Risk & Capital Management

Transcription

1 Autumn Investor Seminar November 24, 2009 Risk & Capital Management Denis Duverne CFO, member of the Management Board

2 Cautionary note Certain comments 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 AXA's Annual Report on Form 20-F and AXA s Document de Référence for the year ended December 31, 2008, for a description of certain important factors, risks and uncertainties that may affect AXA s business. In particular, please refer to the section "Special Note Regarding Forward-Looking Statements" in AXA's Annual Report on Form 20-F. 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. This document does not constitute an offer to sell or a solicitation of an offer to purchase or subscribe securities issued by AXA in any jurisdiction, including the United States. 2 Autumn Investor Seminar November 24, 2009 Risk & Capital management

3 The calm after the storm? 3 Autumn Investor Seminar November 24, 2009 Risk & Capital management 100% 80% 60% 40% 20% 0% Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Stock markets have partially recovered 120% EuroStoxx % 80% 60% 40% 20% 0% Spreads stabilizing above historical average In bps juin 05 déc 05 juin 06 déc 06 juin 07 déc 07 juin 08 déc 08 juin 09 Itraxx Europe Main EUR ML Single A (asset sw ap) EUR ML Double A (asset sw ap) Equity volatility stabilizing Daily volatility over 20 days on the S&P 500 Low interest rates levels In % 8% 7% 6% 5% 4% 3% 2% 1% Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 EUR - 10y USD - 10y 01/01/ /05/ /09/ /01/ /05/ /09/ /01/ /05/ /09/ /01/ /05/ /09/ /01/ /05/ /09/ /01/ /05/ /09/ /01/ /05/ /09/ /01/ /05/ /09/ /01/ /05/ /09/ /01/ /05/ /09/2009

4 Table of content What went well? Page 5 Diversification benefits were real Page 5 Risk management actions worked Page 7 Lessons from the crisis Page 9 Keeping market risk under control Page 12 New key performance indicators Page 20 4 Autumn Investor Seminar November 24, 2009 Risk & Capital management

5 We experienced diversification benefits 2008 Revenues Mix Financial crisis Business Asset management 5% P&C 32% L&S 64% FY08 Underlying earnings growth +31% Property & Casualty Life & Savings -43% +6% Asset Management Geography France 24% Mediterranean & LA region 13% NORCEE 26% 2008 Revenues Mix North America 18% Asia-Pacific (incl. Japan) 10% UK &Ireland 10% * Excluding International Insurance, Asset Management, Banking & Holdings Financial crisis FY08 Underlying earnings growth +54% +35% +6% -5% -9% N/A 5 Autumn Investor Seminar November 24, 2009 Risk & Capital management

6 We experienced diversification benefits Mix Financial crisis Life & Savings Property & Casualty Distribution 61% Non proprietary 51% Partnerships & JV L&S -13% P&C -1% 39% 49% Proprietary Exclusive agents L&S -2% P&C +1% 2008 APE 2008 Revenues Clients Life & Savings 12% 88% Mix Property & Casualty Group/ commercial Individual/ personal 7% 36% 57% Financial crisis Life & Savings Property & Casualty +7billion +1million clients 2008 APE 2008 Revenues Net inflows 6 Autumn Investor Seminar November 24, 2009 Risk & Capital management

7 Risk management actions were effective Assets Efficient equity hedge: 1.6 billion gain No credit default above 300 million No liquidity issues Liabilities No credit enhancement activity Systematic collateralization of derivatives Asset Liability Management (ALM) Limited duration gap: less than 1 year Gain versus 2 years gap: 14 pts in Solvency II 10 pts in Rating Agency models Solvency & ratings Rating remained in AA range Average rating of the sector down 1 notch Solvency II ratio (QIS4) > 155% Solvency I ratio > 140% 7 Autumn Investor Seminar November 24, 2009 Risk & Capital management

8 Table of contents What went well? Page 5 Lessons from the crisis Page 9 The unthinkable can happen Page 9 Higher proportion of market risk Page 10 Keeping market risk under control Page 12 New key performance indicators Page 20 8 Autumn Investor Seminar November 24, 2009 Risk & Capital management

9 The unthinkable can happen: more weight on stress test scenarios Our internal framework based on stochastic calculations was in place and embedded in business decision VALUE CAPITAL EARNINGS LIQUIDITY still, we have changed calculation frequency (quarterly basis) & tail risk scenarios on corporate spreads and correlations Adverse events (1/20 years) Equities -25% Interest rates -100bps/+100bps Credit spreads (corp) +75bps Credit defaults (corp) 1% Other: ABS, real estate, private equity, hedge funds, volatility Combined scenarios Extreme events (1/200 years) Equities -40% Interest rates -150bps/+250bps Credit spreads (corp) +150bps Credit defaults (corp) 2% Other: ABS, real estate, private equity, hedge funds, volatility 9 Autumn Investor Seminar November 24, 2009 Risk & Capital management

10 A high proportion of financial risk Extreme financial scenarios in light of the crisis Breakdown of STEC by risk categories Counterparty 9% Operational 13% Before diversification Market risk: 61% Life: 21% P&C: 24% Diversification -29% STEC 100% Market risk represents 61% of total Internal STEC before diversification: how to maintain it at a reasonable level? How does this measure of Internal STEC impact our key performance indicators? 10 Autumn Investor Seminar November 24, 2009 Risk & Capital management

11 Table of contents What went well? Page 5 Lessons from the crisis Page 9 Keeping market risk under control Page 12 Refining our asset allocation Page 12 Evolution of Variable Annuities Page 16 New key performance indicators Page Autumn Investor Seminar November 24, 2009 Risk & Capital management

12 We have target limits to monitor our asset allocation Alert level Limit Green Zone Comfort zone Orange Zone Go/no go? Red Zone Systematic de-risking Invested assets (100%) In Euro billion % Fixed income 79% o/w Govies 37% o/w Corporate bonds 36% o/w Asset backed securities 3% o/w Mortgage loans & other 4% Our asset allocation is in line with our risk limits guidance with some potential for further optimization Cash 7% Listed equities 4% Real Estate 5% Alternative Investments 2% Policy loans 2% Total G/A and Bank Assets 100% 12 Autumn Investor Seminar November 24, 2009 Risk & Capital management

13 Illustrative expected return by asset class & internal STEC requirements Expected return by asset class 10% 8% 6% 4% 2% Risk free rate 0% Corporate Bonds IG Corporate Bonds BIG Equity Property Hedge Funds Private Equity Internal STEC requirements* 100% 75% 50% 25% 0% Corporate Bonds IG Corporate Bonds BIG Equity Property Hedge Funds Private Equity * STEC calibration is more conservative than QIS4 but less conservative than QIS5 (third consultation paper) 13 Autumn Investor Seminar November 24, 2009 Risk & Capital management

14 Corporate bonds: relatively attractive assets Expected risk premium on required Internal STEC capital* 40% 20% 0% Corporate Bonds IG Corporate Bonds BIG Equity Property Hedge Funds Private Equity Under Solvency II, corporate bonds have a better risk / return trade off than all other asset classes. * Shareholders share net of cost of capital and diversification benefits 14 Autumn Investor Seminar November 24, 2009 Risk & Capital management

15 Managing corporate bond risk Underwriting: Selection process based on a dual credit analysis (Asset Management analyst + Insurance company analyst) Second opinion from risk management Group Chief Investment Officer review/approval Risk management: Diversification at Group level (country, issuer, sector ) Corporate bonds portfolio duration limited to 4/5 years 15 Autumn Investor Seminar November 24, 2009 Risk & Capital management

16 Evolution of Variable Annuities Improved hedging efficiency across the board Basis risk action plan Volatility action plan Japan developments US developments Germany developments Very limited involvement in the under priced Variable Annuities market expansion until 2008 First mover in 2009 to reduce commissions and reprice GMIB products Market share gains since 2009 with a double digit NBV margin November 2008 Reduced rollup rate (6.5% to 6%) Eliminated GWBL Increased pricing Lowered annuitization rate February 2009 Reduced rollup rate (5%) Limit fund lineup February 2009 New Accumulator 9.0 Allocation funds & guided architecture November 2009 Retirement Cornerstone Early 2009 Stopped parts of Twinstar Invest new business Optimized swaption strategy on Inforce books to reduce exposure to long term interest rates convexity Going forward Redesigning Twinstar Invest with a launch expected early Autumn Investor Seminar November 24, 2009 Risk & Capital management

17 Allocation funds New business systematically invested in: Allocation funds Guided architecture Customer benefits Simple for investors to adopt a strategy that matches their risk-tolerance profile and their investment time horizon Capacity to invest in a thoughtfully constructed, professionally allocated portfolio of investment funds diversified across domestic and international as well as equity and fixed income asset classes AXA s benefits Diversification of assets, and limits on equity allocation Capacity to apply ATM process to mitigate equity volatility Permanent flexibility on selection of asset managers 17 Autumn Investor Seminar November 24, 2009 Risk & Capital management

18 Action plan on equity volatility Introducing AXA Tactical Manager ( ATM ) strategy should allow to improve funds performance Tactically Managed Portion of an ATM Portfolio +0% +6% Back testing +2% +8% Low Volatility High 5% 5% 6% 8% 100% Equity Exposure 0% Equity Exposure Implementation of a new tactical strategy designed to reduce equity weightings during periods of high volatility (above ca. 30%) for all funds under guided allocation 2007 S&P 500 Index -34% -40% YTD -38% -30% Total Hypothetical ATM 500 Portfolio 18 Autumn Investor Seminar November 24, 2009 Risk & Capital management

19 Table of contents What went well? Page 5 Lessons from the crisis Page 9 Keeping market risk under control Page 12 New key performance indicators Page 20 New KPIs using Internal Short Term Economic Capital (STEC) Developments on the P&C front: New Combined Ratio & key findings 19 Autumn Investor Seminar November 24, 2009 Risk & Capital management

20 New KPIs using Internal Short Term Economic Capital (STEC) Systematic measure of return on risk adjusted capital Definition: Net Income STEC Granularity: Life & Savings - Protection, investment & savings, mixed - Individual, Group Property & Casualty - Motor, property, liability, health - Personal, Commercial Systematic measure of Value creation Definition: AFR* STEC * Available Financial Resources 20 Autumn Investor Seminar November 24, 2009 Risk & Capital management

21 Developments on the P&C front A new Combined Ratio Economic Combined Ratio (ECR) has become one of our KPI s, reflecting: Current year experience Cost of risk Business duration Normalized Natural Catastrophe costs Making Combined Ratios comparable across the various business lines and across the years Calculation Accounting CR Prior years reserve dev. Cat Nat events Reserves discount Cost of risk One-off expenses Tax Economic CR Objective: ECR 100% ECR = 100% return/stec = 10% (RFR + Equity risk premium) ECR < 100% return/stec > 10% 21 Autumn Investor Seminar November 24, 2009 Risk & Capital management

22 Developments on the P&C front Key findings 2008 Most business lines are profitable but necessity to decrease ECR in some cases Per Business Line < 101.5% Motor Liability Health Group average ECR = 101.5% Property > 101.5% Per Country < 101.5% France Switzerland Med Region Group average ECR = 101.5% UK Germany Belgium > 101.5% Impact on 2009/2010 action plan Repricing actions on Inforce business, taking into account price elasticity and market cycle Moderating new business activity in soft countries 22 Autumn Investor Seminar November 24, 2009 Risk & Capital management

23 Conclusion Life & Savings business has gone in 2008 through a crisis comparable to P&C in 2000/2002. Risk management allowed us, as in 2000/2002, to navigate well through the storm. The combination of: normalized Solvency II rules across the sector, upgraded risk management in Life & Savings, key performance indicators to measure economic return of all business lines, should lead to lower equity risk premium for the insurance sector and for AXA. 23 AXA Investor day November 24, 2009 Risk & Capital management

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