This Registration Document, the French version of which was filed with the French Autorité des marchés financiers (“AMF”) on March 11, 2019, in accordance with the provisions of Article 212-13 of its General Regulation (the “Registration Document”), may be used in support of a financial transaction if supplemented by a securities note approved by the AMF. This document has been prepared by the issuer, and its signatories are responsible for its content.
The Group’s consolidated financial statements and related notes are prepared in accordance with International Financial Reporting Standards (IFRS) (the “Consolidated Financial Statements”) and published in Euro (“Euro”, “euro”, “EUR” or “€”). Unless otherwise stated, all amounts in this Annual Report are (i) expressed in Euro, with applicable foreign exchange rates presented on page 33 of this Annual Report, and (ii) presented in millions for convenience. Such amounts may have been rounded. Rounding diff erences may exist, including for percentages.
– more than €100 million in non-renewed premiums – reflects our conviction that the climate emergency and energy transition are everyone’s responsibility.
I would finally like to thank all our employees, agents, and partners and appreciate their contribution to the realisation of our ambition; they are AXA’s image and beating heart across the world.
WE GENERATE PROFITS through our insurance business and invest them on behalf of our company and our customers, acting as a responsible investor.
• AXA Art (insurance activities); ■ United States (insurance activities, AB and holdings); ■ International, consisting of: • 14 countries* within Europe, Middle East, Africa & Latin America, mainly including Turkey, Mexico, Morocco, Czech Republic & Slovak Republic and Luxembourg (insurance activities and holdings),
The table set out below is only a summary. You should read it in conjunction with the Consolidated Financial Statements for the year ended December 31, 2018 included in Part 5 – “Consolidated Financial Statements” of this Annual Report.
(f) Proposal to be submitted to the Shareholders’ Meeting to be held on April 24, 2019. T he gross amount of dividends will be subject to a unique withholding tax liquidated at an overall rate of 30%, unless in case of express and irrevocable option for the progressive scale on income tax which would then apply to all capital income paid in 2019. The option for the progressive scale would give right to the 40% tax relief pursuant to paragraph 2° of Article 158.3 of the French General Tax Code, i.e. €0.54 per share for fiscal year 2018.
Acquisition of HSBC’s Property & Casualty operations in Hong Kong and Singapore.
Initial public off ering (“IPO”) of the US subsidiary, AXA Equitable Holdings, Inc., on the New York Stock Exchange.
(a) Net of intercompany eliminations. (b) Restated: as per the new governance.
AXA distributes its insurance products through exclusive and non exclusive channels that vary from country to country, including exclusive agents, salaried sales forces, direct sales, banks and other partnerships (e.g. car dealers), brokers, independent financial advisors and aligned distributors or wholesale distributors.
In 2017 and 2018, AXA accelerated the development of Parametric products by launching AXA Global Parametrics, a subsidiary that acts as the AXA Group’s center of excellence for Parametric business. The Parametric line of business off ers innovative products based on the use of a parameter correlated to a client’s damages or losses. A wide variety of risks can be covered through parametric insurance, such as adverse weather aff ecting businesses or causing crop losses.
In the United States Property & Casualty insurance sector, net premiums written experienced the highest year-over-year increase in the past decade mainly driven by a continued expansion of the clients base in both personal and Commercial lines, supported by an upbeat economic climate with a 50-year low unemployment rate, high consumer spending and strong GDP growth. In terms of technical result, the year was split in two distinct periods, as insurers experienced a welcomed relief on natural catastrophes in the first half of the year (with year-on-year losses down 33% from 2017) while the second half of the year saw the occurrence of large natural catastrophes, mainly from Hurricanes Florence and Michael, but also with exceptional wildfires in California and an earthquake in Alaska. In the Property & Casualty reinsurance sector, US players experienced on average significant growth in premiums for the first time since 2013. In the Life & Savings sector, aft er several consecutive quarters of decline mostly in reaction to the continued uncertainty around the impact of the implementation of the new Department of Labor fiduciary rules, sales to Individual clients bounced. The growth was driven by higher sales of Indexed Universal Life products while Annuity sales have grown by more than 5% in 2018, supported by the normalization of interest rates in the US combined with an increase of the disposable income. Over the year, Life insurers continued to shift the product off ering from guaranteed to variable returns while also promoting the products off er to Protection.
Total consideration for the acquisition of the 50% stake would amount to RMB 4.6 billion (or €584 million (5)), re presenting an implied 2.4x FY17 BV (6) multiple, of which, subject to regulatory approvals, RMB 1.5 billion (or €190 million (5 )) should be financed through a capital reduction of AXA Tianping to buy back shares from the current domestic shareholders.
AXA entered into exclusivity for the potential disposal of its European Variable Annuities carrier, with expected total cash proceeds of €1.2 billion
(1) Based on FY17. (2) EUR 1 = CHF 1.1269 as of December 31, 2018.
• M ostly treated as shareholders’ equity, with negligible impact on debt and debt gearing; ■ E xercise in full of the 30-day over-allotment options granted by AXA to the underwriters: • U nderwriters exercised their options to purchase 20,587,500 shares of AEH at USD 20 per share and to purchase USD 112.5 million of mandatory exchangeable bonds, both eff ective as of May 11, 2018,
(10) Assuming the over-allotment option of 9,000,000 AEH shares granted to underwriters was fully exercised, AXA’s ownership of AEH would have decreased to 57.5%.
Key Ambition 2020 financial targets update: ■ AXA Asia: • 6% to 8% Annual Premium Equivalent (1) (APE) CAGR (2) 20182020,
Amortization of value of purchased life business in-force (42) - (25) (13) - (1) (3) -
■ O n a constant exchange rate and excluding the contribution of XL Group , expenses increased by €151 million (+1%) primarily in (i) Asia (€-164 million) mainly in Hong Kong (€-91 million) driven by higher D eferred A cquisition C ost amortization due to the non-repeat of an accounting mismatch (partly off set in fees & revenues) as well as higher project costs, and Japan (€68 million) mainly due to volume growth and the non-repeat of the restructuring of a pension scheme, (ii) Europe (€-129 million) mainly in Switzerland (€-48 million) driven by project costs in the context of the transformation of the in-force Group Life business, Germany (€-36 million) due to the consolidation of a newly controlled subsidiary in Legal Protection, and the United Kingdom & Ireland (€-26 million) due to higher volumes and expenses from investments in transformation programs, (iii) Transversal & Central Holdings (€-77 million) mainly from AXA Assistance (€-61 million) driven by investments in transformation programs and higher general expenses, and (iv) International (€-47 million) driven by Mexico (€- 27 million) in line with higher sales, partly off set by (v) the United States Life & Savings (€+155 million) mainly from lower D eferred
• the costs related to the IPO of AXA Equitable Holdings, Inc. and the Secondary Off ering (€-104 million), partly off set by the one-off benefit from the reimbursement of the tax paid on dividends received from European subsidiaries held for more than 95% following the decision from the European Court of Justice at AXA SA (€+71 million) and the non-repeat of: • the reimbursement of the 3% tax on the dividend paid to shareholders on prior years in 2017 at AXA SA (€-283 million),
Adjusted ROE 14.4% 14.5% (0.1 pt) Adjusted earnings (a) 6,227 6,228
Income tax expenses increased by €17 million (+7%) to €-238 million in line with higher pre-tax underlying earnings.
Profit or loss on financial assets (under fair value option) and derivatives (5) 1
Income tax expenses decreased by €8 million (-38%) to €-13 million. On a constant exchange rate basis, income tax expenses decreased by €7 million (-34%) as the impact of the increase in pre-tax underlying earnings was more than off set by higher positive tax one-off s.
Adjusted earnings decreased by €4 million (-1%) to €389 million. On a constant exchange rate basis, adjusted earnings increased by €16 million (+4%) mainly driven by higher underlying earnings.
Minority interests increased by €203 mi llion to €-203 million. On a constant exchange rate basis, minority interests increased by €212 million, as AXA Group average ownership over the period decreased from 100% on December 31, 2017, to 80.8% on December 31, 2018, as a consequence of the IPO of AXA Equitable Holdings, Inc. completed in May 2018, the Secondary Off ering and related Share Buyback completed in November 2018.
Profit or loss on financial assets (under fair value option) and derivatives 39 11
APE decreased by €16 million (-6%) to €262 million. On a comparable basis, APE decreased by €5 million (-2%) mainly driven by Singapore (€-22 million or -18%) to €100 million mainly driven by lower Unit-Linked and G/A Savings sales, partly off set by India (€+14 million or +49%) to €38 million and Mexico (€+5 million or +20%) to €26 million mainly in Protection.
Gross revenues increased by €56 million (+4%) to €1,331 million. On a comparable basis, gross revenues increased by €84 million (+7%) driven by: ■ Property & Casualty (€+69 million or +6%) to €1,185 million. On a comparable basis, Property & Casualty gross revenues increased by €70 million (+6%) in Non-Motor (€+58 million) from higher volumes mainly in Travel and Home , and in Motor (€+12 million) mainly from higher volumes as well as in-force growth; ■ Health (€-13 million or -8%) to €146 million. On a comparable basis, Health gross revenues increased by €15 million (+11%) mainly due to higher new business.
(1) The information provided in this Section 4.1 is not required under IFRS and as such is not part of the Consolidated Financial Statements.
At December 31, 2018, the Group did not owe any financing debt to credit institutions.
For additional information, please refer to Appendix III “AXA parent company financial statements” of this Annual Report.
Following the decision to separate the positions of Chairman and Chief Executive Off icer, the Board of Directors also decided to maintain the position of Senior Independent Director for a variety of reasons including that Mr. Denis Duverne is not considered as independent with regard to the Afep-Medef criteria due to his former role of Deputy Chief Executive Off icer.
Consequently, in view of the Group’s global presence, the Board of Directors, assisted in this task by its Compensation & Governance Committee, has set itself the target to have Board members with diverse nationalities and cultures to ensure a balanced and complementary Board composition, in terms of gender, expertise, experience and tenure of its members.
IMPLEMENTATION AND MONITORING The Board of Directors and its Compensation & Governance Committee regularly examine the composition of the Board and its Committees.
The implementation of the Board of Directors diversity policy is monitored and analysed each year as part of the Board’s selfassessment process. In this respect, the Board notably assesses the selection process for directors and measures the progress made against the predefined diversity targets. The results of this self-assessment are also specifically discussed at a Board meeting once a year.
Patricia Barbizet (04/25/2018) Rachel Duan (04/25/2018) Elaine Sarsynski (05/24/2018) Martine Bièvre (06/13/2018) Bettina Cramm (06/20/2018)
Chairman of Temaris & Associés Born on April 17, 1955 French nationality Appointed on
Directorships held outside the AXA Group Director or member of the Supervisory Board: NIBC* (The Netherlands), Railway Pension Investments Ltd (“RPMI”) (United Kingdom)
In 2018, several training sessions were organized by the Chairman of the Board of Directors to familiarize the members of the Board of Directors with the Group’s main activities and challenges. These sessions particularly focused on the General Data Protection Regulation (GDPR) and the presentation of AXA XL activities.
The role, organization and responsibilities of each Committee are set out in the Board’s Terms of Reference and in the Audit Committee Terms of Reference available on AXA’s website.
The Committee meets frequently with the Group Executives and the Internal d epartments of the Company including Group Human Resources and Group Legal. The Committee is empowered to undertake or commission specific reviews and to use external consulting expertise to the extent deemed appropriate. Thus, during the last few years, the Committee worked several times with a compensation-consulting firm in order to benefit from an external expertise and an independent overview in order to compare AXA’s variable compensation practices with general market practices.
(2) Average of the scores with and without the elements mentioned in (1).
(d) Pursuant to Articles L.225-37-2 and L.225-100 of the French Commercial Code, the payment of the Chief Executive Off icer’s 2018 variable compensation is withheld until the approval of the Shareholders’ Meeting on April 24, 2019.
(a) This amount does not include the part of the variable compensation with respect to 2017 which has been deferred in accordance with the mechanism described on page 133 . (b) Director’s fees are deducted by 70% from the variable compensation.
Grant date (Board of Directors or Management Board) 01/04/2008 01/04/2008 19/05/2008 19/05/2008 22/09/2008 22/09/2008 24/11/2008 20/03/2009 20/03/2009 02/04/2009
Under the AXA Compliance & Ethics Code, all employees (including the corporate off icers of the Company) are prohibited from engaging in any transaction designed to hedge the value of equitybased compensation awards (stock options and performance shares) granted under any plan or arrangement maintained by AXA or any of its subsidiaries. This restriction applies from the date of grant until such time as the beneficiary receives the securities underlying the award upon, for example, the exercise of a stock option or the lapse of restrictions on performance shares. In accordance with the recommendations of the Afep-Medef Code, the executive off icers of the Company make a formal commitment to not resort to such hedging transactions.
STOCK OPTIONS GRANTED AND/OR EXERCISED BY THE TOP 10 BENEFICIARIES (OUTSIDE THE CORPORATE OFFICERS) DURING 2018
Performance shares are designed to recognize and motivate the Group’s best talents and critical skills by aligning the individuals interests with the overall performance of the AXA Group, of their operating business as well as with the stock performance of the AXA share in the medium-term. Performance shares generally result in less shareholder dilution than stock options, due to the possibility to deliver existing shares, this choice being the one made up to this date.
Accordingly, for all beneficiaries except AXA’s executive off icers and members of the Management Committee, should the performance be: ■ lower than 80% of the performance required to reach the target, no share would be delivered to the beneficiary at the end of the acquisition period; consequently the beneficiaries are not guaranteed a minimal grant/gain; ■ equal to 80% of the performance required to reach the target, the number of shares definitively granted would be equal to 80% of the number initially granted; ■ equal to 100% of the performance required to reach the target, the number of shares definitively granted would be equal to 100% of the number initially granted; ■ equal to or higher than 130% of the performance required to reach the target, the number of shares definitively granted would be equal to 130% of the number initially granted.
Denis Duverne Chairman of the Board of Directors - - -
The Chief Executive Off icer of the Company, Mr. Thomas Buberl, as well as all other employees of AXA Group entities in France, participate in a mandatory and collective supplementary pension scheme with defined contributions (collective insurance contract – contrat d’assurance de groupe as defined in Article L.141-1 of the French Insurance Code). This AXA pension fund was implemented in 2011 and benefits to the employees of AXA Group entities in France falling within the scope of the Collective Agreement of December 18, 2009. The individual employer contribution rate is set at 0.75% of the total gross compensation, which is not capped (the contribution base is the same as the one used for contributions related to the Social Security General Scheme). Contributions are subject to 9.7% social charges (9.2% for CSG and 0.5% for CRDS).
All retirement performance shares granted are subject to the performance conditions described above and calculated over a three-year period beginning on January 1, 2018 and ending on December 31, 2020.
The Board of Directors has also decided that the number of LTIs allocated to the Company’s corporate off icers in the form of stock options and performance shares may not exceed 10% of the total number of LTIs granted to all beneficiaries within the Group.
In connection with our “Ambition 2020” strategic plan, we have recently implemented a number of major initiatives which have had and can be expected to have a significant impact on the Group’s business, competitive position, and results of operations. These initiatives have included, for example, our recently-completed acquisition of XL Group, which will shift
Our competitors include mutual fund companies, a sset m anagement firms, private equity firms, hedge funds, commercial and investment banks and other insurance or reinsurance companies, many of which are regulated diff erently from us and offer alternative products or more competitive pricing than we do.
These competitive pressures could result in increased pricing pressures on a number of our products and services, particularly as competitors seek to win market share, and may harm our ability to maintain or increase our profitability.
In addition, supervisory authorities may become more conservative in the interpretation, application and enforcement of relevant regulations, as a result of which they may, for example, impose increased reserving requirements for certain types of insurers or certain types of risks, greater liquidity requirements, higher discounts/“haircuts” on certain assets or asset classes, more conservative calculation methodologies or take other similar measures which may significantly increase regulatory capital requirements. In particular, the French insurance supervisory authority, the ACPR, may impose changes to the Internal Model we use to calculate our SCR or change its view regarding our methodologies and/or the integration method of some of our subsidiaries, which may adversely aff ect our Solvency II ratio. For additional information on our Internal Model and Solvency II ratio, please refer to Section 4.2 “Internal control and Risk Management - Internal Model” of this Annual Report (2).
We have been named as defendants in numerous lawsuits (both class actions and individual lawsuits) and involved in various regulatory investigations and examinations, and other actions arising in the various jurisdictions where we and our subsidiaries do business. Please refer to Note 31 “Litigation” in Part 5 “Consolidated Financial Statements” of this Annual Report. We may be involved in similar proceedings in the future.
The Group Chief Executive Officer, the Group Chief Financial Off icer and the Group General Secretary, who, under Solvency II, are deemed to be “persons who eff ectively run” the Group, and the key functions holders must fulfil the requirements for a fit and proper assessment, as set in the Group’s internal policy, adopted in compliance with the requirements of the Solvency II
For more information on the composition and assignments of the Board of Directors and its Committees, please refer to Section 3.1 “Corporate governance structure” (1) of this Annual Report.
Local Heads of Internal Control (or equivalent) are independent from operations and report preferably to their local Chief Risk Off icer. Local Heads of Internal Control (or equivalent) regularly report to the local Executive Committee (or to a sub-committee) on Internal Control matters.
The Group has implemented a formal internal review and sign-off process pursuant to which all Management Committee members, Chief Financial Off icers and certain other senior executives are required to certify various matters covered in AXA’s Registration Document.
■ Internal Model Review (“IMR”) team, a Group team responsible for the in-depth actuarial review of the model under local teams’ responsibility, the conception and methodology when locally developed, and the local implementation of the Group principles when relevant. IMR controls are performed on a 3-year rolling basis, independently from closing agenda.
The market risks to which Life & Savings (L&S) and Property & Casualty (P&C) portfolios are exposed arise from a variety of factors including: ■ a decline in market returns may cause us to accelerate amortization of deferred acquisition costs, value of business in-force and other intangibles; ■ a decline in returns on assets (linked to a sustained fall in yields on fixed income investments or to lower equity markets) could reduce investment margins on General Account products or fees on Unit-Linked contracts and impact the performance of asset managers; ■ a change in yields on fixed-income investments (linked to changes in interest rates or in credit spreads) aff ects the market value of investments and liabilities and could impact adversely the Group’s solvency position, and increase policyholder’s surrenders due to competitive pressures; ■ a decline in asset market value (relating, for example, to equity, real estate, or alternatives, etc.) could adversely impact the Group’s solvency position, as well as available surplus; ■ a rise in financial market volatility may increase the cost of hedging the guarantees associated with certain products such as Unit-Linked and Variable Annuities 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; ■ furthermore, Health and Property & Casualty activities are subject to inflation which may increase the compensation payable to policyholders, so that the actual payments may exceed the associated reserves set aside. This risk can be significant for long-tail businesses but is managed through regular pricing adjustments or specific protections against peaks of inflation.
In Japan, AXA entities may invest when relevant outside the Japanese market in order to diversify and optimize investments and enhance returns. At the end of 2018, the total assets denominated in foreign currencies held both directly and indirectly through investment funds (mainly US Dollar) represented an amount of €9,799 million (€10,545 million in 2017). Excluding assets backing unit-linked contracts, the corresponding exchange-rate risk was fully hedged through the use of derivatives.
■ exposures on third party obligors stemming from some Group insurance and assumed reinsurance businesses.
Compliance with the limits is ensured by the Group through defined governance. The Group Credit Risk Committee handles, on a monthly basis, the issuer exposure breaches to the Group’s limits and determines coordinated actions for excessive credit concentrations. A Group Credit Team reporting to the Group Chief Investment Off icer (Group CIO) provides credit analyses independently from Group asset managers, in addition to local CIO teams. The Group Financial Risk Committee is regularly kept informed of the main credit risks.
As opposed to the other Property & Casualty internal Group covers where the risk is retained within AXA Global Re, in 2018 89,8% of the Property Pool and 54,33% of the Life Pool yearend financial result net of external reinsurance protections is retroceded back to local entities.
Change in unearned premiums net of unearned revenues and fees (653) (405)
Technical charges relating to insurance activities (e) (75,069) (102,684) 23 Net result from outward reinsurance (285) (578)
Purchase of subsidiaries and aff iliated companies, net of cash acquired (9,725 ) (0)
Net cash related to changes in scope of consolidation (9,654 ) (12)
Acquisition/sale of interests in subsidiaries without change in control 3,688 (212)
IFRS 2 - Share-based Payment June 20, 2016 Guidance on how: ■ to take into account the vesting and non-vesting conditions on the measurement of a cash-settled share-based payment transaction; ■ to classify a share-based payment transaction with net settlement features for withholding tax obligations; ■ to account for a modification to the terms and conditions of a sharebased payment transaction that changes its classification from cashsettled to equity-settled.
IFRS 4 - Insurance contracts September 12, 2016 IFRS 9 def erral information on Solely Payments of Principal and Interest (SPPI) test.
IFRS REQUIREMENTS ADOPTED ON JANUARY 1, 2018 IFRS 15 – Revenue from Contracts with Customers, published on May 28, 2014, amended on September 11, 2015 and on April 12, 2016, provides a principles-based approach for revenue recognition. The new model applies to all revenue arising from contracts with customers except those that are within the scope of other IFRS such as: insurance contracts, lease contracts and financial instruments. The Group revenues in the scope of IFRS 15 mainly correspond to asset management fees and performance fees. The cumulative eff ect of initially applying IFRS 15 totaled €26 million (net of tax) and was recognized as an adjustment to the opening balance of retained earnings on January 1, 2018.
Impairments of loans available for sale are based on the present value of expected future cash flows, discounted at the loan’s eff ective interest rate (down to the loan’s observable market price), or on the fair value of the collateral.
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 discretionary participating features; ■ liabilities arising from investment contracts with no discretionary participating features; ■ liabilities arising from investment contracts with discretionary participating features where the financial risk is borne by policyholders; these relate to Unit-Linked contracts or multifunds contracts containing a non-Unit-Linked fund with discretionary participating features; ■ liabilities arising from investment contracts with no discretionary participating features where the financial risk is borne by policyholders.
When these contracts meet the insurance contracts classification requirements, transactions relating to reinsurance are accounted for in the balance sheet and income statement in a similar way to direct business transactions in agreement with contractual clauses. Reinsurance premiums ceded are expensed (and any
increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee defined benefit plans is the difference between the present value of the Defined Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment for any minimum funding requirement or any asset ceiling eff ect. If the net result is positive, a provision is recorded under the provision for risks and charges heading. If the net result is negative, a prepaid pension asset is recorded in the balance sheet but not more than its recoverable amount (asset ceiling). Actuarial gains and losses (now termed remeasurments under IAS 19 revised) arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity (in Other Comprehensive Income) in full in the period in which they occur. Similarly, the actual return on assets and any change in asset ceiling, excluding the net interest income on assets, is recognized in shareholders’ equity. The regular impact in the income statement mainly relates to the current service cost (annually accruing employee benefit) and the net interest on the amount recorded in the opening balance sheet (unwinding of discount applied to the net liability/asset at start of the annual period, taking into account contributions and benefits payments during the period). Past service cost represents the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment to a defined benefits plan. It is recognized totally and immediately in the income statement when incurred. Gains and losses on the settlement of a defined benefit plan also have an impact in the income statement when the settlement occurs.
Reinstatement premiums are recognized at the time a loss event occurs where coverage limits for the remaining life of the contract
Czech Republic and Slovak Republic AXA Czech Republic Pension Funds 99.99 99.99 99.99 99.99
In most investment funds (particularly open-ended investment funds), minority interests are presented as liabilities under “Minority interests of consolidated investment funds”. As of December 31, 2018, minority interests in consolidated investment funds amounted to €6,799 million (€8,756 million as of December 31, 2017). Minority interests related to consolidated investment funds and real estate companies that are classified in shareholder’s equity amounted to €2,275 million as of December 31, 2018 (€2,545 million as of December 31, 2017).
INVESTMENT FUNDS AND REAL ESTATE ENTITIES ACCOUNTED FOR USING THE EQUITY METHOD As of December 31, 2018, real estate companies accounted for using the equity method amounted to €157 million invested assets (€163 million at the end of 2017) and investment funds accounted for using the equity method amounted to €4,979 million invested assets (€4,953 million at the end of 2017), mainly in the United States, United Kingdom, Ireland, France, Belgium and Germany.
Key transversal entities and Central Holdings are managed alongside these 6 geographies.
Total consideration for the acquisition amounted to €13 billion, fully paid in cash.
XL Group IFRS revenues and net income included in the consolidated statement of income for the reporting period were respectively €6,287 million and €-428 million.
5.3.3 Initial Public Off ering, Secondary Off ering of AXA Equitable Holdings, Inc. and mandatory exchangeable bonds of AXA
Intangible assets recognized in business combinations and other business operations 5,016 (1,242) (27) 3,747 2,184
(a) Includes infrastructure investments. (b) Assets measured at fair value under the fair value option. (c) Includes assets measured at fair value notably under the fair value option. (d) Eligible to the IAS 39 – Loans and Receivables measurement category. (e) Mainly relates to mortgage loans and policy loans.
Debt instruments (at cost) that are not quoted in an active market 9,192 9,346 9,193 224 71 8,158 8,350 8,130 278 87
As of December 31, 2018, the net transfer between level 1 and level 2 was €15,752 million. This amount was comprised of €18,161 million transferred investments from level 2 to level 1 and €2,409 million transferred from Level 1 to Level 2, primarily in corporate bonds.
Assets such as certain unquoted debt instruments, some instruments issued on private markets such as private equity instruments or private loans were always considered as not quoted in active markets as an inherent characteristic of these investments and were included as assets not quoted in active markets/ No active markets in all periods presented. Valuations are based either on external pricing providers or internal models using techniques commonly used by market participants. Valuation teams make the maximum use of current transaction prices (if any) and observable data but some of the underlying sectors to which the investments relate may be so particular that significant adjustments are performed or unobservable data are used. Private equity funds of funds are measured on the basis of the latest net asset values of funds provided to the Group.
Debt i nstruments available for sale 4,784 (179) 392,053 (9,051) 5,274 (113) 377,345 (3,633)
AAA AA A BBB BB and lower Other Total AAA AA A BBB BB and lower Other Total
A reconciliation of the summarized financial information to the carrying amount of the associates is as follows: (in Euro million)
The tables above exclude cash held by consolidated investment funds in the “Satellite Investment Portfolio”, as defined in Note 1.8.2.
Undated notes – US$375 M, variables rates 375 328 375 313
Unrealized gains and losses (net of tax) - Equity accounted companies (42) - - -
The change in reserves related to changes in fair value of available for sale financial instruments included in shareholders’ equity as of December 31, 2018, and December 31, 2017 broke down as follows: (in Euro million)
Transfer in the income statement on the period (a) (874) (725)
Minority interests’ share in unrealized gains and losses (b) (42) (215)
RESERVE RELATED TO CHANGES IN FAIR VALUE OF AVAILABLE FOR SALE FINANCIAL INSTRUMENTS INCLUDED IN SHAREHOLDERS’ EQUITY The decrease of gross unrealized gains and losses on assets available for sale totalled €-3,573 million, of which €-4,690 million decrease in unrealized capital gains on debt securities which was mainly driven by interest rates increase.
• foreign exchange movements for €-346 million; ■ transactions with minority interests’ holders, mainly included: • dividend payout to minority interests’ holders for €-274 million,
In the following Note, Health is not reported separately from Life & Savings and Property & Casualty lines of business.
Non Life - locked-in discount rate (a) 4,924 3 .16 % 4,285 3.15%
Banking liabilities issued at fair value – Retail customers 2,125 2,125 2,710 2,710
Macro-hedge derivatives and other derivatives related to liabilities arising from banking activities (21) (169) (37) (227) (65) (179) (89) (334)
(a) Hedging instruments in accordance with IAS 39 and economic hedge derivatives not eligible for hedge accounting. (b) Excluding accrued interest on derivatives.
(a) Other activities than banking operations. (b) Excludes colla teral debts relating to investments under lending agreements and equivalent in banking activities (see Note 15).
Other debt instruments issued, notes and bank overdraft s excluding TRS – Carrying value 1,425 314 999 2,739
Derecognition of deferred tax assets on tax losses of prior years (a) 4 19
Derecognition/Recognition of DTA on temporary diff erences of prior years (other than tax losses) (a) 1 3
Credit derivative instruments are mainly used to: ■ hedge credit risk involving the purchase of CDS as a protection mainly on single corporate names or specific portfolios including from a certain level of losses through tranches instruments (notional amount of €1.8 billion at the end of 2018 versus €3.9 billion at the end of 2017); ■ enhance the return mainly on government bonds portfolios by holding government bonds and at same time selling protection on very good quality names as an alternative to the direct purchase of a corporate bond. This type of ALM strategy is implemented to compensate for the lack of depth or liquidity in some markets by taking a synthetic credit risk (notional amount of €14.3 billion at the end of 2018 versus €13.6 billion at the end of 2017).
Other assets held by consolidated investment funds designated as at fair value through profit or loss 107 - (35) - 72
Commissions received from/paid to reinsurers 186 100 89 92 6 130 107 (30) 680
The table below presents the change in benefit obligation and the change in plan assets associated with pension plans and other benefit plans sponsored by AXA, together with the separate assets and the balance sheet position.
Net transfer In/(Out) (including acquisitions, disposals and reclassifications) (c) 14 (0) - - 14 (0) Benefits paid by separate assets (121) (134) (1) (1) (122) (135)
Interest cost on the defined benefit obligation 306 330 16 16 322 345
IAS 19 considers liabilities net of Plan Assets on the one hand and Separate Assets and a part of Swiss assets on the other hand separately, while economically, Separate Assets and a part of Swiss assets should be considered as backing the Defined Benefit Obligations like any other Plan Assets (which are presented in Note 26.2.8.) and deducted from the Defined Benefit Obligations.
In 2018, net income per ordinary share stood at €0.79 on a basic calculation, all attributable to continuing operations, and €0.79 on a fully diluted basis also all attributable to continuing operations.
In 2015, AXA SA acquired Financial Insurance Company Limited (“FICL”) and Financial Assurance Company Limited (“FACL”) from Genworth Financial Inc. (“Genworth”) Pursuant to the sale and purchase agreement, (the SPA”) Genworth agreed to indemnify AXA SA on demand for 90% of certain costs related to complaints alleging misselling of payment protection insurance underwritten by FICL and FACL. Following a claim for indemnification for misselling losses under the SPA which has not been satisfied, in December 2017, AXA SA filed a lawsuit in the United Kingdom against Genworth for breach of contract. A first instance decision is currently expected in late 2019/early 2020.
A number of lawsuits have been filed against insurers and other financial institutions in the United States and elsewhere involving the scope and interpretation of policies insurers’ sales practices, alleged agent misconduct or misrepresentation, alleged failure to properly supervise agents, compensation of intermediaries, product features, fees or performance 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 broad discretion in awarding punitive damages. AXA’s United States subsidiaries are involved in these types of litigations as well as regulatory inquiries, investigations or actions with respect to these and a wide variety of other matters related to the ownership or management of real estate, asset or investment management activities, corporate transactions, employee benefit disputes, alleged discrimination in employment practices, as well as other matters.
In February 2016, a class action (Brach Family Foundation) was filed against AXA Equitable Life in the SDNY. It challenges AXA Equitable Life’s decision to increase the cost of insurance for a specific block of life insurance policies with issue ages over 70 and face amounts in excess of $1 million (“COI”). The complaint alleges breach of contract and seeks recovery under the New York Insurance Law, as well as various remedies (including refund of premiums paid and cancellation of the increase in the cost of insurance, interest and costs). Since 2016, additional actions challenging the COI increase have been filed against AXA Equitable Life, bringing the total number of COI litigations to twelve as at December 31, 2018. AXA Equitable Life believes that it has strong defenses to these claims and will defend these matters vigorously.
Beyond litigation risks of the type described above, AXA and its subsidiaries are subject to comprehensive regulation in the various jurisdictions where they do business. In this context, AXA and its subsidiaries are subject, from time to time, to examinations, investigations, enforcement proceedings and other actions by regulatory and law enforcement authorities (involving civil and/or penal matters) as well as to proposed changes in law and/or regulation that may significantly impact their business and results of operations. For additional information on these matters as well as other risks and contingent liabilities aff ecting the Group and its business, please see Section 4.1 “Risk Factors” and Section 6.3 “General Information” of this Annual Report and Note 29 “Contingent assets and unrecognized contractual commitments” in Part 5 – “Consolidated Financial Statements” of this Annual Report. Some of the litigations described above have been brought on behalf of various alleged classes of claimants,
Our audit approach to the risk relating to the valuation of claim reserves was as follows: ■ we assessed the compliance of the methodology applied by the Group with current accounting standards; ■ we evaluated and tested the internal control environment relating to: – the management of claims and, in particular, the measurement of reserves on a case-by-case basis, – the process of calculating the ultimate cost (assumptions, judgments, data, methods, compliance with the applicable accounting principles and methods), including any second opinions supplied by Risk Management with respect to technical reserves,
Acquisition Accounting and Purchase Price allocation to the identified the assets and liabilities related to the XL Group Acquisition
The Audit Committee is responsible for monitoring the financial reporting process and the eff ectiveness of internal control and Risks Management systems and where applicable, its internal audit, regarding the accounting and financial reporting procedures.
The ACPR has approved the use by AXA of its internal model (the “Internal Model”) to calculate its SCR under Solvency II. The Solvency II ratio of the Group as of December 31, 2018, published on February 21, 2019, was estimated at 193% (1), compared to 205% as of December 31, 2017, and remains within AXA’s target range of 170-220%. The Group maintained eligible own funds in excess of its SCR at all times during 2018.
The EU Data Protection Reform, which was adopted in 2016 and entered into force in 2018, establishes a comprehensive framework governing the protection and processing of personal data in the private and public sectors, which includes the GDPR.
Solvency II sets out the remuneration policy principles and governance requirements to be implemented by European insurers and specifies that the companies subject to Solvency II must adopt a written remuneration policy compliant with a number of principles set out in the Delegated Regulation (EU) 2015/35 of October 10, 2014 which promotes sound and eff ective r isk m anagement and does not encourage risk-taking that exceeds the risk tolerance limits of the Company. In this context, AXA has reviewed and formalized its existing Group remuneration policy, identified the individuals responsible for managing and having an impact on the Group’s overall risk profile, and defined a consistent approach to manage remuneration of individuals in charge of control functions. AXA’s Compensation & Governance Committee is in charge of overseeing the design of the remuneration policy and remuneration practices, their implementation and operation.
For additional information, please see “Our businesses are subject to extensive regulation and regulatory supervision in the various jurisdictions in which we operate” in Section 4.1 “Risk Factors” and Section 4.8 “Other material risks – Regulatory risks” of this Annual Report.
In the countries where it operates, AXA is both a tax payer and a tax collector, given that many specific taxes are levied on (re) insurance policies and collected from our customers as part of the insurance and Asset Management revenues while others are remitted to the various state and federal administrations around the world.
Pursuant to Article 7 of AXA’s Bylaws, any person, acting alone or jointly, who comes to hold, directly or indirectly through companies it controls within the meaning of Article L.233-3 of the French Code de commerce, a number of shares representing 0.5% of the Company’s share capital or voting rights, shall notify the Company by registered letter with acknowledgment of receipt within five days from the threshold crossing. This notification shall detail the total number of shares and voting rights held as well as the total number of securities giving a diff ered claim to the share capital and the potential voting rights attached thereto.
AXA strives to be a responsible employer, placing employee engagement at the heart of its business strategy. Achieving this ambition has meant creating a workplace built on AXA’s values, which foster diversity and equal opportunities for all, promote employee participation, encourage professional development and support employee well-being. For additional and more comprehensive information, refer to “About Us” and “Career” pages on www.axa.com.
It is generally known that social and economic changes will increase the share of diversity at work. Digital will enhance multiple customers interactions and provide more information upon which to make decisions. Technology and data advancements will allow machines to take over labor-intensive tasks so to improve working conditions and to shift people contribution to more value-added activities. Climate change will impose private corporations to adopt more environmentally friendly policies and continuous progresses in medical research will extend life expectations leading to a later retirement.
In terms of geographies, the footprint of AXA’s salaried workforce in 2018 was: 56.6% in Europe (-2.5 points compared to 2017), 22.5% in AsiaPacific (+1 point compared to 2017), 15.5% in the Americas (+1 point compared to 2017) and 5.4% in Africa (+0. 5 point compared to 2017).
These objectives cover the entire AXA Group and are the followings: ■ implementing a minimum baseline for physical security; ■ having a particular focus where risks are the highest.
Absenteeism rate of salaried sales force 3.5 % 3.7 % ■ Proportion of absences due to sickness 69.4 % 72.5 % ■ Proportion of absences due to work related accidents 3.4 % 2.9 % ■ Proportion of absences linked to maternity/paternity leave 27.1 % 24.6 %
Because oil sands are also an extremely carbon-intensive form of energy, their production generates significant human rights concerns, and is a serious cause of local environmental pollution,
AXA’s Environmental Policy describes our key focus areas and expected practices to reduce our direct and indirect environmental impacts. As part of this policy, AXA has: ■ established an environmental reporting process to measure and reduce the environmental impact of our business operations; ■ developed a due-diligence process to ensure an adequate governance is implemented at entity level; ■ set 2020 environmental performance targets.
By sharing our knowledge about protection and Risk Management with those who need it the most, AXA contributes to the inclusive economic growth and mirroring our own internal commitments in terms of inclusion. As AXA pools risks and premiums to share the good fortunes of the majority with the difficulties of the few, insurance protects individuals and reinforces a sense of community. In addition, insurance solutions provide a sense of protection and peace of mind. These include: ■ integrating societal issues in our product range through dedicated product labels such as Assurance Citoyenne; ■ focusing on clients in emerging countries with few financial resources, AXA is actively engaged in the financial inclusion space to better serve the middle class of tomorrow; ■ providing insurance solution and opportunities for women; ■ developing parametric insurance solutions to protect vulnerable populations from the eff ects of climate change; ■ divesting from the tobacco industry.
Finally, AXA has started to develop an internal approach to measure the eff ects insurance can have within communities. The first step has been to work on a methodology to assess the customer centricity of our existing products, and in 2019 the full Emerging Customers portfolio will be evaluated for the first time. The objective is to design an improvement plan that keeps the client at the heart of the business and improves our off er.
■ we verified that the Statement presents the business model and the principal risks associated with all the consolidated entities’ activities, including where relevant and proportionate, the risks associated with their business relationships and products or services, as well as their policies, measures and the outcomes thereof, including key performance indicators; ■ we verified, where relevant with respect to the principal risks or the policies presented, that the Statement provides the information required under Article R. 225-105 II; ■ we assessed the process used to identify and confirm the principal risks; ■ we asked what internal control and Risk Management procedures the entity has put in place; ■ we assessed the consistency of the outcomes and the key performance indicators used with respect to the principal risks and the policies presented; ■ we verified that the Statement covers the scope of consolidation, i.e., all the companies included in the scope of consolidation in accordance with Article L. 233-16 within the limitations set out in the Statement; ■ we assessed the data collection process implemented by the entity to ensure the completeness and fairness of the Information; ■ for the key performance indicators and other quantitative outcomes that we considered to be the most important, we implemented: • analytical procedures to verify the proper consolidation of the data collected and the consistency of any changes in those data,
Please refer to Section 7.3 “Climate Change and the Environment – Own Operations – Environmental reporting process and verification” of this Annual Report for further information on AXA’s environmental reporting process.
Please refer to Section 7.2 “Social Information – Employee relations and work conditions – A continuous and established social dialogue” of this Annual Report for further information on AXA employee relations and collective bargaining.
Please refer to Sections 7.3 “Climate Change and the Environment – Investments” and 7.4 “Inclusive insurer – Business-related societal initiatives” of this Annual Report for further information on integration of ESG criteria in products & services.
In particular, in 2013, AXA’s ambitious environmental targets for 2020 embedded environmental strategy, notably focused on the reduction of carbon emissions, one of the main contributors to climate change, into the heart of AXA’s strategy.
Entities of the XL Group acquired by AXA in 2018, although still in the integration phase, are particularly concerned with complying with AXA Group standards and specifically the Vigilance Plan within a reasonable interval. These entities are already working on implementing due diligence processes enabling them to select service providers and suppliers that meet AXA standards for human rights and environmental observance and on updating their internal alert procedure to comply with Group standards.
With the aim of maintaining eff ective communication between employees and M anagement and a constructive social dialogue, the Vigilance Plan was presented to employee representatives in 2018. Through discussions established with the Group’s employee representatives in France and more particularly with the Social Committee of the Group France Works Council, certain provisions of the Vigilance Plan have been placed at the heart of the employer-employee dialogue.
(a.4) IFC CERTIFICATION At each year-end, the in-scope entities are required to perform an evaluation of their ICOFR as part of an internal certification process. This process involves formal sign-off by the entity’s process owners and culminates with a formal management report from the entity’s CFO or another senior executive off icer stating their conclusion as to the eff ectiveness of the entity’s ICOFR.
In accordance with Article L.225-102-1 of the French Commercial Code (Code de commerce), disclosures related to the Company’s executive compensation appear in Part 3, Section 3.2. “Executive compensation and share ownership” of this Annual Report.
I Notes to the financial statements as at December 31, 2018
Credit facilities (authorized but not drawn) 898 12,337 Guarantees and securities Commitments to buy back shares and bonds from Group entities - Other commitments 12,028 84 Of which financial guarantees given to Group entities 7,408 6. SENSITIVITY
We attest to the sincerity and consistency of the information relating to the payment terms mentioned in Article D. 441-4 of the French Commercial Code (Code de commerce).
■ assesses the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. This assessment is based on the audit evidence obtained up to the date of his audit report. However, future events or conditions may cause the Company to cease to continue as a going concern. If the statutory auditor concludes that a material uncertainty exists, there is a requirement to draw attention in the audit report to the related disclosures in the financial statements or, if such disclosures are not provided or inadequate, to modify the opinion expressed therein; ■ evaluates the overall presentation of the financial statements and assesses whether these statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Turkey (insurance activities and holding); ■ Transversal & Central Holdings, consisting of: • AXA Investment Managers,
NEW BUSINESS APE (NEW BUSINESS ANNUAL PREMIUM EQUIVALENT) It represents 100% of new regular premiums plus 10% of single premiums, in line with EEV methodology. APE is Group share.
NBV MARGIN (NEW BUSINESS VALUE MARGIN) New Business Value Margin is the ratio of: ■ New Business Value representing the value of newly issued contracts during the current year; to