(“AMF”) on March 19 , 2018, in accordance with the provisions of Article 212-13 of its General Regulation (the “Registration
Simplification and innovation: zooming in on these two topics, 2017 has been a watershed year for AXA. We started to simplify and decentralize our organization to make sure most decisions would be taken at the local entity level, closer to our customers. We also decided to accelerate our eff orts to focus on a few preferred segments with strong growth potential, namely Health, Commercial lines P&C and Protection. Focusing on these segments will trigger more frequent and meaningful interactions with our customers, and allow us to become a true partner and life companion in their daily lives. The announcement of the acquisition of XL G roup is a key milestone in this strategy, making AXA the number one global P&C Commercial lines player.
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, 2017 included in Part 5 – “Consolidated Financial Statements” of this Annual Report.
(a) Proposal to be submitted to the Shareholders’ Meeting to be held on April 25, 2018. (b) Individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 40% on the dividend, i.e. €0.32 per share for fiscal year 2013. (c) Individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 40% on the dividend, i.e. €0.38 per share for fiscal year 2014. (d) Individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 40% on the dividend, i.e. €0.44 per share for fiscal year 2015. (e) Individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 40% on the dividend, i.e. €0.46 per share for fiscal year 2016. (f) Proposal to be submitted to the Shareholders’ Meeting to be held on April 25, 2018. The gross amount of dividends will be subject to a unique withholding tax liquidated at an overall rate of 30%, unless in case of option for the progressive scale on income tax which would then apply to all capital income paid in 2018. 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. €0.50 per share for fiscal year 2017.
The financial strength, debt or performance of the Company and certain of its insurance subsidiaries is rated by recognized rating agencies. The ratings set forth below are subject to revision or withdrawal at any time by the assigning rating agency in its sole discretion. Credit ratings are intended to reflect the ability of AXA to meet its payment obligations and may not reflect the potential impact of all risks on the value of AXA’s securities. A rating is not a recommendation to buy, sell or hold securities. None of these ratings should be construed as an indication or forecast of the historical or potential performance of AXA’s securities nor should any such rating be relied upon for the purpose of making an investment decision with respect to any of the Company’s securities. The Company does not undertake to maintain its ratings, nor in any event shall the Company be responsible for the accuracy or reliability of any of the ratings set forth below. The significance and the meaning of individual ratings vary from agency to agency.
AXA also provides, through AB, diversified investment management and related services to individual investors, private clients and to a variety of institutional clients (including AXA and its insurance subsidiaries). AB’s off ering includes (i) diversified investment management services through separately managed accounts, hedge funds, m utual funds, and other investment vehicles to private clients (such as high net worth individuals and families, trusts and estates, and charitable foundations), (ii) management of retail Mutual funds for individual investors, (iii) management of investments on behalf of institutional clients, and (iv) fundamental research, quantitative services and brokerage-related services in equities and listed options for institutional investors.
Spain 13 1.9 5 5.4 Spanish Association of Insurance Companies. ICEA as of September 30, 2017.
(2 ) EUR 1 = HKD 9.29 as of December 21, 2017 (Source: Bloomberg).
AXA and the International Finance Corporation (IFC) are launching an innovative $500 million partnership supporting climate related infrastructures projects in emerging countries with private sector funding. There will be no investments in coal and oil sands related projects.
International gross revenues were up 2% (or €+165 million) to €7,034 million on a comparable basis, mainly from: ■ Singapore (€+133 million or +17%) to €895 million mainly due to higher Unit-Linked revenues; ■ Brazil (€+87 million or +109%) to €180 million mainly driven by new business in Commercial lines; ■ Poland (€+73 million or +15%) to €572 million mainly due to new business in Personal Motor and Commercial lines; partly off set by: ■ Turkey (€-209 million or -20%) to €677 million mainly due to a decrease in Motor Third Party Liability reflecting a change in market conditions following the implementation of a cap on
France (€1,849 million, 29% of total) up €32 million (+2%) mainly driven by (i) Unit-Linked (€+54 million) reflecting higher sales in real estate funds and discretionary mandates as well as in Group Retirement, (ii) Health (€+44 million) driven by higher volumes in international markets, and (iii) G/A Savings (€+40 million) mainly from Group Retirement due to the sale of a large contract, partly off set by (iv) Funds & Other (€-100 million) reflecting the non-repeat of a large contract underwritten in December 2016.
Exceptional operations (including discontinued operations) 387 5 (507) (0) 973 6 (91)
■ Lower expenses (€+160 million or -1%) primarily in (i) the United States (€+479 million) mainly from lower Deferred Acquisition Cost amortization due to both unlocking and reactivity impacts of model changes (mostly offset in net technical margin), and (ii) Europe (€+59 million) primarily due to the cost savings program and lower Deferred Acquisition Cost amortization in Germany. This was partly off set by (iii) France (€-242 million) mainly driven by business growth in Health and Life & Savings, and (iv) International (€-160 million) as a consequence of the acquisition of Liberty Ubezpieczenia and the first consolidation of Property & Casualty traditional activities in Poland, a less favorable business mix in Brazil, and higher commissions in line with the business growth in Colombia; ■ Lower VBI amortization (€+126 million or -74%) primarily in Europe (€+102 million) due to the non-repeat of the unfavorable change in interest rate assumptions in Switzerland and Germany.
Net income (Euro per Ordinary Share) 2.50 2.49 2.30 2.30 8.4% 8.4%
Net income decreased by €89 million (-6%) to €1,420 million. On a constant exchange rate basis, net income decreased by €87 million (-6%) as higher adjusted earnings were more than off set by the adverse impact of regulatory changes on annuity legal indexation (€-206 million) and the impact of the partial write-off of the net deferred tax asset position due to the decrease in the corporate tax rate from 34% to 26% enacted in 2017 and eff ective in the coming years (€-52 million).
Gross revenues decreased by €335 million (-3%) to €9,797 million. On a comparable basis, gross revenues decreased by €134 million (-1%): ■ Life & Savings (€-317 million or -5%) to €6,727 million. On a comparable basis, Life & Savings gross revenues decreased by €179 million (-3%) driven by Protection (€-166 million) mainly due to the non-repeat of the sale of a large Group contract in 2016, and G/A Savings (€-20 million) driven by lower new business; ■ Property & Casualty (€-18 million or -1%) to €3,070 million. On a comparable basis, Property & Casualty gross revenues increased by €45 million (+1%) mainly driven by Commercial lines (€+45 million) due to higher volumes and tariff increases mainly in Workers’ Compensation.
NBV Margin increased by 8.5 points to 66.4% mainly driven by a favorable financial assumption update as a result of higher interest rates as well as a positive business mix towards Group Protection.
Underlying earnings increased by €48 million (+6%) to €809 million. On a constant exchange rate basis, underlying earnings increased by €64 million (+8%).
Profit or loss on financial assets (under fair value option) and derivatives (32) 21
Profit or loss on financial assets (under Fair Value option) and derivatives - 23
(a) Net of intercompany eliminations. (b) Restated: reallocation of Direct Insurance business into the other Property & Casualty activities, as well as banking activities and holdings into the Other activities. (c) Other corresponds to AXA Bank Belgium and holdings.
Net income increased by €33 million (+14%) to €276 million. On a comparable basis, net income increased by €76 million (+36%) mainly driven by higher adjusted earnings, partly off set by a less favorable change in the fair value of Mutual funds and derivatives not eligible for hedge accounting.
Gross revenues decreased by €2 million (0%) to €1,275 million. On a comparable basis, gross revenues increased by €14 million (+1%): ■ Health (€-9 million or -5%) to €158 million. On a comparable basis, Health gross revenues increased by €8 million (+5%) mainly from Central Europe and France; ■ Property & Casualty (€+7 million or +1%) to €1,117 million. On a comparable basis, Property & Casualty gross revenues increased by €6 million (+1%) from higher volumes in NonMotor (€+13 million) mainly in Home despite large cancellations in Travel, partly off set by lower volumes in Motor (€-7 million).
On a consolidated basis, AXA’s total outstanding financing debt excluding derivatives amounted to €1,055 million at December 31, 2017 (€1,013 million including derivatives), a decrease of €84 million from €1,139 million at the end of 2016 (€1,109 million including derivatives).
Resources under Solvency II represent available financial resources (“AFR”) to the Company before the impact of any tiering eligibility restrictions and after consideration of the potential non-availability of certain elements of capital.
AXA to acquire XL G roup: creating the #1 Global P&C Commercial lines insurance platform
Report of the Board of Directors on the compensation policy of the Company’s corporate off icers 132 3.3 CORPORATE GOVERNANCE CODE OF REFERENCE 136 3.4 RELATED PARTY TRANSACTIONS 137
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 an independent director with regard to the Afep-Medef criteria due to his role as Deputy Chief Executive Off icer until August 31, 2016.
Directorships held during the last five years Chairman: Asian Civilisations Museum (Singapore) Director: Macquarie International Infrastructure Fund Ltd (Bermuda), National Heritage Board (Singapore), Rickmers Trust Management Pte Ltd (Singapore), Sembcorp Industries Ltd (Singapore)
Expertise and experience Mr. François Martineau is a graduate of the University Paris IV (Philosophy Degree), University Paris I (Law Master), and of the Institut d’études politiques of Paris. Mr. François Martineau has been an attorney since 1976. In 1981, he was Secrétaire de la Conférence. In 1985, he was a lecturer at the University Paris I (Civil Procedure). In 1995, he was a Professor at the Paris Bar School (EFB) and since 1998, he is Honorary Professor at the Law and Political Sciences School of Lima (Peru). In 1996, he became an Expert at the Council of Europe and fulfilled various missions in Eastern Europe countries regarding the reform of the Judicial Organization Code, the reform of the magistrates’ and lawyers’ training and the revision of the Civil Procedure Code. He also taught professionals at the École nationale de la magistrature (ENM). Since 1987, Mr. François Martineau has been a Partner of the law firm Lussan/Société d’avocats, and Managing Partner since 1995.
– the Company (dirigeants effectifs) as defined under the Solvency II.
It follows three guiding principles: ■ competitiveness and market consistency of the compensation practices; ■ internal equity, based on individual and collective performance, in order to ensure fair and balanced compensation reflecting employee’s individual quantitative and qualitative achievements and impact; and
The Board of Directors also took into account the extensive duties that it entrusted to Mr. Denis Duverne with as Chairman of the Board of Directors as described in Section 3.1 of this Annual Report.
Management Committee members’ performance with operating business responsibilities is determined according to the following metrics: (Group performance (30%) + operating business performance (70%)) x (individual performance (100%)).
Since 2013, the Board of Directors has implemented a deferral mechanism for 30% of executive off icers’ variable compensation over a two-year period.
These amounts reflect the evolution of the AXA share price and were set at 98% of the deferred variable compensation granted in respect of the 2015 fiscal year and at 118% in respect of the 2016 fiscal year.
These LTIs are integrally subject to performance conditions (please refer to pages 115 as well as 122 and following) and therefore do not guarantee any grant or minimal gain for the beneficiaries.
SUMMARY OF THE MANAGEMENT COMMITTEE MEMBERS’ COMPENSATION FOR THE YEAR 2016
Stock options are designed to align long term interest of Group senior executives with shareholders through the performance of the AXA share price.
Subscription or purchase price of options (a) 23.42 21.19 21.19 13.89 9.76 9.76 9.76 13.03 15.47 15.88
Subscription or purchase price of options (a) 16.60 16.60 15.43 15.43 13.89 13.89 13.01 13.01 12.22 14.73
Total number of shares to be subscribed (a) or purchased, from which to be subscribed or purchased by: 154,705 375,988 4,508,380 76,089 3,480,637 3,100,000 3,014,469 3,323,259 3,070,397
Under the AXA Group Compliance and Ethics Guide, all employees (including the corporate off icers of the Company)
Moreover as from 2016, two new relative performance criteria were introduced in the calculation of the global performance: ■ one criterion linked to Corporate Social Responsibility – CSR (based on the Dow Jones Sustainability Index “DJSI”) which weighs for 10% of the global performance rate. Accordingly, the average of the scores achieved by AXA according to the DJSI during the acquisition period is compared to the average of the scores achieved by the other companies included in the DJSI over the same period. Consequently, under this indicator: • no share shall be granted if AXA’s score is lower than the seventy-fift h percentile (1),
Number of shares acquired at 31/12/2017 2,905,776 2,595,903 (a) 5,187 (d) 5,455 (d) 0
To the best of the Company’s knowledge and based on the information reported to it, several members of the Board of Directors made the following disclosures in the course of 2017 concerning their transactions involving Company securities. Detailed information about all of these transactions, as well as individual disclosures filed in accordance with Articles 223-22 and 223-25 of the AMF General Regulations, are published on the Company’s website (www.axa.com) and on the AMF website (www.amf-france.org).
(a) AXA’s Board of Directors unanimously decided to propose to shareholders the renewal of Messrs. Denis Duverne and Thomas Buberl as directors for a period of 4 years at AXA’s next Shareholders’ Meeting to be held on April 25, 2018.
These recommendations were consolidated in a Corporate Governance Code of Listed Corporations published by the Afep (Association française des entreprises privées) and the Medef (Mouvement des entreprises de France) in April 2010 and revised in November 2016 (hereaft er the “Afep-Medef Code”), which is available at AXA’s registered off ice or on its website (www.axa. com) under the “Corporate governance” Section.
These factors have had and may continue to have an adverse eff ect on our revenues and results of operations, in part because we have a large investment portfolio. Our investment income is an important part of our profitability, and our sales of insurance and Asset Management products (as well as the level of product surrenders and lapses) are dependent upon financial market performance, customer behavior and confidence as well as other
Although we take measures to manage the economic risks of investing in a changing interest rate environment, we may not be able to mitigate the interest rate risk of our assets relative to our liabilities. Accordingly, ongoing volatility in interest rates and credit spreads, individually or in tandem with other factors, could have a material adverse eff ect on our consolidated results of operations, financial position or cash flows through realized losses, impairments, and changes in unrealized gains and loss positions.
While we seek to manage our exposure to foreign currency fluctuations through hedging, fluctuations in exchange rates may have a significant impact on our Euro-denominated results of operations, cash flows, gearing ratio, shareholders’ equity and solvency. In addition, the currency hedges we use to manage foreign exchange rate risk may in themselves significantly impact our cash and liquidity position.
We have significant exposure to third parties that owe us money, securities or other assets and which may fail to perform or default on their obligations to us due to bankruptcy, insolvency, lack of liquidity, operational failure, fraud, or other reasons. Such third parties include private sector and government (or government-backed) issuers whose securities we hold in our investment portfolios (including mortgage-backed, asset-backed, government bonds and other types of securities), borrowers under mortgages and other loans that we extend, reinsurers to which we have ceded our insurance risks, customers, trading counterparties, counterparties under swap and other derivative contracts, and other counterparties including brokers and dealers, commercial and investment banks, hedge funds, other investment funds, clearing agents, and market exchanges.
We have also entered into contractual outsourcing arrangements with third-party service providers for a wide variety of services required in connection with the day-to-day operation of our insurance and Asset Management businesses (including policy administration, claims related services, securities pricing and other services) which expose us to operational, financial and reputational risk in the event of a default by our counterparty service providers.
The insurance industry faces disruptive competitive challenges from the emergence of new actors, such as financial technology companies, or fintech, and insurance technology companies, or insurtech, which generally benefit from less extensive regulatory requirements (including less strict capital requirements) as well as from data synergies or technological innovation. In addition, development of alternative distribution channels for certain types of insurance and securities products, including through the Internet, may result in increasing competition as well as pressure on margins for certain types of products. Continued consolidation of the insurance sector may also result in increased competition.
In addition, while we have adopted a global Data Privacy Organization/Governance policy designed to manage risks related to data protection, there is no assurance that our existing or planned data protection rules, including our privacy-related Group Binding Corporate Rules, and governance organization will not need to be updated or replaced to comply with new laws and regulations applicable in the European Union (including Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, which will be directly applicable in all Member States from May 2018) or other jurisdictions where we operate or may operate in the future. Further, there can be no assurance that we will not unintentionally violate such laws or that such laws will not be modified, or that new laws will not be enacted in the future, which would cause us to be in violation of such laws. Any failure to comply with such laws could result in fines, penalties, injunctions or other similar restrictions, any of which could negatively impact our earnings and reputation.
Alternative Minimum Tax (“AMT”) while keeping existing AMT credits. It also contains measures affecting our insurance companies, including changes to the DRD, insurance reserves and tax DAC, and measures aff ecting our international operations such as a transitional tax on some accumulated earnings of foreign subsidiaries.
The AXA Group is engaged in Insurance and Asset Management business on a global scale. As such, it is exposed to a wide variety of risks, including market risks, credit risk, insurance risks, operational risk and other material risks, as further described in this Part 4 “Risk Factors and Risk Management” (1) and in Note 31 “Litigation” in Part 5 “Consolidated Financial Statements” of this Annual Report.
For more information about the composition and assignments of the Board of Directors and its Committees, please refer to Section 3.1 “Corporate governance structure – A balanced and eff icient governance” (1) of this Annual Report.
For more information about the Executive Management, please see Section 3.1 “Corporate governance structure – A balanced and eff icient governance” of this Annual Report (1).
Management and staff have primary responsibility for (i) establishing and maintaining an eff ective control environment, (ii) identifying and managing the risks inherent in the products, services and activities in their scope and (iii) designing, implementing, maintaining, monitoring, evaluating and reporting on the Group’s internal control system in accordance with the risk strategy and policies on internal control as approved by the Board of Directors.
Second line of defense: Group Risk Management function, including Group Internal Control function, and Group Compliance function
The PBRC Department within the Group Finance Department is responsible for consolidation, management reporting, the internal financial control program, as well as actuarial indicators and the economic balance sheet. These missions are performed for regular closings, forecasts and strategic plan exercises. PBRC works with local PBR units within the Finance Departments of Group subsidiaries.
In particular, Regional Risk Management Departments and/or Group Risk Management teams provide independent testing of the local model choices, local parameters, assumptions or calibration as well as local results.
AXA Group is exposed to financial market risks through its core business of financial protection (i.e. insurance) and through the financing of its activities as part of its equity and debt management.
The Group Corporate Finance and Treasury Department is in charge of producing reporting data that consolidate interest rate, foreign exchange and liquidity risk exposures, as well as the interest expenses of AXA SA and its sub-holdings. This reporting also includes medium-term forecasts.
AXA Group Risk Management is monitoring AFR sensitivities and the AFR is derived from IFRS equity. The following table presents the reconciliation between IFRS shareholders’ equity to Group AFR.
The increase of the technical provision adjustments in 2017 compared to 2016 is mainly driven by the favorable economic conditions increasing the BEL adjustment. MVM remains stable as the positive market eff ect is compensated by model changes on risk margin. Other adjustments (€+0.5 billion) decreased compared to last year, mainly due to the reduction in available statutory capital in the US, reflecting the reduction in deferred tax assets, as a consequence of the anticipation of the recapture.
2017 interest rate sensitivities for Life & Savings business (% of L&S AFR) of 2% to upward 50 bps and -3% to downward 50 bps show an asymmetry mainly driven by guaranteed interest rates having higher value when interest rates decrease, while higher reinvestment returns would need to be shared with policyholders limiting shareholders’ gains in a higher rate environment. However this classical pattern is not followed everywhere, as for certain type of business with significantly low interest rate guarantees, the AFR behaves more like a portfolio of fixedincome assets. In addition, higher interest rates aff ect the value both positively through higher investment rate and negatively through lower starting value of fixed income assets and higher discount rates for future profits. For diff erent product types these interactions produce diff erent results.
In the United Kingdom, AXA is exposed to exchange-rate risk through its AXA Insurance and AXA PPP Healthcare subsidiaries, which operate in Pound Sterling, and through AXA Ireland which operates in Euro. It has diversified its investment portfolios in line with Asset Liability Management objectives. AXA UK held investments denominated in foreign currencies for €3,745 million (€3,434 million in 2016) mainly in US Dollar (€2,450 million), with further UK exposure to the Euro (€926 million) and exposure to Pound Sterling (€301 million) in Ireland. This exposure is held both directly and indirectly through investment funds (CLO funds, Alternative Credit funds, Assets Backed Securities, commercial real estate loans and other investment funds). This exposure is hedged through foreign exchange forwards or cross currency swaps, with a further €307 million of exposure hedging liabilities held within the business.
Life risks also include risks related to mortality, longevity, lapses, disability and pandemics among others. The main risks to which the life business is exposed are longevity risk and lapse risk, which are both sensitive to changes in interest rates, and could be defined as follows: ■ longevity risk is the risk related to the overestimation of mortality rates for business contingent on longevity; ■ lapse risk is the risk of experiencing lapses lower (or higher) than expected on a permanent basis for businesses adversely sensitive to a decrease (or an increase) in lapses.
The additional reserves’ calculations are initially carried out locally through a two-opinion process, one given by the Technical Department, the other one by local Risk Management.
By developing relationships with researchers and supporting innovative projects in environmental, socio-economic and life risks, the AXA Research Fund (see Part 7 “Corporate Responsibility” of this Annual Report) is a key contributor to AXA Group’s commitment to better understand the evolution of these risks.
As of December 31, 2016, amounts include the assets of discontinued AXA Life Europe UK and Ireland operations for which the disposal process was not finalized at year-end.
(a) Amounts are shown net of related derivative instruments impact. (b) Includes liabilities arising from contracts where the financial risk is borne by policyholders with Guaranteed Minimum features. (c) As of December 31, 2017, amounts include the liabilities of AXA Wealth Management (HK) Limited (“AWM”) and of Germany pension business ProbAV Pensionskasse AG for which the disposal process was not finalized at year-end.
Note: amounts are presented net of impacts of shadow accounting and its eff ects on policyholder participation, deferred acquisition costs, and value of business in force. (a) Mainly undated subordinated debts (TSS, TSDI) (see Note 13.1.1 ).
Reserves relating to changes in fair value of financial liabilities measured at fair value through profit and loss that are attributable to changes in own credit risk” - - - - -
Net cash impact of transactions with cash impact not included in the operating income before tax 18,937 16,153
Intra-group transactions, including internal dividends, payables/ receivables and gains/losses on intra-group transactions are eliminated: ■ in full for controlled subsidiaries; and
Investment in real estate properties (excluding investment in real estate properties totally or partially backing liabilities arising from contracts where the financial risk is borne by policyholders) is recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated.
The accounting of net investments in foreign operations hedge is similar to the accounting of cash flow hedge. Any gain or loss on the hedging instrument relating to the eff ective portion of the hedge is recognized in shareholders’ equity; the gain or loss relating to the ineff ective portion is recognized in the income statement. Cumulative gains and losses in shareholders’ equity impact the income statement only on disposal of the foreign operations.
Future policy benefits reserves relating to investment contracts with discretionary participation features (previously called “savings contracts” in AXA’s accounting principles) that carry low mortality and morbidity risk are generally calculated using a prospective approach based on discount rates usually set at inception with reserves similar to the retrospective approach, (i.e. “account balance” methodology).
Embedded derivatives in insurance and investment contracts with discretionary participating features
The cost of the traditional formula of Sharep lan is valued according to the specific guidance issued in France by the ANC (Autorité des normes comptables). The cost of the leveraged formula plan is valued by taking into account the five-year lockup period for the employees (as in the traditional plan) but adding the value of the advantage granted to the employees by enabling them to benefit from an institutional derivatives-based pricing instead of a retail pricing.
Excluding minority interests related to consolidated investment funds and real estate companies that are classified in shareholders’ equity, these minority interests represent 76% of minority interests of the Group as of December 31, 2017 (80% as of December 31, 2016).
Europe: The Europe market consists of Life & Savings and Property & Casualty activities in Switzerland, Germany, Belgium, Spain, United Kingdom (UK) & Ireland and Italy. The German bank and the holding companies in these countries are also included in Europe. The direct and traditional entities are reported within their respective countries.
Other operating income and expenses (29,439) (39,888) (10,584) (32,350) (7,409) (6,014) 826 (124,857) (120,468)
For all cash-generating units, to the extent that securities valuations and interest rate levels remain low for prolonged periods of time, volatility and other market conditions stagnate or worsen, new business volumes and profitability together with the in force portfolio value would likely be negatively aff ected. In addition, the future cash flow expectations from both the in force and new business and other assumptions underlying management’s current business plans could be negatively impacted by other risks to which the Group’s business is subject. For each CGU, sensitivity analyses were performed with regards to the discount rate: an increase of 0.5% in the discount rate would not lead to an impairment loss for any of the CGUs as the recoverable amount for each CGU would still exceed its carrying value.
Debt instruments (at cost) that are not quoted in an active market (c) 9,155 9,347 9,127 279 87 6,892 7,091 6,872 274 75
Other debt instruments issued by government related 9,758 10,187 Corporate debt instruments (a) 190,193 203,529 Other debt instruments (b) 322 263 Hedging derivatives and other derivatives (1,818) (3,250) TOTAL DEBT INSTRUMENTS 429,632 446,861
Equity instruments as of December 31, 2017 8,974 8,043 785 1,450 3,921 1,256 1,937 2,522 28,888 16 28,903
The detail of “non-consolidated” investment funds breakdown was as follows: (in Euro million)
Fair value mainly not based on observable market data excluding derivatives (level 3)
Total liabilities (including financing debts but excluding shareholders’ equity) 6,026 1,116 5,064 1,228
As of December 31, 2016, the carrying value of treasury shares and related derivatives was €297 million. There was no AXA shares held by consolidated Mutual funds not backing contracts where financial risk borne by policyholders.
The total impact of foreign exchange rate movements was €-4,933 million (of which €-4,588 million from Group share and €-346 million from minority interests) as at December 31, 2017.
The negative impact in equity of actuarial losses arising from employee defined benefits obligation was mainly explained by: ■ the eff ect of the decrease in the discount rates by 60 bps on an average; ■ the increase in pension indexation rate (mainly in the United Kingdom); partially off set by: ■ the outperformance of assets covering employee’ defined benefit pension plans (mainly in the United Kingdom) compared to the discount rate; ■ net experience gains and other parameters affecting the defined benefit obligation.
Liabilities arising from insurance contracts where risk is borne by policyholders 159,702 - 159,702 160,222 - 160,222
The second line titled “Gross reserves for unpaid claims and claim expenses developed in 2017 adjusted for changes in exchange rates and scope of consolidation” indicates the amount that would have been developed initially at the booking date, had the exchange rates for the current year been used (for reserves recognized by AXA Group entities that do not use the Euro as their functional currency) and assuming an identical scope of consolidation to that used for the last diagonal of the table.
(b) Includes reserves inward reinsurance (€1,029 million in 2017, €1,101 million in 2016).
The table hereaft er and related comments exclude contracts where the financial risk is borne by policyholders (Unit-linked contracts).
Liabilities arising from investment contracts with no discretionary participating features (as per Note 14.3) 2,900 2,382
Derivatives relating to other financing debt instruments issued (a) (42) (30)
The income tax charge was split as follows: (in Euro million) December 31, 2017 December 31, 2016
These instruments are mainly used to: ■ hedge equity risk as part of the Asset Liability Management strategy associated with the guaranteed minimum benefits on Variable Annuity products, which totalled €7.7 billion at the end of 2017 (€8.8 billion at the end of 2016) mainly in the United States (notional amount of €6.4 billion in 2017 compared with €7.7 billion in 2016, this strategy also includes €6.3 billion of equily Total Return Swap classified as Other derivatives instruments in 2017 and €5.5 billion in 2016) and Switzerland (notional amount of €2.3 billion in 2017 compared with €2.4 billion in 2016); ■ hedge the exposure to equity risk within the General Account assets, protecting policyholders’ investments and their guaranteed liability over time, mainly in the United States (notional amount of €17.1 billion in 2017 compared with €11.8 billion in 2016).
In accordance with IAS 21 and IAS 39, the translation diff erence relating to these debt instruments used in operational entities is recognized in profit & loss and off sets most of the change in market value of associated derivative instruments, which is also recognized in profit & loss.
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 €3.9 billion in 2017 versus €9.7 billion in 2016); ■ implement credit risk hedging strategies by purchasing bonds and protection on the same name (i.e. CDS). During stressed market conditions, the credit derivative market is indeed more liquid than the cash market. For instance, holders of cash bonds may be unwilling or unable to sell the bonds that they hold as part of their longer-term investment strategies. For this reason, rather than simply selling their bonds, they turn to the CDS market to buy protection on a specific company or issuer and thus, contribute to increase the CDS market liquidity. This creates hedging opportunities (i.e. bond spread is higher than CDS spread) where the Group can hedge the underlying asset at an attractive price. In fact, through hedging strategies, insurance companies execute Negative Basis Trade (NBT) strategies, leading to the creation of an asset that can be compared to a risk-free asset. CDS protections used by AXA in this context amounted to €0.4 billion in 2017 versus €1.3 billion in 2016; ■ 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 €13.6 billion in 2017 versus €14.4 billion in 2016).
TOTAL LIABILITIES ARISING FROM INVESTMENT CONTRACTS 51,995 (79) 51,916 50,358 (95) 50,263
Fees, commissions and other revenues 1,457 - - 1,378 - -
Net result of reinsurance ceded was as follows: (in Euro million)
In the United Kingdom, United States and Germany, pensions in payment are generally updated in line with the retail price index or inflation, as opposed to in other countries where pensions do not necessarily receive inflationary increases once in payment.
From year N+11 until the last benefit payments is paid 22,020 529
Moreover, options to acquire AB Holding Units were granted as follows: 54,546 options were granted during 2016, 29,056 options were granted during 2015, and 25,106 options were granted during 2014. There were no options to buy AB Holding Units awarded during 2017, either to employees or eligible directors.
(€4,555 million), Belgium (€127 million) and Italy (€126 million) and (iii) €3,655 million other guarantees received from customers mainly at AXA Banque France (€3,654 million).
More than 3 years up to 5 years More than 5 years
AXA has guaranteed the liabilities and obligations of AXA UK in connection with the sale, in 2010, of part of its Life & Savings insurance business to Resolution Ltd. This includes the potential liability of AXA UK under customary warranties and indemnities given by AXA UK to Resolution Ltd. in connection with this transaction.
A class action was brought against AXA France and AGIPI (a French insurance association) on October 28, 2014 by a French consumer association, CLCV. This action alleges that AXA France and AGIPI breached their contractual obligation to maintain a 4.5% interest rate on certain life insurance contracts (CLER) subscribed by policyholders prior to June 1995. The class action complaint cites seven individual cases and is brought on behalf of all similarly situated policyholders. AXA France believes that it has strong defenses to these claims and will defend this matter vigorously.
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.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS
As specified in Article L.823-10-1 of the French Commercial Code (code de commerce), our statutory audit does not include assurance on the variability of the Company or the quality of the aff airs of the Company.
(a) In this table, voting rights’ percentages are calculated on the basis that all outstanding ordinary shares are entitled to voting rights, notwithstanding the fact that certain of these shares may be deprived of voting rights by law or otherwise (for example, treasury shares are deprived of voting rights under French law).
Certain of the Company’s shares are entitled to double voting rights as described in Section 6.3 “General information – Voting rights” of this Annual Report. Of the Company’s 2,425,235,751 outstanding ordinary shares on December 31, 2017, 434,422,341 shares entitled their holders to double voting rights as of that date.
Solvency II provides for two separate levels of solvency capital requirements: (i) the Minimum Capital Requirement (MCR), which is the amount of own funds below which policyholders and beneficiaries are exposed to an unacceptable level of risk should the insurance and reinsurance companies be allowed to continue their operations, and (ii) the SCR, which corresponds to a level of eligible own funds that enables insurance and reinsurance companies to absorb significant losses and that gives reasonable assurance to policyholders and beneficiaries that payments will be made.
In light of this and other initiatives in respect of compliance requirements, Management believes that the complexity and risks for international financial institutions like AXA in this area will likely continue to increase, and that compliance costs will also increase accordingly.
Notwithstanding the term of off ice for which the Chief Executive Off icer is appointed, his/her functions shall terminate at the latest at the end of the Ordinary Shareholders’ Meeting convened to approve the financial statements of the preceding fiscal year and held during the year the Chief Executive Off icer reaches the age of 65. The same rule applies for the Deputy Chief Executive Off icers.
Our Corporate Responsibility (CR) strategy is an essential driver of employee engagement, customer trust and brand image. CR is also a risk/opportunity management concern: it enables AXA to reduce certain costs and business and operational risks, while providing market opportunities in emerging or future commercial segments. Our Corporate Responsibility Strategy is focused on the core topics of climate change, health risk prevention, social development and using data for social good, while continuing to address broader environmental, social and societal concerns.
Disability (open-ended and fixed-term contract) Number of employees with disabilities – concerns entities operating in France only 770 emp. 750 emp.
■ Proportion of absences due to sickness 69.5 % 70.3 %
Du ring the AXA Inclusion Conference, 3 initiatives showcased how inclusion is driving innovation at AXA: AXA France addresses female customer segment with a new approach to sell products (“Programme L” and “Rencontres pour Elles”). At Krungthai-AXA Life (Thailand), the inclusion of transgender people among its salesforce network generated more business opportunities including a product off ering inclusive for LGBT people. Finally, the need of embarking all employees in a constant learning journey led to a great partnership with the provider Coursera.
The Group implemented environmental travel guidelines in order to reduce travel-related CO
versus 2016. To reduce carbon footprint, some AXA entities also purchased carbon credits.
(k) Unsorted wasted covers 89,143 FTEs, which is low as many entities are currently unable to monitor this waste flow.
In addition, AXA is committed to respect internationally recognized human rights principles as defined by the United Nations Universal Declaration of Human Rights, the core standards of the International Labour Organization and the UN “Ruggie Principles”, and has developed a dedicated policy. This policy is fully developed in AXA’s “Vigilance Plan” in Section 7.6.
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 also decided to end its investments from the main oil sands producers, defined as producers with at least 30% of their reserves based on oil sands. The production volumes of oil sands is largely influenced by the development of certain pipelines. As a result, AXA also divests from the main associated pipelines players. This represents an extra divestment of over €700 million.
AXA Hearts in Action is an international program intended to AXA employees, through which they can carry out volunteering activities addressing various issues (for example disability, education, environment, health and social welfare). In 2017, more than 52,000 volunteering acts were performed by AXA employees, mainly through AXA Hearts in Action local programs set up in at least 38 AXA entities, making their skills and time available to conduct community investment projects. Their engagement represented approx. 93,000 hours, dedicated by AXA employees to volunteering activities (during working hours).
On the basis of interviews with the individuals in charge of the relevant departments, we obtained an understanding of the Company’s sustainability strategy regarding human resources and environmental impacts of its activities and its social commitments and, where applicable, any actions or programmes arising from them.
in order to identify potential indirect impacts on human rights and the environment.
AXA further seeks to support its customers’ rights and to prevent or mitigate adverse human rights impacts that may arise from the provision of insurance products and services to corporate customers by: ■ ensuring fair treatment of all customers; ■ offering products and services which help reduce social exclusion and empower people to achieve positive health and safety outcomes; ■ providing customers with the means to express and resolve any disputes that may arise with AXA Group companies, notably through dedicated complaints departments.
AXA Group’s ICOFR includes policies and procedures that provide reasonable assurance that: ■ the maintenance of records accurately and fairly reflect the transactions and dispositions of Group assets; ■ the transactions are recorded as necessary to permit the preparation of financial statements in accordance with the applicable generally accepted accounting principles; ■ the receipts and expenditures are being made only in accordance with the authorization of management and directors of the Group; and
Net financial expenses, which include interest expenses net of interest incomes from loans and investments, stood at €744 million versus €2,852 million in 2016, an improvement of €2,108 million, mainly due the unwinding of interests rate derivative positions taken in 2016.
Subordinated debt stood at €10,667 million versus €11,399 million in 2016, a decrease of €732 million mainly reflecting €1,094 million repayment of the 2017 convertible subordinated bond (excluding redemption premium), a favourable foreign exchange impact of €557 million partly off set by the issuance of $1 billion in subordinated debt (€946 million).
Percentage of revenue VAT included of the period 0% 1% 4% 0% 3% 8%
(a) For Insurance companies: gross written premiums. For real estate companies: rental revenues. For holding companies: dividends. For financial services companies: gross banking revenues. (b) Consolidated data.
In accordance to regulation CRC 2008-15, repealed and replaced by regulation ANC n°2014-03 chapter “titre VI, chapitre II, section 4 Plans d’options d’achat ou de souscription d’actions et plans d’attribution d’actions gratuites aux salariés” (especially Articles 624-15 and 624-16) and chapters “titre IX, chapitre IV, section 5 Comptes financiers” (especially Article 945-50) treasury shares are recorded in “Marketable securities”. At December 31, 2017 41,395,855 shares were allocated to hedging purposes, representing €1 billion.
At the balance sheet date, the acquisition cost is compared to the fair value, which corresponds to the exit value for SICAV and FCP Mutual funds and to the average share price over the last month before the balance sheet date for the other securities.
■ Interest rate swaps: these transactions are recognized by applying the accrued interest method. A distinction is made in the income statement and balance sheet between income from the principal transaction, which is the subject of the swap, and the net income from the swap transaction. The nominal value of the swaps serving as bases for interest rate swaps is recognized off -balance sheet; ■ Derivative products qualifying as hedges against foreign exchange risk (exchange rate or currency swaps, currency futures) are recognized off-balance sheet as a reciprocal liability and receivable commitment. For currency options, the premium paid on acquisition is recognized as an asset on the balance sheet in the ‘cash instruments’ account.
(a) Proposed dividend at year end 2017 is submited to Shareholders’ Meeting of April 25, 2018.
The information on fair value presented above should be used with care: ■ since these estimates are based on the use of measurements such as interest rates and spreads at the balance sheet date; such measurements may fluctuate over time; ■ and because there are a number of possible ways to perform these calculations.
■ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and the related disclosures made by management in the financial statements.
• Germany (insurance activities excluding AXA Art, banking activities and holdings),
Comparable basis for R evenues, A nnual P remium E quivalent and NBV Margin
Debt Gearing refers to the level of a company’s debt related to its equity capital, usually expressed in percentage. Debt Gearing is used by the Management of the Group to measure the financial leverage and the extent to which its operations are funded by creditors as opposed to shareholders. AXA’s Debt Gearing is calculated by dividing the gross debt (financing debt and undated subordinated debt) by total capital employed (shareholders’ equity excluding undated subordinated debt and reserves relating to the change in the fair value of financial instruments and of hedge accounting derivatives plus gross debt).
It represents 100% of new regular premiums plus 10% of single premiums, in line with EEV methodology. APE is Group share.
APPENDICES A APPENDIX VI BOARD OF DIRECTORS’ REPORT – CROSS-REFERENCE TABLE