896 million (€4,847 million as of 2.1.2. Proportionately consolidated companies
Krungthai AXA Life Insurance Company Ltd AXA Asia Pacifi c Holdings minority
PT AXA Mandiri Financial Services AXA Asia Pacifi c Holdings minority
INVESTMENT FUNDS AND REAL ESTATE ENTITIES ACCOUNTED FOR USING THE EQUITY METHOD.
AXA France Vie. This structure was put in order to improve
AXA France Vie assets/liabilities adequacy ratio by ceding receivables against cash. The main impact is a €158 million increase in the Group’s other liabilities on the one hand, and in receivables on the other hand.
segment includes all non-operational activities. The fi nancial information relating to AXA’s business segments and holding company activities reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated fi nancial statements. The AXA’s Chief Executive Offi cer and the
Life & Savings: AXA offers a broad range of Life & Savings products including individual and g roup savings retirement products, life and health products. They comprise traditional term and w hole Life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and v ariable a nnuity products).
The Life & Savings segment aggregates nine geographical operating components: France, the United States, the
Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium-sized companies). In some countries, this segment includes health products. The Property & Casualty segment aggregates seven geographical operating components (France,
Company, and the group Property & Casualty run-off managed by AXA Liabilities Managers, including risks underwritten by
Colisée RE (ex AXA RE) relating to 2005 and prior accident years. Years after 2005 are covered by a treaty ceding 100%
Global P&C activity is mainly driven by its Property pool which provides AXA entities with cover on natural catastrophes.
The term “Financial Services” includes both the Asset Management segment and the Banking segment.
Net realized gains and losses and change in fair value of other investments at fair value through profi t or loss (e) (2,861) (150) (26) (77) - (258) (34) (3,406)
Other operating income and expenses (63,324) (26,486) (3,058) (3,318) (745) (615) 644 (96,902)
Income from operating activities before tax 2,972 2,276 418 233 (218) 65 (889) 4,856
Net consolidated income after tax 2,321 1,730 277 145 (235) 277 - 4,516
Net investment result excluding fi nancing expenses 30,025 2,170 290 91 (1) 31 (720) 31,886
Other operating income and expenses (84,116) (26,045) (2,865) (3,284) (505) (558) 754 (116,619)
Income arising from investments in associates – Equity method 55 32 - (2) - - - 85
Net income from operating activities before tax 2,395 2,222 477 459 (22) (1,701) (5) 3,826
Result from discontinued operations net of tax 12 148 - - - - - 160
Net consolidated income after tax 1,642 1,789 381 333 11 (1,066) - 3,091
Please refer to pages 206 to 213 of the “Quantitative and
Please refer to pages 216 to 219 of the “Quantitative and
Please refer to pages 220 to 223 of the “Quantitative and
An analysis of goodwill is presented in the table below: (in Euro million ) Transaction year
AXA Bank Hungary (ELLA Bank) 2007 59 (59) - 59 - 59
Of which: In this table, goodwill excludes goodwill related to entities accounted for using the equity method (see Note 10).
(1) Sanford C. Bernstein: €73 million was transferred to Group share following relution of Group share of interest as of December 31, 2011 while €34 million was transferred to minority interest following dilution of Group share of interest as of December 31, 2010.
AXA Bank Hungary (ELLA Bank) 59 - - - - - 59
Rosenberg and other AXA IM transactions 178 - - - 5 - 183
Of which: (a) In 2010, assets and liabilities related to Australian and New Zealand operations and some UK Life and Savings portfolios for which the disposal process was not fi nalized as of December 31, 2010 were classifi ed as held for sale (see Note 5.3).
(c) Includes the impact of exercises and revaluations of minority interest buyout commitments. The €106 million on the UK Life & Savings line corresponds to the reclassifi cation as held for sale of some portfolios for which the disposal process is not fi nalized as of December 31, 2010.
Increase in i mpairment relating to goodwill created on acquisitions during the period
AXA Bank Hungary (ELLA Bank) - - 59 - - - - 59
Of which: (a) Please refer to the Note 5.3 for more details on partial disposal of UK Life & Savings operations.
are industry specifi c valuation methods which are consistent with the principles of discounted earnings approaches as the value of business in force results from the projection of distributable earnings. The current shareholders’ net asset
value is adjusted to take into account any difference between the basis of cash fl ows projections used in the value of business in force calculations and IFRS; ■ and profi tability on future new business.
In these tests, for all segments, discount rates used range from 7.5% to 10.5% and growth rates where applicable from 2% to 4% beyond the strategic plan horizon.
Variable Annuity book of business, following the fall in US long term interest rates as well as the reduction in lapses.
To the extent that securities valuations and interest rates levels remain depressed for prolonged periods of time, volatility and other market conditions stagnate or worsen, new business volumes and profi tability together with the inforce portfolio value would likely be negatively affected. In addition, the future cash fl ow expectations from both the inforce and new business and other assumptions underlying management’s current business plans could be negatively impacted by other risks to which the Group’s business is subject. As a result, subsequent impairment tests may be based upon different assumptions and future cash fl ow projections, which may result in an impairment of these assets in the foreseeable future.
This joint offer resulted in AMP acquiring AXA APH’s outstanding shares for AU$ 13.3 billion (or €9.7 billion (1)), of which AXA’s shares in AXA APH have been paid for AU$ 7.2 billion (or €5.2 billion (1)) in cash, while AXA acquired from AMP 100% of
in cash. AXA APH’s Australia & New Zealand businesses price was AU$ 3.5 billion (or €2.6 billion (1)).
On April 1, 2011, after receiving the various shareholders approval, court approvals and regulatory approvals in Australia and New Zealand as well as other regulators notably in Asia,
The disposal of the Australian and New Zealand operations led to a net capital gain of €626 million in AXA Group’s net income as of December 31, 2011.
As of December 31, 2010, comprehensive income amounted to €272 million.
The deal closed on September 15, 2010. The transaction led to the recognition of a realized loss net of tax of €-1.6 billion as of December 31, 2010, coming mainly from intangible assets’
impairments, of which goodwill €-0.8 billion, other intangibles €-0.7 billion as well as €-0.1 billion costs associated with the sale.
Kingdom operations that were classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as of December 31, 2010 included the following (amounts are presented net of intercompany balances with other AXA entities): (in Euro million ) December 31, 2010
Savings insurance to Intact Financial Corporation for a total cash consideration of CAD 2.6 billion (or ca. €1.9 billion). In addition, AXA is entitled to receive up to CAD 100 million (or ca.
The disposal of the Canadian operations led to a net capital gain of €902 million in AXA Group’s net income as of December 31, 2011.
The major classes of assets and liabilities of the Canadian operations disposed (amounts are presented net of inter-company balances with other AXA entities) included the following as of June 30, 2011 (balance sheet used as a basis for the capital gain calculation): (in Euro million ) June 30, 2011
The statement of income of the Canadian operations disposed is as follow as of June 30, 2011 and December 31, 2010: (in Euro million ) June 30, 2011 December 31, 2010
Change in unearned premiums net of unearned revenues and fees (44) (61)
Income arising from investments in associates – Equity method - -
The result from discontinued operations net of tax amounted to €1,002 million as of December 2011. It includes €902 million net capital gain and €99 million net operating income from Canadian operations.
The net realized capital gain amounted to €53 million refl ecting €137 million transaction price and a €80 million goodwill allocated.
Deferred acquisition costs relating to Life & Savings (b) 19,962 17,750
(d) Following the refi nement of the IFRS chart of accounts in 2011 some aggregates of December 31, 2010 statement of fi nancial position have been reclassifi ed in order to present a comparable basis (see Note 1.20).
Acquisitions and disposals of subsidiaries and portfolios - 1 (426) (309)
Life & Savings deferred acquisition costs and equivalent net carrying value as of December 31 19,263 836 17,122 723
(b) Relating to contracts subject to IFRS 4, i.e. insurance contracts and investment contracts with discretionary participating features.
In 2010, the pension law reform in France led to an increase of policyholders reserves (€480 million). As a result of this law, insurers were also granted with rights to collect price increases and penalties. As a consequence, a corresponding €379 million intangible asset was recognized as of December 31, 2010 refl ecting such rights with a fi nite useful life. The impact on the consolidated statement of income was €-101 million gross of tax in 2010.
This intangible asset was amortized by €140 million in 2011, offset by participation benefi t reserve releases (€107 million) and tariff increases. The remaining intangible asset amounted to €240 million as of December 31, 2011.
Intangible assets recognized in business combinations mainly include value of distribution agreements and customer related intangibles, including €1,246 million with indefi nite useful life.
(a) In 2010, a ssets and liabilities related to Australian and New Zealand operations and some UK Life and Savings portfolios for which the disposal process was not fi nalized as of December 31, 2010 were classifi ed as held for sale (see Note 5.3).
Certain investment properties (see Note 1), available-for-sale investments, trading assets, instruments designated as at fair value through profi t or loss and all derivatives are measured at fair value in the fi nancial statements. In addition, this note also discloses the fair value of investment properties and fi nancial assets held at cost. Principles applied in measuring fair value generally described in Note 1 are further detailed in Note 9.2
(investment in real estate properties) and 9.9 (fi nancial assets recognized at fair value).
Investment in real estate properties at amortized cost 19,087 14,818 2.60%
Non controlled investment funds designated as at fair value through profi t or loss (a) 5,010 5,010 0.88%
Other assets designated as at fair value through profi t or loss, held by controlled investment funds 5,413 5,413 0.95%
Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. Detail effects of derivatives are provided in
Debt instruments (at cost) that are not quoted in an active market (d) 8,198 8,194 1.46%
Equity instruments designated as at fair value through profi t or loss (c) 5,755 5,755 1.02%
Other assets designated as at fair value through profi t or loss, held by controlled investment funds 5,223 5,223 0.93%
Loans designated as at fair value through profi t or loss (c) - - -
(c) Includes change in scope and the effect of changes in exchange rates.
As of December 31, 2011, the end of year balance of impairment on investment in real estate properties amounted to €822 million and the amortization balance amounted to €1,847 million. The impairment increase for the period amounted to €163 million, of which €108 million without impact on AXA N et income Group s hare, as related to some real estate funds operated by AXA Investments Managers in which AXA
cost (c) Fair value Carrying value (d) Unrealized gains Unrealized losses
Debt instruments (at cost) that are not quoted in an active market 6,791 6,742 6,791 97 146 8,227 8,230 8,227 71 67
Non controlled investment funds available for sale 6,020 6,820 6,820 895 96 5,672 6,621 6,621 1,037 88
Debt instruments available for sale 321,961 334,490 334,490 20,785 8,255 302,751 312,507 312,507 15,999 6,244
(c) Net of impairment – including premiums/discounts and related accumulated amortization.
The table below sets out the debt instruments portfolio by issuer type, excluding macro hedging derivatives and other derivatives but including the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges). Details of the effect of derivatives are provided in Note 20.3.
(a) Following the refi nement of the IFRS chart of accounts in 2011 some aggregates of December 31, 2010 statement of fi nancial position have been reclassifi ed in order to present a comparable basis (see Note 1.20).
The effect of derivatives modifi es in certain cases the maturity profi le of assets presented below. Most of the debt instruments and loans held by the Group are fi xed-rate debt instruments
TOTAL – FINANCIAL INVESTMENTS EXPOSED TO FAIR VALUE INTEREST RATE RISK 27,499 100,646 245,466 373,611
Loans designated as at fair value throught profi t or loss (a ) 83 463 142 688
TOTAL FINANCIAL INVESTMENTS EXPOSED TO INTEREST RATE RISK 31,211 108,752 267,255 407,218
Loans designated as at fair value throught profi t or loss (c) - - - -
Debts instruments designated as at fair value throught profi t or loss (c) 901 1,610 3,877 6,387
Loans designated as at fair value throught profi t or loss (c) - 224 116 340
Equity instruments held by controlled investment funds (a) 2,667 1,098 404 257 293 149 196 292 5,356
TOTAL EQUITY INSTRUMENTS AS OF DECEMBER 31, 2011 7,415 4,030 1,404 1,275 1,605 1,024 758 1,980 19,490
(a) Designated as at fair value through profi t or loss.
Equity instruments available for sale 7,187 2,986 1,616 968 2,504 1,263 1,283 953 18,760
Equity instruments designated as at fair value through profi t or loss 224 21 7 2 13 1 14 158 440
Sub-total: Equity instruments held directly 7,411 3,006 1,623 970 2,517 1,264 1,298 1,111 19,200
Equity instruments held by controlled investment funds (c) 2,505 1,310 403 320 450 207 206 295 5,697
(c) Designated as at fair value through profi t or loss.
Non-controlled investment funds break down as follows: (in Euro million )
Non controlled investment funds available for sale mainly holding equity securities 901 711 80 75
Non controlled investment funds as at fair value through profi t or loss mainly holding equity securities 988 - 5 -
Non controlled investment funds available for sale mainly holding debt instruments 1,511 1,371 1 1
Non controlled investment funds as at fair value through profi t or loss mainly holding debt instruments 1,417 - 5 -
Non controlled investment funds mainly holding debt instruments 2,928 - 109 -
Derivatives related to Non controlled investment funds (only) (158) - - -
(c) Amounts are presented excluding macro hedging and other derivatives but including the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges).
(d) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale.
Impairment – Non controlled investment funds 1,076 86 (252) (0) 198 1,107
As of December 31, 2011, the end of year balance of impairment on invested assets excluding real estate properties amounted to €7,108 million.
Equity instruments quoted on exchange traded markets and bonds actively traded on liquid markets for which prices are regularly provided by external pricing services that represent consensus with limited dispersion and for which quotes are readily available are generally considered as being quoted in an active market. Liquidity may be defi ned as the possibility to sell or dispose of the asset in the ordinary course of business within a certain limited time period at approximately the price at which the investment is valued. Liquidity for debt instruments is assessed using a multi criteria approach including the number of quotes available, the place of issuance and the evolution of the widening of bid ask spreads.
The amount of assets which are not traded in an active market is disclosed in level 2 and 3 of the table shown below in
No active market: use of external pricing services External pricing services may be fund asset managers in the case of non consolidated investments in funds or brokers. To the extent possible, the Group collects quotes from external pricing providers as inputs to measure the fair value of assets held. Prices received may form tight clusters or dispersed quotes which may then lead to the use of valuation techniques.
No active market: use of valuation techniques Valuation techniques are subjective in nature and signifi cant judgment is involved in establishing fair values for fi nancial assets. They include recent arm’s length transactions between knowledgeable willing parties on similar assets if available and representative of fair value and involve various assumptions regarding the underlying price, yield curve, correlations, volatility, default rates and other factors. Unlisted equity instruments are based on cross checks using different methodologies such as discounted cash fl ows techniques, price earning ratios multiples, adjusted net asset values, taking into account recent transactions on instruments which are substantially the same if concluded at arm’s length between knowledgeable willing parties, if any. The use of valuation techniques and assumptions could produce different estimates of fair value.
Valuation techniques may be used when there is little observation of transaction prices as an inherent characteristic of the market, when quotes made available by external pricing providers are too dispersed or when market conditions are so dislocated that observed data can not be used or need signifi cant adjustments. Internal mark to model valuations are therefore normal market practices for certain assets inherently scarcely traded or exceptional processes implemented due to specifi c market conditions.
Fair value determined directly by reference to an active market level 1
Financial investments and loans available for sale 175,848 175,181 4,097 355,126 245,658 86,762 5,705 338,125
Financial investments and loans held for trading 453 185 - 638 508 445 1 954
N.B.: This table excludes assets backing contracts where the fi nancial risk is borne by policyholders with guaranteed minimum features.
Since 2010, this volatility was extended to government bonds with govies yields and bid ask spreads also varying signifi cantly from one period to another. At the end of December 2011, both corporate and government bonds bid ask spreads had widen signifi cantly and a large portion of them were classifi ed in level 2 in comparison with the situation observed at the end of 2010. Since June 2010, some government bonds had already been transferred in level 2 and as at December 31, 2011, Italy and Belgium bonds were added to Greece, Ireland, Portugal, and Spain sovereign bonds in level 2.
The extent to which such data are external to the Group and not assessed by internal valuation teams is one of the main criteria applied in assessing whether data are observable or not. Should those data be signifi cantly adjusted or would they be outdated because of the lack of new available factors, such inputs would be deemed unobservable. Another area of judgment is the assessment of the signifi cance of an input against the fair value measurement in its entirety. As a result, a different cut between observable and unobservable data and variances in the weighting of the signifi cance of each input against the fair value measurement in its entirety could produce a different categorization.
Such models incorporate factors that market participants would consider in setting a price and are consistent with accepted economic methodologies for pricing fi nancial instruments. They were applied except when the uncertainty surrounding valuation was assessed as being too signifi cant to exercise an adequate judgment in setting the appropriate risk margins (in which case assets remained measured on the basis of available quotes). For the purpose of the modeling,
would have no material impact neither on the net income nor the Statement of Comprehensive Income; ■ using alternative discount margins higher by 25% would have no material impact on the net income, and would decrease the Statement of Comprehensive Income by €115 million.
Transfer in and out of the level 3 category and other movements From January 1, 2011 to December 31, 2011, the amount of Level 3 assets moved from €10.7 billion to €10.2 billion, representing 2.5 % of the total assets at fair value (2.8% in 2010): a de crease mainly due to sales (€-1.6 billion) notably the disposal of the stake in Taikang Life.
M ain movements related to Level 3 assets to be noted are: ■ €-1.6 billion of sales mainly debt instruments and equity securities accounted for as available for sale,
Krungthai AXA Life Insurance Company Ltd 50 - 19 - (5) 64
In 2011, “O ther changes” notably included: ■ the dividends paid by Reso Garantia (€-30 million) and PT
AXA Minmetals Assurance (€+28 million); In the years ended December 31, 2011 and 2010, AXA received cash dividends from companies accounted for using the equity method totaling €58 million, and €21 million respectively.
(€1,096 million as of December 31, 2010); ■ gross revenues: €1,024 million (€846 million as of
Group share of Reso Garantia had a net value of €580 million
Krungthai AXA Life Insurance Company Ltd 29 - 18 2 1 50
PT AXA Mandiri Financial Services (c) 12 - 18 1 (8) 22
(c) Those entities close their full year accounts as of September 30.
In 2010, “O ther changes” notably included: ■ the additional investments in AXA Minmetals Assurance Co
This excluded investment funds and real estate companies consolidated by equity method, which are presented in fi nancial investments.
Receivables from policyholders, brokers and general agents 7,622 (369) 7,253 7,253 8,227 (428) 7,799 7,799
Receivables from brokers and general agents 23 (15) 8 8 167 (22) 145 145
Receivables arising from outward reinsurance operations 755 (84) 671 671 1,101 (93) 1,008 1,009
(e) including €593 million deposits in the central banks in 2011 and €658 million in 2010.
Cash and cash equivalent as of December 31 (d) 30,042 21,097
(d) The “Cash and cash equivalents” balances shown in the statement of consolidated cash fl ows do not include cash balances of consolidated investment funds from the Satellite Investment Portfolio (see Note 1.7.2). The “Cash and cash equivalents” item in the Statement of Consolidated Cash Flows excludes cash backing contracts where the fi nancial risk is borne by policyholders (unit-linked contracts).
As of December 31, 2011, total consolidated net cash and cash equivalents amounted to €30,042 million, net of €1,029 million bank overdrafts classifi ed under “Other debt instrument issued and bank overdrafts” in the consolidated statement of fi nancial position.
Net cash and cash equivalents increased by €+8,945 million compared to 2010 mainly due to: ■ Switzerland Life & Savings €+3,606 million mainly driven by higher investment sales proceeds not yet reinvested; ■ United States Life & Savings €+2,835 million mainly due to derivatives roll-over related to insurance and investment contracts; ■ the Company €+1,041 million mainly arising from the disposal of the Canadian businesses and from the increase in dividends received, partly offset by net reinvestment in
Regarding the consolidated statement of cash fl ows presented together with the primary fi nancial statements, net cash provided by operating activities totaled €15,384 million in 2011, as compared to €19,103 million in 2010.
Net cash used in investing activities was €-3,425 million in 2011 and mainly refl ecting: ■ €-5,587 million of net cash used in purchases and sales of fi nancial invested assets; ■ €1,306 million following the disposal of Australian and
Net cash relating to fi nancing activities totaled €-3,057 million in 2010 mainly due to: ■ dividends payments of €-1,573 million; ■ €-1,199 million of net cash related to Group fi nancing activities, mainly including fi nancing debts reimbursements by the United States (€-546 million) and Interests on fi nancing debt paid by the Group (€-650 million).
AXA’s share capital and capital in excess of nominal value: ■ increase in capital of €+336 million of which employee share offering (December 2011) for €+332 million; ■ share-based payments for €+43 million; ■ realized losses on AXA shares for €-10 million.
of the share capital, a decrease of 8 million shares compared to
As of December 31, 2011, the carrying value of treasury shares and related derivatives was €383 million. This fi gure included €1.0 million relating to AXA shares held by consolidated Mutual funds (81,965 shares) not backing contracts where fi nancial risk is borne by policyholders.
In 2011, the change in other reserves was due to €-291 million in interest expense related to the undated subordinated debt
Undated notes – variables rates in € 660 660 660 660
Undated subordinated debt often contains the following features: ■ early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates, and
On April 1, 2011, AXA announced that it has successfully completed the AXA APH transaction, whereby it has disposed of its Australian & New Zealand operations and acquired the
equity mainly related to the buy-out of minority interests in AXA
In 2010, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: ■ employee share offering (December 2010) for €330 million;
The decrease of net unrealized gains and losses on assets available for sale totaled €-1,440 million, mainly due to
■ €-1,883 million lower unrealized capital gains on equity securities, mainly driven by the sale of Taikang Life stake; ■ €+509 million on debt instruments primarily due to interest rates decrease mainly impacting the United States
Unrealized gains and losses (net of tax) – Assets available for sale 5,145 6,618
Unrealized gains and losses (net of tax) – Equity accounted companies (c) (21) 33
(c) Including unrealized gains and losses on assets from discontinued operations.
participation. In jurisdictions where participating business represents an important portion of contracts in force and where required minimum local policyholders’ share in the entities’ results (limited to investment or not) are signifi cant, the reconciliation between gross unrealized gains and losses on available for sale fi nancial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of December 31, 2011: (in Euro million )
Less unrealized gains and losses attributable to: Shadow accounting on policyholders’ participation (2,942) (1,964) (1,786)
Shadow accounting on Value of purchased Business In force - - (54)
Unrealized gains and losses (net of tax) – Equity accounted companies 2 - -
Unrealized gains and losses (net of tax) 100%, as of January 1 6,651 4,687
UNREALIZED GAINS AND LOSSES (NET OF TAX) 100%, 15 OF DECEMBER 31 5,124 6,651
(€+513 million), Switzerland (€+246 million), partly offset by the Company (€-510 million) driven by change in fair value of derivatives and debts hedging net investments in foreign operations.
Group share was €-577 million and minority interests was €-4 million) as of December 31, 2011.
Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. The same is true for puttable instruments held by minority interest holders.
(minority buy-out of Asian operations), and comprehensive income for €-181 million.
The €+477 million increases in minority interests to €4,170 million were mainly due to: ■ net income attributable to minority interests for €+342 million; ■ foreign exchange impact attributed to minority interests for €+262 million mainly driven by Australia; ■ change in the scope of consolidation mainly due to a dilution impact on deferred compensation in AllianceBernstein
Liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders 104,642 Reinsurers ’ share in future policy benefi t reserves 4,921 -
Reinsurers’ share in claim reserves (b) - of which IBNR (e) - -
Reinsurers share in liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders - TOTAL LIABILITIES ARISING FROM INSURANCE CONTRACTS, NET OF REINSURANCE CEDED 398,258 46,856
Liabilities arising from investment contracts with discretionary participating features 37,858 37,233
Liabilities arising from investment contracts where the fi nancial risk is borne by policyholders 29,957 29,706
Reinsurers’ share in liabilities arising from investment contracts with discretionary participating features 14 15
TOTAL LIABILITIES ARISING FROM INVESTMENT CONTRACTS – NET OF REINSURANCE CEDED 68,176 67,389
NB: Liabilities relating to unearned revenues and fees (see Note 7.3), to policyholders’ participation (see Note 14.8), and derivative instruments (see Note 20.4), are excluded from the table above. Reinsurance’s share in investments contracts liabilities relating to policyholders’ participation (none in 2011 and 2010), as well as derivatives instruments (none in 2011 and 2010) are excluded from the table above.
Gross claims reserve as at January 1 (b) 36,408 9,067 45,476 34,916 9,017 43,933
Change in scope of consolidation and change in accounting method (1,289) (48) (1,337) 940 9 949
Claim handling cost reserves as of December 31 1,155 250 1,405 1,232 234 1,466
(b) Excluding “other policy benefi ts liabilities” (mainly mathematical annuity reserves), which totaled €4.4 billion in 2010 and €4.3 billion in 2011.
Reinsurers’ share in claim payments (512) (882) (1,394) (746) (629) (1,375)
Change in scope of consolidation, portfolio transfers, change in accounting principles and other changes (47) (50) (97) 36 (19) 17
The table below includes liabilities arising from insurance and investment contracts for the Life & Savings segment, whether or not the risk is borne by policyholders (i.e. including unit-linked business), except unearned revenue and unearned fees reserves, liabilities arising from policyholders’ participation and derivative instruments relating to insurance and investment contracts.
Collected premiums net of loadings on premiums (+) 41,754 8,665 50,419 42,516 13,164 55,679
Opening reinsurers’ share in technical reserves (c) 5,675 270 5,945 5,992 20 6,012
Reinsurers’ share in collected premiums net of loadings on premiums (+) 1,065 - 1,065 1,296 - 1,296
Reinsurers’ share in surrenders, maturities and other claims and benefi ts paid net of charges and penalties (-) (451) (1) (452) (1,014) (2) (1,015)
Reinsurers’ share in change in reserves relating to technical and actuarial items (+/-) (d) (196) (1) (197) 35 (9) 26
Change in scope of consolidation and change in accounting principles (195) (247) (442) (923) 259 (664)
Reinsurers’ share in closing technical reserves (c) 6,050 19 6,068 5,675 270 5,945
(Non Unit-Linked) – Liabilities arising from: Investment contracts with Discretionary Participation Features (DPF) measured according to existing accounting policies (b) (e) 37,858 37,233
Investment contracts with no Discretionary Participation Features (DPF) measured according to existing accounting policies 380 720
Investment contracts with no Discretionary Participation Features (DPF) measured at current unit value (e) 26,336 25,006
N.B.: This information is presented net of the impact of derivatives, which is described in Note 20.4.1.
(d) & (e) As unit-linked contracts, such contracts share the same reserves measurement determined on the basis of held assets units fair value (“current unit value”).
Outstanding questions on these issues are highly complex and are not yet suffi ciently advanced. Phase II discussions regarding insurance and certain investment contracts, even if re-activated at the IASB level soon after the issuance of IFRS 4, are still insuffi ciently developed. A Phase II Discussion Paper was published in May 2007 and an Exposure Draft in July 2010 with still many open issues regarding among other: ■ the standard under which investment contracts with a discretionary participating feature should fall into: impacts of unbundling and extent to which such contracts or components of contracts will have to be measured under
■ measurement principles, notably related to discount rates to be used and where to set the boundaries of contracts (level of future premiums to be included in projections).
(for reserves recognized by AXA Group entities that do not use the Euro as their functional currency) and assuming an identical scope of consolidation to that used for the last diagonal of the table.
AXA Group’s existing portfolios, it is not always technically possible to distinguish, within payments made in a given year in respect of prior occurrence years, between those relating to the historical portfolio and those relating to the recentlyacquired portfolio. In these cases, the merged scope is used to prepare the last diagonal of the table, even in the columns corresponding to years before the one in which the most recent portfolio was acquired.
The surplus (shortfall) of the initial reserve with respect to the re-estimated (gross) fi nal cost for each year represents, for a given year N, the difference between the amount shown in the second line (gross reserves for unpaid claims and claims expenses developed in 2011 adjusted for changes in exchange rates and scope of consolidation) and the amount shown in the fi nal diagonal under “Reserve re-estimated”.
Gross reserves for unpaid claims and claims expenses developed in 2011 adjusted for changes in exchange rates and scope of consolidation (b) 24,759 25,300 26,083 26,921 28,188 42,740 44,460 44,737 44,948 45,726 45,946
(b) In 2004, AXA Corporate Solutions Assurance US, Mosaic Insurance Company (ex AXA RE P&C Insurance Company) and AXA RE P&C Reinsurance were transferred from Colisée RE (ex AXA RE) to “other international activities”. The reserves of AXA Corporate Solutions Assurance US were presented on an occurrence year basis and included in the Property & Casualty loss reserves development table. The reserves of Mosaic Insurance Company (ex AXA RE P&C Insurance Company) and Coliseum RE (ex AXA CS Reinsurance Company) were presented on an underwriting year basis and included in the Colisée RE (ex AXA RE) loss reserves development table.
Gross reserves for unpaid claims and claims expenses developed in 2011 (d) 5,868 4,778 3,742 3,314 4,253
Cumulative redundancy (defi ciency) from the initial gross claims reserves in excess of (less than) re-estimated gross claim reserves 474 678 485 97 758
(b) Represents premiums earned subsequent to the accounting year end and premiums reinstatements/experience-rated premiums received and accrued from the ceding insurers as assumed losses were incurred.
(d) In 2004, AXA Corporate Solutions Assurance US, Mosaic Insurance Company (ex AXA RE P&C Insurance Company) and AXA RE P&C Reinsurance were transferred from Colisée RE (ex AXA RE) to the “other international activities”. The reserves of AXA Corporate Solutions Assurance US were presented on an occurrence year basis and included in the Property & Casualty loss reserves development table. The reserves of Mosaic Insurance Company (ex AXA RE P&C Insurance Company) and Coliseum RE (ex AXA CS Reinsurance Company) were presented on an underwriting year basis and included in the Colisée RE (ex AXA RE) loss reserves development table.
AXA’s exposure to asbestos claims originates primarily from the following contracts: ■ insurance or reinsurance of US-originated risks: this exposure arises primarily from the reinsurance of US cedants or from direct policies written in the London Market (excess of primary covers). The underlying exposure is made-up of asbestos claims; ■ employers Liability insurance in Europe: this created exposure to asbestos-related claims, in particular on the UK
For instance, mesothelioma can take in excess of 40 years to develop after inhalation of asbestos fi bres. This latency period makes it diffi cult to estimate accurately the future number of asbestos-related claims, the future potential liability associated with such claims and creates unusual sensitivity to future legal and economic developments.
Managers, a specialized unit in charge of managing the Group’s non-life run-offs.
AXA Liabilities Managers manages these risks in a proactive manner, with a view to reducing AXA’s exposure to the uncertainties in these claims. All asbestos claims are thus managed by dedicated teams of experts who use a variety of claims payment including settlements, policy buy-backs and, in certain cases, litigation. In addition, AXA Liabilities Managers focuses specifi cally on fi nal resolutions of exposures, either through commutations or other solutions.
The calculation of reserves for asbestos risks raises specifi c diffi culties as conventional reserving techniques cannot be used for evaluating IBNR. As a result, AXA evaluates the future cost of those claims using a range of specifi c methods based either on exposure analysis, frequency/cost projections or reserving benchmarks. Asbestos reserves are reviewed on a yearly basis to ensure that they adequately refl ect the latest claims experience, as well as legal and economic developments.
3-Year survival ratio excluding commutations (c) 37 years 37 years 39 years 41 years
(b) Mainly refl ecting new reinsurance cover of part of UK asbestos exposure.
(c) Reserves at the end of the year/Average yearly payments over the last 3 years (excluding in respect of commutations).
In 2011, AXA paid a net amount of €37 million in respect of asbestos (versus €26 million in 2010). This year AXA
underwrote a new reinsurance cover related to part of its UK
asbestos exposure (reinsurance premium of €52 million). This cover allows AXA to reduce its net UK asbestos exposure.
During the year, AXA incurred losses and loss expenses of €5 million net of reinsurance which is in line with 2010
As a result of those various changes and after allowing for movements in exchange rates, AXA held total reserves for asbestos exposure (net of reinsurance) of €984 million at yearend 2011 (versus €1,050 million in 2010).
share in the entities’ results are signifi cant. This note discloses for such jurisdictions unrealized gains and losses related to available for sale investments and related shadow accounting adjustments. Increase in deferred policyholders’ participation assets mainly relates to unrealized losses on assets available for sale in AXA MPS.
In the tables presented in Section 14.9.1 and 14.9.2, liabilities arising from Life & Savings and Property & Casualty insurance and investment contracts exclude contracts where the fi nancial risk is borne by policyholders. These liabilities are not exposed to interest rate or duration risk, except unit-linked contracts with performance guarantees. Subsidiaries hold unit-linked assets backing the corresponding liabilities arising from these contracts. Occasional mismatches result mainly from administrative timing differences in the processing of day-today operations.
Amounts are presented excluding the impact of derivatives on insurance and investment contracts (presented in Section 20.4) and excluding liabilities related to unearned revenues and fees, and to policyholders’ participations. Liabilities relating to contracts where the fi nancial risk is borne by policyholders are also excluded.
The estimated impact of the unlocking of discount rates relating to Life & Savings reserves was €2,635 million for 2011
Guaranteed annuity purchase rates provide contract-holders with a guarantee that at a future date the accumulated balance on their contract will be suffi cient to purchase a lifetime annuity at currently defi ned rates. The risk to AXA in these features is either that longevity will improve signifi cantly so that contractholders electing to exercise this benefi t will live longer than
There can be no assurance that ultimate experience will not differ from management’s estimates. In addition to providing for risk through establishing reserves, AXA also manages these risks through asset-liability management programs including interest rate fl oors to protect against a decline in interest rates.
Macro hedge derivatives and other derivatives related to liabilities arising from banking activities 94 27 (25) 96 275 - 34 309
TOTAL LIABILITIES ARISING FROM BANKING ACTIVITIES 30,411 3,338 275 34,023 24,783 1,483 1,266 27,532
Provisions for risks and charges included the following items: (in Euro million )
Comments on provisions relating to employee benefi ts can be found in Note 26 “Employees”.
As of December 31, 2011, the “Other p rovisions for risks and charges” were composed of the following elements: ■ provision for tax liability of €481 million mainly in United States (€424 million); ■ other provisions for risks and charges for €844 million.
Changes in provisions for risks and charges (excluding employee benefi ts and share-based compensation) are set out below: (in Euro million )
Impact of foreign exchance fl uctuations 3 (6) - 20 17
Financial cost related to unwind (2) - - - - (2)
Write back after fi nal cost review (33) (14) (1) - (40) (88)
Subordinated debt maturity below 10 years fi xed rate 143 148
Euro Medium term notes, 6.0% due through 2013, and BMTN 866 892
Other fi nancing debts owed to credit institutions (under €100 million) 2 34
Derivative instruments hedging fi nancing debts are commented in Note 20.
Please refer to page 210 of the “Interest rates & Equity risk related to the operating activities of group subsidiaries” related to sensitivity to movements in interest rates.
Financing debt owed to credits institutions at cost 807 617 887 796
The table below sets out the contractual maturities of fi nancing debt (excluding the impact of derivatives, detailed in section 20.4).
Payables arising from direct insurance and inward reinsurance operations 7,212 7,472
Other puttable instruments held by minority interest holders have been totally exercised in 2011 (€8 million as of
“Debts relating to investments under lending agreements and equivalent” totaled €27,509 million as of December 31, 2011, an increase of €4,110 million, or €3,205 million at constant exchange rate, mainly due to increase of repurchase agreements activity in Japan and Switzerland.
ERIV: amortizing loan - Euribor 3M + 145 bps, due 2012 180 186
Vendome Commerce: mortgage loan based on Euribor 3M + 145bps, due 2012 180 186
APIV+EHV: mortgage loan based on Euribor 3M + 120bps, due 2015 96 93
As of December 31, 2011, other debt instruments issued (other than fi nancing debt) and bank overdrafts totaled €6,272 million, a decrease of €232 million compared to December 31, 2010, mainly due to unwind of CDOs during the year (€189 million of other debt instruments issued (other than fi nancing debt).
Other debt owed to credit institutions held at cost 1,835 1,886
18.3.2. Other debt instruments issued, notes and bank overdrafts measured at fair value
(see note 9.9 for a description of observable data) and are therefore classifi ed as level 2 instruments.
Current accounts payables to other insurance companies 231 231 610 610
(c) Includes a quota share reinsurance treaty between Colisée RE (ex AXA RE) and Partner Re (€1,069 million in 2011 and €1,970 million in 2010) as part of the Group’s sale of AXA RE’s business in 2006.
As of December 31, 2011, payables arising from direct insurance and inward reinsurance operations totaled €7,212 million, a decrease of €260 million compared to December 31, 2010.
As of December 31, 2011, payables arising from direct outward reinsurance operations totaled €5,179 million, a decrease of €737 million compared to December 31, 2010 mainly in Colisée RE.
A deferred tax expense of €670 million in 2011 (versus €349 million in 2010), corresponding to tax due on foreign income is disclosed in the table above, including €-12 million related to policyholders’ tax (versus €-51 million in 2010).
Policyholders’ tax is a specifi c tax on the life business of the
The reconciliation between the theoretical tax charge (pre-tax profi t multiplied by the applicable tax rate in France for the period concerned) and the effective tax charge was as follows: (in Euro million )
Deferred tax assets recognized on tax losses of prior years (4) (20)
Deferred tax assets not recognized on tax losses of the year 52 29
Corrections and adjustments of tax relating to prior years (335) (337)
Derecognition/Recognition of DTA on temporary differences of prior years (other than tax losses) (b) (2) (12)
(b) Derecognition of DTA (Deferred Tax Assets) arising on tax losses is shown in «Tax losses impact».
As of December 31, 2010, corrections and adjustments of tax relating to prior years (€-337 million) mainly included €-174 million following new regulation on “Réserve de Capitalisation”
in France (€245 million reversal of deferred tax liability, partly offset by €71m exit tax).
Net deferred tax balances broke down as follows: (in Euro million )
■ R eserves relating to gains and losses on defi ned benefi ts pension plans 1,153 2 1,150 927
■ R eserves relating to stock options - - - 3
Policyholder tax - Net deferred tax assets / (liabilities) - - - -
(a) In 2010, assets and liabilities related to Australian and New Zealand operations, and some UK Life and Savings portfolios for which the disposal process was not fi nalized as of December 31, 2010 were classifi ed as held for sale (see note 5.3).
DTL disclosed in these tables corresponds to the deferred tax before the netting that occurs for balance sheet presentation purpose.
Deferred tax through reserves relating to gains and losses on defi ned benefi ts pension plans 927 - 206 31 (14) 1,150
Policyholders’ tax - Deferred tax through reserves relating to the fair value adjustment of available for sale assets - - 5 - (5) -
Policyholders’ tax - Net deferred tax - 12 5 - (17) -
The change in scope and other variations mainly corresponded to (1) the disposal of Canadian operations as well as, Australian and
New Zealand operations, and (2) the impact of minority interests buyout of AXA APH Asian activities.
Deferred tax through profi t or loss (210) 1,191 - 94 (2) 1,072
Deferred tax through reserves relating to hedge acounting and other items (c ) (32) (1,647) 1,655 - - (24)
Net deferred tax assets / (liabilities) excluding policyholder’ tax (947) (456) 1,374 17 11 (1)
Policyholder tax - Deferred tax through profi t or loss (282) 51 - (9) 240 -
The change in scope mainly corresponded to the classifi cation as held for sale of Australian and New Zealand and some UK Life &
The tables below break down: (i) in the fi rst part the maturity by which the Group expects to use the Deferred Tax Assets (DTA)
accounted at year end, (ii) in the second part, the “expiration date” of the DTA, i.e. the latest date at which the Group could use them.
DTA recognised on tax losses carried forward 836 215 296 355 203 42 50 537 - 2,535
Other recognized deferred tax assets 2,152 475 495 344 2,561 249 2,824 3,701 - 12,800
DTA recognised on tax losses carried forward 18 13 20 61 33 101 13 537 1,739 2,535
TOTAL RECOGNIZED DTA BY LATEST DATE OF POSSIBLE USE 107 31 35 74 118 120 388 5,532 8,930 15,335
Other recognized deferred tax assets 2,089 435 458 255 2,902 262 1,259 3,844 - 11,504
Other recognized deferred tax assets 534 30 62 20 94 39 682 4,577 5,466 11,504
(a) In 2010, a ssets and liabilities related to Australian and New Zealand operations, and some UK Life and Savings portfolios for which the disposal process was not fi nalized as of December 31, 2010 were classifi ed as held for sale (see note 5.3).
Changes in net current tax were as follow: (in Euro million ) 2011 2010 (a) (b)
NET CURRENT TAX LIABILITY (+) / ASSET (-) AS OF DECEMBER 31 (1,215) (498)
Sub-total interest rates derivatives 54,897 18,095 19,975 23,582 13,585 100,113 Credit derivatives bought 559 1,312 2,072 1,393 1,069 3,086
Sub-total credit derivatives 2,346 5,166 4,199 3,294 3,896 4,306 Currency swaps 18,927 2,502 3,286 3,368 5,436 5,807
Sub-total other derivatives 8,498 1,210 306 495 444 5,809 TOTAL 182,471 73,662 33,761 31,312 24,100 118,568
(a) By convention, notional amounts are displayed in absolute value, and exclude potential netting out.
(b) In 2010, assets and liabilities related to Australian and New Zealand operations and some UK Life and Savings portfolios for which the disposal process was not fi nalized as of December 31, 2010 were classifi ed as held for sale (see Note 5.3).
Notional amount Fair value Notional amount Fair value Notional amount Fair value
AXA uses derivative instruments to hedge some equity and real estate exposures and to manage various types of risks, including interest rate risk, exchange rate risk and credit risk.
Details of the impact of derivative instruments on fi nancial investments and liabilities are provided in section 20.3 and 20.4.
While notional amount is the most commonly used measure of volume in the derivatives market, it is not used as a measure of risk because the notional amount greatly exceeds the possible credit and market loss that could arise from such transactions, as it does not represent the amounts actually exchanged by the parties and thus is not a measure of the Group’s exposure to derivative instruments. The Group is exposed to credit risk in respect of its counterparties to the derivative instruments, but is not exposed to credit risk on the entire notional amounts.
As of December 31, 2011, the notional amount of hedging derivative instruments as defi ned by IAS 39 (fair value, cash fl ow and net investment hedges) of the Group totaled €83,498 million (€59,806 million at the end of 2010). Their net fair value was €-4,020 million (€-3,343 million at the end of 2010), mainly driven by foreign exchange movements impacting net investment hedge strategies.
Equity puts and calls are options agreements that give the seller (puts) or the buyer (calls) the right to exercise the option and to sell or buy shares or indices at the strike price. These puts and calls are predominantly used by the Company and represented a total notional value of €11,753 million at the end of 2011 (€16,447 million at the end of 2010). The Company notably held in 2011 call options on an equity index maturing in
Payments are made on the basis of the swap’s notional value.
AXA primarily uses interest rate swap contracts to manage cash fl ows arising from interest received or paid, and cross-currency
(notional amount of €1,799 million versus € 1,847 million at the end of 2010).
At December 31, 2011, 85% of the total notional amount of interest rate swaps was not subject to hedge accounting under
The notional amounts of interest rate swaps used in fair value hedge relationships totaled €21,652 million as of December 31, 2011 (€13,562 million at the end of 2010), including €10,218 million at AXA Japan (€7,052 million at the end of 2010), and €7,998 million at AXA Bank Europe (€4,265 million at the end of 2010) to hedge interest rate risk of a portfolio composed of mortgages loans and individuals bonds investments.
The notional amounts of interest rate swaps used in cash fl ow hedge relationships totaled €974 million (€1,025 million at the end of 2010), including €501 million in Belgium Life & Savings, €207 million in Germany Life & Savings and €200 million in AXA
The option portfolio hedging interest rates consists mainly in caps and fl oors. Interest rate caps and floors are options agreements where the seller agrees to pay the counterparty an amount equal to the difference, based on a notional amount, between the interest rate of the specifi ed index and the reference interest rate cap or fl oor. These products are used to hedge against interest rate increases (caps) or decreases (fl oor). Caps and fl oors are used predominantly by Life & Savings operations in France, the United States and Italy to protect our ability to serve policyholder participation and credited rate mainly for general account products with guaranteed minimum rates of return.
December 31, 2011) of the total notional amount of all interest rate options as of December 31, 2011, mainly (i) in United States
Life & Savings (€8,627 million in 2011 versus €8,311 million in 2010) notably to hedge interest rate volatility risk associated with Variable Annuity guarantees (€6,007 million versus €6,813 million at the end of 2010) and to manage duration gap between assets and liabilities on general account (notional amount of €2,620 million versus €1,498 million at the end of 2010), (ii) in Germany Life & Savings (€6,935 million versus €6,690 million at the end of 2010) to manage interest rate risk on the fi xed income portfolio and Variable Annuity guarantees,
Savings for €1,370 million (€1,219 million at the end of 2010)
to protect life funds against large movements in interest rates, and (v) €883 million in Japan Life & Savings (€1,224 million at the end of 2010) mainly to hedge convexity risk associated with
At December 31, 2011, the notional amount of credit derivatives carried by the Group was €25,417 million (adding protection sold and bought), of which: ■ €2,209 million relating to exposures held within investment funds of the “satellite investment portfolio” (see Note 1.7.2).
France Life & Savings also used credit derivatives to form negative basis trades, for a notional amount of €3,957 million, €1,764million and €688 million respectively. This strategy consisted in purchasing (i) corporate debt instruments and (ii)
Currency future and forward contracts accounted for 31% of currency derivative instruments (based on notional amounts at
December 31, 2011), compared to 46% at the end of 2010.
Swiss entities use such contracts for a total notional amount of €25,580 million (€29,574 million at the end of 2010) mainly to hedge exchange-rate risk arising from their investments in equities and debt instruments denominated in foreign currency
In practice, therefore, the hedge impact of such contracts is recognized through profi t or loss with no qualifi ed hedge accounting prescribed by IAS 39.
The impact of derivative instruments is presented in the consolidated statement of fi nancial position within their related underlying fi nancial assets (and liabilities see section 20.4). The table below sets out the impact of derivative instruments on the related underlying assets.
Debt instruments designated as at fair value through profi t or loss 26,656 - (881) 25,775
Debt instruments (at cost) that are not quoted in an active market 6,791 - (2) 6,789
Assets backing contracts where the fi nancial risk is borne by policyholders 134,227 - 4 134,230
(d) Carrying value (see (a)), but including effect of hedging instruments (IAS 39), economic hedging instruments not acting as hedging under IAS 39, macrohedge and other derivatives.
Debt instruments (at cost) that are not quoted in an active market 8,227 - (32) 8,194
Non controll ed investment available for sale 6,621 376 1 6,998
Loans designated as at fair value through profi t or loss - - - -
(a) In 2010, a ssets and liabilities related to Australian and New Zealand operations and some UK Life and Savings portfolios for which the disposal process was not fi nalized as of December 31, 2010 were classifi ed as held for sale (see note 5.3).
(f) Carrying value (see (c)), but including effect of hedging instruments (IAS 39), economic hedging instruments not acting as hedging under IAS 39, macrohedge and other derivatives.
(g) Other investments held through consolidated investment funds designated as at fair value through profi t or loss.
Liabilities arising from insurance contracts 358,146 - (612) 357,534 342,559 - (203) 342,356
Liabilities arising from investment contracts where the fi nancial risk is borne by policyholders 29,957 - (36) 29,921 29,706 - (4) 29,702
Other debt instruments issued, notes and bank overdraft 6,272 - - 6,272 6,504 - - 6,504
Payables arising from direct insurance and inward reinsurance operations 7,212 - - 7,212 7,472 - - 7,472
(c) Financing debt are disclosed in the balance sheet net of the impact of derivatives. As a result, the amount showing in the column «value including effect of derivatives» is their carrying value.
Macro hedge derivatives on insurance and investment contracts 13 (1,256) 3
Total net value of derivative instruments - liabilities (2) 95 (1,491) 3
(c) Other derivatives instruments that do not qualify for hedge accounting according to IAS 39.
Instruments quoted i n an active marke t Instruments not quoted in an active market -
For more information about the Group’s segments identifi cation, please refer to page 263 to 267 of Note 3 Statement of income by segment.
The Canadian operations sold are accounted for as discontinued operations. As a consequence, they are stated on a separate line of the income statement as of December 31, 2010 and 2011. Assets and liabilities related to these operations are not presented in separate asset and liability items in the statement of fi nancial position as of December 31, 2010.
LIFE & SAVINGS 52,431 56,792 of which direct premiums 48,027 51,097 of which reinsurance assumed 2,898 2,799 of which fees and charges on investment contracts with no participation features 350 518 of which revenues from other activities 1,163 1,440
INTERNATIONAL INSURANCE 2,876 2,847 of which direct premiums 1,963 1,978 of which reinsurance assumed 1,958 671 of which revenues from other activities 197 199
Geographical information regarding revenues and assets of I nternational I nsurance, A sset M anagement is not available in the reporting tool and the cost to develop it would be excessive. A relevant split by entity is anyway provided above for these segments.
As of December 31, 2010, assets and liabilities related to the Canadian operations included in the table above amounted to €4,130 million.
Fees and charges relating to investment contracts with no participating features (c) 350 26,716 518 - 25,726
Contracts with fi nancial risk borne by policyholders (unit-linked) 12,051 104,642 29,957 12,285 108,587 29,706
As of December 31, 2010, liabilities arising from insurance contracts and investment contracts classifi ed as held for sale represented respectively €2.3 billion and €7.8 billion for Australian and New Zealand operations, and €2.3 billion and €6.3 billion respectively for
Fees, commissions and other revenues 197 199 21.3.4. Liabilities arising from insurance contracts in the Property & Casualty and International Insurance segments
TOTAL - PROPERTY & CASUALTY EXCLUDING INTERNATIONAL INSURANCE 27,623 6,800 1,032 123 35,579 13,300 48,879
TOTAL - PROPERTY & CASUALTY INCLUDING INTERNATIONAL INSURANCE 32,985 9,576 1,259 146 43,967 14,514 58,480
TOTAL - PROPERTY & CASUALTY INCLUDING INTERNATIONAL INSURANCE 33,390 10,619 1,140 326 45,476 14,925 60,401
Net investment result (excluding fi nancing expenses) from the fi nancial assets of insurance companies and companies in other business segments (excluding revenues from the fi nancial assets of banks included in net revenues from banking activities) was as follows: (in Euro million )
Equity instruments available for sale (c) 544 1,648 (304) (776) 1,112
Equity instruments designated as at fair value through profi t or loss (d) 198 - (16) - 182
Non controlled investment funds available for sale 231 96 50 (79) 298
Non controlled investment funds designated as at fair value through profi t or loss 211 - 79 - 291
Non controlled investment funds held for trading 3 - (31) - (27)
Other assets held by controlled investment funds designated as at fair value through profi t or loss 84 - (86) (2)
(c) Includes net realized gains and losses relating to investments at cost and at fair value through shareholders’ equity on Taikang Life (€830 million gross or €798 million net).
(d) Includes equity instruments held by consolidated investment funds, designated as at fair value through profi t or loss.
Non quoted debt instruments (amortized cost) 27 - - - 27
Loans designated as at fair value through profi t or loss 4 - 9 - 13
Net result of reinsurance ceded was as follows: (in Euro million )
Premiums ceded and unearned premiums ceded (1,203) (1,598) (979) 356 (3,423)
Claims ceded (including change in claims reserves) 1,291 525 625 (150) 2,292
(a) As described in Note 1.10, the contribution of discontinued Canadian operations is reclassifi ed on a separate line of the income statement.
Financing debt expenses amounted to €360 million in 2011 or €329 million including foreign exchange rate impacts that are balanced by an equivalent amount in net investment income.
Financing debt expenses include income and expenses relating to hedging derivative instruments on fi nancing debt mainly in the Company (€264 million).
Financing debt expenses amounted to €488 million in 2010 and included income and expenses relating to hedging derivative instruments on fi nancing debt, mainly in the Company
Change in deferred acquisition expenses and equivalents (c) (1,731) (48) 5 (1,774)
■ a positive impact of disposals in Australia and New Zealand as well as the partial sale of UK Life & Savings; ■ productivity programs leading to fl at administrative expenses evolution in mature insurance markets; partly offset by: ■ higher commissions both in Life & Savings and Property &
Casualty; ■ higher expenses both in High Growth and Direct markets; ■ as well as higher restructuring costs notably €340 million deferred compensation accelerated vesting charge in
The cost of the contributions paid was recognized as an expense in the income statement, and amounted to €103 million as of
December 31, 2011 (€96 million in 2010, €89 million in 2009, €82 million in 2008 and €75 million in 2007).
The assumptions for each of the liabilities are consistent with the economic features of the corresponding countries’ plans.
Expected return on plan assets and separate assets 5.2% 6.8% 1.3% 4.0%
Expected return on plan assets and separate assets 6.6% 8.5% 1.1% 7.6%
DBO attributable to one year of additional service); ■ interest cost (cost of one year less discounting); ■ employee contributions; ■ change in plans (amendments, curtailments, settlements, business combinations, etc.); ■ actuarial gains and losses (due to assumptions and experience); ■ benefi ts paid by employer, plan assets and separate assets.
During the year 2008, the main change in the scope was the acquisition of Seguros ING, now AXA Mexico, which was completed on July 22, 2008.
During the year 2007, AXA reviewed the treatment of separate assets and insurance contracts backing the pension obligation in the United States and in Switzerland in light of prevailing practice that has developed in the industry. In the United States, the insurance contract was amended to add a transferability clause, and so it is now treated as plan assets rather than separate assets as shown in prior years. In Switzerland, where the issue arose after the acquisition of Winterthur, AXA
amended its practice to eliminate the insurance contract rather than treat it as a plan asset as was originally presented.
Benefi t obligation at the beginning of the year 15,732 13,661 11,729 12,955 14,734 606 534 511 506 604
Amendments (including acquisitions and disposals) (a) (574) 110 (75) (150) (261) (56) 4 (2) 12 18
Benefi ts directly paid by the employer (310) (275) (310) (270) (227) (40) (37) (39) (44) (45)
Impact of foreign currency fl uctuations 365 1,018 241 (493) (737) 18 36 (9) 19 (54)
Benefi ts paid by plan assets (396) (393) (407) (370) (383) - - - - (0)
Impact of foreign currency fl uctuations 228 528 230 (735) (546) - - - - -
Underfunded status (plan by plan) (8,049) (7,907) (7,500) (7,087) (6,098) (620) (601) (530) (507) (502)
Overfunded status (plan by plan) 7 9 19 21 200 - - - - -
Plans with a positive net position (Asset) 0 6 8 20 199 - - - - -
Plans with a negative net position (Liability) (7,981) (7,846) (7,431) (7,015) (6,017) (619) (600) (529) (506) (501)
Net position (excluding separate assets) (7,981) (7,840) (7,423) (6,995) (5,818) (619) (600) (529) (506) (501)
Net economic funding position (including separate assets) (7,029) (6,855) (6,530) (6,206) (5,079) (619) (600) (529) (506) (501)
(a) This amount includes the sale of the Netherlands activities in 2007, the acquisition of Seguros ING in 2008, now AXA Mexico and the sale of Canada, Australia and New Zealand activities in 2011.
(d) This amount includes additional contributions paid to plan assets in the United Kingdom and in the United States to reduce the defi cit in 2010 and 2011.
For pension plans where the fair value of plan assets exceeds the benefi t obligation the aggregate fair value of plan assets and aggregate benefi t obligation were €43 million and €36 million, respectively, as of December 31, 2011. As required by IFRIC
14, a surplus is recognized to the extent that it is recoverable, either through future contribution reductions or a refund to which the Group has an unconditional right.
Expected return on plan assets (436) (399) (362) (470) (489) (0) - (0) (0) (0)
Pension and other benefi ts expense 448 517 404 306 371 (4) 44 37 37 40 26.2.6. Net economic funding position
The evolution in the net economic funding position from January 1, 2011 to December 31, 2011 captures both the change in the liability recorded in the Group’s statement of fi nancial position and the change in separate assets, as presented in the table below: (in Euro million )
Employer contributions and benefi ts directly paid by the employer (c) 1,179 1,245 600 548 378 41 38 40 44 45
Net transfer In/(Out) (including acquisitions and disposals) (a) (b) 72 (32) 983 107 (2,280) 15 - - (11) (20)
Impact of foreign currency fl uctuations (137) (490) (11) (247) 123 (18) (36) 9 (20) 54
During 2011, the deterioration of the net economic funding position was mainly due to actuarial losses on pension liability and on plan assets and separate assets (see Note 26.2.8) partly offset by additional contributions paid to plan assets in the United States
26.2.7. Change in the liability recognized in the statement of fi nancial position (excluding separate assets)
The roll-forward of the statement of fi nancial position liability from January 1, 2011 to December 31, 2011 captures only the evolution of the liability recorded in the Group’s statement of fi nancial position and not the separate assets. Therefore it is not a full economic picture. The table below shows the detailed roll-forward of the statement of fi nancial position liability, with the separate assets added at each year end.
Change in the liability recognized in the statement of financial position
Statement of fi nancial position liability at the beginning of the year (7,840) (7,423) (6,995) (5,818) (6,430) (600) (529) (506) (501) (595)
The SoCI is an integral part of the statement of changes in shareholders’ equity. It includes actuarial gains and losses as well as net income for the period (see Part “Consolidated
SoCI at the beginning of the year (3,150) (2,442) (955) 308 (720) 3 30 67 45 (4)
Experience and assumptions adjustments on plan liabilities (672) (704) (1,634) 799 1,055 (60) (29) (35) 20 57
Adjustment due to the sales of subsidiaries 54 - - - (4) 1 - - - (1)
Impact of foreign currency fl uctuations (107) (176) 6 (34) 10 (3) 3 (1) 3 (5)
SoCI at the end of the year (4,042) (3,150) (2,442) (955) 308 (60) 3 30 67 45
During 2011, the change in the SoCI component of shareholders’ equity after deduction of deferred tax and policyholder benefi ts was €-577 million (€-450 million in 2010, €-1,031 million in 2009, €-695 million in 2008 and €612 million in 2007) and €29 million reclassifi ed as a reduction of Retained
As of December 31, 2011, the cumulative impact amounted to €-2,624 million (€-2,076 million at the end of 2010).
26.2.9. Near-term cash fl ows (benefi ts paid and employer contributions)
From year N+11 until the last benefi t payments is paid 24,480 558
The estimated amount of 2012 employer contributions for pension benefi ts is €292 million (€569 million estimated in 2010 for 2011) and for other benefi ts is €1 million (€1 million estimated in 2010 for 2011). These amounts are subject to uncertainty as they will be driven by economics of future years and are cash contributions with no direct link to the pension and other benefi ts expense under IFRS.
TOTAL (in E uro million) 9,267 7,356 1,875 36 26.2.11. Other employee benefi ts funded on a pay-as-you-go basis
For 2011, postretirement benefi ts payments were made in the amounts of €32 million (€28 million in 2010), net of employee contributions.
Net position (excluding separate assets) (a) (8,600) (8,440) (7,952) (7,501) (6,319)
(b) Included in the net position above but the contribution of held for sale operations is stated on separate asset and liability items on the statement of fi nancial position.
(c) It corresponds to a liability of €8,822 million (as of December 31, 2011) included in the statement of fi nancial position under the caption «provision for risks and charges» and an asset of €0.5 million (as of December 31, 2011) included in the statement of fi nancial position under the caption «other receivables».
AXA Financial share-based compensation instruments 0.1 0.1 ■ AXA Financial TSAR (0.1) (0.9)
AXA APH stock option plan (terminated as at December 31, 2011) 1.7 4.4
In accordance with IFRS 2, the total employee share based compensation cost of €463.5 million for full year 2011 included expenses from share-based compensation instruments for grants made after November 7, 2002 which had not yet vested as of December 31, 2003.
Executive offi cers and other key employees may be granted options on AXA ordinary shares under employee stock option plans. These options may be either subscription options involving newly issued AXA ordinary shares or purchase options involving AXA treasury shares. While the precise terms and conditions of each option grant may vary, options are currently (i) granted at a price not less than the average closing price of the ordinary share on the Paris Stock Exchange during the 20 trading days preceding the date of grant, (ii) valid for a maximum term of ten years, and (iii) vest generally in instalments of 33.33% per year on each of the second, third and fourth anniversaries of the grant date.
For the employees who are granted more than 5,000 options, the fi rst two instalments vest unconditionally at the end of the vesting period, while the fi nal instalment is subject to the fulfi lment of certain conditions regarding the performance of the AXA shares compared to the DowJones Europe Stoxx
Insurance index. From 2010, all options granted to the members of the Management Committee are subject to the fulfi llment of this market performance condition.
The option pricing assumptions and fair value for plans issued in 2011, 2010, 2009, 2008 and 2007 are as follows : Assumptions (b)
On that basis, the expense recognized in profi t or loss for the year ended December 31, 2011 was €18.3 million (€0.9 million for the 2007 grants, €2.0 million for the 2008 grants, €2.3 million for the 2009 grants, €4.6 million for the 2010 grants, €3.3 million for the 2011 grants and €5.2 million relating to AXA SA
The following table shows information for grants after November 7, 2002: Options (in million)
(above the non-discounted reference price) on the full leveraged amount invested.
The cost of this plan is valued taking into account the fi veyear lock-up period, as recommended by the ANC (French accounting standard setter). The ANC approach values the restricted shares through a replication strategy whereby the employee would sell the restricted shares forward at the end of the lock-up period, borrow enough money to buy unrestricted shares immediately, and uses the proceeds of the forward sale together with dividends paid during the lock-up period to fi nance the loan. For the leveraged plan, the cost also includes the opportunity gain implicitly provided by AXA by enabling its employees to benefi t from an institutional price for derivatives as opposed to a retail price.
In 2011, the cost of the lock-up period was measured at 18.49% for the traditional plan and 13.53% for the leveraged plan (due to different discounts). In addition to the lock-up cost, the opportunity gain offered to the employees under the leveraged plan was measured at 2.84%.
Total cost for AXA = [A] – [B] + [C] (as a percentage of the reference price) 1.51% 2.91% 0.29% 3.34%
TOTAL COST FOR AXA (IN EURO MILLION) 0.36 10.58 0.10 12.40
AXA Performance Shares Performance Shares are issued to executive offi cers and other key employees.
Performance Shares are similar to Performance Units, but the payment is equity-settled. In France, most of the Performance
For 2010 grants, the employing entity at the end of the vesting period will pay in cash the fi rst half of the Performance Units defi nitely acquired at that date. One year later, the employing entity will pay in cash the second half provided that the benefi ciary is an employee of the AXA Group at that date. For the settlement of the second half of the Performance Units defi nitely acquired, benefi ciaries may, if they wish, choose a settlement of all or part of their Performance Units in AXA
The total cost of AXA Financial share-based compensation plans in 2011 included €-0.1 million in respect of AXA Financial
Moreover, options to acquire AllianceBernstein Units were granted as follows: 70,328 options were granted in 2011; 387,661 options were granted in 2010; 6,565,302 options in 2009.
In 2010: ■ short-term benefi ts: compensation paid to members of the Management Committee in 2010 totaled €16.1 million, including fi xed salary, bonuses, directors’ fees and benefi ts in kind; ■ share-based compensation: the expense recognized in 2010 in respect of share-based compensation granted to
Amounts provisioned or recognized by AXA SA and its subsidiaries for the payment of pensions or retirement benefi ts to the members of the Management Committee totaled €43.8 million as of December 31, 2011 (€49.2 million in 2010 as of 26.5. SALARIED WORKFORCE
The decrease of salaried employees by 902 in 2011 is mainly driven by: ■ the US (-399): due to a restructuring plan set up in June 2011; ■ AllianceBernstein (-492): due to a global staff reduction plan; ■ Germany (-362) driven by productivity programs undertaken by AXA; ■ UK (-144) due to (i) UK P&C (-499) FTE vs. FY10 refl ecting a decrease in AXA PPP (-282 FTE) mainly driven by the sale of Denplan in December 2011 (-310 FTE) as well as a restructuring plan in the UK at the end of the year and (ii)
Net income including impact of undated subordinated debt (b) A 4,033 2,449
AXA Assurances Vie Mutuelle, hereafter “Mutuelles AXA”) are two mutual insurance companies engaged in the Property
(the “Subsidiaries”), are parties to a management agreement pursuant to which they collectively manage their portfolios and the Subsidiaries provide the full range of management services to manage the insurance operations and portfolios.
(other than commissions) are shared by these subsidiaries and the Mutuelles AXA and allocated among them through a
Company’s insurance subsidiaries that restrict in any way their ability to compete with one another.
From time to time the Company enters into GIEs with certain of its subsidiaries. GIEs are intercompany partnerships, governed by French law, created to perform various common services for their members and to allocate associated costs and expenses among their members. The allocation of costs and expenses invoiced to GIE members may be based on various agreed criteria including particular activity drivers. The GIEs to which the Company was party during 2011 covered a variety of common services including services performed by the Group’s central functions for the benefi t of AXA Group companies
Expenses invoiced in 2011 and 2010 amounted to respectively €563 million and €553 million for AXA France GIE, and €192 million for both years for AXA GIE.
and/or to promote effi cient use of the Group’s capital resources.
To the best of the Company’s knowledge, based on information reported to it: ■ as of December 31, 2011, there were no loans outstanding from the Group to any member of AXA’s executive offi cers or members of its Board of Directors; ■ various members of the Company’s Board of Directors as well as various other executive offi cers and directors of other
Consistent with principles set forth in Note 1.3.1 “Scope and basis of consolidation” to the fi nancial statements, (i) AXA’s investments or other arrangements with non-consolidated special purpose entities (SPEs) do not allow AXA to exercise control over such SPEs; and (ii) SPEs controlled by AXA
Commitments received by AXA totaled €65,465 million at the end of 2011, and increased by €2,861 million compared to the end of 2010 ( or €2,756 million at constant exchange rates), mainly due to an increase in fi nancing commitments
These commitments broke down as follows: Financing commitments received totaled €14,725 million at the end of 2011, and mainly consisted in: ■ credit facilities received from banks for €12,471 million in the Company including €6,071 million stand-by credit lines, €5,400 million credit agreements and €1,000 million credit facility; ■ €1,078 million at AllianceBernstein, including €308 million credit facilities and €770 million commitment lines with various banks and other lenders; ■ €541 million commitment lines granted to Japan Life &
The €+2,069 million increase in fi nancing commitments received was mainly from the Company (€+1,803 million)
AXA Bank Hungary (€3,797 million); ■ security reverse repurchase agreements totaled €4,823 million mainly in Japan Life & Savings (€2,129 million) and AXA Bank
■ €3,232 million collaterals for reinsurance operations of which €2,156 million in the United States Life & Savings; ■ €2,440 million collateral for derivatives mainly from Germany
Letters of credit received increased by €1,257 million to €2,268 million at the end of 2011, and the increase was mainly related to the United States holding .
Other commitments received totaled €2,070 million at the end of 2011, and were broken down as follows: ■ €773m received by the Company due to a loan guarantee covering $1 billion loan agreement; ■ €646 million from France Life & Savings mainly due to commitments received by real estate funds; ■ €548 million received by AXA Bank Europe related to money market activities.
(a) In order to improve the presentation consistency, pledged securities and collaterized commitments have been modifi ed in 2010.
Guarantee commitments given totaled €4,568 million at the end of 2011, and mainly consisted in: ■ €4,299 million guarantee commitments given to credit institutions (including €583 million guarantees in case of insolvency or default) mainly driven by the Company
Pledged securities and collaterized commitments given totaled €45,895 million at the end of 2011, and mainly consisted in: ■ €14,909 million in AXA Bank Europe to fi nancial institutions in respect of security repurchase agreements (€9,838 million)
and derivative transactions (€162 million); ■ €3,468 million in Switzerland Life & Savings including pledged assets for securities repurchase and lending agreements
Letters of credit given totaled €227 million at the end of 2011 and were mainly from AXA Colisée RE (ex AXA RE) related to the run-off activities of reinsurance operations (€162 million).
AXA has guaranteed the liabilities and obligations of AXA UK in connection with the sale of part of its Life & Savings insurance business to Resolution Ltd. This includes potential liability of
In force for a period of three years starting from August 5, 2010, this agreement is renewable automatically for successive periods of one year thereafter, unless one of the two parties decides to terminate the agreement earlier, in which case the terminating party is required to give three month notice prior to the next renewal date.
In accordance with European Union directives, insurance companies with their registered offi ce in a European Union member country are required to maintain minimum solvency ratios which must be supported by capital, retained earnings and reserves and unrealized capital gains on marketable securities and real estate as reported in regulatory fi lings or subject to approval by local regulators in some countries. AXA’s insurance operations in countries outside the European Union are also subject to local capital adequacy and solvency margin regulations. As of December 31, 2011, AXA’s subsidiaries complied with the applicable solvency and capital adequacy requirements.
Mr. Patrick Frotiée: 63, rue de Villiers – 92208 Neuillysur -Seine, fi rst appointed on May 17, 1995. The current appointment is for a period of 6 years, until the annual General
Courbevoie Cedex, fi rst appointed on April 29, 2010. The current appointment is for a period of 6 years, until the annual
General Meeting of the shareholders called to approve the fi nancial statements for the fi scal year 2015 30.2. FEES PAID TO STATUTORY AUDITORS
Statutory audit and certifi cation of local and consolidated fi nancial statements 27,380 30,672 65% 69% 7,942 8,053 77% 82%
Legal, tax and employment consulting 4,537 4,312 11% 10% 68 28 1% 0%
(a) As described in Note 1.10, the contribution of discontinued Canadian operations is reclassifi ed on a separate line of the income statement in order to present a comparable basis.
“Subsidiary SEC Reports”). The Subsidiary SEC Reports are publicly available and M anagement encourages readers of the fi nancial statement to consult the Subsidiary SEC Reports for a full description of all the various litigations and related matters in which these subsidiaries are involved. Copies of the
A number of lawsuits have been fi led against insurers in the
United States involving insurers’ sales practices, alleged agent misconduct or misrepresentation, alleged failure to properly supervise agents, compensation of intermediaries as well as numerous other matters. Some of these actions have resulted in the award of substantial judgments against insurers (including material amounts of punitive damages) or in substantial settlements. In certain jurisdictions, juries have substantial discretion in awarding punitive damages. AXA’s United States subsidiaries are involved in these types of litigations as well as in a wide variety of other matters including regulatory inquiries, investigations and/or actions, in connection with the ownership and/or management of real estate, asset or investment management activities, corporate transactions, employee benefi t disputes, alleged discrimination in employment practices, as well as other matters. For additional details on these matters, please see the Subsidiary SEC Reports.
and BRRC to comply with certain undertakings including the payment of approximately $217 million to redress harm from the coding error to the clients of ARIM and other ARG-affi liated advisers. The penalty was paid and the compensation payments to clients were completed in 2011. The undertakings also include reorganization of the fi rms’ compliance functions and the hiring of an independent compliance consultant to conduct a comprehensive review of the fi rms’ overall supervisory and compliance policies and procedures — specifi cally the disclosure, recordkeeping and reporting processes for the quantitative investment model. Discussions have continued with various other regulatory authorities involved in this matter
FSA as well as fi nancial regulators in Ireland, Hong Kong and
This suit was fi led in the Federal District Court for the Northern
District of California and (i) alleges breach of fi duciary duty, negligence/gross negligence in connection with the coding error, (ii) seeks an “accounting” of underperformance against benchmarks attributable to the coding error and (iii) requests damages in an unspecifi ed amount to be determined at trial.
During 2011, two additional putative class action lawsuits were fi led or threatened against AXA Rosenberg on the basis of allegations similar to those in the Guam Retirement Fund suit as well as alleged violations of the US Employee Retirement
Insurance Security Act (“ERISA”). All of these actions were consolidated into a single putative class action law suit, and in the fourth quarter of 2011, the parties entered into an agreement to settle all of the claims in the law suit. On
District of California approved a preliminary settlement order in relation to the law suit pursuant to which AXA Rosenberg agreed to pay $65 million in exchange for a full release from class members. A court hearing to grant fi nal approval of the settlement is scheduled for the end of March 2012.
A lawsuit was fi led in the United States District Court of the
Funds Management Group, LLC (“FMG LLC”). The lawsuit was fi led derivatively on behalf of eight funds. The lawsuit seeks recovery under Section 36(b) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), for alleged excessive fees paid to AXA Equitable and FMG LLC
LLC fi led a motion to dismiss the amended complaint. Plaintiff seeks recovery of the alleged overpayments, or alternatively, rescission of the contracts and restitution of all fees paid.
For example during 2010, as part of AXA UK’s sale of part of its l ife insurance business to Resolution, Ltd., AXA UK
In addition, AXA and certain of its subsidiaries are involved in various legal actions and proceedings with tax authorities in various jurisdictions including actions arising in connection with
France and Belgium, have enacted legislation that permits corporate entities to be charged with criminal offences. The standard for attributing criminal conduct by corporate offi cers and employees to corporate entities is not clearly defi ned in many of these jurisdictions and government prosecutors and judges have broad discretion in this area. In recent years, complaints against or indictments of corporate entities for alleged criminal offences have become increasingly common and certain AXA Group companies have been the subject of penal complaints and/or indictments from time to time including in Belgium and France. While a criminal complaint against or indictment of a corporate entity may not pose material fi nancial risk, it has broad potential implications for a regulated fi nancial institution like AXA both from a reputation point of view and from a regulatory perspective because a criminal conviction
Achats (together with two private parties) brought an action for annulment of the Belgian Act of December 21, 2007 amending the Act of May 10, 2007 (the “Act”) designed to combat discrimination between men and women with respect to gender in insurance matters. Specifi cally for the purpose of calculating insurance premiums and benefi ts, the Act allows direct distinctions to be drawn on the basis of gender. As a condition, a regulation stipulated that the distinction must be proportionate and sex must be a determining factor in the assessment of risk on the basis of relevant and accurate actuarial and statistical data. In enacting this regulation, the
Belgian legislature made use of the “opt-out possibility” pursuant to Article 5 (2) of the so-called Gender Directive (2004/113/EC)
which permitted European Member States to allow exceptions from the general prohibition on gender discrimination in access to and supply of goods and services. Test-Achats claimed that this Belgian regulation permitting gender-based setting of tariffs in life insurance contracts is incompatible with the principle of equal treatment and non-discrimination between men and women as a basic principle of European Union law. The Belgian
European Union including AXA Group insurance companies. In the fourth quarter, 2011, the European Commission published interpretative guidance on the application of this decision to the insurance sector and AXA Group will closely monitor implementation of the Test Achats decision and the guidelines published by the European Commission.
CONSOLIDATED FINANCIAL STATEMENTS/FULL YEAR 2011 4 4.6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Mexico. In addition, AXA will benefi t from a 10-year exclusive
The net upfront cash consideration for AXA is USD 494 million or ca. Euro 374 million, and will be funded through internal resources.
December 31, 2011, on: ■ the audit of the accompanying consolidated fi nancial statements of AXA SA , as attached to the present report; ■ the justifi cation of our assessments; ■ the specifi c verifi cation required by law.
■ Certain consolidated balance sheet items that are specifi c to insurance and reinsurance business are estimated on the basis of statistical and actuarial data, such as actuarial reserves, future policyholders’ benefi ts , deferred acquisition costs and their amortization, and the value of business in force . The methods and assumptions used to calculate the carrying values of these items are described in Notes 1.13, 6.4 and 1.6.2 to the consolidated fi nancial statements. We have assessed the reasonableness of the assumptions used to calculate these values, particularly with respect to the Group’s experience and its regulatory and economic environments. We also assessed the overall consistency of these assumptions.
■ The carrying values of purchase goodwill are tested at each closing for recoverability using the methods described in Notes 1.6.1 and 5.2.2 to the consolidated fi nancial statements. We have in particular ensured the valuation approaches used rely on assumptions that are consistent with the forecasts that emerge from the strategic plans established by the Group. We have also examined the elements gathered by the Group to assess the other assumptions considered as well as the sensitivity tests performed.
Changes in the capital 409 5.2 DESCRIPTION OF AXA’S SHARE CAPITAL 410
French law, in force at the fi ling date of this Annual Report, and of our Charter (“S tatuts”). You may obtain copies of our
■ perform all industrial, commercial, fi nancial, personal or real estate property transactions, directly or indirectly related to any of the foregoing.
Offi cer and the Deputy Chief Executive Offi cer(s) will receive compensation which amount and conditions will be set by the Board of Directors, upon proposal of the Compensation and Human Resources Committee. Members of the Board of
An individual aged seventy or older may be appointed or reappointed to the Board of Directors exclusively for a two-year term of offi ce. His/her term of offi ce can be renewed only once.
In accordance with the AFEP/MEDEF Code , the directors shall be shareholders of the Company and own a signifi cant number of shares in the Company; if they do not own such shares at the time they are fi rst appointed, they shall use their directors’ fees to acquire AXA shares. Accordingly, the
Board of Directors has set for each Board member, whether an individual or a permanent representative of a legal entity to whom directors’ fees were paid, the objective of holding, within two years after fi rst being appointed, a number of shares in the
The shares purchased for the purpose of this holding objective must be held in registered form.
AXA may distribute dividends to its shareholders from its net income of each fi scal year after deductions for depreciation and provisions, increased or reduced by any profi t or loss carried forward from prior years, and reduced by the legal reserve fund allocation described below.
Under French law, AXA is required to allocate 5% of its net income of each fi scal year, after reduction for losses carried forward from previous years, if any, to a legal reserve until the amount of such reserve equals 10% of the nominal amount of its share capital. The legal reserve is distributable only upon
Upon proposal by the AXA Board of Directors, the shareholders of AXA may decide to allocate all or part of distributable profi ts to special or general reserves, to carry them forward to the next fi scal year as retained earnings, or to allocate them to the shareholders as dividends. If AXA has earned a distributable profi t since the end of the previous fi scal year, as refl ected in an interim balance sheet certifi ed by its Statutory Auditors, the Board of Directors may distribute interim dividends to the extent of the distributable profi t without shareholders approval in accordance with French law. AXA’s Charter requires AXA to distribute dividends between its shareholders in proportion to their share in the capital. The right to receive the dividend is due to the shareholders holding their shares at the record date.
Shareholders’ Meeting, a Notice of Meeting must be published in the Bulletin des annonces légales obligatoires ( “BALO”), at least 35 days prior to the meeting date (or 15 days if convened, in the event that the Company is subject to a tender offer, for purposes of approving measures, the implementation of which, would be likely to cause such tender offer to fail) and must indicate, in particular, the agenda and the proposed resolutions.
Meetings of companies whose stock is traded on a regulated market or transactions of a central depository is evidenced by an accounting entry showing the number of shares in the name of the shareholder (or the intermediary for the account)
Meeting, or any other individual or legal person, or, as provided for by the Charter and subject to approval by the Board of
Directors, participate by videoconference or by any means of telecommunications allowing shareholders to be identifi ed in accordance with applicable laws. In addition, a holder of bearer shares who is not a French resident may be represented at
In accordance with applicable laws and regulations, shareholders may also transmit mail voting cards in paper form and/or, subject to approval by the Board of Directors published in the Notice of Meeting, by electronic means.
There are no French anti-takeover statutes similar to the antitakeover statutes enacted by certain states in the United States and other jurisdictions. However, a number of French law provisions including certain provisions of the European Directive of April 21, 2004 (which was implemented in France in 2006)
Meeting. However, the General Meetings of the respective shareholders of the merged and surviving companies are not required in the case of a merger of a wholly-owned subsidiary with its parent company.
Share capital reduction by cancellation of shares ( 101,617) ( 4,928,205) 2,089,381,925 4,784,684,608
Exercise of stock options 69,280 566,710 2,289,965,124 5,244,020,134 2010 Share capital reduction by cancellation of shares (45) (2,137) 2,289,965,079 5,244,020,031
New equity issue reserved for employees of AXA (SharePlan 2010) 30,082,363 260,922,313 2,320,074,529 5,312,970,671
New equity issue reserved for employees of AXA (SharePlan 2011) 36,713,690 233,119,323 2,357,146,021 5,397,864,388 31/12/2011 Exercise of stock options 51,499 414,197 2,357,197,520 5,397,982,321
Company’s Corporate Governance Code of reference and specifi es the provisions of that code, if any, that have not been applied by the Company and the reasons why they have not been applied (Part 4).
Committees”, Sections of this Annual Report . For information on specifi c limitations of the powers of the Chairman & Chief
Part 2 – “Corporate governance – Executive compensation, major shareholders and related matters”, “The Chairman &
The AXA Group is engaged in the fi nancial protection and wealth management business on a global scale. As such, it is exposed to a very wide variety of risks – insurance risks, fi nancial market risks and other types of risks – which are described in detail in this Annual Report . Please see, in particular, Part 3 –
“Regulation, risk Factors, certain disclosures about market risks and related matters” and Part 4 – “Consolidated Financial
The Board of Directors shall undertake all controls and verifi cations it deems appropriate.
The Audit Committee, on December 31, 2011, has four members all of whom are independent in accordance with the criteria of the AFEP/ MEDEF recommendations.
Board of Directors, which defi ne the Committee’s principal duties, including the following: ■ reviewing annual and half year fi nancial statements; ■ monitoring the statutory audit of AXA’s annual and consolidated fi nancial statements; ■ providing for recommendations on proposals for appointment, compensation and replacement of the Statutory Auditors as well as monitoring their independence; ■ overseeing the compensation of the Statutory Auditors; ■ monitoring the accounting rules that apply within the Group; ■ reviewing the Group’s internal control systems and procedures for risk management; ■ examining the program and the goals of the AXA Group’s internal audit function.
please see Section 2.1 “Directors, senior management and employees” of this Annual Report.
Over the past years, AXA initiated a process designed to harmonize corporate governance standards throughout the Group. This effort is focused, among other matters, on standardizing, to the extent practicable, principles relating to a number of corporate governance matters including board composition and size, directors’ independence criteria, b oard c ommittees and their roles, and directors’ fees.
AXA’s principal subsidiaries to establish an a udit c ommittee, a c ompensation c ommittee and a r isk c ommittee in addition to any other b oard c ommittees that they consider necessary or appropriate for their specifi c businesses. The role, duties, and composition of these c ommittees (including the requirements for participation of independent directors) are specifi ed in the a udit c ommittee guidelines and the c ompensation c ommittee s tandard. The Audit Committee Terms of Reference requires the a udit c ommittees of Group subsidiaries to have a signifi cant number of independent directors in order to ensure that this c ommittee is independent from m anagement. The audit c ommittees have a critical role in reviewing fi nancial results and other fi nancial information prepared by the m anagement, fi nancial reporting and control processes, critical accounting policies, particular accounting issues, key risks and systems of internal control, fraud and similar issues.
AXA’s Management Committee generally meets once a week to discuss and take strategic, fi nancial and operational decisions.
At the end of the fi rst three quarters, the Management
Committee conducts QBRs, during which the performance of the AXA Group is reviewed. These QBRs were introduced in 2000 to provide Management with a clear and consistent framework for: (1) reviewing operational performance and monitoring the progress of key projects using quantifi able standards of measurement defi ned in collaboration with the
During the fourth quarter, each business unit presents its strategic plan to the Group’s strategic plan steering committee.
The Group Management Services (1) (GMS) Departments focused principally on internal control and risk related matters
Department and aggregated at the Group level. GRM also monitors the corresponding exposures on a monthly basis, and ensures that local operating units comply with the concentration limits established by the Group; ■ economic capital is estimated quarterly for each product line and operating unit and then aggregated at the Group level. This is based on a stochastic modelling approach and enables to properly assess together asset, liability and operational risks; ■ GRM proposes annually to the Management Committee, with the support of AXA Global P&C and AXA Global Life, the main features of the Property & Casualty and Life reinsurance coverage program of the Group; ■ GRM coordinates the activity of decentralized operational risk teams to ensure proper and consistent identifi cation, measurement and management of the most important operational risks.
This system is also used to deliver management reporting information used to produce an economic perspective on the consolidated fi nancial statements. The process through which this management reporting information is produced and validated is the same as the one used to prepare consolidated fi nancial information.
Finally, PBRC issues instructions to subsidiaries, giving detailed information on the consolidation process, changes in accounting standards as well as in Magnitude.
Chief Financial Offi cer of each entity signs off on the accuracy of consolidated fi gures reported through Magnitude and their compliance with both the Group accounting manual and instructions.
Transversal procedures In all cases, the procedures are those described above, which generally work as follows: ■ all changes in the AXA Group accounting policies are validated by PBRC experts and implemented after discussions with the Statutory Auditors; ■ the main audit issues are addressed and resolved through
Groups which are organized around the substantive matters that the department manages on a continuing basis in addition to one-off projects or issues that arise from time to time. These
The Group Legal Department works closely with the legal departments of AXA’s principal subsidiaries on legal, regulatory, and compliance matters impacting those companies. In order to optimize integration, coordination and ensure open lines of communication across the Group’s global Legal & Compliance
Committee with independent and objective assurance on the comprehensiveness and effectiveness of internal controls and risk management across the Group, as well as making proposals to help improve the management of risks, enhance performance and identify business opportunities.
Committee. In carrying out his/her duties, the Group Head of Audit liaises closely with the control and monitoring functions within the 2nd line of defence, including Group Risk
■ optimal coordination and communication between the different departments managing these risks.
AXA’s ICOFR includes policies and procedures that: ■ pertain to the maintenance of records that, in reasonable detail, accurately and fairly refl ect the transactions and dispositions of Group assets; ■ provide reasonable assurance that transactions are recorded as necessary to permit the preparation of fi nancial statements in accordance with the applicable generally accepted accounting principles; ■ provide reasonable assurance that receipts and expenditures are being made only in accordance with the authorization of
Deputy Chief Executive Offi cer have a reasonable basis to conclude that AXA’s ICOFR is effective as of the end of each year.
In accordance with the IFC Standard, the in-scope AXA Group companies must (i) document the signifi cant processes and controls, as well as the rationale of how the associated risk of material misstatements due to error or fraud can be reduced to an acceptable level, (ii) test the design and operational effectiveness of key controls based on the test plans elaborated by Management with insights into risks, and (iii) remediate identifi ed control defi ciencies.
Code that are in line with the long-established corporate governance principles initiated by the Company. AXA applies the recommendations of the AFEP/MEDEF Code in the conditions detailed, for the most part, in Sections 2.1 “Directors, senior management and employees” and 2.2 “Full disclosure on executive compensation and share ownership” of this Annual
review, and not two days before as it is provided for by the
her total cash remuneration multiplied by two AXA s hares or ADS or other quoted subsidiaries of the Group are taken into account to calculate the number of shares actually held. Each Executive Director is required to meet with this minimum shareholding requirement within a period of fi ve years from (i) January 1, 2007 or (ii) the date of his/
Committee, has decided that it was not necessary to set higher shareholding thresholds after the initial 5-year period. For the same reasons, the Board of Directors has decided that it was not appropriate to compel Executive
Directors to acquire a number of AXA shares once the compulsory holding period of their performance shares has expired; (ii) exercise of stock options: pursuant to the AFEP/MEDEF Code, companies shall determine periods preceding the disclosure of their fi nancial statements during which the exercise of the stock options is not allowed (“sensitive periods”).
To date, the sensitive periods are determined by applying the AXA Group’s Compliance and Ethics Guide. They
generally begin 30 days prior to the disclosure of the annual or half-year earnings releases and 15 days prior to its quarterly fi nancial information releases. The
Paris). AXA’s Charter is also available on the Company’s website (www.axa.com). In addition, the information referred to in Article L.225-100-3 of the French Commercial Code is made public in the Report of AXA’s Board of Directors which is included in this Annual Report .
I Report of Statutory Auditors prepared in accordance with Article L.225-235 of the French Commercial Code on the report prepared by the Chairman of the Board of Directors of AXA (For the year ended December 31, 2011)
AXA’s IFC programme is based on AXA’s IFC Standard which is an internal control and governance standard developed by
AXA’s IFC Standard is based on the Internal Control framework issued by the Committee of Sponsoring Organizations of the
At each year-end, the in-scope AXA Group companies are required to perform an evaluation of their ICOFR as part of an internal certifi cation process. This process involves formal sign-off by the Company’s process owners and culminates with a formal certifi cate signed by the Company’s CFO or another senior executive offi cer stating their conclusion as to the effectiveness of the Company’s ICOFR and certain other matters.
PricewaterhouseCoopers Audit Mazars 63, rue de Villiers 61, rue Henri Regnault 92208 Neuilly-sur-Seine 92400 Courbevoie
internal control over fi nancial reporting as of December 31, 2011, in order to be able to obtain reasonable assurance as to whether
The Company’s management is responsible for maintaining effective internal control over fi nancial reporting and for establishing a statement on its assessment of the effectiveness of internal control over fi nancial reporting as of December 31, 2011. A company’s internal control over fi nancial reporting is a process designed to provide reasonable assurance regarding the reliability of fi nancial reporting and the preparation of fi nancial statements for external purposes in accordance with IFRS accounting principles. The assessment of the effectiveness of internal control is based on criteria established in the Internal Financial Control standard of AXA
AXA holds today an Investor Seminar on its 5-year strategic plan “Ambition AXA” (06/01/2011)
The AXA Group further improves its environmental, social and governance performance (09/23/2011)
AXA ranked top global insurance brand for 3rd consecutive year by Interbrand (10/05/2011)
AXA Global P&C announces the successful placement of €180 million catastrophe bonds (10/20/2011)
AXA announces the subscription prices for its 2011 employee share offering (SharePlan 2011) (10/28/2011)
AXA Group announces the signature of a European agreement on anticipating changes (11/23/2011)
François Pierson, a member of AXA Group’s Management Committee and Chairman & CEO of AXA Global P&C to retire fi rst of the year (12/01/2011)
Results of the AXA Group employee share offering in 2011 (12/12/2011)
AXA International Small Business Report 2011: an evaluation of the issues currently affecting the small business community in 10 countries (12/20/2011)
(1) Press releases issued prior to March 23, 2011 were listed in the Annual Information Document included in the AXA 2010 Annual Report.
AXA and HSBC to enter in a long-term partnership in Property & Casualty in Asia and Latin America (03 /07 /2012)
2010 annual and consolidated fi nancial statements after Shareholders’ Meeting (05/13/2011)
Notice of Meeting (Shareholders’ Meeting to be held on 04/25/2012) (02/17/2012)
Extract of the minutes of the Shareholders’ Meeting of 04/27/2011 related to the renewal and appointment of members of the Board of Directors, to a modifi cation of the Charter and to the fi nancial authorizations
Updated Charter on 04/27/2011 2010 annual and consolidated fi nancial statements
Extract of the minutes of the Board of Directors of 02/15/2012 related to increase of the share capital and to the resignation of a member of the Board of Directors
The list of the Shareholders at 16 days before the Shareholders’ Meeting
The a nnual r eports of the Board of Directors on the allocations of stock options and performance shares
Disclosure of trading in the Company’s shares by the corporate offi cers 03/14/2011 Isabelle Kocher 04/08/2011 Wendy Cooper 04/28/2011 Giuseppe Mussari 05/12/2011 Henri de Castries 05/13/2011 Denis Duverne 10/03/2011 Norbert Dentressangle 10/28/2011 Henri de Castries 11/16/2011 Michel Pébereau 11/23/2011 François Martineau 11/25/2011 Norbert Dentressangle 11/30/2011 Jean-Martin Folz 12/08/2011 Isabelle Kocher
Information published over the previous 12 months Where the information can be obtained 12/09/2011 Henri de Castries 12/09/2011 Denis Duverne 12/21/2011 Denis Duverne 12/22/2011 Marcus Schenck 12/23/2011 Denis Duverne 12/27/2011 Dominique Reiniche 01/06/2012 Norbert Dentressangle 02/23/2012 Suet Fern Lee
Documents available on the AMF’s website www.axa.com www.amf-france.org 2010 Annual Report (Registration Document) (03/18/2011)
The following documents may be consulted at the AXA Group Legal Department located 21, avenue Matignon – 75008 Paris
I confi rm that, to the best of my knowledge, the fi nancial statements have been prepared in accordance with applicable accounting standards and fairly present the assets and liabilities, the fi nancial position and the profi t or loss of the Company and its consolidated subsidiaries, and that the Board of Directors’ Report, the various sections of which are mentioned on page 517 of this Annual Report, fairly presents the evolution of the business, results and fi nancial position of the Company and its consolidated subsidiaries, and describes the principal risks and contingencies facing the Group.
The Statutory Auditors have prepared a report on the Company’s fi nancial statements for the year ended December 31, 2011 presented in this document. This report, set out in pages 457 and 458 contains an observation.
AXA’s authorizations to issue shares or other types of securities that were valid as of December 31, 2011 are summarized in the tables below: Issues with preferential subscription rights for shareholders
(in E uro or in percentage of the share capital) Term Expiration
(b) Including the issue of ordinary shares or securities (i) in the event of private investments or through public offers, (ii) in the event of public exchange offers initiated by the Company, (iii) in consideration for contributions-in-kind for up to 10% of the Company’s share capital, or (iv) as result of securities issue by subsidiaries of AXA.
The following authorizations to issue shares or securities giving a claim on ordinary shares of the Company require the shareholders’
Ordinary shares in favour of a specifi c category of benefi ciaries in connection with offerings for employees – 135 million (a) 18 months October 25, 2013
Directors increased the Company’s share capital, through the issue of shares to the benefi t of Group employees under the SharePlan 2011 program. The shareholders waived their preferential subscription rights to facilitate this offering to employees. In the countries that met the legal and tax requirements for participation in SharePlan, two investment options were offered in 2011: ■ the traditional plan, offered in 41 countries; ■ the leveraged plan, offered in 38 countries.
In 2011, by virtue of the authorization granted by the shareholders at the Shareholders’ Meeting of April 22, 2008 (17th resolution)
9,129,162 stock options giving the right to their benefi ciaries to subscribe or to acquire existing or newly issued AXA shares, have been granted by the AXA Board of Directors.
2,056,780 performance shares were granted by the AXA Board of Directors.
On a comparable basis, the 2010 result would have reached €1,688 million applying a decrease in realized foreign-exchange losses by €1,040 million and a decrease in the allowance related to the exchange-rate risk provision by €1,136 million.
AXA continued to manage its exposure to exchange-rate risk in 2011 by unwinding hedge positions amounting to USD4.6 billion and CHF1.4 million.
The exceptional dividends of 2010 amounted to €1,334 million following the partial disposal of the UK Life & Savings business to Resolution Ltd. Excluding these exceptional dividends, dividends received from subsidiaries increased by €524 million.
Dividends received from insurance companies totaled €2,868 million, an increase of €448 million, mainly due to the following factors: ■ a €1,064 million dividend from AXA France Assurance, representing an increase of €212 million, arising from higher statutory profi t; ■ €867 million in dividends received from the Northern, Central and Eastern Europe region, compared with €728 million in 2010; ■ €376 million of dividends paid by the Mediterranean and
American region was due to a rise in statutory profi ts in 2010 and the policy, implemented in 2010, of giving priority to dividends over loan reimbursements.
Dividends received from fi nancial subsidiaries and other holding companies rose by €76 million to €353 million, as opposed to €277 million in 2010. They included €139 million of dividends paid by Finance Solutions, Group fi nancing and cash management company, and €192 million from AXA Investment
Financial income increased by €309 million to €412 million, due to: ■ a €107 million increase in miscellaneous income resulting from the recognition of a €36 million gain on cancelled shares following the merger into AXA SA of its wholly-owned subsidiaries AXA Participation II and Colisée Excellence, and €57 million of exceptional dividend following the closing of the securitization program, and
■ a €198 million net profi t on swaps in 2011, compared with a net loss of €31 million in 2010. The resulting €229 million improvement was mainly due to €84 million received in 2011 from the unwinding of CAD interest-rate swaps following the disposal of AXA’s Canadian activities. Excluding this latter payment, fi nancial charges were stable in 2011.
At December 31, 2011, total assets were €75,124 million, versus €67,948 million at December 31, 2010.
Assets Intangible assets totaled €383 million. They mainly included the AXA brand contributed by FINAXA as part of the merger in 2005 and valued at €307 million based on brand royalties billed to Group subsidiaries and to the Mutuelles AXA, and €58 million relating to the capitalization of software costs.
Investments in subsidiaries net of valuation allowances amounted to €63,453 million, versus €57,317 million at year-end 2010, representing an increase of 6,136 million.
Developments in 2011 included the following: ■ the acquisition of Asian activities previously held by AXA Asia
Pacifi c Holdings for €7,146 million; The Company wishes to transfer its stake in its Asian life and non-life insurance businesses to AXA ASIA, in which it is the sole shareholder. The goal is for AXA ASIA to eventually become the new holding company for the AXA Group’s
Kong Ltd. and AXA Insurance Singapore Ltd, for a value of €5,263 million; the restructuring would have to continue on the year 2012; ■ the removal of shares in AXA Asia Pacifi c Holdings and AXA
Receivables from subsidiaries amounted to €711 million, down from €2,065 million at end-2010. The decrease of €1,354 million resulted mainly from the reimbursement of the £730 million loan granted to the company Beaujon in 2010 and the repayment of AUD711 million of loans by AXA Asia Pacifi c
Other financial assets amounted to €4,117 million, versus €3,497 million in 2010, with the €620 million increase mainly attributable to margin calls paid to bank counterparties under collateral agreements linked to the management of derivative instruments which amounted to €3,972 million for the year ended 2011.
Tax receivables increased by €291 million owing to the €331 million carry-back receivable booked.
French tax consolidation group and €147 million of fi nancial income receivable.
Marketable securities totaled €49 million, a decrease of €151 million resulting from the termination of the liquidity agreement on AXA SA shares.
Cash and cash equivalents totaled €2,990 million representing an increase by €982 million, arising from the disposal of the
Liabilities Shareholders’ equity, before net income for the period and after the payment of dividends relating to the prior year, totaled €31,852 million. This represented an increase of €1,936 million, including rises of €1,592 million with respect to the aforementioned change in accounting method and €333 million through a capital increase reserved for employees.
Provisions for contingent liabilities amounted to €4,549 million, and mainly consisted of €1,840 million of currency risk provisions, €911 million for redemption premiums on subordinated bonds, €1,091 million in provisions corresponding to the mark-to-market revaluation of derivative instruments and €412 million in provisions for the possible repayment of tax savings to subsidiaries belonging to the
French tax consolidation group. The €880 million reduction results mainly from the reclassifi cation of €1,592 million of provisions for exchange-rate risks as shareholders’ equity, as a result of the change in accounting method, partly offset by allowances with respect to unrealized losses on derivatives.
■ Borrowings from and payable to banks totaled €5,712 million, representing a decrease of €63 million due to €20 million of Euro Medium Term Note redemptions and a €43 million decrease in outstanding commercial paper
following the merger into AXA SA, and to a €453 million partial reimbursement of a loan granted by AXA Versicherungen AG.
Unrealized foreign exchange gains amounted to €1,071 million in 2011, down from €1,190 million at
Code, disclosures related to the Company’s executive compensation appear in Part 2 - Section 2.2. “Full disclosure on executive compensation and share ownership”.
Supplier invoices to be paid at December 31, 2011 amounted to €10 million which €8 million are due within three months and €2 million are due between three and six months (application of Article D.441-4 of the French Commercial Code). At
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX (VI = III + IV + V) 2,971 2,522
III. NET INCOME FOR THE FINANCIAL YEAR VI + VII +VIII 8,649 (488)
2 - INCOME STATEMENT SUMMARY (IN EURO MILLION) - - - - a ) Gross revenues before sales tax 2,628 3,171 3,134 4,134 4,719 b) Pre-tax income from continuing operations, before depreciation, amortization and releases 1,420 1,561 1,568 2,529 2,992 d) Net after-tax income after depreciation, amortization and releases 1,765 (1,253) 3,953 (488) 8,649 3 - PER SHARE DATA (IN EURO) - - - - a ) After tax income, before depreciation, amortization and releases 1.08 0.90 1.25 0.69 3.98 b) After tax income, after depreciation, amortization and releases 0.86 (0.60) 1.73 (0.21) 3.67
(a) Since January 1, 2007, AXA‘s 2017 bonds can still be converted, but any dilutive impact created by the issuance of new shares resulting from the conversion of the bonds is neutralized by the automatic exercis e of call options on the AXA shares which have been put in place.
(b) Dividend of €0.69 per share proposed to the Shareholders‘ Meeting of April 25, 2012, based on 2,357,197,520 outstanding ordinary shares.
Wolfe Tone House, Wolfe Tone Street - DUBLIN 1 - Irland 40, rue du Colisée - 75008 PARIS
Meclisi Mebusan cadn° 15 - Salipazari 25, Boulevard du Souverain - 1170 BRUXELLES - Belgium 120-122, avenue Hassan II - 21000 CASABLANCA - Morocco
Cœur Défense - Tour B - La Défense 4 - 100 Esplanade du
Graadt van Roggenweg 500 - Postbus 30800 3503 AP UTRECHT - Netherlands
Gross Book Value of securities held 2) Participating interests (10 to 50%-owned)
AXA LIFE INSURANCE CORPORATION 6 43 45.00% 149 12/F Philippine Axa Life Center - Sen Gil Puyat Avenue, corner Tindalo St
a) in french companies (total) 39 b) in foreign companies (total) 105
will allow hedge accounting to be used for instruments used in a hedge relationship.
The change in method at January 1, 2011 regarding the hedge accounting rules to hedge foreign-exchange risk applicable to investments in subsidiaries and affi liates has been presented in introduction of this note.
Since January 1, 2005, AXA has applied regulations 200210 relating to depreciation and amortization of assets, as amended by CRC regulation 2003-07, and 2004-06 relating to the defi nition, recognition and measurement of assets.
In accordance to CRC regulation 2008-15, treasury shares are recorded in “Marketable securities”. At December 31, 2011, 979,168 shares were allocated to hedging purposes, representing €17 million.
Find below a summary of options and performances shares granted in 2011 and 2010 to Board of Directors paid by AXA
Securities are classifi ed using the following criteria: ■ investments in subsidiaries and affi liates are securities representing at least 10% of the share capital of the issuing company plus those which AXA deems held for the long term; ■ other fi nancial assets comprise securities representing less than 10% of the share capital and which are not investments in subsidiaries and affi liates.
The income statement distinguishes between ordinary operations and capital operations: ■ ordinary operations include dividends, revenues from other investments, fi nancial expenses, operating expenses and income from transactions in investments; ■ capital operations include gains or losses on the disposal of investments in subsidiaries and affi liates and portfolio management investments, impairment charges and reversals in respect of these securities and related receivables, gains and losses arising from exchange rate movements, charges and reversals of provisions for risks and charges, and exceptional income and expense; ■ disposals of investments in subsidiaries and affi liates are measured using the weighted average unit cost method.
AXA SA has issued two subordinated bonds: ■ 2.5% bonds, maturity January 1, 2014: 9,185,581 bonds with a par value of €165 and a redemption value of €230.88 were in circulation at December 31, 2011. The redemption premium amounts to €606 million; ■ 3.75% bonds, maturity January 1, 2017: 6,613,129 bonds with a par value of €165.50 and a redemption value of €269.16 were in circulation at December 31, 2011. The redemption premium amounts to €688 million.
The charge for the year ending December 31, 2011 amounted to €103 million, and the existing provision at December 31, 2011 is €911 million. The unamortized balance of €383 million was recognized as an off-balance sheet commitment.
AXA shares with an automatic exercise mechanism from a bank counterparty for a total cash amount equivalent to the payment proposed to bondholders. This €96 million premium is to be amortized over the residual ten-year term of the bond.
■ Equity derivative products: equity option rights paid or received are posted in a suspense account on payment or receipt of funds. At the balance sheet date, if the option has not been exercised, the rights received, representing possible income, are not recognized in the income statement.
Other fi nancial assets 41 36 22 55 3.4. Statement of receivables by maturity
(in E uro million) Gross value Less than 1 year 1 to 5 years More than 5 years
Miscellaneous receivables and currents accounts with subsidiaries 562 562 - 3. 5. Miscellaneous receivables and subsidiaries’ current accounts
Undated deeply Subordinated Notes (nominal) 6,120 - 110 6,230 3.11. Provisions for contingent liabilities
Provision for foreign exchange losses 3,560 - - 1,720 (b) 1,840
Amortisation of convertible bond redemption premiums 807 104 - - 911
Financing debt totaled €15,243 million as opposed to €16,166 million in 2010 mainly relating to the cancellation of €455 million of loans granted by the companies Colisée
AXA SA, and to a €453 million partial reimbursement of a loan granted by AXA Versicherungen AG.
(in E uro million) Value Less than 1 year 1 to 5 years
Other payables, including tax and social payables (b) 189 189 -
expense* Net income * A positive sign indicates tax benefi t.
Other commitments 13,229 1,468 of which fi nancial guarantees given to Group entities 7,929 696
ordinary shares. The number of shares held under this crossshareholding agreement is adjusted as needed to refl ect the impact of certain capital transactions, including, but not limited to: free allotments of stock or of exchange of stocks of the same company (stock splits, stock grouping, etc.). In addition, the agreement includes an option for each party to repurchase its shares in the event of a hostile change of control of the other party.
(1) A 100 bps rise in interest rates leads to a 2.5% decrease in the fair value of debt, a 2.3% decrease in the fair value of loans, and a 9.3% increase in the fair value of derivatives.
■ and because there are a number of possible ways to perform these calculations.
Affi liated companies (consolidated entities) (value net of provisions for impairment) (in E uro million)
None of the transactions operated by related parties, that are still outstanding at year end or that occurred during the course of the year, account for the distinctive characteristics of transactions to be disclosed in accordance with the ANC regulations n° 2010-02 and 2010-03 as made offi cial by the decision as of December 29, 2010 and announced in the Journal Offi ciel as of
To the Shareholders of AXA SA 25, avenue Matignon 75008 Paris
December 31, 2011 on: ■ the audit of the fi nancial statements of AXA SA, as attached to the present report; ■ the justifi cations of our assessments; ■ the specifi c verifi cations and information required under French law.
The on-going economic downturn and related uncertainties, the evolution of the fi nancial crisis as well as the development of the sovereign debt crisis of certain eurozone members (in particular Greece) continue this year to give rise to specifi c circumstances for the preparation of the fi nancial statements, in particular with respect to the accounting estimates.In the context of these economic and fi nancial uncertainties, and in accordance with Article L.823-9 of the French Commercial Code requiring Statutory Auditors to justify their assessment, we bring to your attention the following matters: ■ fi nancial assets are recorded using the methods applying to each category and described in paragraph 2.5 of the notes to the fi nancial statements.
■ in accordance with the policies described in paragraph 2.9 of the notes to the fi nancial statements, liabilities are recorded at the year-end for redemption premiums on convertible bonds issued by the Company whenever the prevailing stock price is lower than the discounted redemption value of the underlying note. We have assessed the reasonableness of the assumptions used for calculation, having regards the stock market volatility and the maturities of outstanding convertible bonds issued by the Company; ■ derivatives used by your Company are assessed pursuant to the rules contained in paragraph 2.12 of the notes to the fi nancial statements. We have checked that the implementation of a hedge accounting, as the case may be, was documented and that the effects of the change in accounting policy mentioned above were properly disclosed (notes 3.7, 3.9 and 3.11 of the annual fi nancial statements). In the other cases, we verifi ed that adequate provisions for the unrealized losses were recorded .
These assessments were made in the context of our audit of the fi nancial statements, taken as a whole, and therefore contributed to the formation of our opinion expressed in the fi rst part of this report.
Regarding the information provided in application of the provisions of Article L.225-102-1 of the French Commercial Code on the compensation and benefi ts paid to AXA executives as well as commitments made to them, we have verifi ed their consistency with the fi nancial statements or with the data underlying the preparation of the fi nancial statements and, if applicable, with the elements gathered by the Company from entities controlling the Company or controlled by the Company. On the basis of this work, we confi rm the accuracy and fairness of this information.
The Group EV is not an estimate of AXA’s “fair value”. It does not include the value of business to be sold in the future, nor does it include any value for future profi ts from existing business for other-than-life businesses.
The following information is an extract from, and should be read in connection with, the “Embedded Value 2011 Report” which is available on AXA Group website under Investor Relations/
Change in shares issued and treasury shares - 475 475 385
Life & Savings EEV is the sum of two elements: ■ “Adjusted Net Asset Value” (ANAV) which measures the current balance sheet wealth; ■ “Value of Inforce” (VIF) which measures the present value of future shareholder profi ts for the business currently in the portfolio, adjusted for the cost of holding capital that cannot be distributed while the business is in force.
Life & Savings IFRS shareholders’ equity with the following main adjustments: ■ addition of unrealized capital gains/losses not included in shareholders’ equity; ■ elimination of the value of intangibles; ■ elimination of unrealized capital gains/losses included in the projection of future cash-fl ows (VIF); ■ adjustment for the differences between AXA’s consolidated accounting basis and local regulatory bases.
Net unrealized capital gains/losses not included in IFRS shareholders’ equity 1,337
Life & Savings EEV is obtained by adding the Life & Savings VIF to the Life & Savings ANAV: (in E uro million - Group share) 2010 2011
“Life & Savings Annualized Premium Equivalent” (APE) is a measure of the new business volume which includes 100% of sales of regular recurring premium business and 10% of sales of single premium business. The “APE Margin” is the ratio of
Change on a comparable basis: at constant exchange rate, methodology and scope.
The following table presents a detailed analysis of the movement of the Life & Savings EEV between 2010 and 2011: (in E uro million - Group share) EEV 2010/2011
Modeling changes and opening adjustments of €964 million refl ects various refi nements, as well as the net impact of selling Australia & Zealand operations to AMP Group, and buying minority shares in Hong Kong and South East Asian entities. The proceeds of this operation are shown in the Other businesses segment of the Group EV.