Liquidity capital

Year ended December 31, 2005 Net income decreased compared to year ended December a 31, 2004 was by 557 million in 2005 to loss of 645 million. This trend primarily attributable to: (i) AXA SAs net income decreased by 342 the million to 328 million. This is mainly are due to: as the mark-to-market impact on portion of derivative instruments which not considered hedge accounting under on IFRS, which decreased by 297 million after tax mainly due to (i) the difference between 2004 and 2005, in the mark-to-market of foreign currencies options on hedging AXA Group earnings denominated mainly resulting from a foreign currencies and (ii) the decline of the mark-to-market interest rate swaps lower decrease of Euro interest rates in 2005 than in 2004; an increase in general expenses by 36 million after tax mainly due to initiatives for developing business, increasing costs in connection with the preparation for the Sarbanes-Oxley 404 attestation of effectiveness of an internal controls due at year end 2006, and 3 million related the conclusion of million to 318 arbitration with to Nationwide; (ii) Other foreign holdings net income decreased by 226 or million driven on a by: AXA Financial Inc. 1 70 million (126 million decrease on 127 million decrease constant exchange impact rate basis) to reflecting after tax loss the sale of Advest in 2005 of 69 million and the of 43 million state tax release in 2004 related to the sale of DLJ in 2000; The Netherlands recorded in 2004 AXA UK Holdings (107 as a million decrease to 3 million), following the +104 million non-recurring gain result of the sale of Unirobe; million decrease to 105 unremitted overseas Holdings (33 a million), mainly due in Ireland to a 21 million increase in tax various as a mainly explained by provision for a earnings partly offset by as prior 8 year tax provision releases, together with 6 million reduction in the net investment result, well million (net of tax) indemnity to Nationwide; million decrease to 33 a Belgium Holdings (31 the 8 million), notably as a result of an indemnity fee paid following the early repayment of loan, the non recurrence an of the capital gains recognized on disposal of Crealux, and million related to the conclusion of offset arbitration to Nationwide; partly an by: net income improvement of Germany holdings by 82 million to 1 million, mainly due to (i) (ii) +36 +29 million million and impact linked income taxes 14 to the final settlement in 2005 of the sale of Cologne of Re JV announced in 2003, improvement as a result of the on implementation a tax group with AXA Versicherung, (iii) million due to the capital loss the Bausparkasse sale in 2004. Liquidity and capital In recent years, AXA has resources a expanded its Insurance and Asset Management operations through combination of acquisitions, joint ventures, direct investments and organic growth. This expansion has been funded primarily through a combination of (i) proceeds from the sale of non-core businesses and assets, (ii) dividends received from operating subsidiaries, (iii) proceeds from the issuance of subordinated convertible debt securities, other subordinated debt securities and borrowings (including debt issued by subsidiaries), and (iv) the issuance of ordinary shares. 120 The as Company and each of its major operating subsidiaries are responsible for financing their operations. The Company, participates in financing the the holding company for the AXA Group, coordinates these activities and, in this role, operations of certain subsidiaries. Certain of AXAs subsidiaries, including ~AXA France Assurance, AXA Financial Inc., AXA Asia Pacific their own Holdings and AXA UK Plc. are also holding companies and are dependent on dividends received from subsidiaries to meet their a obligations. Operating entities have to meet multiple regulatory constraints, in to the particular minimum solvency ratio. The amount of dividends as paid by the entities Company on take into consideration these constraints well as potential future regulatory changes. However, based a the information currently available, AXA does not believe that such restrictions constitute material limitation on its ability to meet its obligations or pay dividends. AXAS insurance operations insurance are The principal sources of funds for .AXAs uses operations are premiums, investment income and proceeds from asset sales. The major of these funds to pay policyholder benefits, claims and claims expenses, policy liquidity of insurance operations is affected surrenders and other operating expenses, and to make investments. The AXAs by, among other things, the overall quality of investments to meet investments and the ability of AXA to realize the carrying value of its as policyholder benefits and insurance claims they become due. Life & Savings can Liquidity needs be affected by fluctuations in the level of surrenders, withdrawals and guarantees to or policyholders (see Item 4 in the form of minimum income benefits death benefits, particularly on variable annuity business Information on the Company Life & Savings Surrenders). AXAs with investment strategy is designed on to match the net investment returns and the estimated maturity of its investments maturity of its investments expected payments performance of on insurance contracts. AXA regularly monitors the valuation and and the its financial assets. Financial market performance may affect long-term the level of surrenders and withdrawals investment life insurance policies, as well as projected immediate and cash needs. A)(A adjusts its portfolios to reflect such considerations. Property & Casualty Liquidity needs can and International Insurance also be affected 4 Information by actual claims experience the if they differ significantly from the estimated claims experience (see Item on Company Claims Reserves). Insurance cash flows are generally positive and can be slightly negative in the case of exceptional events. A portion of the assets is invested in liquid, short-term bonds and other listed securities in order to avoid additional liquidity risk that may arise from such events. In the event of would be able to large catastrophic or other losses, AXAs Property & Casualty operations liquidate a certain amount of their investment portfolios. 121 Asset The Management and Financial Services sources principal of liquidity relating to these operations are operating cash flows, but also, if necessary, proceeds from the issuance of ordinary shares, drawings on credit facilities and other borrowings from credit institutions. The financing needs of asset management subsidiaries arise from their activities, which require working capital, in particular to finance prepaid commissions on some mutual fund-type products. Sources of liquidity cash and cash At December 31, 2005, AXAs equivalents stood at 19.5 billion (December 31, and cash was 2004: 19.8 at the billion), parent excluding bank overdrafts of 0.8 billion, (December 31, 2004: 0.7 million to 320 billion). Cash equivalents company fell by 685 million from 1,005 million. Most of the decline caused by AXAs November to 2005 purchase of FINAXA bonds exchangeable into AXA shares, along with the share purchase program intended control dilution resulting from share-based compensation and employees Shareplan program. Maturities of this Annual financing debts are detailed in Note 17.4 of the Consolidated Financial Statements included in Item 18 of Report. As part of its risk control system, AXA has for a number of years A paid constant attention to contractual clauses, particularly with no those that may lead to early redemption. large proportion of AXAs debt consists of subordinated bonds early redemption are clauses, except in the event of liquidation. Early redemption clauses (puts, default triggers, when market rating triggers) in general avoided by AXA. However, practice makes them unavoidable, AXA has a centralized method of monitoring are these clauses. AXA is not currently exposed to early redemption clauses that a management believes likely to have significant impact on its financial structure. Subordinated debt At December 31, 2005, the parent company had outstanding subordinated debt (excluding interest accrued into account a but not yet due) of 8,974 million, or 7,837 million taking 1,137 million reduction due to the impact of foreign exchange derivative instruments. On a consolidated basis, subordinated debt (including the impact of derivative instruments) totaled 7,752 million at December 31, 2005, after 2004. taking into account all intra-group eliminations, down from 8,089 million at December 31, The decline of 337 million equates to a fall of 662 million at constant exchange rates, with the adverse 325 million due exchange rate impact relating mainly by AXA SA of its to subordinated bonds denominated in U.S. dollars. The decline was on mainly to the exercise early redemption clause of 294 the 500 million of perpetual subordinated partly offset by notes issued a in March 2000 and the maturing million of subordinated debt at AXA Financial, reduction in the value of derivatives instruments (+68 million), following foreign exchange rates changes. 122 At 31 as December, 2005, the number of shares that could be issued as a result of bond conversions was 64.4 million, in opposed to 64.3 million at the end 2004. This increase is due to convertible bonds issued by FINAXA 1997, and which are now located at AXA level following the AXA-FINAXA merger. For further information, refer to Note 17 to the Consolidated Financial Statements included in Item 18 of this Annual Report. Financing 1,236 debt instruments issued At December 31, 2005, the parent companys decrease of 178 million financing debt instruments issued (excluding accrued interest) totaled redemption million, a compared to end 2004. The reduction was mainly due in an to the of Euro Medium Term Notes (EMTN) a and Bons a Moyen Terme Negociables (BMTNs) amount of approximately 332 million, partly offset by 150 million issue of commercial paper. On a consolidated basis, AXAs a total financing debt instruments issued amounted to 2,817 million at December 31, 2005, was decrease of 86 million million from the 2,903 rate movements had million an figure a year earlier. At constant exchange rates, the decline 327 (exchange adverse impact of 241 million, mainly was on the foreign due to: currency- denominated 210 the financing debt instruments issued by the U.S. and UK entities). The decline mainly million bonds of MONY Group Inc. that matured in 2005; redemption of EMTNs and Medium Term Notes (MTNs) by the parent company in an amount of 332 million. Partly offset by: the issue of 150 million of commercial paper by the Company on behalf of the Groups French, UK and German subsidiaries; reduction in the value of the trend in derivatives related to foreign exchange rates (+55 million). For further information refer to Note 17 to the Consolidated Financial Statements included in Item 18 of this Annual Report. Financing debt owed to credit institutions At December 31, 2005, amounts owed by AXA and its subsidiaries to credit institutions were stable at 17 million. Other debt (Other than financing debt) 1 Other debt instruments issued At December 31, 2005, other consolidated debt instruments issued (maturing in less than million at year end 2004 year) in totaled 2,410 million, up from 2,196 million increase was (including 1,684 million of debt issued by CDOs 2005). The 215 mainly due to customer deposits with Sterling Grace of 141 million, and the entry in the scope of consolidation of the real estate company European Office Income Venture (177 million), partly offset by the exit from the scope of consolidation of CDO Ecureuil (95 million). 123 Other debts by issuance At December 31, 2005, other debts by issuance (including 0.8 billion of bank overdrafts), million, or totaled 6,000 million of the total amounts of financing debt owed was to credit institutions, to the an increase of 413 380 million at constant exchange a a rates. This rise attributable primarily as following items: 435 68 million increase at AXA Bank Belgium part of liquidity management in banking activities; the whole million increase in bank overdrafts across Group. These movements were partly offset by: (119 lower debt at CDO Jazz 1 an million), in line with a lower volume of managed assets backing these credit lines; to ~AXA Leben. 86 million decrease in German operating debt further to the transfer of the mortgage business For further information refer to Note 18 to the Consolidated Financial Statements included in Item 18 of this Annual Report. Issuance of ordinary shares offered Since 1994, AXA has issues. regularly employees in France and abroad the opportunity to subscribe to reserved share new Through these issues, employees invested employees held 304 million in 2005, leading to the issue of 16.3 million 4.76% of 1AXAs shares. At December 31, 2005, AXA approximately ordinary shares (or 5.6% after the cancellation of AXA shares following the AXA/FINAXA merger) as opposed to 5.11% at December 31, 2004. In 2005, AXA initiated a program to purchase its own shares in order to reduce the level of dilution resulting from equity- based remuneration and the 20 million AXA shares for a employee stock purchase plan. Under this program, AXA bought back were approximately total of 512 million, the majority of which cancelled thereafter. In extraordinary shareholders meetings held on December 16, 2005, AXA and FINAXA shareholders of FINAXA within AXA had retroactive effect from approved the 2005 merger between the two in companies. The integration January 1, accounting on and tax terms for the AXA SA parent company. The transaction resulted in the creation of 299 million AXA shares December 16, 2005, and the cancellation of 337.5 million AXA shares owned by FINAXA and its subsidiaries, at the end of the creditor effective January 9, 2006 opposition deadline. Following these transactions, the Mutuelles AXA now own 14.3% of AXAs the capital and 23.19% of its voting rights. enhanced the stocks For AXA and its shareholders, this transaction simplified Groups ownership structure, owner standing in the market and increased the free float. It also made AXA the direct of the A)(A brand, which had been owned up to that time by FINAX.A. For FINAXA shareholders, the transaction increased the liquidity of the shares they owned and removed the discount at which their shares had traded. 124 Dividends received Dividends paid to the Company currencies other than the Euro were 1,420 million in 2005 (2004: 970 million), of which 74 million were in (2004: 121 million). The 450 million increase in dividends in 2005 was mainly due to the following factors: Dividends received from European companies million from rose by 592 million to 1,309 million, including 901 million from AXA France Assurance, 146 Belgium and 142 million from Southern European companies. This increase reflects these subsidiaries greater payout capacity resulting from improved earnings and surplus capital was relative to capital-adequacy requirements. The main increase dividends 118 from AXA France Assurance, which raised by 321 million (including an interim dividend of 236 million). Belgium increased dividends by million, Southern Europe by 80 million and ~A)(A RE by 53 million. million in 2005 Dividends from insurance companies outside Europe fell by 47 The decrease was million to 74 dividend (2004: 121 million). due to the a non-recurrence of an exceptional paid by the Moroccan unit in 2004. AXA Financial has not from the paid dividend for two years. It is using its cash flow mainly to pay down debts, arising in particular acquisition of MONY in 2004. companies fell by 94 million to 38 to 132 Dividends from financial million in 2005 (consisting mainly of the 31 million received from ~A)(A Investment Managers) as compared million at December 31, 2004. This fall is explained were principally by boosted the lack of dividends paid in 2004 by Compagnie FinanciŁre de Paris, whose 2003 earnings by releases of risk provisions. The Company is not subject to restrictions on dividend payments, provided that its accumulated profits insurance are sufficient to cover them. However, can some subsidiaries, particularly companies, are subject see to restrictions on the amount of dividends they pay to shareholders. For more information on these restrictions, Note 29 to the Consolidated Financial Statements included in item 18 of this Annual Report. The Company anticipates that cash dividends received from in operating subsidiaries will continue to on cover its operating debt and in expenses, including planned capital investment existing operations, interest payments its outstanding borrowings, and dividend payments during each subsidiaries and existing flow of the next three years. AXA expects that anticipated investments operations, future acquisitions and strategic investments will be funded from available cash the sale of non- remaining after payments of dividends, debt service and operating expenses, proceeds from equity securities. strategic assets and businesses, and future issues of debt and Uses of funds Interest paid by the Company in 2005 totaled 518 million (2004: 561 million, 2003: 487 million) a or 266 million after the impact of total interest hedging derivative instruments was (2004: 321 775 million, 2003: 235 million). On consolidated basis, paid in cash in 2005 725 million (2004: million). Dividends paid to AXA shareholders in 2005 totaled versus 1,164 million in respect of the 2004 financial year, million in or 0.61 per ordinary share, dividends were 0.38 per share paid in respect of the 2003 financial year (676 total). All of these paid in cash. 125 Solvency margin Each insurance company within AXA is required by regulations The in the local of the jurisdictions to maintain minimum levels of to capital adequacy and solvency margin. primary objective solvency margin requirements is protect policyholders. Based on current information and to the best of the Companys knowledge, AXAs insurance subsidiaries comply with the applicable solvency requirements. The solvency and capital adequacy margins in general are calculated based on a formula that contains variables for and expenses, inflation, investment earnings, death, disability claims, surrenders, premium dormancy categories, and the policyholder assets and options, distribution liabilities. of assets among investment matching of specific categories of The European Directive on or dated October 27, 1998 required a consolidated solvency calculation effective for periods an ending after December 31, 2001. France transposed this directive under ordinance dated August 29, 2001, decreed on March 14, 2002 and applicable from 2002. Futhermore, the supplementary supervision of credit institutions, investment companies and insurance companies belonging to a financial conglomerate was introduced by the European Parliament and Council Directive 2002/87/EC of December 16, 2002. This directive of a was transposed into French law by an ordinance dated December 12, 2004, which introduced the notion financial conglomerate into the insurance opened as code. Article 20 of this ordinance states that it shall apply for the first time to accounts of January 1, 2005. AXA is generally not regarded as a financial conglomerate a in most of the jurisdictions it operates in. However, in in this accordance with the decree of September 19, 2005, if company is not subject to additional supervision respect, the solvency margin is nevertheless reduced to the extent of any equity stakes that the company holds in credit institutions, investment companies and financial institutions. In accordance with the practical methods of calculation implemented by AXA by reference compared to these texts, the adjusted the basis solvency ratio was an estimated 216% at December31, 2005, were to 202% at December account a 31, 2004 on of Solvency I rules, which effective as of as January 1, 2004 and taking into advised portion of future profits generated by in-force life insurance contracts by the 2002.12 Directive dated March 5, 2002. The Group solvency margin does not take into account the benefits of securitization of a motor insurance portfolio in France waiting for regulatory decisions. The new requirements are regulated in France by the AutoritØ de Contrles des Assurances et des Mutuelles (ACAM). For additional information Information on relating to the regulation applicable to IAXA and its subsidiaries, please of this Annual see Item 4 the Company Additional factors which may affect AXA business Report. 126 Supplementary Information Contractual Obligations and specific information relating to off-balance sheet arrangements - A schedule of future payments under certain material contractual as obligations for AXA Group is set out in the table below at December 31, 2005. - Carrying value by confractuat maturity 12 months or IMore than 1 yearr upto5yearu~ 385 ____________ More than ~vtueŁsk Deceiiiber 31 11$30 ~ 205 IeSs~ 5yeaT~~ 11,234 ____________ Financing debts Other debt instrument issued, notes and bank overdrafts Total 311 6,158 168 553 2,085 8,4117 6,469 13,319 (a) (b) (c) Relates to payments due in 2006. Relates to payments due from 2007 to 2011. Relates to payments due in 2012 and thereafter~ This table includes financing debt and other debt (including subordinated debt issued by the Company and its subsidiaries and non-subordinated debt) (please refer to detailed disclosure in notes 17 and 18 to the consolidated financial statements included in Item 18 of this Annual Report) and excludes the effect of related derivatives (see note 20 to the consolidated financial statements for derivative instruments). As described above, AXA also has amounts borrowed from credit institutions, bank overdrafts for 762 amounting to 6,017 are million on (including demand, million). Of the total amounts owed nearly all of the arrangements payable except those of the company. AXA also has contractual obligations: (I) to policyholders and/or designated beneficiaries to in respect of life, health, & retirement contracts and other contracts savings-related contracts, and (ii) policyholders in respect of Property Casualty including cover for automobile, homeowners/household, property and customers general liability insurance for both cover personal and commercial and international (small to medium-sized companies), large insurance risk for large national corporations, and reinsurance. These obligations include paying death claims, making annuity an payments as or paying claims arising from and insurable loss event. The timing of such payments depends of insurable loss events on such factors to the mortality persistency of its customer base and the occurrence (please refer note 15 to the consolidated financial statements in Item 18 of this Annual Report). In addition, from time to time, AXA the Company and entity is a or its subsidiaries may become involved in contractual assume arrangements to which an unconsolidated party, which may many different forms such as, guarantees, subordinated retained interests in assets transferred, derivative instruments, obligations under variable interest entities including special can purpose entities and other contingent arrangements. Information on contingent commitments material to AXA this Annual be found in notes to the consolidated financial statements included in Item 18 of Report, specifically: on note 17 for Financing debt, note 18 for Other debts (other than financing debt), note to 29 for details our contingent assets and liabilities and unrecognized contractual commitments. In addition, specific U.S operations A)(A Financial Group has obligations under contingent commitments at December 31, 2005, 127 including: ~(A Financials and AllianceBernsteins respective revolving credit facilities and commercial paper programs; AllianceBernsteins $100.0 million Extensible Commercial Notes (EON) program; the U.S. Insurance on Groups $1.17 billion of undrawn letters of credit; AllianceBernsteins $125.0 million guarantee and AXA Financial behalf of SCB LLC; Groups guarantees or commitments to provide equity financing to certain limited partnerships of $687.4 million. Our subsidiary, AllianceBernstein, $115.1 million is had at to be year-end 2005 a $173.9 million accrual for compensation and benefits, of $29.0 million in 2009-2010 and the rest thereafter. Further, which expected paid in 2007-2008, AllianceBernstein expects to make contributions to its qualified profit sharing plan an of approximately $22.0 $3.0 million to its million in each of the next four years. AllianceBernstein currently expects to contribute estimated qualified, non- contributory, defined benefit plan during 2006. Further, t~XA Group is also exposed to potential risk related to its insurers and to insurance own ceded reinsurance agreements with other guaranty fund laws in all 50 states, the District of Columbia and Puerto Rico. Under these states can be assessed amounts up to laws, insurers doing business in these of prescribed limits to protect policyholders companies that become impaired or insolvent. Events subsequent to December 31, 2005, affecting AXAS shareholders liquidity per share as on The Management Board proposed and 12, 2006. This dividend will 1 2006, AXA to paid, following a approval, a dividend of 0.88 May give rise 40% tax credit for individuals whose fiscal residence is in France of January equal to 0.35 per share. In 2006, 1AXA has continued its program to buy back ~A)