AXA Reports 10% Gain in 2002 “Underlying Earnings”

February 27, 2003

France’s AXA Group posted a 10 percent increase in “underlying earnings” for the year 2002, helped by significant increases in premiums in its P/C business. The results, while generally good, also reflect significant writedowns in the group’s equity portfolio and several one time only charges.

AXA reports its financial results in Euros, and the strong gains, around 18 percent, in the currency’s value make comparisons with 2001 somewhat difficult. It has adopted the term “underlying earnings” in an effort to more accurately describe its results. The company defines the measure as “adjusted earnings, excluding net capital gains attributable to shareholders and claims associated with September 11, 2001 terrorist attacks,” and cautioned that the term is “a non-GAAP measure, which may not be comparable to similarly titled measures reported by other companies.”

Highlights of the report included the following:
–Underlying earnings up 10 percent to 1.69 billion Euros ($1.825 billion), compared to 1.53 billion Euros ($1.65 billion) in 2001
— 2002 Net Income up 82 percent at 949 million Euros (($1.025 billion), compared to 520 million Euros (561 million) in 2001
— Net Income up 71 percent on a per share basis
— New Business Contribution Euro 615 million ($664 million), “flat at constant exchange rate with 2001, but down 8% on an actual basis.”
— Property & Casualty combined ratio down 6 points to 106.5% compared to 2001
— Cost savings of 966 million Euros ($1.043 billion) “since setting the initial target of Euro 700 million in 2001.”

The company’s balance sheet remained strong, as the following highlights from the earnings bulletin indicate:
— European consolidated solvency margin remained strong at 172% based on December 31, 2002 estimates
— Gearing ratio improved to 46%, down 3 points from year-end 2001 level and down 17 points from year-end 2000 level
— Embedded Value per share is Euro 15.95 in 2002, down 15% on a constant exchange rate basis (down 21% on an actual basis)
— Property & Casualty reserves to earned premiums ratio gained 6 points from year-end 2001, to 207% at year-end 2002

Despite the strong performance, AXA also announced that it would propose a significant decrease in its dividend payments at the next General Meeting in April to 34 Euro cents a share (36.72 cents) from 56 Euro cents (60.48 cents) last year. The company said this would bring the “payout ratio back into a range of 40-50% of adjusted earnings.”

The Supervisory Board also announced its decision to expand the board by adding two new members, appointing Denis Duverne (Finance, Control and Strategy) and Claude Brunet (Transversal Operations), for the same term as the current members.

“The sudden shift in the financial markets has necessitated an equally radical response,” stated Henri de Castries, AXA Group Chief Executive Officer. “We have made the choice to improve our operational efficiency, and, in the current environment, this choice has proven to be the right one. The Group improved its Property & Casualty combined ratio by approximately 6 points and reduced its cost base by Euro 866 million in 2002, i.e., a total of Euro 966 million [$1.043 billion] since making our September 2001 commitment.”

“These resulted in 2002 Group underlying earnings improving by 10% to Euro 1,687 million [$1.822 billion]. Our strategy remains unchanged as we continue to focus on one business – financial protection and wealth management – and as we will pursue our operational efforts.”

AXA’s announcement noted that its P/C underlying earnings were Euro 226 million [$244 million], “a strong improvement compared to the 2001 loss of Euro 42 million [$45.36 million], owing to a 6.0 point improvement in the combined ratio to 106.5% from 112.5% in 2001. ”

“This was accomplished despite significant flood costs in 2002 of Euro 248 million [$267.84 million], gross of tax, and despite the fact that Germany benefited, in 2001, from Euro 246 million [$265.68 million], net Group share, of released deferred tax liabilities (of which Euro 190 million [$205.2 million] on equities as a consequence of the tax reform). All the operating entities contributed to this significant achievement through reduction of the loss ratio, owing to lower losses in 2002, important tariff increases and stricter underwriting. The current accident year loss ratio improved 4.1 points to 80.1% and the all accident year loss ratio improved 4.7 points to 78.3%.”

The company also noted that “As a result of the Group cost cutting program, the expense ratio decreased by 1.4 point to 28.1%. This improvement was achieved despite restructuring costs associated with the U.K. First Choice program (Euro 51 million [$55.08 million], gross of tax) and the setting up of a provision for early retirement in Germany (Euro 41 million [$44.28 million], gross of tax). The reserves to earned premiums ratio remained very strong at 207% as of December 31, 2002 versus 201%6 at December 31, 2001.”

Concerning U.S. operations AXA announced that “No audited U.S. GAAP reconciliation is yet available. However, based on information currently available and using the same methodology as in 2001, management estimates that AXA’s US GAAP reconciliation for the year ended December 31, 2002 will show a loss of approximately Euro 1.6 billion ($1.728 billion].”

It further indicated that “This estimate is preliminary and may increase depending, in particular, on the interpretation of the rules for determining impairment of investment assets. AXA’s final audited US GAAP results will be included in AXA’s Form 20-F to be filed with the SEC on or before June 30, 2003. These US GAAP results will have no effect on AXA’s net asset value under French GAAP, embedded value or solvency capital.”

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