Our ambition We are working together to achieve a shared goal: that of making AXA
Directe in France. AXA also continued to streamline its portfolio of business, selling its health business in Australia and insurance operations in Austria and Hungary, and reorganizing its reinsurance business.
An Executive Committee assists the Management Board in the performance of its duties. Four special-purpose
– proposed stock repurchase programs submitted to a vote of the shareholders assembled in an ordinary meeting,
Fourtou, Jacques Calvet, David Dautresme, Henri Hottinguer, Gérard Mestrallet and Alfred von Oppenheim.
The Committee met seven times in 2002. The global attendance rate was 83%.
– notifies Company management, and the shareholders as it deems necessary, of any issue likely to have an impact on the Group’s net worth or financial condition,
The Finance Committee has six members, four of whom are independent: Messrs Claude Bébéar (Chairman), Thierry
The Committee held one meeting in 2002. All members were present.
– reviews all Management Board recommendations pertaining to the principles and procedures of compensation for
Number of shares owned as of December 31, 2002 (excluding AXA Actionnariat mutual funds)
To avoid carrying charges borne by the Company, AXA has opted to grant stock subscription rather than stock purchase options.
AXA Convertible Bonds (3.75% 2000-2017) transactions Calendar Highest stock price Lowest stock price Period Volume (in euros) (in euros)
Casualty underlying earnings demonstrating a strong turnaround, Life & Savings underlying earnings demonstrating strong resilience to the difficult financial markets, down just 1% compared to 2001.
So far, 2003 has not had an auspicious start. Markets continue to be extremely volatile, with faltering corporate profits and gloomy economic outlooks weighing on equities. Concerns surrounding the threat of war with Iraq has driven the US dollar to new lows and oil prices to new highs creating uncertainty and caution in the Global environment.
The six point improvement in the combined ratio from 112.5% to 106.5% enabled the Property & Casualty operations to deliver a strong recovery and demonstrated that AXA’s target combined ratio of 104% in 2003 was achievable.
As of November of 2001, the management of registered shares is handled by BNP-Paribas Securities Services, which makes a dedicated telephone platform (0810 888 433) available to AXA shareholders. Since March of 2003, shareholders may view their registered share account information online. Via the GISnomi website
In Europe, the post-World War II “baby boom” generation is creating an ageing population and, as a result, more countries are reducing the level of state funded welfare systems. This trend has led to an increase in retirement and other savings-oriented product advice and services in respect of financial, tax and estate planning.
as the shareholder, less a portion allocated to the “With-profit” policyholders in the form of a reorganization bonus, based on the number of eligible policyholders that elected in favor of this plan.
Asset Management is important to AXA, from both a strategic and profitability perspective. The development of Asset
Alliance Capital provides diversified Asset Management and related services globally to a broad range of clients including: – management of separate account, hedge funds and other investment vehicles for private clients (such as, high net worth individuals, trusts and estates, charitable foundations),
As at December 31, 2002, AXA IM had €268 billion of assets under management, including €51 billion of assets managed on behalf of third party clients (2001: €277 billion and €48 billion, respectively).
Other Financial Services The operations in the Other Financial Services segment are conducted primarily in Belgium and in France. For the year ended December 31, 2002, the Other Financial Services segment accounted for €1.0 billion, or 1% of AXA’s consolidated gross premiums and financial services revenues (2001: €1.1 billion or 2%, respectively).
As in prior years, AXA Corporate Solutions Reinsurance is presented separately because: (i) this business consists of insurance assumed from other insurers, (ii) the type of insurance and the nature of the risks and exposures covered is different compared to the direct insurance coverage provided by AXA’s Property & Casualty insurance operations and AXA Corporate Solutions Insurance, (iii) a portion of this business is reinsured to other reinsurers through retrocession programs which are monitored separately within the reinsurance operations, and (iv) the claims are accounted for on an underwriting year basis covering a 24-month period rather than on an accident year basis covering a 12-month period.
UAP acquisition in 1997. By the end of 2002, cumulative amounts paid was €9,079 million and the original gross claims reserve had been re-estimated to be €12,166 million at December 31, 2002. The “cumulative redundancy
Reserve re-estimated at: One year later 4,626 4,835 5,303 5,607 5,537 19,425 19,040 23,041 27,069 27,425 Two years later 4,555 4,680 5,177 5,477 13,881 17,510 19,407 26,294 25,919
Initial net claims reserves in excess of (less than) re-estimated net claims reserves: Percent of original net reserve (25.9%) 7.8% 9.4% 16.9% 24.9% 22.7% 5.0% 11.1% 16.7% 17.7% na (a) The loss reserve development table is presented on an underwriting year basis. Accordingly reserves re-estimated and the excess of re-estimated reserves in excess of the original reserves include reserves for losses occurring up to twelve months subsequent to the original year-end.
DEVELOPED TO CONSOLIDATED FINANCIAL STATEMENTS The following table reconciles the gross insurance liabilities, that is, the gross claims reserves including claim expenses, in the loss development tables presented above to that presented in the AXA’s consolidated financial statements
In 1999, Guardian Royal Exchange. AXA acquired the group Guardian Royal Exchange (“GRE”), through AXA UK
SIGNIFICANT DIVESTITURES Over the past years, AXA has also sold a number of non-strategic assets and operations that are summarized below: – In 2001, Banque Worms (France). The sale of Banque Worms to Deutsche Bank was completed on April 2, 2001.
– Asset management specialists, primarily subsidiaries of the AXA Group, are responsible for the day-to-day management of investments. Processes have been put in place to allow asset management subsidiaries to manage insurance company investments without surpassing the agreed-upon risk tolerance threshold stipulated in the related investment management contract.
Sensitivity to equity price fluctuations The estimated potential exposure to a 10% and a 20% decline in the December 31, 2002 value of the world’s stock markets would result in an estimated fair value loss for all items within the scope of the analyses of approximately €1.7 billion (€1.6 billion in 2001) and €3.3 billion (€3.1 billion in 2001), respectively, net of changes in liabilities reflecting profit participation credited to policyholders. The relative stability in exposure to equity market declines between 2002 and 2001 was mainly due to the following factors: Prolonged deterioration in the financial markets in 2002, which generated fair values that were lower at
do not consider the impact of market changes on new business generated in the future, primarily insurance premiums, which are a critical and integral component of future profitability. Like its industry peers, AXA would likely reflect adverse market changes in the pricing of new business. Therefore, management believes actual losses as a result of financial market fluctuations of the magnitudes analyzed would be less than these potential estimated losses.
Regardless of the local market or country of operation, AXA seeks to comply with all regulations aimed at preventing money-laundering and combating the financing of terrorist organizations and activities. In the early 1990s, AXA set up a decentralized system to ensure compliance with regulations in force, primarily in life insurance and asset management.
AXA is also subject to regulations pertaining to the additional supervision of insurance groups, and in particular those pertaining to adjusted solvency margin calculations based on consolidated financial statements, which must be submitted annually to the Commission de Contrôle des Assurances.
The use of these two sets of accounting principles may result in significant differences. Like all foreign issuers listed on the NYSE, AXA must also comply with the Sarbanes Oxley Act, which was passed in the US in July 2002. In particular, the Sarbanes Oxley Act requires that both the CEO and the CFO certify the consolidated financial statements, and contains requirements concerning corporate governance, such as the mandatory formation of an
This policy seeks a dual objective, inspired by the decentralized manner in which AXA’s operating units and management services units are managed.
United Kingdom. New annualized business (new regular premiums plus 10% of single premiums) grew by approximately 5% in 2002 (compared with 16% in 2001), the lower growth rate being largely attributable to continuing adverse stock market conditions, especially their volatility. As in 2001, pensions were the principal growth area in 2002; an increasing proportion of business was written on Stakeholder on ‘1% world’ terms where a 1% limit is placed on annual charges for administering such products. There was no growth in overall sales of investment products in 2002 although sales of guaranteed bonds increased by over 60%, reflecting investors’ caution in uncertain investment conditions. Sales of “With-profit” bonds, the largest investment product sector, fell by around 20% as falling stock markets left providers with insufficient financial strength to write the business at the levels of previous years.
Japan. The Japanese Life insurance market experienced declining in-force business for the seventh consecutive year
Europe in August 2002). Claims charges grew considerably in 2002 making further increases of insurance premiums likely, especially in the commercial lines and in private motor.
ACQUISITIONS On June 6, 2002, AXA and BNP Paribas announced that they had concluded an agreement in principle to the acquisition by AXA of 100% of Banque Directe, subsidiary of the BNP Paribas group. The operation was approved in September 2002 by the French regulator “CECEI”1, and closed on September 2, 2002. The purchase price was €60 million, and the operation generated a goodwill of €+13 million, amortized within the year.
Life & Savings and Property & Casualty operations, Hong Kong and Singapore Property & Casualty operations, Direct
The net income for full year 2002 strongly increased in 2002 to €949 million, or a €+429 million increase compared to full year 2001 level.
The cost income ratio remained stable at 77% in 2002 as compared to 2001 as the cost structure of the French Life segment adapted to lower activity levels. Excluding realized gains net of policyholders’ dividends, underlying cost income ratio improved by 3 points to 78% in 2002.
Net technical margin decreased by €–226 million in 2002 as compared to 2001, or a decrease of €–206 million on a constant exchange rate basis. The decrease was mainly attributable to (i) the increase in reserves in 2002 for mortality and income benefit risks on annuity products with Guaranteed Minimum Death Benefits (“GMDB”) and Guaranteed
– Life (17% of Life & Savings gross written premiums). Premiums decreased by –2% to €276 million, in a mature market.
The 2002 adjusted earnings were adversely impacted by an increase in equity securities impairment (€52 million in 2002 versus €24 million in 2001) and lower interest income reflecting the drop in interest rates. However, these items were more than offset by: (i) lower crediting rates to policyholders, as the policyholders dividends were cut effective 2002 in line with market trends, (ii) lower DAC/VBI amortization (€19 million and €2 million respectively on a constant exchange rate basis) induced by lower investment yields, and (iii) operational improvements - favorable mortality and improved persistency experience following the abatement of agent poaching (with the discontinuance rate reducing from 13.5% last year to 9.9% in 2002). In addition, expenses gross of DAC/VBI improved reflecting the successful implementation of process improvement initiatives and a decline in administrative headcount by 10%.
THE NETHERLANDS Gross revenues decreased by 0.1% to €918 million in 2002 as compared to 2001 (on a comparable basis). Life insurance (63% of total gross revenues) decreased by 6.1% to €578 million, which is in line with general market developments in the Netherlands. The decrease of unit-linked products and Life non unit-linked could not be offset by an increase in non unit-linked investment and savings products. This change in product mix towards certain products that have guaranteed rates is in line with the market trends. Gross revenues on Health business increased by 12%, which was mainly due to premium rate increases.
– Commercial lines (46% of gross written premiums): the increase in premiums was 8% as the consequence of rate increases in a context of strict portfolio selection. Premiums grew by 12% in commercial property and 9% in commercial motor.
– Net current accident year loss ratio improved by 5.6 points for commercial lines. This improvement is mainly attributable to rates increases and to a decrease in claims management expenses. This positive impact was partly offset by a higher cost of reinsurance ceded resulting from higher premiums ceded, notably on property treaties.
Improvement in loss ratio was particularly significant in the commercial motor and construction lines.
Net investment result declined by €66 million to €150 million. Valuation allowance recorded in respect of impairments on equity securities increased by €9 million to €97 million. Excluding valuation allowances, the net investment result decreased by €57 million, mainly explained by a lower level of realized capital gains (€–61 million).
SPAIN Gross written premiums increased to €1,070 million (+17.0% on a comparable basis). This evolution was mainly driven by (i) an increase in motor business by +11.0%, located both in commercial (+33.9%) and personal lines (+6.1%)
OTHER COUNTRIES Adjusted earnings are down to €–40 million, mainly attributable to the following countries: Morocco Gross written premiums decreased by –4% to €130 million, as a result (i) of the termination of a major policy in aviation, and (ii) of the cancellation of the agreements with some distributors in order to limit default payments, of which the effects were mainly observed in the major lines of business: motor (–1%) and workers’ compensation (–5%).
Expenses increased by €3 million. Excluding the Northern costs, they decreased by €1 million, following the cost cutting program implementation.
OTHER (UK DISCONTINUED BUSINESS) Adjusted earnings improved by €9 million to €–10.7 million. This improvement is primarily due to lower loss reserve development compared to 2001.
versus 2001. Institutional research services grew by 11% driven by expanded research coverage and broader trading capabilities.
Adjusted earnings decreased by €–40 million in 2002 to €36 million as compared to full year 2001. In 2001 adjusted earnings had been positively impacted by release of provisions for corporate loans for €22 million and release of general banking provisions for €13 million. Net capital gains decreased by €–7 million to €33 million. Fee income decreased by €–5 million due to lower volumes in off balance sheet products following the bad performances on stock markets. On the other hand, administrative expenses decreased by €13 million driven by cost cutting efforts.
Mortgage, policy and other loans 18,265 22,907 26,316 8 Total investments from insurance activities 239,816 248,208 243,241 9 Separate account (unit-linked) assets 90,458 115,723 117,261 10 Total investments from non-insurance activities 9,024 10,355 10,773 11 Investment in affiliated companies (equity method) 2,093 1,570 1,217
Total minority interests and shareholders’ equity 26,523 28,189 28,023 17 Mandatorily convertible bonds and notes – – 192 19 Insurance liabilities, gross of reinsurance 263,172 272,125 263,174 19 Separate account (unit-linked) liabilities, gross of reinsurance 90,011 115,305 117,469 20 Provisions for risks and charges 9,775 10,553 11,530 12 Payables arising from insurance and reinsurance activities 8,299 8,806 9,543
TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY 444,657 485,599 486,513 (a) The December 31, 2000 financial statement data, as reported, have been presented under a new basis of presentation following the implementation of new French Regulations effective January 1, 2001.
Off balance sheet commitments At December 31, 30 Other commitments received 30 Other commitments given
1. Year 2002 operating highlights The Company is a holding Company for AXA, an international group of companies offering financial protection and wealth management products. Based on available information, at December 31, 2001 AXA was the French, European and world’s largest insurance group1 and the world’s sixth largest asset manager2. AXA operates principally in Western
issued under its €3.0 billion Euro Medium Term Note Program (“EMTN”), a US$100 million bond due 2004, a €200 million bond due 2004 and a €200 million bond due 2005. These operations were used to refinance existing debts.
In addition, the total or partial transfer of securities between two consolidated subsidiaries (for which AXA has a level of interest less than 100% in either entity) will not effect the consolidated operating results, with the exception of the recognition of any related deferred tax and policyholders benefit, as it is reported as a change within shareholders’
3.10. ACCOUNTING FOR SHARE OPTIONS The accounting principles adopted by AXA for the accounting of stock option plans will vary according to the type of stock option plan.
Life & Savings Change Voting Ownership Voting Ownership and Property & Casualty in scope rights interest rights interest
National Mutual Home Loans Origination Fund No. 1 100.00 51.66 100.00 51.00
Agreement, AXA had an obligation to acquire all of the remaining shares of AXA Financial common stock outstanding through the merger of AXA Merger Corp. with and into AXA Financial (completed on January 2, 2001).
Based on the carrying value of the portion of net assets acquired of €3,913 million, the excess purchase price was €7,301 million. In application of the article D248-3 of the decree dated January 17, 1986 and of the recommendations issued by the “Commission des Opérations de Bourse” (French equivalent to SEC) in its January 1998 bulletin n° 210, excess purchase price was charged directly to retained earnings and reserves for €2,518 million, i.e. the entire excess purchase price in proportion to the value of ordinary shares issued by AXA to total purchase price.
This deficiency related to the difference between local statutory basis and AXA’s accounting policies on establishing
– Fair values of mortgage, policy and other loans are estimated by discounting future contractual cash-flows using interest rates at which loans with similar characteristics and credit quality would be originated. Fair values of mortgage loans on real estate in the process of foreclosure, non-performing mortgages and other loans are limited to the estimated fair value of the underlying collateral, if lower than the estimated discounted cash flows.
Fixed maturities: (a) Held to maturity and available for sale 139,639 5,345 (1,087) 143,288
Balance at Balance at January 1, Other December 31, 2001 Additions Deductions changes (b) 2001
Carrying value Carrying value contribution at January Change Other at December to Net 1, 2001 in scope changes (a) 31, 2001 income
– Conversion of 6,0% mandatorily convertible bonds at maturity 4.1 38 245 – – 282 – Merger of AXA Participations 2 19 197 – – 216 – Capital increase in June 2000 30.2 277 3,404 – – 3,681 – Employee stock purchase program (July 2000) 2.0 18 217 – – 235 – Exchanged in the buy-out of minority interests in AXA Financial, Inc. 20.9 191 2,940 – – 3,131 – Exercise of stock options and conversion of bonds 0.7 7 27 – – 34 – Cash dividends – – – (713) – (713) – Impact of foreign currency fluctuations – – – (296) – (296) – Goodwill from buy-out of minority interests in AXA Financial, Inc. – – – (2,518) – (2,518) – Effect of restructurings – – – 8 – 8 – Net income – – – – 3,904 3,904
(a) The movement in the number of ordinary shares outstanding in 2000 and 1999 was restated to reflect the 4-for-1 stock split approved by the shareholders in May 2001. (b) Includes the cash dividend paid of €971 million and supplemental tax charge arising from such distribution of €146 million. (c) Includes a €906 million capitalization reserve.
(1) For the amount which exceeds the 10% corridor (the greater of 10% of the present value of future benefits paid and 10% of the fair value of plan assets).
Change in unearned premium reserve (16) (307) (58) – – – (2) (382)
Bank operating expenses – – – – (625) – 25 (600)
– Net investment losses, including realized losses and valuation allowances, totaled €–3.4 billion in 2002 as compared to a net investment loss of €–2.4 billion in 2001 and a net investment gain of €7.0 billion in 2000 (including realized gain on the sale of DLJ). 2002 included (i) the change in market value on “With-profit” assets in the United Kingdom
(a) The number of shares reported prior to 2001 has been multiplied by four and the share price has been divided by four to take account of the 4-for-1 stock split approved by the shareholders at AXA’s annual general meeting of the shareholders held on May 9, 2001.
AXA has no credit risk related to notional principal amounts. The notional amounts do not represent the amounts actually exchanged by the parties and thus are not a measure of AXA’s exposure to the derivative instruments. AXA’s exposure is represented by the market value of the derivative contract at a point-in-time.
DERIVATIVE INSTRUMENTS ACCOUNTED FOR AS NON-TRADING OR HEDGING DERIVATIVES AXA primarily uses derivative instruments for non-trading purposes to manage risk, principally interest rate and foreign currency exposures. The risk management and associated hedging strategies are determined and managed by AXA’s local operations in light of both local GAAP and French GAAP requirements. Such hedging strategies include (i) managing interest rate exposures on fixed maturity investments, long term debt and guaranteed interest crediting rates on insurance contracts, (ii) managing foreign currency exposures on foreign currency denominated investments and liabilities, and
In addition, a European Directive dated October 27, 1998 on the additional supervision of insurance companies and insurance groups requires a consolidated solvency calculation effective for periods ending on or after December 31, 2001. France transposed this directive under an ordinance dated August 29, 2001, decreed on March 14, 2002 and applicable from 2002.
– Under French GAAP, AXA accounts for its investments in investment companies and real estate companies (including mutual funds) owned by insurance subsidiaries using the cost method. Under U.S. GAAP, such entities are consolidated if AXA has exclusive control over the fund or company; otherwise the equity method of accounting is used. In consolidating mutual funds or investments in investment companies for U.S. GAAP purposes, investment securities held by the funds are classified as trading and, therefore, are stated at estimated fair value and changes in estimated fair value are included in net income.
Under French GAAP, in the event that a subsidiary issues shares and there is a specific plan to repurchase such shares
Profit recognition for UK “With-profit” business as a result of the plan Under French GAAP, the profit recognized by AXA in respect of the UK “With-profit” business represents 10% of the bonus declared by the actuary and represented a change in methodology under French GAAP in 2001. Under
2.1. STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2002
The 2001 consolidated net income Group share in accordance with U.S. GAAP totaled €1,484 million and was higher than AXA’s consolidated net income in accordance with French GAAP by €964 million.
(b) Including adjustment on dilution gain Alliance Capital (which was previously presented as a separate line item ; 2001 : €347 million and 2000 : €326 million).
Unrealized investment (gains) losses on assets allocated to UK “With-profit” contracts, net of deferred income tax na na (477)
Consolidated balance sheet At December 31, 2002 U.S. GAAP French GAAP
Floating assets Other receivables totaled €227 million at December 31, 2002, compared with €510 million at December 31, 2001.
Commitments and contingencies (€784 million) include primarily a €568 million deferred tax reserve to cover the possible repayment of tax savings in connection with tax consolidation, €48 million in the form of a guarantee granted to Compagnie Financière de Paris covering estimated losses on loans held by Banque Worms, €86 million in reserves relating principally to the negative financial condition of certain subsidiaries, and €79 million in reserves for redemption of premiums on convertible bonds.
Documents pertaining to the Company can be consulted at the Legal Department - 21, avenue Matignon - 75008 Paris.
– Mazars & Guérard, 125, rue de Montreuil - 75011 Paris, represented by Messrs Patrick de Cambourg and Charles
– Mr. José Marette, 125, rue de Montreuil - 75011 Paris, first appointed on June 8, 1994. The current appointment is for a period of 6 years, until the annual general meeting of the shareholders called to approve the financial statements for the fiscal year 2003.
Maximum amount Maximum amount of the issue of the capital increase