AXA

Company Profile
Publication Date: 29 Jan 2008

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TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................4 Key Facts...............................................................................................................4 SWOT Analysis.....................................................................................................5

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Company Overview

COMPANY OVERVIEW
AXA Group (AXA) is one of the worlds largest insurance groups. AXA is the holding company for an international financial services group focused on financial protection, insurance and asset management. The group primarily operates in Western Europe, North America, the Asia Pacific region, the Middle East and Africa. The group is headquartered in Paris, France and employee approximately 150,000 people. The group recorded revenues of E78,775 million during the fiscal year ended December 2006, an increase of 9.9% over 2005. The net profit was E5,085 million in fiscal year 2006, an increase of 17.8% over 2005.

KEY FACTS
Head Office AXA AXA Group 25 Avenue Matignon 75008 Paris FRA 33 1 4075 5700 33 1 4075 5954 www.axa.com

Phone Fax Web Address

Revenue / turnover 78,775.0 (EUR Mn) Financial Year End Employees New York Ticker December 150,000 AXA

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SWOT Analysis

SWOT ANALYSIS
AXA Group (AXA) is one of the worlds largest insurance groups. AXA is one of the leading insurance groups in the world with about 52 million clients across the globe. The group maintains a leading position in the US (market share: 25% by the end of fiscal 2005), second position in Japan (19%), third in The UK (12%), fourth in France (8%), sixth in Germany (5%) and eleventh in Belgium (2%), in the life and savings insurance segment. Leveraging its strong market position, the group enjoys substantial bargaining power in its key markets. However, AXA is threatened by regulatory pressures from Europe's Solvency II project, which could increase operating expenses and pull down the groups operating margins. Strengths Leading insurance group Strong distribution strategy Wide product portfolio Weaknesses Poor performance of Bank Belgium Inefficient combined ratio Concentration of operations in mature market Threats High compliance costs High interest rate regime Litigations

Opportunities Buoyant asset management market Acquisition of Winterthur insurance Positive outlook for the reinsurance sector

Strengths

Leading insurance group AXA is one of the leading insurance groups in the world with about 52 million clients across the globe. The group maintains a leading position in the US (market share: 25% by the end of fiscal 2005), second position in Japan (19%), third in The UK (12%), fourth in France (8%), sixth in Germany (5%) and eleventh in Belgium (2%), in the life and savings insurance segment. Additionally, AXA is one of the leading asset management groups in the world with around E1,314.7 billion assets under management (AUM) by the end of December 2006. Leveraging its strong market position, the group enjoys substantial bargaining power in its key markets. Strong distribution strategy AXA distributes all its products through exclusive and non exclusive channels that which vary across demography. Exclusive channels include exclusive agents, salaried sales forces and direct sales including mail, telephone and internet. Non exclusive channels include brokers, independent financial

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SWOT Analysis

advisors, aligned or wholesale distributors and partnerships including financial, particularly banks, and non financial such as car dealers. In Germany, the UK, the US and Australia, the group distributes through non exclusive channels and in Southern Europe and France through exclusive channels. The group also takes in to consideration the nature of the local market before deciding on its distribution strategy and channel. For instance, the Belgium market is marked by bank insurers. Thus, the group has developed a multi-channel distribution strategy supported by three distribution channels which includes the groups network of bank agents acting as brokers, brokerages and its exclusive insurance agents network. The group has also adopted the partnership route when necessary for distribution of its products. Wide product portfolio AXA has a strong product portfolio. The life and savings segment of the group provides a range of life and health insurance products for both individuals and corporate clients. It principally offers savings-related products, including separate account (unit-linked) products. The life and savings-related products offered by AXA include term life, whole life, universal life, endowment, deferred annuities, immediate annuities, variable life and other investment-based products. AXA's property and casualty segment is engaged in the provision of a range of personal and commercial insurance products.These include automobile, homeowners /household, property and general liability (for both personal and commercial customers), and permanent health insurance. The international insurance segment conducts all the reinsurance activities of the group focusing primarily on property and catastrophe business. It also undertakes large risk insurance activities including property & casualty insurance business for large corporate clients in Europe. AXA's asset management segment offers asset management services to retail investors, private clients and institutional clients. The other financial services segment primarily offers retail banking products including deposit and saving accounts and consumer loans. The groups strong product portfolio enhances its cross selling opportunities.

Weaknesses

Poor performance of Bank Belgium The AXA Bank Belgium operates through a network of 950 independent bank agents and is the sixth largest bank in Belgium. Given its strong presence in the Belgium market and increase in mortgage volumes despite an increase in the long term interest rates in 2006, the market share of AXA Bank Belgium decreased from 11% to 8% in 2005. In addition, revenues from the other financial services segment which primarily constitutes AXA Bank Belgium declined by 11% to E381 million in fiscal 2006. The earnings also declined by E16 million to E51 million, primarily due to lower fixed income capital gains and lower interest margin of AXA Bank Belgium in fiscal 2006. Declining revenues and earnings in Belgium could impact AXAs returns on investments in that country.

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SWOT Analysis

Inefficient combined ratio The groups UK and Ireland operations registered an increase of 20 basis points in the combined ratio in fiscal 2006. The combined ratio of the groups UK and Ireland operations has increased from 96.3% in fiscal 2005 to 96.5% in 2006. UK and Ireland, together, are the third largest contributor to the groups revenue. The combined ratio indicates the level of efficiency of an insurance companys daily operations. An increase in combined ratio indicates a decline in underwriting profit. Increasing combined ratios could adversely impact AXAs margins. Concentration of operations in mature market The group has most of its operations in mature market such as France, the US, the UK, Germany and Japan. It derived approximately 79.4% of the total revenues in fiscal 2006 from these matured markets. By concentrating its business in mature markets, AXA is not only facing financial pressures, but is also missing out on opportunities to expand in other regions which feature stronger growth potential.

Opportunities

Buoyant asset management market The global asset management and custody banks industry had an asset base of $49,157 billion in 2005, representing a compound annual growth rate (CAGR) of 8% for the period 2001-2005. Moreover, in the year 2010, the global asset management and custody banks industry is estimated to reach a value of $68,210 billion, an increase of 38.8% over 2005. The compounded annual growth rate of the industry during the period 2005-2010 is expected to remain at 6.8%. The main factor driving this growth is the need for private individuals to make provision for their pension requirements. AXA's assets under management (AUM) recorded a strong growth in 2006 recording a 22.8% increase from 2005. The group has maintained this growth rate over the last three years and is set to continue in the future considering the positive growth opportunities in the assets management market. Acquisition of Winterthur In June 2006 AXA Winterthur from Credit Suisse in one of the biggest European insurance takeover deal since 2000. This deal is expected to reinforce AXAs market position in Europe as Winterthur has a strong market presence both in the life and savings and property and casualty insurance segment. Winterthur insurance ranks second in the Swiss life and savings market. The company had a market share of 36% and 24% in terms of annual premium equivalent (APE) in Western Europe and Asia respectively. In the property and casualty segment, Winterthur insurance ranked first in the Swiss market and had captured 40%, 74% and 26% of the market share, in terms of revenues, in Belgium, Spain and Germany respectively.

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SWOT Analysis

This deal will considerably strengthen AXAs market position in Europe. For instance, the combined group would become a leading player in the Swiss market. In Germany the combined group would attain sixth position with a market share of 5% in Life & Savings and of 7% in Health insurance. The group will also gain access to Winterthurs pension operating platforms in Central and Eastern Europe particularly in Poland, the Czech Republic, Hungary and Slovakia. Moreover, the Winterthurs operation in Asia will complement the activities of AXA particularly in Japan, Hong Kong and China. In addition, this acquisition is expected to yield annual cost savings of E350 million. The Winterthur acquisition is likely to significantly strengthen AXAs global operations. Positive outlook for the reinsurance sector AXA operates in the reinsurance sector through AXA Re.The global reinsurance sector came through the year 2005, posting total gross premiums of $214.3 billion in 2005, equating to a year-on-year growth rate of 7.6% in 2005. The North American region proved the sector's most lucrative regional market in 2005, generating total revenues of $108 billion, equivalent to 50.4% of the sector's overall value. The dominance of the North American market can be attributed to the developed insurance markets of the US and Canada, particularly the US. Looking forward, an anticipated CAGR of 5.2% for the five-year period 2005-2010 is set to propel the sector to a value of $275.5 billion by the end of 2010. Pricing in the property catastrophe retrocession market in the US was very strong in 2006 following record hurricane losses of the previous year. Pricing for January 2007 renewals remained steady driven by upwards revisions in expected loss estimates and a continued shortage of retrocession capacity. This strong growth in demand for products which will in turn help expand revenue base of AXA.

Threats

High compliance costs Europe's Solvency II project is expected to change capital requirements for insurers in much the same way the Basel II Accord will for banks. The Solvency II project would require insurers to set aside more or less capital depending on the risks they face. The European Commission is expected to implement a framework directive by 2008. The new rules would apply to all sectors of the insurance industry throughout the 25-nation European Union. This would step up the operating expenses of the insurers as they would be required to develop integrated reporting systems that incorporate valuation, payment, and loss data. High compliance costs would pull down the margins of European insurers such as AXA and adversely affect their profitability. High interest rate regime The European Central Bank (ECB) raised interest rates by a quarter of a percentage point to 3.75% to deal with inflationary pressures in March 2007. The increase marks the banks seventh interest

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SWOT Analysis

rate hike since December 2005. With inflation remaining high the ECB has been increasing interest rates in the Eurozone to bring the inflation within the banks target of 2%. Moreover there is an argument that interest rates would peak over the current rates if the energy prices would rise high. In addition, the Federal Reserve in the US has been holding the interest rate steady at 5.25% for the last three quarters; interest rates in other countries are still increasing. Bank of England raised interest rates to a high of 5.25 % in January 2007 in UK from 4.5% in January 2006. In periods of increasing interest rates, life insurance policy surrenders and withdrawals increase as policyholders seek investments with higher perceived returns. This may require group to sell its invested assets at lower prices, which can result in investment loss. If the interest rates continue to rise, it may put pressures on AXAs profitability. Litigations AXA and its subsidiaries are involved in a number of lawsuits arising from their business activities, particularly the US. AXA Financial, AXA Equitable and AllianceBernstein are involved in several lawsuits, including class-action suits. These lawsuits are regarding sale of companies products in the US market, their investments, their real estate and asset management activities, their employees and their agents The group is involved in litigation in the Netherlands and in the US, regarding asbestos related claims made by Philips (on behalf of one of its US subsidiaries) under its worldwide liability program. The Winterthur acquisition, besides strengthening AXAs operations, also increased its litigation costs. Following the acquisition of Winterthur, the exposure of AXA to the Philips program increased because Winterthur and some of its subsidiaries held a significant participation in Philips program. The group had made litigation provision of E217 million which includes E57 million for the Winterthur group subsidiaries. These litigations entail punitive damages which would not only affect the financials of the group..

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