20-F 1 axa20f.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549


FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2005
Commission File Number: 1-14410

AXA
(Exact name of Registrant as specified in its charter)
   
                                 N / A
The Republic of France
                                 (Translation of Registrant’s
(Jurisdiction of incorporation
                                 name into English)
or organization)

25, avenue Matignon - 75008 Paris - France
(Address of registrant’s principal executive offices)
   
Securities registered or to be registered pursuant to Section 12(b) of the Act:
   
Title of each class:
Name of each exchange on which registered:
Ordinary shares
New York Stock Exchange
American Depositary Shares
(as evidenced by American Depositary Receipts),
 
each representing one Ordinary Share
New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of March 31, 2006 was:
1,872,501,565 Ordinary Shares of euro 2.29 nominal value per share, including 81,383,650 American Depositary Shares
(as evidenced by American Depositary Receipts), each representing one Ordinary Share.
   
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [X]          No [  ]
   
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15 (d) of the Securities Exchange Act of 1934.
Yes [  ]          No [X]
 

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 from their obligations under those Sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]          No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer  [X]        Accelerated filer [  ]      Non accelerated filer [  ] 
 

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 [  ]         Item 18 [X]
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ]          No [X]

Table of contents:

Presentation of Information

1

Exchange Rate Information

2

Special Note Regarding Forward-Looking Statements

2

PART I

Item 01

Identity of Directors, Senior Management and Advisers

4

Item 02

Offer Statistics and Expected Timetable

4

Item 03

Key Information

4

Item 04

Information on the Company

24

Item 05

Operating and Financial Review and Prospects

64

Item 06

Directors, Senior Management and Employees

132

Item 07

Major Shareholders and Related Party Transactions

171

Item 08

Financial Information

176

Item 09

The Offer and Listing

177

Item 10

Additional Information

180

Item 11

Quantitative and Qualitative Disclosures About Market Risk

202

Item 12

Description of Securities other than Equity Securities

205

PART II

Item 13

Defaults, Dividend Arrearages and Delinquencies

206

Item 14

Material Modifications to the Rights of Security Holders and Use of Proceeds

206

Item 15

Disclosure Controls and Procedures

206

Item 16

a) Audit Committee Financial expert

 

b) Code of Ethics

207

 

c) Principal Accountant fees and services

208

 

d) Exemptions from the listing standards for Audit Committees

209

 

e) Purchase of Equity Securities by the Issuer and Affiliated Purchasers

210

PART III

Item 17

Financial Statements

212

Item 18

Financial Statements

F-1

Item 19 Exhibits E-1

Signatures

SS-1


 

Presentation of Information

This Annual Report on Form 20-F (referred to herein as the “annual report”) has been filed with the United States Securities and Exchange Commission (referred to in this annual report as the “US SEC” or “SEC”).

In this annual report and unless provided otherwise, the “Company” refers to AXA SA, a société anonyme organized under the laws of France which is the publicly traded parent company of the AXA Group, and “AXA”, “AXA Group” or “we” refers to the Company together with its direct and indirect subsidiaries. The Company’s ordinary shares are referred to in this annual report as “Shares”, “ordinary shares”, or “AXA ordinary shares”. The principal trading market for the Company’s ordinary shares is the Premier Marché of Euronext Paris SA, which we refer to in this annual report as “Euronext Paris” or the “ParisBourse”. The Company’s American Depositary Shares and American Depositary Receipts are referred to in this annual report as “ADSs” and “ADRs”, respectively.

The ADSs and ADRs are listed on the New York Stock Exchange (referred to in this annual report as “NYSE”).

At the annual general meeting of shareholders of AXA held on May 9, 2001, the Company’s shareholders approved a 4-for-1 stock split of its outstanding ordinary shares. Immediately following this stock split, which became effective on May 16, 2001, the ratio between the AXA ordinary share and the ADS was changed from one ADS representing one-half of an ordinary share to one ADS representing one ordinary share. Unless otherwise indicated, all information contained in this annual report is on a post-stock split basis and reflects the corresponding ratio change between the ADS and ordinary share.

This annual report includes AXA’s consolidated financial statements for the years ended December 31, 2005 and 2004. AXA’s consolidated financial statements, including the notes thereto, are included in “Item 18 – Financial Statements” and have been prepared in accordance with International Financial Reporting Standards (referred to in this Annual Report as “IFRS”). However, the Group does not use the "carve-out" option not to apply all hedge accounting principles as defined by IAS 39. Unless noted otherwise, the financial information contained in this annual report is presented in accordance with IFRS principles and IFRIC interpretations existing as of December 31, 2005 and as adopted by the European Union at that time are described in note 1 to the consolidated financial statements. IFRS differ from accounting principles generally accepted in the United States of America, which we refer to in this annual report as “U.S. GAAP”. See notes 32 and 33 to the consolidated financial statements included in Item 18 for a description of the main differences between IFRS and U.S. GAAP, a reconciliation of net income and shareholders’ equity from IFRS to U.S. GAAP and additional U.S. GAAP disclosures.

Various amounts in this document are shown in millions for presentation purposes. Such amounts have been rounded and, accordingly, may not total. Rounding differences may also exist for percentages.

1

Exchange Rate Information

The Company publishes its consolidated financial statements in Euro (“Euro”, “euro” or ). Unless noted otherwise, all amounts in this annual report are expressed in Euro. The currency of the United States will be referred to as “U.S. dollars” or “US$” or “$”. For historical exchange rate information, refer to “Item 3 - Key Information-Exchange Rate Information”. For a discussion of the impact of foreign currency fluctuations on AXA’s financial condition and results of operations, see “Item 5 - Operating and Financial Review and Prospects-Market Conditions in 2005”.

Special Note Regarding Forward-Looking Statements

This annual report and other publicly available documents concerning AXA may include, and AXA’s officers and representatives may from time to time make, statements which may constitute “forward looking statements” within the meaning of the U.S. Securities Litigation Reform Act of 1995. These statements are not historical facts but instead represent AXA’s belief regarding future events many of which, by their nature, are inherently uncertain and outside of AXA’s control.

These statements may address among other things, AXA’s financial condition, results of operations and business, including its strategy for growth, product development, regulatory approvals, market position, embedded value and reserves. All statements other than statements of historical facts are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements, including those discussed elsewhere in this annual report and in AXA’s other public filings, press releases, oral presentations and discussions. Forward-looking statements include, among other things, discussions concerning the potential exposure of AXA to market risks, as well as statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. Forward-looking statements in this annual report are identified by use of the following words and other similar expressions, among others:

  – “anticipate”   – “would”  
  – “believe”   – “objectives”  
  – “outlook”   – “could”  
  – “probably”   – “estimate”  
  – “project”   – “expect”  
  – “risks”   – “goals”  
  – “seek”   – “intend”  
  – “should”   – “may”  
  – “target”   – “shall”  

2


The following factors could affect the future results of operations of AXA and could cause those results to differ materially from those expressed in the forward-looking statements included in this annual report:

  • the intensity of competition from other financial institutions;
  • AXA’s experience with regard to mortality and morbidity trends, lapse rates and policy renewal levels relating to its Life & Savings operations, which also include health products;
  • the frequency, severity and development of Property & Casualty claims and policy renewal rates relating to AXA’s Property & Casualty business;
  • re-estimates of AXA’s reserves for future policy benefits and claims;
  • market risks related to (a) stock market prices, fluctuations in interest rates, and foreign currency exchange rates, (b) adverse changes in the economy in AXA’s major markets and other adverse developments that may affect the value of AXA’s investments and/or result in investment losses and default losses, (c) the use of derivatives and AXA’s ability to hedge such exposures effectively, and (d) counterparty credit risk;
  • AXA’s ability to develop, distribute and administer competitive products and services in a timely, cost-effective manner and its ability to develop information technology and management information systems to support strategic goals while continuing to control costs and expenses;
  • AXA’s visibility in the market place, the financial and claims-paying ability ratings of its insurance subsidiaries, as well as AXA’s credit rating and ability to access adequate financing to support its current and future business;
  • the effect of changes in laws and regulations on AXA’s businesses, including changes in tax laws affecting insurance as well as operating income and changes in accounting and reporting practices;
  • the costs of defending litigation, the risk of unanticipated material adverse outcomes in such litigation and AXA’s exposure to other contingent liabilities;
  • terrorist attacks, events of war and their respective consequences;
  • adverse political developments around the world, particularly in the principal markets in which AXA and its subsidiaries operate;
  • the occurrence, frequency and severity of natural disasters, pandemic diseases and other catastrophic events;
  • the performance of others on whom AXA relies for distribution, investment management, reinsurance and other services; and
  • the effect of any pending or future mergers, acquisitions or disposals.

The above factors are in addition to those factors discussed elsewhere in this annual report including matters discussed under “Item 3 – Key Information – Risk Factors”; “Item 4 – Information on the Company”; “Item 5 – Operating and Financial Review and Prospects”; and “Item 11 – Quantitative and Qualitative Disclosures About Market Risk” and “Item 18 – Financial Statements”.

You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as at the date of the particular statement. AXA does not intend to, and undertakes no obligation to (and expressly disclaims any such obligations to), update publicly or revise any forward-looking statement as a result of new information, future events or otherwise. In light of these risks, AXA’s results could differ materially from the forward-looking statements contained in this annual report.

3


PART I

Item 1: Identity of Directors, Senior Management and Advisers

Not applicable

Item 2: Offer Statistics and Expected Timetable

Not applicable

Item 3: Key Information

Selected Consolidated Financial Data

The selected historical consolidated financial data presented below have been derived from AXA’s consolidated financial statements and related notes for the years ended December 31, 2005 and 2004 in accordance with IFRS, and years ended December 31, 2005, 2004, 2003, 2002, and 2001 in accordance with U.S. GAAP. The historical data set out below is only a summary. You should read it in conjunction with the consolidated financial statements and related notes for the years ended December 31, 2005 and 2004 included in Item 18 of this Annual Report.

AXA’s consolidated financial statements have been prepared in accordance with IFRS standards and IFRIC interpretations as adopted by the European Commission as of December 31, 2005. However, the Group does not use the option provided by the “carve out” on hedge accounting and the financial statements were therefore prepared in accordance with IFRS as published by the IASB.. In accordance with General Instructions issued by the SEC about annual reports filed under Form 20-F, and because 2004 is for AXA the year of first time application of IFRS, the selected financial data required pursuant to Item 3 is based on financial statements prepared in accordance with IFRS, and is presented for the two most recent financial years. The selected historical financial data in accordance with U.S. GAAP is presented for the five most recent financial years.

4


IFRS differs in certain material respects from U.S. GAAP. For a description of the material differences between IFRS and U.S. GAAP relevant to AXA, please see notes 32 and 33 to the consolidated financial statements included in Item 18, and “Item 5 – Operating and Financial Review and Prospects – Other Matters – Reconciliation of IFRS to U.S. GAAP” included in this Annual Report.

AXA Insurance Holding in Japan and its subsidiaries use a financial year-end of September 30 and are consolidated as at and for the year ended September 30 in AXA’s consolidated financial statements.

(in millions, except per ordinary share amounts)
    Years ended December 31,  
Income Statement Data:   2005
(US$)
(e)
  2005
(
)
  2004
(
)
  2003
()
  2002
(
)
  2001
(
)
 
In accordance with IFRS:                          
Total revenues   84,873   71,671   67,030              
Net investment result excluding financing expenses (a)   39,441   33,306   28,367              
Operating income before tax   7,273   6,142   6,061              
Income tax   (1,671)   (1,411)   (1,814)              
Minority interests share in consolidated result   (578)   (488)   (473)              
Income arising from investment in associates – equity method   24   21   55              
Net income   4,942   4,174   3,738              
Net income per ordinary share: (b) (d)                          
– basic   2.63   2.22   2.07              
– diluted   2.59   2.19   1.99              
In accordance with U.S. GAAP:                          
Gross premiums net of reinsurance (c)   44,314   37,421   35,544   35,574   38,845   40,099  
Income from continuing operations (before tax)   7,830   6,612   4,879   5,203   (1,125)   876  
Income from continuing operations
(after tax and minority interest)
  6,196   5,232   3,235   3,673   (2,588)   356  
Income from discontinued operations (net of tax)              
Gain on sale of discontinued operation (net of tax)              
Net income   6,196   5,232   3,235   3,673   (2,588)   356  
Net income per ordinary share: (b) (d)                          
Basic                          
Income from continuing operations
(after tax and minority interest)
  3.29   2.78   1.79   2.12   (1.52)   0.21  
Net income   3.29   2.78   1.79   2.12   (1.52)   0.21  
Diluted                          
Income from continuing operations
(after tax and minority interest)
  3.23   2.73   1.73   2.06   (1.52)   0.21  
Net income   3.23   2.73   1.73   2.06   (1.52)   0.21  
Other data (non–GAAP):                          
Number of ordinary shares outstanding       1,871.6   1,908.4   1,778.1   1,762.2   1,734.2  
Net dividend distribution (in million) (e)   1,950   1,647   1,164   676   599   971  

5


(in millions, except per ordinary share amounts)
    Years ended December 31,  
Balance Sheet Data:   2005 (US$) (e)   2005
(
)
  2004
(
)
  2003
(
)
  2002
(
)
  2001
(
)
 
In accordance with IFRS:                          
Total assets   682,907   576,682   504,367        
Shareholders’ equity   40,082   33,847   28,523        
Shareholders’ equity per ordinary share (b) (d)   21.8   18.4   15.1        
In accordance with U.S. GAAP:                          
Total assets   677,378   572,013   503,581   459,346   450,707   493,065  
Shareholders’ equity   42,754   36,104   30,431   24,918   23,857   29,340  
Shareholders’ equity per ordinary share (b) (d)   23.3   19.7   16.1   14.0   13.8   17.2  

(a) Includes investment income net of investment management costs, net realized investment gains and losses and net unrealized investment gains and losses on assets with financial risk borne by the policyholders (backing unit linked contracts) and on assets designated as at fair value through profit & loss including assets supporting the UK “With-Profit” business.
(b) Under both IFRS and U.S. GAAP (i) the calculation of net income per ordinary share is based on the weighted average number of ordinary shares outstanding for each period presented and (ii) shareholders’ equity per ordinary share is calculated based on the actual number of ordinary shares outstanding at each period-end presented. The calculations deduct ordinary shares held by AXA and its subsidiaries (that is, treasury shares) in the calculation of weighted average number of ordinary shares outstanding (for net income per ordinary share) and ordinary shares outstanding (for shareholders’ equity per ordinary share). The calculation of basic and diluted net income per ordinary share for each of the two years ended December 31, 2005 is presented in note 27 “Net Income per Ordinary Share” (under IFRS) to AXA’s consolidated financial statements.
(c) Gross premiums received from policyholders in respect of Life & Savings products classified as “universal life” or “investment contracts with a discretionary participating feature”, are recognized as revenue under IFRS. Under U.S. GAAP, such amounts received are recorded as deposits, and only the policy-related fees charged to the policyholders for cost of insurance, administration, investment management, etc, are recognized as revenue. These numbers exclude unearned premiums ceded and changes in unearned premiums.
(d) An annual dividend generally is paid each year in respect of the prior year after the annual general meeting of shareholders (customarily held in May or June) and before September of that year. Dividends are presented above in the year to which they relate and not in the year in which they are declared and paid. At the annual general meeting of shareholders of AXA held on May 4, 2006, the shareholders approved the declaration of a dividend in respect of 2005 of 0.88 per ordinary share. In general, dividends per ordinary share are based on the number of ordinary shares outstanding at the end of the year for each year presented.
(e) The financial data have been translated from Euro to U.S. dollars using the Euro Noon Buying Rate at December 31, 2005 of 1.00 = US$1.1842 (see “Exchange rate information”). These translations are solely for the convenience of the reader and should not be construed as representations that the converted amounts actually represent such U.S. dollar amounts or could have been (at the relevant date) converted into U.S. dollars at the rate indicated or at any other rate.

6


Exchange Rate Information

The year-end and average exchange rates used in the preparation of the consolidated financial statements, to translate into Euro the results of operations of the principal subsidiaries and affiliates that are not denominated in Euro, are set out in the table below.

    Year End Exchange Rate Average Exchange Rate
    2005   2004   2003   2005   2004   2003  
    ()   ()   ()   ()   ()   ()  
U.S. Dollar   0.85   0.73   0.79   0.80   0.80   0.88  
Japanese Yen (a) (x 100)   0.73   0.73   0.77   0.73   0.76   0.77  
British Pound   1.46   1.42   1.42   1.46   1.47   1.45  
(a) The exchange rates presented correspond to the year-end exchange rate and average exchange rate for a September 30 financial year.

Information on euro noon buying rates

The following table sets forth, for the periods and dates indicated, certain information concerning the Noon Buying Rate of one Euro to U.S. dollars in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York, which we refer to in this Annual Report as the “Euro Noon Buying Rate”. The Euro Noon Buying Rates presented below are for your convenience and were not used by AXA to prepare AXA’s consolidated financial statements included in Item 18 of this Annual Report.

Calendar period  
Average rate (a)
 
2000  
0.9207
 
2001  
0.8909
 
2002  
0.9495
 
2003  
1.1411
 
2004  
1.2478
 
2005  
1.2400
 
2006 (through May 31, 2006)  
1.2336
 
(a) The average of the Noon Buying Rates on the last business day of each full month during the relevant period.

The table below sets forth the high and low Euro Noon Buying Rates for the most recent six months through to May 2006.

Month   U.S. dollar per euro  
    High   Low  
December 2005   1.204   1.170  
January 2006   1.229   1.198  
February 2006   1.210   1.186  
March 2006   1.220   1.189  
April 2006   1.262   1.209  
May 2006   1.289   1.261  

The Euro Noon Buying Rate on December 31, 2005 was 1.00 = US$ 1.1842.

7


Dividends

AXA pays dividends in Euro. Future dividends will depend on AXA’s earnings, financial condition and other factors. Proposals for dividend payments are made by the Management Board, subject to approval by the Supervisory Board and final approval by AXA’s shareholders at the annual general meeting of shareholders. Dividends paid to holders of ordinary shares and ADSs will generally be subject to French withholding tax at a rate of 25% which, subject to certain procedures and exceptions, may be reduced to 15% for holders who are United States residents. Until 2004, certain holders of ordinary shares and ADSs were entitled to receive a subsequent payment equal to the French avoir fiscal (or tax credit) in an amount equal to 50% of any dividends paid by the Company, less applicable French withholding tax. The applicability of this French avoir fiscal regulation ended in 2004. The following table sets forth the total dividends paid per ordinary share with respect to each year indicated, with or without the French avoir fiscal, and before deduction of any French withholding tax. Dividends paid in each year are in respect of the prior year’s results.

Year   Net dividend per ordinary share (euros)   Gross dividend
per ordinary
share (a) (euros)
 
2001   0.56     0.84    
2002 (b)   0.34     0.51    
2003 (c)   0.38     0.57    
2004 (d)   0.61        
2005 (e)   0.88        

(a) Payment equivalent to the French avoir fiscal or tax credit, less applicable French withholding tax, was made only following receipt of a claim for such payment, and, in any event, not until after the end of the calendar year in which the respective dividends were paid. Certain U.S. tax exempt holders of ordinary shares or ADSs were not entitled to full payments of avoir fiscal.
(b) At the annual general meeting of shareholders of AXA held on April 30, 2003, the shareholders approved the declaration of a dividend in respect of 2002 of 0.34 per ordinary share, or 599 million in the aggregate based on the number of AXA ordinary shares outstanding at December 31, 2002.
(c) At the annual general meeting of shareholders of AXA held on April 21, 2004, the shareholders approved the declaration of a dividend in respect of 2003 of
0.38 per ordinary share, or 676 million in the aggregate based on the number of AXA ordinary shares outstanding at December 31, 2003.
(d) At the annual general meeting of shareholders of AXA held on April 20, 2005, the shareholders approved the declaration of a dividend in respect of 2005 of 0.61 per ordinary share, or 1,164 million in the aggregate based on the number of AXA ordinary shares outstanding at December 31, 2004. This dividend will give rise to a 50% tax credit for individuals whose fiscal residence is in France as of January 1, 2005, equal to 0.305 per share.
(e) At the annual general meeting of shareholders of AXA held on May 4, 2006, the shareholders approved the declaration of a dividend in respect of 2005 of
0.88 per ordinary share, or 1,647 million in the aggregate based on the number of AXA ordinary shares outstanding at December 31, 2005. This dividend will give rise to a 40% tax credit for individuals whose fiscal residence is in France as of January 1, 2006, equal to 0.35 per share.

 

Following the 4-for-1 stock split approved at the annual general meeting held on May 9, 2001, one AXA ordinary share is equivalent to one AXA ADS and, therefore, dividend per ordinary share is equivalent to dividend per ADS.

For information on AXA’s dividend policy, see “Item 8 – Financial Information” and “Item 10 – Additional Information – Dividends”.

8


Risk Factors

You should carefully consider the following risks. These risks could materially affect our business, results of operations or financial condition, cause the trading price of our ADSs to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” above and the risks of our businesses described in Item 18 of this Annual Report on Form 20-F.

Risks relating to the financial markets

A decline or increased volatility in the securities markets may adversely affect our business and profitability

Fluctuations in the securities markets may adversely affect sales of our participating life insurance and pension products, mutual funds, asset management services and products with financial risk borne by the policyholders (unit linked), including variable annuity products and variable life products. In particular, protracted or steep declines in the stock or bond markets typically reduce the popularity of these products.

The level of volatility in the financial markets in which we invest and the overall investment returns earned in those markets substantially affect our profitability. Our investment returns, and thus our profitability, may be adversely impacted from time to time by conditions affecting our specific investments and, more generally, by stock market, real estate market and other market fluctuations. Our ability to make a profit on insurance products and investment products, including fixed and guaranteed products, depends in part on the returns on investments supporting our obligations under these products and the value of specific investments may fluctuate substantially depending on the foregoing conditions. Certain types of insurance, reinsurance and investment products that we offer may expose us, in particular, to risks associated with fluctuations in financial markets, including interest sensitive or variable products such as guaranteed annuities or variable annuities which have crediting or other guaranteed rates or minimum benefits not necessarily related to prevailing market interest rates or investment returns on underlying assets.

In addition, the growth of our asset management business depends to a significant extent on factors such as investment returns and risk management. Poor performance in the financial markets, in general, may adversely affect the value of the assets we manage, as well as our ability to accumulate and retain those assets since clients may withdraw assets under management in these circumstances. These trends may, in turn, adversely impact the revenues and profits that we earn from management of those assets.

9


Losses due to defaults by third parties, impairment of our investment assets and unrealized losses could negatively affect the value of our investments and reduce our profitability

Third parties that owe us money, securities or other assets may not perform under their obligations. These parties include the issuers whose securities we hold in our investment portfolios, borrowers under the mortgage and other loans we extend, customers, trading counterparties, counterparties under swap and other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real estate values, operational failure or other reasons. In the event of negative trends and investment climates in our major markets may result in an increase in investment impairments on our investment assets due to defaults, unrealized losses recognized through profit & loss, other comprehensive income or equity, credit downgrades or overall declines in securities markets.

The default of a major market participant could disrupt the securities markets or clearance and settlement systems in our major markets, which could in turn cause market declines or volatility. A failure of a major market participant could also cause some clearance and settlement systems to assess members of that system or could lead to a chain of defaults that could adversely affect us. For risks relating to defaults by reinsurers and retrocessionaires to which we have transferred part of our risks, see “Risks relating to the nature of our business and the environment in which we operate – Reinsurance may not be adequate to protect us against losses and we may incur losses due to the inability of our reinsurers to meet their obligations.”

Interest rate volatility may adversely affect our profitability

During periods of declining interest rates, life insurance and annuity products may be relatively more attractive to consumers, resulting in increased premium payments on products with flexible premium features, and a higher percentage of insurance policies remaining in force from year-to-year. During a low interest rate period, our investment earnings may be lower because the interest earnings on our fixed income investments will likely have declined in parallel with market interest rates which would also cause unrealized losses on our assets recorded at fair value under IFRS. In addition, mortgages and fixed maturities in our investment portfolios will be more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates. Consequently, we may be required to reinvest the proceeds in securities bearing lower interest rates. Accordingly, during periods of declining interest rates, our profitability may suffer as the result of a decrease in the spread between interest rates charged to policyholders and returns on our investment portfolio.

Conversely, in periods of increasing interest rates, surrenders of life insurance policies and fixed annuity contracts may increase as policyholders choose to forego insurance protection and seek higher investment returns. Obtaining cash to satisfy these obligations may require us to liquidate fixed maturity investments at a time when market prices for those assets are depressed because of increases in interest rates. This may result in realized investment losses. Regardless of whether we realize an investment loss, these cash payments would result in a decrease in total invested assets, and may decrease our net income. Premature withdrawals may also cause us to accelerate amortization of policy acquisition costs, which would also reduce our net income.

The profitability of our spread-based businesses depends in large part upon our ability to manage interest rate spreads, and the credit and other risks inherent in our investment portfolio. For example, in Japan the movements in rates over

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the last decade have had a significant impact on many Japanese life insurers, including our Japanese life insurance subsidiaries, which issued long-term policies and contracts with guaranteed fixed rates during periods of significantly higher interest rates but now operate (and invest their assets) in Japan’s low interest rate deflationary environment which has resulted in “negative spread” on certain of these guaranteed rate policies and contracts.

While we monitor and manage risks of this nature carefully, we cannot guarantee that we will successfully manage our interest rate spreads or the potential negative impact of those risks.

Market conditions and other factors could adversely affect our goodwill

Business and market conditions may impact the amount of goodwill we carry in our consolidated financial statements. As the value of certain parts of our businesses, including in particular our asset management businesses, are significantly impacted by such factors as the state of financial markets and ongoing operating performance, significant declines in financial markets or operating performance could also result in impairment of other goodwill carried by us and result in significant write-downs, which could be material.

Fluctuations in currency exchange rates may affect our reported earnings

AXA publishes its consolidated financial statements in Euro. For the year ended December 31, 2005, a significant portion of AXA’s gross premiums and financial services revenues as well as AXA’s benefits, claims and other deductions were denominated in currencies other than the Euro, primarily U.S. dollars, pounds sterling, Japanese yen and Australian dollars. AXA’s obligations are denominated either in Euro or other currencies, the value of which is subject to foreign currency exchange rate fluctuations.

While AXA seeks to manage its exposure to foreign currency fluctuations through hedging, fluctuations in the exchange rates may have a significant impact on AXA’s results of operations and cash flows.

Risks relating to the nature of our business and the environment in which we operate

If our established loss reserves for our Property & Casualty and International Insurance businesses are insufficient, our earnings will be adversely affected

In accordance with industry practice and accounting and regulatory requirements, we establish reserves for claims and claims expenses related to our Property & Casualty and International Insurance businesses. These reserves are not discounted unless final settlement has been agreed and the payments are generally fixed over a period of time. Reserves do not represent an exact calculation of liability, but instead represent estimates, generally using actuarial projection techniques at a given accounting date. These reserve estimates are expectations of what the ultimate settlement and administration of claims will cost based on our assessment of facts and circumstances then known, review of historical settlement patterns, estimates of trends in claims severity, frequency, legal theories of liability and

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other factors. The process of estimating the insurance claims reserves is based on the most current information available at the time the reserves are originally established. However, claims reserves are subject to change due to the number of variables which affect the ultimate cost of claims, such as:

  • development in claims (frequency, severity and pattern of claims) between the amount estimated and actual experience;
  • changes arising due to the time lag between the occurrence of the insured event, notification of the claim (from the insured party, a third party or a ceding company) and the final settlement (payment) of the claim, primarily attributable to long tail casualty claims that may take several years to settle due to the size and nature of the claim, and the occurrence of large natural catastrophes late in the financial year for which limited information may be available at year end;
  • judicial trends;
  • expenses incurred in resolving claims;
  • regulatory and legislative changes;
  • changes in economic conditions, including inflation and foreign currency fluctuations; and
  • changes in costs of repairs and medical costs.

Many of these items are not directly quantifiable, particularly on a prospective basis. As a result, actual losses may significantly differ from the original gross reserves established. Consequently, the reserves may need to be re-estimated reflecting those changes resulting in loss reserve redundancies (in cases where the original gross claims reserve was overstated) or deficiencies (in cases where the original gross claims reserve was understated). Adjustments to reserves are reflected in current results of operations.

We continually review the adequacy of the established claims reserves, including emerging claims development, and actual claims compared to the original assumptions used to estimate gross claims reserves. Based on current information available, we believe that our claims reserves are sufficient. However, because the establishment of claims reserves is an inherently uncertain process involving estimates, we cannot assure you that ultimate losses will not materially exceed our claims reserves and have a material adverse effect on our earnings. For example, there is a high degree of uncertainty with respect to future exposure from asbestos claims because of significant issues surrounding the liabilities of insurers, diverging legal interpretations and judgments in different jurisdictions and aggressive asbestos related litigation, particularly in the U.S. These uncertainties include the extent of coverage under insurance policies, whether or not particular claims are subject to an aggregate limit, the number of occurrences involved in particular claims and new theories of insured and insurer liability. We have established reserves for insurance and reinsurance contracts related to environmental pollution and asbestos at December 31, 2005, which represent our best estimate of ultimate claims exposure at December 31, 2005 based on our current knowledge of facts and law. However, given uncertainties surrounding asbestos related claims, we cannot assure you that ultimate losses will not materially exceed our claims reserves and have a material adverse effect on our earnings. For additional information, see “Environmental Pollution, Asbestos and other Exposures” in note 15 to AXA’s consolidated financial statements included in Item 18 of this Annual Report.

The claims experience on our Life and Savings businesses could be inconsistent with the assumptions we use to price our products and establish our reserves and adversely affect our earnings

In our Life & Savings businesses, our earnings depend significantly upon the extent to which our actual claims experience is consistent with the assumptions we use in setting the prices for our products and establishing the

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liabilities for obligations for technical provisions and claims. AXA uses both its own experience and industry data to develop estimates of future policy benefits including information used in pricing the insurance products and establishing the related actuarial liabilities. However, there can be no assurance that actual experience will match these estimates. To the extent that our actual benefits paid to policyholders are less favorable than the underlying assumptions used in initially establishing the future policy benefit reserves, or events or trends cause us to change the underlying assumptions, we may be required to increase our liabilities, which may reduce our net income. For example, certain variable annuity products issued or reinsured by certain of our subsidiaries contain guaranteed minimum death benefit (“GMDB”) and guaranteed minimum income benefit (“GMIB”) features. The determination of GMDB and GMIB liabilities is based on models which involve numerous estimates and subjective judgments, including those regarding expected market rates of return and volatility, GMIB election rates, contract surrender rates and mortality experience. Determination of liabilities for our other lines of Life & Savings business, such as our annuity business, as well as our disability income business, also involve numerous assumptions and subjective judgments as to mortality and morbidity experience, investment returns, expenses, policy surrender rates, policy lapse rates, and other matters. There can be no assurance that ultimate actual experience on these products will not differ, upwards or downwards, from management’s estimates. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on our balance sheet and are being amortized into income over time. If the assumptions relating to various factors including the future profitability of these policies (such as future claims, investment income and expenses) and policy lapses and surrenders are not realized, the amortization of these costs could be accelerated and may even require write-offs due to unrecoverability. These factors could have a material adverse effect on our business, results of operations and financial condition.

Our operating results may be materially adversely affected by the occurrence of natural disasters and pandemic diseases

Natural and man-made disasters, such as hurricanes, windstorms, earthquakes, riots, fires and explosions, have the potential to adversely affect our operating results. Over the past several years, changing weather patterns and climatic conditions, such as global warming, have added to the unpredictability and frequency of natural disasters in certain parts of the world and created additional uncertainty as to future trends and exposures. We generally seek to reduce our exposure to these events through individual risk selection, monitoring risk accumulation and purchase of reinsurance. We have experienced in the past, and could experience in the future, material losses from such disasters and catastrophic events, which could have a material adverse effect on our financial position and results of operations.

Other risks, such as an outbreak of a pandemic disease, such as the Avian Influenza A Virus (H5N1), could also adversely affect our business and operating results to an extent that may be only minimally offset by reinsurance programs. While to date outbreaks of the Avian Flu continue to occur among poultry or wild birds in a number of countries in Asia, parts of Europe, and recently in Africa, transmission to humans has been rare. If the virus mutates to a form that can be transmitted from human to human, it has the potential to spread rapidly worldwide. If such an outbreak were to take place, early quarantine and vaccination could be critical to containment. Both the contagion and mortality rates regarding any mutated H5N1 virus that can be transmitted from human to human are highly speculative. We continue to monitor the developing facts. A significant global outbreak could have a material adverse effect on our life insurance business, operating results and liquidity due to increased mortality and morbidity rates.

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A downgrade in the claims paying ability and credit strength ratings of AXA could adversely impact our business and results of operations

Claims paying and credit strength ratings have become an increasingly important factor in establishing the competitive position of insurance companies. Rating agencies review their ratings periodically and our current ratings may not be maintained in the future. A downgrade or the potential for a downgrade in these ratings could adversely affect our business and results of operations including through a reduction in the number of new insurance policies that we underwrite and/or an increase in surrender or termination rates of our policies already in-force. A downgrade in our ratings may also adversely affect our cost of raising capital.

We face increased competition in all of our business segments, including the global financial services industry, as a result of continuing consolidation

We face strong and increasing competition in all our business lines. Our competitors include mutual funds companies, asset management firms, commercial banks and other insurance companies, many of which are regulated differently than we are and offer alternative products or more competitive pricing than we do. The recent consolidation in the global financial services industry has also enhanced the competitive position of some of our competitors by broadening the range of their products and services, and increasing their distribution channels and their access to capital. 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. These competitive pressures could result in increased pricing pressures on a number of our products and services, particularly as competitors seek to win market share, and may harm our ability to maintain or increase our profitability.

Reinsurance may not be adequate to protect us against losses and we may incur losses due to the inability of our reinsurers to meet their obligations

In the normal course of business, AXA seeks to reduce losses that may arise from catastrophes or other events that cause unfavorable underwriting results through reinsurance. Under the reinsurance arrangements, other insurers assume a portion of the losses and related expenses; however, we remain liable as the direct insurer on all risks reinsured. Consequently, ceded reinsurance arrangements do not eliminate our obligation to pay claims and we are subject to our reinsurers’ credit risk with respect to our ability to recover amounts due from them. Although we evaluate periodically the financial condition of our reinsurers to minimize our exposure to significant losses from reinsurer insolvencies, our reinsurers may become financially unsound by the time their financial obligation becomes due. The reinsurance market has become increasingly concentrated following recent mergers and acquisitions, which has reduced the number of major reinsurance providers. The inability of any reinsurer to meet its financial obligations to us could negatively impact our results of operations. In addition, the availability, amount and cost of reinsurance depend on general market conditions and may fluctuate significantly. Reinsurance may not be available to us in the future at commercially reasonable rates and any decrease in the amount of our reinsurance will increase our risk of loss.

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Changes in tax laws and regulations, including elimination of tax benefits for our products, and may adversely affect sales of our insurance and investment advisory products, and also impact our deferred tax assets

Changes to tax laws may affect the attractiveness of certain of our products, which currently have favorable tax treatment. From time to time, governments in the jurisdictions in which we operate, including in France and the United States, have considered or implemented proposals for changes in tax law that could adversely affect our products. These proposals have included, for example, proposals to levy tax on the undistributed increase in value of life insurance policies or annuities or similar proposals that affect the tax-favored status of life insurance products and annuities in certain jurisdictions. In addition, legislation enacted in the United States in the spring of 2001 increased the size of estates exempt from the federal estate tax. This legislation is phasing in reductions in the estate tax rate between 2002 and 2009 and will repeal the estate tax entirely in 2010. Under the legislation, however, the estate tax will be reinstated, without the increased exemption or reduced rate, in 2011 and will be in effect thereafter. This legislation, and possible future changes to it such as extending or making permanent its repeal or reform to reduce the impact of estate taxes, could have a negative impact on the sales of estate planning products by U.S. life insurance companies including our U.S. subsidiaries. The enactment of these or other types of or other tax legislation in the various countries where we operate including proposals in the U.S. to create or favor alternative tax-favored long term savings vehicles, could result in a significant decrease in sales of our currently tax-favored products.

In addition, changes in tax laws or regulations or an operating performance below currently anticipated levels may lead to a significant impairment of deferred tax assets, in which case we could be obligated to write-off certain tax assets. Tax assets may also need to be written-down if certain assumptions of profitability prove to be incorrect, as losses incurred for longer than expected will make the usability of tax assets more unlikely. Any such development may have a material adverse impact on our results of operations.

The Property & Casualty insurance business is cyclical, which may impact our results

The Property & Casualty insurance business is cyclical. Although no two cycles are the same, these cycles have typically lasted for periods ranging from two to six years. Periods of intense price competition due to excessive underwriting capacity, periods of shortages of underwriting capacity permiting more favorable rates, consequent fluctuations in underwriting results and the occurrence of other losses characterize the conditions in these markets. Historically, Property & Casualty insurers have experienced significant fluctuations in operating results due to volatile and sometimes unpredictable developments, many of which are beyond the direct control of the insurer, including competition, frequency or severity of catastrophic events, levels of capacity, general economic conditions and other factors. This may cause a decline in revenues during certain cycles if we choose not to reduce our Property & Casualty product prices in order to maintain our market position and profitability. We may therefore experience the effects of such cyclicality, changes in customer expectations of appropriate premium levels, the frequency or severity of claims or other loss events, or other factors affecting the Property & Casualty insurance business, which could have an adverse effect on our results of operations and financial condition.

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Our business is subject to extensive regulation in the various countries where we operate and changes in existing, or new, government regulations in these countries may have an adverse effect on our business, financial condition or results of operations

We are subject to detailed and comprehensive regulation and supervision in all the jurisdictions in which we operate. Our insurance operations are subject to insurance laws and regulations, which are generally intended to protect policyholders, not our shareholders. Changes in existing insurance laws and regulations may materially affect the way in which we conduct our business and the products we offer. In addition, changes in pension and employee benefit regulation, social security regulation, financial services regulation, taxation and the regulation of securities products and transactions may also adversely affect our ability to sell new policies or our claims exposure on existing policies. Our asset management operations are also subject to extensive regulation in their respective jurisdictions. These regulations are primarily intended to protect investors in the securities markets or investment advisory clients and generally grant supervisory authorities broad regulatory powers. Changes to these laws and regulations may adversely affect our asset management operations. We are also subject to increasing regulation under various laws and regulations such as capital adequacy, intra-group transactions, “double-gearing” of capital at both the consolidated Group level, holding company and operating company levels.

We are faced with significant compliance challenges due to the fact that our regulatory environment is evolving rapidly and supervisory authorities are assuming an increasingly active role in interpreting and enforcing regulations. We have been and may become in the future subject to regulatory investigations which, together with the civil actions often following these investigations, may affect our image, brand, relations with regulators and/or results of operations.

For a discussion of regulations which affect our business, please see Item 4 “Information on the Company – Additional Factors which may affect AXA’s Business”. We cannot predict with any certainty the effect that any change in applicable laws or regulations or in their interpretation or enforcement, or any enactment of future regulation may have on the business, financial condition or results of operations of our various businesses whether by restructuring our operations, imposing increased costs or otherwise.

Certain business practices of the insurance and reinsurance industry have become the subject of regulatory investigations which have resulted in negative publicity and may have a material adverse impact on the industry and us

Recently, the insurance and reinsurance industry has been the subject of litigation, investigations and regulatory activity by various insurance, governmental and enforcement authorities due to certain practices within the insurance and reinsurance industry. These practices include the payment of contingent commissions by insurance companies to insurance brokers and agents and the extent to which such compensation has been disclosed, the solicitation and provision of fictitious or inflated quotes, the use of inducements to brokers or companies in the sale of group insurance products, and the accounting treatment of finite reinsurance or other non-traditional or loss-mitigation insurance products. In 2005, AXA RE received subpoenas, inquiries and requests for documents and other information from the SEC, New York Attorney General, Federal Bureau of Investigation, Department of Justice and various other U.S. regulators and law enforcement authorities seeking information relating to (i) specific reinsurance transactions with MBIA concerning the 1998 bankruptcy of Allegheny Health, Education and Research Foundation,

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and (ii) the purchase and/or sale of non-traditional products (including finite reinsurance) by AXA RE and its affiliates. Certain of the Company’s other subsidiaries with operations in the United States have also received subpoenas, inquiries and requests for documents or other information, principally focused on purchases and/or sales of non- traditional products (including finite reinsurance), in connection with these on-going investigations. We cannot predict at this time the effect that current litigation, investigations and regulatory activity, will have on the insurance and reinsurance industry or our business. It is possible that we may become subject to investigations or have lawsuits filed against us in connection with these matters which may adversely affect our image, sales, earnings or financial condition.

We are involved in various legal proceedings and regulatory investigations and examinations and may be involved in more in the future, any one or a combination of which could have a material adverse effect on our financial condition and results of operations

We have been named as defendants in lawsuits (both class actions and individual lawsuits); we have been subject to regulatory investigations or examinations and we have also been involved in similar actions or proceedings arising in the various jurisdictions where we do business. These actions arise in various contexts including in connection with our activities as an insurer, securities issuer, employer, investment advisor, investor and taxpayer. Certain of these lawsuits and investigations seek significant or unspecified amounts of damages, including punitive damages, and certain of the regulatory authorities involved in these proceedings have substantial powers over the conduct and operations of our business.

Due to the nature of certain of these lawsuits and investigations, we cannot make an estimate of loss or predict with any certainty the potential impact of these suits or investigations on our business, financial condition or results of operations. Please see Item 18 – Note 31 “Litigation” and Item 4 “Information on the Company – Additional Factors which may affect AXA’s Business” of this Annual Report for additional information on these matters.

Increased geopolitical risks following the terrorist attacks in the United States and any future terrorist attacks may have a continuing negative impact on certain of our businesses

We cannot assess with any degree of certainty the future effects on our businesses of terrorist attacks that have occurred and may occur in the future throughout the world, and other responsive actions, including war.

The terrorist attacks and responsive actions in recent years have significantly adversely affected general economic, financial and political conditions, increasing many of the risks in our businesses. Such attacks and actions may have a continuing negative effect on our businesses and results of operations over time. Our general account investment portfolios include investments in industries that we believe may be adversely affected by the terrorist attacks and responsive actions, including airlines, lodging and entertainment companies and non-life insurance companies. The effect of these events on the valuation of these investments is uncertain and could lead to impairments due to lasting declines in the value of investments. The cost, and possibly, the availability, in the future, of reinsurance coverage against terrorist attacks for our various insurance operations is uncertain. In addition, the rating agencies could reexamine the ratings affecting the insurance industry generally, including our companies.

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As a global business, we are exposed to various local political, regulatory and economic conditions, business risks and challenges which may affect the demand for our products and services, the value of our investments portfolio and the credit quality of local counterparties

We offer our products and services in Europe, North America, the Asia/Pacific zone, the Middle East and Africa through wholly-owned and majority-owned subsidiaries, joint ventures, companies in which we hold non-controlling equity stakes, agents and independent contractors. Our international operations expose us to different local political, regulatory, business and financial risks and challenges which may affect the demand for our products and services, the value of our investment portfolio, the required levels of capital and surplus, and the credit quality of local counterparties. These risks include, for example, political, social or economic instability in countries in which we operate, fluctuations in foreign currency exchange rates, credit risks of our local borrowers and counterparties, lack of local business experience in certain markets, risks associated with exposure to insurance industry insolvencies through policyholder guarantee funds or similar mechanisms set up in foreign markets and, in certain cases, risks associated with the potential incompatibility with foreign partners, especially in countries in which we are conducting business through entities we do not control. Our expansion in emerging markets requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social and political conditions. We may not continue to succeed in developing and implementing policies and strategies that are effective in certain locations where we do business.

Finally, our results of operations and financial condition may be materially affected from time to time by the general economic conditions such as the levels of employment, consumer lending or inflation, in the countries in which we operate.

Inadequate or failed processes or systems, human factors or external events may adversely affect our profitability, reputation or operational effectiveness

Operational risk is inherent in our business and can manifest itself in various ways, including business interruption, poor vendor performance, information systems malfunctions or failures, regulatory breaches, human errors, employee misconduct, and external fraud. These events can potentially result in financial loss, harm to our reputation and/or hinder our operational effectiveness. Management attempts to control these risks and keep operational risk at low levels by maintaining a sound and well controlled environment in light of the characteristics of our business, the markets and regulatory environment in which we operate. Notwithstanding these control measures, operational risk is part of the business environment in which we operate and we may incur losses from time to time due to these types or risks.

Other risks relating to our operations

As a holding company, we are dependent on our subsidiaries to cover our operating expenses and dividend payments

Our insurance and financial services operations are generally conducted through direct and indirect subsidiaries. As a holding company, our principal sources of funds are dividends from subsidiaries and funds that may be raised from time to time through the issuance of debt or equity securities or through bank or other borrowings.

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We expect that dividends received from subsidiaries will continue to cover our operating expenses, including (i) interest payments on our outstanding financing arrangements and (ii) dividend payments with respect to our outstanding ordinary shares. We expect that future acquisitions and strategic investments will be funded from available cash flow remaining after payment of dividends and operating expenses (including interest expense), cash on hand from previous securities offerings, proceeds of future offerings of securities, and proceeds from the sale of non-core assets. Certain of our significant subsidiaries, including AXA France Assurance, AXA Financial, AXA UK Holdings, AXA Japan, AXA Asia Pacific Holdings, and AXA Germany, are also holding companies and are dependent on dividends from their respective subsidiaries for funds to meet their obligations. In addition, certain of our principal insurance subsidiaries are subject to restrictions on the amount of dividends and debt repayments that can be paid to us and our affiliates. While we do not believe that these restrictions currently constitute a material limitation on our ability to meet our obligations or pay dividends on our shares, these restrictions may constitute a material limitations in the future. For further detail, see Item 5 “Liquidity and Capital Resources” and Item 18 – Note 29.3 “Other items: Restrictions on Dividends Payments to Shareholders” of this Annual Report.

Compliance with the Sarbanes-Oxley Act entails significant expenditure and managerial attention, and non-compliance with the Sarbanes-Oxley Act may adversely affect us

The U.S. Sarbanes-Oxley Act of 2002 and the relevant legislation subsequently implemented by the SEC and the NYSE require changes to some of our accounting and corporate governance practices, including the requirement to issue, for the year ending December 31, 2006 and future years, a report on our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act. We expect that compliance with the new rules and regulations will continue to require significant management attention and will result in increased accounting, legal and other costs. In addition, because Section 404 of the Sarbanes-Oxley Act requires our auditors to audit and issue a report on our internal controls over financial reporting, undertaking significant internal restructurings (such as information technology restructurings), corporate development or similar initiatives that may affect our internal control environment, may become more difficult and costly, particularly during periods when our internal controls over financial reporting are undergoing audit. This may have an adverse effect on our business and/or our ability to compete with our competitors which are not subject to the Sarbanes-Oxley Act. We cannot predict the outcome of the Section 404 process and to what extent changes will be required to our internal controls. In the event we are unable to achieve or maintain compliance with Section 404 and other provisions of the Sarbanes-Oxley Act and related rules, it may have a material adverse effect on us.

Our acquisitions may divert management attention and other resources and involve risks of undisclosed liabilities and integration issues

In recent years, we have completed a number of acquisitions around the world and we may make further acquisitions in the future. Growth by acquisition involves risks that could adversely affect our operating results, including the substantial amount of management time that may be diverted from operations to pursue and complete acquisitions, difficulties in managing and integrating the additional operations and personnel, significant delays in completing the integration of acquired companies and the potential loss of key employees or customers of these companies. In connection with certain of our mergers and acquisitions, we have experienced difficulties in rationalizing and integrating the information technology (“IT”) systems of acquired companies, including accounting information systems such as

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general ledger packages, with our existing IT systems. Integration and rationalization of multiple and in certain cases outdated IT systems in acquired companies may cause various issues including delay and unforeseen costs in the integration process, the necessity for extensive management attention and resources, as well as issues in the timely production of financial information required for inclusion in consolidated financial statements prepared on a local GAAP, IFRS and/or U.S. GAAP basis and the timely reporting to relevant regulatory authorities. Our acquisitions could also result in the incurrence of additional indebtedness, costs, contingent liabilities and amortization expenses related to goodwill and other intangible assets, all of which could materially adversely affect our businesses, financial condition and results of operations. Future acquisitions may have a dilutive effect on the ownership and voting percentages of existing shareholders. We may also finance future acquisitions with debt issuances or entering into credit facilities, each of which could adversely affect our businesses, financial condition and results of operations. The businesses we have acquired include Life & Savings, Property & Casualty insurance, Asset Management and retail banking operations. There could be unforeseen liabilities that arise out of the businesses we have acquired and may acquire in the future which may not be covered by, or exceed the amounts indemnified by the sellers.

We may have contingent liabilities from discontinued, divested and run-off businesses and may incur other off-balance sheet liabilities that may result in charges to the income statement

We may, from time to time retain insurance or reinsurance obligations and other contingent liabilities in connection with our divestiture, liquidation or run-off of various businesses and our reserves for these obligations and liabilities may be inadequate. These costs and liabilities could cause us to take additional charges that could be material to our results of operations. We may also, from time to time, in the course of our business provide guarantees and enter into derivative and other types of off-balance sheet transactions that could result in income statement charges. For additional information, see Item 18 – note 29 “Contingent assets and liabilities and unrecognized contractual commitments” and also Item 18 – note 20 “Derivative Instruments” of this Annual Report.

The failure to maintain and modernize our information systems could adversely affect our business

Our business depends significantly on effective information systems, and we have many different information systems for our various businesses. We must commit significant resources to maintain and enhance our existing information systems, and develop new ones in order to keep pace with the evolving information technology, industry and regulatory standards and customer preferences. If we do not maintain adequate information systems, we may not be able to gather and rely on adequate information to base our pricing, underwriting and reserving decisions. We may also have difficulties in attracting new customers and preserving our existing customer base. In addition, underperforming information systems could cause us to become subject to a higher number of customer, provider and agent disputes, may increase our litigation and regulatory exposure and make us incur higher administrative expenses, including remediation costs.

Significant shareholders of AXA may have interests conflicting with your interests

The Mutuelles AXA, three French mutual insurance companies, acting as a group, owned at February 28, 2006, directly and indirectly, approximately 14.30% of the issued ordinary shares of AXA representing approximately 23.29% of its

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voting power. Most of the shares owned by the Mutuelles AXA have double voting rights pursuant to the provisions of AXA’s articles of association, see “Item 10 – Additional Information – Certain Rights of AXA’s shareholders – Voting Rights” of this Annual Report. The Mutuelles AXA have stated their intention to collectively vote their shares in AXA. We cannot assure you that the interests of the Mutuelles AXA will not, from time to time, conflict with your interests as a shareholder. For example, even though the Mutuelles AXA do not hold a majority of the total voting power in AXA, efforts by the Mutuelles AXA to decline or deter a future offer to acquire control of AXA, which other shareholders may find attractive, may prevent other shareholders from realizing a premium for their AXA ordinary shares or ADRs. The Mutuelles AXA may decide to increase their interest in AXA or to sell all or a portion of the ordinary shares they own at some future date.

Risks related to ownership of AXA ADSs or ordinary shares

The trading price of AXA ADSs and dividends paid on AXA ADSs may be materially adversely affected by fluctuations in the exchange rate for converting Euro into U.S. dollars

Fluctuations in the exchange rate for converting Euro into U.S. dollars may affect the value of AXA ADSs. Specifically, as the relative value of the Euro against the U.S. dollar declines, each of the following values will also decline:

  • the U.S. dollar equivalent of the Euro trading price of AXA ordinary shares on the Euronext Paris which may consequently cause the trading price of AXA ADSs in the United States to also decline;
  • the U.S. dollar equivalent of the proceeds that a holder of AXA ADSs would receive upon the sale in France of any AXA ordinary shares withdrawn from the depositary; and
  • the U.S. dollar equivalent of cash dividends paid in Euro on the AXA ordinary shares represented by the AXA ADSs.

The holders of AXA ADSs may not be able to exercise their voting rights due to delays in notification to and by the Depositary

The depositary for the AXA ADSs may not receive voting materials for AXA ordinary shares represented by AXA ADSs in time to ensure that holders of AXA ADSs can instruct the Depositary to vote their shares. In addition, the depositary’s liability to holders of AXA ADSs for failing to carry out voting instructions or for the manner of carrying out voting instructions is limited by the Deposit Agreement governing the AXA ADR facility. As a result, holders of AXA ADSs may not be able to exercise their right to vote and have limited recourse against the Depositary or AXA if their shares are not voted according to their request.

Holders of AXA ADSs will have limited recourse if AXA or the depositary fails to meet their obligations under the Deposit Agreement and they wish to involve AXA or the depositary in a legal proceeding

The Deposit Agreement expressly limits the obligations and liability of AXA and the Depositary. Neither AXA nor the Depositary will be liable if they:

  • are prevented from or delayed in performing any obligation by circumstances beyond their control,
  • exercise or fail to exercise discretion under the Deposit Agreement, or

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  • take any action based upon the advice of, or information from, legal counsel, accountants, any person presenting ordinary shares for deposit, any holder or owner of an AXA ADR or any other person believed by AXA or the Depositary in good faith to be competent to give such advice or information. In addition, the depositary and AXA have the obligation to participate in any action, suit or other proceeding with respect to the AXA ADSs which may involve them in expense or liability only if they are indemnified. These provisions of the Deposit Agreement will limit the ability of holders of AXA ADSs to obtain recourse if AXA or the depositary fails to meet their obligations under the Deposit Agreement or if they wish to involve AXA or the depositary in a legal proceeding.

The holders of AXA ADSs in the United States may not be able to participate in offerings of rights, warrants or similar securities to holders of our ordinary shares on the same terms and conditions as holders of our ordinary shares

In the event that we offer rights, warrants or similar securities to the holders of our ordinary shares or distribute dividends payable, in whole or in part, in securities, the Deposit Agreement provides that the Depositary (after consultation with AXA) shall have discretion as to the procedure to be followed in making such rights or other securities available to ADR holders including disposing of such rights or other securities and distributing the net proceeds in U.S. dollars to ADR holders. Given the significant number of AXA ADR holders in the U.S., AXA generally would be required to register with the SEC any public offering of rights, warrants or other securities made to its ADR holders unless an exemption from the registration requirements of the U.S. securities laws is available. Registering such an offering with the SEC can be a lengthy process which may be inconsistent with the timetable for a global capital raising operation. Consequently, we have in the past elected and may in the future elect not to make such an offer in the U.S., including to our ADR holders in the U.S. and rather only conduct such an offering in an “offshore” transaction in accordance with “Regulation S” under the U.S. Securities Act of 1933. Therefore, there can be no assurance that our ADR holders will be able to participate in such an offering in the same manner as our ordinary shareholders.

Our ADS and ordinary share price could be volatile and could drop unexpectedly and you may not be able to sell your ADRs or ordinary shares at or above the price you paid

The price at which our ADSs and ordinary shares will trade may be affected by a large number of factors, some of which will be specific to us and our operations and some of which will be related to the insurance industry and equity markets generally. As a result of these factors, you may not be able to resell your ADSs or ordinary shares at or above the price which you paid for them. In particular, the following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our ADSs or ordinary shares:

  • investor perception of our Company, including actual or anticipated variations in our revenues, earnings or other operating results;
  • announcement of intended acquisitions, disposals or financings or speculations of such acquisitions, disposals or financings;
  • changes in our dividend policy, which could result from changes in our cash flow and capital position;
  • sales of blocks of our shares by significant shareholders;
  • hedging activities on our shares;
  • a downgrade of our credit or financial strength ratings, including placement on credit watch, or rumors of such downgrades;

22


  • actual or potential litigation involving us or the insurance or asset management industries generally;
  • changes in financial estimates and recommendations by securities research analysts;
  • fluctuations in foreign exchange rates and interest rates;
  • the performance of other companies in the financial services’ sector;
  • regulatory developments in the principal markets in which we operate;
  • international or local political, economic and market conditions; and
  • unforeseen events such as natural disaster or terrorist attacks and other developments stemming from such events and the uncertainty related to these developments.

As a “foreign private issuer” in the United States, AXA is exempt from a certain rules under the U.S. securities laws and is permitted to file less information with the SEC than U.S. companies are

As a “foreign private issuer,” AXA is exempt from certain rules under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, AXA’s officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of AXA ordinary shares and ADRs. Moreover, AXA is not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, AXA is not required to comply with Regulation FD, which restricts the selective disclosure of material information. Accordingly, there may be less publicly available information concerning AXA than there is for U.S. public companies.

Judgments of United States courts may not be enforceable against us

Judgment of United States courts, including those predicated on the civil liability provisions of the Federal securities laws of the United States, may not be enforceable in French courts. As a result, our shareholders who obtain a judgment against us in the United States may not be able to require us to pay the amount of the judgment.

23


Item 4: Information on the Company

Introduction

AXA is a French “société anonyme à directoire et conseil de surveillance” (a form of limited liability company with a Management Board and a Supervisory Board). The Company’s headquarters are located at 25 Avenue Matignon, 75008 Paris, France and its telephone number is (33)1 40 75 57 00. For information on AXA’s principal trading markets for its ordinary shares and ADSs, see Item 9 “The Offer and Listing” included in this Annual Report. The predecessor and founder of AXA was organized under the laws of France in 1852. The Company’s corporate existence will continue, subject to dissolution or prolongation until December 31, 2059.

Recent developments

For a description of significant events subsequent to December 31, 2005, see Item 5 - "Operating and Financial Review and Prospects - Events subsequent to December 31, 2005" of this Annual Report.

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For a description of significant acquisitions and disposals undertaken by AXA see Item 5, “Operating and Financial Review and Prospects – December 31, 2005 operating highlights” and note 6, “Goodwill”, to the consolidated financial statements included under Item 18 of this Annual Report.

For information relating to the ownership structure of the Group, see “Item 7 – Major Shareholders and Related Party Transactions”, included elsewhere in this Annual Report.

General Information

The Company is the holding company for AXA, a worldwide leader in financial protection. Based on available information at December 31, 2005, AXA was one of the world’s largest insurance groups, with consolidated gross revenues of 71.7 billion for the year ended December 31, 2005. AXA is also one of the world’s largest asset managers, with total assets under management as at December 31, 2005 of 1,063.8 billion, including assets managed on behalf of third party clients in an aggregate amount of 568.6 billion. Based on available information at December 31, 2004 and taking into account banking companies engaged in the asset management business, AXA was the world’s 6th largest asset manager1, with total assets under management of 871.5 billion.

AXA operates primarily in Western Europe, North America, the Asia Pacific region and, to a lesser extent, in other regions including in particular the Middle East and Africa. AXA has five operating business segments: Life & Savings, Property & Casualty, International Insurance (including reinsurance), Asset Management, and Other Financial Services (including banks). In addition, various Holding companies within the AXA Group conduct certain non-operating activities.

(1) Source AXA from Pensions & Investments, Watson Wyatt Global 500 survey.

25


AXA Group: simplified organization chart as at December 31, 2005

Set forth below is a simplified organization chart of AXA as at December 31, 2005. For additional information, please see note 3 “Scope of consolidation”.

Please note that the percentage on the left represents the economic interest and the percentage on the right represents the percentage of control.

(a) Holding Company that owns AXA Equitable Life Insurance Company.
(b) Holding Company that owns MONY Life Insurance Company and MONY Life Insurance Company of America.

(c) Holding Company that owns AXA Assurances Inc. and AXA Insurance (Canada).

(d) Holding Company that owns AXA Assurance Maroc.

(e) Holding Company that owns AXA Versicherung AG, AXA Lebenversicherung AG and AXA ART.

(f) Holding Company that owns AXA Belgium.

(g) Holding Company that owns AXA Aurora Iberica S.A., de Seguros y Reaseguros and AXA Aurora Vida, S.A. de Seguros y Reaseguros and Seguro Directo (Portugal R.C.).

(h) Holding Company that owns AXA France Vie, AXA France IARD, Avanssur and AXA Corporate Solutions Assurance

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(i) Holding Company that owns AXA Assicurazioni SpA.
(j) Holding Company that owns AXA Assurance Luxembourg and AXA Assurance Vie Luxembourg.
(k) Holding Company that owns AXA Leven NV and AXA Schade N.V.

(l) Holding Company that owns AXA Sun Life Plc, AXA Insurance Plc and AXA PPP Healthcare Limited.

(m) Holding Company that owns AXA Oyak Hayat Sigorta A.S. and AXA Oyak Sigorta A.S.

(n) Holding Company that owns AXA Australia New Zealand.

(o) Holding Company that owns AXA Life Insurance Co. Ltd and AXA Non-Life Insurance Co. Ltd.

(p) Holding Company that owns AXA Life Insurance Singapore Plc Ltd.

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Ratings

The Company and certain of its insurance subsidiaries are rated by recognized rating agencies. The significance of individual ratings varies from agency to agency. According to the rating agencies, companies assigned ratings at the top end of the range have a stronger capacity to repay debt and make payment on claims compared to companies assigned ratings at the lower end of the range.

Insurance rating agencies focus on the financial strength of the relevant insurance company and its capacity to meet the obligations arising on insurance policies. Certain of these agencies and their respective insurance rating scales are set out below.

Rating Agency   Highest Rating   Lowest Rating  
Standard & Poor’s Corp. (“Standard & Poor’s”)   AAA
(“extremely strong”)
  R
(“regulatory action”)
 
Moody’s Investor Services (“Moody’s”)   Aaa
(“extremely strong”)
  C
(“lowest”)
 
Fitch, Inc. (“Fitch”)   AAA
(“extremely strong”)
  D
(“order of liquidation”)
 

Debt ratings focus on a company’s ability to make timely payments of principal and interest. The rating scales for the agencies above are set out below.

Rating Agency   Highest Rating   Lowest Rating  
Standard & Poor’s   AAA
(“extremely strong”)
  D
(“default”)
 
Moody’s   Aaa
(“best”)
  C
(“lowest”)
 
Fitch   AAA
(“highest”)
  D
(“default”)
 

The commercial paper rating scales for these agencies are as follows:

Rating Agency   Highest Rating   Lowest Rating  
Standard & Poor’s   A-1
(“extremely strong”)
  D
(“default”)
 
Moody’s   Prime-1 or P-1
(“superior”)
  Not Prime
(“Not Prime”)
 
Fitch   F-1
(“highest”)
  D
(“default”)
 

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At May 31, 2006, the relevant ratings for the Company and its principal insurance subsidiaries are as follows:

    2005  
    Agency   Rating  
Insurer Financial Strength Ratings          
The Company’s principal insurance subsidiaries   Standard & Poor’s   AA–  
    Moody’s   Aa3  
    Fitch Ratings   AA  
Ratings of the Company’s Long Term and Short Term Debt          
Senior Debt   Standard & Poor’s   A  
    Moody’s   A2  
    Fitch Ratings   A+  
Long Term Subordinated Debt   Standard & Poor’s   BBB+  
    Moody’s   A3  
    Fitch Ratings   A  
Short Term Debt (Commercial Paper)   Standard & Poor’s   A-1  
    Moody’s   P-1  
    Fitch Ratings   F-1  

The ratings set forth above may be subject to revision or withdrawal at any time by the assigning rating agency. None of these ratings are an indication of the historic or potential performance of the ordinary shares, ADSs, ADRs or debt securities and should not be relied upon for purpose of making an investment decision with respect to any of these securities. The Company accepts no responsibility for the accuracy or reliability of the ratings.

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Business Overview

The tables below summarize certain key financial data by segment for the periods and as at the dates indicated.

CONSOLIDATED GROSS REVENUES AND NET INCOME

(in euro millions, except percentages)
    Years ended December 31,  
    2005   2004    
Gross revenues                  
Life & Savings   45,116   63%   42,344   63%  
Property & Casualty   18,874   26%   17,852   27%  
International Insurance   3,813   5%   3,363   5%  
Asset Management   3,440   5%   3,084   5%  
Other financial services   428   1%   387   1%  
Gross revenues   71,671   100%   67,030   100%  
Net income                  
Life & Savings   2,404   50%   1,826   48%  
Property & Casualty   1,737   36%   1,439   38%  
International Insurance   184   4%   244   6%  
Asset Management   411   9%   304   8%  
Other financial services   82   2%   13   0%  
Net income from operating segments   4,819   100%   3,826   100%  
Holding companies   (645)       (88)      
Net income   4,173       3,738      

 

Other Financial Data   2005   2004  
For the years ended December 31,          
Net income per ordinary share (in euros) (a)          
Basic   2.22   2.07  
Diluted   2.19   1.99  
At December 31,          
Shareholders’ equity (in euro millions)   33,847   28,523  
Average share price (in euros)   21.6   17.5  
Share price as at December 31 (in euros)   27.3   18.2  

(a) Following any significant capital increase with a stock price lower than the market price, such as ORAN conversion in July 2004, average number of shares and consequently EPS over each period must be restated to take into account this event, in accordance with French regulation.

 

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AXA’S TOTAL ASSETS UNDER MANAGEMENT

(in euro millions)

    At December December, 31
    2005   2004  
AXA (general account assets)   353,775   319,148  
Assets with financial risk carried by policyholders (Unit-linked)   141,410   112,387  
Sub-total   495,185   431,535  
Managed on behalf of third parties   568,639   439,924  
TOTAL   1,063,823   871,460  

For additional information on AXA’s business segments, see Item 5 “Operating and Financial Review and Prospects – Operating Results by Segment” and note 4 “Segmental Information” to the consolidated financial statements included in Item 18 of this Annual Report.

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The table below sets forth AXA’s consolidated gross revenues by segment for each of its major geographic markets for the years indicated.

BREAKDOWN OF AXA’S GROSS REVENUES

    Years ended December, 31  
    2005   2004  
    Segment contribution (%)   Contribution to total
segment (%)
  Segment contribution (%)   Contribution to total
segment (%)
 
Total gross revenues (in euro millions)   71,671   67,030    
Life & Savings   63%       63%      
France       29%       27%  
United States       31%       30%  
United Kingdom       5%       6%  
Japan       10%       13%  
Germany       8%       8%  
Belgium       6%       5%  
Southern Europe       3%       3%  
Other countries       7%       7%  
Property & Casualty   26%       27%      
France       27%       27%  
Germany       15%       16%  
United Kingdom (including Ireland)       23%       25%  
Belgium       8%       8%  
Southern Europe       16%       16%  
Other countries       11%       8%  
International Insurance   5%       5%      
AXA RE       38%       31%  
AXA Corporate Solutions Assurance       42%       45%  
AXA Cessions       2%       3%  
AXA Assistance       14%       14%  
Others       4%       7%  
Asset Management   5%       5%      
AllianceBernstein       72%       75%  
AXA Investment Managers       28%       25%  
Other Financial Services   1%       1%      
French banks       15%       26%  
German banks       6%       6%  
AXA Bank Belgium       78%       67%  
Others       1%       1%  

For additional information on AXA's revenues by segment, see note 21 "Revenues by segment and net revenues from banking activities" to the Consolidated Financial Statements included in Item 18 of this Annual Report.

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Segment information

Life & Savings segment

AXA’s Life & Savings segment offers a broad range of life insurance products including retirement and health insurance products for both individuals and groups, with an emphasis on savings-related products including contracts with financial risk borne by policyholders (unit-linked) products. The Life & Savings segment accounted for 45.1 billion or 63% of AXA’s consolidated gross premiums and financial services revenues for the year ended December 31, 2005 (2004: 42.3 billion or 63% respectively).

The table below summarizes AXA’s Life & Savings gross revenues and gross insurance liabilities by geographic region for the periods and as at the dates indicated:

(in euro millions, except percentages)
    Gross revenues   Gross insurance  
    Years ended December 31,   liabilities at  
    2005   2004   December 31,  
            Proforma (b)   Reported       2005    
France   13,228   29%   11,538   11,538   27%   102,985    
United States (a)   13,940   31%   12,847   12,847   30%   108,984    
Japan   4,735   10%   5,526   5,526   13%   27,669    
United Kingdom   2,395   5%   2,420   2,420   6%   78,762    
Germany   3,585   8%   3,499   3,499   8%   30,923    
Belgium   2,734   6%   2,188   2,188   5%   17,462    
Southern Europe   1,439   3%   1,333   1,333   3%   8,944    
Others (b)   3,059   7%   2,829   2,993   7%   25,190    
Australia and New-Zealand   1,225   3%   1,153   1,153   3%   10,918    
Hong Kong   831   2%   734   734   2%   4,736    
TOTAL   45,116   100%   42,180   42,344   100%   400,919    
Represented by:                            
Gross premiums written   43,496           41,103          
Fees and charges relating
to investment contracts
with no participating features
  509           417            
Others revenues (c)   1,111           824          

(a) MONY was acquired on July 8, 2004, and represent respectively 980 million in 2004 and 1,746 million in 2005 of the revenue recorded including cross selling (sales of AXA products by MONY agents).
(b) Proforma 2004 take into account the impacts of the following change in scope:
- As of January 2005, Turkey was fully consolidated instead of being accounted for under the equity method. If full consolidation had been applied in 2004, revenues would have been
61 million higher.
- As of December 1, 2004, in the Netherlands, sale of the Health portfolio (
149 million), and transfer of the Disability activity from Life & Savings to Property & Casualty activity (76 million). 2004 revenues would have been 225 million lower if Health and Disability activity had been excluded.
(c) Includes revenues from other activities (mainly commissions and related fees on mutual funds sales).

 

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Markets

France gross written premiums experienced a strong development in 2005 (+14%). Contracts with financial risk borne by policyholder’s (Unit Linked) increased by 49%, due to a very dynamic financial market. 450,000 new accounts for affecting pension-related products (PERP/PERE) were opened in 2005. Since April 2004 (date of launch), about 1,720,000 of these contracts have been underwritten.

United States. In the annuity market, industry sales of variable annuities were up 3%1, driven by equity markets and the continued popularity of guaranteed life benefit riders. Industry fixed annuity sales decreased 10%2 as a result of the low interest rate environment and competition. In the life insurance market, total life industry sales were up 2%2 with continued weakness in variable life market, down 10% from 2004. The variable life business generally lags behind the movements in the equity market. Sales of life insurance products with fixed returns, such as universal life, continued their strong traction in 2005 with industry universal life sales up 13%2.

In Japan the life insurance market continued to grow, driven by expanding individual annuity sales sourced from bank insurance distribution channels. A gradual economic and market recovery have contributed to the strengthening of most insurers, evidenced by improvements in solvency margins and credit ratings. Reflecting the impact of a declining and aging population and falling birth rates, the industry has witnessed a steady decline in the number of in-force individual life policies. Consumers have shifted from traditional death protection products to retirement products, resulting in higher volumes for savings, annuities and medical hospitalization products. Foreign life insurers continued to expand their market share at the expense of domestic life insurers.

Germany. The introduction of the German Retirement Earnings Law (“Alterseinkünftegesetz”) on January 1st, 2005 significantly reduced tax advantages for Life Insurance, especially for products with a one-time pay-out option. This led to a surge in demand for these old products in the fourth quarter of 2004 and declining premium volumes in 2005. In the future, an ongoing need to replace defined benefit systems is expected to push group life pension products in general. As expected, there was not much demand for the core products of the Retirement Earnings Law (“Alterseinkünftegesetz”), the “Rürup” pensions as they are inflexible. In contrast, the also highly regulated “Riester”- products profited from simplification and increased flexibility. The year 2005 proved to be the second strongest year since their introduction in 2002. This was also spurred mainly in the fourth quarter by the announced introduction of uni-sex tariffs, and management expects the influence on absolute premium volumes will mainly come into effect in 2006.

In the United Kingdom, the market saw increased investor confidence in Wealth Management products, particularly unit linked onshore and offshore bonds, while pension providers continue to adapt their propositions in advance of pensions legislation simplification in 2006 (A-Day).

In Belgium, the market benefited from a strong growth in 2005 (+18.5% compared to +13.4% in 2004). The upturn of the Unit-linked market continued and even accelerated (+47%) while the Non Unit-linked market has grown substantially (+11.3%).

In Southern Europe, the Spanish market improved despite the adverse market environment, namely, a decreasing saving capacity. The growth, focused on the retail market, came mainly from traditional life products and life savings

(1) Source: VARDS. (2) Source: LIMRA.

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not linked with retirements. In Italy, the market growth was driven by the bank insurance and post office distribution channel due to indexed linked products, and the agent network due to traditional corporate contracts, which altogether represent 91% of the total market. In Portugal, the market increased was driven by capitalisation products. Fiscal benefits for PPR´s (Individual pensions plans) have ceased in 2005, but the bankinsurance channel is still distributing this product.

Australia / New Zealand. The savings related investment sector continued to be a growth area in Australia for 2005. Strong local investment returns have translated into high net flows in the mutual fund and advice market. The pension market experienced funds growth of 20.8%1 over the year, driven by the strong investment market and the mandatory pension scheme in Australia. Continued government support for self-funded retirement has driven two major changes in pension funds during 2005 – the abolition of the surcharge (a tax on contributions) from June 30, 2005 and the allowance of spouse co-contributions from January 1, 2006. The risk insurance market continued to record strong growth, climbing a further 11.9%2 over the year.

Hong Kong. The economy continued to grow in 2005 assisted in part by the Closer Economic Partnership Agreement (CEPA) with more than 12.5 million Mainland Chinese visiting Hong Kong in 2005, up 2.4% on 2004. The Hang Seng Index rose 4.5% during 2005. The life insurance market has shown growth, for the nine months to September 2005, with the individual life market new business sales increasing by 5.3%3. Increasing affluence and investor sophistication is now starting to drive growth in more sophisticated financial planning models. At the end of its fifth year, the Mandatory Provident Fund (MPF) is now increasingly important to Hong Kong residents and there is growing awareness that MPF alone will not provide sufficient assets to fund post-retirement lifestyles. This along with the significant level of bank savings, has increased the awareness of a need for wealth management and financial advisory products.

In each of its principal markets, AXA operates through well-established life insurance companies. AXA’s principal life insurance subsidiaries are set out below.

France:   AXA France Vie.  
United States:   AXA Equitable Life Insurance Company and its insurance and distribution subsidiaries and  
    affiliates, MONY Life Insurance company “MONY Life”.  
United Kingdom:   AXA Sun Life Plc.  
Japan:   AXA Group Life Insurance and AXA Life Insurance.  
Germany:   AXA Lebensversicherung AG, AXA Krankenversicherung AG.  
Belgium:   AXA Belgium SA.  
Southern Europe:      
Spain:   AXA Aurora Vida; AXA Aurora Iberica.  
Italy:   AXA Assicurazioni e Investimenti.  
Portugal:   AXA Seguros Portugal.  

 

(1) Source: Plan For Life (Superannuation & Rollovers) September 2005.
(2) Source: Plan For Life (Life Insurance media release) September 2005.
(3) Source: OCI (Office for Commissioner of Insurance – Hong Kong) September 2005.

 

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The table below presents the life insurance markets in which AXA operates ranked by worldwide gross revenues in 2004, along with AXA’s ranking (by market share).

BASED ON WORLDWIDE GROSS REVENUES IN 2004

Countries   Country Statistics (a)   AXA(b)  
    Ranking   % premiums written   Ranking   Market share  
United States (c)   1     27%     4 (c)   8%    
Japan   2     21%     14     2%    
United Kingdom   3     10%     8 (d)   7%    
France   4     7%     3     10%    
Germany   5     5%     7     4%    
Belgium   14     1%     4     11%    
Southern Europe                          
– Spain   16     1%     12     3%    
– Italy   6     4%     14     1%    
– Portugal   26     0%     7     3%    

(a) Source: Swiss Re, Sigma report 2005 “World insurance in 2004”.
(b) Source AXA, mainly based on 2004 national insurance association data for each specific country.
(c) Relates to the variable annuity products.
(d) Based on annualized new business premium equivalent (regular premiums plus one-tenth of new business single premiums).

In addition to the principal markets mentioned above, AXA offers life, health and retirement products in other countries in Europe (Netherlands, Luxembourg, Switzerland and Turkey), in Canada, in Australia and New Zealand, in Asia (notably Hong Kong, Singapore, and China), in the Middle East, and in Africa (including Morocco). The products in these markets are offered through various distribution channels, including general agents, salaried sales forces, bank networks, financial advisers and brokers.

Competition

The nature and level of competition vary among the countries in which AXA operates. There is strong competition among companies for all the types of individual and group Life & Savings products sold by AXA. Many other insurance companies offer one or more products similar to those offered by AXA, in some cases using similar marketing techniques. In addition, AXA still competes with banks, mutual funds, investment advisers and other financial institutions for sales of savings-related investment products and, to a lesser extent, life insurance products.

The principal competitive factors affecting the Life & Savings segment’s business include:

  • Size, strength and quality of the distribution platform, in particular the quality of advisers,
  • Range of product lines and product quality, and innovation,
  • Price,
  • Quality of service,
  • Investment management performance,
  • Historical levels of bonuses with respect to participating contracts,

36


  • Reputation, visibility and recognition of brand,
  • Quality of management,
  • Ratings for an insurer’s financial strength and claims-paying ability (at December 31, 2005, the main Life & Savings entities of AXA Group were rated AA by Fitch Ratings, AA– by Standard & Poor’s and Aa3 by Moody’s), and
  • Changes in regulations that may affect the policy charging structure relating to commission and administrative charges.

Products

AXA’s Life & Savings products include a broad range of life, health, retirement and savings-related products marketed to individuals and corporate clients, the latter in the form of group contracts. The Life and Savings-related products offered by AXA include term life, whole life, universal life, mortgage endowment, deferred annuities, variable annuities, immediate annuities, variable life and other investment-based products. The health products offered include critical illness and permanent health insurance products. The nature of the products offered by AXA varies from market to market.

In 2005, in France, a new Life & Savings product “Odyssiel” has been launched through the salaried sales force channel. First commercial results are very promising with the premiums of contracts with financial risk borne by policyholders (unit-linked) increasing to 37.5% of the total premiums in this channel.

In the United States, AXA offers a variety of life insurance products, variable and fixed-interest annuity products, mutal funds and other investment products and services. AXA is among the leading issuers of variable annuity and variable life insurance products in the United States. A significant portion of the variable annuities sold by AXA in the U.S. offer one or more enhanced guaranteed minimum death benefits (“GMDB”), guaranted minimum income benefits (“GMIB”), and guaranted minimum withdrawal benefits (“GMWB”). AXA reinsures a portion of its exposure on variable annuity products that offer GMDB and/or GMIB features and has adopted certain active financial risk management program using derivative financial instruments that are designed to reduce exposure to GMBD, GMIB and GMWB liabilities that have not been reinsured.

In Germany the new legal framework that came into effect on January 1, 2005, accelerated the trend in favor of pension products. Among those pension products that benefit from a special tax treatment the “Riester-Rente” products saw significantly higher demand, while the new “Rürup-Rente” products early performance was disappointing.

In Belgium, AXA successfully launched a new structured product (Millesimo series) at the end of 2004 , which is a contract with financial risk born by policyholder’s product (unit-linked) with an underlying open architecture fund providing capital protection.

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The table below presents consolidated gross revenues (after inter-segment elimination) and gross insurance liabilities by major product for the periods and as of the dates indicated for AXA’s Life & Savings segment.

LIFE & SAVINGS SEGMENT

(in euro millions, except percentages)
    Years ended December 31,   liabilities at
 
    2005   2004   December 31, 2005  
Individual   22,783   52%   20,368   50%   190,128    
Group   2,609   6%   2,259   5%   24,958    
Retirement/annuity/investment contracts   25,392   58%   22,627   55%   215,086    
Life contracts (including endowment contracts)   11,775   27%   11,891   29%   97,497    
Health contracts   4,387   10%   4,552   11%   7,794    
Other   1,942   4%   2,033   5%   13,445    
SUB TOTAL   43,496   100%   41,103   100%   333,823    
Fees and charges relating to investment contracts
with no participating features
  509       417       39,762    
Fees, commissions and other revenues   1,111       824       0    
Liabilities arising from policyholder’s participation                   25,647    
Unearned revenues and unearned fees reserves                   1,835    
Derivatives relating to insurance and investment contracts                   (147)    
TOTAL Revenues and Liabilities   45,116       42,344       400,919    
Total includes:                        
Contracts with financial risk borne by policyholders
(Unit linked)
  13,216   30%   7,696   19%   141,437    
UK “With-Profit” business   953   2%   1,034   3%   26,638    

Participating contracts

Certain of AXA’s Life & Savings products are participating contracts, which enable the policyholders to participate in the excess assets over liabilities (the surplus) of the life company issuing the contract through an interest or bonus payment. AXA offers this type of participating contract in most of its principal Life & Savings operations. The policyholder may participate in the investment return and/or in part of the operating profits earned by the issuing company. The nature and extent of such participation vary from country to country. Therefore, such participations, including policyholder participations on UK “With-Profit” business (explained below), are treated as dividends that may either increase the present value of future policy benefits or be paid in cash to the policyholder in the year the bonus is credited.

UK “With-Profit” business

A participating contract, specific to United Kingdom and known as the “With-Profit” contract, is offered by many life insurance companies in the United Kingdom including AXA Sun Life. In 2002, AXA decided to cease the marketing of new On Shore “With-Profit” contracts. Under “With-Profit” contracts, policyholders’ premiums are paid into a fund and are invested in a range of assets, including fixed maturity and equity securities, real estate and

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loans. The policyholders are entitled to receive a share of the profits arising from these investments which includes regular bonuses and terminal bonuses. The regular bonuses are designed to provide a return to the policyholder through a periodic increase in benefits and are credited to the policyholder. Periodically, they do not reflect the return earned by the issuing company over period. Once credited, regular bonuses are guaranteed to be paid at maturity, death or as otherwise specified in the policy. Terminal bonuses, which are not guaranteed in advance of payment are designed to provide policyholders with their share of total investment performance (including investment income and realized and unrealized investment gains or losses) and other experience of the fund (including expenses, mortality experience and income taxes). Terminal bonuses can represent a significant portion of the total amount paid at maturity (which has in the past often exceeded 50% and currently exceeds 25% in some cases) or upon surrender prior to maturity. The amount of terminal bonus to be paid is determined at the discretion of the board of directors.

Following policyholder and court approvals, in 2001 AXA Equity & Law went through a financial reorganization whereby the life insurance funds were transferred to AXA Sun Life and fundamentally restructured. A portion of the assets that accumulated over the years (which we refer to in this Annual Report as the “inherited estate”) was attributed to AXA as the shareholder, and a portion was 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.

Variable life and annuity products

Variable life and variable annuity products may be linked to investments supporting such contracts and are referred to in this Annual Report as “contracts with financial risk borne by policyholders” (unit-linked contracts). In general, the investment risk (and reward) is transferred to the policyholder while the issuing company earns fee income from managing the underlying assets. However, there may be certain types of variable products that offer guarantees, such as guarantees of minimum living benefits or death benefits. Guaranteed minimum living benefits include guaranteed minimum income benefits, guaranteed minimum accumulation benefits and guaranteed minimum withdrawal benefits.

Contracts with financial risk borne by policyholder’s products (unit linked)

In 2005, AXA’s Life & Savings operations continued to experience growth in savings-related contracts with financial risk borne by policyholders. This growth has been significant in Europe and is mainly attributable to (i) an increase in consumer demand for such products, (ii) government initiatives to move away from state funded pensions to private funded pensions and (iii) favorable financial market performance in 2004 and 2005. Gross premiums on such business have increased from 7.7 billion in 2004 to 13.2 billion in 2005, representing 30% of total Life & Savings gross revenues compared to 19% in 2004.

Distribution

AXA distributes its Life & Savings products through a number of channels that vary from country to country including most notably exclusive agents, independent brokers, salaried sales forces, direct marketing (mail, telephone, or internet sales) and specialized networks (including banks and other financial services providers).

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The split by distribution channels used by AXA’s principal Life & Savings operations, based on consolidated gross written premiums for the years ended December 31, 2005 and 2004, is presented below:

Based on gross written premiums in 2005   Agents, direct sales
force, salaried
sales force and
marketing
  Intermediaries / independent advisers / brokers   Other networks, including, corporate partnerships and bank networks  
France   57%     35%     9%    
United States   59%     30%     11%    
Japan (a)   64%         36%    
United Kingdom (b)   28%     64%     8%    
Germany   48%     39%     13%    
Belgium   3%     90%     7%    
Southern Europe   67%     13%     19%    

(a) Gross written premiums are split based on the new business by channel.
(b) Gross written premiums under IFRS overweight the share of agents, direct sales, salaried sales force and marketing direct in United Kingdom.

Based on gross written premiums in 2004   Agents, direct sales
force, salaried
sales force and
marketing
  Intermediaries / independent advisers / brokers   Other networks, including, corporate partnerships and bank networks  
France   59%     33%     8%    
United States   60%     27%     13%    
Japan (a)   60%         40%    
United Kingdom (b)   29%     61%     10%    
Germany   48%     39%     13%    
Belgium   4%     84%     13%    
Southern Europe   64%     10%     26%    

(a) Gross written premiums are split based on the new business by channel.
(b) Gross written premiums under IFRS overweight the share of agents, direct sales, salaried sales force and marketing direct in United Kingdom.

Surrenders and Lapses

For most Life & Savings products, costs to the issuing company in the first year are higher than costs in subsequent years due to first year commissions and the costs of underwriting and issuing a contract. Consequently, the rate of policies remaining in-force and not lapsing, also known as the “persistency rate”, plays an important role in profitability. The majority of individual Life & Savings products issued by AXA may be surrendered for a cash surrender value. Most of the individual Life and Saving products issued by AXA have front-end charges to the policyholder (or subscription fees), which are assessed at the inception date of the contract and/or surrender charges (charges assessed in the case of early surrender). Both front-end charges and surrender charges are intended to offset a portion of the acquisition costs.

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Total surrenders and lapses for 2005 and 2004, and the ratio of surrenders and lapses to gross surrenderable insurance reserves at the beginning of the periods indicated are presented below:

        Years ended December 31,  
    2005     2005     2004    
    Total surrenders & lapses   Surrenders & lapses ratio  
    (in euro millions)   %     %    
French operations   5,373     6.6%     6.8%    
U.S. operations (a)                    
Individual life   1,233     4.2%     4.9%    
Individual retirement   5,054     8.6%     8.2%    
Japan (b)   2,088     8.0%     10.9%    
UK operations   4,937     8.9%     8.4%    
German operations (excluding Health)   402     2.2%     2.7%    
Belgian operations   417     4.2%     3.5%    
Southern Europe operations   460     6.7%     5.3%    
– Spain   195     6.1%     5.1%    
– Italy   224     8.3%     6.6%    
– Portugal   41     4.5%     4.2%    

(a) Amounts reported for the U.S. operations exclude lapses and institutional assets backing contracts with financial risk borne by policyholders (322 million).
(b) Including exchanges in Japan.

Property & Casualty segment

AXA’s Property & Casualty segment offers a range of personal and commercial insurance products. The Property & Casualty segment accounted for 18.9 billion, or 26% of AXA’s consolidated gross revenues for the year ended December 31, 2005 (2004: 17.9 billion or 27% respectively).

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The table below summarizes AXA’s consolidated gross revenues (after inter-segment eliminations) and insurance liabilities for the Property & Casualty segment for the periods and as at the dates indicated.

PROPERTY & CASUALTY SEGMENT

(in euro millions, except percentages)
    Gross revenues   Gross insurance  
    Years ended December 31,   liabilities at  
    2005   2004   December 31, 2005  
            Proforma (a)   Reported            
France   5,070   27%   4,895   4,895   27%   10,193    
Germany   2,785   15%   2,796   2,796   16%   5,416    
United Kingdom (& Ireland) (b)   4,393   23%   4,360   4,469   25%   6,870    
Belgium   1,451   8%   1,430   1,430   8%   4,870    
Southern Europe   3,012   16%   2,901   2,901   16%   5,001    
Others (c)   2,163   11%   1,924   1,361   8%   3,667    
TOTAL   18,874   100%   18,305   17,852   100%   36,017    
Represented by:                            
Gross written premiums   18,831         17,810        
Other revenues   43         42        

(a) Proforma 2004 take into account the impacts of the following changes in scope:
(b) In United Kingdom, the right to renew our UK Personal Direct business was sold to RAC in October 2004. In 2004, revenues from this activity amounted to 110 million.
(c) In Others countries, as of January 2005, Turkey, Hong-Kong and Singapore are fully consolidated instead of being accounted for under the equity method. If full consolidation had been applied in 2004, other countries 2004 revenues would have been 487 million higher.
In addition, the Netherlands disability activity has been transferred from Life & Savings to Property & Casualty. Other countries 2004 P&C revenues would have been 76 million higher if disability had been included.

Key ratios for Property & Casualty operations are presented in Item 5 of this Annual Report.

Markets

In each of its principal markets, AXA operates through well-established Property & Casualty insurance companies.

AXA’s principal Property & Casualty insurance subsidiaries are set out below:

France:  

AXA France IARD, AVANSSUR (ex Direct Assurance IARD), Natio Assurance and AXA Protection Juridique.

United Kingdom & Ireland:   AXA Insurance UK and AXA Insurance Limited (Ireland).
Germany:   AXA Versicherung AG.
Belgium:   AXA Belgium SA.
Southern Europe:    
          Spain:   AXA Aurora Iberica; Hilo Direct Seguros y Reaseguros.
          Italy:   AXA Assicurazioni.
          Portugal:   AXA Portugal Companhia de Seguros; Seguro Directo.
     

Information on the 2005 market conditions in the geographical markets in which AXA operates is provided in Item 5 “Operating and Financial Review and Prospects – Market Conditions in 2005” of this Annual Report.

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The table below presents the Property & Casualty markets in which AXA operates ranked by worldwide gross revenues in 2004, along with AXA’s ranking (by market share).

PROPERTY & CASUALTY

    Based on worldwide Property & Casualty gross revenues in 2004  
Countries   Country Statistics (a)   AXA (b)  
    Ranking   % gross revenues   Ranking   Market share  
Germany (c)   2     8%     7     5%    
United Kingdom (d)   4     8%     5     6%    
France   5     5%     1     16%    
Belgium   14     1%     1     17%    
Southern Europe                          
– Spain   8     2%     3     6%    
– Italy   6     3%     9     3%    
– Portugal   25     0%     7     3%    

(a) Source: Swiss Re, Sigma report 2005 “World insurance in 2004”.
(b) Source AXA, mainly based on 2004 national insurance association data for each specific country.
(c) Based on 2004 gross Property & Casualty premiums written in Germany, AXA is ranked as follows (group ranking without International Insurance): third in liability insurance (6.7% market share), fifth in homeowners’ insurance (4.9% market share), seventh in automobile insurance (4.2% market share).
(d) The United Kingdom, including Health and excluding Ireland product lines.

 

In addition to the principal markets discussed above, AXA offers personal and commercial Property & Casualty insurance products in other countries in Europe (Netherlands, Luxembourg, Switzerland and Turkey), in Canada, in Asia (notably Japan, Singapore, and Hong Kong), in the Middle East, and in Africa (including Morocco). The products in these markets are offered through various distribution channels, including brokers and direct sales force, which are discussed below.

Competition

The nature and level of competition vary among the countries in which AXA operates. Overall, the Property & Casualty insurance industry in each of AXA’s principal markets is highly competitive, and tends to be cyclical with surplus underwriting capacity leading to lower premium rates. The principal competitive factors are as follows:

  • Price,
  • Quality of service,
  • Distribution network,
  • Brand recognition,
  • Ratings for financial strength and claims-paying ability, and
  • Changes in regulations, which may affect premium rates charged or claims settlement costs paid.

In France, Germany and Belgium, markets are fragmented. In the United Kingdom, industry-wide consolidation across the sector has affected both major insurance companies and brokers, resulting in increased concentration among the top players in recent years. In Ireland, new players have entered the Irish market recently.

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Products

AXA’s Property & Casualty insurance operations offer a broad range of products including automobile, homeowners / household, property and general liability insurance for both personal and commercial customers, the latter specifically focusing on small to medium-sized companies, and permanent health insurance.

The table below sets forth gross written premiums and gross insurance liabilities by major product for the periods and as at the dates indicated.

PROPERTY & CASUALTY INSURANCE SEGMENT

(in euro millions, except percentages)
    Gross revenues
Years ended December 31, 
  Gross insurance
liabilities at
December 31, 2005
 
    2005   2004        
Personal lines                
Motor (Automobile)   6,213   33%   5,891   33%   11,330    
Homeowners/household   2,815   15%   2,626   15%   2 501    
Other   2,536   13%   2,359   13%   4,855    
Commercial lines                        
Motor (Automobile)   1,368   7%   1,244   7%   2,255    
Property damage   2,096   11%   2,031   11%   2,332    
Liability   1,359   7%   1,320   7%   5,523    
Other   2,107   11%   2,008   11%   5,802    
Other   336   2%   331   2%   1,400    
TOTAL   18,831   100%   17,810   100%   35,998    
Liabilities arising from policyholders’ participation                   19    
TOTAL                   36,017    

Distribution

AXA distributes its Property & Casualty insurance products through a number of channels that vary from country to country, including exclusive agents, independent brokers, salaried sales forces, direct marketing (mail, telephone or internet sales) and specialized networks (corporate partnerships and bank networks). In Europe, the same distribution channels are often used by both AXA’s Life & Savings operations and Property & Casualty operations. The split by distribution channel used by AXA’s Property & Casualty operations, based on gross revenues for the year ended December 31, 2005, is presented below.

Based on gross revenues in 2005   General agents
and sale force
  Intermediaries / independent advisers & brokers   Direct sales
and marketing
  Other networks, including corporate partnerships and bank networks  
France   70%     25%     4%     1%    
Germany   45%     43%     4%     8%    
United Kingdom (& Ireland)       60%     26%     14%    
Belgium       88%     6%     6%    
Southern Europe   65%     25%     5%     4%    

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Ceded Reinsurance

AXA’s Property & Casualty insurance operations use various types of reinsurance, primarily to limit their maximum exposure to catastrophic events, environmental pollution risks and certain other types of risks. A growing portion of AXA’s Property & Casualty insurance exposures are ceded internally to AXA Cessions, which organizes external reinsurance programs. Total gross premiums ceded by AXA’s Property & Casualty operations to third party reinsurers in 2005 was 935 million (2004: 952 million).

International Insurance segment

AXA’s International Insurance segment is primarily comprised of AXA RE for the reinsurance activities and AXA Corporate Solutions Assurance for large risks insurance activities.

The businesses of these International Insurance activities are described below.

AXA RE is a reinsurer which mainly underwrites Property including catastrophe covers, Casualty, Motor, Marine, Aviation, Space as well as Credit under the form of treaties and facultatives. It operates mainly from the Paris headquarters but also from Canada, Miami - United States (for South American business) and Singapore.

In addition, (i) AXA Corporate Solutions Assurance operates in the large risk Property & Casualty insurance business for large corporate clients in Europe, as well as in the worldwide Marine and Aviation lines, (ii) AXA Cessions, an intra- group reinsurance company. Most of companies within the AXA Group cede internally some of their exposure to AXA Cessions which analyses, structures and places reinsurance programs for such risk with third-party reinsurers. It also provides advice in risk management and purchases of reinsurance cover to AXA Group subsidiaries, (iii) AXA Assistance provides assistance services including medical aid for travelers, automobile-related road assistance, home assistance and health-related services mainly to insurance companies, credit card companies, tour operators and automobile manufacturers, and (iv) AXA Liabilities Managers (classified below in other international activities), manages the internal Property & Casualty run-off portfolios including those of AXA RE, AXA Belgium, and AXA UK or corresponding to stand-alone run-off companies in the “Other transnational activities” segment (inclusive of the Property & Casualty entities formerly managed by AXA RE in the United States).

The International Insurance segment accounted for 3.8 billion, or 5% of AXA’s consolidated gross revenues for the year ended December 31, 2005 (2004: 3.4 billion or 5%, respectively).

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The table below summarizes AXA’s consolidated gross premiums and financial services revenues and gross insurance liabilities for the International Insurance Segment for the periods and at the dates indicated.

(in euro millions, except percentages)
    Gross revenues   Gross insurance  
    Years ended December 31,   liabilities at  
    2005   2004   December 31, 2005  
AXA RE   1,451   38%   1,056   31%   4,627    
AXA Corporate Solutions Assurance   1,605   42%   1,506   45%   4,725    
AXA Cessions   60   2%   94   3%   240    
AXA Assistance   549   14%   467   14%   240    
Other international activities   147   4%   240   7%   2,038    
TOTAL   3,813   100%   3,363   100%   11,869    
Represented by:                        
Gross written premiums   3,668       3,240          
Other revenues   145       123          

Market and competition

On the Reinsurance side, market prices were stable in 2005, Property rates being supported by the increased hurricane activity in 2004 and 2005. AXA RE’s revenue growth in 2005 was driven by higher premiums in selected non proportional Casualty business – benefiting from favorable pricing conditions – as well as in non proportional Property Miscellaneous and proportional Credit business. Nevertheless, 2005 was a turning point for the market: it brought high-severity losses of exceptional frequency, not only in the United States, creating a profound disturbance within the Non Life (Re) insurance industry.

On the Large Risks Insurance market, after several years of rate increases and restructuring of large Corporate Insurance programs, underwriting conditions reflected a general softening of the market affecting rates. However the occurrence of several natural events, especially in the United States, led to a stabilization of the rates towards the end of the year.

Products

AXA RE – Reinsurance Activity. These operations rely mostly on treaties (about 90% in both proportional and non proportional reinsurance) mainly related to catastrophe covers all around the world (essentially wind, flood and earthquake covers). Moreover, AXA RE underwrites the following classes of business on a very selective basis: other property damage, casualty, credit, marine, aviation, life and health insurance.

AXA Corporate Solutions Assurance – Large Risk Insurance Activity. AXA Corporate Solutions Assurance underwrites large insurance risks for large national and international corporations. The products cover property damage, third party liability, marine, aviation and transport, construction risk, financial risk, and directors and officer’s liability. It also offers loss-prevention and risk management services.

AXA Cessions. AXA’s Property & Casualty subsidiaries reinsure a large portion of their business internally through AXA Cessions. AXA Cessions coordinates retrocession with external reinsurers to reduce the loss exposures of each subsidiary and of AXA as a whole.

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The table below presents the International Insurance segment’s gross revenues and gross insurance liabilities by major product for the periods and as at the dates indicated.

INTERNATIONAL INSURANCE

(in euro millions, except percentages)
    Gross revenues   Gross insurance  
    Years ended December 31,   liabilities at  
    2005   2004   December 31, 2005  
Property damage   1,273   35%   1,302   40%   3,172    
Automobile, Marine, Aviation   1,010   28%   848   26%   3,541    
Casualty / Civil Liability   488   13%   581   18%   3,069    
Other   897   24%   509   16%   2,089    
TOTAL   3,668   100%   3,240   100%   11,870    
Derivatives relating to insurance and investment contracts                   (1)    
TOTAL                   11,869    

Distribution

AXA RE and AXA Corporate Solutions Assurance distribute their products principally through insurance and reinsurance brokers.
AXA Assistance works mainly as a business to business (“B to B”) company although it may also use direct sales / marketing. In countries where AXA offers Property & Casualty insurance products such as France, Italy or Spain, AXA distribution networks offer assistance services among their insurance portfolio products.

Ceded Reinsurance and Retrocessions

AXA RE and AXA Corporate Solutions Assurance review their exposures to ensure that the risks underwritten are diversified geographically and by line of business in order to avoid concentration risk.

Premiums retroceded by AXA RE to external reinsurers in 2005 are split between (i) 26 million of premiums ceded related to specific and proportional retrocessions (deemed to protect specific lines of business), and (ii) 276 million ceded related to covers (deemed to cover the whole portfolio against major events).

In 2005, AXA Corporate Solutions Assurance ceded 653 million premiums (2004: 588 million) to third-party reinsurers.

Also, in 2005, approximately 717 million, or 78% of total reinsurance ceded to third parties, was placed externally by AXA Cessions on behalf of AXA’s insurance subsidiaries (2004: 631 million or 79%).

Asset Management segment

During 2005, in the asset management market, total long-term stock, bond and hybrid fund net inflows were $1931 billion for 2005, compared with $210 billion for 2004. The 2005 market appreciation amounted to +3% for the S&P 500 U.S. Equity Index and +14% for the MSCI World Equity Index. Specifically, stock and hybrid fund net inflows decreased by 24%2 and 41% respectively, as net inflows for long-term bonds largely offset net inflows in equity funds, partially

(1) Source: ICI S&P 500 Bloomberg MSCI.
(2) Source: ICI.

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reflecting the continued demand for life-style funds, asset allocation funds, and target maturity funds. The demographic changes in the United States and other developed economies have increased the pool of savings available for private investment which management believes has created substantial demand for investment products and services.

Asset Management is an important business for AXA, from both a strategic and profitability perspective. The development of Asset Management activities is a key part of AXA’s financial services strategy, which seeks to capitalize on its existing strengths and expand its client base. This strategy is based on the belief that its Asset Management expertise will enable AXA to benefit in the future from the expected growth in savings-related products in the markets where it operates. The Asset Management segment accounted for 3.4 billion of AXA’s consolidated gross revenues for the year-ended December 31, 2005 (2004: 3.1 billion).

AXA’s main Asset Management companies are AllianceBernstein and AXA Investment Managers. The Asset Management companies manage assets on behalf of retail investors, private clients and institutional clients as well as on behalf of companies affiliated with AXA.

AXA has Asset Management specialist teams in each of its major markets: Western Europe, the United States and the Asia / Pacific region.

The table below sets forth the total assets managed by the companies comprising AXA’s Asset Management segment, including assets managed on behalf of third parties, and the fees earned by such companies on these assets as at the dates and for the periods indicated.

ASSET MANAGEMENT SEGMENT

(in euro millions)
    2005    2004   
Assets under management by AXA at December 31, (a)          
Managed on behalf of third parties   568,390   439,718  
Assets backing contracts with financial risk borne by policyholders   76,714   66,138  
Other invested assets   277,589   234,931  
TOTAL   922,692   740,788  
Commissions and fees earned for the years ended December 31,          
AllianceBernstein   2,587   2,434  
AXA Investment Managers   1,195   944  
SUB-TOTAL   3,783   3,378  
Intercompany eliminations   (343)   (293)  
CONTRIBUTION TO AXA’s CONSOLIDATED GROSS REVENUES   3,440   3,084  
(a) Based on estimated fair value at the dates indicated. Assets under management presented in this table are based on asset management
companies only; AXA Group (including insurance companies) assets under management amounted to respectively
1,064 million and
871 million as of December 31, 2005 and 2004.

Market and Competition

The Asset Management industry remains highly fragmented, with no single competitor or any small group of competitors dominating the worldwide market. AXA’s Asset Management operations are subject to substantial competition in all aspects of its business due, in part, to the relatively low barriers to entry. Asset Management companies compete on basis of the range of investment products offered, the investment performance of such products and the quality of services provided to clients and prices.

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AllianceBernstein (previously named Alliance Capital)
AllianceBernstein, through its parent company AllianceBernstein Holding, is a listed subsidiary of AXA Financial and is a leading global investment management firm in the U.S. AllianceBernstein provides diversified investment management and related services to individual investors, private clients, institutional clients, including AXA Financial and its insurance company subsidiaries (which collectively are AllianceBernstein’s largest client) as well as to unaffiliated persons and entities such as corporate and public employee pension funds, endowment funds, and U.S. and foreign governments.

AllianceBernstein provides diversified Asset Management and related services globally to a broad range of clients including:

  • management of assets backing contracts with financial risk borne by policyholders (unit-linked), hedge funds and other investment vehicles for private clients (such as, high net worth individuals, trusts and estates, charitable foundations),
  • management of mutual funds sponsored by AllianceBernstein, its subsidiaries and affiliates for individual investors,
  • management of investments on behalf of institutional investors, and
  • investment research and advisory services for institutional investors.

In 2000, Alliance Capital acquired the business of Sanford C. Bernstein Inc., which complemented Alliance Capital’s growth equity investment orientation, with a highly regarded value equity investment capability, institutional research capabilities and a strong private client business portfolio.

As at December 31, 2005, AllianceBernstein had 491 billion of assets under management, including 431 billion of assets managed on behalf of third party clients (2004: 395 billion and 352 billion, respectively). Excluding exchange rate impact, assets under management in AllianceBernstein increased by +7%, net of a 5% decrease related to a change in scope linked to the sale of the cash management business.

AXA Investment Managers (“AXA IM”)
AXA IM is a key player in international Asset Management business. AXA IM provides its clients with a wide range of global products and expertise via mutual funds and dedicated portfolios. AXA IM’s clients include (i) institutional investors, (ii) individual investors to whom products are distributed through AXA and external distribution networks, and (iii) AXA’s insurance subsidiaries both for Main Fund and Unit-Linked.

In the first quarter of 2005, AXA IM finalized the UK component of the outsourcing of its middle-office activities to State Street Corporation.

In the fourth quarter of 2005, AXA IM finalized the acquisition of Framlington, a UK-based asset management company specialized in retail market segment. This acquisition gave AXA IM critical mass and visibility in the UK market.

As at December 31, 2005, AXA IM had 432 billion of assets under management, including 137 billion of assets managed on behalf of third party clients (2004: 345 billion, 88 billion respectively).

Other Financial Services segment

The operations in the Other Financial Services segment are conducted primarily in Belgium and in France. For the years ended December 31, 2005 and 2004, the Other Financial Services segment accounted for 0.4 billion, or 1% of AXA’s consolidated gross revenues.

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The segment operations principally include:

AXA Bank Belgium, a subsidiary of AXA Belgium, offers a comprehensive range of financial services to individuals and to small businesses. It has a network of approximately a thousand of independent bank agents that support the sale of products offered by AXA Belgium and AXA Investment Managers. The historical low level of long term interest rates resulted in a large increase in the production of mortgage loans. AXA Bank Belgium has a market share of 11%1. The low interest rates also generated a high level of prepayments. The growth in deposit accounts is lower compared to 2004 following the decrease of the base rate and the success of structured mutual funds with capital guarantee and Life Insurance products. AXA Banque, based in Paris, delivers banking services and loans to retail customers of AXA France’s insurance businesses and to other customers mainly through Internet. AXA Banque managed approximately 516 000 customers at year-end 2005, corresponding to an increase of 21% compared to 2004. Its main activities include bank accounts services and sale and servicing of savings instruments and loans.

Insurance-related invested assets

The assets underlying AXA’s insurance operations (included within the three segments: the Life & Savings segment, the Property & Casualty segment and the International Insurance segment) are mainly managed by AXA’s Asset Managers – AllianceBernstein and AXA Investment Managers. These assets consist of (i) general account assets on which the insurer generally bears the investment risk and reward, and (ii) assets backing contracts with financial risk borne by policyholders (unit-linked), on which the investment risk and reward is generally transferred to the policyholders.

The discussion below concerns the general account investment assets of AXA’s insurance operations, which are referred to in this annual report as “insurance-related invested assets.”

The general account liabilities of AXA’s Life & Savings operations can be divided into two primary types, participating and non- participating. For participating products, the investment results of the underlying assets determine, to a large extent, the return to the policyholder that is either reflected as an increase in future policy benefits or paid out in cash in the year the bonus is credited to the policyholder. The insurer’s profits on such business are earned from investment management net of policyholders’ participation, mortality and other charges. For non-participating or interest-sensitive products, the insurer’s profits are earned from a positive spread between the investment return, the crediting or reserve interest rate, and mortality.

Although all the general account assets of each insurer support all of that insurer’s liabilities, the insurers have developed asset-liability management techniques with separate investment objectives for specific classes of product liabilities.

At December 31, 2005, based on total invested assets2, the net book value of the insurance-related invested assets supporting the general account Life & Savings operations primarily consisted of fixed maturity investments and equity investments of 72% and 11%, respectively (71% and 10% in 2004). At that date, the insurance-related invested assets supporting the Property & Casualty operations primarily consisted of fixed maturity investments and equity investments of 64% and 20%, respectively (63% and 19% in 2004).

The following table presents AXA’s consolidated insurance-related invested assets (including impact of related derivatives), by insurance segment at December 31, 2005.

(1) Source AXA.
(2) Based on net carrying value and excluding assets backing UK “With-Profit” contracts, assets backing contracts with financial risk borne by policyholders (unit-linked contracts) and investments in affiliated companies (Equity Method).

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INSURANCE – RELATED INVESTED ASSETS

(in euro millions, except percentages)
    At December 31, 2005    
    Life & Savings   Property & Casualty   International Insurance   Total   % of total    
    Net
carrying value
  Market
value
  Net
carrying
value
  Market
value
  Net
carrying
value
  Market
value
  Net
carrying
value
  Market
value
    Net
carrying value
  Market
value
 
Fixed maturities                                                              
Available-for-sale   157,144     157,144     25,045     25,045     7,263     7,263     189,451     189,451     40%     39%    
At fair value through profit & loss   40,389     40,389     2,669     2,669     356     356     43,413     43,413     9%     9%    
Of which allocated to UK With-Profits   18,306     18,306                     18,306     18,306     4%     4%    
Held for trading   142     142                     142     142     0%     0%    
Non quoted fixed maturities (amortized cost)   17     17             3     3     20     20     0%     0%    
Total fixed maturities   197,692     197,692     27,713     27,713     7,621     7,621     233,027     233,027     49%     48%    
by issuers                                                              
– French government   25,536     25,536     3,070     3,070     598     598     29,204     29,204     6%     6%    
– Foreign government   62,026     62,026     12,654     12,654     3,514     3,514     78,195     78,195     16%     16%    
– Local administration   1,845     1,845     199     199     171     171     2,215     2,215     0%     0%    
– Public and semi public sectors   31,545     31,545     4,442     4,442     816     816     36,803     36,803     8%     8%    
– Private sector   68,921     68,921     5,995     5,995     2,082     2,082     76,998     76,998     16%     16%    
– Guaranteed by a mortgage   5,647     5,647     168     168     249     249     6,065     6,065     1%     1%    
– Other   2,112     2,112     1,163     1,163     192     192     3,467     3,467     1%     1%    
Equity securities                                                              
Available-for-sale   18,834     18,834     8,172     8,172     674     674     27,680     27,679     6%     6%    
At fair value through profit & loss   18,150     18,150     621     621     33     33     18,804     18,804     4%     4%    
Of which allocated to UK With-Profits   10,620     10,620                     10,620     10,620     2%     2%    
Held for trading   101     101                     101     101     0%     0%    
Total equity securities   37,085     37,084     8,792     8,792     708     708     46,585     46,584     10%     10%    
Non controlled investment funds                                                              
Available-for-sale   1,540     1,540     637     637     1,044     1,044     3,221     3,221     1%     1%    
At fair value through profit & loss   1,876     1,876     36     36     5     5     1,917     1,917     0%     0%    
Of which allocated to UK With-Profits   114     114                     114     114     0%     0%    
Held for trading   185     185     10     10             195     195     0%     0%    
Total Non controlled investment funds   3,601     3,601     683     683     1,049     1,049     5,333     5,333     1%     1%    
Total Other assets held by consolidated
investment funds designated as
at fair value through profit & loss
  1,778     1,778     131     131     3     3     1,912     1,912     0%     0%    
Total Macro hedge and speculative derivatives   (209)     (209)                     (209)     (209)     0%     0%    
Real Estate                                                              
At amortized cost   6,499     9,514     1,301     1,711     31     31     7,832     11,256     2%     2%    
At fair value through profit & loss   4,871     4,871     108     108             4,979     4,979     1%     1%    
Of which allocated to UK With-Profits   3,623     3,623                             3,623     3,623     1%     1%    
Total real estate   11,370     14,385     1,409     1,819     31     31     12,810     16,235     3%     3%    
Morgages, policy and other loans                                                   0%     0%    
Loans designated as at fair value through
profit & loss
  125     125                     125     125     0%     0%    
Mortgage loans   7,020     7,317     207     228     3     3     7,230     7,548     2%     2%    
Of which allocated to UK With-Profits   30     30                     30     30     0%     0%    
Other loans   10,423     10,498     522     524     32     32     10,977     11,054     2%     2%    
Total Morgages, policy and other loans   17,568     17,940     729     753     35     35     18,332     18,728     4%     4%    
Cash and cash equivalents   14,690     14,690     3,560     3,560     1,208     1,208     19,458     19,458     4%     4%    
INVESTED ASSETS (before those backing contracts
with financial risk borne by policyholders)
 
283,575
    286,960     43,018     43,452     10,655     10,655     337,248     341,067     70%     71%    
Financial assets backing contracts with
financial risk borne by policyholders
  141,410     141,410                     141,410     141,410     30%     29%    
INVESTED ASSETS (incl. those backing contracts
with financial risk borne by policyholders)
 
424,985
    428,371     43,018     43,452     10,655     10,655     478,658     482,477     100%     100%    

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AXA’s fixed maturity, equity investments and non controlled investment funds are predominantly publicly traded (85% compared to 86% in 2004). These investments are held by AXA’s principal insurance operations in France (32%), the United Kingdom (including Ireland) (14%), the United States (12%), Germany (11%), Japan (10%), Belgium (8%), and Southern Europe (4%).

In 2005, insurance related fixed maturity included Sovereign bonds and equivalent (63% compared to 61% in 2004), investments in private sector (33% in 2005 compared to 32% in 2004) as well as other issuers (4% compared to 7% in 2004).

Overall, the fixed maturity and equity investments together with real estate, mortgages and loans are concentrated in the markets in which AXA’s principal subsidiaries operate.

Derivatives. AXA uses derivative instruments to minimize adverse fluctuations in equity prices, interest rates, and foreign exchange rates. The basis on which AXA manages these risks, the sensitivities associated with managing these types of risks, and the potential impact on the AXA’s consolidated financial results are set out in further detail in Item 11 “Quantitative and Qualitative Disclosures About Market Risk” and in note 5 “Financial and insurance risk management” to the consolidated financial statements included in Item 18 of this Annual Report.

Property & Casualty claims reserves

Establishment of claims reserves

AXA is required by applicable insurance laws and regulations, and generally accepted accounting principles to establish reserves for outstanding claims (claims which have not yet been settled) and associated claims expenses that arise from its Property & Casualty and International Insurance operations. AXA establishes its gross insurance liabilities, or claims reserves, by product, type of insurance coverage and year, and charges them to income as incurred.

Claims reserves (also referred to as “loss reserves”) fall into two categories namely:

  • Reserves for reported claims and claims expenses. These reserves are for outstanding claims which have not yet been settled and are based on undiscounted estimates of the future claims payments that will be made in respect of the reported claims, including the expenses relating to the settlement of such claims; and
  • Reserves for incurred but not yet reported (“IBNR”) claims and claims expenses. IBNR reserves are established on an undiscounted basis, to recognize the estimated cost of losses that have occurred but have not yet been notified to AXA. These reserves, like the reserves for reported claims and claims expenses, are established to recognize the estimated costs, including the expenses associated with claims settlement, necessary to bring claims to final settlement.

The process of estimating the original gross claims reserve is based on information available at the time the reserve was originally established. However, claims reserves are subject to change due to the number of variables that affect the ultimate cost of claims, such as: (i) developments in claims (frequency, severity and pattern of claims) between the

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amount estimated and actual experience, (ii) changes arising from the occurrence of large natural catastrophes late in the financial year for which limited information may be available at year end (iii) judicial trends, regulatory changes, and (iv) inflation and foreign currency fluctuations.

As a result, actual losses may deviate from the original gross reserves established. Consequently, the reserve may be re-estimated on the basis of information available. Any adjustment resulting from a change in claims reserves is recorded in the financial statements of the relevant period.

AXA continually reviews the adequacy of established claims reserves, including claims development, and actual claims experience compared to initial assumptions used to estimate initial gross claims reserve.

The information within this section sets forth separately (i) AXA’s Property & Casualty insurance operations representing the Property & Casualty Segment operations and AXA Corporate Solutions Assurance from the International Insurance segment, and (ii) AXA RE business from the International Insurance segment.

In accordance with prior years’ presentation, AXA RE’s information is provided separately because:

(i) AXA RE’s business consists of insurance assumed from other insurers,

(ii) AXA RE’s programs are monitored separately within the reinsurance operations, and the type of insurance and the nature of the risks and exposures covered by AXA RE are different compared to the direct insurance coverage provided by AXA’s Property & Casualty insurance operations and AXA Corporate Solutions Assurance,

(iii) A portion of AXA RE’s business is ceded 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 rather than on an accident year basis covering a 12-month period.

The monitoring of the activity on an underwriting year basis is in fact the most usual practice amongst reinsurers, and is the most appropriate to reinsurance treaties which in general cover the risks underwritten by the ceding company during a given year, whereas the claims attached to this underwriting may occur either during this year or during the following one. In AXA RE’s loss reserve development table, the fact that claims may occur subsequently to the first closing of the underwriting year explains that the reserves re-estimated one year later (and in general also several years later) are always higher than the initial net claims reserves. In the financial statements this claims charge related to claims occurring subsequently to the first closing of the underwriting year they are attached to, is covered by the premium items which are mentioned on the line “Premium adjustment”.

Property & Casualty Reserves not included in Loss Development Tables

AXA does not discount its reserves for claims and claims expenses except for disability claims for which a final settlement has been agreed upon and payments are fixed over a period of time. The disability claims reserves have not been included in the Loss Reserve Development Table, since these are similar to structured settlements.

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AXA’s French Property & Casualty operations underwrite construction coverage with a ten-year contract term. In accordance with the French regulations, a specific provision is added to the claims reserves based on methodology established by the French government. This reserve is in addition to each single notified claim. The construction reserves were excluded from the Loss Reserve Development table because such reserves do not provide any indication as to how claims have been reserved (initially) and the outcome upon settlement of such claims in future periods based on the underwriting and associated reserving methodologies adopted by AXA.

The Property & Casualty loss reserves that were excluded from the Loss Reserve Development Table amounted to 4.8 billion and represented 11.8% of total gross Property & Casualty insurance liabilities at December 31, 2005 (2004: 11.8%). For further information, refer to the “Reconciliation of Loss Reserves to Consolidated Financial Statements” table following the Loss Reserve Development tables.

Loss reserve development

The loss reserve development table presents the claims reserve development for calendar years 1995 through 2005, as determined in accordance with IFRS4. The first line captioned “gross reserves for unpaid claims and claims expenses” represents the original gross claims reserve liability reported at the balance sheet date for the year indicated. The third line captioned “paid (cumulative)” represents the cumulative amounts paid as of the end of each year with respect to the original gross claims reserve liability reported. The fourth line captioned “Reserve re-estimated” represents the previously recorded liability as adjusted (re-estimated) based on claims experience as of the end of each year. Estimates are adjusted, as more information on unsettled claims becomes known from time to time to unsettled claims. For example, the gross claims reserve as at December 31, 1996 was originally 5,847 million and increased by 12,781 million to 18,628 million primarily due to the UAP acquisition in 1997. By the end of 2005, aggregate amounts paid were 12,473 million and the original gross claims reserve had been re-estimated to be 16,188 million at December 31, 2005. The “cumulative redundancy (deficiency)” for each year represents the aggregate amount by which the original gross claims reserve liability as of that year-end has changed in subsequent periods.

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LOSS RESERVE DEVELOPMENT: PROPERTY & CASUALTY AND INTERNATIONAL INSURANCE (excluding AXA RE)

(in euro millions except percentages)
    At December 31,  
    1995    1996    1997 (b)   1998    1999 (c)   2000    2001    2002    2003    2004 (d)   2005   
Gross reserves for unpaid claims and
claims expenses developed initially
at the booking date
(d)
  5,712   5,847   20,371   20,941   26,656   26,916   28,636   28,465   27,825   29,128   31,168  
Gross reserves for unpaid claims and
claims expenses developed in 2005
(d)
  14,439   18,628   21,610   22,432   24,806   25,876   27,434   28,057   28,332   29,793   31,168  
Cumulative payments at:                                              
One year later   1,305   1,388   4,737   4,745   7,727   6,807   6,715   6,371   6,075   6,180      
Two years later   1,684   5,759   6,632   6,818   11,184   10,302   9,900   9,554   9,233          
Three years later   6,898   7,327   8,087   9,361   13,474   12,378   12,440   11,846              
Four years later   8,123   8,351   10,338   10,632   14,798   14,220   14,140                  
Five years later   8,917   10,619   11,218   11,384   16,239   15,297                      
Six years later   9,075   11,187   11,512   12,435   16,554                          
Seven years later   9,615   11,387   12,508   12,889                              
Eight years later   9,660   12,143   12,970                                  
Nine years later   10,114   12,473                                      
Ten years later   10,303                                          
Reserve re-estimated at:                                              
One year later   5,607   5,537   19,425   19,040   23,041   27,069   27,425   26,856   27,527   29,179      
Two years later   5,477   13,881   17,510   19,407   26,294   25,919   25,718   26,219   26,791          
Three years later   13,376   13,864   17,971   22,048   25,542   24,864   25,610   25,835              
Four years later   13,303   14,214   20,162   21,485   24,409   24,665   25,542                  
Five years later   13,730   16,742   19,873   20,804   24,304   24,658                      
Six years later   13,472   16,439   19,052   20,820   24,174                          
Seven years later   13,273   16,024   19,293   20,671                              
Eight years later   12,905   16,272   19,267                                  
Nine years later   13,028   16,188                                      
Ten years later   12,488                                          
Cumulative redundancy (deficiency)
from the initial gross reserves in
excess of re-estimated gross reserves:
(a)
                                             
Amount   1,951   2,440   2,343   1,762   632   1,218   1,892   2,222   1,542   614   na  
Percent   13.5%   13.1%   10.8%   7.9%   2.5%   4.7%   6.9%   7.9%   5.4%   2.1%   na  

(a) It is not appropriate to extrapolate future redundancies or future deficiencies based on the loss reserve development presented in the table as conditions and trends that have affected the development of the liability in prior periods may not necessarily occur in the future periods.
(b) AXA acquired Compagnie UAP (“UAP”) on January 1, 1997. The operations of AXA and UAP were integrated in 1998. At the date of acquisition, UAP had net reserves of 13.7 billion. The outstanding claims reserves and claim expenses of UAP’s Property & Casualty operations are included in the year end reserves as at December, 31, 1997 and thereafter. Cumulative payments and reserve development for the 1998 year and thereafter include the development of the integrated Property & Casualty liabilities of AXA, including UAP, as loss development data specific to UAP is not available and there is no reasonable basis of allocating cumulative payments and reserves re-estimated between AXA and UAP post-acquisition.
(c) AXA acquired GRE in May 1999. The operations of GRE have been integrated within AXA. At the time of acquisition the gross reserves totalled 5.6 billion.
(d) In 2004, the companies AXA Corporate Solution Insurance U.S., AXA RE P&C Insurance company and AXA RE P&C Reinsurance company were transferred from AXA RE to the Other transnational activities.
The reserves of AXA Corporate Solution Insurance U.S. were presented on an occuring year basis and included in Property & Casualty loss reserve developement table. The reserves of AXA RE P&C Insurance company and AXA RE Reinsurance company were presented on an underwriting year basis and included in AXA RE loss reserve development table.

 

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The majority of the Property & Casualty insurance operations is short tail and, therefore, losses develop and are paid relatively quickly. In 2005, approximately 43% of the claims reserves were paid in the year that the claim event occurred (2004: 41%).

Note 15 “Liabilities arising from insurance and investment contracts” to the consolidated financial statements in Item 18 of this Annual Report includes: (i) a reconciliation of beginning to ending gross outstanding claims reserves including claim expenses for each of the two years ended December 31, 2005 and (ii) the effect on income relating to changes in claims reserves for each of the two years ended December 31, 2005 under the caption loss reserve development (prior years).

In direct insurance, there was no major change in the loss settlement schedule in 2005, and there was no significant change in forecasts during the year. In 2005, insurance reserves included the transfer of the disability business from the Life & Savings to the Property & Casualty segment in the Netherlands, and the change in consolidation method (full consolidation instead of equity-method) for businesses in Turkey, Hong Kong and Singapore.

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LOSS RESERVE DEVELOPMENT: AXA RE

 (in euro millions except percentages)
    At December 31,  
    1995 (c)   1996    1997    1998    1999    2000    2001 (d)   2002    2003    2004 (e)   2005   
Gross reserves for unpaid claims and
claims expenses developed initially
at the booking date
(a)
  2,451   2,646   2,880   3,060   3,396   3,455   5,868   4,778   4,200   3,314   4,253  
Gross reserves for unpaid claims and
claims expenses developed in 2005
(e)
  2,451   2,646   2,880   3,060   3,396   3,453   5,868   4,778   3,742   3,314   4,253  
Initial retroceded reserves   (262)   (196)   (285)   (416)   (430)   (393)   (1,652)   (1,020)   (853)   (410)   (1,048)  
Retroceded reserves in 2005 (e)   (262)   (196)   (285)   (416)   (430)   (393)   (1,652)   (1,020)   (461)   (502)   (1,048)  
Initial net claims reserves in excess
of (less than) re-estimated
net claims reserves:
  2,189   2,450   2,595   2,644   2,966   3,060   4,216   3,758   3,281   2,812   3,205  
Paid (cumulative) at:                                              
One year later   602   615   583   956   1,165   1,218   1,987   1,441   950   1,127      
Two years later   1,008   965   1,094   1,594   1,893   1,860   3,198   2,113   1,543          
Three years later   1,221   1,230   1,430   2,000   2,265   2,449   3,603   2,570              
Four years later   1,410   1,427   1,685   2,232   2,779   2,549   3,978                  
Five years later   1,548   1,586   1,815   2,677   2,726   2,770                      
Six years later   1,677   1,689   2,101   2,566   2,894                          
Seven years later   1,759   1,953   1,971   2,697                              
Eight years later   2,000   1,813   2,060                                  
Nine years later   1,856   1,881                                      
Ten years later   1,918                                          
Reserve re-estimated at:                                              
One year later   2,811   2,970   2,945   3,743   3,969   4,199   5,922   5,012   3,438   3,797      
Two years later   2,917   2,829   3,159   3,817   4,105   4,061   6,183   4,163   3,642          
Three years later   2,774   2,891   3,168   3,772   3,955   4,034   5,314   4,374              
Four years later   2,818   2,844   3,045   3,643   4,027   3,817   5,536                  
Five years later   2,755   2,754   2,941   3,722   3,755   3,944                      
Six years later   2,678   2,612   2,964   3,444   3,845                          
Seven years later   2,558   2,692   2,724   3,521                              
Eight years later   2,653   2,468   2,774                                  
Nine years later   2,452   2,513                                      
Ten years later   2,490                                          
Cumulative redundancy (deficiency)
from the initial gross claims reserves
in excess of (less than) re-estimated
gross claims reserves
  (39)   133   106   (461)   (449)   (491)   332   404   100   (483)      
Re-estimated retroceded reserves   229   230   336   502   427   423   1,164   771   399   641      
Premium adjustment (b)   525   569   634   720   1,024   1,268   1,371   1,269   551   551      
Re-estimated net claims reserves:   1,736   1,714   1,804   2,299   2,394   2,253   3,001   2,334   2,692   2,605      
Initial net claims reserves in excess
of (less than) re-estimated net
claims reserves:
                                             
Amount (a)   453   736   791   345   572   807   1,215   1,424   589   299   na  
Percent of original net reserve (a)   20.7%   30.0%   30.5%   13.0%   19.3%   26.4%   28.8%   37.9%   18.0%   10.7%   na  

(a) The loss reserve development table is presented on an underwriting year basis for AXA RE business. 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. It is not appropriate to extrapolate future redundancies or future deficiencies based on the loss reserve development presented in the table as conditions and trends that have affected the development of the liability in prior periods may not necessarily occur in the future periods. (b) Represents premium earned subsequent to the accounting year end and premium reinstatements / experience-rated premiums received and accrued from the ceding insurers as assumed losses were incurred.
(c) Includes the claims reserves of Abeille Re acquired in 1995.
(d) In 2001, the claims reserve of AXA RE were adversely affected by the September 11th attacks.
(e) In 2004, the companies AXA Corporate Solution Insurance U.S., AXA RE P&C Insurance company and AXA RE P&C Reinsurance company were transferred from AXA RE to the Other transnational activities.
The reserves of AXA Corporate Solution Insurance U.S. were presented on an occuring year basis and included in Property & Casualty loss reserve developement table.

The reserves of AXA RE P&C Insurance company and AXA RE Reinsurance company were presented on an underwriting year basis and included in AXA RE loss reserve development table.

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Reconciliation of Loss Reserves Developed to Consolidated Financial Statements

The following table reconciles the gross insurance liabilities, e.g., the gross claims reserves including claim expenses, in the Loss Development Tables presented above to those presented in the AXA’s consolidated financial statements in accordance with IFRS4 as at the dates indicated (refer to note 15 “Liabilities arising from insurance and investment contracts” to the consolidated financial statements included in Item 18 of this Annual Report).

(in euro millions)
    At December 31,  
    2005    2004   
Total gross claims reserves developed:          
Property & Casualty and International Insurance (excluding AXA RE)   31,168   29,128  
AXA RE (a)   4,253   3,314  
Total gross claims and other reserves developed   35,421   32,442  
Other reserves (b)   4,752   4,350  
Total gross claims and other reserves excluding Life & Savings segment   40,173   36,792  

(a) Total gross claims and other reserves developed are presented on the loss reserve development basis: The reserves of AXA Corporate Solution Insurance U.S. were included in Property & Casualty and International Insurance loss reserve. The reserves of AXA RE P&C Insurance company and AXA RE Reinsurance company (409 million) were included in AXA RE loss reserve development table.
(b) Notably future policy benefits annuity claims (1,528 million compared to 1,212 million in 2004), construction reserves (1,126 million compared to 1,056 million in 2004) and reserves on acceptations (938 million compared to 975 million in 2004).

Environmental, Asbestos and Other Exposures

AXA regularly reviews environmental, asbestos and other related exposures to ensure that loss provisions take into account recent developments and information. Further details are provided in note 15 “Liabilities arising from insurance and investment contracts” to the consolidated financial statements included in Item 18 of this Annual Report.

Additional factors which may affect AXA’s business

For information relating to certain additional matters that may affect AXA’s business, see Item 3 “Key Information – Risk factors” and Item 8 “Financial Information – Legal Proceedings” included elsewhere in this Annual Report.

Regulation

AXA’s principal operations are located in Western Europe, North America and the Asia-Pacific region, and to a lesser extent, in Africa and the Middle East. In each of the jurisdictions within these regions, AXA is subject to comprehensive regulation and supervision, particularly with respect to its insurance and investment management operations.

Insurance Operations
While the extent and nature of regulation varies from country to country, most jurisdictions in which AXA’s insurance subsidiaries operate have laws and regulations governing sales practices, standards of solvency, levels of reserves, permitted types and concentrations of investments, business conducts, agent licensing, approval of policy forms and, for certain lines of insurance, approval or filing of rates. In certain jurisdictions, regulations limit sales commissions and certain other marketing expenses that may be incurred by the insurer. In general, insurers are required to file detailed annual financial statements with their supervisory agencies in each of the jurisdictions in which they do business. Such agencies may conduct regular or targeted examinations of the insurers’ operations and accounts and make requests

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for information from the insurer. Certain jurisdictions also require registration and periodic reporting by holding companies that control a licensed insurer. This holding company legislation typically requires periodic disclosure concerning the corporation that controls the licensed insurer and other affiliated companies, including prior approval of transactions between the insurer and other affiliates such as intercompany transfers of assets and payment of dividends by the controlled insurer. In general, these regulatory schemes are designed to protect the interests of policyholders rather than security holders.

Europe
The regulatory systems governing insurers in France, Germany, the United Kingdom (“UK”), Belgium and other European jurisdictions where AXA does business are comprehensive and generally are designed to protect the interests of policyholders rather than those of security holders. In Europe, AXA operates in most major markets through free-standing subsidiaries which are subject to a regulatory scheme based on the European Union (“EU”) insurance directives on life insurance and insurance other than life insurance. These directives were implemented in France, Germany, the UK and certain other jurisdictions through legislation that became effective in July 1994 and are founded on the “home country control” principle according to which the ongoing regulation of insurance companies, including their non-home country insurance operations (whether direct or through branches), is the responsibility of the home country insurance regulatory authority. The home country insurance regulator monitors compliance with applicable regulations, including regulations governing solvency, actuarial reserves and investment of assets. Selling activities of non-home country insurance operations, however, are generally supervised by the regulator in the country in which the sale of the insurance product takes place. As a result of the implementation of these directives, an insurance company that has been licensed to conduct insurance business in one jurisdiction of the EU may do business directly or through branches in all other jurisdictions of the EU without being subject to licensing set forth by requirements of the laws of the other jurisdictions.

The EU has also adopted various directives concerning solvency margin requirements for insurers and insurance groups. A 1998 EU directive, implemented into French law in 2002, requires insurance groups to calculate a consolidated solvency margin. AXA must establish appropriate internal controls to ensure solvency sufficient to cover all of the Group’s insurance liabilities, inform the French insurance regulatory authorities annually of certain intra-group transactions, and calculate on a consolidated basis the capital needed to meet the respective solvency requirements of the Group’s insurance subsidiaries. Similar solvency requirements must be fulfilled by intermediate holding companies that own Group insurance subsidiaries in different EU jurisdictions. A 2002 EU directive, implemented into French law in 2005, concerns the regulation and supervision of financial conglomerates and provides for the assessment of a financial conglomerate’s capital requirements at the consolidated group level, the supervision of risk concentration and intra-group transactions, and the prevention of double-leveraging of the capital of a holding parent company, i.e. once at the holding parent level and a second time at the subsidiary level (“double gearing”). Although the AXA Group is not currently deemed a financial conglomerate within the meaning of this legislation by the French insurance regulator, there can be no assurance that it will not become (or be deemed) a financial conglomerate in the future. Due to the lack of uniform interpretation of this legislation by local insurance regulators throughout the various EU jurisdictions, the Belgian subsidiary of the AXA Group has been deemed a financial conglomerate by the Belgian insurance regulator. It is possible that other European subsidiaries of the AXA Group may be deemed financial conglomerates by local regulators and therefore be subject to this law. Following the EU’s adoption of a directive aiming at applying the “home country control” principle to European reinsurance companies and unifying the regulatory regimes applicable to reinsurance companies throughout the EU, each Member State has until year end 2007 to implement it.

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In addition to other applicable regulatory requirements, in France, Germany, the UK, and certain other European jurisdictions, property and casualty insurers are required to maintain equalization reserves to protect against the impact of large claims and catastrophes. The basis on which these equalization reserves are established is set out in the local country regulations based on pre-established formulas applicable to certain lines of business and may be capped at a maximum level.

In addition, there have been an number of legislative developments in France and at the EU level which have implications for the AXA and its European subsidiaries. In France, a 2004 ordinance modernized many aspects of French securities laws, most significantly by simplifying the rules applicable to the issuance of new securities by listed companies and expanding the types of securities that can be issued by French companies. The European prospectus directive, implemented into French law in 2005, enables a company incorporated in the EU to issue securities in any EU jurisdiction and the European market abuse directive, also implemented into French law in 2005, regulates a number of matters including share repurchases and public disclosure of beneficial ownership at newly defined thresholds. Finally, the European takeover directive, implemented into French law in 2006, provides a more uniform takeover regime within the EU.
The adoption of a legislation which would introduce class actions in French law is currently under consideration in France. By enabling individual plaintiffs similarly situated to collectively initiate lawsuits, this new legislation, if enacted, would likely result in increased litigation exposure for French companies.

In addition to the foregoing, there have been various regulatory initiatives within the member states of the European Union relating to, among other subjects, the assessment of capital adequacy, more stringent capital requirements on insurers, the requirement to have appropriate systems and controls to manage the business and prudential regulation. Each of these regulations may have a potential impact on the AXA’s subsidiaries doing business in the jurisdiction where such regulation is enacted.

Various AXA subsidiaries have been subject to regulatory investigations and sanctions from time to time in the various European jurisdictions in which they operate. For a description of certain of these investigations, see “Item 18 – Financial Statements; Note 31 – Litigation.”

United States
In the United States, regulation of the insurance business remains principally at the state level, with AXA’s insurance operations being subject to regulation and supervision by various states and territories. Within the U.S., the method of regulation varies but generally has its source in statutes that delegate regulatory and supervisory powers to a state insurance commissioner. While the extent of regulation varies by jurisdiction, most jurisdictions have laws and regulations governing approval of policy forms and rates, sales practices and business conducts, the standards of solvency that must be met and maintained (including risk-based capital measurements), the establishment and levels of reserves, the licensing of insurers and their agents, sales practices by agents, the nature of and limitations on permitted investments, restrictions on the size of risks which may be insured under a single policy, deposits of securities for the benefit of policyholders, methods of accounting, periodic examinations of the affairs of insurance companies, and the form and content of reports of financial condition and results of operations to be filed.

Certain of AXA’s U.S. insurance, broker-dealer, investment adviser and investment management subsidiaries, including AXA Equitable Life Insurance Company (“AXA Equitable”), and certain life insurance policies and annuity contracts

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offered by them are subject to regulation under the Federal securities laws administered by the SEC and under certain state securities laws. The SEC conducts regular examinations of the operations of these companies, and from time to time makes requests for information from them. The SEC, other governmental and regulatory authorities, including state insurance and securities regulators, and the National Association of Securities Dealers (“NASD”) may institute administrative or judicial proceedings which may result in censure, fines, the issuance of cease-and-desist orders, the suspension or expulsion of a broker-dealer or member, its officers or employees or other similar sanctions. Over time, AXA Financial’s broker-dealer subsidiaries and its other subsidiaries have provided and, in certain cases continue to provide, information and documents to the SEC, NASD, state attorneys general and other regulators on a wide range of issues, including supervisory issues, market timing, late trading, valuation, suitability, e-mail retention policies, replacements and exchanges of variable life insurance and annuities, collusive bidding and other inappropriate solicitation activities, “revenue sharing” and directed brokerage arrangements, investment company directed brokerage arrangements, fund portfolio brokerage commissions, mutual fund sales and marketing and “networking arrangements”. For example, AXA Equitable is currently providing information to the New York Attorney General in response to a subpoena and information requests relating to possible market timing activities conducted through AXA Equitable’s variable insurance products. In addition, investigations by state attorneys general and state insurance commissioners into collusive bidding, contingent commissions, and revenue sharing practices as well as practices associated with replacements and exchanges of life insurance and annuities, gave rise to a number of state legislative initiatives in this area. Ongoing or future regulatory investigations could result in fines, other sanctions and/or other costs for AXA’s U.S. subsidiaries and/or other legislative initiatives.

Several U.S. states, including the state of New York, regulate transactions between an insurer and its affiliates under insurance holding company acts. These acts contain certain reporting requirements and restrictions on provision of services and on transactions, such as intercompany service agreements, asset transfers, reinsurance, loans and shareholder dividend payments by insurers. State insurance regulators also have the discretionary authority to limit or prohibit new issuances of business to policyholders within their jurisdiction when, in their judgment, such regulators determine that the issuing insurer is not maintaining adequate statutory surplus or capital. Life insurers in the United States are also subject to risk-based capital (“RBC”) guidelines which provide a method of measuring the adjusted capital (statutory capital and surplus plus asset valuation allowance and other adjustments) that a life insurance company should have for regulatory purposes taking into account the risk characteristics of the company’s investments and products. AXA Equitable and AXA’s other U.S. life insurance subsidiaries expect that the statutory surplus will continue to be in excess of the minimum RBC levels required to avoid regulatory action.

U.S. Federal and state law and regulation require financial institutions to protect the security and confidentiality of customer information and to notify customers about their policies and practices relating to their collection, disclosure and protection of customer information. U.S. Federal and state laws also regulate disclosures of customer information. The U.S. Congress and state legislatures are expected to consider additional laws relating to the use and protection of customer information.

Although the U.S. federal government generally does not directly regulate the insurance business, many U.S. federal tax laws affect the business in a variety of ways. There are a number of existing, newly enacted or recently proposed U.S. federal legislative initiatives, including U.S. federal tax initiatives that may significantly affect AXA’s U.S. life insurance subsidiaries, such as the 2001 legislation providing several years of lower rates for estate, gift and generation

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skipping taxes (“GST”) and a one year estate and GST repeal (in 2010) before a return to 2001 rates beginning in 2011, or the 2003 reductions in income tax rates on long-term capital gains and qualifying corporate dividends which have recently been extended through 2010. Legislation has been proposed regarding accelerating and making permanent the repeal of the estate tax and GST or, alternatively, substantially lowering the rate of tax and increasing the threshold level at which an estate could be subject to tax. If enacted, this legislation would have an adverse impact on sales and surrenders of life insurance in connection with estate planning. Other provisions of recently enacted and proposed legislation and U.S. Treasury regulations relate to the business use of life insurance, split-dollar arrangements, creation of new tax favored savings accounts and modifications to nonqualified deferred compensation plan and qualified plan rules. These provisions, to the extent enacted, could adversely affect the sale of life insurance to businesses, as well as the attractiveness of qualified plan arrangements, cash value life insurance and annuities. The U.S. Congress may also consider proposals such as Social Security reform or comprehensive overhaul of the Federal tax law, which, if enacted, could adversely impact the attractiveness of cash value life insurance, annuities and tax qualified retirement products. The President’s Advisory Panel on Federal Tax Reform recently announced its tax reform options. If enacted by Congress, these options would make sweeping changes to many longstanding tax rules. These changes would include the creation of new tax-favored savings accounts that would replace many existing qualified plan arrangements and would eliminate certain tax benefits currently available to cash value life insurance and deferred annuity products by annually taxing any withdrawable cash value build-up in such products. Management believes that the enactment of these options into law in their current or similar form would adversely affect sales, funding and persistency of cash value life insurance and deferred annuity products. Management cannot predict what other proposals may be made, what legislation, if any, may be introduced or enacted or what the effect of any such legislation might be.

Various AXA subsidiaries have been subject to regulatory investigations and sanctions from time to time in the various U.S. jurisdictions in which they operate. For a description of certain of these investigations, see Item 18 – Note 31 “Litigation”.

Asia-Pacific and Other Jurisdictions
The other jurisdictions in which AXA operates, including those in the Asia-Pacific region, also have comprehensive regulatory schemes and AXA must satisfy the local regulatory requirements in each of these jurisdictions. In general, insurance licenses issued by local authorities are subject to revocation and/or modification by those authorities. Consequently, AXA’s insurance subsidiaries could be prevented from conducting business in certain of the jurisdictions in which they currently operate should they not meet such local regulatory requirements. In addition to licensing requirements, AXA’s insurance operations in these jurisdictions are also generally regulated with respect to currency, policy terms and language, amount and types of security deposits, amount and type of reserves, amount and type of local investment and the share of profits to be paid to policyholders on participating policies. In certain jurisdictions, regulations governing constitution of technical reserves and similar regulations may prevent payment of dividends to shareholders and/or repatriation of assets.

Asset Management
AllianceBernstein and AXA Investment Managers are subject to extensive regulation in the various jurisdictions in which they operate. These regulations are generally designed to safeguard client assets and ensure adequacy of disclosure concerning investment returns, risk characteristics of invested assets in various funds, suitability of investments for client investment objectives and risk tolerance, as well as the identity and qualifications of the investment manager. These regulations also generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the conduct of business for failure to comply with such laws and regulations. In such event, the possible

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sanctions that may be imposed include the suspension of individual employees, limitations on engaging in business for specific periods, the revocation of the registration as an investment adviser, censures and fines.

AllianceBernstein and certain of its subsidiaries as well as certain U.S. subsidiaries of AXA Investment Managers and AXA Financial, Inc. are investment advisers registered under the United States Investment Advisers Act of 1940 (the “Investment Advisers Act”). Each of AllianceBernstein’s U.S. mutual funds is registered with the SEC under the U.S. Investment Company Act of 1940 (the “Investment Company Act”) and the shares of most of these funds are qualified for sale in all states in the United States and the District of Columbia, except for U.S. funds offered only to residents of a particular state. Certain subsidiaries of AllianceBernstein and AXA Financial, Inc. are also registered with the SEC as transfer agents and broker-dealers that are subject to minimum net capital requirements. Transactions between AXA Equitable and AllianceBernstein are subject to applicable provisions of the New York Insurance Law and transactions between AXA Investment Managers and its insurance company clients are subject to various insurance law regulations of the various jurisdictions where these clients are domiciled. These regulations generally require that the terms of transactions between the investment manager and its client be fair and equitable, that charges or fees for services performed be reasonable and that certain other standards be met. Fees must be determined either with reference to fees charged to unaffiliated clients for similar services or, in certain cases, which include ancillary service agreements, based on cost reimbursement.

Other
As a publicly-traded company listed both on Euronext Paris and the New York Stock Exchange, AXA is subject to numerous laws, rules and regulations governing a variety of matters. These include (i) timely and accurate disclosure of information to investors, (ii) presentation of financial information in accordance with both IFRS and U.S. GAAP requirements, (iii) restrictions on presentations of non-GAAP measures in the U.S., auditor independence requirements (including prohibitions on auditors furnishing certain types of non-audit services), (iv) numerous corporate governance requirements (including independence requirements for audit committee members), (v) certification of certain public reports by AXA’s Chief Executive Officer and Chief Financial Officer, and (vi) requirements to evaluate, document, and report on AXA’s internal controls over financial reporting and disclosure controls and procedures. The scope and impact of these requirements on the day-to-day operations of AXA has increased significantly over the past years with the adoption of the Sarbanes Oxley Act in the United States in 2002 and the adoption of similar legislation in other jurisdictions, including the Financial Security Law (la loi de sécurité financière) in France in 2003. While the spirit of these laws is very similar, their technical requirements sometimes vary. Management has devoted substantial resources to ensure compliance with both the letter and spirit of these laws over the last two years and anticipates that considerable resources will continue to be devoted to this area in the future.

Additional information on regulatory matters
A more detailed description of certain matters involving AXA Financial, Inc. and its subsidiaries (including AXA Equitable Life Insurance Company and AllianceBernstein) is included in the Annual Reports on Form 10-K for the year ended December 31, 2005 and subsequent reports on Form 10-Q, respectively, of AXA Financial, Inc. (SEC file no. 1-11166), AXA Equitable Life Insurance Company (SEC file no. 0-25280) and AllianceBernstein (SEC file no. 000-29961) filed with the SEC (collectively, the “Subsidiary SEC Reports”). The Subsidiary SEC Reports are publicly available and copies can be obtained through the SEC’s EDGAR system (
www.sec.gov/edgar), at the SEC’s public reference rooms at 450 Fifth St, N.W., Washington, D.C. 20549 or at the SEC’s other public reference rooms in New York and Chicago, or on the websites of these subsidiaries.

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Item 5: Operating and Financial Review and Prospects

You should read the following discussion and analysis together with AXA’s audited Consolidated Financial Statements and the related notes included in Item 18 of this Annual Report. The audited Consolidated Financial Statements have been prepared in accordance with IFRS standards and with IFRIC interpretations as adopted by the European Commission as of December 31, 2005, which principles are described in note 1 to the Consolidated Financial Statements. However, the Group does not use the option provided by the “carve out” on hedge accounting and the financial statements were therefore prepared in accordance with IFRS as published by the IASB. IFRS differs in certain respects from U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). A summary of the material differences between IFRS and U.S. GAAP relevant to AXA, and, additional U.S. GAAP disclosures are provided in notes 32 and 33 to the consolidated financial statements.

Certain information discussed below and elsewhere in this Annual Report includes forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements” provided in the beginning of this Annual Report and “Item 3 – Key Information-Risk Factors” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this Annual Report.

This discussion and analysis also includes certain terms that are used by AXA in analyzing its business operations and therefore, may not be comparable with terms used by other companies. These terms are defined in the glossary presented at the end of this section.

Overview

The Operating and Financial Review and Prospects item provides certain information on markets for the current year and a discussion and analysis of AXA’s operating performance for the years ended 2005 and 2004 as reported under IFRS as follows:

  • The information on the market conditions applicable to the current year with a focus mainly on the financial market and insurance market conditions for the main countries in which AXA operates.
  • A summary of the main operating highlights of the year specific to AXA, including a summary of the principal acquisitions and disposals, and capital and financing operations that occurred during the year, as well as any important events subsequent to December 31, 2005.
  • An overview of critical accounting policies, setting out the accounting policies that require the use of assumptions and estimates in the preparation of the Consolidated Financial Statements.

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The “consolidated operating results” section is based on IFRS financial statements and is composed of two main parts: (i) Group gross consolidated revenues for the year ended December 31, 2005 compared to December 31, 2004, for the Group and by operating segment; and (ii) Group consolidated results for the year ended December 31, 2005 compared to December 31, 2004, for the Group and by operating segment. In addition, specific commentary and analysis are provided for each operating segment, i.e. Life & Savings, Property & Casualty, International Insurance, Asset Management and Other Financial Services, as well as the Holdings Companies non-operating segment. In addition, for each insurance operating segment, investment results are provided for the invested financial assets.

Additional information is provided in the “Liquidity and Capital Resources” section, describing AXA’s operating sources and uses of funds, solvency margin requirements, supplementary information on contractual obligations and specific information relating to off-balance sheet arrangements, and consolidated cash flow for the year ended December 31, 2005 compared to December 31, 2004.

Information is also provided under the reconciliation from IFRS to U.S. GAAP.

Finally a glossary of certain technical terms is provided at the end of this section.

Insurance and Asset Management Markets

Life & Savings

France. In 2005, the increase in gross premiums has been estimated to be 14% explained by a strong increase in gross premiums on unit-linked contracts estimated to be +49% and by an estimated increase of 7% in general account premiums. According to the “Fédération Française des Sociétés d’Assurance” (FFSA), the French Life & Savings market growth amounted to +13% at the end of full year 2004, especially driven by a 35% increase on unit-linked contracts.

United States. In 2005, the U.S. economy proved itself strong and resilient despite the effects of several major hurricanes and much higher oil prices, and was positively impacted by a robust housing market, steady growth in corporate profits and outperformance in the energy sector. The Federal Reserve continued to tighten monetary policy increasing short-term interest rates fourteen times since June 2004 to 4.50% in order to stem inflationary pressures while foreign investor demand for U.S. Treasury bonds contributed to lower long-term bond yields resulting in a flattening yield curve. In the annuity market, industry sales of variable annuities were up 3%, driven by strong equity markets and the continued popularity of guaranteed living benefit riders. Industry fixed annuity sales decreased 10% as a result of the low interest rate environment and competition from competing products such as bank certificates of deposit. In the life insurance market, total life industry sales were up 2% with continued weakness in variable life market, down 10% from 2004. The variable life business generally lags the movement in the equity market. Sales of life

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insurance products with fixed returns, such as universal life, continued their strong traction in 2005 with industry universal life sales up 13%. Fixed whole life insurance sales decreased 1%, and term insurance sales decreased 2% from 2004.

United Kingdom. New annualized business (new regular premiums plus 10% of single premiums) was 8% higher than 2004 in the year to September 2005. This was primarily driven by increased investor confidence in Wealth Management products, in part due to improved investor confidence fuelled by the increases seen in the UK stock market during 2005. The Pensions market has seen activity boosted by the impending simplification of Pensions Legislation on 6 April 2006 (known as A Day). The Corporate Pensions market continues to see a high level of activity as the closure of Final Salary Pension Schemes continues and employers reconstruct their pension arrangements. Conversely, a cooling of the UK housing market resulted in decreased sales of associated Protection products which, combined with a number of new entrants, has increased competitiveness in this sector. Within the IFA channel (which represents around 72% of new business), depolarisation has seen some IFAs offer a “multi-tie” proposition to their members, although the impact of this on the distribution landscape has so far been limited.

Japan. Some positive economic growth, prospects to an end of deflation, an increase in interest rates and a progressive rise in stock prices have all contributed to stability in the industry. Japan’s life insurance market has shown a premium income growth of 4%, reaching 27 trillion yen in the Japanese fiscal year 2004 and continued growth from the previous year. This growth was mainly owed to expanding individual annuity sales, which is estimated to reach over 7 trillion yen of inflow from the effect of bank insurance business. Stability in the financial markets has improved the financial strength of most insurers as evidenced by improvements in solvency and credit standings, as markets continued steady growth in spite of the difficult investment environment. In addition, reduction of the negative spread and the improvement of surrender and lapse experience contributed to the stability of many insurance companies. However, even with such improvements, Japan’s life insurance industry faced a decline of in-force individual life policies from FY2001 due to a continuous weak new business environment for traditional products, as a growing number of policyholders have reduced death benefits to enrich hospitalization coverage against a falling birth rate and an aging population. Foreign life insurers expanded their market share reaching 27%, up from 21% in the previous year in terms of premium income. On the other hand, nine major traditional life insurers decreased their market share from 72% to 66%.

Australia / New Zealand. The savings related investment sector continued to be a growth area in Australia in 2005. Strong local investment returns have resulted in high net inflows in the mutual fund and advice market. The pension market experienced funds growth of 20.8%1 over the year, driven by the strong investment market and the mandatory pension scheme in Australia. Continued government support for self-funded retirement has driven two major changes in pension funds during 2005 – the abolition of the surcharge (a tax on contributions) from June 30, 2005 and the allowance of spouse co-contributions from January 1, 2006. The risk insurance market continued to record strong growth, climbing a further 11.9%2 over the year.

Hong Kong. The economy continued to grow in 2005 assisted in part by the Closer Economic Partnership Agreement (CEPA) with more than 12.5 million mainland Chinese visiting Hong Kong in 2005, up 2.4% on 2004. The Hang Seng Index grew 4.5% during 2005. The life insurance market has showed growth, for the nine months to September 2005,

(1) Source – Plan For Life (Superannuation & Rollovers) September 2005.
(2) Source – Plan For Life (Life Insurance media release) September 2005.

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with the individual life market new business sales increasing by 5.3%1. Increasing affluence and investor sophistication is now starting to drive growth in more sophisticated financial planning models. Now at the end of its fifth year, the Mandatory Provident Fund (MPF) is increasingly important to Hong Kong residents, and there is growing awareness that MPF alone will not provide sufficient assets to fund post-retirement lifestyles. This along with the significant level of bank savings, has increased the awareness of a need for wealth management and financial advice products.

Germany. The introduction of the German Retirement Earnings Law (“Alterseinkünftegesetz”) on January 1, 2005 significantly reduced tax advantages for Life Insurance, especially for products with a one-time pay-out option. This led to a surge in demand for these old products in the fourth quarter of 2004 and declining premium volumes in 2005. Compared to prior years the development of the current premiums for pure life new business was especially weak in the fourth quarter (-67.8%). On a yearly basis, the decreases were most significant for many high-volume products (non-unit-linked endowments -58.2% to 1.1 billion, non-unit-linked annuity products -57.4% to 1.9 billion, unit- linked endowments -57.4% to 0.5 billion, and unit-linked annuity products -39.9% to 0.7 billion). Among business for single premiums, which grew by 19.7% to 8.9 billion, non-unit-linked annuity products are still dominating (+2.2% to 3.6 billion), followed by non-credit-linked collective insurance (+17.0% to 2.4 billion), and bank-like savings products (“Kapitalisierungsgeschäfte”) (+118.7% to 1.4 billion). New business for “Pensionskasse” (current premiums) decreased by 52.0% to 0.5 billion after losing tax advantages compared to individual pension plans (“Direktversicherung”) that are more portable. Also in the future, an ongoing need to replace defined benefit systems is expected to push group life pension products in general. Pensions funds (Type “Pensionsfonds”), are still unimportant, with cumulated gross written premiums of just 0.1 billion which continued to decrease.

As expected the core products of the Retirement Earnings Law (“Alterseinkünftegesetz”), the “Rürup” pensions, did not generate much demand as they are inflexible (current premiums just amounted to 0.2 billion, regular premiums below 0.1 billion). In contrast, the also highly regulated “Riester”-products profited from simplification and increased flexibility. The year 2005 proved to be the second strongest year since their introduction in 2002 (1.3 million contracts sold). This was also spurred - mainly in the fourth quarter - by the announced introduction of uni-sex tariffs; the influence of which on absolute premium volumes will mainly come into effect in 2006.

The development of private health insurance is marked by two influences: on one hand, ongoing difficulties in the public health insurance system continue to push private health insurance. On the other hand, the increases of the income threshold in 2003, fixed by the health reform, complicated the switch from public to private. This lowered the market potential for full coverage and resulted in a strong decline of net new inflow for this type in 2005. Supplementary insurance, however, increasingly meets demand. But the increase in gross written premiums by 3.7% mainly reflects rising premiums per contract, that are outpaced by payments, which incremented by 4.3%.

Belgium. The Life & Savings market has accelerated its growth in 2005 (estimated at +18.5% compared to +13.4% in 2004). The upturn of the unit-linked market has been confirmed and even accelerated (+47%) while the non unit- linked market has grown substantially (+11.3%). Bank savings accounts have increased by an estimated +8.6%.

Southern Europe. In 2005, the Spanish market grew by 11.1% in the first 9 months of the year. This increase surpassed the 5.2% in 2004, despite the adverse market environment, namely, a decreasing saving capacity. The

(1) Source - OCI (September 2005).

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growth, focused on the retail market (+11%), came mainly from traditional life products (+23%) and life savings not linked with retirements (+15%). In Italy, the market grew by 17% driven by the bank insurance and post office distribution channel (+18% from indexed linked products) and the agent network (+17% from traditional corporate contracts), which altogether cover a 91% of the total market. In Portugal, the market increased by 59% driven by capitalisation products, which grew by 69%1. Fiscal benefits for PPR´s (Individual pension’s plans) have ceased in 2005, but the bank insurance channel is still pushing sales for this product (+45%).

Property & Casualty

France. After five consecutive years of accelerated growth from 1999 (2%) until 2003 (8%), the market’s premium growth reduced slightly to 4% in 2004 and an estimated 2% in 2005. Household is expected to grow by +5% (+6% in 2004) whereas the Motor market should stay flat (+2% in 2004), as will Commercial Property (+4% in 2004).

United Kingdom. In the UK, a general market softening has caused difficult underwriting conditions throughout the market. This has made rating increases and the retention of business difficult. Within Personal Lines, Household and Healthcare have shown significant growth largely due to new business deals. Commercial Lines experienced limited growth due to the competitiveness in acquiring new business contracts. Renewals for Liability have been under severe pressure, particularly large cases, resulting in renewals at level terms or sub inflation increases. In Ireland, competitiveness in Motor has significantly increased and led to a fall in average premium.

Germany. In 2005, total business2 decreased by 0.5% (to 55.1 billion). In motor lines, an intensive price competition started, initiated by the big players to keep or regain market share. Therefore, in these lines, gross written premiums decreased by 2.8% to 21.9 billion. Despite partially high claims ratio increases in industrial property lines (but still keeping combined ratios clearly below 100%) the gross written premiums decreased by 5.4% while the number of contracts was stable. Regarding private non-motor lines, volume according to number of contracts remained flat (e.g. in private property lines) or even slightly declined (e.g. in accident: -0.5%) as penetration is already high. However, the gross written premiums for these lines increased in a range from 0.5% (accident) to 3.0% (combined household insurance).

Southern Europe. In 2005, the Spanish market grew by 7.0% in the first 9 months of the year. 2005 was impacted by the increasing motor market aggressiveness already started in 2002. Thus, motor market grew by 3.8%. However, multi-risk and health maintained in 2005 their strong growth (10.7% and 9.6%, respectively) already shown in 2004. In Italy, the market grew by 1.9%, strongly impacted by the low increase in the motor market (+0.6%, where the increase in fleet is almost offset by the decreasing average premium), which still holds a large portion (62%) of the total volume of the P&C market. In Portugal, the market increased by 2.4% driven mainly by the growth in the motor market3, whereas workers’ compensation (+0.8%) and property (+2.0%) showed lower increases.

Belgium. According to management estimates, we believe the Belgian Property & Casualty market grew by 4% in 2005. The motor market which represents 34% of total Property & Casualty grew by +2.3% while household premiums rose by +3.9%. The Workers’ compensation market has shown an acceleration of its growth in 2005 to 3.2% (vs 0.7% in 2004).

(1) Source APS, provisional figures.
(2) Source: association of German insurers (GDV): estimation.

(3) Source APS, provisional figures.

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International Insurance

On the Reinsurance side, market prices were stable in 2005, despite rates being sustained by the four strong hurricanes which landed in the United States in 2004 after two years of very low claims experience in 2002 and 2003. Nevertheless, 2005 was a turning point for the market: it brought high-severity losses of exceptional frequency, not only in the United States, creating a profound disturbance within the non life (re)insurance industry.

In the Large Risks Insurance market, following several years of rate increases and restructuring of large Corporate Insurance programs, underwriting conditions reflected a general softening of the market affecting rates. However the occurrence of several natural events, especially in the United States, led to a stabilization of the rates towards the end of the year.

Asset Management

In 2005, total long-term stock, bond and hybrid fund net inflows were $193 billion for 2005, compared with $210 billion for 2004, in addition to moderate market appreciation of +3% for the S&P 500 U.S. Equity Index and +14% for the MSCI World Equity Index. Specifically, stock and hybrid fund net inflows decreased by 24% and 41%, respectively as net inflows for long-term bonds largely offset net inflows in equity funds, partially reflecting the continuing demand for life-style funds, asset allocation funds, and target maturity funds. The demographic changes in the United States and other developed economies have increased the pool of savings available for private investment and created substantial demand for investment products and services.

Market conditions in 2005

Financial markets

In 2005, the world’s major equity indices showed a rise on the year and fixed income investments posted positive returns.

The global expansion slowed down after an exceptional year in 2004. Growth was driven by both the United States and the economies of the emerging world–notably China, where GDP increased by just above 9% in 2005. The United States slowed down slightly in 2005, to around 3.5%, while both the euro area and Japan showed progressive improvement over the prior year.

Against this backdrop, after nearly three years of historically low key interest rates, the central banks began a round of rate tightening, led by the U.S. Federal Reserve. Other central banks, including the ECB, joined the move in order to counter the inflation risk.

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Stock Markets

With the exception of the United States, which did not match performance achieved in 2003 and 2004 (S&P500 was up +4.9% in 2005), all other stock markets soared in 2005–led by Japan, with the Nikkei up 40%. The Euro area gained 26% on the year, slightly outperforming the United Kingdom (FTSE +21%). In Europe, the Stoxx 50 rose by 21.2% and the CAC 40 by 23.1%.

Bond markets

Overall, all government bonds turned in positive performances in 2005, but Europe clearly outperformed its peers (+8.6%, +7.5% and +2% for the United Kingdom, the Euro area and the United States, respectively). 10-year interest rates on government bonds decreased from 4.53% to 4.08% in the United Kingdom, and from 3.67% to 3.30% in Europe, while the United States showed a slight increase from 4.23% to 4.36%.

As for the corporate bonds market, credit spreads were relatively stable over the year. Globally, sustained growth, low volatility, good credit quality and positive technical factors all supported good return on corporate bonds (+5% on average for the year).

Exchange rates

In 2005, as short-term rate differentials widened, the Euro lost close to 15% against the dollar (from 1.36$ at the end of 2004 to 1.18$ at the end of 2005). The same was true for the yen but to a lesser proportion (from 139.7 yen at the end of 2004 to 138.9 yen at the end of 2005).

The year end and average exchange rates used in the preparation of AXA’s Consolidated Financial Statements in Euro are provided in Item 3 – Key Information – Exchange Rate Information. AXA provides on a regular basis certain period- to-period comparisons calculated on a constant exchange rate basis to eliminate the effects of changes in exchange rates between the Euro and other currencies. In this context, AXA recalculated the financial information as follows: the data for the current year period were restated using the prevailing foreign currency exchange rate for the same period in the prior year.

For information purposes and in respect of AXA’s principal non-Euro-based life insurance operations, the analysis below provides an indication of the impact of foreign currency fluctuations on premium growth.

    U.S.   UK   Japan  
Premium growth in original currency (2005 vs 2004)   8.3%   (0.6%)   (11.1%)  
Foreign exchange impact   (0.1%)   (0.8%)   (2.5%)  
Premium growth as reported in Euros   8.2%   (1.5%)   (13.6%)  

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In addition, AXA provides on a regular basis certain period-to-period comparisons calculated on a comparable basis to eliminate the effects of changes in foreign exchange as described above and changes in AXA’s scope of consolidation to eliminate the results of acquisitions, disposals and business transfer (constant structural basis) and of changes in accounting principles (constant methodological basis), in one of the two periods being compared.

Some additional information about the impact of foreign currency fluctuation on shareholders’ equity is provided in note 14 to the Consolidated Financial Statements, in Item 18 of this Annual Report.

December 31, 2005 operating highlights

Main events

Executive summary

AXA’s key businesses continued to record strong operating performances while maintaining their growth potential.

  • Life & Savings performed well across the Group, with consolidated gross revenues increased by 6.5%, and net income up 32% to 2,404 million due to improved results from almost all countries.
  • Property & Casualty revenues were up 5.7% to 18.9 billion, and the combined ratio improved by 0.8 point to 97.7%. Net income reached 1,737 million, up 21% as compared to 2004, resulting from improved results in almost all countries.
  • International Insurance results were down –60 million in spite of a +12% increase in revenues, as current year major losses for AXA RE increased by 316 million (net of reinsurance and gross of tax), to 572 million.
  • Asset Management revenues were up 12% to 3.8 billion, benefiting from good performances at both AllianceBernstein and AXA Investment Managers, with net income up 35% to 411 million.

Significant acquisitions and disposals

Acquisitions

On October 31, 2005, AXA Investment Managers (AXA IM) completed the purchase of the Framlington Group Limited. Framlington is an investment management company with an emphasis on specialist, high-performance and high-value- added equity investments and has a significant market position within the UK retail market segment. The purchase price was 303 million, with a related goodwill of 142 million and an intangible asset of 132 million (net of tax).

On October 18, 2005, AXA acquired from the group Caixa Geral de Depósitos the insurance company Seguro Directo which operates in the direct insurance market in Portugal (by telephone and Internet). The purchase price was 42 million, and the related goodwill was 31 million.

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Disposals

On December 2, 2005, AXA Financial sold Advest to Merrill Lynch. Advest was a wholly owned subsidiary of AXA Financial Inc., and part of its Financial Advisory/Insurance segment. In accordance with the terms of the agreement, Merrill Lynch purchased all of the issued and outstanding capital stock of Advest for approximately $400 million in cash. This transaction reduced AXA Financial’s goodwill by an estimated 152 million. Total net income impact of the transaction is a loss of 71 million, after tax.

Capital and financing operations

Capital operations

On December 16, 2005, both AXA and FINAXA’s shareholders approved the merger of FINAXA into AXA at their extraordinary shareholders’ meetings. From AXA SA's accounting and fiscal standpoint (statutory accounts), the merger is retroactive to January 1, 2005. The merger resulted in the creation of 299 million AXA shares as of December 16, 2005, while 337.5 million AXA shares owned by FINAXA and its subsidiaries were cancelled, effective January 9, 2006 (the end of the opposition period granted to creditors).

As a result of this transaction, the Mutuelles AXA hold 14.3% of AXA’s outstanding shares, representing 23.19% of AXA’s voting rights.

For AXA and its shareholders, this merger simplified the shareholder structure, improved the standing of the stock and increased the proportion of publicly traded shares. In addition, AXA obtained ownership of the “AXA” brand which was the property of FINAXA. For FINAXA shareholders, this transaction improved the liquidity of their securities and eliminated the liquidity discount which affected the value of their securities.

In November and December 2005, AXA acquired a total of 12.399.075 bonds issued by FINAXA on June 10, 1998 and exchangeable into AXA shares with a maturity date of January 1, 2007, i.e. 99.62% of the outstanding exchangeable bonds. For AXA shareholders, this buy back allowed the Group to neutralize the potential dilution that might have resulted from the issuance of new AXA shares. The total consideration paid was 1,464 million.

As a result of the merger and the cancellation of the repurchased FINAXA bonds, AXA’s consolidated shareholders equity was reduced by 940 million. This decrease was mainly due to:

(i) the impact of the FINAXA exchangeable bonds for –1,470 million financing AXA shares in prior years offset by,
(ii) the valuation of the trademark at
307 million, and
(iii) the cancellation of the dividend paid by AXA to FINAXA for
205 million.

On December 9, 2005, AXA announced the closing of its 200 million securitization of its French motor insurance portfolio. This transaction, launched on November 3, 2005, is believed to be the first ever securitization of a low claim severity, high claim frequency insurance portfolio. Through securitization, AXA has transferred to the financial markets the deviation of the cost of claims on the securitized insurance portfolio above a certain threshold for four consecutive and independent annual periods. The transaction was oversubscribed and had an average margin per tranche of 28bp over Euribor 3 month rates, in line with similarly rated synthetic bank securitizations.

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For several years, the AXA Group has been offering to its employees in and outside of France the opportunity to subscribe for shares issued by way of a capital increase reserved for employees. In 2005, Group employees invested a total of 304.3 million leading to a total issuance of 16.3 million newly issued shares. The total number of shares issued amounted to 1,872 million at December 31, 2005. Employee shareholders represented approximately 4.76% of the outstanding share capital (versus 5.11% as at December 31, 2004) or 5.6% after taking into account the cancellation of AXA’s shares following the merger of AXA and FINAXA.

Financing operations

On January 25, 2005, AXA issued, under its 8 billion Euro Medium Term Notes program, 250 million of undated deeply subordinated notes (“Titres Super Subordonnés”), allowing the Group to improve financial resources quality and to strengthen its financial structure.

In order to further protect the Group balance sheet, by matching net assets denominated in foreign currencies with liabilities denominated in the same currencies, an additional U.S. dollar 2.7 billion, Yen 50 billion and CAN$ 0,3 billion hedges have been implemented in 2005 through cross currency swaps and foreign exchange options.

Hedging

Information about the hedging policy relating mainly to interest rates and foreign currency fluctuations is provided in Item 11 and in notes 5 and 20 of the Consolidated Financial Statements included in Item 18 of this Annual Report.

Other highlights

In August 2005, AXA Asia Pacific Holdings Limited (AXA APH) announced that it has signed a binding agreement with Bharti Enterprises Private Limited (Bharti) to establish a life insurance joint venture company and to apply for a life insurance licence in India.

Under the agreement AXA APH has a 26% equity interest in the joint venture, the maximum permitted under the current Indian regulations, with Bharti holding the remaining shares.

The parties intend for the joint venture to invest AUD 70-130 million (43-80 million) over the first three to four years of operations, reflecting both partners’ commitment to quickly establish a strong foothold in the Indian market.

On November 21, 2005 AXA APH, AFFIN Holdings Berhad (AHB), and Tahan Insurance Malaysia Berhad (Tahan) signed a legally binding agreement whereby a joint venture company, 49.999% owned by AXA APH and 50.001% by AHB, will purchase the life insurance business of Tahan. The total purchase price was RM121 million (28 million) with AXA’s share being RM60.5 million (14 million).

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In 2005, AXA implemented a share repurchase program to reduce the level of dilution arising from share-based compensation and its employees shareplan program and, as a consequence, purchased approximately 20 million AXA shares for a total amount of 0.5 billion. For additional information about repurchases, please see Item 16.E. of this Annual Report.

Please refer to “Liquidity and Capital Resources” included elsewhere within this section of the Annual Report for further information.

Events subsequent to December 31, 2005

Aquisition of Winterthur Canada

AXA Canada announced on November 29, 2005, that it had entered into an agreement to buy Winterthur Canada Financial Corporation, whose main asset is The Citadel General Assurance Company ("Citadel"). The acquisition is financed internally by the AXA Group. The transaction closed in March 2006.

Agreement with National Australia Bank

On February 21, 2006, AXA Asia Pacific Holdings reached an agreement with National Australia Bank to purchase 100% of MLC Hong Kong and MLC Indonesia for 357 million.

On May 8, 2006, AXA Asia Pacific Holdings announced it has completed its acquisition of MLC Hong Kong and MLC Indonesia. Each of the two purchases was subject to regulatory approval. Approvals were obtained for both purchases and completion occurred on terms consistent with AXA APH’s February 21, 2006 announcement of the proposed purchase.

Squeeze-out of AXA Konzern minority shareholders

As announced on December 21, 2005, AXA made a voluntary public offer between January 9, 2006 and February 27, 2006 to purchase the minority shares of its German subsidiary AXA Konzern AG (“AXA Konzern”) from minority

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shareholders at a price of 129.30 per ordinary and preference share. The offer was a success, with AXA reaching a direct and indirect holding of 96.8% of the share capital of AXA Konzern as of the end of the offer period, thereby exceeding the 95% threshold that is a condition to launching a minority squeeze-out. On May 15, 2006, AXA announced the squeeze-out of the minority shareholders of its German subsidiary AXA Konzern AG, whereby it will acquire the 3.2% of AXA Konzern shares it does not already own at a price of 134.54 per ordinary share and preference share. The resolution of the squeeze-out will be submitted for a vote at the annual general meeting of AXA Konzern scheduled on July 20, 2006.

Under the terms of the voluntary public offer, shareholders who tendered their shares to AXA at 129.30 per share during the offer period will also benefit from the higher squeeze-out price of 134.54 per share.

AXA will also proceed with a squeeze-out of the 0.44% minority shareholding in Kölnische Verwaltungs- Aktiengesellschaft für Versicherungswerte AG (“KVAG”) at a price of 2,042.01 per ordinary share. The principal asset of KVAG is a 25.6% stake in AXA Konzern’s share capital. The resolution of the squeeze-out will be submitted for a vote at the annual general meeting of KVAG, scheduled on July 21, 2006. The total investment of the squeeze-out of AXA Konzern’s and KVAG’s minority shareholders is 144 million.

In order to further streamline the organization in Germany, AXA Konzern is launching in parallel the squeeze-out of the minority shareholders of its listed life insurance subsidiaries.

Upon the completion of these transactions, AXA will own directly or indirectly 100% of all its German subsidiaries.

Signing of a definitive Agreement to cede AXA RE’s business to Stone Point Capital

AXA initiated in 2006 a strategic review regarding the future of its reinsurance activity, currently underwritten by AXA RE and reported in the “International Insurance” segment. Following the receipt of a binding offer on April 6, 2006 and consultation with the relevant workers’ councils, AXA announced on June 6, 2006 the signing of a definitive agreement to cede the business of AXA RE to Paris Re Holdings Limited.
Paris Re Holdings is a newly-created company with a capitalization of approximately $1.5 billion sponsored by a consortium of international investors led by Trident III, L.P., a fund managed by Stone Point Capital LLC, with other lead investors including Hellman & Friedman, Vestar Capital Partners, Crestview Capital Partners, ABN Amro and New Mountain Capital.

Under the terms of the agreement, the business of AXA RE is expected to be ceded in 2007 to Paris Re Holdings, with the risks and corresponding net income related to AXA RE’s 2006 claims experience accruing to Paris Re Holdings. AXA will continue to manage underwriting and claims for 2006 and prior years. AXA will guarantee the reserves pertaining to losses incurred on or before December 31, 2005. The corresponding accounting results will be reported in the Other International Insurance segment starting June 30, 2006.

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Completion of the transaction is subject to the satisfaction of various closing conditions including obtaining required regulatory approvals.

Agreement to acquire Winterthur

AXA announced on June 14, 2006 that it has entered into a definitive agreement with Credit Suisse Group under which AXA will acquire 100% of Winterthur for CHF12.3 billion (7.9 billion) to be paid in cash.

In addition, AXA will refinance CHF1.6 billion (1.0 billion) of Winterthur’s outstanding debt, of which CHF1.1 billion (0.7 billion) of internal loans to be redeemed to Credit Suisse Group at closing.

AXA intends to finance this transaction with a balanced combination of equity and debt: 4.1 billion through a capital increase and the remaining 4.8 billion with a mix of perpetual deeply subordinated debt, subordinated debt and senior debt.

The capital increase is being conducted through a pending issuance of preferential subscription rights for a minimum of 208,228,253 new ordinary shares at the price of €19.80 per share. The offer or sale of the rights and new shares is not being extended into the United States, and the rights and new shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered, exercised or sold in the United States absent registration or an applicable exemption from registration requirements. This description of the capital increase does not constitute an offer to sell, or the solicitation of offers to buy or subscribe for, any securities in the United States.

The transaction is subject to obtaining required regulatory approvals, including from the EC Commission (anti-trust authorities), and to the satisfaction of other customary closing conditions. Closing is expected around year-end 2006.

Foreign exchange hedge

In 2006, in order to further protect the Group net assets denominated in U.S. dollars, AXA implemented a U.S. dollar 1.5 billion foreign exchange hedge.

Share purchase program

In January 2006, AXA pursued its share repurchase program to reduce the level of dilution arising from 2005 share-based compensation and employee shareplan program and purchased 9.4 million shares for a total amount of 0.25 billion.

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2005 Dividend

At the general meeting of shareholders of AXA held on May 4, 2006, the shareholders approved a dividend in respect of 2005 of 0.88 per ordinary share, or 1,647 million in the aggregate, based on the number of shares outstanding at December 31, 2005. The approved dividend was paid on May 12, 2006.

Critical accounting policies

The accounting principles used in the preparation of the consolidated financial statements in accordance with IFRS are set out in Note 1 in the notes to the consolidated financial statements in Item 18 of this Annual Report. The notes to the consolidated financial statements also contain a summary of (i) material differences in accounting policies between IFRS and U.S. GAAP in Note 32 and, (ii) recently issued accounting pronouncements, including those not yet adopted.

Certain of AXA’s accounting policies under IFRS and U.S. GAAP require the use of estimates and assumptions that may involve a degree of judgment that affects amounts reported in AXA’s consolidated financial statements. Management applies judgment for complex transactions that may require estimates about matters that are inherently uncertain. These estimates may be based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Consequently, actual experience or current estimates could differ significantly from the previous estimates due to changes in assumptions and financial market or, economic or other conditions. Such differences would be reflected in the financial statements (when appropriate) and could impact AXA’s financial results and conditions. These estimates and related judgments are common in the insurance and financial services industries.

The accounting policies that are deemed critical to AXA’s operational results of operations and financial position, in terms of materiality and the degree of judgment and estimation involved, are summarized below. The statements below contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act. See “Special Note Regarding Forward-looking Statements” included in the beginning of this Annual Report.

Under IFRS, the scope of consolidation includes AXA SA and its subsidiaries, associates and investments in joint ventures (see Note 1 to the consolidated financial statements included in item 18 in this Annual Report). The existence and effect of potential voting rights that are currently exercisable or convertible are also considered when assessing whether AXA controls another entity.

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Entities that are controlled in substance even without any ownership interest are also consolidated. In this regard, the determination of the scope of consolidation implies some elements of judgment.

Under IFRS, the consolidation is based on the level of control, and the consolidation methods are:

  • the full consolidation method if AXA exercises an exclusive control;
  • the proportionate method if AXA exercises a joint control;
  • the equity method if AXA exercises a significant long-term influence.

Under the U.S. GAAP “voting interest model”, consolidation is based on whether AXA has a majority interest based on voting rights (direct or indirectly held) of more than 50%. In addition and in respect of variable interest entities, even though AXA may not hold more than 50% of the voting rights of the entity, AXA may be deemed to be the primary beneficiary and, therefore, may be required to consolidate such investment vehicles under the U.S. GAAP “variable interest model”. The accounting rules for the determination of the primary beneficiary are complex and require evaluation of the contractual rights and obligations associated with each party involved in the entity, an estimate of the entity’s expected losses and expected residual returns and the allocation of such estimates to each party.

Goodwill represents the excess of the cost of acquisition over the net fair value of the assets, liabilities and contingent liabilities acquired and is recorded as an asset on the balance sheet. It is considered to have indefinite useful life and is therefore not amortized. AXA reviews goodwill when there is an indication that an impairment may have taken place, or at a minimum on an annual basis. A multi-criterion analysis is used in order to determine if there are significant adverse changes (parameters include value of assets, future operating profits, market share). The possibility of an impairment can be derived from any events or changes in circumstances that indicate that the carrying amount of goodwill may not be recoverable. Therefore, there is an element of judgment involved in (i) evaluating when the indication of an impairment is significant enough to require a full test to be undertaken, and (ii) determining the fair value to be used to assess recoverability of the carrying value. The valuation techniques include market quotations and expected discounted cash flows taking into account the current shareholder net assets value plus future profitability on business in-force and profitability value on future new business. As of December 31, 2005, the goodwill asset impairment test did not indicate a need for impairment. However, future tests may be based upon different assumptions and market/economic conditions, which may or may not result in impairment of this asset in future periods. In addition, changes in market, economic or other conditions may affect the value of goodwill. Should an impairment occur, any loss could materially reduce the value of the goodwill asset with a corresponding charge recorded against income. An impairment of goodwill is not reversible.

AXA’s principal investments for its insurance related assets are primarily in fixed maturity and equity securities. Under IFRS and U.S. GAAP, these securities are carried at fair value or amortized cost unless there is a need for impairment.

Under IFRS, the investments are classified in the following categories depending on the intention and ability to hold the invested assets:

  • assets held to maturity, accounted for at amortized cost;
  • loans & receivables accounted for at amortized cost;
  • trading assets and assets designated (option) at fair value with change in fair value through profit or loss, the latter referred to as the “fair value option”;
  • available for sale assets accounted for at fair value with changes in fair value in shareholders’ equity.

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Currently, the “fair value option” under U.S. GAAP does not exist. Therefore, the assets designated under the fair value option under IFRS are classified into other categories.

In some cases, the basis for measuring fair value may require the utilization of investment valuation methodologies, such as discounted cash flows analysis or models based on observable market data, if quoted market prices are not readily available. Approximately 20% of AXA’s total investments in debt and equity securities represented unquoted securities at December 31, 2005.

Under IFRS and U.S. GAAP, AXA assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. The assessment is based on a security-by-security evaluation and will depend on, but is not be limited to, (i) the length of time or the extent to which an unrealized loss position exists, (ii) whether the issuer has been experiencing significant financial difficulties, and (iii) factors specific to an industry sector or sub-sector. The level of impairment losses can be expected to increase when economic conditions worsen and decrease when economic conditions improve.

For equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. That is the case for equity securities with unrealized losses for a continuous period of 6 months or more prior to the closing date or higher than 20% of the carrying value at the closing date. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the income statement – is removed from shareholders’ equity and recognized in the income statement. Impairment losses recognized in the income statement on equity instruments are not reversed through the income statement until the asset is sold or derecognized.

For debt securities classified as “held to maturity” or “available for sale”, the impairment test is performed at the individual level with a subsequent collective assessment for groups of assets with similar risks. If the test indicates that there is objective evidence that the cost may not be recovered, the debt security needs to be impaired. In this case, the charge recorded in the income statement is calculated based on the current market value, representing the difference between the market value and the recorded value of the instrument (less any impairment loss on that asset previously recognized). Under IFRS, the impairment charge for debt securities is reversible in future periods. If the identified risk is eliminated or improves, the valuation allowance may be reversed with the amount of the reversal recognized in the income statement.

Impairment measurement of loans is based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, on the loan’s observable market price or the fair value of the collateral if the loan is collateral-dependent.

Assessing an issuer’s near-term prospects may be difficult and involve some reasonable judgments and assumptions. The use of and changes to different methodologies and assumptions may have a material effect on AXA’s consolidated operating results under IFRS and U.S. GAAP. Under U.S. GAAP, reversals of impairment charges to all financial instruments are not permitted.

AXA enters into derivative transactions primarily to hedge interest rate risk, foreign currency risk and change in equity price risk. To achieve these hedging strategies, AXA combines derivative instruments and hedged items in fair value hedges, cash flow hedges or hedges of a net investment in a foreign entity and transactions that do not qualify as hedges for accounting purposes.

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Derivative instruments and related hedge accounting impact the financial results of AXA by (i) changes in fair value of derivatives not qualifying as hedges for accounting purposes, (ii) gains or losses on the hedges, and (iii) hedges which have an ineffective part covering the anticipated exposure.

AXA documents, at inception, the hedge relationship, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment of hedge effectiveness, both at hedge inception and on an ongoing basis, indicating whether the derivatives that are used in hedging transactions are expected to be or have been highly effective in offsetting changes in fair values or cash flows of hedged items.

The hedge accounting is documented to meet the hedging requirements as set forth under IFRS and U.S. GAAP. However, most economic hedging relationships implemented by AXA could not be designated as qualifying hedges under these principles and, therefore, such derivatives are accounted for with changes in fair value in earnings, while the accounting treatment of the hedged items does not necessarily lead to an offset of such changes in fair value in the income statement.

The liabilities arising from insurance and investment contracts are the largest liability in AXA’s consolidated financial statements (77% of total liabilities at December 31, 2005), representing amounts payable under policyholders contracts. The Group issues contracts that transfer insurance risk or financial risk or both. Under IFRS, insurance contracts are those contracts that contain significant insurance risk. Such contracts may also transfer financial risk from the policyholders to the insurer. Investment contracts are those contracts that have financial risk with no significant insurance risk. Both types of contracts may contain a discretionary participating feature. In accordance with IFRS 4, insurance and investment contracts with a discretionary participating feature are accounted for under previous accounting policies provided certain conditions are met. Investment contracts with no discretionary participating features (0.2% of total liabilities at December 31, 2005) are accounted for under IAS 39. U.S. GAAP accounting is also based on insurance risk, but definitions differ in certain respects.

This balance includes unit-linked liabilities with financial risk borne by policyholders (25% of total liabilities at December 31, 2005). The core liabilities linked to these contracts are estimated on the basis of the fair value of assets held to back these policies. Such contracts may be issued with additional guarantees for which a separate reserve is established. Determination of the liabilities in respect of such guarantees (e.g. guaranteed minimum income benefit and death benefit features – GMIBs and GMDBs1) is based on models that involve estimates and judgments, including those regarding expected market rates of return and volatility, contracts surrender rates and mortality.

Non unit-linked liabilities include traditional life insurance contracts, immediate annuities and health insurance contracts. Generally, amounts are payable over an extended period of time and the profitability of the products is dependent on the pricing of the products. The principal assumptions used in pricing these policies and in the establishment of liabilities for future policy benefits are mortality, morbidity, expenses, policy lapse and surrender rates, investment returns, interest crediting rates to policyholders and inflation. Differences between the actual experience and assumptions used in pricing the policies and in the establishment of liabilities result in variances in profit and could result in losses.

AXA’s non unit-linked policyholders liabilities also include unpaid claims and claim expenses (7% of total liabilities at December 31, 2005). The Property & Casualty claims reserves are determined on a basis to cover the total cost of settling an insurance claim. With the exception of disability annuities and workers compensations liabilities that are deemed structured settlements, the claims reserves are not discounted. The claims reserves include the claims incurred and reported

(1) Guaranteed Minimum Income Benefits (GMIB) and Guaranteed Minimum Death Benefits (GMDB).

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in the accounting period, claims incurred but not reported (“IBNR”) in the accounting period and costs associated with the claims settlement management. The claims reserve is based upon estimates of the expected losses for all lines of business taking into consideration management’s judgment on the anticipated level of inflation, regulatory risks and the trends in cost and frequency of claims, actual against estimated claims experience, other known trends and development, and local regulatory requirements. In addition to the reviews performed at entity level or, eventually, by the local supervisory authorities, overall reserves for claims payable have been reviewed at Group level by Risk Management. Since this work has been carried out on a large proportion of the portfolio, it makes a major contribution to improving the reliability of estimates.

The Liabilities arising from insurance and investment contracts balance also includes liabilities arising from policyholder’s participation. In addition to participation irrevocably recognized in accordance with contractual and statutory obligation, this liability notably includes the share of realized gains and losses arising from financial securities designated as available-for-sale category which would be attributed to policyholders to the extent they participate in such gains and losses on the basis of contractual or statutory obligations when realized.

The costs of acquiring new and renewal business that vary with and are primarily related to the production of new business related to insurance and investment contracts with a discretionary participating feature under IFRS (based on previous accounting principles) are specifically identified and deferred by establishing an asset, referred to as deferred policy acquisition costs (“DAC”). The extent to which acquisition costs are deferred is a significant factor in that business’ reported profitability in any given period. In addition, and in respect of in-force business related to insurance and investment contracts with a discretionary participating feature acquired in a business combination, the present value of future profits attributable to that business is recorded at acquisition date, being Value of Purchased Life Business in Force (“VBI”). In principal, the value of related policyholders’ liabilities at date of acquisition net of VBI represents the estimated fair value of such business on such date as defined by market practice under previous accounting policies still in use under IFRS 4. The extent to which VBI is calculated will depend on assumptions used to estimate the future profitability of the contracts acquired including the discount rate used. In respect of amortization of DAC and VBI on insurance and investment contracts with a discretionary participating feature under IFRS, the amortization may be affected by changes in estimated gross profits or margins principally related to fees, investment return, mortality and expense margins, lapse rates, and anticipated surrender charges. Should revisions to estimated gross profits or margins be required, the effect is reflected in earnings in the accounting period that the assumptions are revised. Recoverability is assessed at least on an annual basis.

With respect to investment contracts with no discretionary participating features under IFRS, an asset may be recognized representing the contractual right to benefit from providing investment management services under certain conditions: limitation to incremental costs, provided they can be identified separately, measured reliably and it is probable that they will be recovered.

Under U.S. GAAP, deferred acquisition costs (“DAC”) and Value of Purchased Life Business in Force (“VBI”) are recorded in relation with all types of contracts. Under U.S. GAAP, the amortization may be affected by changes in estimated gross profits or by the pattern of collected premium.

AXA provides defined benefit pension plans in various forms covering eligible employees across its operations. There are several assumptions that impact the actuarial calculation of pension plan obligations (the projected benefit obligation) and, therefore, the net periodic pension cost reflected in the financial statements. The net periodic pension cost is the

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aggregation of the compensation cost or service component of benefits promised, interest cost resulting from deferred payment of those benefits, and investment returns from assets dedicated to fund those benefits. Each cost component is based on best estimates of long-term actuarial and investment return assumptions. The assumptions used may differ from actual result due to changing financial market and economic conditions, changes to terms and conditions of the plans, and longevity of participants. Actual cumulative experience different from that assumed and not yet recognized in net periodic pension cost as at January 1, 2004 was recognized by AXA in retained earnings at adoption of IFRS. Actuarial gains and losses arising after this date are recognized in equity. Under U.S. GAAP, actuarial experience different from that assumed is recognized prospectively in net periodic pension cost of future periods (“corridor approach”).

In addition and under U.S. GAAP only, an additional minimum pension liability is recognized if the accumulated benefit obligation (“ABO”) is in excess of the fair value of plan assets at the measurement date (as measured separately for each defined benefit plan) and if the amount of the recognized liability is not at least equal to the unfunded accumulated benefit obligation. An intangible asset is recorded on the asset side, but the intangible asset should not exceed the sum of the unrecognized prior service cost and the unrecognized transition obligation. If the intangible asset is less than the additional minimum liability, the difference will be reported as a direct reduction in shareholders’ equity. The ABO represents the measurement of pension obligations relating to services performed by active, terminated, and retired employees and uses the same assumptions as used for the projected benefit obligation except for the fact that it does not take account of future salary increases through to retirement date but instead determines the value of the obligation based on past and current salary levels at the current measurement date. The after-tax charge for the additional minimum liability, if any, is recognized in accumulated other comprehensive income (a separate component of shareholders’ equity) and not through operating results. The assumptions used may differ from actual result due to changing financial market and economic conditions, changes to terms and conditions of the plans, and longevity of participants.

Deferred income tax assets and liabilities result from temporary differences between accounting and tax values of assets and liabilities and from net operating loss carry forwards, if any. On a net basis, either by derecognizing deferred tax assets or through valuation allowances, net deferred tax assets on the balance sheet are recognized only to the extent that it is probable that future taxable profit will be available.

Under both U.S. GAAP and IFRS, AXA evaluates all evidence available to management in order to determine if a deferred tax asset is recognized. Under U.S. GAAP, greater weight is given to negative evidence, such as cumulative losses in recent years, than under IFRS.

First time adoption of IFRS

The following describes the major elected options in accordance with IFRS 1.

No Restatement of Past Business Combinations

Past business combinations other than those in connection with a buyout of minority interests1 have been accounted for by AXA as a purchase under French accounting policies and not as a pooling of interests. AXA was identified as the acquirer; the fair values of the entire purchase consideration were recognized in the financial statements at that time;

(1) The portion of assets acquired and liabilities assumed in connection with a buyout of minority interests was maintained under French GAAP at carrying value at date of acquisition.

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the purchase consideration was allocated to the acquired tangible and intangible assets and liabilities based on their fair values; goodwill was recognized (and subsequently amortized until December 31, 2003); the fair values of the acquired assets have been amortized to expense over their respective useful lives.

However there are several differences with IFRS 3 provisions as follows:

1.  Insurance liabilities

Insurance claims reserves of the entities acquired have been recorded at their book value, provided that they were sufficient, instead of been re-measured at fair value.
For life and saving business, an intangible asset equal to the difference between the book value and the fair value of liabilities has been recognized as corresponding to the present value of future profits (Value of purchased life insurance business in-force (VBI)) see 2 below.
For property and casualty insurance, claims reserves have been maintained at their undiscounted amount.

2.  Intangible assets

IFRS 3 requires the acquirer to recognize separately intangible assets provided that their fair value can be measured reliably. Regarding policyholders liabilities, AXA applied the corresponding French GAAP requirement as follows, with the few adjustments described below following the application of IFRS 1 when moving to IFRS:

a.   Value of purchased life insurance business in-force (VBI) was recognized under French accounting policies. A part of this VBI related to insurance contracts and investment contracts with a discretionary participating feature in the scope of IFRS 4. According to IFRS 4, the VBI recognized under the French accounting policies could be maintained under IFRS purchase accounting in the restated balance sheet (expanded presentation).

b.   Another part of the value of purchased portfolio recognized under French GAAP related to investment contracts with no participation features falling in the scope of IAS 39. No exemption is provided for such contracts under IFRS: policyholders liabilities have to be fair valued when acquired with no corresponding intangible assets. Such intangible assets were written off against goodwill in the IFRS opening balance sheet.

c.   Other intangible assets including value of purchased non-life insurance business in-force and customer relationship have generally not been recognized.

3.  Goodwill

Some examples of goodwill charged directly to consolidated retained earnings and reserves in the following acquisitions according to the French regulation are displayed below:

a.   Buy-out of minority interests - AXA Financial (2000)
The aggregate purchase consideration was
11,213 million and included the following items:
3,868 million financed by capital increase, representing the value of the 25.8 million ordinary shares issued by AXA at a price of 149.90 per share based on the December 22, 2000 quotation, the closing date of the initial offer period and before the 4-for-1 stock split,
7,316 million in cash relating to the cost of settling or exchanging outstanding employee share options of AXA Financial, as well as fees and direct transaction costs.
Based on the carrying value as of December 31, 2000 of the net assets acquired of 3,913 million, the goodwill amounted to 7,301 million. In accordance with article D248-3 of the decree dated January 17, 1986 and with

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recommendations issued by the “Commission des Opérations de Bourse” (French stock market regulator) in its bulletin 210 of January 1988, the excess purchase price of 2,518 million was charged directly to consolidated retained earnings and reserves; i.e. the entire excess purchase price multiplied by the ratio of the aggregate purchase consideration financed by the capital increase. The remaining 4,782 million goodwill was recorded as an asset. At January 1, 2004, the net book value of this goodwill was 4,100 million under French GAAP. With the adoption of IFRS, the goodwill was adjusted for unrealized foreign exchange gains and losses, since goodwill must be recorded in the local currency of the acquired entity. The new goodwill figure became $3,801 million. At December 31, 2005, this goodwill had a net value of 3,223 million.

 

b.   Buy-out of the minority interests of Royale Belge
At December 31, 1999, gross goodwill from the buyout of the 51% minority interests of Royale Belge amounted to
1,007 million, of which 337 million was charged directly to retained earnings and reserves. At January 1, 2004, the net book value of this goodwill was 547 million under French GAAP. With the adoption of IFRS, this goodwill became 565 million. In 2004, goodwill was written down by 33 million in relation to Hollandaise Dommage. Goodwill was reduced by a further 18 million following the disposal of Unirobe in early 2004. At December 31, 2005, net value of this goodwill was 514 million.

 

c.   UAP
In 1997, AXA acquired UAP, resulting in a goodwill of
1,863 million being booked, of which 1,641 million was charged directly to retained earnings and reserves. As a result of purchase accounting adjustments made in 1998 and in 1999, the total goodwill increased to 1,866 million at December 31, 1999, of which 1,584 million represented the amount charged directly to retained earnings and reserves. In 2003, following the release of a provision booked when the Group acquired German activities in 1997 and which took place after the Group sold its stake in Colonia Re JV to General Re, an exceptional amortization of 57 million was recognized. At January 1, 2004, the net book value of this goodwill was 293 million under French GAAP, including net goodwill relating to AXA Colonia. With the adoption of IFRS, additional goodwill of £178 million was booked following the overwriting of portfolio value on investment contracts without discretionary participating features by the UK Life & Savings subsidiary. The new goodwill figure is made up of 265 million relating to French, German and Belgian entities and £183 million relating to UK entities. At December 31, 2005, the net book value of the goodwill was 534 million.

Currency Translation Differences

AXA elected the option to reset to zero all past cumulative currency translation differences for all foreign operations.

Pension accounting

All cumulative past actuarial gains and losses on all employee benefit plans were recognized in retained earnings at the date of transition.

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Consolidated operating results

Consolidated gross revenues

CONSOLIDATED GROSS REVENUES (a)

(in euro millions)
    Years ended December 31, Change  
    2005   2004      
Life & Savings   45,116   42,344   6.5%  
of which Gross written premiums   43,496   41,103   5.8%  
of which Fees and revenues from investment contracts
with no participating features
  509   417   21.9%  
Property & Casualty   18,874   17,852   5.7%