■ 8 November Turnover announcement, first nine months of 2005 4, place Raoul-Dautry 75716 Paris Cedex 15 - France
Our financial performance last year was very satisfactory, with operating profit up 12% and embedded value at a record high of €50.1 per share. And although net profit rose by a more modest 8%, this was due to the abolition of the avoir fiscal tax credit on French source dividends. The recommended dividend of €1.66 represents a payout rate of just over 36% and an increase of 8.5% over the previous year. This payout rate enables us to offer shareholders a good yield while also financing business growth by increasing our shareholders’ equity and solvency margin.
The Executive Board is recommending an 8.5% increase in the dividend to €1.66 per share, representing a payout rate of just over 36%.
return on average equity (ROE) after dividends in 2004, unchanged compared with 200312.5%
Managed assets by category at 31 December 2004, excluding unit-linked portfolios (€154,929 million)
Our main shareholders – Caisse des Dépôts, La Poste, Caisse Nationale des Caisses d’Epargne and the French State – have signalled their long-term commitment to our Company and have signed a pact setting out the basic tenets of their common policy. Signed at the time of the IPO in September 1998, and renewed in May 2003 until 31 December 2008, the pact allocates seats on the Supervisory Board as folllows: 5 seats for Caisse des Dépôts, 5 for La Poste and Caisse Nationale des Caisses d’Epargne, and 1 for the State.
The portfolio breaks down between growth capital and LBOs (55%), venture capital (17%), funds of funds and secondary funds (24%) and mezzanine financing (4%).
Preliminary studies – launched in September 2003 Aim: based on a detailed review of the balance sheet, to identify fundamental issues related to the application of the various international standards and the main accounting options available; to perform simulations to determine the most appropriate solutions.
Lastly, operations support is provided by the staff working in corporate functions, including general services, legal affairs, human resources and communications.
■ Employees have a much clearer idea of the skills required not only for their current position but also to enable them to move up the career ladder.
The mobility agreement signed with employee representatives in 2003 sets promotion targets for managers and describes the Group’s commitments concerning promotion-related pay rises. The acquisition of Fineco Vita at the end of
(corresponding to the “cadres non classés” category defined in the CCNA collective bargaining agreement).
Over 1,200 beneficiaries (16%) filled in the questionnaire. Seventy-six percent of respondents were over 51, 68% were informed that they had been named as a beneficiary during the insured’s lifetime and 30% found out within an average of 13 weeks of the insured’s death. Seventy-five percent contacted an investment advisor. Sixty-six percent found the administrative formalities straightforward, while 24% thought that they were complicated. Their perception of the level of complexity matched their view of the time required to complete the process. Lastly, 60% of respondents were offered advice on reinvesting the capital.
The eight purchasing leaders selected from within the organisation will take up their positions in 2005. Each leader is a recognised expert in a specific purchasing category and acts as project leader for that category, heading work groups set up with the user units to identify the Group’s needs and assuming the role of interface with suppliers.
Our approximately 170 buildings are also managed in accordance with the principles of sustainable development, as evidenced by the commitments given in 2004 by the management company, GFF Institutionnels, to protect the environment and the buildings’ users, increase the level of user safety and comfort, improve the safety of service providers working in the buildings and reduce occupancy costs.
Consumer savings rates continued to decline in last year’s stable economic environment. Life insurance accounted for an increasingly large share of the market, attracting more than half of new savings due to the very low short-term interest rates, which encouraged a flight of capital from bank-type PEP accounts. Nearly one quarter of French savings are now invested in life insurance.
In 2004, we signed a strategic agreement with the Casino retail group, for the development and promotion of insurance products for customers of Casino stores in France.
CNP Assurances products picked up a number of awards at the Trophées des Meilleurs Assurances Vie event organised by Le Revenu, a financial magazine, in March 2005. Among the products distributed by the French Post Office: ■ Ascendo won Gold Medals in the combination unit-linked/nonunit -linked (diversified funds) category and the non-unit-linked category ■ GMO picked up the Silver Medal in the combination unitlinked /non-unit-linked (diversified funds) category Among the products distributed by Ecureuil Vie, a joint subsidiary of CNP Assurances and Caisses d’Epargne: ■ Initiatives Plus was awarded the Gold Medal in the non-unit linked category ■ Initiatives Transmission received the Bronze Medal in the non-unit-linked category ■ Nuances 3D won the Silver Medal in the combination unit-linked/non-unit-linked (diversified funds) category ■ Nuances Plus picked up the Bronze Medal in the combination unit-linked/non-unit-linked (diversified funds) category 52 An original business model
■ The last category consists of combination unit-linked/non-unit-linked products that enable policyholders to invest in both unit-linked and non-unit-linked funds through a single contract.
The Savings Banks sold 288,000 Perps in 2004, with higher average monthly premiums compared with the other pension products.
In a persistently competitive market, 2004 saw a very sharp rise in demand for group pension products. Insurers launched their new pensions offerings created pursuant to the 23 August 2003 pensions reform act, which prompted large companies to take a fresh look at pension provision for their employees. These developments drove 25.8% growth in the corporate pensions market, to €972.3 million, reflecting the signature of major pension and early-retirement benefit contracts with major companies and large SMEs.
The São Paulo stock exchange staged an outstanding recovery in the final months of the year. The Bovespa index, which had already gained 97% in reals and 141% in dollars in 2003, rose by a further 17.8% in reals and 27.7% in dollars, hitting an all time high of 26,200 points.
The economic recovery was accompanied by a sharp drop in the unemployment rate, to 9.6% at end-2004 from 10.9% at the start of the year, while the official number of jobs and average actual salaries both rose. The trade surplus reached a record high of USD 33 billion, helped by a surge in agricultural exports. The government also succeeded in keeping public finances under control, with consolidated public sector debt at 51.8% of GDP as of the end of December, its lowest level since June 2001.
The Global Group reported 2004 premium income of €181.3 million, an increase of 12.7% over the previous year.
In 2004, we actively promoted the development of synergies with our international subsidiaries. Our information systems teams supported the creation of management platforms for China and the development of loan insurance operations in Europe, contributed their expertise in datawarehousing and gave priority to IT projects offering synergistic benefits, including deployment of software solutions. The new communication and data sharing system has enabled our international subsidiaries to make an effective contribution to our cross-functional information systems projects.
Guaranteed rate contracts Life insurance contracts under which the insurer guarantees the payment of a certain minimum yield over a specified period.
This role consists of independently reviewing the Executive Board’s management of the Company, the financial statements and the various projects that require our prior approval in accordance with the law and the Company’s articles of association.
Certain adjustments were also made to the Audit Committee’s internal rules. The Committee’s terms of reference now include reviewing the report of the Chairman of the Supervisory Board on internal control and overseeing the auditor selection process. In addition, both the Audit Committee and the Remunerations and Nominations Committee may consult independent experts for advice, at the Company’s expense.
At its meetings in 2004, the Supervisory Board examined the following strategic projects: 5.1 ACQUISITION OF AN INTEREST IN IXIS ASSET MANAGEMENT
CNP Assurances previously held 20% of the capital of Ixis Asset Management (Ixis AM) with a carrying value of €145 million, and 10% of its convertible bonds, carried at €50 million.
We also recommended that the Executive Board consider in more detail its position as shareholder of the IAMG holding company before deciding to exercise the option of raising CNP Assurances’ interest to 20%.
In particular, we noted that: • Fineco Vita is ranked number ten in the Italian life insurance market, with a 4% share, and reported premium income of €2.28 billion, underwriting profit of €34.5 million and shareholders’ funds of €297 million in 2003.
This segregation of responsibilities guarantees to shareholders that the operations of the Company and the Group are subject to effective ongoing supervision.
This report describes the situation within CNP Assurances, but I also looked at the procedures related to the consolidated financial statements. The majority of French subsidiaries use the same information systems as the Company. For other subsidiaries in France (leasing companies, property companies, etc.) that fulfil the legal criteria, their respective Chairmen have or will produce their own internal control reports.
• Assess the effectiveness and the efficiency of the quality system, particularly in relation to the ISO certification process.
While products need to be attractive so that they sell, it is also critically important to strike an appropriate balance between risk and profitability by ensuring that commitments to policyholders are properly controlled.
2.2.3.5 International operations The control environment for international operations is based on the regulations and corporate governance principles applicable in each country, the appointment of the majority of the members of the Boards of Directors of the subsidiaries, and Group reporting systems.
The Actuarial Analyses, Management Accounting and Statutory Accounting departments also perform internal controls over the information and calculation methods used to determine non-recurring data and accounting estimates. Examples include estimates of accrued premiums, technical reserves, general operating expense allocations and accounts closing entries (including certain provisions for impairment in value of portfolio assets).
Plan Retraite Mutex is a Perp personal pension plan governed by the “Fillon Act” of 21 August 2003. It consists of a voluntary participation group contract offering participants the choice between a non-unitlinked formula and a combination unit-linked/nonunit -linked formula with a steady increase in the nonunit -linked weighting as the participant moves closer to retirement age.
As from the middle of the year, individual personal risk and savings offers were rolled out, through the Géant hypermarkets and also directly to the 3.3 million holders of Casino Group loyalty cards.
In France, sales of individual policies by the networks went from strength to strength, rising by 14.3% to €144.1 million.
Premium income from sales to companies rose by 25.8% to €972.3 million. This excellent performance stemmed, in particular, from the sale of a significant number of pension and early-retirement contracts to large corporates and SMEs in the last quarter.
Premium income, which accounts for nearly 40% of revenues, rose 10.2% in 2004. Excluding the currency effect, the increase was 10.4%. Changes in premium income are discussed in section 2.2 – Business Review.
Total administrative expenses – excluding the costs of the CNP Trésor network – reported by function increased by 3.3% to €577.4 million from €558.7 million in 2003. This amount corresponds to acquisition costs other than commissions, administrative expenses, claims handling costs, investment management costs and other underwriting expenses. In 2004, total administrative expenses represented 0.35% of technical reserves, virtually unchanged from 0.36% the previous year.
After taking into account other net income, exceptional items, income from associated companies and amortisation of goodwill, consolidated net profit for the year came in at €629.3 million, up 8% on the previous year.
In accordance with the recommendation of the French securities regulator (AMF) concerning the transition to IFRS, detailed disclosures of the effects of the transition are not provided in the annual report because the accounting treatment of certain items is still being discussed by work groups set up at industry level.
In addition, the interim financial statements for the six months ending 30 June 2005 will be prepared according to IFRS and will include full comparative figures for 2004.
Internal control is a continuous process of controlling and managing operations implemented by the Supervisory Board, the Executive Board and all employees, providing reasonable assurance that the following objectives are met: • The company’s assets are protected.
Reinsurance policy CNP Assurances implements a Group-wide reinsurance policy covering business written by the Company and by its subsidiaries. Overall underwriting results are protected by non-proportional treaties that are geared to the size of the Group and its claims-paying ability. The treaties consist of excess of loss treaties by event (catastrophe cover) and by insured person. The main objectives are to share risks on large-scale new business and to acquire expertise in writing aggravated risk business.
The Group’s investment strategy for each portfolio is based largely on the results of asset/liability simulations. One of the key requirements of the investment strategy is to ensure that CNP is able to fulfil its commitments towards policyholders at all times, while also optimising asset allocation and investment performance.
The Group performs regular simulations to test the behaviour of the various portfolios according to different interest rate and price scenarios.
The CNP Group regularly analyses the impact of a possible fall in interest rates on its claims-paying ability.
• The duration and level of yield guarantees is limited through the development of products offering guaranteed yields adjusted at annual intervals, thereby allowing asset managers to reduce the weighting of long-dated bonds in the managed portfolios.
The process put in place to identify, measure and monitor risks ensures that all potential risks are efficiently managed. The process incorporates a wide range of measures designed to reduce the probability of risks being incurred and to limit the impact of significant risks by taking out insurance cover.
All critical activities have been identified and analysed, and contingency plans have been drawn up for each department of the Company. These plans are based on an assessment of the human, IT and logistics resources needed to permit business to resume with the lease possible disruption. In addition, a crisis management structure has been set up, comprising several emergency committees, each responsible for dealing with specific issues.
Since the beginning of 2004, we have stepped up our schedule of roadshows for institutional investors in Europe and the United States. These roadshows provide an opportunity to address the main information needs of financial analysts and investors, concerning not only our fundamentals and results, but also new developments such as the transition to IFRS in 2005.
Recent legislative changes in the area of corporate governance, particularly the Loi de Sécurité Financière, are frequently considered as restoring power to shareholders. However, good corporate governance depends as much on more active control by the Supervisory Board and the Auditors, as on the quality of information given to shareholders.
The third resolution concerns the appropriation of profit and approval of the recommended dividend.
Under the terms of the resolution, the General Meeting will set the duration of the authorisation (not to exceed 38 months) and the maximum percentage of capital concerned by the grant programme. The statutory ceiling is 10% but the Executive Board recommends setting the plan ceiling at 0.4%.
Directorships and functions within the Caisse des Dépôts Group • Chairman of the Board of Directors of Caisse des
Immobilière SA (SNI). • Chairman of the Supervisory Board of Caisse des Dépôts
Financière Eulia SA. • Chairman of the Board of Directors of CDC Ixis SA. • Permanent representative of CNCE on the Board of
Directorships that expired in 2004 • Vice Chairman of the Supervisory Board of Martignac
Member of the Supervisory Board of CNP Assurances. First elected: 4 June 2002/current term expires: June 2007. Holds 50 shares.
Henri Proglio Born on 29 June 1949. Chairman and Chief Executive Officer of Véolia Environnement.
Investments and the related transactions are accounted for in accordance with the provisions of the Insurance Code.
The CNP Group uses various financial instruments traded over-the-counter or on organised markets. The Group adopted standard CRC 2002-09 on financial instruments as from 1 January 2003.
• Investment expenses include internal and external portfolio management costs, as well as interest and other financial expenses.
Based on studies carried out during the year, the effect of deferring business acquisition costs on net profit and shareholders’ equity would not be material. Therefore, no business acquisition costs have been deferred.
In € millions % Book value Contribution Contribution interest of shares to consolidated to consolidated net assets net profit
AT 31 DECEMBER 2004 Fully consolidated companies Assurbail 99.07% 194.4 33.5 23.9 Caixa (sub-group) 51.75% 476.7 (40.7) 24.5 CNP Assurances (parent company) 100.00% 4,767.7 408.3 CNP IAM 100.00% 245.6 252.1 38.6 CNP International 100.00% 23.3 8.0 1.8 CNP Seguros de Vida 76.47% 6.1 (2.0) 1.0 Ecureuil Vie 50.00% 508.7 372.0 90.0 Global 83.52% 50.5 5.9 4.7 Global Vida 83.57% 26.3 (2.3) (0.2) Investissement Trésor Vie 100.00% 22.4 31.5 4.2 Préviposte 100.00% 125.8 188.6 30.0 SCI CNP Immobilier 100.00% 0.8 (13.7) 1.1 SCI Sicac 100.00% 5.1 30.7 3.7 Proportionally-consolidated companies
Mark-to-market adjustment of assets held to cover linked liabilities 699.1 789.1 (2,397.2)
Five-year financial summary * Recommended 2005 dividend: €1.66 31/12/2004 31/12/2003 31/12/2002 31/12/2001 31/12/2000
Vila Nova de Gaia Portugal EUR NAv NAv Montagne de la Fage 56, rue de Lille 75007 EUR 1 2,149 Ofelia Chez A3C 42, Av. R. Poincaré 75116 EUR 12,609 23,283 PB6 31, rue de Mogador 75009 EUR 30,480 249 Pégase 5, boulevard Malesherbes 75008 EUR 2 0 Prévisol(1) 25, de Mayo 445 - Capital Federal EUR NAv NAv Provincia Art(1) Carlos Pellegrini 91, neuvième Piso Capital Fédéral - Buenos Aires EUR NAv NAv Pyramides 42, avenue Raymond Poincaré 75116 EUR 51,103 1,993 Rueil Newton 4, place Raoul Dautry 75015 EUR 15 (64) Siparex 2(1) 139, rue Vendôme 69477 Lyon EUR NAv NAv Sonae EUR 540,000 NAv Vendôme Europe 61, rue La Fayette 75009 EUR 2 0 Colline Défense EUR 20 0 Prévimut EUR 30,309 295 GF de la Grande Haye(1) EUR NAv NAv
Capital contribution to Ixis Asset Management Group and signature of a shareholders’ pact
At its meeting on 1 September 2004, the Executive Board authorised Gilles Benoist and Antoine Lissowski, acting jointly or separately, to decide to issue all forms of debt securities. The authorisation was given for a period of one year but may be withdrawn at any time by decision of the shareholders in General Meeting.
TOTAL SHARES HELD BY THE SIGNATORIES OF THE SHAREHOLDERS’ PACT* 101,393,501 73.54% 74.06%
• On 17 April 2002, the Executive Board decided to use the authorisation given at the Annual General Meeting of 6 June 2000 to carry out a second employee rights issue. A total of 726,356 new €4 par value shares were issued on 21 June 2002, ranking pari passu with existing shares. The issue proceeds totalled €20,011,107.80, including €2,905,424 credited to the capital account and €17,105,683.80 to the share premium account. Following this issue, the share capital amounted to €551,416,256, divided into 137,854,064 ordinary shares with a par value of €4.
Dividends paid in the last five years were as follows: 2.9 DISCLOSURES OF INTERESTS
• Trading volumes and share prices over the last 24 months .........................................................................................................................199
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