Axa Sa · EURONEXT:CS
Axa Sa — H1 2004 Earnings Presentation
64 slides from Axa Sa's earnings presentation, Aug 6, 2004
Slide 1: Half year 2004 Earnings
Half year 2004 Earnings August 6, 2004
Slide 2: Glossary
Glossary Adjusted Earnings Net income before the impact of exceptional operations and goodwill amortization. Underlying Earnings Adjusted earnings excluding net capital gains attributable to shareholders and claims associated with the September 11, 2001 terrorist attacks. Adjusted and underlying
Slide 3: Table of contents
Table of contents 1 : First Half 2004: harvesting the fruits of our strategy 2 : First Half 2004 environment and trends 3 : Overview of First Half 2004 Consolidated Results 4 : MONY 5 : Summary Half Year 2004 Earnings - August 6, 2004 - Page 3
Slide 4: 1H04 operating story: harvesting the fruits of our strategy
1H04 operating story: harvesting the fruits of our strategy Euro million 1H04 Growth Growth at cst FX Volume: Revenues 37 306 -0.4% +2.4%(1) Earnings: Underlying earnings 1,436 +32% +37% Adjusted earnings 1,590 +338% +355% Net income 1,444 +590% +621% Productivity: Life NB Contribution 368
Slide 5: Continuing our journey: strong earnings improvement in 1H04
Continuing our journey: strong earnings improvement in 1H04 Euro million Underlying Earnings 2,035 1,687 R(1 ) C AG 1,533 + 18% 1,436 1,196 R(1 ) 1,085 % CA G 1,022 + 19 876 % + 32 2000 2001 2002 2003 1H01 1H02 1H03 1H04 Per share (2) 0.77 0.89 0.97 1.14 0.50 0.58 0.61 0.77 (1) Compounded Annual Gro
Slide 6: Growth driven by the turnaround of the last acquired businesses
Growth has been driven by the turnaround of the last acquired businesses... Underlying earnings Euro million 237 188 130 143 135 79 67 52 60 11 25 04 04 03 00 03 00 04 04 00 03 00 03 1H 1H 20 20 20 20 1H 1H 20 20 20 20 Japan UK Germany Belgium Life(1) P&C(2) P&C Life and P&C -233 Acquisitions Date:
Slide 7: Fostering excellence in existing entities despite difficult equity markets
… and also by fostering excellence in existing entities, despite difficult equity markets since 2000 688 Underlying earnings 651 million 580 1/1/00-12/31/03 1/1/00-6/30/04 S&P 500 -23.6% -21.6% 411 379 Stoxx 50 -43.6% -43.0% 325 155 127 89 4976 51 30 66 -32 04 04 04 04 04 20 0 20 0 20 0 20 0 20 0 03
Slide 8: Unique diversification, a key part of our strategy
This has resulted in unique diversification, a key part of our strategy Underlying earnings breakdown(1) Other Other France Asset Asset 14% 3% France 24% Management Management 18% 29% 8% Australia/NZ +HK 4% 13% 4% Belgium Japan 4% 18% Germany 5% US 37% 11% 8% Southern Europe US UK Belgium 2000 1H04
Slide 9: The platform built is the cornerstone for sustainable growth
The platform that we have built is the cornerstone for sustainable and profitable growth... Diversification Scale Group leverage No over-reliance on one activity/region Capacity to absorb shocks Benefit from group mutualization of resources (AXA Cessions, AXA Tech, Global Procurement, best pra
Slide 10: First half 2004 achievements in profitable growth
…as demonstrated by our first half 2004 achievements in terms of profitable growth, ... Life & Savings P&C Unit-linked sales : +19%(1) Net portfolio inflows (6 months) +238,000 motor contracts(2) Euro million 1H04 change +57,000 Household contracts(2) vs 1H03(1) APE 2,249 +3.8% Combined ratio NB
Slide 11: Continued efficiency improvement in all principal operations
… and our continued efficiency improvement in all of our principal operations Life P&C Underlying cost income ratio(1) Administrative expense ratio Ö1H03: 82.7% Ö1H03: 11.1% Ö1H04: 77.3% Ö1H04: 10.3% Asset Management cost income ratio(2) Alliance Capital AXA Investment Managers 1H04 change 1H0
Slide 12: In the future, we will
In the future, we will: Continue to restructure specific situations Enhance further our other entities Leverage MONY acquisition Î Broader product offering in the US Î Stronger distribution Î Cost integration play Half Year 2004 Earnings - August 6, 2004 - Page 12
Slide 13: Minority buyout of AXA Asia Pacific Holdings
We will also seize growth opportunities, such as the minority buyout of AXA Asia Pacific Holdings Rationale Î Increase exposure to the Asian region and its inherent growth Î Be in a better position to seize Asia external growth opportunities Î Further enhance diversification and quality of our resul
Slide 14: Table of contents
Table of contents 1 : First Half 2004: harvesting the fruits of our strategy 2 : First Half 2004 environment and trends 3 : Overview of First Half 2004 Consolidated Results 4 : MONY 5 : Summary Half Year 2004 Earnings - August 6, 2004 - Page 14
Slide 15: Life & Savings: local trends prevailing, drivers point in the right direction
Life & Savings: local trends are prevailing, but all drivers point in the right direction Different trends in Life & Savings markets: Î Flat in Belgium and Japan Î Growth in the US Î Strong growth in HK, Australia and France Main drivers of Life & Savings insurance markets: Î Pension reforms Î U
Slide 16: P&C: has anybody seen the peak?
P&C: has anybody seen the peak? Rates plateauing in individual lines Commercial lines: lower rate increases in a more competitive market Favorable claims environment in all countries and all lines of business: Î Low level of large losses, although slightly higher than in 1H03 Î Low level of we
Slide 17: International insurance: favorable environment for disciplined players
International insurance: favorable environment for disciplined players Continued benign environment, both in terms of large claims and natural catastrophes Increased competition, encouraged by customers and fueled by new entrants, both on reinsurance and large risks Despite competition, tariff
Slide 18: Asset management: scale and multi-discipline proposition are key
Asset management: scale and multi-discipline proposition are key US Europe Continuing shift from Specialization of growth to value equity Institutional Clients management mandate Global mandates gaining Growth in alternative asset traction among institutional classes (hedge funds, real clien
Slide 19: Table of contents
Table of contents 1 : First Half 2004: harvesting the fruits of our strategy 2 : First Half 2004 environment and trends 3 : Overview of First Half 2004 Consolidated Results 4 : MONY 5 : Summary Half Year 2004 Earnings - August 6, 2004 - Page 19
Slide 20: AXA delivered diversified and profitable revenue growth
AXA delivered diversified and profitable revenue growth 37.5 37.3 Revenues Growth(1) Euro billion ( 1) Life & Savings +1.6% .4% +2 P&C +4.2% Asset Mgmt +19.1% Gross Revenues Int’l Insurance -6.1% 1H03 1H04 Revenue growth boosted by P&C: Î Net inflows in individual motor Î Successful targeted strat
Slide 21: 1H04 economic expenses decreased by Euro 49 million
1H04 economic expenses decreased by Euro 49 million compared to 1H03 1H04 1H03 Change AXA Consolidated general 8,442 8,297 + 144 expenses(1) Non commissions expenses 3,813 3,850 - 37(2) excl. Asset Management Economic expenses 3,813 3,862 - 49 (at 1H03 exchange rates) (1) Before DAC/VBI capitalizati
Slide 22: 2004 is a good vintage so far
2004 is a good vintage so far, with strong underlying performance in all of our principal operations Euro 1H04 1H03 Change 1H04 per million million Change at cst. FX share(2) Change Life & Savings 848 680 +25% +31% Property & Casualty 562 402 +40% +40% International Insurance 141 50 +180% +184% Asse
Slide 23: P&C: underlying earnings growth and improved combined ratio
P&C: underlying earnings growth boosted by improved combined ratio within the target range of 98-102% Combined ratios(1) Underlying earnings Combined ratios in % Earnings in Euro million Improv't Improv't 1H04 1H04 from 1H03 from 1H03 France 99.9 -2.3 170 +33 Germany 99.5 -0.1 67 +43 UK & Ireland 98
Slide 24: P&C: combined ratio improvement from technical and expense ratios
P&C: combined ratio improvement due to better technical and administrative expense ratios Improv't Technical result improved owing to: Ratios (in %) 1H04 from ÎFavorable personal claims frequency 1H03 ÎBenign commercial claims environment Loss, excl. CH(1) 67.6 -2.0 ÎNo mali Claims handling 4.8 -0
Slide 25: International Insurance: strong 1H04 results confirming turnaround
International Insurance: strong 1H04 results confirming turnaround 1H04 benefited from: Combined ratio In % 105.2 Continued benign claims environment 95.0 Expense ratio 13,1 No natural catastrophes 18,1 Selective underwriting Loss ratio 92,1 76,9 Improved reinsurance protections AXA RE (1)
Slide 26: Asset Management underlying earnings benefited from revenue growth
Asset Management underlying earnings benefited from revenue growth and continued expense control efforts Revenues were up 10%, or 19% at constant currency, fueled by: Î Solid net inflows at AXA Investment Managers Î Strong equity markets’ recovery Asset Managers AUM Euro billion 696 712 646 648 66
Slide 27: Life & Savings: strong underlying performance
Life & Savings: strong underlying performance Underlying earnings Change Change at 1H04 (Euro million) from 1H03 cst FX France 240 +4% +4% US 309 +11% +23% UK 53 +77% +74% Japan 79 +100m +104m Australia/NZ+HK 66 +15% +19% Other countries 102 -2% -2% Total L&S 848 +25% +31% Other countries’ underlyin
Slide 28: Life & Savings: gross margin growing faster than expenses
Life & Savings: performance driven by gross margin growing faster than expenses Margin Analysis of Pre-tax & Pre-minority Underlying Earnings(1) Euro million 1H03 1H04 Growth(2) 1H03 1H04 1H03 1H04 3 752 Underlying 1 172 +11% 3 400 Investment 1 056 Gross margin Margin 9% +2 +11% 0% Fees & 1 972 2 19
Slide 29: Life & Savings: underlying investment margin increased
Life & Savings: 1H04 Underlying Investment Margin increased on the back of stable yields 1H03 1H04 Underlying Investment Margin was up 11%, or 15% at constant currency, owing 1 172 to: 1 056 Higher Investment Income Euro million, pre-tax & pre-minorities Î Higher general account balance Î Stable y
Slide 30: Life & Savings: fees and revenues strongly increased
Life & Savings: 1H04 Fees & Revenues strongly increased on higher average separate account balances 1H03 1H04 Fees & Revenues increased 11%, or 14% at constant currency, resulting from: Separate Account fees up 24% at constant currency, in line with average S/A balance Euro million, pre-tax & pre-
Slide 31: Life & Savings: technical margin
Life & Savings: 1H04 Technical Margin reflected offsetting reserve actions and incremental Japan conversions & surrenders 1H03 1H04 Technical margin was up 4%, or 11% at constant currency, owing mainly to: Euro million, pre-tax & pre-minorities Offsetting reserve actions in 1H03 (UK and Japan) and
Slide 32: Life & Savings: new business margin increased to 16.4%
Life & Savings: 1H04 New Business Margin increased to 16.4% as a result of higher unit- linked sales and profitability improvement Group share 1H04 1H03 In Euro million, NB NB except margins in % APE(1) NBC(2) Main Drivers Margin Margin France 507 71 14.1% 8.4% Increased individual unit-linked sales
Slide 33: Table of contents
Table of contents 1 : First Half 2004: harvesting the fruits of our strategy 2 : First Half 2004 environment and trends 3 : Overview of First Half 2004 Consolidated Results 4 : MONY 5 : Summary Half Year 2004 Earnings - August 6, 2004 - Page 33
Slide 34: Key principles of purchase GAAP accounting on MONY
Key Principles of Purchase GAAP (“PGAAP”) accounting on MONY’s December 31, 2003 US GAAP balance sheet MONY’s balance sheet ASSETS LIABILITIES & EQUITY US GAAP at Dec. 31, 2003 - In $ billion Fair valued under PGAAP Fair valued Invested Actuarial under PGAAP Assets Reserves 12.8 11.8 Written off und
Slide 35: MONY Integration & Synergies
MONY Integration & Synergies Cross-sell activity has started ÎAXA Financial & MONY salesforces trained in complementary product offerings: Equitable variable annuities available to MONY’s advisors MONY specialty risk products available to AXA Advisors ÎMONY Partners life wholesaling business
Slide 36: MONY expected expense savings and earnings forecasts
MONY - Expected expense savings and underlying earnings forecasts in line with acquisition assumptions Combined AXA Financial and MONY run-rate pre-tax merger operating expense savings of $175m starting in 2005 Incremental 2005 after-tax underlying earnings resulting from the implementation of t
Slide 37: Table of contents
Table of contents 1 : First Half 2004: harvesting the fruits of our strategy 2 : First Half 2004 environment and trends 3 : Overview of First Half 2004 Consolidated Results 4 : MONY 5 : Summary Half Year 2004 Earnings - August 6, 2004 - Page 37
Slide 38: 2004 is a good year; going forward we expect
So far, 2004 is a good year with all our principal businesses demonstrating their earnings potential. Going forward, we expect that: P&C and International Insurance will extract further productivity gains Life & Savings and Asset Management growth will accelerate owing to economic recovery and c
Slide 39: Three to four years ago ... AXA today
Three to four years ago ... We were recognized as having a track record for acquiring under-managed companies at an attractive price Our challenge was to demonstrate our ability to continue to turn around acquisitions and increase our core business margins ... AXA today: Can buy attractive tar
Slide 40: Significant room for improving our operating model
And, whatever the cycle, we have significant room for improving our operating model The benefits of our model: Being in one well-identified business Having unique diversification Striving for operational excellence From that base, we want to: Strengthen our organic growth Continue to lower
Slide 41: Cautionary Statements Concerning Forward-looking Statements
Cautionary Statements Concerning Forward-looking Statements Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statem
Slide 42: Financial Protection: Be Life Confident
A A % FINANCIAL PROTECTION Be Life Confident
Slide 43: Appendices
Half year 2004 Earnings Appendices
Slide 44: 1H04 net income included exceptional operations of Euro 191 million
1H04 net income included exceptional operations totaling Euro 191 million Disposal of Unirobe : Euro 104m net capital gain Disposal of AXA Bausparkasse : Euro 22m net capital loss Reduction of the state tax liability booked on the capital gain recorded when DLJ was sold: Euro 43m net A Euro
Slide 45: 1H04 benefited from the market recovery
1H04 benefited from the market recovery, while 1H03 was helped by a gain of Euro 442m on the sale of Credit Lyonnais 1H04 1H03 Capital Equity Capital Equity Euro million gains/ valuation Net gains/ valuation Net (1) allowances(2) (1) allowances losses losses Life & Savings 144 -86 58 51(3) -535 -484
Slide 46: AXA's 1H04 revenue diversification
AXA’s 1H04 revenue diversification Insurance revenues by geography Other International South Europe France 6% 5% 6% 25% Belgium 5% Germany 10% 3% 17% Australia/NZ 8% US +HK 15% Japan Revenues by operating segment UK+Ireland Property & Casualty 26% 4% Life & Asset Mgmt 63% 7% Savings Int'l & Other Fi
Slide 47: Combined ratios improved across the Group
Combined ratios improved across the Group owing to disciplined underwriting, still benign claims environment and expense control,... Combined ratios(1) (%) 1H04 1H03 Change FY03 France 99.9 102.2 -2.3 101.5 Germany 99.5 99.6 -0.1 101.0 UK & Ireland 98.5 102.4 -3.9 100.5 Belgium(2) 100.3 102.0 -1.7 1
Slide 48: Appendices: DAC
Half Year 2004 Earnings - Appendices DAC Half Year 2004 Earnings - August 6, 2004 - Page 48
Slide 49: DAC at June 30, 2004
DAC at June 30, 2004 Gross Net Total (Euro million) 10,565 5,312 of which US 5,361 51% 3,485 66% $ million DAC Account value DAC/AV Traditional Life 853 9,242 9% Variable and interest 2,432 17,179 14% sensitive Life Annuities 3,199 61,851 5% Other 30 512 6% Total 6,515 88,784 7% Half Year 2004 Earni
Slide 50: DAC reversion-to-the-mean methodology is justified
DAC - AXA’s Reversion-to-the-mean (RTM) methodology is justified A significant assumption in the amortization of DAC on VA and VL&ISL products relates to projected future Separate Account (S/A) performance. For this purpose, AXA’s RTM approach in the US assumes that markets will return to an average
Slide 51: Appendices: GMDB/GMIB
Half Year 2004 Earnings - Appendices GMDB/GMIB Half Year 2004 Earnings - August 6, 2004 - Page 51
Slide 52: GMDB/IB/AB net reserves amounted to $328m
GMDB/IB/AB net reserves amounted to $328m at 06/30/04 GMDB/IB/AB reserves based on our interpretation of DSOP 06/30/04 06/30/04 Net 06/30/04 French Unaudited % Account Value Amount at Risk(1) GAAP Reserve(2) figures reins. ($ bn) ($ bn) ($ mm) GMDB 93.7 9.3 95 . AXA Financial 50.1 24% 3.5 52 . AXA R
Slide 53: AXA Financial - Variable Annuities Benefits
AXA Financial - Variable Annuities Benefits We are using a variety of risk mitigation techniques including reinsurance, product design management, and more recently Dynamic Hedging on: our GMDB sales since Q2'02 our GMIB sales since Q3’03 our GMWB sales starting July 19, 2004 Mitigates ris
Slide 54: AXA Financial launched a GMWB on July 19
AXA Financial launched a Guaranteed Minimum Withdrawal Benefit (GMWB) on July 19 GMWB allows limited annual withdrawals up to the initial contribution, regardless of investment performance Risk exposure is managed through a dynamic delta hedging program GMWB pricing is based on hedging program
Slide 55: Appendices: Balance Sheet and Financial Structure
Half Year 2004 Earnings - Appendices Balance Sheet and Financial Structure Half Year 2004 Earnings - August 6, 2004 - Page 55
Slide 56: We have stuck to our asset mix
We have stuck to our asset mix, dictated by ALM and supported by our strong capital position Total Group Asset Mix(1) % in book value 2000 2001 2002 2003 1H04 Fixed maturities(2) 57% 63% 66% 66% 68% Equity 17% 16% 15% 15% 14% Mortgage, policy and other loans 10% 10% 8% 7% 7% Real Estate 5% 4% 4% 4%
Slide 57: Detail of our asset mix by business
Detail of our asset mix by business Total Total (2) % in book value L&S P&C Int’l Group Group 1H04 2003 Fixed maturities(1) 71% 59% 63% 68% 66% Equity 12% 22% 14% 14% 15% Mortgage, policy and others loans 8% 2% 0% 7% 7% Real Estate 3% 7% 2% 3% 4% Cash and cash equivalents(3) 6% 10% 21% 8% 8% Total I
Slide 58: Unrealized capital gains attributable to shareholders were flat
Unrealized capital gains attributable to shareholders were flat, as better financial markets were offset by rising interest rates Euro billion Roll Forward (1) Total (euro billion) Unrealized gains on Alliance Capital Fixed income + real estate + equity + loans URG attrib. to SH 3.7 @ 12/31/03 7.2 6
Slide 59: Solvency 1 consolidated solvency margin is up
Solvency 1 consolidated solvency margin is up, despite the negative impact of increased interest rates on unrealized gains European consolidated solvency margin* Î December 31, 2001 193% Î June 30, 2002 179% Î December 31, 2002 172% Î June 30, 2003 212% Î December 31, 2003 212% Î December 31, 2003
Slide 60: Appendices: Life & Savings New Business Contributions and APE Margins
Half Year 2004 Earnings - Appendices Life & Savings New Business Contributions and APE Margins Half Year 2004 Earnings - August 6, 2004 - Page 60
Slide 61: Life & Savings New Business Margins 1H04 vs. 1H03
Life & Savings New Business Margins 1H04 vs. 1H03 APE NBC NB Margin Group share before cost of capital before cost of capital In Euro million, except margins in % Chg at Chg at 1H04 1H03 1H04 1H03 1H04 1H03 cst FX cst FX France 507 453 +12% 71 38 +88% 14.1% 8.4% US 687 756 +1% 130 135 +7% 18.9% 17.8
Slide 62: Life & Savings NBC Methodology
Life & Savings NBC Methodology Using profitability factors by products from YE 2003, with some period-appropriate adjustments: Reflect actual mix of business Adjust for volume effects Recurring expenses’ treatment similar to YE 2003 Keep economic assumptions the same as at YE 2003 Specific t
Slide 63: Recap of year-end 2003 main countries' assumptions
Recap of year-end 2003 main countries’ assumptions Post-tax Pre-tax Pre-tax Inflation Effective Asset Mix In % Discount Risk-Free Equity rate tax rate (FI/Eq/Other) rate rate return US 7.50 5.00* 8.50 3.0 35.0 76/02/22 France 6.75 4.25 7.25 1.8 34.6 80/13/07 UK 7.25 4.75 7.25 2.7 30.0 50/43/07 Japan
Slide 64: Tillinghast Opinion
Tillinghast Opinion Tillinghast has reviewed the methodology and assumptions used to determine the value added by new business for the first six months of 2004 and the comparable period in 2003, for the three largest Life & Savings operating entities of the AXA Group: the US, France, and Japan*. The