Guardian Royal Exchange in Great Britain through its subsidiary Sun Life & Provincial Holdings (“SLPH”). The Guardian Royal Exchange acquisition allowed AXA to further establish its positions in both the United Kingdom and Germany.
In 2004, AXA purchased the American group MONY; this operation allowed AXA to reinforce by approximately 25% the capacity of distribution of AXA Life activities in the United States. In addition, AXA sold its insurance activities in Uruguay (AXA Seguros Uruguay) thereby finalizing its disengagement from South America; it also disposed of its broking activities (Unirobe) and its activity of health insurance in the Netherlands, and finally its activity of loan on real property in Germany (AXA Bausparkasse AG).
AXA also acquired “Citadel” in Canada, Thinc Destini in the United Kingdom, and MLC Hong Kong and Indonesia via her subsidiary company AXA Asia Pacific Holdings.
(k) Holding Company that owns AXA Sun Life Plc, AXA Insurance Plc and AXA PPP Healthcare Limited. (l) Holding Company that owns AXA Oyak Hayat Sigorta A.S. and AXA Oyak Sigorta A.S.
Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Sofibus Sofibus Sofibus Sofibus Chief Executive Officer and Director: Chief Executive Officer and Director: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Financière Hottinguer Financière Hottinguer, Crédit Suisse Hottinguer, Crédit Suisse Hottinguer, Chairman of the Supervisory Board: Intercom, Profinor Emba NV (Netherlands) Emba NV (Netherlands) Emba NV (Netherlands) Chairman of the Supervisory Board: Chairman: Chairman: Chairman of the Board of Directors: Emba NV (Netherlands) Hottinguer Capital Corp. (US) Hottinguer Capital Corp. (US) Hottinger Bank & Trust Limited Vice-Chairman: Gaspee (Switzerland) Vice-Chairman: Gaspee (Switzerland) Vice-Chairman: Gaspee (Switzerland) (Nassau, Bahamas) Chief Officer of the Board of Directors: Managing Partner: Managing Partner: Chairman: Hottinger & Co., Bale Hottinger Finanz & Treuhand (Switzerland) Hottinguer & Cie (Zurich) Hottinguer & Cie (Zurich) (Switzerland) Director or member of the Supervisory Senior Chief Officer and Director: Senior Chief Officer and Director: Vice-Chairman: Gaspee (Switzerland) Board: FINAXA, Hottinguer Financière Hottinguer, Intercom Intercom Chief Officer of the Board of Directors: International Fund (Luxemburg), Director or member of the Supervisory Director or member of the Supervisory Hottinger Finanz & Treuhand (Switzerland) Hottinguer International Asset Board: FINAXA, Hottinguer Board: FINAXA, Director or member of the Supervisory Management (Luxemburg) International Fund (Luxemburg), Investissement Provence SA, Hottinguer Board: Intercom, Hottinger Non-voting member of the Board: Hottinguer International Asset International Fund (Luxemburg), International Fund (Luxemburg), Didot Bottin Management (Luxemburg), Hottinguer International Asset Hottinger International Asset Swiss Helvetia Fund Inc., Management (Luxemburg), Management (Luxemburg) Hottinguer US, Inc. Swiss Helvetia Fund Inc., Non-voting member of the Board: Non-voting member of the Board: Hottinguer US, Inc.
Chairman of the Board of Directors: Chairman: Suez Environnement, Chairman: Suez Environnement, Chairman: Suez-Tractebel (Belgium), Chairman: Suez Energie Services, Suez-Tractebel (Belgium), Suez-Tractebel (Belgium), Hisua (Spain) Société Générale de Belgique (Belgium), Suez Environnement, Electrabel (Belgium) Electrabel (Belgium) Vice-Chairman: Sociedad General de Tractebel (Belgium) Suez-Tractebel (Belgium) and Vice-Chairman: Hisusa (Spain), Vice-Chairman: Hisusa (Spain) Aguas de Barcelona (Spain) Vice-Chairman: Hisusa (Spain), Electrabel (Belgium) Sociedad General de Aguas de Sociedad General de Aguas de Director or member of the Supervisory Sociedad General de Aguas de Vice-Chairman: Hisusa (Spain) and Barcelona (Spain) Barcelona (Spain) Board: Barcelona (Spain) Aguas de Barcelona (Spain) Director or member of the Supervisory Director or member of the Supervisory Crédit Agricole S.A., Director or member of the Supervisory Director or member of the Supervisory Board: Board: Compagnie de Saint-Gobain, Taittinger, Board: Board: Compagnie de Saint-Gobain, Crédit Agricole S.A., Pargesa Holding S.A. (Switzerland), Crédit Agricole S.A., AXA, Saint-Gobain and Pargesa Holding S.A. (Switzerland) Compagnie de Saint-Gobain, Taittinger, Electrabel (Belgium) Compagnie de Saint-Gobain, Taittinger, Pargesa Holding S.A (Switzerland) Pargesa Holding S.A. (Switzerland) Pargesa Holding S.A. (Switzerland)
Member of the Supervisory Board: Director: Essilor Member: Advisory Board de ING Direct Vice-Chairman: AXA Member: Advisory Board of ING Direct and Coca-Cola Enterprises – Groupe Europe Member: Advisory Board of ING Direct and of the Executive Committee of the MEDEF of the Executive Committee of the MEDEF
Member of the Supervisory Board: Member of the Supervisory Board: – – AXA, representing the employee AXA, representing the employee shareholders shareholders
Dentressangle, the family-owned holding company which, in addition to a majority stake in the Norbert
Board on appointments to the Supervisory Board or the Management Board, including their respective Chairmen and Vice-Chairmen, as well as on all appointments to the Supervisory Board’s special-purpose Committees, including their respective Chairmen; – also makes suggestions to the Supervisory Board regarding the succession plan of the Management Board members, and is informed of the succession plans of the Group’s main managers; – is notified of the appointments of AXA’s main executive officers, in particular members of the Executive Committee; – is notified of AXA’s strategy in terms of Human Resources management.
Christopher Condron Member of the Management Board, President and Chief Executive Officer of AXA Financial, Inc. (United States)
– capitalize on local best practices, knowledge and expertise in marketing, service and distribution quality to step up the pace of their broader adoption within the Group.
Evaluation and Testing of Internal Controls Each year the Group conducts a review of its internal controls over financial reporting and its disclosure controls and procedures as part of an internal due diligence process. It has been designed to support annual certifications required to be filed with the United States Securities and Exchange Commission (SEC) by AXA’s Chief Executive Officer and Chief Financial Officer under Section 302 of the US Sarbanes Oxley Act (SOX). AXA is subject to Sarbanes-Oxley as a result of its listing on the New York Stock Exchange. The Group has been
The internal audit profession has its own international organization, the Institute of Internal Auditors (IIA), which has drawn up a set of international standards governing practice. These standards have been recognized by regulators and adopted by the Group Internal Audit Department. They are now progressively adopted by local internal audit teams.
In late 2005, the CNIL (Commission Nationale de l’Informatique et des Libertés) adopted and published guidelines on whistle-blowing hotlines that set forth its position on the matter. AXA conducted a review of its own major incident reporting system to ensure compliance with the CNIL guidelines.
In our capacity as Statutory Auditors of AXA SA, and in compliance with the requirements of the Article L.225-235 of the French Commercial Code we hereby submit our report on the report prepared by the Chairman of the Supervisory Board of your Company in conformity with the terms of Article L.225-68 of the aforementioned Code, for the year ended
On the basis of these procedures, we have no matter to report in connection with the information contained in the report of the Chairman of the Supervisory Board, which was prepared in accordance with the requirements of the Article L.225-68 of the French Commercial Code, relating to the internal control procedures applied within the Company in connection with the preparation and treatment of accounting and financial information used to establish the consolidated financial statements in accordance,with IFRSs, as adopted by the European Union.
Substantial differences in the tax systems to which AXA’s executive officers are subject make meaningful comparisons of the compensation and benefits they earn difficult. For information, the relevant marginal tax rates are as follows: Australia: 46.5% including an additional 1.5% for Medicare; Belgium: 53.50%; the United States (New York): 41.85%; Spain: 45%; France: 51%, including an additional 11% for social taxes; the United Kingdom: 40%; Singapore: 20%.
In 2006, AXA stock option grants were as follows: – 11,425,312 subscription options at an average price of €28.49 granted to 4,325 employees, representing 0.55% of the share capital,
77,037,416 AXA subscription options and 26,778,265 ADR purchase options, together representing 4.97% of the share capital, were outstanding on December 31, 2006.
(adjusted price) at 31/12/2006 not granted as at 31/12/2006 50% – 22/01/2000 75% – 22/01/2001 100% – 22/01/2002 50% – 22/01/2000 75% – 22/01/2001 100% – 22/01/2002 50% – 10/09/2000 75% – 10/09/2001 100% – 10/09/2002 50% – 30/09/2000 75% – 30/09/2001 100% – 30/09/2002 50% – 20/04/2001 75% – 20/04/2002 100% – 20/04/2003 50% – 20/04/2001 75% – 20/04/2002 100% – 20/04/2003 50% – 07/05/2001 75% – 07/05/2002 100% – 07/05/2003 50% – 26/05/2002 75% – 26/05/2003 100% – 26/05/2004 50% – 26/05/2002 75% – 26/05/2003 100% – 26/05/2004 50% – 09/06/2002 75% – 09/06/2003 100% – 09/06/2004 50% – 09/06/2002 75% – 09/06/2003 100% – 09/06/2004 50% – 18/11/2002 75% – 18/11/2003 100% – 18/11/2004 66% – 05/07/2003 100% – 05/07/2004 50% – 05/07/2003 75% – 05/07/2004 100% – 05/07/2005 50% – 12/07/2003 75% – 12/07/2004 100% – 12/07/2005 66% – 13/11/2003 100% – 13/11/2004
A second performance unit plan was launched on March 29, 2005 and 938,880 performance units have been initially granted to 1,707 beneficiaries outside France.
– – 48,546 21/04/2007 – – – 19,419 21/04/2007 – – 10,887 21/04/2007
The Chairman of the Management Board has one year, and the other members of the
2006 Share capital reduction (through the cancellation of shares) following the merger of FINAXA into AXA – 337,490,816 – 5,379,990,858 1,869,195,640 4,280,458,016
Number of shares % of share capital Par value Book value (in euros) (in euros)
Table of transactions made during the previous share buyback program (until February 28, 2007)
Winterthur Integration/Chief Executive Officer appointments in the Mediterranean and Japan Asia Pacific regions (10/02/2006)
The diversification of the AXA operations is key to improve its efficiency. Operating in different segments, AXA benefits from the mutualization effect of different natures of risk exposure. For instance, mortality risks are partly offset by longevity risks, insurance risks by financial risks. In addition, geographic diversification of localized risk reduces the volatility of claims experience, thus limiting the cost of economic capital needed to support the solvency of the AXA Group.
The table below sets forth AXA’s consolidated gross revenues by segment for each of its major geographic markets for the years indicated: BREAKDOWN OF AXA’S GROSS REVENUES At December 31,
As a result, AXA has developed and will continue to develop local answers in response to the needs of its customers taking into account the current local business environment.
– Disability products, which pay a benefit in case of disability. The benefit can be a lump sum, or a percentage of the income paid over a specified period of time.
New products and Commercial successes To attract and retain clients, especially in the strategic segments identified, AXA has developed new solutions to meet the needs of the targeted customer groups. In addition, new products have been designed to support AXA’s cross-selling strategy and thus improve client retention and enhance value for the clients. Recently, a range of successful or innovative products was launched in AXA’s main markets. Some of them are adaptations to the local context of successful experience abroad such as “Twinstar” in Germany derived from the US Accumulator product which is a variable annuity product with enhanced guarantee features.
(1) Souce: ABI (Association of British Insurers). (2) Source: AXA, in 2006.
Total surrenders and lapses for 2006, and the ratio of surrenders and lapses to gross surrenderable insurance reserves at the beginning of the periods indicated are presented below: Years ended December 31,
PROPERTY & CASUALTY SEGMENT Gross revenues Gross Years ended December 31, insurance
(a) Proforma 2004 takes into account the impacts of the following change in scope: – In United Kingdom, the right to renew UK Personal Direct business was sold to RAC in October 2004. In 2004, revenues from this activity amounted to €110 million. – In Others countries, as of January 2005, Turkey, Hong Kong and Singapore are fully consolidated instead of being accounted for under the equity method. If full consolidation had been applied in 2004, other countries 2004 revenues would have been €487 million higher. – As of December 1, 2004 the Netherlands disability activity has been transferred from Life & Savings to Property & Casualty. Other countries 2004 P&C revenues would have been €76 million higher if disability had been included.
In Southern Europe, the operational model is based on a shared factory for product development. Products are sold across a variety of distribution channels, both exclusive and non-exclusive. In Portugal, with the acquisition of Seguro Directo, call centers were optimized and new technological tools were introduced, to optimize the quality of service and to ease the evolution of the processes.
For the ten-year loss development of AXA’s International Insurance liabilities, see Note 14 included in the financial statements.
loss control engineering resources to better meet client needs for risk management. To respond to client expectations outlined in a survey conducted in 2006, AXA Corporate Solutions Assurance has launched a specific program called “Commitment to clients” to improve quality of service with an objective of operational excellence.
(a) Based on estimated fair value at the dates indicated. Assets under management presented in this table are based on asset management companies only; AXA Group (including insurance companies) assets under management amounted to €1,315 billion (of which €104 billion linked to Winterthur), €1,070 billion and €871 billion as of
Financing debt instruments issued The parent company’s financing debt instruments issued (excluding accrued interests) totaled €2,568 million at December 31, 2006, an increase of €1,332 million compared to 2005 principally due to €1,350 million relating to commercial paper issued at the end of the year, mainly to finance the Winterthur acquisition and future restructuring plans.
The Group’s risk management structure is mainly based around two entities: the Group Risk Management (GRM) department and AXA Cessions.
• In the UK, surrender options on guaranteedrate annuities are monitored through specific analyses and partially covered by interestrate options.
The purpose of the policy is therefore to protect the value of AXA’s net foreign-currency investments in its subsidiaries and thus Group consolidated shareholders’ equity against currency fluctuations. It is also designed to protect other key indicators such as adjusted net asset value, European embedded value and solvency ratios against such fluctuations.
– AXA remains constantly vigilant regarding contractual documentation clauses that may be binding on the Group. This helps AXA limit its exposure to default or early repayment clauses that may have a material adverse effect on its consolidated financial position.
– International insurance business (3% of Group assets): In the course of its business, AXA Corporate Solutions Assurance carries insurance liabilities, some of which are denominated in foreign currencies, particularly the US dollar and, to a lesser extent, pound sterling. The congruence between the company’s foreigncurrency assets and liabilities is regularly adjusted, but is subject to unpredictable loss occurrence and the corresponding movements in reserves. AXA Corporate Solutions Assurance also has some Swiss franc-denominated investments.
At December 31, 2006, the main hedging positions were as follows: • $11.1 billion in respect of the US Life &
After analysis work, the Group’s various operating subsidiaries place their reinsurance requirements with AXA Cessions. However, only a small part of most treaties is placed directly in the natural catastrophe reinsurance
These tools allow GRM to ensure compliance with limits. The ALM Co-ordination Committee is regularly kept informed of the work performed.
AXA is also subject to regulations pertaining to the additional supervision of insurance groups. As such, the Group computes an adjusted solvency margin based on its consolidated financial statements, which must be submitted annually to ACAM.
Philips Several subsidiaries of the Group are currently involved in a litigation in the Netherlands and in the US, in relation with asbestos related claims made by Philips (on behalf of one of its US subsidiaries) under its worldwide liability program. Certain insurance companies taking part into this program (including some AXA and Winterthur entities) seek the cancellation of this program for misrepresentation claiming that Philips failed to disclose information material to the program and, in particular, the fact that one of its subsidiaries distributed asbestos. Following the acquisition of Winterthur, the
CAUTIONARY STATEMENTS CONCERNING THE USE OF NON-GAAP MEASURES AND FORWARD-LOOKING STATEMENTS
helped to develop comprehensive motor insurance market as well as insurance solutions for renting. The on-going development of nonmotor insurance lines, such as household, private health cover, accidents, compensated the lower growth in motor. In Italy, market 2006 forecast in P&C (ANIA Source) shows a +2.7% gross written premiums increase (motor +1%, property +5%, health +6,6%). In Portugal, insurance activity has been facing an unfavorable economic environment. Portuguese economy has passed through a declining trend in the recent years, reaching recession in 2003. Since then, the recovery seems fragile. The new relevant legislation on clams handling, premium collection, agents’ law or discrimination against disease or deficiency should have significant impacts on insurance activity. In Spain, AXA is placed as 3rd market player, in Italy, AXA is ranked 9th on the market, and in Portugal, AXA is ranked 2nd with a 9% market share, after the integration of Seguro Directo, purchased at the end of 2005.
On the credit side, sustained growth, low volatility, solid credit quality and buoyant technical elements all helped to boost corporate bonds, which ended the year up by 5% on average.
AUM increased by €53 billion to €485 billion mainly driven by €35 billion positive net inflows, mainly from third-party institutional and retail clients, and €20 billion favorable market impact, partly offset by €–4 billion foreign exchange rate impact.
OPERATING INCOME GROSS OF TAX EXPENSE 6,423 4,772 4,651 4,406 4,262
2004 Transfer of foreign TSDI 2004 Published exchange impact reclassification Restated (b)
(ii) German holdings (€+48 million to €29 million) mainly due to the tax refund following an industry wide change in tax legislation in 2006.
– €22 million related to the first consolidation of Malaysia P&C (€13 million), the price supplement on the disposal of Health portfolio to Achmea in the Netherlands P&C (€7 million) and €2 million tax credit on 2005 Nationwide settlement in AXA France Assurance.
Expenses increased by €90 million to €–1,680 million mainly due to increased commissions (€+52 million to €–749 million), and €31 million higher general expenses mainly due to salaried sales force and IT costs.
Net technical margin increased by €2 million, or by €8 million on a constant exchange rate basis to €634 million. This increase was notably attributable to (i) €79 million higher “GMDB/IB” margins, and (ii) €26 million favorable benefits and reserves in the reinsurance assumed and individual health product lines, partially offset by (iii) lower life mortality margin (€–54 million),
– Health (23% of gross revenues excluding conversions): Revenues increased by 1%, or 6% on a constant exchange rate basis (€+63 million), to €1,039 million driven by good retention and strong sales in the last quarter.
Adjusted earnings group share 320 141 173 Profit or loss on financial assets (under FV option) & derivatives (10) (11) 19
Underlying operating earnings before tax 68 64 61 Income tax expenses / benefits (18) (20) (19)
– expenses (including VBI amortization) were up €–52 million to €–499 million, reflecting higher commissions associated with increased fees and revenues,
Net income rose by €3 million to €7 million in line with adjusted earnings.
AXA France Vie) was offset by higher income on fixed maturities.
– Commercial Lines (49% of the P&C premiums) were up 4.5% on a constant exchange rate basis reflecting growth in Commercial Property and Health. Growth of 9.5% in Property on a constant exchange rate basis is mainly attributable to delegated authority new business deals in the UK. Growth of 7.1% in Health is mainly due to UK and International SME business.
Income tax expenses increased by €72 million on a current exchange rate basis (€+71 million on a constant exchange rate basis) reflecting the improvement in the pre-tax result and 2005 included a €51 million tax benefit.
Please note that from 2006 on, the run-off portfolio of AXA Germany is reported under International Insurance Business. In 2005, AXA Germany P&C underlying earnings included €8 million corresponding to this portfolio.
Gross revenues decreased by 1% to €2,759 million. On a comparable basis, gross revenues increased by 1% (excluding the sale of DARAG retroactive as at January 1, 2006 and excluding the run off portfolio).
Net technical result 789 713 661 Expense ratio 23.6% 23.5% 23.4%
– The prior year net technical result decreased by €9 million to €70 million.
Expense ratio was almost stable at 23.6%. Administrative expense ratio excluding commissions improved by 0.3 point to 4.9% benefiting mainly from lower preretirement costs, especially in Portugal.
Adjusted earnings increased by €25 million on a constant exchange rate basis to €126 million in line with underlying earnings.
Underlying earnings group share 84 72 72 50 Net capital gains attributable to shareholders net of income tax 32 20 30 46
Net technical result increased by €18 million to €207 million: – The current accident year net technical result increased by €10 million to €177 million reflecting a positive volume impact combined with a lower net loss ratio in Property.
Underlying earnings were up €6 million to €15 million mainly reflecting (i) a higher net technical result and (ii) a higher net investment income partly offset by (iii) an increase in general expenses.
ADJUSTED EARNINGS 509 402 402 302 Profit or loss on financial assets (under FV option) & derivatives 10 10 11 2
Adjusted earnings increased by €57 million to €303 million or by €59 million on a constant exchange rate basis driven by higher underlying earnings and lower net capital gains (€–5 million).
Net income decreased by €401 million to €–584 million mainly due to adjusted earnings evolution as well as: – a €–404 million change in the mark-to market of interest rate derivative instruments not considered as hedge accounting, mainly due to: (i) €–174 million related to interest swaps denominated in Euro covering the long term interest risk of long term debts due to the increase of Euro interest rate during
(primarily change in scope, including integration costs related to a newly acquired company during the considered full year accounting period).
The Statement of Income referred here-after and presented page 17 of the current document is based on an underlying basis.
(ii) Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income.
(h) As described in note 1.12.2, the adoption of FRS 27 in the United Kingdom has led to adjustments on all periods presented. The effect of these adjustments is set out in note 14. (i) As at January 1, 2006, liabilities relating to securities sold under repository agreements in the Belgian banking business have been presented as payables resulting from banking operations instead of debt instruments in issue (other than financing debts) and bank overdrafts. The amount concerned at December 31, 2006 was €3,885 million. (j) As described in note 1.11.2, perpetual subordinated notes have been reclassified under shareholders’ equity for all periods presented. Details are provided in note 13. (k) Including Winterthur, please refer to note 5.
Disposal of subsidiaries and affiliated companies, net of cash ceded 117 891 856
(a) The “Cash and cash equivalents” balances shown in the statement of consolidated cash flows do not include cash balances of consolidated investment funds from the Satellite Investment Portfolio (see note 1.7.2). However, from December 31, 2006, cash backing contracts where the financial risk is borne by policyholders (unit-linked contracts) is regarded as a “Cash and cash equivalents” item instead of a financial asset item. The reclassification of this cash under “Cash and cash equivalents” is presented in “Effects of exchange rate variations and reclassifications on cash and cash equivalents” in an amount of €6.7 billion (corresponding to the reclassification of opening cash) and in “Purchase of shares in subsidiaries and affiliated companies, net of cash acquired” in an amount of €1 billion (corresponding to the integration of Winterthur).
Cash and cash equivalent as at December 31 27,790 20,640 21,830
Impact of transactions with shareholders (36,839) 2.29 (84) (909) (272) Reserves relating to changes in fair value through shareholders’ equity
The Group elected for early adoption in 2004 and 2005 of the amendment to IAS 39 – Financial instruments: recognition and measurement relating to the fair value option,
price and (iii) to recognize the difference as an addition to goodwill. Similarly, subsequent changes in the liability will be recorded against goodwill.
1.6.2. Value of purchased life insurance business inforce (VBI) The value of purchased insurance contracts and investment contracts with discretionary participating features recognized in a business combination (see section 1.3.2) is amortized as profits emerge over the life of the contracts portfolio. In conjunction with the liability adequacy test (see section 1.12.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions.
The Group classifies its insurance and investment contracts into six categories: – liabilities arising from insurance contracts, – liabilities arising from insurance contracts where the financial risk is borne by policyholders,
– liabilities arising from investment contracts with no discretionary participating features,
1.15. Other liabilities 1.15.1. Income taxes The current income tax expense (benefit) is recorded in the income statement on the basis of net amounts estimated to be payable (or recoverable) in relation to taxable operations recorded during the year and based on the local tax regulation.
A deferred tax liability is recognized for any taxable temporary difference relating to the value of shares in a consolidated company held, unless the Group controls at what date the temporary difference will reverse and it is probable that the temporary difference will not reverse in the foreseeable future. If a group company decides to sell its stake in another consolidated entity, the difference between the carrying value and the tax value of these shares for the company that holds them leads to the recognition of a deferred tax asset or liability (including as part of a business combination when the Group as the buyer intends to sell or carry out internal restructuring of the shares following the acquisition). The same approach applies to dividend payments that have been voted or deemed likely, to the extent that a tax on dividends will be due.
The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact, at the balance sheet date.
AXA China Region Limited (including MLC Hong Kong) Acquisition of MLC 100.00 52.69 100.00 52.95
Japan AXA Group Life Insurance Merger with AXA Life Insurance Japan – – 100.00 97.59
Holdings Companies Change in scope Voting Ownership Voting Ownership rights interest rights interest The Netherlands
(a) Including cash and cash equivalents, deposits and guarantees, various debtors and assets covering employee benefit liabilities.
Assets held for sale and from discontinued operations 62 – – – – – – 62
Unearned revenues and unearned fees reserves (c) 1,570 – – – – – – 1,570
Change in unearned premiums net of unearned revenues and fees (249) (142) (84) – – – – (476)
Change in unearned premiums net of unearned revenues and fees (131) (250) 318 – – – (41) (104)
Change in goodwill impairment – (29) (7) – – – – (36)
Please refer to pages 162 to 163, “Risk factors” section, except for the breakdown of CDSs by underlying bond rating on page 163.
(a) Includes €71 million relating to put options held by minority shareholders of Winterthur’s former subsidiaries in Central Europe and excluding €133 million of goodwill related to the US Property & Casualty business held for sale (see below in this note).
The retrospective computation of Winterthur’s consolidated net income takes into account: – the exclusion of net income from the US
Assets and liabilities held for sale In June 2006, when AXA announced the acquisition of Winterthur, the group also stated its
Impacts on VBI of changes in scope and portfolios transfers 2,575 – 694 VBI capitalization 7 8 –
(a) Applicable to Life & Savings insurance contracts and investment contracts with discretionary participation features according to IFRS 4. Amounts net of accumulated amortization.
Impact of changes in scope and portfolios transfers – – – – – – Amortization and impairment for the period (c) (d) (1,961) (92) (1,648) (60) (973) (47)
Fixed maturities available for sale 241,258 241,258 41.40% 5,645 5,645 34.64% 246,903 246,903 41.22%
Equity securities at fair value through profit and loss (c) 22,050 22,050 3.78% 123 123 0.75% 22,173 22,173 3.70%
Macro hedge and speculative derivatives (209) (209) – 198 198 1.97% (11) (11) –
OTHER ACTIVITIES December 31, 2006 Amortized Fair value Net book Unrealized Unrealized cost (a) value (b) gains losses Fixed maturities available for sale 5,697 5,645 5,645 5 57
The integration of Winterthur increased the total amount of bonds on the balance sheet by €55,315 million. The increase related mostly to bonds issued by foreign governments (€12,594 million), by French and foreign local administrations (€5,136 million), by public and semi-public entities (€10,104 million), by private-sector entities (€22,673 million) and mortgage-backed bonds (€4,130 million).
Sub-total fixed maturities – 5 8 14 Loans at amortized cost 1 1 2 3
Fixed maturities held by controlled investment funds (b) – – – –
Loans at fair value through profit and loss (a) – – – 1
Sub-total: Equities held directly 20,264 6,755 4,224 Equities held by controlled investment funds (a) 2,324 385 347
Non controlled investment funds at fair value through profit and loss mainly holding equity securities 628 155 782
and revaluation but before and revaluation but before to fair value (a) revaluation to to fair value (a) revaluation to fair value (b) fair value (b)
PT AXA Mandiri Financial Services – – 2 – 3 6
AXA Oyak (3 Turkish entities) 71 – – – (71) –
The Winterthur group’s receivables totaled €2,173 million at December 31, 2006.
Premiums earned but not written 1,895 – 1,895 1,895 1,883 – 1,883 1,883 1,526 1,526
Savings Casualty Insurance Future policy benefit reserves Life & Savings (d) 252,660 – 285 252,946
Liabilities arising from investment contracts with discretionary participating features 32,599 – 32,599 Of which measured at current market assumptions (b) – – – Future policy benefit reserves 1,120 – 1,120
Liabilities arising from investment contracts with no discretionary participating features 1,121 – 1,121 Future policy benefit reserves 66,927 541 67,467
However, these contracts must be treated in accordance with IAS 32 with regards to the disclosures to be provided in the notes to Financial Statements. IAS 32 requires the reporting of fair value or value ranges for these contracts, unless the Company cannot reliably measure the participating features.
Other provisions for risks and charges totaled €1,010 million including €409 million related to Winterthur subsidiaries, notably within the scope managed by AXA LM Switzerland. These provisions concern management of run-off portfolios, reinsurance agreements or businesses sold in the past, mostly related to activities of Winterthur’s former Closed Portfolio Management. €174 million of provisions have been taken in Switzerland for risks related to the Winterthur Life branch in Taiwan.
Note 16: Financing debt 16.1. Financing debt by issuance (in Euro million)
Other puttable instruments held by minority interest holders, excluding Winterthur’s contribution, totaled €1,003 million at 2005 and €494 million at December 31, 2004). They represent the put option granted to minority shareholders of Sanford C. Bernstein. Put options held by the minority shareholders of former Winterthur subsidiaries (€121 million) concern entities in central Europe.
Derivatives on other issued debt (other than financing debt) – CDO (Collateralized Debt Obligations) – – –
Vendome Commerce: AFET Amortizing mortgage loan based on EURIBOR 3 month + 1.45 point, maturity date: 2011 214 – –
– A €296 million decrease in AXA Bank Belgium’s debt as part of its liquidity management in banking activities.
The fair value option is used to measure debt other than financing debt designated as at fair value through profit and loss included in the table above. The increase in debt measured at fair value through profit and loss is mainly due to the consolidation of Holland Homes, a special purpose entity created by Winterthur to securitize excess mortgage loans granted by DBV Life Netherlands.
Total net deferred tax assets / (liabilities) (3,580) 37 660 55 (876) (3,705)
Note 4 to the financial statements refers to risk management within the Group, and describes its main principles and guidelines. In general, derivatives are used by the various entities and by the Company for economic hedging purposes, with the exception of certain credit derivatives. However, the notion of hedge accounting within the meaning of IAS 39 only applies to a small portion of derivatives used by the Group. The overall objectives of the economic hedging implemented by AXA are described briefly below, along with details of any items that qualify for hedge accounting in the meaning of IAS 39.
The notional amounts of swaps used in fair value hedge relationships totaled €5,117 million as at December 31, 2006, including €1,685 million for the Company to hedge its foreign currency financing debts, €1,708 million for AXA Japan (mainly including €1,106 million of interest rate swaps and €602 million of equity swaps), and €937 million for AXA Bank Belgium.
Swaptions represented 16% of the total notional amount of options as at December 31, 2006, mainly in the Winterthur entities (€5,212 million, principally in Switzerland, and including €2,089 million used to hedge the risk of reinvestment by the Swiss Individual Life & Savings business), in Belgium to hedge against a fall in rates in the general fund and the private sector fund (€1,565 million and €800 million respectively) and against the risk of customer loss following an increase in rates in separate funds (Crest for €721 million), and in Germany (€1,500 million).
Macro hedge derivative instruments on insurance and investment contracts (liabilities) – – (13) –
(a) Includes all acquisition expenses relating to insurance and investment contracts before capitalization/amortization of deferred acquisition costs and equivalents. (b) Claims handling expenses are included in the “Technical charges relating to insurance activities” profit & loss caption. (c) Investment management expenses are included in the “Net investment income” profit & loss caption. (d) Amount detailed in note 25.
DECEMBER 2004 ASSUMPTIONS Europe North America Japan Other Pension benefit obligation – assumptions at end 2004
Benefits directly paid by the employer (128) (115) (104) – – – Impact of foreign currency fluctuations (268) 513 (199) (66) 113 (39)
Impact of foreign currency fluctuations 28 135 (14) – – –
Net transfer of separate assets to plan assets 155 82 (3) – – –
The table below shows the change in the SORIE component between January 1, 2004 and December 31, 2006 due to adjustments arising on plan liabilities and adjustments arising on plan assets.
Interest rate on employee loan 7.37% 7.37% 7.16% 7.62% 7.01% 7.34%
25.3.2. Share-based compensation instruments issued by local entities Only those plans that are material at Group level are described below.
– Share-based compensation: the expense recognized in 2005 in respect of share-based compensation granted to Management Board members was €11.1 million.
In 2006, earnings per share calculation was as follows: (in Euro million) (c)
NET INCOME GROUP SHARE A 5,085 4,318 3,793 Weighted average number of ordinary shares (net of treasury shares) – opening 1,855 1,921 1,782
In 2006 the Company was party to the following transactions with related parties which may be deemed to have been material to AXA or the related party in question or unusual in their nature or conditions.
– Financing commitments to credit institutions (€667 million excluding Winterthur’s contribution), mainly comprising financing guarantees (less than €20 million each) granted by AXA Equitable to various partners (€530 million) and a guarantee relating to loans granted to French general agents (€74 million). These commitments increased by €582 million in 2006 following a reclassification of guarantees granted by AXA Equitable as financing commitments
– The release of €286 million in provisions for exchange-rate risk primarily as a result of appreciation in the euro against the US dollar, compared with a €226 million allowance during the previous year.
Investments in subsidiaries net of valuation allowances, totaled €46,756 million, versus €37,428 million at end-2005, representing an increase of over €9 billion.
– debts due to Group entities increased by €761 million to €1,952 million primarily as a result of new loans granted by AXA Life Japan, €510 million, and AXA Re Finance, €344 million, and repayments made to AXA France Iard and AXA France Vie by €150 million,
Cœur Défense - Tour B - La Défense 4 - 100 Esplanade du Général de Gaulle 92932 PARIS LA DÉFENSE
Adjusted opening Life & Savings EEV 13,200 17,334 30,534 Total Return on Life & Savings EEV 2,316 3,747 6,063
Adding the Life & Savings VIF to the Life & Savings ANAV completes the Life & Savings EEV.
Underlying Return on Life & Savings EEV of €3,752 million is the combination of the New Business Value and the underlying performance from existing business as just outlined. It represents 12% of the Opening Life & Savings EEV.
Total Return on Life & Savings EEV before currency effects and capital flows of €6,063 million combines the Underlying Return with the Investment impacts. It represents 20% of the Opening Life & Savings EEV.
– Belgium (including AXA Bank Belgium) (c) 4,814 4,787 4,787 4,606