US Life & Savings: Strong momentum in our core business whilst de-risking legacy

Transcription

1 Investor Day November 7, 2012 US Life & Savings: Strong momentum in our core business whilst de-risking legacy Mark Pearson President & CEO of AXA in the US

2 Cautionary note concerning forward-looking statements Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please refer to the section Cautionary statements in page 2 of AXA s Document de Référence for the year ended December 31, 2011, for a description of certain important factors, risks and uncertainties that may affect AXA s business. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. F2 US Life & Savings November 7, 2012

3 Key Messages Strong presence in the US the world s largest profit pool for life insurance Well positioned to grow with unique assets in commercial innovation, distribution and inforce Hedge program helping to protect IFRS underlying earnings and capital Proactive risk management program for legacy GMxB portfolio Our strategy to grow the core business, de-risk legacy and increase efficiency has strong momentum F3 US Life & Savings November 7, 2012

4 Agenda Strong momentum in our core business whilst de-risking legacy Overview of the business Good momentum despite challenging markets Market opportunity World s largest life profit pool and growing retirement gap AXA Equitable strategy Growing core business, de-risking legacy and increasing efficiency Core business Diversifying and growing core business through innovation Inforce optimization Disciplined inforce management and technical competencies Looking forward Well positioned for upside potential with protection against downside risk F4 US Life & Savings November 7, 2012

5 AXA in the US Strong assets and diverse business lines Scale Multi distribution and commercial innovation Strong financials 150+ years of history 5,200+ AXA Advisors $13.4 billion revenues 3.3+ million customers 4,600+ engaged employees $140+ billion separate/ general account assets 1,000+ 7,000+ 3rd party sales agreements employer school payroll slots $325 million underlying earnings $ % million NBV NBV margin Strong presence with distinct advantages Represents consolidated AXA Financial information FY11 Results Restated for the change in DAC accounting methodology adopted retrospectively as of January 1, 2012 F5 US Life & Savings November 7, 2012

6 AXA Equitable Leadership Team Good mix of international, local and technical leaders Mark Pearson Chairman & CEO Andrew McMahon Financial Protection & Wealth Management Nick Lane Retirement Savings Anders Malmström Finance Amy Radin Marketing & Communications Dave Hattem Legal Rino Piazzolla Human Resources F6 US Life & Savings November 7, 2012

7 Why the US? Significant contributor to AXA s Life & Savings business Life and Savings 1H12 APE AXA: Euro 3.1 billion US: Euro 599 million Underlying Earnings AXA: Euro 1.4 billion US: Euro 237 million NBV AXA: Euro 752 million US: Euro 76 million France 21% MedLA 6% US 19% France 27% MedLA 5% US 17% France 13% MedLA 5% US 10% NORCEE 25% Asia-Pacific 21% UK & Ireland 9% NORCEE 23% Asia-Pacific 30% UK & Ireland -1% NORCEE 22% Asia-Pacific 46% UK & Ireland 1% F7 US Life & Savings November 7, 2012

8 Why the US? US is largest life profit pool with growing consumer needs US: largest Life & Savings market Breakdown of Life profit pool 1 (%) North America 38 Baby-boomers will inherit $8.4 trillion 3 70 By 2025, people 65+ will be 18% of population over 60 million, nearly twice 2000 levels population over 60 million in 2025 Western Europe Japan 9 40 Asia Pacific E 2020E 2025E Latin America Africa Eastern Europe Total % ( 85 billion) 2011 economic indicators 4 GDP (inusd trillion) GDP per capita (in USD) Population (in million) United States , China 7.3 5,414 1,348 Japan , Germany , France , Source: McKinsey report, 2011, Life operating profits excludes realized capital gains / losses 2. Source: LIMRA Factbook on Retirement Income, Source: Center for Retirement Research at Boston College, Source: IMF F8 US Life & Savings November 7, 2012

9 Why the US? Opportunity arising from demographics Nearly half of Americans are NOT contributing to a retirement plan Defined Contribution Plans (e.g. 401k, 403b or 457) 37% 4.0 Market opportunity (retirement savings assets in USD trillion) Not yet retired Partially retired Fully retired Roth IRA 16% Traditional/ Rollover IRA SEP/SIMPLE IRA 4% 15% None of the Above 49% Average age of an annuity buyer $15.5 American households views on life insurance 1.0 $3.9 Currently own 44% $6.5 Want more 50% Think it s important 89% 0.0 < American households are under insured The real opportunity is with today s pre-retirees Source: LIMRA F9 US Life & Savings November 7, 2012

10 AXA Equitable Strategy Accelerating execution to counteract adverse markets Selectivity Actively growing in select segments Continue to drive higher levels of protection and investment-only VAs Identifying opportunities to improve IRRs and margins Reshape the savings business Continue to lead industry in redesigning and de-risking products Positively managing mix with distributors; controlling risk Efficiency Increase productivity and efficiency Focus on inforce optimization Customer Centricity Driving digital for both efficiency and sales force productivity Driving longer term transformational opportunities Actively exploring reinsurance and other closed book capital optimization opportunities Suspended premiums for legacy contracts and launched pilot customer buyout offer for GMDB F10 US Life & Savings November 7, 2012

11 Overview of the business Good momentum despite challenging markets (in USD million) Post-tax Underlying Earnings Technical competencies product innovation and pricing expertise, alongside strong underwriting and risk management capabilities Productivity expense reductions helping offset lower net income margin FY08 FY09 FY10 FY11 1 New Business Value NBV margin (%) NBV (in USD million) 12% 13% 7% 5% % 1H12 GMxB hedge program protecting IFRS underlying earnings and capital Attribution actions taken since 2008 have reduced basis risk and volatility exposure Policyholder behavior strengthening of reserves to reflect lower lapses and lower partial withdrawals FY08 FY09 FY10 FY11 9M figures restated for the change in DAC accounting methodology adopted retrospectively as at January 1, 2012 F11 US Life & Savings November 7, 2012

12 Overview of the business Diversifying our business whilst de-risking GMxB legacy (IFRS liabilities) Financial Protection Core Business Employer Sponsored Separate Account General Account $38bn 10 Leading player of variable life and indexed universal life 28 Over 2 million policies Over $500 billion of face amount Separate Account General Account $28bn Leading market position in 403b K-12 education market Over 1.1 million policies No living benefit guarantees 1H12 1H12 Individual Annuity $70bn GMxB Legacy Separate Account General Account $9bn 7 2 Leading market in innovative and de-risked VA products Over 84,000 policies Re-priced and revamped VAs sold since 2010 Separate Account General Account Includes fixed rollup rate GMxB business written through 2010 Over 550,000 policies Closed to both new business and additional contributions 1H12 1H12 General Account includes G/A account balance and reserves (including Arizona Re). Excludes $5 billion of Payout Annuities and Group Pensions Separate Account excludes $1 billion of Group pensions F12 US Life & Savings November 7, 2012

13 Overview of the business Strong buffer and resilient GA margins (As of 1H12) Alternatives 8.1% Mortgages 6.1% Cash 0% General Account Assets ($52 billion 1 ) 3.0% 12.0% 0.2% 6.5% Real estate 17.6% Asset allocation Investment yield Duration strong asset quality with duration of 5 to 6 years and a gap <1 year New Business guarantees reduced to 1.6% Dilution expected asset yield dilution of c.15bps p.a, if low interest rate environment continues Fixed Income 5.0% 78.1% Investment grade 93% Swaption program in place to help manage G/A duration and convexity gap 5.1% Interest Sensitive Inforce Margins 1 New Business Buffer 1 Life ($8 billion) 120 bps 3.9% 5.1% Annuity ($16 billion) 220 bps 2.9% 3.1% 150 bps 1.6% G/A Investment Yield 1 1H12 Average Credited Rate G/A Investment Yield 1 1H12 Average Credited Rate 1. Excludes $11.9 billion of assets held in Arizona Re and $4.8 billion of policy loans and capital gains/losses 2. Guaranteed rate for new contracts F13 US Life & Savings November 7, 2012 Reinvestment Yield Fixed Income 1H12 Guaranteed New Business 2

14 Overview of the business Growing margins on Separate Accounts Separate Account Assets SA Balance (USD billion) Net margin on S/A (bps) SA margin improvement is largely attributable to fund restructuring and shift in product/fund mix $67bn 65 $83bn 72 $91bn 77 $85bn 77 $88bn 79 Passive equity moved from 5% to 70% passive funds which are easier to hedge Volatility management 70% of assets have ATM/ volatility coverage Performance 65% of active equity assets outperforming peers on a 3 year basis; passive funds are in line with benchmarks FY08 FY09 FY10 FY11 1H12 Growth in Separate Account assets drives fee revenue Customer benefits average expense ratio (excluding distribution fee) reduced from 84 to 76 bps since 2008 F14 US Life & Savings November 7, 2012

15 Overview of the business Aggressively managing down expenses Cost Income Ratio (Excluding VA GMxB Hedge Attribution) Sensitivities 88% A $50m decline in Acquisition Expenses results in a 100 bps decrease in the cost income ratio 72% 68% 66% 63% A $50m decline in Maintenance Expenses results in a 200 bps decrease in the cost income ratio For every $10m in Acquisition expense save, contributes $3m to Underlying Earnings FY08 FY09 FY10 FY11 1H12 For every $10m Maintenance Expense save, contributes $6.5m to Underlying Earnings (USD million) Efficiency Savings 2015E by Activity 2013E-2015E savings savings (achieved) Operations IT Support func. Mkt & Sales Other 2011 figures restated for the change in DAC accounting methodology adopted retrospectively as at January 1, Reflects additional acquisition expense saves not included in Ambition AXA efficiency program F15 US Life & Savings November 7, Total 1 Headcount reduced 27% since peak in 2007 Real estate reduced total real estate footprint by 33% since 2007 Ongoing efforts continue to assess real estate footprint and third party spending Global scale leveraging opportunities for global economies in IT, Asset Management and Procurement

16 Core Business 1 Good diversification momentum 23% CAGR earnings growth (in USD million) Pre-tax Underlying Earnings Core Business Individual Annuity and Other Financial Protection Employer Sponsored Product portfolio early action taken to re-price and revamp interest sensitive life products % (CAGR ) Half Year Efficiency expense savings helping to offset reduction in Net Interest Margin FY08 FY09 FY10 FY11 Pre-tax Margin on Reserves 2 1H12 Margin (%) Crediting rates 83% of life portfolio at guaranteed minimum levels (targeting 90% by 2013) 0.58% 0.92% 0.69% 1.08% 0.61% Half Year Non-proprietary business generating meaningful earnings with low capital requirements and risk FY08 FY09 FY10 FY11 1H figures restated for the change in DAC accounting methodology adopted retrospectively as at January 1, Core Business (excluding GMxB Legacy) 2. Pre-tax underlying earnings/average total reserves (net of DAC and expenses) F16 US Life & Savings November 7, 2012

17 Total Business Proven track record of innovation and value creation Industry thought leaders Innovation Product Market Stabilizer Option, Structured Capital Strategies and Retirement Cornerstone Predictive underwriting capability Volatility management tools Digital Platform Transforming how we do business Meeting customer demands Lead generation platform Captures multi-touch society TV, tablet, computer and phone Customer Centricity Creating value for our customers Multi-channel Broadening our access to customers Customer Relationship Unit AXA Advisors 5,200+ agents Conservation Unit 3 rd Party 100,000+ appointed brokers Straight Through Processing (STP) New multi-access approach F17 US Life & Savings November 7, 2012

18 Total Business driving substantial growth in value (in USD million) Sales Momentum 188 APE NBV NBVm 1,171 Margin increased from 7% in 2009 to over 15% in 2012 due to product revamp, effective hedging and strong alignment of remuneration to mix Third party distribution all agreements managed to value requiring diversified product mix 7.3% 12.4% 13.0% 15.4% FY09 FY10 FY11 Mix of Business (APE) 9M12 Aligned distribution AXA Advisors now generating 62% of Life & Annuity APE (up from 42% in FY07) 23% 28% 35% 28% Investment-only VAs and SCS which have no living benefit guarantees represents 50%+ of our total VA sales, far ahead of the market 46% 19% 19% 5% 21% 12% 11% 21% 15% GMxB products have been derisked and provided 14% IRR and 30% NBV margin (NBVm) in 2012 Life FY09 Investment-Only VA FY10 FY11 Structured Capital Strategies Floating Rate GMxB 9M12 Fixed Rate GMxB F18 US Life & Savings November 7, 2012

19 Inforce Optimization Actions taken have reduced our exposure to various risks Types of Risk Actions Taken Interest Rate Large dynamic hedging in place for rate declines Continued opportunistic approach to hedge volatility Equity Policyholder Behavior Overall Inforce Moved from 5% to 70% passive funds which are easier to hedge 70% of assets have AXA Tactical Management/volatility coverage Continue to retain upside for Separate Account fees Early action to stop additional contributions into legacy contracts Redesigned all VA products Launched first conversion program for GMDB policies Established dedicated teams and P&L accountability Disciplined execution of inforce initiatives Focused resources on exploring reinsurance and other closed book capital optimization opportunities F19 US Life & Savings November 7, 2012

20 Inforce Optimization: GMxB reserves and hedging Strong reserving policy leading to large hedge coverage AXA vs. Competitors (in USD billion, as of FY11) AXA Equitable Industry Average 1 AUM Strong IFRS reserves current value reserving leads to larger hedge positions than less market consistent reserving basis GMxB Reserves Reserves to AUM 15% 5% GMIB Reserves/NAR 112% n/a (USD billion) Hedge Results 5.9 Reserve increases due to investment markets Income from Hedging 4.8 Net Amount at Risk (NAR) GMIB reserves are covering theoretical Net Amount at Risk which broadly represents the intrinsic value of the guarantees granted to policyholders Hedge effectiveness has improved from 77% in 2008 to over 90% due in part to inforce actions we have taken Capital efficient strong local regulatory capital position with solid RBC ratio FY08 FY09 FY10 FY11 1H12 1. Source: Credit Suisse US Variable Annuities Report (FY11 data) F20 US Life & Savings November 7, 2012

21 Inforce Optimization: GMxB Underlying Earnings and DAC Improved DAC recoverability VA GMxB Underlying Earnings 3 In USD million, net of DAC and tax 1 FY09 FY10 FY11 2 1H12 Total VA base fees & other, less expenses GMxB Hedge Margin 22 (144) (403) (116) Prudent accounting reflecting hedge results in Underlying Earnings, not only in Net Income Impact of Assumption Changes (38) (130) (277) (177) Impact of Management Actions 156 VA GMxB Underlying Earnings (451) (9) VA GMxB DAC Balance vs. Reserves 3 (in USD billion) Account Value Reserves DAC Reserving levels consistently reviewed to reflect actual policyholder experience DAC new DAC accounting standards implemented as of January 1, 2012 (FY11 restated) DAC k-factor measuring the percentage of present value of future margins impacted by DAC, has improved to 64% reflecting new accounting standards FY11 pre DAC restatement FY11 Restated 1H12 Long term sensitivities potential reduction in Variable Annuity DAC balance: If the interest rate spread is lowered by 50 bps, $75 million If lowered view on equity markets by 100 bps, $180 million 1. Assumes notional tax rate of 35% to be on a comparable basis figures restated for the change in DAC accounting methodology adopted retrospectively as at January 1, Only includes Accumulator and Retirement Cornerstone products F21 US Life & Savings November 7, 2012 Annuitization levels remain low and there is a natural hedge with the GMDB

22 AXA Equitable Strategy Accelerating execution to counteract adverse markets Selectivity Actively growing in select segments Continue to drive higher levels of protection and investment-only VAs Identifying opportunities to improve IRRs and margins Reshape the savings business Continue to lead industry in redesigning and de-risking products Positively managing mix with distributors; controlling risk Efficiency Increase productivity and efficiency Focus on inforce optimization Customer Centricity Driving digital for both efficiency and sales force productivity Driving longer term transformational opportunities Actively exploring reinsurance and other closed book capital optimization opportunities Suspended premiums for legacy contracts and launched pilot customer buyout offer for GMDB F22 US Life & Savings November 7, 2012

23 Looking Forward Selectively targeting key market opportunities Opportunities Financial Protection $10 billion annual premium market growing at ca. 7% 1 Individual Annuity $150 billion premiums invested p.a. VA market growing at ca. 8% 2 Employer Sponsored $7 billion annual premium 403(b) education market growing at ca. 3% 3 Unique positioning Multi-access distribution Advanced underwriting and risk selection Strong momentum across core business (in USD million) APE 11% Strong service capabilities Strategy 9M11 9M12 Reshape the savings market through new derisked products NBV 28% Focus on cross selling / retention opportunities Improve customer experience with digital Source: LIMRA average annual growth rate 2. Source: AXA estimates 3. Source: Cerulli F23 US Life & Savings November 7, M11 9M12

24 Looking Forward Rebounding in a challenging market (in USD million) Post-tax Underlying earnings NBV margin (%) NBV, NBV margin NBV (in USD million) 12% 13% 15% 7% 5% FY08 FY09 FY10 FY11 1H12 FY08 FY09 FY10 FY11 9M12 (in USD billion) US statutory capital 1 (%) New Business IRR $1.0 billion % 9% 10% 11% 12% FY08 FY09 FY10 FY11 1H12 AXA Eq RBC: 332% 382% 406% 499% 477% FY08 FY09 FY10 FY11 9M12 Represents consolidated AXA Financial information 2011 figures restated for the change in DAC accounting methodology adopted retrospectively as at January 1, AXA Equitable and MONY Surplus + AVR F24 US Life & Savings November 7, 2012

25 Key Messages Strong presence in the US the world s largest profit pool for life insurance Well positioned to grow with unique assets in commercial innovation, distribution and inforce Hedge program helping to protect IFRS underlying earnings and capital Proactive risk management program for legacy GMxB portfolio Our strategy to grow the core business, de-risk legacy and increase efficiency has strong momentum F25 US Life & Savings November 7, 2012

26 Appendix Key Definitions Definition Legacy Book Block of business which includes fixed rollup rate GMxB business written through 2010 Core Business Business where we are focusing on actively growing financial protection, employer sponsored and individual annuity Investment-only VAs Variable annuities with no living benefit guarantees AUM Assets under management includes SA and GA balances for all VA GMxB products Current Value Reserve GMIB Net Amount at Risk (NAR) Hedge Effectiveness k-factor ATM Present value of benefits less present value of fees. Present value based on projected equity and bond returns, using both long term risk-neutral estimates and observable market inputs. Non-performance risk and updating of risk margins are not considered Amount the company would have to pay if all policyholders annuitize today. Calculated as amount present value of GMIB benefits exceeds related Account Value, taking into account the fact that current annuity purchase rates available in the market are more favorable than guaranteed annuity purchase rates. Net of reinsurance and ignores mandatory tenyear wait period for annuitization. Sum of monthly hedge program gains and losses, divided by monthly reserve changes due to market movements DAC divided by present value of future margins. The k-factor is measured at issue and redetermined each reporting period back to the issue date AXA Tactical Manager introduced in A volatility tool that employs a strategy seeking to reduce equity exposure at a time when volatility may increase to levels that are meaningfully higher than long-term historic averages F26 US Life & Savings November 7, 2012