A Management Board and a Supervisory Board have governed AXA since 1997. This form of corporate governance, which separates the powers of management from those of supervision, is considered to offer one of the most balanced frameworks for exercising corporate power.
Henri Hottinguer Member of Chairman and CEO of Sofibus; Chairman of the Supervisory Board Financière Hottinguer June 1988 / (71) (1) the Supervisory Board of Emba NV (The Netherlands); Chairman of the Board of 43, rue Taitbout April 2007
1991 – 1995: Co-Founder President & CEO de ECSoft BV. Since 1995: SAP AG.
1970 – 1974: Project leader and then Adviser to the Cabinet of the Finance Minister (Valéry Giscard d’Estaing). 1971 – 1982: Project leader, and then, sub-Manager, Assistant Manager and Head of the public revenue Department of the Finance Ministry.
members, on the amount of directors’ fees to be submitted to a vote by the shareholders, and on proposed stock options grants to members of the Management Board; – issues an opinion on Management Board recommendations related to the policies and procedures governing executive pay and the Company’s proposed stock option grants to employees; – is informed by the Management Board of compensation levels set by the boards of AXA Group subsidiaries.
Composition and operating procedures The Management Board is the Company’s collegial decision-making body.
The current term of office will come up for renewal in January 2009.
Henri de Castries 1980 – 1984: French Finance Ministry Inspection Office where he audited government agencies.
Denis Duverne 1984 – 1986: Commercial counselor for the French Embassy in New-York.
Christopher Condron Member of the Management Board, President and Chief Executive Officer of AXA Financial (United States)
– Formal guidelines are in place for its businesses and operations (in particular written codes of ethics, anti-fraud and anti-money laundering policies ).
QBRs (Quarterly Business Reviews) Quarterly Business Reviews are divided into two parts: – meetings between the Management Board and each business unit, – a meeting attended by all Executive Committee members.
AXA Tech is responsible for ensuring that IT security policy is consistently and transparently implemented.
OTHER COMMITMENTS The DCFG is responsible for determining the required amount of committed credit facilities. At the consolidated level, it also ensures that the conditions and the contract terms are favorable to the Group and, in particular, that they do not contain any significant constraints that may result in resources becoming payable in advance of their scheduled maturity. Detailed information about off-balance sheet commitments can be found in the appendix to the Company’s annual financial statements.
Investor Relations The quality of financial and accounting information depends upon the production, review and validation of financial information between the different services of the Group Finance Department, and on the principle of having a single source of information. With very few exceptions, all financial information reported by the Company comes from the PBRC Department. Exceptions arise periodically when the financial markets request management information that does not originate from the Group’s accounting and financial consolidation systems.
Executive compensation includes a fixed and a variable component. The fixed component is targeted to fall within the lower quartile of the market. The variable component is tied to AXA’s global performance, local performance, and the attainment of the executive ’s individual objectives, weighted to reflect his or her level of responsibility. The variable portion is designed to represent the principal component of the executive’s annual global compensation such that, in the case of successful attainment of the objectives, the compensation levels of AXA executives will be in the top two quartiles of the going market rate.
Under this scheme, a supplementary pension is paid to executives who retire immediately upon leaving the AXA Group, at 60 at the earliest, and who have a minimum length of service of 10 years, of which at least 5 years as an executive.
Vesting schedule Exercise price Discount Number of options Options cancelled, Balance as at euros (adjusted exercized as forfeited and 31/12/2005 price) at 31/12/2005 not granted as at 31/12/2005 50.00% – 10/07/1999 75.00% – 10/07/2000 100.00% – 10/07/2001 50.00% – 07/05/2001 75.00% – 07/05/2002 100.00% – 07/05/2003 50.00% – 26/05/2002 75.00% – 26/05/2003 100.00% – 26/05/2004 50.00% – 26/05/2002 75.00% – 26/05/2003 100.00% – 26/05/2004 66.67% – 05/07/2003 100.00% – 05/07/2004 66.67% – 30/05/2004 100.00% – 30/05/2005 66.67% – 02/04/2006 100.00% – 02/04/2007 66.67% – 14/04/2007 100.00% – 14/04/2008 66.67% – 28/07/2008 100.00% – 28/07/2009
The AXA Group offers its employees an opportunity to become shareholders through a special equity issue reserved exclusively for them.
Any shareholder has the right to attend such meetings, either in person or by proxy, provided that the shareholder is registered with the Company.
Each shareholder is entitled to one vote per share held. However, since the Extraordinary Shareholders’
Exercise of stock subscription warrants (employees in Germany) 3,887 34,983 1,762,508,013 4,036,143,350
Notice of Meeting (Shareholders’ Meeting – April 20 2005) (April 1, 2005)
Extract of the minutes of the Extraordinary Shareholders’ Meeting of December 16 regarding the merger of FINAXA into AXA (increase of the share capital (February 1, 2006)
A copy of the “BALO” dated April 1, 2005 and a copy of a Legal Advertisement Newspaper “La Gazette du Palais” dated April 2, 2005 containing the Notice of Meeting
A copy of the “BALO” dated November 23, 2005 and a copy of a Legal Advertisement Newspaper “La Gazette du Palais” dated November 23-24, 2005 containing the Notice of Meeting
Form 6-K for October 2005: Press Release issued on October 27, 2005 by AXA, regarding a presentation on “the Benefits of Being Global”
The tables below summarize certain key financial data by segment for the periods and as at the dates indicated: Introduction
(1) Source – Plan For Life (Superannuation & Rollovers) September 2005 quarter. (2) Source – Plan For Life (Life Insurance media release) September 2005 quarter.
AXA Krankenversicherung AG Belgium: AXA Belgium SA Southern Europe: Spain: AXA Aurora Vida AXA Aurora Iberica
(a) Source: Swiss Re, Sigma report 2005 “World insurance in 2004”. (b) Source AXA, mainly based on 2004 national insurance association data for each specific country. (c) Relates to the variable annuity products. (d) Based on annualized new business premium equivalent (regular premiums plus one-tenth of new business single premiums).
LIFE & SAVINGS SEGMENT Gross revenues Gross insurance Years ended December 31, liabilities
AXA’s Property & Casualty insurance operations use various types of reinsurance, primarily to limit their maximum exposure to catastrophic events, environmental pollution risks and certain other types of risks. A growing portion of AXA’s Property & Casualty insurance exposures are ceded internally to AXA Cessions, which organizes external reinsurance programs. Total gross premiums ceded by AXA’s Property & Casualty operations to third party reinsurers in 2005 was €935 million (2004: €952 million).
Also, in 2005, approximately €717 million, or 78% of total reinsurance ceded to third parties, were placed externally by AXA Cessions on behalf of AXA’s insurance subsidiaries (2004: €631 million or 79%).
The Asset Management industry remains highly fragmented, with no single competitor or any small group of competitors dominating the worldwide market. AXA’s Asset Management operations are subject to substantial competition in all aspects of its business due, in part, to the relatively low barriers to entry. Asset Management companies compete on the range of investment products offered, the investment performance of such products and the quality of services provided to clients and prices.
As at December 31, 2005, AllianceBernstein had €491 billion of assets under management, including €431 billion of assets managed on behalf of third party clients (2004: €395 billion and €352 billion, respectively). Excluding exchange rates impact, assets under management in AllianceBernstein increased by +7%, of which 5% decrease related to change in scope linked to the sale of the cash management business.
In the 1st Quarter 2005, AXA IM finalized the UK part of the outsourcing of its middle-office activities to State Street Corporation.
– Decentralized: based on the subsidiarity principle, in line with the Group’s general organization.
GRM also co-ordinates risk detection and management at the Group level, and indirectly at the subsidiaries’ level. In particular, this includes all procedures for reporting risk and consolidating risk at Group level. GRM co-ordinates the local Risk Management teams of the Group’s various subsidiaries. In line with Group governance principles, this co-ordination focuses on minimum Group-wide requirements defined by GRM in terms of organization, resources and results.
– Implementing the risk reporting system requested by Group Risk Management.
GENERAL ORGANIZATIONAL PRINCIPLES The definition and co-ordination of ALM involves six major stages: – Detailed analysis of the liability structure by insurance companies.
– Lower yields on fixed-income investments increase the value of bond portfolios, and therefore generally do not present a material risk, with the exception of certain contracts (disability and worker’s compensation income) that provide guaranteed
GOVERNANCE An Investment Committee, made up of managers from the financial and operational sides of the insurance company and also, in certain cases, representatives of its Board of Directors, approves investment strategy and assesses the quality of the results obtained.
The Company’s assets account for most of the assets of Group holding companies.
Limitations to sensitivity testing The results of the analyses presented above must be examined with caution due to the following factors. – Only the assets and liabilities defined at the start of the sensitivity analysis section were included in the scope of estimates regarding sensitivity of fair values to market fluctuations.
The principal Risk Management tools are as follows: – Pre-launch approval procedures for new products. – Exposure analyses – Optimisation of reinsurance strategies (see section
Exposure analysis A uniform Group-wide framework for quantifying all risks has been developed by Group Risk Management and AXA Cessions using stochastic modelling tools factoring in asset and insurance risks. This framework includes pricing control systems used by insurance operations as part of their product development process, such as those described in the previous section.
On this basis, AXA develops quantification methods to estimate the capital allocation needed to cover operational risks based on models inspired by those proposed by the Basel Committee for banking supervision. These efforts will be continued and stepped up during 2006.
Group insurance coverage is purchased in the market. The insurers used by the Group are acknowledged international leaders in their fields, and the solidity of each company is checked and approved according to Group standards.
AXA Canada announced on November 29, 2005 that it has entered into an agreement to buy Winterthur Canada Financial Corporation, whose main asset is The Citadel General Assurance Company (“Citadel”). The acquisition is financed internally by the AXA Group. The transaction was closed in March 2006.
Fees and revenues from investment contracts with no participating feature 509 417
Asset Management underlying earnings increased by €+97 million to €396 million, attributable to both AllianceBernstein (€+36 million to €240 million) and AXA Investment Managers (€+61 million to €156 million), following: (i) Higher average Assets Under Management (+11%
NET INCOME 2,404 1,826 (a) Before intercompany transactions. (b) For the periods ended December 31, 2005 and December 31, 2004, the change in fair value of assets backing contracts with financial risk borne by policyholders had impacted the net investment result for respectively €+13,978 million and €+10,543 million and benefits and claims by the offsetting amounts respectively.
– Life & Health (33% of revenues) grew by 11.4% to €4,316 million mainly due to rate increases and positive premium adjustments on prior years in Group Life.
Net capital gains attributable to shareholders net of income tax 2 (10)
Revenues increased by 25% to €2,734 million: – Individual Life and Savings revenues (86% of revenues ) increased by 30% to €2,348 million due to the growth in Crest (+36% to €1,517 million) and in unit-linked contracts (+51% to €391 million) following the successful launch of a new structured product (Millesimo series) at year end 2004.
The tax expense increased by €13 million to €–25 million due to the non recurrence of an exceptional refund in 2004.
Underlying investment margin rose by €9 million to €53 million, driven notably by higher investment income as a result of a larger average asset base.
– Expenses of €458 million were €7 million higher that last year, which was reflective of higher commissions associated with increased fees and revenue. Economic expenses have reduced year on year due to improved operational effectiveness.
Net capital gains attributable to shareholders net of income tax 27 62
As a result, the combined ratio improved by –0.3 point to 99.1%.
Net income increased by €62 mil l ion or by €44 million on a comparable basis to €25 million, as 2004 was impacted by goodwill impairment of
Underlying earnings were up by €4 million to €10 million due to the –6 points improvement in the net combined ratio to 88%, reflecting mainly higher boni in the main lines.
– The cost of cover programs decreased by €12 million to €–152 million.
– The current year major losses cost increased by €316 million to €572 million, due to seven major losses in 2005 of which Katrina, Rita and Wilma hurricanes (€–481 million impact net of reinsurance
Net income remained stable at €97 million, reflecting €6 million higher adjusted earnings compensated by a €–6 million worsening of the impact of the change in fair value of assets designated at fair value trough P&L.
The combined ratio is the sum of (i) the expense ratio and (ii) the loss ratio (all accident years).
Asset Management Net New Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation.
Change in unearned premiums net of unearned revenues and fees (484) (104) 47
(b) Net of investment management costs. (c) Includes impairment write back on sold invested assets.
(+) Issuance of equity instruments 652 2,278 (–) Repayments of equity instruments (2) 58
(iii) all resulting exchange rate differences are recognized as a separate component of shareholders’ equity (cumulative translation adjustment).
Valuation allowances are recorded for a decline in the value of a property that is deemed to be other-thantemporary. When the appraised value is 15% lower than the net carrying value, the present value of the asset’s future estimated cash flows is calculated. If the calculated amount is lower than the net carrying value, a valuation allowance is recorded, equal to the difference between (a) the net carrying value and (b) the higher of the appraised value and the discounted cash flow value.
Impairment of financial assets AXA assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired.
1.10. Share capital and shareholders’ equity 1.10.1. Share capital Ordinary shares are classified in shareholders’ equity when there is no obligation to transfer cash or other assets.Incremental costs directly attributable to the issue of equity instruments are shown in shareholders’ equity as a reduction to the proceeds, net of tax.
– Commissions received and fees for services rendered in respect of asset management activities,
The 2004 financial statements were prepared in accordance with the general principles set out in point 1.2.1, which were applied in a consistent manner to all accounting periods presented in this note and to all financial statements.
(a) Scope of consolidation Investment and real estate companies (principally held in AXA’s entities and backing insurance liabilities) are not consolidated under French GAAP, in compliance with the CRC Regulation 2000-05.
This adjustment affected both employee benefit liabilities accounted for under Provisions for risks and charges and Other long-term operating assets for plans that had a net asset position. Assets representing pension commitments but that did not meet the definition under IAS 19 have also been transferred to these asset and liability captions. Such assets had to be decompensated. This presentation adjustment did not affect opening shareholders’ equity, but increased total assets and liabilities.
Impact by nature of transition to IFRS on income statement and shareholders’ equity at December 31, 2004
Other significant adjustments affecting “Change in goodwill impairment” relate to the cancellation under IFRS of income resulting from the exercise of put options by the former shareholders of Sanford C. Bernstein: (in euro millions)
TREASURY SHARES Buyback of shares in 2004 and changes in the value of the derivatives hedging part of these shares resulted in a net €–124 million decrease in the treasury share-related adjustment.
AXA has five operating business segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Other Financial Services. In addition, non-operating activities are conducted by the holding companies. The financial information for AXA’s business segments and the holding company activities is consistent with the presentation provided in the consolidated financial statements presented here in.
Other Financial Services Segment’s products and services. This segment includes mainly banking activities conducted primarily in France and Belgium.
SEGMENTAL LIABILITIES EXCLUDING December 31, 2004 SHAREHOLDERS’ EQUITY Life & Property & International Asset Other financial Holding Inter-segment TOTAL
Unearned revenues and unearned fees reserves 1,675 – – – – – – 1,675
Fees and charges relating to investment contracts with no participating features 417 – – – – – – 417
Other operating income and expenses (64,700) (17,432) (3,866) (2,618) (405) (284) 603 (88,703)
6.2. Change in goodwill 6.2.1. Goodwill – Change in gross value
Gross value Increase in Increase in Write back of Accumulated Currency Other Gross value December 31, impairment impairment impairment impairment translation changes (a) December 31, 2004 during relating to GW of GW sold losses adjustment 2004 the period created on during transferred acquisitions the period out relating during to goodwill the period transferred in the “held for sale” category
In 2005, amortization included an exceptional charge of €219 million in Japan, reflecting a 2005 change in future financial assumptions.
Loans designated as at fair value through profit & loss (c) 377 377 0.10% – – – 377 377 0.1%
Investment property includes buildings owned directly and through consolidated real estate companies. Investment property stated at fair value on the balance sheet mainly consists of assets backing with-profit contracts. It also includes the unallocated portion of real estate companies, part of which is used to back unit-linked contracts in which the financial risk is borne by the policyholder.
Loans designated at fair value through profit & loss (a) – – – –
Fixed maturities at fair value through profit & loss (a) 2 7 15 25
(a) Excludes the impact of derivatives (detailed in section 20.3.) and securities in real estate companies. (b) Recognized at fair value through profit & loss.
Cost before Impairment Cost after Revaluation to impairment and impairment but fair value revaluation to before revaluation fair value (a) to fair value (b)
Credit risk exposure, mainly relating to receivables from reinsurers, is covered in Note 5 (Management of financial and insurance risks).
Cash and cash equivalents was split as follows: This table excludes cash held by investment funds in the “satellite block”, as defined in section 1.7.2., and cash held in relation to contracts where financial risk is borne by policyholders (unit-linked contracts).
d) Dividends paid Dividends paid by AXA totaled €1,164 million in 2005 with respect to the 2004 financial year, as approved by the shareholders’ meeting of April 20, 2005.
Reinsurers’ share in future policy benefits reserve 3,710 – 8 3,718 3,377 – 6 3,383 Reinsurers’ share in unearned premium reserve 5 128 134 267 1 111 120 233 Reinsurers’ share in claims reserve (a) 376 1,791 2,692 4,859 412 1,628 2,051 4,092
– The entry of Daev Sach (Germany) in the scope of consolidation (€57 million).
Investment contracts with Discretionnary Participation Features (DPF) – measured with current assumptions (b) – –
In Phase I, the IAS Board acknowledged the difficulties involved in the recognition of discretionary policyholder bonuses. Phase II discussions concerning insurance and investment contracts with discretionary policyholder bonuses were only re-activated at the IAS Board level in December 2005 and have to date produced little guidance regarding the fair value measurement of these contracts. In addition, the IASB has numerous projects underway that could influence the definition of fair value relating to discretionary policyholder bonus clauses. Discussions on these issues are highly complex, and are not yet at a sufficiently advanced stage.
Reserve re-estimated at: Eight years later 12,905 16,272 19,267 Nine years later 13,028 16,188 Ten years later 12,488
Including liabilities arising from contracts including an surrender option with some
The fair value of financing debt at December 31, 2005, excluding interest accrued but not yet due, was €11,886 million, including relating hedging derivative instruments.
Carrying value by contractual maturity TOTAL Carrying 12 months More than 1 year More than 5 years value as at or less up to 5 years December 31, 2005
Impact of tax losses used but not recorded in the previous year (32) (12) Deffered tax assets booked on tax losses not previously recognized (16) (24) Tax losses generated in the year but not recongnized 11 35 Tax losses impact (37) (1)
Call sold 272 – – – – – – – 272 –
c. Futures and Forwards Futures are contracts that obligate settlement at a specified price at a specified future date and can be either exchange or non-exchange traded. Forwards are over-the-counter contracts.
Net value Impact of Impact of Net Value Net value Impact of Impact of Net Value excluding effect derivative instruments other derivative including effect excluding effect derivative instruments other derivative including effect of hedging value (a) subject to hedge instruments (c) of derivatives (d) of hedging value (a) subject to hedge instruments (c) of derivatives (d)
Derivative instruments hedging net investment in a foreign operation (liabilities) (c) – – – 267 – – – –
26.2.3. Net periodic benefit cost The net periodic benefit cost, that is, the annual expense for employee pension and other benefits recorded in the income statement, for the year ended December 31, 2005 is presented below: (in euro millions)
During 2005 period, the change in SORIE after tax and policyholder benefits deduction amounted to €–415 million (2004: €–319 million). As of
Five years thereafter 3,412 235 26.2.6. Plan asset mix at the end of year 2005
AXA Share options for US Holding company 16.0 11.5 2005 AXA SA grants 3.3 – AXA ADR grants 12.7 11.5
In 2004, taking into account AXA’s average stock price, 44 million of the shares relating to stock options were not included in the calculation of the weighted average number of shares on a fully diluted basis. This difference was mainly due to the new stock option plan in March 2004, relating to 10 million shares.
– Guarantee commitments given to customers totaled €4,189 million at December 31, 2005. They consisted mainly of (i) €3,490 million of performance guarantees granted by AXA Banque to funds managed by AXA IM, the fair value of this commitment being zero at December 31, 2005, and (ii) €541 million of guarantees provided by AXA Australia as part of its marketing of mutual funds, guaranteeing that customers will recoup their initial investment.
– €3,224 million of securities pledged by AXA Bank Belgium to financial institutions in respect of repo operations (cash management), along with €1,429 million of security interests given to the National Bank of Belgium as security for clearing-house activities.
On December 15, 2005, the AXA Group and the BNP Paribas Group signed a memorandum of understanding replacing the memorandum of understanding signed on September 12, 2001 and modified by an amendment on October 26, 2004.
On February 13, 2006, AXA informed the Management Board of AXA Konzern AG that AXA reached, directly and indirectly, more than 95% ownership of the shares (owned and tendered) in AXA Konzern AG.
Dividends from insurance companies outside Europe fell by €47 million to €74 million. The decrease was due to the non-recurrence of an exceptional dividend paid by the Moroccan unit in 2004.
Dividends from financial subsidiaries totaled €38 million, and came mainly from AXA Investment Managers, €31 million. This represents a fall of €94 million, which is explained principally by the lack of dividends paid by Compagnie Financière de Paris, whose 2003 earnings were boosted by releases of risk provisions.
Financial expenses fell by €7 million to €551 million. This was mainly the result of: – The non-recurrence of the 2004 final interest payment on the ORAN bonds (€0.38 per bond), which totaled €30 million.
The net loss on capital operations was €530 million, up from €139 million in 2004. This sharp increase in losses was mainly due to: – a €226 million allowance to exchange-rate risk provisions, up from €97 million in 2004. The company maintained its hedging policy on net investments denominated in foreign currencies in order to protect the Group’s consolidated shareholders’ equity against currency fluctuations. In particular, the company implemented additional hedges of $2.75 billion. In the Group’s consolidated financial statements, hedge accounting is applied, such that exchange rate movements have no impact on Group results. On the other hand, at parent company level, investments in subsidiaries are booked at historical cost in euros.
In accordance with the foregoing, the Management Board recommends the payment of a dividend of €0.88 for each of the 1,871,605,004 ordinary shares with dividend rights at January 1, 2005, payable as of
a) Gross revenues before sales tax 2,232 1,981 1,474 1,349 1,788 b) Pre-tax income from continuing operations, before depreciation, amortization and changes in reserves 1,481 1,223 846 660 1,061 c) Total pre-tax income, including capital gains and losses before depreciation, amortization and changes in reserves 1,402 1,222 934 603 598 e) Net after-tax income after depreciation, amortization 3 - PER SHARE DATA
Separate IDRs are calculated for the total inforce portfolio at the end of the year and the new business sold during the year: In addition to providing a comparison basis to other valuation techniques, the VIF IDR for 2004 also provides an element of the movement analysis between
– Expected return on surplus of €38 million is the expected after-tax profit on surplus assets (using the illustrative real world investment scenarios used to calculated IDRs for the prior year) in excess of those supporting the VIF. The expected return is not large because AXA generally does not retain large free surplus balances within its Life & Savings operations.
Salaried employees SALARIED EMPLOYEES As at December 31, As at December 31, As at January 1st, As at December 31,