Attached files
file | filename |
---|---|
EX-31.2 - AXA FINANCIAL INC | e10944_ex31-2.txt |
EX-32.2 - AXA FINANCIAL INC | e10944_ex32-2.txt |
EX-31.1 - AXA FINANCIAL INC | e10944_ex31-1.txt |
EX-32.1 - AXA FINANCIAL INC | e10944_ex32-1.txt |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_____________
FORM
10-Q
(Mark
One)
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended September 30,
2009
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from _________________ to _________________
Commission
File No. 1-11166
AXA Financial, Inc.
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
13-3623351
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
1290
Avenue of the Americas, New York, New York
|
10104
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(212)
554-1234
|
Registrant’s
telephone number, including area
code
|
Not
applicable
|
(Former
name, former address, and former fiscal year if changed since last
report.)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
|
x
|
No
|
o |
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
|
o |
No
|
o |
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “accelerated filer,” “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer
|
o
|
Accelerated
filer o
|
|||
Non-accelerated
filer
|
x
|
(Do
not check if a smaller reporting company)
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
|
o
|
No
|
x
|
As of
November 9, 2009, 436,192,949 shares of the registrant’s Common Stock were
outstanding.
REDUCED
DISCLOSURE FORMAT:
Registrant
meets the conditions set forth in General Instruction H(1)(a) and (b) of Form
10-Q and is therefore filing this form with the reduced disclosure
format.
Page 1
of 61
AXA
FINANCIAL, INC.
FORM
10-Q
FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
TABLE
OF CONTENTS
Page
|
PART
I
|
FINANCIAL
INFORMATION
|
Item
1:
|
Consolidated
Financial Statements
|
||||
·
Consolidated
Balance Sheets, September 30, 2009 and December 31, 2008
|
4
|
||||
·
Consolidated
Statements of Earnings, Three Months and Nine Months Ended September 30,
|
6
|
||||
2009 and 2008 | |||||
·
Consolidated
Statements of Equity, Nine Months Ended September 30, 2009 and
2008
|
8
|
||||
·
Consolidated
Statements of Cash Flows, Nine Months Ended September 30, 2009 and
2008
|
9
|
||||
·
Notes
to Consolidated Financial Statements
|
11
|
||||
Item
2:
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“Management Narrative”)
|
50
|
|||
Item
3:
|
Quantitative
and Qualitative Disclosures About Market Risk*
|
58
|
|||
Item
4(T):
|
Controls
and
Procedures
|
58
|
|||
PART
II
|
OTHER
INFORMATION
|
||||
Item
1:
|
Legal
Proceedings
|
59
|
|||
Item
1A:
|
Risk
Factors
|
59
|
|||
Item
2:
|
Unregistered
Sales of Equity Securities and Use of Proceeds*
|
59
|
|||
Item
3:
|
Defaults
Upon Senior Securities
*
|
59
|
|||
Item
4:
|
Submission
of Matters to a Vote of Security Holders*
|
59
|
|||
Item
5:
|
Other
Information
|
59
|
|||
Item
6:
|
Exhibits
|
60
|
|||
SIGNATURES
|
61
|
||||
*Omitted
pursuant to General Instruction H to Form 10-Q.
2
FORWARD-LOOKING
STATEMENTS
Some of
the statements made in this report, including statements made in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”, “Risk
Factors” and elsewhere, may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements include, among other things,
discussions concerning potential exposure of AXA Financial, Inc. and its
subsidiaries to market risks and the impact of new accounting pronouncements, as
well as statements expressing management’s expectations, beliefs, estimates,
forecasts, projections and assumptions, as indicated by words such as
“believes,” “estimates,” “intends,” “anticipates,” “plans,” “expects,”
“projects,” “should,” “probably,” “risk,” “target,” “goals,” “objectives,” or
similar expressions. AXA Financial, Inc. assumes no duty to update
any forward-looking statement. Forward-looking statements are based
on management’s expectations and beliefs concerning future developments and
their potential effects and are subject to risks and
uncertainties. Forward-looking statements are not a guarantee of
future performance. Actual results could differ materially from those
anticipated by forward-looking statements due to a number of important factors,
including those discussed under “Risk Factors” in Part I, Item 1A of AXA
Financial, Inc.’s Annual Report on Form 10-K for the year ended December 31,
2008, and Part II, Item 1A in this Form 10-Q and elsewhere in this
report.
3
PART
I FINANCIAL INFORMATION
Item
1: Consolidated Financial Statements
AXA
FINANCIAL, INC.
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
September
30,
2009
|
December
31,
2008
|
|||||||
(In
Millions)
|
||||||||
ASSETS
|
||||||||
Investments:
|
||||||||
Fixed
maturities available for sale, at fair value
|
$ | 40,604.2 | $ | 33,415.9 | ||||
Mortgage
loans on real estate
|
5,035.0 | 5,174.0 | ||||||
Equity
real estate, held for the production of income
|
426.0 | 370.3 | ||||||
Policy
loans
|
4,977.9 | 5,045.2 | ||||||
Other
equity investments
|
1,629.7 | 1,789.9 | ||||||
Trading
securities
|
1,829.3 | 322.7 | ||||||
Other
invested assets
|
1,772.2 | 3,425.1 | ||||||
Total
investments
|
56,274.3 | 49,543.1 | ||||||
Cash
and cash equivalents
|
3,773.9 | 10,061.2 | ||||||
Cash
and securities segregated, at fair value
|
1,274.3 | 2,572.6 | ||||||
Broker-dealer
related receivables
|
1,192.2 | 1,020.4 | ||||||
Deferred
policy acquisition costs
|
8,764.3 | 8,503.3 | ||||||
Goodwill
and other intangible assets, net
|
5,282.7 | 5,316.1 | ||||||
Value
of business acquired
|
456.8 | 666.5 | ||||||
Amounts
due from reinsurers
|
4,234.3 | 4,286.6 | ||||||
Loans
to affiliates
|
1,200.0 | 1,143.5 | ||||||
Other
assets
|
4,686.2 | 5,095.8 | ||||||
Separate
Accounts’ assets
|
83,628.6 | 69,614.4 | ||||||
Total
Assets
|
$ | 170,767.6 | $ | 157,823.5 | ||||
LIABILITIES
|
||||||||
Policyholders’
account balances
|
$ | 27,675.6 | $ | 28,258.8 | ||||
Future
policy benefits and other policyholders liabilities
|
25,817.2 | 26,274.6 | ||||||
Broker-dealer
related payables
|
2,213.4 | 934.8 | ||||||
Customers
related payables
|
1,617.7 | 2,753.1 | ||||||
Short-term
and long-term debt
|
1,386.7 | 1,625.8 | ||||||
Loans
from affiliates
|
5,230.0 | 4,530.0 | ||||||
Income
taxes payable
|
1,974.9 | 2,892.5 | ||||||
Other
liabilities
|
6,390.7 | 6,303.0 | ||||||
Noncontrolling
interest subject to redemption rights
|
- | 135.0 | ||||||
Separate
Accounts’ liabilities
|
83,628.6 | 69,614.4 | ||||||
Total
liabilities
|
155,934.8 | 143,322.0 | ||||||
Commitments
and contingent liabilities (Note 11)
|
4
AXA
FINANCIAL, INC.
CONSOLIDATED
BALANCE SHEETS - CONTINUED
(UNAUDITED)
September
30,
2009
|
December
31,
2008
|
|||||||
(In
Millions)
|
||||||||
EQUITY
|
||||||||
AXA
Financial, Inc. equity:
|
||||||||
Common
stock, $.01 par value, 2.00 billion shares authorized,
|
||||||||
436.2
million shares issued and outstanding
|
$ | 3.9 | $ | 3.9 | ||||
Capital
in excess of par value
|
689.4 | 1,298.9 | ||||||
Retained
earnings
|
12,013.2 | 14,448.8 | ||||||
Accumulated
other comprehensive loss
|
(1,334.3 | ) | (2,854.4 | ) | ||||
Treasury
shares, at cost
|
(41.3 | ) | (58.3 | ) | ||||
Total
AXA Financial, Inc. equity
|
11,330.9 | 12,838.9 | ||||||
Noncontrolling
interest
|
3,501.9 | 1,662.6 | ||||||
Total
equity
|
14,832.8 | 14,501.5 | ||||||
Total
Liabilities and Equity
|
$ | 170,767.6 | $ | 157,823.5 |
See Notes
to Consolidated Financial Statements.
5
AXA
FINANCIAL, INC.
CONSOLIDATED
STATEMENTS OF EARNINGS
(UNAUDITED)
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
REVENUES
|
||||||||||||||||
Universal
life and investment-type
|
||||||||||||||||
product
policy fee income
|
$ | 800.4 | $ | 819.1 | $ | 2,312.8 | $ | 2,394.0 | ||||||||
Premiums
|
362.5 | 367.9 | 1,099.5 | 1,136.7 | ||||||||||||
Net
investment (loss) income:
|
||||||||||||||||
Investment
(loss) income from derivative instruments
|
(1,268.8 | ) | 897.3 | (5,364.3 | ) | 1,449.4 | ||||||||||
Other
investment income
|
900.2 | 569.2 | 2,153.1 | 2,016.8 | ||||||||||||
Total
net investment (loss) income
|
(368.6 | ) | 1,466.5 | (3,211.2 | ) | 3,466.2 | ||||||||||
Investment
(losses) gains, net:
|
||||||||||||||||
Total
other-than-temporary impairment losses
|
(113.2 | ) | (317.2 | ) | (226.8 | ) | (382.5 | ) | ||||||||
Portion
of loss recognized in other comprehensive income
|
.8 | - | 4.1 | - | ||||||||||||
Net
impairment losses recognized
|
(112.4 | ) | (317.2 | ) | (222.7 | ) | (382.5 | ) | ||||||||
Other
investment gains (losses), net
|
5.8 | (14.4 | ) | 204.8 | 13.3 | |||||||||||
Total
investment (losses), net
|
(106.6 | ) | (331.6 | ) | (17.9 | ) | (369.2 | ) | ||||||||
Commissions,
fees and other income
|
929.4 | 1,227.6 | 2,634.6 | 3,883.3 | ||||||||||||
(Decrease)
increase in fair value of reinsurance contracts
|
(21.2 | ) | 205.1 | (741.1 | ) | 389.9 | ||||||||||
Total
revenues
|
1,595.9 | 3,754.6 | 2,076.7 | 10,900.9 | ||||||||||||
BENEFITS
AND OTHER DEDUCTIONS
|
||||||||||||||||
Policyholders’
benefits
|
735.2 | 857.4 | 1,853.3 | 2,453.4 | ||||||||||||
Interest
credited to policyholders’ account balances
|
290.2 | 306.6 | 859.3 | 893.1 | ||||||||||||
Compensation
and benefits
|
593.8 | 573.8 | 1,758.6 | 1,931.6 | ||||||||||||
Commissions
|
207.7 | 324.9 | 692.9 | 1,019.0 | ||||||||||||
Distribution
plan payments
|
55.2 | 70.0 | 146.4 | 227.9 | ||||||||||||
Amortization
of deferred sales commissions
|
13.4 | 19.4 | 42.1 | 61.9 | ||||||||||||
Interest
expense
|
72.6 | 43.7 | 224.8 | 146.9 | ||||||||||||
Amortization
of deferred policy acquisition costs
|
||||||||||||||||
and
value of business acquired
|
(19.4 | ) | 1,250.3 | (68.9 | ) | 1,800.0 | ||||||||||
Capitalization
of deferred policy acquisition costs
|
(213.9 | ) | (354.1 | ) | (758.6 | ) | (1,114.9 | ) | ||||||||
Rent
expense
|
77.7 | 73.8 | 221.1 | 218.2 | ||||||||||||
Amortization
of other intangible assets
|
9.9 | 9.7 | 29.7 | 29.2 | ||||||||||||
Other
operating costs and expenses
|
247.4 | 285.9 | 815.2 | 953.1 | ||||||||||||
Total
benefits and other deductions
|
2,069.8 | 3,461.4 | 5,815.9 | 8,619.4 |
6
AXA
FINANCIAL, INC.
CONSOLIDATED
STATEMENTS OF EARNINGS - CONTINUED
(UNAUDITED)
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
(Loss)
earnings from continuing operations
|
||||||||||||||||
before
income taxes
|
$ | (473.9 | ) | $ | 293.2 | $ | (3,739.2 | ) | $ | 2,281.5 | ||||||
Income
tax benefit (expense)
|
205.8 | (107.2 | ) | 1,443.6 | (735.3 | ) | ||||||||||
(Loss)
earnings from continuing operations,
|
||||||||||||||||
net
of income
taxes
|
(268.1 | ) | 186.0 | (2,295.6 | ) | 1,546.2 | ||||||||||
Losses
from discontinued operations,
|
||||||||||||||||
net
of income
taxes
|
(7.2 | ) | (.2 | ) | (10.7 | ) | (1.8 | ) | ||||||||
Gain
on disposal of discontinued
|
||||||||||||||||
operations,
net of income taxes
|
- | - | - | 5.8 | ||||||||||||
Net
(loss)
earnings
|
(275.3 | ) | 185.8 | (2,306.3 | ) | 1,550.2 | ||||||||||
Less:
net earnings attributable to the
|
||||||||||||||||
noncontrolling
interest
|
(129.8 | ) | (87.5 | ) | (203.6 | ) | (302.7 | ) | ||||||||
Net
(Loss) Earnings Attributable to AXA Financial
|
$ | (405.1 | ) | $ | 98.3 | $ | (2,509.9 | ) | $ | 1,247.5 | ||||||
Amounts
attributable to AXA Financial:
|
||||||||||||||||
(Loss)
earnings from continuing operations,
|
||||||||||||||||
net
of income
taxes
|
$ | (397.9 | ) | $ | 98.5 | $ | (2,499.2 | ) | $ | 1,243.5 | ||||||
Losses
from discontinued operations,
|
||||||||||||||||
net
of income
taxes
|
(7.2 | ) | (.2 | ) | (10.7 | ) | (1.8 | ) | ||||||||
Gain
on disposal of discontinued
|
||||||||||||||||
operations,
net of income taxes
|
- | - | - | 5.8 | ||||||||||||
Net
(Loss) Earnings Attributable to AXA Financial
|
$ | (405.1 | ) | $ | 98.3 | $ | (2,509.9 | ) | $ | 1,247.5 |
See Notes
to Consolidated Financial Statements
7
AXA
FINANCIAL, INC.
CONSOLIDATED
STATEMENTS OF EQUITY
NINE
MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
2009
|
2008
|
|||||||
(In
Millions)
|
||||||||
EQUITY
|
||||||||
AXA
Financial, Inc. Equity:
|
||||||||
Common
stock, at par value, beginning of year and end of period
|
$ | 3.9 | $ | 3.9 | ||||
Capital
in excess of par value, beginning of
year
|
1,298.9 | 1,250.0 | ||||||
Sale
of AllianceBernstein Units to noncontrolling interest
|
(619.4 | ) | - | |||||
Changes
in capital in excess of par
value
|
9.9 | 36.4 | ||||||
Capital
in excess of par value, end of
period
|
689.4 | 1,286.4 | ||||||
Retained
earnings, beginning of
year
|
14,448.8 | 10,863.8 | ||||||
Net
(loss) earnings attributable to AXA Financial, Inc.
|
(2,509.9 | ) | 1,247.5 | |||||
Impact
of implementing new accounting standards, net of taxes
|
74.3 | - | ||||||
Retained
earnings, end of
period
|
12,013.2 | 12,111.3 | ||||||
Accumulated
other comprehensive loss, beginning of year
|
(2,854.4 | ) | (478.8 | ) | ||||
Impact
of implementing new accounting standards, net of taxes
|
(74.3 | ) | - | |||||
Other
comprehensive income (loss) attributable to AXA Financial,
Inc.
|
1,594.4 | (1,494.4 | ) | |||||
Accumulated
other comprehensive loss, end of period
|
(1,334.3 | ) | (1,973.2 | ) | ||||
Treasury
shares at cost, beginning of
year
|
(58.3 | ) | (116.9 | ) | ||||
Changes
in treasury
shares
|
17.0 | 52.5 | ||||||
Treasury
shares at cost, end of period
|
(41.3 | ) | (64.4 | ) | ||||
Total
AXA Financial, Inc. equity, end of period
|
11,330.9 | 11,364.0 | ||||||
Noncontrolling
interest, beginning of year
|
1,662.6 | 1,681.2 | ||||||
Purchase
of AllianceBernstein Units by noncontrolling interest
|
1,552.9 | 31.9 | ||||||
Purchase
of AllianceBernstein Put
|
135.0 | - | ||||||
Net
earnings attributable to noncontrolling
interest
|
203.6 | 302.7 | ||||||
Dividends
paid to noncontrolling
interest
|
(128.7 | ) | (313.4 | ) | ||||
Capital
contributions
|
19.4 | 12.8 | ||||||
Other
comprehensive income (loss) attributable to noncontrolling
interest
|
33.4 | (18.3 | ) | |||||
Other
changes in noncontrolling interest
|
23.7 | 24.8 | ||||||
Noncontrolling
interest, end of period
|
3,501.9 | 1,721.7 | ||||||
Total
Equity, End of
Period
|
$ | 14,832.8 | $ | 13,085.7 |
See Notes
to Consolidated Financial Statements.
8
AXA
FINANCIAL, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
NINE
MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
2009
|
2008
|
|||||||
(In
Millions)
|
||||||||
Net
(loss)
earnings
|
$ | (2,306.3 | ) | $ | 1,550.2 | |||
Adjustments
to reconcile net (loss) earnings to net cash
|
||||||||
used
in operating activities:
|
||||||||
Interest
credited to policyholders’ account balances
|
859.3 | 893.1 | ||||||
Universal
life and investment-type product policy fee income
|
(2,312.8 | ) | (2,394.0 | ) | ||||
Net
change in broker-dealer customer related
receivables/payables
|
(1,342.4 | ) | (487.7 | ) | ||||
Change
in investment income related to derivative instruments
|
5,364.3 | (1,449.4 | ) | |||||
Investment losses,
net
|
17.9 | 369.3 | ||||||
Change
in segregated cash and securities, net
|
1,298.3 | 10.2 | ||||||
Change
in deferred policy acquisition costs and
|
||||||||
value
of business acquired
|
(827.6 | ) | 685.1 | |||||
Change
in future policy benefits
|
(572.0 | ) | 211.3 | |||||
Change
in income taxes
payable
|
(1,480.7 | ) | 503.7 | |||||
Change
in accounts payable and accrued expenses
|
177.1 | 277.4 | ||||||
Amortization
of deferred sales commission
|
42.1 | 61.9 | ||||||
Other
depreciation and amortization
|
172.1 | 137.1 | ||||||
Amortization
of other intangibles
|
29.7 | 29.2 | ||||||
Change
in fair value of guaranteed minimum income benefit
|
||||||||
reinsurance
contracts
|
741.1 | (389.9 | ) | |||||
Other,
net
|
(27.5 | ) | (232.3 | ) | ||||
Net
cash used in operating activities
|
(167.4 | ) | (224.8 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Maturities
and repayments of fixed maturities and
|
||||||||
mortgage
loans on real estate
|
2,100.9 | 1,926.0 | ||||||
Sales
of investments
|
9,296.3 | 810.2 | ||||||
Purchases
of investments
|
(16,062.5 | ) | (2,582.2 | ) | ||||
Cash
settlements related to derivative instruments
|
(3,986.7 | ) | 1,659.5 | |||||
Change
in short-term investments
|
217.9 | (3.3 | ) | |||||
Decrease
in loans to affiliates
|
11.5 | - | ||||||
Increase
in loans to affiliates
|
(1.5 | ) | (2.9 | ) | ||||
Change
in capitalized software, leasehold improvements
|
||||||||
and
EDP equipment
|
(103.0 | ) | (119.7 | ) | ||||
Other,
net
|
66.8 | 98.7 | ||||||
Net
cash (used in) provided by investing activities
|
(8,460.3 | ) | 1,786.3 | |||||
9
AXA
FINANCIAL, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
NINE
MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 - CONTINUED
(UNAUDITED)
2009
|
2008
|
|||||||
(In
Millions)
|
||||||||
Cash
flows from financing activities:
|
||||||||
Policyholders’
account balances:
|
||||||||
Deposits
|
$ | 2,945.9 | $ | 3,443.1 | ||||
Withdrawals
and transfers to Separate Accounts
|
(2,187.6 | ) | (2,304.2 | ) | ||||
Sale
of AllianceBernstein
Units
|
600.0 | - | ||||||
Repayments
of long-term debt
|
- | (250.0 | ) | |||||
Change
in short-term financing
|
(239.9 | ) | 192.6 | |||||
Proceeds
from loans from affiliates
|
1,600.0 | 250.0 | ||||||
Repayment
of loans from affiliates
|
(900.0 | ) | (65.0 | ) | ||||
Increase
in securities sold under agreements to repurchase
|
1,300.0 | - | ||||||
Decrease
in collateralized pledged liabilities
|
(713.9 | ) | - | |||||
Other,
net
|
(64.1 | ) | (81.1 | ) | ||||
Net
cash provided by financing activities
|
2,340.4 | 1,185.4 | ||||||
Change
in cash and cash equivalents
|
(6,287.3 | ) | 2,746.9 | |||||
Cash
and cash equivalents, beginning of year
|
10,061.2 | 2,055.8 | ||||||
Cash
and Cash Equivalents, End of Period
|
$ | 3,773.9 | $ | 4,802.7 | ||||
Supplemental
cash flow information
|
||||||||
Interest
Paid
|
$ | 83.5 | $ | 100.9 | ||||
Income
Taxes (Refunded)
Paid
|
$ | (81.6 | ) | $ | 222.7 | |||
See Notes
to Consolidated Financial Statements.
10
AXA
FINANCIAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1)
|
BASIS
OF PRESENTATION
|
The
preparation of the accompanying unaudited consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America (“U.S. GAAP”) requires management to make estimates and assumptions
(including normal, recurring accruals) that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates. The accompanying unaudited interim
consolidated financial statements reflect all adjustments necessary in the
opinion of management for a fair statement of the consolidated financial
position of AXA Financial Group and its consolidated results of operations and
cash flows for the periods presented. All significant intercompany
transactions and balances have been eliminated in
consolidation. These statements should be read in conjunction with
the audited consolidated financial statements of AXA Financial Group for the
year ended December 31, 2008. The results of operations for the nine
months ended September 30, 2009 are not necessarily indicative of the results to
be expected for the full year. Events and transactions subsequent to
the balance sheet date have been evaluated by management, for purpose of
recognition or disclosure in these consolidated financial statements, through
their date of issue on November 9, 2009.
On
January 6, 2009, AXA America Holdings Inc. (“AXA America”), the holding company
for AXA Financial and an indirect wholly owned subsidiary of AXA, purchased the
final 8.16 million AllianceBernstein Units from SCB Partners at a price of
$18.349 per Unit pursuant to the final installment of the AB Put. As
a result of this transaction, minority interest subject to redemption rights
totaling $135.0 million were reclassified as noncontrolling interests in first
quarter 2009.
On March
30, 2009, AXA Financial Group sold 41.9 million AllianceBernstein Units to an
affiliate of AXA. Proceeds received on this transaction totaled
$600.0 million. AXA Financial Group’s book value of these units on
the date of the sale was $1,552.9 million. As a result of the sale,
AXA Financial Group recorded a charge to Capital in excess of par value of
$619.4 million (net of a deferred tax benefit of $333.5 million). AXA
Financial Group’s economic interest in AllianceBernstein was reduced to 46.4%
upon completion of this transaction. As AXA Equitable remains the
General Partner of the limited partnership, AllianceBernstein continues to be
consolidated in AXA Financial’s consolidated financial statements.
The terms
“third quarter 2009” and “third quarter 2008” refer to the three months ended
September 30, 2009 and 2008, respectively. The terms “first nine
months of 2009” and “first nine months of 2008” refer to the nine months ended
September 30, 2009 and 2008, respectively.
Certain
reclassifications have been made in the amounts presented for prior periods to
conform those periods to the current presentation.
2)
|
ACCOUNTING
CHANGES AND NEW ACCOUNTING
PRONOUNCEMENTS
|
FASB Accounting Standards
Codification
On June
30, 2009, the FASB issued Accounting Standards Update No. (“ASU”) 2009-01 to the
FASB Accounting Standards CodificationTM
(“ASC” or the “Codification”) establishing the Codification as the source of
authoritative principles and standards recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. SEC rules and interpretative releases
continue to be sources of authoritative U.S. GAAP for SEC
registrants. Going forward, the FASB will issue ASUs instead of
Statements, FSPs or EITF abstracts. While not authoritative in their
own right, ASUs will serve to update the Codification, provide background
information about the guidance, and provide the rationale for the change(s) in
the Codification.
The
Codification is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. References to authoritative
accounting guidance made in these consolidated financial statements reflect
either the FASB Codification topic or sub-topic description, as
appropriate.
11
Accounting
Changes
Effective
December 31, 2008, AXA Financial Group adopted the new guidance for Beneficial
Interests in Securitized Financial Assets. This guidance broadens the
other-than-temporary impairment assessment for interests in securitized
financial assets to conform to the model applicable to all other debt securities
by permitting reasonable management judgment of the probability to collect all
projected cash flows. Debt securities with amortized cost and
fair values of approximately $2,001.8 million and $1,391.7 million, respectively
at September 30, 2009 and $1,996.0 million and $1,403.8 million, respectively at
December 31, 2008 are potentially impacted by this
amendment. Adoption of this guidance did not have an impact on AXA
Financial Group’s consolidated results of operations or financial
position.
Beginning
first quarter 2009, AXA Financial Group began implementing new disclosure
requirements which requires enhanced disclosures of an entity’s objectives and
strategies for using derivatives, including tabular presentation of fair value
amounts, gains and losses, and related hedged items, with appropriate
cross-referencing to the financial statements. This guidance was
effective for interim and annual reporting periods beginning January 1,
2009.
Effective
January 1, 2009, AXA Financial Group began implementation of the new guidance
for the presentation of noncontrolling interests. AXA Financial Group
was required to:
·
|
Recharacterize
minority interests, previously classified within liabilities, as
noncontrolling interests reported as a component of consolidated equity on
the balance sheet,
|
·
|
Include
total income in net income, with separate disclosure on the face of the
consolidated income statement of the attribution of income between
controlling and noncontrolling interests,
and
|
·
|
Account
for increases and decreases in noncontrolling interests as equity
transactions with any difference between proceeds of a purchase or
issuance of noncontrolling interests being accounted for as a change to
the controlling entity’s equity instead of as current period gains/losses
in the consolidated income statement. Only when the controlling
entity loses control and deconsolidates a subsidiary will a gain or loss
be recognized.
|
This
guidance was effective prospectively for fiscal years beginning on or after
December 15, 2008 except for its specific transition provisions for retroactive
adoption of the balance sheet and income statement presentation and disclosure
requirements for existing minority interests that are reflected in these
consolidated financial statements for all periods presented. As a
result of the implementation of this guidance, which required retrospective
application of presentation requirements, total equity at December 31, 2008 and
2007 increased by $1,662.6 million and $1,681.2 million, respectively,
representing noncontrolling interest, and total liabilities at December 31, 2008
and 2007 decreased by $1,662.6 million and $1,681.2 million, respectively, as a
result of the elimination of minority interest. Additionally, for
third quarter and the nine months ended September 30, 2008, respectively, (Loss)
earnings from continuing operations, net of income taxes increased by $87.5
million and $302.7 million and net earnings attributable to the noncontrolling
interest increased by $87.5 million and $302.7 million.
Effective
second quarter 2009, AXA Financial Group implemented the interim period
transition disclosure requirements about the fair value of financial
instruments, including the method(s) and significant assumptions used to
estimate fair value. This guidance requires presentation of
comparative disclosures only for periods ending after initial
adoption. The disclosures required by this guidance are provided
herein in Note 7 of Notes to Consolidated Financial Statements.
Beginning
second quarter 2009, AXA Financial Group implemented the new guidance that
modifies the recognition guidance for other-than-temporary impairments (“OTTI”)
of debt securities to make it more operational and expands the presentation and
disclosure of OTTI on debt and equity securities in the financial
statements. For Available for Sale (“AFS”) debt securities in an
unrealized loss position, this guidance requires the total fair value loss to be
recognized in earnings as an OTTI if management intends to sell the debt
security or more likely-than-not will be required to sell the debt security
before its anticipated recovery. If these criteria are not met, both
qualitative and quantitative assessments are required to evaluate the security’s
collectability and determine whether an OTTI is considered to have
occurred.
This
guidance requires only the credit loss component of any resulting OTTI to be
recognized in earnings, as measured by the shortfall of the present value of the
cash flows expected to be collected as compared to the amortized cost basis of
the security, while the remainder of the fair value loss is recognized in other
comprehensive income (“OCI”). In periods subsequent to the
recognition of an OTTI, the debt security is accounted for as if it had been
purchased on the measurement date of the OTTI, with an amortized cost basis
reduced by the amount of the OTTI recognized in earnings.
12
As
required by the transition provisions of this guidance, a cumulative effect
adjustment was calculated for all AFS debt securities held as of April 1, 2009
for which an OTTI previously was recognized and for which at April 1, 2009 there
was no intention or likely requirement to sell the security before recovery of
its amortized cost. As a result, an increase to Retained earnings of
$74.3 million was recorded as of April 1, 2009 with a corresponding decrease to
Accumulated Other Comprehensive Income (“AOCI”) to reclassify the noncredit
portion of these previously recognized OTTI amounts. In addition, the
amortized cost basis of the AFS debt securities comprising the reclassification
amount was increased by $141.8 million at April 1, 2009, or the amount of the
cumulative effect adjustment, pre-DAC and tax. The fair value of AFS
debt securities at April 1, 2009 was not changed as a result of the
implementation of this guidance.
(Loss)
earnings from continuing operations, net of income taxes, and Net (loss)
earnings attributable to AXA Financial for third quarter and the first nine
months of 2009 reflect increases of $0.8 million and $4.1 million, respectively,
from recognition in OCI of the noncredit portions of OTTI subsequent to initial
implementation of this guidance at April 1, 2009. The consolidated
financial statements have been modified to separately present the total OTTI
recognized in Investment (losses) gains, net, with an offset for the amount of
noncredit OTTI recognized in OCI, on the face of the consolidated statements of
earnings, and to present the OTTI recognized in AOCI on the face of the
consolidated statements of equity and comprehensive income for all periods
subsequent to implementation of this guidance. In addition, Note 3 of
Notes to Consolidated Financial Statements has been expanded to include new and
more frequent disclosures about OTTI for debt and equity securities regarding
expected cash flows, credit losses, and an aging of securities with unrealized
losses.
Effective
April 1, 2009, AXA Financial Group implemented the new guidance related to Fair
Value Measurements and Disclosures. This modification retains the
“exit price” objective of fair value measurement and provides additional
guidance for estimating fair value when the volume and level of market activity
for the asset or liability have significantly decreased in relation to normal
market activity. This guidance also references guidance on
distinguishing distressed or forced transactions not determinative of fair value
from orderly transactions between market participants under prevailing market
conditions. As further described in Note 7 of Notes to Consolidated
Financial Statements, beginning in fourth quarter 2008, under previous guidance,
AXA Financial Group concluded that markets for certain CMBS securities were
inactive and, consequently, changed its methodology for measuring the fair value
of these CMBS securities to minimize reliance on market trading activity and the
pricing of isolated transactions. Implementation of the revised
guidance did not have an impact on AXA Financial Group’s consolidated results of
operations or financial position. New and expanded interim period
disclosures required by this guidance with respect to fair value measurements
are provided in Note 7 of Notes to Consolidated Financial
Statements.
Effective
January 1, 2008, AXA Financial Group implemented new guidance which establishes
a single authoritative definition of fair value, sets out a framework for
measuring fair value, and requires additional disclosures about fair value
measurements. It applies only to fair value measurements that were
already required or permitted under U.S. GAAP, except for measurements of
share-based payments and measurements that are similar to, but not intended to
be, fair value. Fair value is the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. AXA
Financial Group’s implementation of this guidance at January 1, 2008 required
only a remeasurement of the fair value of the GMIB reinsurance asset, resulting
in an increase in net income of $68.2 million, related to an increase in the
fair value of the GMIB reinsurance asset of $209.2 million, offset by increased
DAC amortization of $104.3 million and increased Federal income taxes of $36.7
million. This increase in the GMIB reinsurance asset’s fair value was
due primarily to updates to the capital markets assumptions and risk margins,
reflective of market participant assumptions required by the exit value model of
this guidance.
New Accounting
Pronouncements and Accounting Standards Updates
New
guidance was issued in September 2009 permitting an entity as a practical
expedient to fair value investments in certain entities that calculate net asset
value (“NAV”) per share (or its equivalent), using the investment’s
NAV. Such investees may include hedge funds, offshore fund vehicles
and fund of funds. Among other requirements, the NAV must have been
calculated in accordance with U.S. GAAP for investment
companies. Additional disclosure requirements such as the nature of
any restrictions on redemption, any unfunded commitments and the investment
strategies of the investees are required of all such investments regardless of
whether the fair value is measured using the practical
expedient. This guidance is effective for interim and annual
reporting periods ending after December 15, 2009 and, though earlier adoption is
permitted, it will be implemented by AXA Financial Group in its year end 2009
consolidated financial statements. Management has not yet determined
the possible effect this new guidance will have on AXA Financial
Group.
13
New
guidance for the fair value measurement of liabilities was issued in August
2009, providing clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a reporting
entity is required to measure fair value using one or more of the following
techniques:
·
|
a
valuation technique that uses:
|
o the
quoted price of the identical liability when traded as an asset,
o quoted
prices for similar liabilities or similar liabilities when traded as assets,
or
·
|
another
valuation technique that is consistent with the principles of Fair Value
Measurements and Disclosures, such as an income approach (like a present
value technique) or a market approach (like a technique based on the
amount the reporting entity would pay to transfer the identical liability
or would receive to enter into the identical liability at the measurement
date.
|
This
guidance is effective for the first reporting period (including interim periods)
beginning after issuance and, therefore, will be adopted by AXA Financial Group
in its year end 2009 consolidated financial statements. Management
has not yet determined the possible effect this new guidance will have on AXA
Financial Group.
On June
12, 2009, the FASB issued new guidance that eliminates the concept of qualifying
special-purpose entities (“QSPEs”) and their exemption from consolidation in the
financial statements of a transferor of financial assets. In
addition, the new guidance modifies and clarifies the conditions for
derecognition of transferred financial assets, including partial transfers and
subsequent measurement of retained interests. Enhanced disclosure
also is required about financial asset transfers and any continuing involvement
of the transferor. For calendar-year consolidated financial
statements, such as those of AXA Financial Group, this new guidance is effective
for interim and annual reporting periods beginning January 1,
2010. Management does not expect the implementation will have a
material effect on AXA Financial Group’s consolidated financial
statements.
Also
issued by the FASB on June 12, 2009 was new guidance that modifies the approach
and increases the frequency for assessing whether a VIE must be consolidated and
requires additional disclosures about an entity’s involvement with
VIEs. The guidance removes the quantitative-based risks-and-rewards
calculation for identifying the primary beneficiary and, instead, requires a
variable-interest holder to qualitatively assess whether it has a controlling
financial interest in a VIE, without consideration of kick-out and participating
rights unless unilaterally held. Continuous reassessments of whether
an enterprise is the primary beneficiary of a VIE are required. For
calendar-year consolidated financial statements, such as those of AXA Financial
Group, this new guidance is effective for interim and annual reporting periods
beginning January 1, 2010. Earlier application is
prohibited. Management is currently evaluating the impact this new
guidance may have on AXA Financial Group. The implementation of this
guidance may require a significant amount of assets, liabilities, revenues and
expenses of certain VIEs in which AllianceBernstein has a minimal financial
ownership interest to be included in AXA Financial Group’s consolidated
financial statements, with corresponding offsets to noncontrolling
interest.
14
3)
|
INVESTMENTS
|
Fixed Maturities and Equity
Securities
The
following table provides information relating to fixed maturities and equity
securities classified as available for sale:
Available
for Sale Securities by Classification
Other-than-
|
|||||||||
Gross
|
Gross
|
temporary
|
|||||||
Amortized
|
Unrealized
|
Unrealized
|
Impairments
|
||||||
Cost
|
Gains
|
Losses
|
Fair
Value
|
in
AOCI (3)
|
|||||
(In
Millions)
|
September 30, 2009:
|
||||||||||||||||||||
Fixed
Maturities:
|
||||||||||||||||||||
Corporate
|
$ | 27,489.4 | $ | 1,407.5 | $ | 366.1 | $ | 28,530.8 | $ | 2.2 | ||||||||||
U.S.
Treasury, government
|
||||||||||||||||||||
and
agency
|
3,982.9 | 16.9 | 137.8 | 3,862.0 | - | |||||||||||||||
States
and political
|
||||||||||||||||||||
subdivisions
|
300.2 | 10.0 | 2.8 | 307.4 | - | |||||||||||||||
Foreign
governments
|
303.0 | 39.6 | - | 342.6 | - | |||||||||||||||
Commercial
mortgage-backed
|
2,579.2 | 3.5 | 645.5 | 1,937.2 | - | |||||||||||||||
Residential
mortgage-backed (1)
|
3,287.8 | 70.7 | 2.1 | 3,356.4 | - | |||||||||||||||
Asset-backed
(2)
|
467.1 | 23.6 | 29.9 | 460.8 | 14.9 | |||||||||||||||
Redeemable
preferred stock
|
2,201.3 | 5.2 | 399.5 | 1,807.0 | - | |||||||||||||||
Total
Fixed Maturities
|
40,610.9 | 1,577.0 | 1,583.7 | 40,604.2 | 17.1 | |||||||||||||||
Equity
securities
|
43.2 | 6.2 | - | 49.4 | - | |||||||||||||||
Total
at September 30, 2009
|
$ | 40,654.1 | $ | 1,583.2 | $ | 1,583.7 | $ | 40,653.6 | $ | 17.1 | ||||||||||
December 31, 2008
|
||||||||||||||||
Fixed
Maturities:
|
||||||||||||||||
Corporate
|
$ | 26,231.0 | $ | 280.1 | $ | 2,344.3 | $ | 24,166.8 | ||||||||
U.S.
Treasury, government
|
||||||||||||||||
and
agency
|
1,922.7 | 299.1 | .1 | 2,221.7 | ||||||||||||
States
and political
|
||||||||||||||||
subdivisions
|
204.7 | 12.0 | 10.4 | 206.3 | ||||||||||||
Foreign
governments
|
269.9 | 42.7 | 5.7 | 306.9 | ||||||||||||
Commercial
mortgage-backed
|
2,793.4 | 4.0 | 707.8 | 2,089.6 | ||||||||||||
Residential
mortgage-backed (1)
|
1,939.8 | 75.5 | .2 | 2,015.1 | ||||||||||||
Asset-backed
(2)
|
1,026.3 | 42.3 | 38.6 | 1,030.0 | ||||||||||||
Redeemable
preferred stock
|
2,294.0 | .9 | 915.4 | 1,379.5 | ||||||||||||
Total
Fixed Maturities
|
36,681.8 | 756.6 | 4,022.5 | 33,415.9 | ||||||||||||
Equity
securities
|
35.9 | - | 4.8 | 31.1 | ||||||||||||
Total
at December 31, 2008
|
$ | 36,717.7 | $ | 756.6 | $ | 4,027.3 | $ | 33,447.0 |
(1)
|
Includes
publicly traded agency pass-through securities and collateralized mortgage
obligations
|
(2)
|
Includes
credit-tranched securities collateralized by sub-prime mortgages and other
asset types and credit tenant loans
|
(3)
|
Amounts
represent OTTI losses in AOCI, which were not included in earnings since
the adoption of new guidance on April 1,
2009.
|
As
further described in Note 7, AXA Financial Group determines the fair values of
fixed maturities and equity securities based upon quoted prices in active
markets, when available, or through the use of alternative approaches when
market quotes are not readily accessible or available. These
alternative approaches include matrix or model pricing and use of independent
pricing services, each supported by reference to principal market trades or
other observable market assumptions for similar securities. More
specifically, the matrix pricing approach to fair value is a discounted cash
flow methodology that incorporates market interest rates commensurate with the
credit quality and duration of the investment.
15
The
contractual maturities of AFS fixed maturities (excluding redeemable preferred
stock) at September 30, 2009 are shown in the table below. Bonds not
due at a single maturity date have been included in the table in the year of
final maturity. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Available
for Sale
|
||||||||
Amortized
|
||||||||
Cost
|
Fair
Value
|
|||||||
(In
Millions)
|
||||||||
Due
in one year or less
|
$ | 776.8 | $ | 789.1 | ||||
Due
in years two through five
|
12,630.1 | 13,145.4 | ||||||
Due
in years six through ten
|
13,459.8 | 13,814.5 | ||||||
Due
after ten years
|
5,208.8 | 5,293.8 | ||||||
Subtotal
|
32,075.5 | 33,042.8 | ||||||
Commercial
mortgage-backed securities
|
2,579.2 | 1,937.2 | ||||||
Residential
mortgage-backed securities
|
3,287.8 | 3,356.4 | ||||||
Asset-backed
securities
|
467.1 | 460.8 | ||||||
Total
|
$ | 38,409.6 | $ | 38,797.2 |
For the
first nine months of 2009 and 2008, proceeds received on sales of fixed
maturities classified as available for sale amounted to $3,688.2 million and
$361.7 million, respectively. Gross gains of $251.1 million and $4.7
million and gross losses of $83.9 million and $34.4 million were realized on
these sales for the first nine months of 2009 and of 2008,
respectively.
AXA
Financial Group’s management, with the assistance of its investment advisors,
monitors the investment performance of its portfolio and reviews AFS securities
with unrealized losses for OTTI. Integral to this review is an
assessment made each quarter, on a security-by-security basis, by AXA Financial
Group’s Investments Under Surveillance Committee, of various indicators of
credit deterioration to determine whether the investment security is expected to
recover. This assessment includes, but is not limited to,
consideration of the duration and severity of the unrealized loss, failure, if
any, of the issuer of the security to make scheduled payments, actions taken by
rating agencies, adverse conditions specifically related to the security or
sector, the financial strength, liquidity, and continued viability of the issuer
and, for equity securities only, the intent and ability to hold the investment
until recovery, and results in identification of specific securities for which
OTTI is recognized.
As
discussed in Note 2 of Notes to Consolidated Financial Statements, if there is
no intent to sell or likely requirement to dispose of the fixed maturity
security before its recovery, only the credit loss component of any resulting
OTTI is recognized in earnings and the remainder of the fair value loss is
recognized in OCI. The amount of credit loss is the shortfall of the
present value of the cash flows expected to be collected as compared to the
amortized cost basis of the security. The present value is calculated
by discounting management’s best estimate of projected future cash flows at the
effective interest rate implicit in the debt security prior to
impairment. Projections of future cash flows are based on assumptions
regarding probability of default and estimates regarding the amount and timing
of recoveries. These assumptions and estimates require use of
management judgment and consider internal credit analyses as well as market
observable data relevant to the collectability of the security. For
mortgage- and asset-backed securities, projected future cash flows also include
assumptions regarding prepayments and underlying collateral value.
During
the first nine months of 2009, AXA Financial Group recognized total OTTI of
$226.8 million on AFS securities, all related to fixed
maturities. Total OTTI of fixed maturities for the first nine months
of 2009 was comprised of $222.7 million credit losses and $4.1 million
non-credit related declines in fair value below amortized cost. AXA
Financial Group does not intend to sell and does not expect to be required to
sell these impaired fixed maturities prior to recovering their amortized
cost. For third quarter 2009, AXA Financial Group recognized total
OTTI of $113.1 million on AFS fixed maturities, of which $112.3 million of
credit losses were recorded in earnings and the remaining $0.8 million
non-credit related portion of the decline in fair value was recorded in
OCI.
16
The
following table sets forth the amount of credit loss impairments on fixed
maturity securities held by the Insurance Group at the dates indicated, for
which a portion of the OTTI loss was recognized in OCI, and the corresponding
changes in such amounts.
Fixed
Maturities - Credit Loss Impairments
(In
Millions)
Balance
at March 31, 2009
|
$
|
-
|
||
Cumulative
adjustment related to implementing new guidance on April 1,
2009
|
(202.8
|
) | ||
Previously
recognized impairments on securities that matured, paid, prepaid or
sold
|
30.3
|
|||
Previously
recognized impairments on securities impaired to fair value this period
(1)
|
-
|
|||
Impairments
recognized this period on securities not previously
impaired
|
(90.3
|
) | ||
Additional
impairments this period on securities previously
impaired
|
(22.1
|
) | ||
Increases
due to passage of time on previously recorded credit
losses
|
-
|
|||
Accretion
of previously recognized impairments due to increases in expected cash
flows
|
-
|
|||
Balance
at June 30, 2009
|
(284.9
|
) | ||
Previously
recognized impairments on securities that matured, paid, prepaid or
sold
|
20.3
|
|||
Previously
recognized impairments on securities impaired to fair value this period
(1)
|
-
|
|||
Impairments
recognized this period on securities not previously
impaired
|
(112.3
|
) | ||
Additional
impairments this period on securities previously
impaired
|
-
|
|||
Increases
due to passage of time on previously recorded credit
losses
|
-
|
|||
Accretion
of previously recognized impairments due to increases in expected cash
flows
|
-
|
|||
Balance
at September 30, 2009
|
$
|
(376.9
|
) |
(1)
|
Represents
circumstances where the Insurance Group determined in the current period
that it intends to sell the security or it is more likely than not that it
will be required to sell the security before recovery of the security’s
amortized cost.
|
Net
unrealized investment gains and losses on fixed maturities and equity securities
classified as available for sale are included in the consolidated balance sheets
as a component of AOCI. The table below presents these amounts as of
the dates indicated:
September
30,
|
December 31, | |||||||
2009 | 2008 | |||||||
(In
Millions)
|
||||||||
AFS
Securities:
|
||||||||
Fixed
maturities:
|
||||||||
With
OTTI
loss
|
$ | .3 | $ | - | ||||
All
other
|
(7.0 | ) | (3,265.9 | ) | ||||
Equity
securities
|
6.2 | (4.8 | ) | |||||
Net
Unrealized Losses
|
$ | (.5 | ) | $ | (3,270.7 | ) | ||
Changes
in net unrealized investment gains and losses recognized in AOCI include
reclassification adjustments to reflect amounts realized in Net earnings for the
current period that had been part of OCI in earlier periods. The
tables that follow below present a rollforward of net unrealized investment
gains and losses recognized in AOCI, split between amounts related to fixed
maturity securities on which an OTTI loss has been recognized, and all
other:
17
Net
Unrealized Gains (Losses) on Fixed Maturities with OTTI Losses
AOCI
|
||||||||||||||||||||
Net
|
Deferred
|
(Loss)
|
||||||||||||||||||
Unrealized
|
Income
|
Related
to Net
|
||||||||||||||||||
Gains
|
Tax
|
Unrealized
|
||||||||||||||||||
(Losses)
on
|
DAC
and
|
Policyholders
|
(Liability)
|
Investment
|
||||||||||||||||
Investments
|
VOBA
|
Liabilities
|
Asset
|
Gains
(Losses)
|
||||||||||||||||
(In
Millions)
|
||||||||||||||||||||
Balance,
June 30, 2009
|
$ | (133.5 | ) | $ | 18.6 | $ | - | $ | 40.2 | $ | (74.7 | ) | ||||||||
Cumulative
impact of implementing
|
||||||||||||||||||||
new
guidance on April 1, 2009
|
- | - | - | - | - | |||||||||||||||
Net
investment gains (losses)
|
||||||||||||||||||||
arising
during the period
|
133.8 | - | - | - | 133.8 | |||||||||||||||
Reclassification
adjustment for
|
||||||||||||||||||||
OTTI
(losses) included in
|
||||||||||||||||||||
Net
(loss) earnings
|
- | - | - | - | - | |||||||||||||||
Reclassification
adjustment for
|
||||||||||||||||||||
OTTI
(losses) excluded from
|
||||||||||||||||||||
Net
(loss) earnings (1)
|
- | - | - | - | - | |||||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on DAC/VOBA
|
- |
(15.1
|
) | - | - | (15.1 | ) | |||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on deferred income
|
||||||||||||||||||||
taxes
|
- | - | - |
(40.9
|
) | (40.9 | ) | |||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on Policyholders
|
||||||||||||||||||||
liabilities
|
- | - | (1.9 | ) | - | (1.9 | ) | |||||||||||||
Balance,
September 30, 2009
|
$ | .3 | $ | 3.5 | $ | (1.9 | ) | $ | .7 | $ | 1.2 | |||||||||
Balance,
March 31, 2009
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Cumulative
impact of implementing
|
||||||||||||||||||||
new
guidance on April 1, 2009
|
(58.5 | ) | 13.0 | - | 15.9 | (29.6 | ) | |||||||||||||
Net
investment gains (losses)
|
||||||||||||||||||||
arising
during the period
|
39.6 | - | - | - | 39.6 | |||||||||||||||
Reclassification
adjustment for
|
||||||||||||||||||||
OTTI
(losses) included in
|
||||||||||||||||||||
Net
(loss) earnings
|
22.0 | - | - | - | 22.0 | |||||||||||||||
Reclassification
adjustment for
|
||||||||||||||||||||
OTTI
(losses) excluded from
|
||||||||||||||||||||
Net
(loss) earnings (1)
|
(2.8 | ) | - | - | - | (2.8 | ) | |||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on DAC/VOBA
|
- |
(9.5
|
) | - | - | (9.5 | ) | |||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on deferred income
|
||||||||||||||||||||
taxes
|
- | - | - |
(16.6
|
) | (16.6 | ) | |||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on Policyholders
|
||||||||||||||||||||
liabilities
|
- | - | (1.9 | ) | - | (1.9 | ) | |||||||||||||
Balance,
September 30, 2009
|
$ | .3 | $ | 3.5 | $ | (1.9 | ) | $ | (.7 | ) | $ | 1.2 | ||||||||
(1)
|
Represents
“transfers in” related to the portion of OTTI losses recognized during the
period that were not recognized in earnings for securities with no prior
OTTI loss.
|
18
All
Other Net Unrealized Investment Gains (Losses) in AOCI
AOCI
|
||||||||||||||||||||
Net
|
Deferred
|
(Loss)
|
||||||||||||||||||
Unrealized
|
Income
|
Related
to Net
|
||||||||||||||||||
Gains
|
Tax
|
Unrealized
|
||||||||||||||||||
(Losses)
on
|
DAC
and
|
Policyholders
|
(Liability)
|
Investment
|
||||||||||||||||
Investments
|
VOBA
|
Liabilities
|
Asset
|
Gains
(Losses)
|
||||||||||||||||
(In
Millions)
|
||||||||||||||||||||
Balance,
June 30, 2009
|
$ | (1,919.1 | ) | $ | 343.5 | $ | 132.8 | $ | 505.3 | $ | (937.5 | ) | ||||||||
Cumulative
impact of implementing
|
||||||||||||||||||||
new
guidance on April 1, 2009
|
- | - | - | - | - | |||||||||||||||
Net
investment gains (losses)
|
||||||||||||||||||||
arising
during the period
|
1,788.5 | - | - | - | 1,788.5 | |||||||||||||||
Reclassification
adjustment for
|
||||||||||||||||||||
OTTI
(losses) included in
|
||||||||||||||||||||
Net
(loss) earnings
|
129.8 | - | - | - | 129.8 | |||||||||||||||
Reclassification
adjustment for
|
||||||||||||||||||||
OTTI
(losses) excluded from
|
||||||||||||||||||||
Net
(loss) earnings (1)
|
- | - | - | - | - | |||||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on DAC/VOBA
|
- |
(377.1
|
) | - | - | (377.1 | ) | |||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on deferred income
|
||||||||||||||||||||
taxes
|
- | - | - |
(461.1
|
) | (461.1 | ) | |||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on Policyholders
|
||||||||||||||||||||
liabilities
|
- | - |
(223.9
|
) | - | (223.9 | ) | |||||||||||||
Balance,
September 30, 2009
|
$ | (.8 | ) | $ | (33.6 | ) | $ | (91.1 | ) | $ | 44.2 | $ | (81.3 | ) | ||||||
Balance,
January 1, 2009
|
$ | (3,270.6 | ) | $ | 721.0 | $ | 103.3 | $ | 856.5 | $ | (1,589.8 | ) | ||||||||
Cumulative
impact of implementing
|
||||||||||||||||||||
new
guidance on April 1, 2009
|
(83.3 | ) | 22.1 | - | 21.4 | (39.8 | ) | |||||||||||||
Net
investment gains (losses)
|
||||||||||||||||||||
arising
during the period
|
3,299.2 | - | - | - | 3,299.2 | |||||||||||||||
Reclassification
adjustment for
|
||||||||||||||||||||
OTTI
(losses) included in
|
||||||||||||||||||||
Net
(loss) earnings
|
51.1 | - | - | - | 51.1 | |||||||||||||||
Reclassification
adjustment for
|
||||||||||||||||||||
OTTI
(losses) excluded from
|
||||||||||||||||||||
Net
(loss) earnings (1)
|
2.8 | - | - | - | 2.8 | |||||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on DAC/VOBA
|
- |
(776.7
|
) | - | - | (776.7 | ) | |||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on deferred income
|
||||||||||||||||||||
taxes
|
- | - | - |
(833.7
|
) | (833.7 | ) | |||||||||||||
Impact
of net unrealized investment
|
||||||||||||||||||||
gains
(losses) on Policyholders
|
||||||||||||||||||||
liabilities
|
- | - |
(194.4
|
) | - | (194.4) | ||||||||||||||
Balance,
September 30, 2009
|
$ | (.8 | ) | $ | (33.6 | ) | $ | (91.1 | ) | $ | 44.2 | $ | (81.3 | ) | ||||||
|
(1)
|
Represents
“transfers out” related to the portion of OTTI losses during the period
that were not recognized in earnings for securities with no prior OTTI
loss.
|
19
The
following tables disclose the fair values and gross unrealized losses of the 843
issues at September 30, 2009 and 1,808 issues at December 31, 2008 of fixed
maturities that had been in a continuous unrealized loss position for the
specified periods at the dates indicated:
September
30, 2009
|
||||||||||||||||||||||||
Less
Than 12 Months (1)
|
12
Months or Longer (1)
|
Total
|
||||||||||||||||||||||
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
Unrealized
|
Unrealized
|
Unrealized
|
||||||||||||||||||||||
Fair
Value
|
Losses
|
Fair
Value
|
Losses
|
Fair
Value
|
Losses
|
|||||||||||||||||||
(In
Millions)
|
||||||||||||||||||||||||
Fixed
Maturities:
|
||||||||||||||||||||||||
Corporate
|
$ | 1,365.3 | $ | (136.5 | ) | $ | 3,043.1 | $ | (229.6 | ) | $ | 4,408.4 | $ | (366.1 | ) | |||||||||
U.S.
Treasury,
|
||||||||||||||||||||||||
government
and agency
|
2,814.1 | (137.8 | ) | - | - | 2,814.1 | (137.8 | ) | ||||||||||||||||
States
and political
|
||||||||||||||||||||||||
subdivisions
|
- | - | 35.8 | (2.8 | ) | 35.8 | (2.8 | ) | ||||||||||||||||
Foreign
governments
|
6.2 | - | 1.0 | - | 7.2 | - | ||||||||||||||||||
Commercial
mortgage-backed
|
407.0 | (320.6 | ) | 1,386.2 | (324.9 | ) | 1,793.2 | (645.5 | ) | |||||||||||||||
Residential
mortgage-backed
|
301.4 | (2.1 | ) | - | - | 301.4 | (2.1 | ) | ||||||||||||||||
Asset-backed
|
90.5 | (14.2 | ) | 66.5 | (15.7 | ) | 157.0 | (29.9 | ) | |||||||||||||||
Redeemable
|
||||||||||||||||||||||||
preferred
stock
|
321.1 | (157.1 | ) | 1,300.3 | (242.4 | ) | 1,621.4 | (399.5 | ) | |||||||||||||||
$ | 5,305.6 | $ | (768.3 | ) | $ | 5,832.9 | $ | (815.4 | ) | $ | 11,138.5 | $ | (1,583.7 | ) |
|
(1)
|
The
month count for aging of unrealized losses was reset back to historical
unrealized loss month counts for securities impacted by the adoption of
new guidance on April 1, 2009.
|
December
31, 2008
|
||||||||||||||||||||||||
Less
Than 12 Months
|
12
Months or Longer
|
Total
|
||||||||||||||||||||||
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
Unrealized
|
Unrealized
|
Unrealized
|
||||||||||||||||||||||
Fair
Value
|
Losses
|
Fair
Value
|
Losses
|
Fair
Value
|
Losses
|
|||||||||||||||||||
(In
Millions)
|
||||||||||||||||||||||||
Fixed
Maturities:
|
||||||||||||||||||||||||
Corporate
|
$ | 12,660.7 | $ | (1,286.7 | ) | $ | 5,091.0 | $ | (1,057.6 | ) | $ | 17,751.7 | $ | (2,344.3 | ) | |||||||||
U.S.
Treasury,
|
||||||||||||||||||||||||
government
and agency
|
209.5 | (.1 | ) | - | - | 209.5 | (.1 | ) | ||||||||||||||||
States
and political
|
||||||||||||||||||||||||
subdivisions
|
63.4 | (7.8 | ) | 28.5 | (2.6 | ) | 91.9 | (10.4 | ) | |||||||||||||||
Foreign
governments
|
70.9 | (5.7 | ) | - | - | 70.9 | (5.7 | ) | ||||||||||||||||
Commercial
mortgage-backed
|
380.6 | (26.2 | ) | 1,685.5 | (681.6 | ) | 2,066.1 | (707.8 | ) | |||||||||||||||
Residential
mortgage-backed
|
53.2 | (.2 | ) | .2 | - | 53.4 | (.2 | ) | ||||||||||||||||
Asset-backed
|
80.1 | (7.2 | ) | 89.2 | (31.4 | ) | 169.3 | (38.6 | ) | |||||||||||||||
Redeemable
|
||||||||||||||||||||||||
preferred
stock
|
486.6 | (326.1 | ) | 834.7 | (589.4 | ) | 1,321.3 | (915.5 | ) | |||||||||||||||
$ | 14,005.0 | $ | (1,660.0 | ) | $ | 7,729.1 | $ | (2,362.6 | ) | $ | 21,734.1 | $ | (4,022.6 | ) |
The
Insurance Group’s investments in fixed maturity securities do not include
concentrations of credit risk of any single issuer greater than 10% of the
consolidated equity of AXA Financial, Inc., other than securities of the
U.S. government, U.S. government agencies, and certain securities guaranteed by
the U.S. government. The Insurance Group maintains a diversified
portfolio of corporate securities across industries and issuers and does not
have exposure to any single issuer in excess of .11% of total
investments. The largest exposure to a single issuer of corporate
securities held at September 30, 2009 and December 31, 2008 was $178.3 million
and $232.4 million, respectively. Corporate high yield securities,
consisting primarily of public high yield bonds, are classified as other than
investment grade by the various rating agencies, i.e., a rating below Baa3/BBB-
or the NAIC designation of 3 (medium grade), 4 or 5 (below investment grade) or
6 (in or near default). At September 30, 2009 and December 31, 2008,
respectively, approximately $2,906.8 million and $1,239.2 million, or 7.2% and
3.4%, of the $40,610.9 million and $36,681.8 million aggregate amortized cost of
fixed maturities held by the Insurance Group were considered to be other than
investment grade. These securities had net unrealized losses of
$603.1 million and $287.8 million at September 30, 2009 and December 31, 2008,
respectively.
20
The
Insurance Group does not originate, purchase or warehouse residential mortgages
and is not in the mortgage servicing business. The Insurance Group’s
fixed maturity investment portfolio includes RMBS backed by subprime and Alt-A
residential mortgages, comprised of loans made by banks or mortgage lenders to
residential borrowers with lower credit ratings. The criteria used to
categorize such subprime borrowers include FICO scores, interest rates charged,
debt-to-income ratios and loan-to-value ratios. Alt-A residential
mortgages are mortgage loans where the risk profile falls between prime and
subprime; borrowers typically have clean credit histories but the mortgage loan
has an increased risk profile due to higher loan-to-value and debt-to-income
ratios and/or inadequate documentation of the borrowers’ income. At
September 30, 2009, the Insurance Group owned $54.6 million in RMBS backed by
subprime residential mortgage loans and $24.4 million in RMBS backed by Alt-A
residential mortgage loans. RMBS backed by subprime and Alt-A
residential mortgages are fixed income investments supporting General Account
liabilities.
At
September 30, 2009, the carrying value of fixed maturities that were non-income
producing for the twelve months preceding that date was $68.4
million.
For the
third quarter and first nine months of 2009 and of 2008, investment income is
shown net of investment expenses of $38.7 million, $104.1 million, $42.6 million
and $129.5 million, respectively.
At
September 30, 2009 and December 31, 2008, respectively, AXA Financial Group’s
trading account securities had amortized costs of $1,690.1 million and $514.5
million and fair values of $1,829.3 million and $322.7
million. Included in the trading classification at September 30, 2009
were U.S. Treasury securities with aggregate amortized cost and fair value of
$1,297.7 million and $1,305.2 million, respectively pledged under reverse
repurchase agreements accounted for as collateralized borrowings and reported in
Broker-dealer related payables in the consolidated balance
sheets. Also at September 30, 2009 and December 31, 2008,
respectively, Other equity investments included the General Account’s investment
in Separate Accounts which had carrying values of $50.6 million and $39.0
million and costs of $49.2 million and $44.7 million as well as other equity
securities with carrying values of $49.4 million and $31.1 million and costs of
$43.2 million and $35.9 million.
In the
third quarter and the first nine months of 2009 and of 2008, net unrealized and
realized holding gains (losses) on trading account equity securities, including
earnings (losses) on the General Account’s investment in Separate Accounts, of
$83.9 million, $115.6 million, $(138.5) million and $(218.4) million,
respectively, were included in Net investment income in the consolidated
statements of earnings. Gross unrealized gains on trading fixed
maturities were $17.1 million, $14.8 million, $2.5 million, and zero in third
quarter and the first nine months of 2009 and 2008,
respectively. Gross unrealized losses were zero, $4.1 million, $2.4
million, and $4.6 million for third quarter and the first nine months of 2009
and 2008, respectively.
Mortgage
Loans
Investment
valuation allowances for mortgage loans totaled $16.4 million and zero at
September 30, 2009 and December 31, 2008, respectively.
Impaired
mortgage loans without investment valuation allowances totaled zero at both
September 30, 2009 and December 31, 2008. During the first nine
months of 2009 and 2008, respectively, AXA Financial Group’s average recorded
investment in impaired mortgage loans was $33.8 million and $11.2
million. Interest income recognized on these impaired mortgage loans
totaled $1.4 million and $0.7 million for the first nine months of 2009 and
2008, respectively.
Mortgage
loans on real estate are placed on nonaccrual status once management believes
the collection of accrued interest is doubtful. Once mortgage loans
on real estate are classified as nonaccrual loans, interest income is recognized
under the cash basis of accounting and the resumption of the interest accrual
would commence only after all past due interest has been collected or the
mortgage loan on real estate has been restructured to where the collection of
interest is considered likely. At September 30, 2009 and December 31,
2008, respectively, the carrying values of mortgage loans on real estate that
had been classified as nonaccrual loans were $94.2 million and
zero.
21
Derivatives
AXA
Financial Group uses derivatives for asset/liability risk management primarily
to reduce exposures to equity market declines and interest rate
fluctuations. Derivative hedging strategies are designed to reduce
these risks from an economic perspective while also considering their impacts on
accounting results and statutory liabilities. None of the derivatives
were designated as qualifying hedges for accounting purposes. The
table below presents quantitative disclosures about AXA Financial Group’s
derivative instruments in the first nine months of 2009, including those
embedded in other contracts though required to be accounted for as derivative
instruments. Gains (losses) on derivatives are reported in Net
investment income in the consolidated statements of earnings except those
resulting from changes in the fair values of the embedded
derivatives. The changes in fair value of the GMIB reinsurance
contracts are reported on a separate line in the consolidated statements of
earnings while the changes in fair values of the GWBL features are reported in
Policyholder’s benefits in the consolidated statements of earnings.
Derivative
Instruments by Category
Gains
(Losses) Reported
|
||||||||||||||||||||
At
September 30, 2009
|
In
Net Earnings
|
|||||||||||||||||||
Fair
Value
|
Three
Months
|
Nine
Months
|
||||||||||||||||||
Notional
|
Asset
|
Liability
|
Ended
|
Ended
|
||||||||||||||||
Amount
|
Derivatives
|
Derivatives
|
Sept.
30, 2009
|
Sept.
30, 2009
|
||||||||||||||||
(In
Millions)
|
||||||||||||||||||||
Freestanding
derivatives:
|
||||||||||||||||||||
Equity
contracts (1):
|
||||||||||||||||||||
Futures
|
$ | 9,481.0 | $ | - | $ | - | $ | (1,466.7 | ) | $ | (2,129.8 | ) | ||||||||
Swaps
|
1,315.2 | 7.2 | 84.5 | (216.3 | ) | (494.8 | ) | |||||||||||||
Options
|
10,650.0 | 764.9 | 919.6 | (256.1 | ) | (707.1 | ) | |||||||||||||
Interest
rate contracts (1):
|
||||||||||||||||||||
Floors
|
21,000.0 | 355.1 | - | 61.8 | (105.0 | ) | ||||||||||||||
Swaps
|
8,937.0 | 388.8 | 6.7 | 331.3 | 57.5 | |||||||||||||||
Futures
|
10,101.8 | - | 267.0 | (1,994.6 | ) | |||||||||||||||
Swaptions
|
1,200.0 | 71.7 | - | 10.3 | 10.2 | |||||||||||||||
Other
freestanding contracts (2):
|
- | .6 | - | (.1 | ) | (.7 | ) | |||||||||||||
Net
investment income
|
(1,268.8 | ) | (5,364.3 | ) | ||||||||||||||||
Embedded
derivatives:
|
||||||||||||||||||||
GMIB
reinsurance contracts(2)
|
- | 1,244.2 | (21.2 | ) | (741.1 | ) | ||||||||||||||
GWBL
features(3)
|
- | - | 110.1 | 13.3 | 162.5 | |||||||||||||||
Total
|
$ | 62,685.0 | $ | 2,832.5 | $ | 1,120.9 | $ | (1,276.7 | ) | $ | (5,942.9 | ) |
(1)
|
Reported
in Other invested assets in the consolidated balance
sheets.
|
(2)
|
Reported
in Other assets in the consolidated balance
sheets.
|
(3)
|
Reported
in Future policy benefits and other policyholder
liabilities.
|
Margins
or “spreads” on interest-sensitive life insurance and annuity contracts are
affected by interest rate fluctuations as the yield on portfolio investments,
primarily fixed maturities, are intended to support required payments under
these contracts, including interest rates credited to their policy and contract
holders. The Insurance Group currently uses interest rate floors to
reduce the risk associated with minimum crediting rate guarantees on these
interest-sensitive contracts.
22
As more
fully described in Note 6 of Notes to Consolidated Financial Statements, the
Insurance Group utilizes hedging programs designed to mitigate a portion of the
benefits exposure due to movements in the equity markets and interest rates on
GMDB, GMIB and GWBL liabilities that have not been reinsured. The
risk associated with the GMDB feature is that under-performance of the financial
markets could result in GMDB benefits, in the event of death, being higher than
what accumulated policyholder account balances would support. The
risk associated with the GMIB/GWBL features is that under-performance of the
financial markets could result in GMIB/GWBL benefits, in the event of election,
being higher than what accumulated policyholders’ account balances would
support. Operation of these hedging programs is based on models
involving numerous estimates and assumptions, including, among others,
mortality, lapse, surrender and withdrawal rates, election rates, market
volatility and interest rates. A wide range of derivative contracts
are used in these hedging programs, including exchange traded equity and
interest rate futures contracts, total return and/or other equity swaps,
interest rate swap and floor contracts and swaptions.
The
above-described hedging program seeks to mitigate economic exposures
specifically related to variable annuity contracts with GMDB, GMIB, and GWBL
features and does not fully hedge the Insurance Group’s statutory liability
requirements. Beginning in fourth quarter 2008 and continuing in
2009, the Insurance Group implemented a hedging program to provide additional
protection against the adverse effects of equity market and interest rate
declines on its statutory liabilities.
AXA
Financial also uses interest rate swaps to reduce exposure to interest rate
fluctuations on certain of its long-term loans from affiliates and debt
obligations. The Insurance Group is exposed to equity market
fluctuations through investments in Separate Accounts and may enter into
derivative contracts specifically to minimize such risk.
AXA
Financial Group may be exposed to credit-related losses in the event of
nonperformance by counterparties to derivative financial
instruments. AXA Financial Group controls and minimizes its
counterparty exposure through a credit appraisal and approval
process. In addition, AXA Financial Group has executed various
collateral arrangements with counterparties to over-the-counter derivative
transactions that require both pledging and accepting collateral either in the
form of cash or high-quality securities, such as Treasuries or those issued by
government agencies. At September 30, 2009, AXA Financial Group held
$389.9 million in cash collateral delivered by trade counterparties,
representing the fair value of the related derivative
agreements. This unrestricted cash collateral is reported in Cash and
cash equivalents, and the obligation to return it is reported in Other
liabilities in the consolidated balance sheets. In addition, AXA
Financial Group also held approximately $39.6 million U.S. Treasury securities
under these collateral agreements at September 30, 2009. All
outstanding equity-based and treasury futures contracts at September 30, 2009
are exchange-traded and net settled daily in cash.
Although
notional amount is the most commonly used measure of volume in the derivatives
market, it is not used as a measure of credit risk. Generally, the
current credit exposure of AXA Financial Group’s derivative contracts is limited
to the net positive estimated fair value of derivative contracts at the
reporting date after taking into consideration the existence of netting
agreements and any collateral received pursuant to credit support
annexes. A derivative with positive value (a derivative asset)
indicates existence of credit risk because the counterparty would owe money to
AXA Financial Group if the contract were closed. Alternatively, a
derivative contract with negative value (a derivative liability) indicates AXA
Financial Group would owe money to the counterparty if the contract were
closed. However, generally if there is more than one derivative
transaction with a single counterparty, a master netting arrangement exists with
respect to derivative transactions with that counterparty to provide for net
settlement.
Certain
of AXA Financial Group’s standardized contracts for over-the-counter derivative
transactions (“ISDA Master Agreements”) contain credit risk related contingent
provisions related to its credit rating. In some ISDA Master
Agreements, if the credit rating falls below a specified threshold, either a
default or a termination event permitting the counterparty to terminate the ISDA
Master Agreement would be triggered. In all agreements that provide
for collateralization, various levels of collateralization of net liability
positions are applicable, depending upon the credit rating of the
counterparty. The aggregate fair value of all collateralized
derivative transactions that were in a liability position at September 30, 2009,
was $442.6 million, for which AXA Financial Group had posted collateral of
$463.8 million in the normal operation of its collateral
arrangements. If the investment grade related contingent features had
been triggered on September 30, 2009, AXA Financial Group would not have been
required to post any additional collateral to its counterparties.
23
4)
|
CLOSED
BLOCKS
|
The
excess of Closed Block liabilities over Closed Block assets (adjusted to exclude
the impact of related amounts in accumulated other comprehensive income)
represents the expected maximum future post-tax earnings from the Closed Block
that would be recognized in income from continuing operations over the period
the policies and contracts in the Closed Block remain in force. As of
January 1, 2001, AXA Financial Group has developed an actuarial calculation of
the expected timing of AXA Equitable’s Closed Block’s
earnings. Further, in connection with the acquisition of MONY, AXA
Financial Group has developed an actuarial calculation of the expected timing of
MONY Life Closed Block earnings as of July 1, 2004.
If the
actual cumulative earnings from the Closed Block are greater than the expected
cumulative earnings, only the expected earnings will be recognized in net
income. Actual cumulative earnings in excess of expected cumulative
earnings at any point in time are recorded as a policyholder dividend obligation
because they will ultimately be paid to Closed Block policyholders as an
additional policyholder dividend unless offset by future performance that is
less favorable than originally expected. If a policyholder dividend
obligation has been previously established and the actual Closed Block earnings
in a subsequent period are less than the expected earnings for that period, the
policyholder dividend obligation would be reduced (but not below
zero). If, over the period the policies and contracts in the Closed
Block remain in force, the actual cumulative earnings of the Closed Block are
less than the expected cumulative earnings, only actual earnings would be
recognized in income from continuing operations. If the Closed Block
has insufficient funds to make guaranteed policy benefit payments, such payments
will be made from assets outside the Closed Block.
Many
expenses related to Closed Block operations, including amortization of DAC and
VOBA, are charged to operations outside of the Closed Block; accordingly, net
revenues of the Closed Block do not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of the
Closed Block.
The
operations of the AXA Equitable and MONY Life Closed Blocks are managed
separately.
24
AXA Equitable Closed
Block
Summarized
financial information for the AXA Equitable Closed Block is as
follows:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(In
Millions)
|
||||||||
CLOSED
BLOCK LIABILITIES:
|
||||||||
Future
policy benefits, policyholders’ account balances and other
|
$ | 8,452.9 | $ | 8,544.8 | ||||
Other
liabilities
|
115.0 | 71.3 | ||||||
Total
Closed Block
liabilities
|
8,567.9 | 8,616.1 | ||||||
ASSETS
DESIGNATED TO THE CLOSED BLOCK:
|
||||||||
Fixed
maturities, available for sale, at fair value
|
||||||||
(amortized
cost of $5,587.0 and $5,517.6)
|
5,651.2 | 5,041.5 | ||||||
Mortgage
loans on real estate
|
1,072.3 | 1,107.1 | ||||||
Policy
loans
|
1,163.8 | 1,180.3 | ||||||
Cash
and other invested assets
|
77.7 | 104.2 | ||||||
Other
assets
|
264.9 | 472.4 | ||||||
Total
assets designated to the Closed Block
|
8,229.9 | 7,905.5 | ||||||
Excess
of Closed Block liabilities over assets designated to the
|
||||||||
Closed
Block
|
338.0 | 710.6 | ||||||
Amounts
included in accumulated other comprehensive income (loss):
|
||||||||
Net
unrealized investment gains (losses), net of deferred
|
||||||||
income
tax (expense) benefit of $(20.0) and $166.4 and
|
||||||||
policyholder
dividend obligation of $17.9 and $0
|
37.2 | (309.2 | ) | |||||
Maximum
Future Earnings To Be Recognized From Closed Block
|
||||||||
Assets
and Liabilities
|
$ | 375.2 | $ | 401.4 |
25
AXA
Equitable’s Closed Block revenues and expenses were as follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008 | |||||||||||||
(In
Millions)
|
||||||||||||||||
REVENUES:
|
||||||||||||||||
Premiums and other income | $ | 88.6 | $ | 92.1 | $ | 284.4 | $ | 293.0 | ||||||||
Investment
income (net of investment
|
||||||||||||||||
expenses
of $0, $0.2, $0 and $1.0)
|
119.8 | 123.3 | 362.6 | 373.7 | ||||||||||||
Investment
gains (losses), net:
|
||||||||||||||||
Total
other-than-temporary
|
||||||||||||||||
impairment
losses
|
(5.7 | ) | (41.1 | ) | (7.8 | ) | (45.3 | ) | ||||||||
Portion
of loss recognized in other
|
||||||||||||||||
comprehensive
income
|
- | - | - | - | ||||||||||||
Net
impairment losses recognized
|
(5.7 | ) | (41.1 | ) | (7.8 | ) | (45.3 | ) | ||||||||
Other
investment (losses) gains, net
|
(2.3 | ) | .1 | 9.1 | (.4 | ) | ||||||||||
Total
investment (losses) gains, net
|
(8.0 | ) | (41.0 | ) | 1.3 | (45.7 | ) | |||||||||
Total
revenues
|
200.4 | 174.4 | 648.3 | 621.0 | ||||||||||||
BENEFITS
AND OTHER DEDUCTIONS:
|
||||||||||||||||
Policyholders’
benefits and dividends
|
192.1 | 199.6 | 606.3 | 612.1 | ||||||||||||
Other
operating costs and expenses
|
.4 | .5 | 1.7 | 2.1 | ||||||||||||
Total
benefits and other deductions
|
192.5 | 200.1 | 608.0 | 614.2 | ||||||||||||
Net
revenues (losses) before income taxes
|
7.9 | (25.7 | ) | 40.3 | 6.8 | |||||||||||
Income
tax (expense)
benefit
|
(2.8 | ) | 9.0 | (14.1 | ) | (2.4 | ) | |||||||||
Net Revenues (Losses) | $ | 5.1 | $ | (16.7 | ) | $ | 26.2 | $ | 4.4 |
A
reconciliation of AXA Equitable’s policyholder dividend obligation
follows:
Nine
Months Ended
|
||||||||
September
30,
|
||||||||
2009
|
2008
|
|||||||
(In
Millions)
|
||||||||
Balances,
beginning of
year
|
$ | - | $ | - | ||||
Unrealized
investment
gains
|
17.9 | - | ||||||
Balances,
End of
Period
|
$ | 17.9 | $ | - |
26
MONY Life Closed
Block
Summarized
financial information for the MONY Life Closed Block follows:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(In
Millions)
|
||||||||
CLOSED
BLOCK LIABILITIES:
|
||||||||
Future
policy benefits, policyholders’ account balances and other
|
$ | 6,839.4 | $ | 6,957.2 | ||||
Policyholder
dividend
obligation
|
201.7 | 6.5 | ||||||
Other
liabilities
|
62.5 | 40.4 | ||||||
Total
Closed Block
liabilities
|
7,103.6 | 7,004.1 | ||||||
ASSETS
DESIGNATED TO THE CLOSED BLOCK:
|
||||||||
Fixed
maturities available for sale, at fair value
|
||||||||
(amortized
cost $4,024.6 and $3,986.7)
|
4,099.6 | 3,650.6 | ||||||
Mortgage
loans on real estate
|
864.2 | 885.5 | ||||||
Policy
loans
|
925.4 | 940.2 | ||||||
Cash
and other invested assets
|
69.4 | 84.7 | ||||||
Other
assets
|
245.4 | 355.4 | ||||||
Total
assets designated to the Closed Block
|
6,204.0 | 5,916.4 | ||||||
Excess
of Closed Block liabilities over assets designated
|
||||||||
to
the Closed
Block
|
899.6 | 1,087.7 | ||||||
Amounts
included in accumulated other comprehensive income (loss):
|
||||||||
Net
unrealized investment gains (losses), net of policyholder
|
||||||||
dividend
obligation of $(85.4) and $103.3 and deferred
|
||||||||
income
tax benefit of $0 and $81.5
|
- | (151.4 | ) | |||||
Maximum
Future Earnings To Be Recognized From Closed Block
|
||||||||
Assets
and Liabilities
|
$ | 899.6 | $ | 936.3 |
27
MONY Life
Closed Block revenues and expenses follow:
Three
Months Ended
|
Nine
Months Ended
|
||||||
September
30,
|
September
30,
|
||||||
2009
|
2008
|
2009
|
2008
|
||||
(In
Millions)
|
REVENUES:
|
||||||||||||||||
Premiums
and other
income
|
$ | 71.8 | $ | 78.3 | $ | 222.2 | $ | 240.1 | ||||||||
Investment
income (net of
|
||||||||||||||||
investment
expenses of $0, $0,
|
||||||||||||||||
$0
and
$0)
|
82.1 | 84.2 | 248.3 | 255.4 | ||||||||||||
Investment
(losses) gains, net:
|
||||||||||||||||
Total
other-than-temporary
|
||||||||||||||||
impairment
losses
|
(3.6 | ) | (41.8 | ) | (5.7 | ) | (44.3 | ) | ||||||||
Portion
of loss recognized in other
|
||||||||||||||||
comprehensive
income
|
- | - | - | - | ||||||||||||
Net
impairment losses recognized
|
(3.6 | ) | (41.8 | ) | (5.7 | ) | (44.3 | ) | ||||||||
Other
investment (losses) gains, net
|
(12.8 | ) | .2 | 13.0 | 7.5 | |||||||||||
Total
investment (losses) gains, net
|
(16.4 | ) | (41.6 | ) | 7.3 | (36.8 | ) | |||||||||
Total
revenues
|
137.5 | 120.9 | 477.8 | 458.7 | ||||||||||||
BENEFITS
AND
|
||||||||||||||||
OTHER
DEDUCTIONS:
|
||||||||||||||||
Policyholders’
benefits and dividends
|
115.9 | 98.9 | 419.3 | 393.0 | ||||||||||||
Other
operating costs and expenses
|
.7 | 1.0 | 2.1 | 2.6 | ||||||||||||
Total
benefits and other deductions
|
116.6 | 99.9 | 421.4 | 395.6 | ||||||||||||
Net
revenues before income taxes
|
20.9 | 21.0 | 56.4 | 63.1 | ||||||||||||
Income
tax
expense
|
(7.3 | ) | (7.3 | ) | (19.7 | ) | (22.1 | ) | ||||||||
Net
Revenues
|
$ | 13.6 | $ | 13.7 | $ | 36.7 | $ | 41.0 |
A
reconciliation of MONY Life’s policyholder dividend obligation
follows:
Nine
Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
(In
Millions)
|
||||||||
Balance,
beginning of year
|
$ | 6.5 | $ | 129.4 | ||||
Applicable
to net revenues (losses)
|
6.5 | (31.7 | ) | |||||
Unrealized
investment gains (losses)
|
188.7 | (86.7 | ) | |||||
Balance,
End of Period
|
$ | 201.7 | $ | 11.0 |
5)
|
DISCONTINUED
OPERATIONS
|
AXA
Financial Group’s discontinued operations include Wind-up Annuities, equity real
estate held-for-sale and Enterprise. The following table reconciles
the Losses from discontinued operations, net of income taxes and Gains on
disposal of discontinued operations, net of income taxes to the amounts
reflected in the consolidated statements of earnings for the third quarter and
first nine months of 2009 and 2008:
28
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
Losses
from Discontinued Operations,
Net of Income Taxes:
|
||||||||||||||||
Wind-up
Annuities
|
$ | (7.6 | ) | $ | - | $ | (11.8 | ) | $ | - | ||||||
Real
estate held-for-sale
|
- | (.1 | ) | - | 1.6 | |||||||||||
Enterprise
|
.4 | (.1 | ) | 1.1 | (3.4 | ) | ||||||||||
Total
|
$ | (7.2 | ) | $ | (.2 | ) | $ | (10.7 | ) | $ | (1.8 | ) | ||||
Gain
on Disposal of Discontinued Operations,
Net of Income Taxes:
|
||||||||||||||||
Real
estate held-for-sale
|
$ | - | $ | - | $ | - | $ | 6.3 | ||||||||
Disposal
of business - Enterprise
|
- | - | - | (.5 | ) | |||||||||||
Total
|
$ | - | $ | - | $ | - | $ | 5.8 |
Wind-up-Annuities
Summarized
financial information for Wind-up Annuities follows:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(In
Millions)
|
||||||||
BALANCE
SHEETS
|
||||||||
Fixed
maturities, available for sale, at fair value
|
||||||||
(amortized
cost of $497.5 and
$661.8)
|
$ | 510.8 | $ | 602.1 | ||||
Mortgage
loans on real
estate
|
151.1 | 1.2 | ||||||
Equity
real
estate
|
88.0 | 162.2 | ||||||
Other
invested
assets
|
1.3 | 1.3 | ||||||
Total
investments
|
751.2 | 766.8 | ||||||
Other
assets
|
145.8 | 77.1 | ||||||
Total
Assets
|
$ | 897.0 | $ | 843.9 | ||||
Policyholders
liabilities
|
$ | 709.9 | $ | 723.4 | ||||
Other
liabilities
|
187.1 | 120.5 | ||||||
Total
Liabilities
|
$ | 897.0 | $ | 843.9 |
29
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30
|
September
30
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
STATEMENTS
OF EARNINGS
|
||||||||||||||||
Investment
income (net of investment
|
||||||||||||||||
expenses
of $0.6, $5.1, $9.8 and $14.4)
|
$ | 15.0 | $ | 17.3 | $ | 46.0 | $ | 48.7 | ||||||||
Investment
(losses) gains, net:
|
||||||||||||||||
Total
other-than-temporary
|
||||||||||||||||
impairment
losses
|
(3.1 | ) | (5.2 | ) | (5.1 | ) | (5.2 | ) | ||||||||
Portion
of loss recognized in other
|
||||||||||||||||
comprehensive
income
|
- | - | - | - | ||||||||||||
Net
impairment losses recognized
|
(3.1 | ) | (5.2 | ) | (5.1 | ) | (5.2 | ) | ||||||||
Other
investment gains (losses), net
|
(2.6 | ) | - | (2.1 | ) | .8 | ||||||||||
Total
investment (losses) net
|
(5.7 | ) | (5.2 | ) | (7.2 | ) | (4.4 | ) | ||||||||
Total
revenues
|
9.3 | 12.1 | 38.8 | 44.3 | ||||||||||||
Benefits
and other
deductions
|
18.1 | 19.4 | 53.4 | 57.1 | ||||||||||||
Losses
charged to
|
||||||||||||||||
allowance
for future
losses
|
- | (7.3 | ) | - | (12.8 | ) | ||||||||||
Pre-tax
loss from
operations
|
(8.8 | ) | - | (14.6 | ) | - | ||||||||||
Income
tax
benefit
|
4.3 | - | 6.3 | - | ||||||||||||
Loss
from Wind-up
Annuities
|
(4.5 | ) | - | (8.3 | ) | - | ||||||||||
Consolidation
elimination
|
(3.1 | ) | - | (3.5 | ) | - | ||||||||||
Loss
from Wind-up Annuities,
|
||||||||||||||||
as
Consolidated
|
$ | (7.6 | ) | $ | - | $ | (11.8 | ) | $ | - |
During
second quarter 2009, an equity real estate property with a book value of $123.5
million was sold from Wind-up Annuities to a wholly owned subsidiary of AXA
Financial for $319.6 million. In connection with the sale, Wind-up
Annuities acquired a $150.0 million mortgage on the sold property from the
affiliate and acquired a $50.3 million interest in another equity real estate
property from continuing operations.
AXA
Financial Group’s quarterly process for evaluating the need for an allowance for
future losses involves comparison of the current period’s results of Wind-up
Annuities to previous projections and re-estimation of future expected losses,
if appropriate, to determine whether an adjustment is
required. Investment and benefit cash flow projections are updated
annually as part of AXA Financial Group’s annual planning process. If
AXA Financial Group’s analysis in any given period indicates that an allowance
for future losses is not necessary, any current period Wind-up Annuities’
operating losses or earnings are recognized as (Losses) earnings from
discontinued operations, net of income taxes in the consolidated statement of
earnings. At September 30, 2009, no allowance for future losses was
necessary based upon projections of reasonably assured future net investing and
operating cash flows.
The
determination of projected future cash flows involves numerous estimates and
subjective judgments regarding the expected performance of invested assets held
for the Wind-up Annuities’ business and the expected run-off of Wind-up
Annuities liabilities. There can be no assurance the projected future
cash flows will not differ from the cash flows ultimately
realized. To the extent actual results or future projections of
Wind-up Annuities are lower than management’s current estimates and assumptions
and result in operating losses not being offset by reasonably assured future net
investing and operating cash flows, an allowance for future losses may be
necessary. In particular, to the extent income, sales proceeds and
holding periods for equity real estate differ from management’s previous
assumptions, the establishment of a loss allowance liability may
result.
Enterprise
In the
first nine months of 2008, changes in the reserve estimate resulted in a benefit
of $1.8 million pre-tax ($1.2 million post-tax) being recorded. In
first nine months of 2008, impairments of $2.7 million pre-tax ($1.7 million
post-tax) were recorded on intangible assets associated with investment
management and distribution contracts based upon fair value. Proceeds
received on the disposition of the AXA Enterprise funds in the first nine months
of 2008 totaled $3.3 million. The balances of these intangible assets
were zero at September 30, 2009 and December 31, 2008.
30
Real Estate
Held-for-Sale
No real
estate was held for sale at September 30, 2009 and December 31,
2008.
6)
|
GMDB,
GMIB, GWBL AND NO LAPSE GUARANTEE
FEATURES
|
A) Variable Annuity Contracts –
GMDB, GMIB and GWBL
AXA
Equitable, MONY Life and MLOA have certain variable annuity contracts with GMDB,
GMIB and/or Guaranteed Withdrawal Benefit for Life (“GWBL”) features in force
that guarantee one of the following:
·
|
Return
of Premium: the benefit is the greater of current account value or
premiums paid (adjusted for
withdrawals);
|
·
|
Ratchet:
the benefit is the greatest of current account value, premiums paid
(adjusted for withdrawals), or the highest account value on any
anniversary up to contractually specified ages (adjusted for
withdrawals);
|
·
|
Roll-Up:
the benefit is the greater of current account value or premiums paid
(adjusted for withdrawals) accumulated at contractually specified interest
rates up to specified ages;
|
·
|
Combo:
the benefit is the greater of the ratchet benefit or the roll-up benefit
which may include a five year or an annual reset;
or
|
·
|
Withdrawal:
the withdrawal is guaranteed up to a maximum amount per year for
life.
|
The
following table summarizes the GMDB and GMIB liabilities, before reinsurance
ceded, reflected in the General Account in future policy benefits and other
policyholders liabilities:
GMDB
|
GMIB
|
Total
|
||||||||||
(In
Millions)
|
||||||||||||
Balance
at January 1,
2009
|
$ | 987.3 | $ | 1,982.8 | $ | 2,970.1 | ||||||
Paid
guarantee
benefits
|
(198.6 | ) | (45.9 | ) | (244.5 | ) | ||||||
Other
changes in
reserve
|
260.1 | (135.7 | ) | 124.4 | ||||||||
Balance
at September 30,
2009
|
$ | 1,048.8 | $ | 1,801.2 | $ | 2,850.0 | ||||||
Balance
at January 1,
2008
|
$ | 254.4 | $ | 310.3 | $ | 564.7 | ||||||
Paid
guarantee
benefits
|
(63.5 | ) | (3.7 | ) | (67.2 | ) | ||||||
Other
changes in
reserve
|
149.2 | 107.1 | 256.3 | |||||||||
Balance
at September 30,
2008
|
$ | 340.1 | $ | 413.7 | $ | 753.8 |
Related
GMDB reinsurance ceded amounts were:
31
Nine
Months Ended
|
||||||||
September
30,
|
||||||||
2009
|
2008
|
|||||||
(In
Millions)
|
||||||||
Balances,
beginning of
year
|
$ | 94.7 | $ | 28.7 | ||||
Paid
guarantee
benefits
|
(15.3 | ) | (12.2 | ) | ||||
Other
changes in
reserve
|
19.3 | 19.2 | ||||||
Balances,
End of
Period
|
$ | 98.7 | $ | 35.7 |
The GMIB
reinsurance contracts are considered derivatives and are reported at fair
value.
The
September 30, 2009 values for variable annuity contracts in-force on such date
with GMDB and GMIB features are presented in the following table. For
contracts with the GMDB feature, the net amount at risk in the event of death is
the amount by which the GMDB benefits exceed related account
values. For contracts with the GMIB feature, the net amount at risk
in the event of annuitization is the amount by which the present value of the
GMIB benefits exceeds related account values, taking into account the
relationship between current annuity purchase rates and the GMIB guaranteed
annuity purchase rates. Since variable annuity contracts with GMDB
guarantees may also offer GMIB guarantees in the same contract, the GMDB and
GMIB amounts listed are not mutually exclusive:
Return Of |
Ratchet
|
Roll-Up
|
Combo
|
Total
|
||||||||||||||||
(Dollars
In Millions)
|
||||||||||||||||||||
GMDB:
|
||||||||||||||||||||
Account
values invested in:
|
||||||||||||||||||||
General
Account
|
$ | 11,208 | $ | 533 | $ | 362 | $ | 639 | $ | 12,742 | ||||||||||
Separate
Accounts
|
$ | 24,625 | $ | 7,429 | $ | 4,759 | $ | 30,820 | $ | 67,633 | ||||||||||
Net
amount at risk, gross
|
$ | 2,977 | $ | 2,125 | $ | 3,025 | $ | 10,833 | $ | 18,960 | ||||||||||
Net
amount at risk, net of
|
||||||||||||||||||||
amounts
reinsured
|
$ | 2,977 | $ | 1,912 | $ | 2,074 | $ | 10,799 | $ | 17,762 | ||||||||||
Average
attained age of
|
||||||||||||||||||||
contractholders
|
49.7 | 62.5 | 66.4 | 62.1 | 53.6 | |||||||||||||||
Percentage
of contractholders
|
||||||||||||||||||||
over
age 70
|
7.6 | % | 23.5 | % | 41.1 | % | 22.6 | % | 12.9 | % | ||||||||||
Range
of contractually specified
|
||||||||||||||||||||
interest
rates
|
N/A | N/A | 3%-6 | % | 3%-6.5 | % | 3%-6.5 | % | ||||||||||||
GMIB:
|
||||||||||||||||||||
Account
values invested in:
|
||||||||||||||||||||
General
Account
|
N/A | N/A | $ | 65 | $ | 876 | $ | 941 | ||||||||||||
Separate
Accounts
|
N/A | N/A | $ | 2,908 | $ | 41,902 | $ | 44,810 | ||||||||||||
Net
amount at risk, gross
|
N/A | N/A | $ | 1,466 | $ | 1,701 | $ | 3,167 | ||||||||||||
Net
amount at risk, net of
|
||||||||||||||||||||
amounts
reinsured
|
N/A | N/A | $ | 427 | $ | 1,461 | $ | 1,888 | ||||||||||||
Weighted
average years remaining
|
||||||||||||||||||||
until
annuitization
|
N/A | N/A | 1.3 | 7.4 | 6.8 | |||||||||||||||
Range
of contractually specified
|
||||||||||||||||||||
interest
rates
|
N/A | N/A | 3%-6 | % | 3%-6.5 | % | 3%-6.5 | % |
The GWBL
related liability was $110.1 million at September 30, 2009; which is valued as
an embedded derivative. This liability reflects the present value of
expected future payments (benefits) less the fees attributable to the GWBL
feature over a range of market consistent economic scenarios.
32
B) Separate Account Investments
by Investment Category Underlying GMDB and GMIB Features
The total
account values of variable annuity contracts with GMDB and GMIB features include
amounts allocated to the guaranteed interest option which is part of the General
Account and variable investment options which invest through Separate Accounts
in variable insurance trusts. The following table presents the
aggregate fair value of assets, by major investment category, held by Separate
Accounts that support variable annuity contracts with GMDB and GMIB benefits and
guarantees. The investment performance of the assets impacts the
related account values and, consequently, the net amount of risk associated with
the GMDB and GMIB benefits and guarantees. Since variable annuity
contracts with GMDB benefits and guarantees may also offer GMIB benefits and
guarantees in each contract, the GMDB and GMIB amounts listed are not mutually
exclusive:
Investment
in Variable Insurance Trust Mutual Funds
|
||||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(In
Millions)
|
||||||||
GMDB:
|
||||||||
Equity
|
$ | 41,288 | $ | 31,402 | ||||
Fixed
income
|
4,182 | 3,964 | ||||||
Balanced
|
20,520 | 17,495 | ||||||
Other
|
1,643 | 2,499 | ||||||
Total
|
$ | 67,633 | $ | 55,360 | ||||
GMIB:
|
||||||||
Equity
|
$ | 26,450 | $ | 19,207 | ||||
Fixed
income
|
2,568 | 2,238 | ||||||
Balanced
|
15,093 | 12,887 | ||||||
Other
|
699 | 1,278 | ||||||
Total
|
$ | 44,810 | $ | 35,610 |
C) Hedging Programs for GMDB
GMIB and GWBL Features
Beginning
in 2003, AXA Equitable established a program intended to hedge certain risks
associated first with the GMDB feature and, beginning
in 2004, with the GMIB feature of the Accumulator® series of variable annuity
products. This program currently utilizes derivative instruments,
such as exchange-traded futures contracts and interest rate swap and floor
contracts, as well as repurchase agreement transactions, that collectively are
managed in an effort to reduce the economic impact of unfavorable changes in
GMDB, GMIB and GWBL exposures attributable to movements in the equity and fixed
income markets. At the present time, this program hedges such
economic risks on products sold from 2001 forward to the extent such risks are
not reinsured. At September 30, 2009, the total account value and net
amount at risk of the hedged Accumulator® series of variable annuity contracts
were $53,189.0 million and $14,322.0 million, respectively, with the GMDB
feature and $37,780.0 million and $1,472.0 million, respectively, with the GMIB
feature.
These
programs do not qualify for hedge accounting treatment. Therefore,
gains or losses on the derivative contracts used in these programs, including
current period changes in fair value, are recognized in investment income in the
period in which they occur, and may contribute to earnings
volatility.
D) Variable and
Interest-Sensitive Life Insurance Policies - No Lapse
Guarantee
The no
lapse guarantee feature contained in variable and interest-sensitive life
insurance policies keeps them in force in situations where the policy value is
not sufficient to cover monthly charges then due. The no lapse
guarantee remains in effect so long as the policy meets a contractually
specified premium funding test and certain other requirements.
33
The
following table summarizes the no lapse guarantee liabilities reflected in the
General Account in Future policy benefits and other policyholders liabilities,
and the related reinsurance ceded:
Direct
Liability
|
Reinsurance
Ceded
|
Net
|
||||||||||
(In
Millions)
|
||||||||||||
Balance
at January 1,
2009
|
$ | 202.9 | $ | - | $ | 202.9 | ||||||
Other
changes in
reserves
|
32.0 | - | 32.0 | |||||||||
Balance
at September 30,
2009
|
$ | 234.9 | $ | - | $ | 234.9 | ||||||
Balance
at January 1,
2008
|
$ | 135.0 | $ | - | $ | 135.0 | ||||||
Other
changes in
reserves
|
63.0 | - | 63.0 | |||||||||
Balance
at September 30,
2008
|
$ | 198.0 | $ | - | $ | 198.0 |
7)
|
FAIR
VALUE DISCLOSURES
|
Fair
value is the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. U.S. GAAP also establishes a
fair value hierarchy that requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value,
and identifies three levels of inputs that may be used to measure fair
value:
Level
1
|
Quoted
prices for identical instruments in active markets. Level 1
fair values generally are supported by market transactions that occur with
sufficient frequency and volume to provide pricing information on an
ongoing basis.
|
Level
2
|
Observable
inputs other than Level 1 prices, such as quoted prices for similar
instruments, quoted prices in markets that are not active, and inputs to
model-derived valuations that are directly observable or can be
corroborated by observable market data.
|
Level
3
|
Unobservable
inputs supported by little or no market activity and often requiring
significant management judgment or estimation, such as an entity’s own
assumptions about the cash flows or other significant components of value
that market participants would use in pricing the asset or
liability.
|
34
Assets
measured at fair value on a recurring basis are summarized below as of the dates
indicated:
Fair
Value Measurements at September 30, 2009
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
Assets
|
||||||||||||||||
Investments:
|
||||||||||||||||
Fixed
maturities available for sale
|
||||||||||||||||
Corporate
|
$ | - | $ | 27,777.2 | $ | 760.4 | $ | 28,537.6 | ||||||||
U.S.
Treasury, government and
|
||||||||||||||||
agency
|
- | 3,862.0 | - | 3,862.0 | ||||||||||||
States
and political subdivisions
|
- | 192.7 | 114.6 | 307.3 | ||||||||||||
Foreign
governments
|
- | 294.6 | 48.0 | 342.6 | ||||||||||||
Commercial
mortgage-backed(1)
|
- | 26.4 | 1,910.8 | 1,937.2 | ||||||||||||
Residential
mortgage-backed(1)
|
- | 3,349.6 | - | 3,349.6 | ||||||||||||
Asset-backed(2)
|
- | 211.2 | 249.7 | 460.9 | ||||||||||||
Redeemable
preferred
stock
|
260.7 | 1,497.3 | 49.0 | 1,807.0 | ||||||||||||
Subtotal
|
260.7 | 37,211.0 | 3,132.5 | 40,604.2 | ||||||||||||
Equity
securities, available for sale
|
- | - | - | - | ||||||||||||
Other
equity
investments
|
98.2 | - | 1.8 | 100.0 | ||||||||||||
Trading
securities
|
524.1 | 1,305.2 | - | 1,829.3 | ||||||||||||
Other
invested
assets
|
- | 301.7 | 426.8 | 728.5 | ||||||||||||
Loans
to
affiliates
|
- | 1,200.0 | - | 1,200.0 | ||||||||||||
Cash
equivalents
|
3,115.1 | - | - | 3,115.1 | ||||||||||||
Segregated
securities
|
- | 1,274.3 | - | 1,274.3 | ||||||||||||
GMIB
reinsurance
contracts
|
- | - | 1,244.2 | 1,244.2 | ||||||||||||
Separate
Accounts’
assets
|
81,691.4 | 1,696.1 | 241.1 | 83,628.6 | ||||||||||||
Total
Assets
|
$ | 85,689.5 | $ | 42,988.3 | $ | 5,046.4 | $ | 133,724.2 | ||||||||
Liabilities
|
||||||||||||||||
GWBL
features’
liability
|
$ | - | $ | - | $ | 110.1 | $ | 110.1 | ||||||||
Total
Liabilities
|
$ | - | $ | - | $ | 110.1 | $ | 110.1 |
(1)
|
Includes
publicly traded agency pass-through securities and collateralized
obligations.
|
(2)
|
Includes
credit-tranched securities collateralized by sub-prime mortgages and other
asset types and credit tenant
loans.
|
Fair
Value Measurements at December 31, 2008
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
Assets
|
||||||||||||||||
Investments:
|
||||||||||||||||
Fixed
maturities available for sale
|
$ | 200.6 | $ | 30,167.5 | $ | 3,047.8 | $ | 33,415.9 | ||||||||
Other
equity investments
|
67.2 | - | 2.7 | 69.9 | ||||||||||||
Trading
securities
|
322.6 | - | .1 | 322.7 | ||||||||||||
Other
invested assets
|
35.4 | 1,135.3 | 547.0 | 1,717.7 | ||||||||||||
Loans
to affiliates
|
- | 1,133.5 | - | 1,133.5 | ||||||||||||
Cash
equivalents
|
6,787.7 | - | - | 6,787.7 | ||||||||||||
Segregated
securities
|
- | 2,572.6 | - | 2,572.6 | ||||||||||||
GMIB
reinsurance contracts
|
- | - | 1,985.3 | 1,985.3 | ||||||||||||
Separate
Accounts’ assets
|
68,008.6 | 1,271.1 | 334.7 | 69,614.4 | ||||||||||||
Total
Assets
|
$ | 75,422.1 | $ | 36,280.0 | $ | 5,917.6 | $ | 117,619.7 | ||||||||
Liabilities
|
||||||||||||||||
GWBL
features’ liability
|
$ | - | $ | - | $ | 272.6 | $ | 272.6 | ||||||||
Total
Liabilities
|
$ | - | $ | - | $ | 272.6 | $ | 272.6 |
35
At
September 30, 2009, investments classified as Level 1 comprise approximately
65.9% of invested assets measured at fair value on a recurring basis and
primarily include redeemable preferred stock, cash and cash equivalents and
Separate Accounts assets. Fair value measurements classified as Level
1 include exchange-traded prices of fixed maturities, equity securities and
derivative contracts, and net asset values for transacting subscriptions and
redemptions of mutual fund shares held by Separate Accounts. Cash
equivalents classified as Level 1 include money market accounts, overnight
commercial paper and highly liquid debt instruments purchased with an original
maturity of three months or less, and are carried at cost as a proxy for fair
value measurement due to their short-term nature.
At
September 30, 2009, investments classified as Level 2 comprise approximately
31.2% of invested assets measured at fair value on a recurring basis and
primarily include U.S. government and agency securities and certain corporate
debt securities, such as private fixed maturities. As market quotes
generally are not readily available or accessible for these securities, their
fair value measures are determined utilizing relevant information generated by
market transactions involving comparable securities and often are based on model
pricing techniques that effectively discount prospective cash flows to present
value using appropriate sector-adjusted credit spreads commensurate with the
security’s duration, also taking into consideration issuer-specific credit
quality and liquidity. These valuation methodologies have been
studied and evaluated by AXA Financial Group and the resulting prices determined
to be representative of exit values. Segregated securities classified as
Level 2 are U.S. Treasury Bills segregated by AllianceBernstein in a
special reserve bank custody account for the exclusive benefit of brokerage
customers, as required by Rule 15c3-3 of the Exchange Act and for which fair
values are based on quoted yields in secondary markets.
Observable
inputs generally used to measure the fair value of securities classified as
Level 2 include benchmark yields, reported secondary trades, broker-dealer
quotes, issuer spreads, benchmark securities, bids, offers, and reference
data. Additional observable inputs are used when available, and as
may be appropriate, for certain security types, such as prepayment, default, and
collateral information for purpose of measuring the fair value of mortgage- and
asset-backed securities. At September 30, 2009, approximately
$2,785.2 million AAA-rated mortgage- and asset- backed securities are classified
as Level 2, including commercial mortgage obligations, for which the
observability of market inputs to their pricing models is supported by
sufficient, albeit more recently contracted, market activity in these
sectors.
As
disclosed in Note 3 of Notes to Consolidated Financial Statements, the net fair
value of freestanding derivative positions is approximately $577.4 million at
September 30, 2009, or approximately 32.6% of Other invested assets measured at
fair value on a recurring basis. The majority of these derivative
contracts is traded in the over-the-counter (“OTC”) derivative market and is
classified in Level 2. The fair values of derivative assets and
liabilities traded in the OTC market are determined using quantitative models
that require use of the contractual terms of the derivative instruments and
multiple market inputs, including interest rates, prices, and indices to
generate continuous yield or pricing curves and volatility factors, which then
are applied to value the positions. The predominance of market inputs
is actively quoted and can be validated through external sources or reliably
interpolated if less observable.
The
credit risk of the counterparty and of AXA Financial Group are considered in
determining the fair values of all OTC derivative asset and liability positions,
respectively, after taking into account the effects of master netting agreements
and collateral arrangements. Each reporting period, AXA Financial
Group values its derivative positions using the standard swap curve and
evaluates whether to adjust the embedded credit spread to reflect any changes in
counterparty or its own credit standing. As a result, AXA Financial
Group reduced the fair value of its OTC derivative asset exposures by $5.8
million at September 30, 2009 to recognize incremental counterparty
non-performance risk. The unadjusted swap curve was determined to be
reflective of the non-performance risk of AXA Financial Group for purpose of
determining the fair value of its OTC liability positions at September 30,
2009.
At
September 30, 2009, investments classified as Level 3 comprise approximately
2.9% of invested assets measured at fair value on a recurring basis and
primarily include corporate debt securities, such as private fixed maturities.
Determinations to classify fair value measures within Level 3 of the valuation
hierarchy generally are based upon the significance of the unobservable factors
to the overall fair value measurement. Included in the Level 3
classification at September 30, 2009 were approximately $667.2 million of fixed
maturities with indicative pricing obtained from brokers that otherwise could
not be corroborated to market observable data. AXA Financial Group
applies various due-diligence procedures, as considered appropriate, to validate
these non-binding broker quotes for reasonableness, based on its understanding
of the markets, including use of internally-developed assumptions about inputs a
market participant would use to price the security. In addition,
approximately $2,160.4 million of mortgage- and asset-backed securities,
including CMBS, are classified as Level 3 at September 30,
2009. Prior to fourth quarter 2008, pricing of these CMBS was sourced
from a third party service, whose process placed significant reliance on market
trading activity. Beginning in fourth quarter 2008, the lack of
sufficient observable trading data made it difficult, at best, to validate
prices of CMBS below the senior AAA tranche. Consequently, AXA
Financial Group instead applied a risk-adjusted present value technique to the
projected cash flows of these securities, as adjusted for origination year,
default metrics, and level of subordination, with the objective of maximizing
observable inputs, and weighted the result with a 10% attribution to pricing
sourced from the third party service. At September 30, 2009, AXA
Financial Group continued to apply this methodology to measure the fair values
of CMBS below the senior AAA tranche, having demonstrated ongoing insufficient
frequency and volume of observable trading activity in these securities during
third quarter.
36
Level 3
also includes the GMIB reinsurance asset and the GWBL features’ liability, which
are accounted for as derivative contracts. The GMIB reinsurance asset
reflects the present value of reinsurance premiums and recoveries and risk
margins over a range of market consistent economic scenarios while the GWBL
related liability reflects the present value of expected future payments
(benefits) less fees, adjusted for risk margins, attributable to the GWBL
feature over a range of market-consistent economic scenarios. The
valuations of both the GMIB asset and GWBL features’ liability incorporate
significant non-observable assumptions related to policyholder behavior, risk
margins and projections of equity Separate Account funds consistent with the
S&P 500 Index. Using methodology similar to that described for
measuring non-performance risk of OTC derivative exposures, incremental
adjustment is made to the resulting fair values of the GMIB asset to reflect
change in the claims-paying ratings of counterparties to the reinsurance
treaties and of AXA Equitable, respectively. After giving
consideration to collateral arrangements, AXA Financial Group reduced the fair
value of its GMIB asset by $14.5 million at September 30, 2009 to recognize
incremental counterparty non-performance risk. The unadjusted swap
curve was determined to be reflective of the AA quality claims-paying rating of
AXA Equitable, therefore, no incremental adjustment was made for non-performance
risk for purpose of determining the fair value of the GWBL features’ liability
embedded derivative at September 30, 2009.
37
The table
below presents a reconciliation for all Level 3 assets for third quarter and the
first nine months of 2009 and 2008:
Level
3 Instruments
Fair
Value Measurements
(In
Millions)
Corporate
|
U.S. Treasury, |
Foreign Govts |
State
and Political |
Commer- cial |
Residen- tial |
Asset- backed |
||||||||||||||||||||||
Discrete
third quarter:
|
||||||||||||||||||||||||||||
Balance,
July 1, 2009
|
$ | 602.1 | $ | - | $ | 19.3 | $ | 53.4 | $ | 1,962.7 | $ | - | $ | 243.4 | ||||||||||||||
Total
gains (losses),
|
||||||||||||||||||||||||||||
realized
and unrealized,
|
||||||||||||||||||||||||||||
included
in:
|
||||||||||||||||||||||||||||
Earnings
as:
|
||||||||||||||||||||||||||||
Net
investment income
|
.5 | - | - | - | .8 | - | (.4 | ) | ||||||||||||||||||||
Investment
gains
|
||||||||||||||||||||||||||||
(losses),
net
|
.1 | - | - | - | (32.5 | ) | - | (1.3 | ) | |||||||||||||||||||
(Decrease)
increase in the
|
||||||||||||||||||||||||||||
fair
value of the
|
||||||||||||||||||||||||||||
reinsurance
contracts
|
- | - | - | - | - | - | - | |||||||||||||||||||||
Subtotal
|
.6 | - | - | - | (31.7 | ) | (1.7 | ) | ||||||||||||||||||||
Other
comprehensive
|
||||||||||||||||||||||||||||
income
|
38.7 | - | 2.7 | 1.7 | (2.0 | ) | - | 18.7 | ||||||||||||||||||||
Purchases/issuance
|
140.5 | - | 26.0 | 60.0 | - | - | - | |||||||||||||||||||||
Sales/settlements
|
(60.4 | ) | - | - | (.5 | ) | (18.2 | ) | - | (10.7 | ) | |||||||||||||||||
Transfers
into/out of
|
||||||||||||||||||||||||||||
Level
3(2)
|
38.9 | - | - | - | - | - | - | |||||||||||||||||||||
Balance,
Sept. 30, 2009
|
$ | 760.4 | $ | - | $ | 48.0 | $ | 114.6 | $ | 1,910.8 | $ | - | $ | 249.7 | ||||||||||||||
First
nine months
|
||||||||||||||||||||||||||||
of
2009:
|
||||||||||||||||||||||||||||
Balance,
January 1, 2009
|
$ | 629.2 | $ | - | $ | 64.0 | $ | 61.8 | $ | 1,940.6 | $ | - | $ | 328.9 | ||||||||||||||
Total
gains (losses),
|
||||||||||||||||||||||||||||
realized
and unrealized,
|
||||||||||||||||||||||||||||
included
in:
|
||||||||||||||||||||||||||||
Earnings
as:
|
||||||||||||||||||||||||||||
Net
investment income
|
.6 | - | - | - | 2.5 | - | (1.1 | ) | ||||||||||||||||||||
Investment
gains
|
||||||||||||||||||||||||||||
(losses),
net
|
(4.0 | ) | - | - | - | (32.5 | ) | - | (15.4 | ) | ||||||||||||||||||
(Decrease)
increase in the
|
||||||||||||||||||||||||||||
fair
value of the
|
||||||||||||||||||||||||||||
reinsurance
contracts
|
- | - | - | - | - | - | - | |||||||||||||||||||||
Subtotal
|
(3.4 | ) | - | - | - | (30.0 | ) | - | (16.5 | ) | ||||||||||||||||||
Other
comprehensive
|
||||||||||||||||||||||||||||
income
|
51.4 | - | 3.8 | (7.7 | ) | 54.6 | - | 14.5 | ||||||||||||||||||||
Purchases/issuances
|
186.0 | - | 27.0 | 62.2 | - | - | - | |||||||||||||||||||||
Sales/settlements
|
(89.2 | ) | - | (.2 | ) | (1.7 | ) | (54.4 | ) | - | (45.0 | ) | ||||||||||||||||
Transfers
into/out of
|
||||||||||||||||||||||||||||
Level
3(2)
|
(13.6 | ) | - | (46.6 | ) | - | - | - | (32.2 | ) | ||||||||||||||||||
Balance,
Sept. 30, 2009
|
$ | 760.4 | $ | - | $ | 48.0 | $ | 114.6 | $ | 1,910.8 | $ | - | $ | 249.7 |
(1) Includes
Trading securities’ Level 3 amount.
(2) Transfers
into/out of Level 3 classification are reflected at beginning-of-period fair
values.
38
Redeem-
|
||||||||||||||||||||||||
able
|
Other
|
Other
|
GMIB
|
Separate
|
GWBL
|
|||||||||||||||||||
Preferred
|
Equity
|
Invested
|
Reinsurance
|
Accounts
|
Features
|
|||||||||||||||||||
Stock
|
Investments(1)
|
Assets
|
Asset
|
Assets
|
Liability
|
|||||||||||||||||||
Discrete
third quarter:
|
||||||||||||||||||||||||
Balance,
July 1, 2009
|
$ | 13.5 | $ | 1.8 | $ | 436.6 | $ | 1,265.4 | $ | 261.8 | $ | 123.4 | ||||||||||||
Total
gains (losses),
|
||||||||||||||||||||||||
realized
and unrealized,
|
||||||||||||||||||||||||
included
in:
|
||||||||||||||||||||||||
Earnings
as:
|
||||||||||||||||||||||||
Net
investment income
|
- | - | (39.7 | ) | - | - | - | |||||||||||||||||
Investment
gains
|
||||||||||||||||||||||||
(losses),
net
|
(78.4 | ) | - | - | - | (23.9 | ) | - | ||||||||||||||||
(Decrease)
increase in the
|
||||||||||||||||||||||||
fair
value of the
|
||||||||||||||||||||||||
reinsurance
contracts
|
- | - | - | 8.0 | - | - | ||||||||||||||||||
Policyholders’
benefits
|
- | - | - | - | - | (16.8 | ) | |||||||||||||||||
Subtotal
|
(78.4 | ) | - | (39.7 | ) | 8.0 | (23.9 | ) | (16.8 | ) | ||||||||||||||
Other
comprehensive
|
||||||||||||||||||||||||
income
|
91.9 | .2 | - | - | - | - | ||||||||||||||||||
Purchases/issuances
|
- | - | 29.9 | (29.2 | ) | 4.5 | 3.5 | |||||||||||||||||
Sales/settlements
|
- | (.2 | ) | - | - | (1.3 | ) | - | ||||||||||||||||
Transfers
into/out of
|
||||||||||||||||||||||||
Level
3(2)
|
22.0 | - | - | - | - | - | ||||||||||||||||||
Balance,
Sept. 30, 2009
|
$ | 49.0 | $ | 1.8 | $ | 426.8 | $ | 1,244.2 | $ | 241.1 | $ | 110.1 | ||||||||||||
First
nine months of 2009:
|
||||||||||||||||||||||||
Balance,
January 1, 2009
|
$ | 23.3 | $ | 2.9 | $ | 547.0 | $ | 1,985.3 | $ | 334.7 | $ | 272.6 | ||||||||||||
Total
gains (losses),
|
||||||||||||||||||||||||
realized
and unrealized,
|
||||||||||||||||||||||||
included
in:
|
||||||||||||||||||||||||
Earnings
as:
|
||||||||||||||||||||||||
Net
investment income
|
.1 | - | (199.2 | ) | - | - | - | |||||||||||||||||
Investment
gains
|
||||||||||||||||||||||||
(losses),
net
|
(78.4 | ) | - | - | - | (92.8 | ) | - | ||||||||||||||||
(Decrease)
increase in the
|
||||||||||||||||||||||||
fair
value of the
|
||||||||||||||||||||||||
reinsurance
contracts
|
- | - | - | (736.1 | ) | - | - | |||||||||||||||||
Policyholders’
benefits
|
- | - | - | - | - | (170.9 | ) | |||||||||||||||||
Subtotal
|
(78.3 | ) | - | (199.2 | ) | (736.1 | ) | (92.8 | ) | (170.9 | ) | |||||||||||||
Other
comprehensive
|
||||||||||||||||||||||||
income
|
62.2 | .1 | - | - | - | - | ||||||||||||||||||
Purchases/issuances
|
- | - | 79.0 | (5.0 | ) | (5.8 | ) | 8.4 | ||||||||||||||||
Sales/settlements
|
- | (1.2 | ) | - | - | 4.1 | - | |||||||||||||||||
Transfers
into/out of
|
||||||||||||||||||||||||
Level
3(2)
|
41.8 | - | - | - | .9 | - | ||||||||||||||||||
Balance,
Sept. 30, 2009
|
$ | 49.0 | $ | 1.8 | $ | 426.8 | $ | 1,244.2 | $ | 241.1 | $ | 110.1 |
(1) Includes
Trading securities’ Level 3 amount.
(2) Transfers
into/out of Level 3 classification are reflected at beginning-of-period fair
values.
39
Fixed
|
Other
|
|||||||||||||||||||||||
Maturities
|
Equity
|
Other
|
GMIB
|
Separate
|
GWBL
|
|||||||||||||||||||
Available
|
Investments
|
Invested
|
Reinsurance
|
Accounts
|
Features
|
|||||||||||||||||||
For
Sale
|
(1) |
Assets
|
Asset
|
Assets
|
Liability
|
|||||||||||||||||||
Discrete
third quarter:
|
||||||||||||||||||||||||
Balance,
July 1, 2008
|
$ | 2,740.5 | $ | 2.5 | $ | 175.9 | $ | 309.4 | $ | 26.7 | $ | - | ||||||||||||
Total
gains (losses),
|
||||||||||||||||||||||||
realized
and unrealized,
|
||||||||||||||||||||||||
included
in:
|
||||||||||||||||||||||||
Earnings
as:
|
||||||||||||||||||||||||
Net
investment income
|
.5 | 3.0 | - | - | ||||||||||||||||||||
Investment
gains
|
||||||||||||||||||||||||
(losses),
net
|
(33.7 | ) | - | (2.4 | ) | - | ||||||||||||||||||
(Decrease)
increase in
|
||||||||||||||||||||||||
fair
value of the
|
||||||||||||||||||||||||
reinsurance
contracts
|
- | - | - | 191.1 | - | - | ||||||||||||||||||
Policyholder’s
Benefits
|
- | - | - | - | - | 41.9 | ||||||||||||||||||
Subtotal
|
(33.2 | ) | 3.0 | 191.1 | (2.4 | ) | 41.9 | |||||||||||||||||
Other
comprehensive
|
||||||||||||||||||||||||
income
|
(271.0 | ) | .4 | - | - | - | - | |||||||||||||||||
Purchases/issuances
and
|
||||||||||||||||||||||||
sales/settlements,
net
|
(13.3 | ) | (.2 | ) | 17.7 | 14.0 | (2.5 | ) | 5.0 | |||||||||||||||
Transfers
into/out of
|
||||||||||||||||||||||||
Level
3(2)
|
19.2 | - | (.1 | ) | - | 6.2 | - | |||||||||||||||||
Balance,
Sept. 30, 2008
|
$ | 2,442.2 | $ | 2.7 | $ | 196.5 | $ | 514.5 | $ | 28.0 | $ | 46.9 | ||||||||||||
First
nine months of 2008:
|
||||||||||||||||||||||||
Balance,
Dec. 31, 2007
|
$ | 3,103.7 | $ | 3.9 | $ | 158.0 | $ | 124.6 | $ | 41.2 | $ | - | ||||||||||||
Impact
of adopting
|
||||||||||||||||||||||||
new
guidance on Jan. 1
|
||||||||||||||||||||||||
included
in earnings
|
- | - | - | 209.2 | - | - | ||||||||||||||||||
Balance,
Jan. 1, 2008
|
3,103.7 | 3.9 | 158.0 | 333.8 | 41.2 | - | ||||||||||||||||||
Total
gains (losses),
|
||||||||||||||||||||||||
realized
and unrealized,
|
||||||||||||||||||||||||
included
in:
|
||||||||||||||||||||||||
Earnings
as:
|
||||||||||||||||||||||||
Net
investment income
|
1.6 | - | 8.7 | - | - | - | ||||||||||||||||||
Investment
gains
|
||||||||||||||||||||||||
(losses),
net
|
(81.5 | ) | (1.3 | ) | - | - | (7.1 | ) | - | |||||||||||||||
(Decrease)
increase in
|
||||||||||||||||||||||||
fair
value of the
|
||||||||||||||||||||||||
reinsurance
contracts
|
- | - | - | 136.7 | - | - | ||||||||||||||||||
Policyholder’s
Benefits
|
- | - | - | - | - | 41.9 | ||||||||||||||||||
Subtotal
|
(79.9 | ) | (1.3 | ) | 8.7 | 136.7 | (7.1 | ) | 41.9 | |||||||||||||||
Other
comprehensive
|
||||||||||||||||||||||||
income
|
(696.0 | ) | .3 | - | - | - | - | |||||||||||||||||
Purchases/issuances
and
|
||||||||||||||||||||||||
sales/settlements,
net
|
(47.8 | ) | (.2 | ) | 26.9 | 44.0 | (12.3 | ) | 5.0 | |||||||||||||||
Transfers
into/out of
|
||||||||||||||||||||||||
Level
3(2)
|
162.2 | - | 2.9 | - | 6.2 | - | ||||||||||||||||||
Balance,
Sept. 30, 2008
|
$ | 2,442.2 | $ | 2.7 | $ | 196.5 | $ | 514.5 | $ | 28.0 | $ | 46.9 | ||||||||||||
(1)
(2)
|
Includes
Trading securities’ Level 3 amount.
Transfers
into/out of Level 3 classification are reflected at beginning-of-period
fair values.
|
40
The table
below details changes in unrealized gains (losses) for the discrete third
quarter and first nine months of 2009 and 2008 by category for Level 3 assets
still held at September 30, 2009 and 2008, respectively:
Earnings
|
||||||||||||||||||||
Investment
|
Change
in
|
Other
|
||||||||||||||||||
Net
|
Gains
|
Fair
Value of
|
Compre-
|
Policy-
|
||||||||||||||||
Investment
|
(Losses),
|
Reinsurance
|
hensive
|
holder
|
||||||||||||||||
Income
|
Net
|
Contracts
|
Income
|
Benefits
|
||||||||||||||||
(In
Millions)
|
||||||||||||||||||||
Level
3 Instruments
|
||||||||||||||||||||
Discrete
Third Quarter 2009
|
||||||||||||||||||||
Still
Held at Sept. 30, 2009:
|
||||||||||||||||||||
Change
in unrealized gains or
losses
|
||||||||||||||||||||
Fixed
maturities available
for sale
|
||||||||||||||||||||
Corporate
|
$ | - | $ | - | $ | - | $ | 34.7 | $ | - | ||||||||||
U.S.
Treasury, government
|
||||||||||||||||||||
and
agency
|
- | - | - | - | - | |||||||||||||||
State
and political
|
||||||||||||||||||||
subdivisions
|
- | - | - | 1.8 | - | |||||||||||||||
Foreign
Governments
|
- | - | - | 2.7 | - | |||||||||||||||
Commercial
|
||||||||||||||||||||
mortgage-backed
|
- | - | - | (2.3 | ) | - | ||||||||||||||
Residential
|
||||||||||||||||||||
mortgage-backed
|
- | - | - | - | - | |||||||||||||||
Asset-backed
|
- | - | - | 18.7 | - | |||||||||||||||
Redeemable
preferred stock
|
- | - | - | 91.9 | - | |||||||||||||||
Subtotal
|
- | - | - | 147.5 | - | |||||||||||||||
Equity
securities,
|
||||||||||||||||||||
available
for sale
|
- | - | - | - | - | |||||||||||||||
Other
equity investments
|
- | - | - | (.2 | ) | - | ||||||||||||||
Other
invested assets
|
(9.7 | ) | - | - | - | - | ||||||||||||||
Cash
equivalents
|
- | - | - | - | - | |||||||||||||||
Segregated
securities
|
- | - | - | - | - | |||||||||||||||
GMIB
reinsurance contracts
|
- | - | (21.2 | ) | - | - | ||||||||||||||
Separate
Accounts’ assets
|
- | (26.4 | ) | - | - | - | ||||||||||||||
GWBL
features’ liability
|
- | - | - | - | (13.3 | ) | ||||||||||||||
Total
|
$ | (9.7 | ) | $ | (26.4 | ) | $ | (21.2 | ) | $ | 147.3 | $ | (13.3 | ) | ||||||
41
Earnings
|
||||||||||||||||||||
Investment
|
Change
in
|
Other
|
||||||||||||||||||
Net
|
Gains
|
Fair
Value of
|
Compre-
|
Policy-
|
||||||||||||||||
Investment
|
(Losses),
|
Reinsurance
|
hensive
|
holders
|
||||||||||||||||
Income
|
Net
|
Contracts
|
Income
|
Benefits
|
||||||||||||||||
(In
Millions)
|
||||||||||||||||||||
Level
3 Instruments
|
||||||||||||||||||||
First
Nine Months of 2009
|
||||||||||||||||||||
Still
Held at Sept. 30, 2009:
|
||||||||||||||||||||
Change
in unrealized gains or
losses
|
||||||||||||||||||||
Fixed
maturities available
for sale
|
||||||||||||||||||||
Corporate
|
$ | - | $ | - | $ | - | $ | 32.4 | $ | - | ||||||||||
U.S.
Treasury, government
|
||||||||||||||||||||
and
agency
|
- | - | - | - | - | |||||||||||||||
State
and political
|
||||||||||||||||||||
subdivisions
|
- | - | - | (7.7 | ) | - | ||||||||||||||
Foreign
Governments
|
- | - | - | 3.8 | - | |||||||||||||||
Commercial
|
||||||||||||||||||||
mortgage-backed
|
- | - | - | 46.1 | - | |||||||||||||||
Residential
|
||||||||||||||||||||
mortgage-backed
|
- | - | - | - | - | |||||||||||||||
Asset-backed
|
- | - | - | 1.4 | - | |||||||||||||||
Redeemable
preferred stock
|
- | - | - | 62.2 | - | |||||||||||||||
Subtotal
|
- | - | - | 138.2 | - | |||||||||||||||
Equity
securities,
|
||||||||||||||||||||
available
for sale
|
- | - | - | - | - | |||||||||||||||
Other
equity investments
|
- | - | - | .2 | - | |||||||||||||||
Other
invested assets
|
(120.2 | ) | - | - | - | - | ||||||||||||||
Cash
equivalents
|
- | - | - | - | - | |||||||||||||||
Segregated
securities
|
- | - | - | - | - | |||||||||||||||
GMIB
reinsurance contracts
|
- | - | (741.1 | ) | - | - | ||||||||||||||
Separate
Accounts’ assets
|
- | (95.7 | ) | - | - | - | ||||||||||||||
GWBL
features’ liability
|
- | - | - | - | (162.5 | ) | ||||||||||||||
Total
|
$ | (120.2 | ) | $ | (95.7 | ) | $ | (741.1 | ) | $ | 138.4 | $ | (162.5 | ) | ||||||
42
Earnings
|
||||||||||||||||
Investment
|
Commissions
|
Other
|
||||||||||||||
Net
|
Gains
|
Fees
and
|
Compre-
|
|||||||||||||
Investment
|
(Losses),
|
Other
|
hensive
|
|||||||||||||
Income
|
Net
|
Income
|
Income
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
Level
3 Instruments:
|
||||||||||||||||
Discrete
Third Quarter 2008
|
||||||||||||||||
Still
Held at Sept. 30, 2008:
|
||||||||||||||||
Change
in unrealized gains or
losses
|
||||||||||||||||
Fixed
maturities
|
||||||||||||||||
available
for sale
|
$ | - | $ | - | $ | - | $ | (275.0 | ) | |||||||
Other
equity investments
|
- | - | - | .4 | ||||||||||||
Other
invested assets
|
20.7 | - | - | - | ||||||||||||
Cash
equivalents
|
- | - | - | - | ||||||||||||
Segregated
securities
|
- | - | - | - | ||||||||||||
GMIB
reinsurance contracts
|
- | - | 191.1 | - | ||||||||||||
Separate
Accounts’ assets
|
- | (2.4 | ) | - | - | |||||||||||
GWBL
features’ liabilities
|
- | 41.9 | - | - | ||||||||||||
Total
|
$ | 20.7 | $ | 39.5 | $ | 191.1 | $ | (274.6 | ) | |||||||
First
Nine Months of 2008
|
||||||||||||||||
Still
Held at Sept. 30, 2008:
|
||||||||||||||||
Change
in unrealized gains
|
||||||||||||||||
or
losses
|
||||||||||||||||
Fixed
maturities
|
||||||||||||||||
available
for sale
|
$ | - | $ | - | $ | - | $ | (697.6 | ) | |||||||
Other
equity investments
|
- | - | - | .4 | ||||||||||||
Other
invested assets
|
35.6 | - | - | - | ||||||||||||
Cash
equivalents
|
- | - | - | - | ||||||||||||
Segregated
securities
|
- | - | - | - | ||||||||||||
GMIB
reinsurance contracts
|
- | - | 136.7 | - | ||||||||||||
Separate
Accounts’ assets
|
- | (6.9 | ) | - | - | |||||||||||
GWBL
features’ liability
|
- | 41.9 | - | - | ||||||||||||
Total
|
$ | 35.6 | $ | 35.0 | $ | 136.7 | $ | (697.2 | ) |
Fair
value measurements are required on a non-recurring basis for certain assets,
including goodwill, mortgage loans on real estate, equity real estate held for
production of income, and equity real estate held for sale, only when an
other-than-temporary impairment or other event occurs. When such fair
value measurements are recorded, they must be classified and disclosed within
the fair value hierarchy. In third quarter and the first nine months
of both 2009 and 2008, no assets were measured at fair value on a non-recurring
basis.
43
The
carrying values and fair values at September 30, 2009 for financial instruments
not otherwise disclosed in Note 3 of Notes to Consolidated Financial Statements
are presented in the table below. Certain financial instruments are
exempt from the requirements for fair value disclosure, such as insurance
liabilities other than financial guarantees and investment contracts and pension
and other postretirement obligations.
Carrying
|
||||||||
Value
|
Fair
Value
|
|||||||
(In
Millions)
|
||||||||
Consolidated:
|
||||||||
Mortgage
loans on real estate
|
$ | 5,035.0 | $ | 4,916.3 | ||||
Other
limited partnership interests
|
1,359.8 | 1,359.8 | ||||||
Policyholders
liabilities:
|
||||||||
Investment
contracts
|
3,490.6 | 3,501.6 | ||||||
Long-term
debt
|
1,072.7 | 1,029.8 | ||||||
Closed Blocks:
|
||||||||
Mortgage
loans on real estate
|
1,936.6 | 1,871.5 | ||||||
Other
equity
investments
|
1.6 | 1.6 | ||||||
SCNILC
liability
|
7.9 | 7.9 | ||||||
Wind-up Annuities:
|
||||||||
Mortgage
loans on real estate
|
151.1 | 153.7 | ||||||
Other
equity
investments
|
1.3 | 1.3 | ||||||
Guaranteed
interest contracts
|
5.6 | 6.3 |
Fair
values for mortgage loans on real estate are measured by discounting future
contractual cash flows using interest rates at which loans with similar
characteristics and credit quality would be made. Fair values for
foreclosed mortgage loans and problem mortgage loans are limited to the fair
value of the underlying collateral if lower.
Other
limited partnership interests and other equity investments, including interests
in investment companies, are accounted for under the equity method and their
resulting carrying values are used as a proxy for fair value
measurement.
The fair
values for AXA Financial Group’s association plan contracts, supplementary
contracts not involving life contingencies (“SCNILC”) and certain annuities,
which are included in Policyholders’ account balances, and guaranteed interest
contracts are estimated using projected cash flows discounted at rates
reflecting current market rates.
The fair
values for single premium deferred annuities, included in policyholders’ account
balances, are estimated as the discounted value of projected cash flows.
Expected cash flows are discounted back to the present at the current market
rates.
Fair
values for long-term debt are determined using published market values, when
available, or contractual cash flows discounted at market interest
rates. The fair values for non-recourse mortgage debt are determined
by discounting contractual cash flows at a rate that takes into account the
level of current market interest rates and collateral risk. The fair
values for recourse mortgage debt are determined by discounting contractual cash
flows at a rate based upon current interest rates of other companies with credit
ratings similar to AXA Financial Group. AXA Financial Group’s fair
value of short-term borrowings approximates its carrying value. The
fair values of AXA Financial Group’s borrowing and lending arrangements with AXA
affiliated entities are determined in the same manner as herein described for
such transactions with third-parties.
44
8)
|
EMPLOYEE
BENEFIT PLANS
|
Generally,
AXA Financial Group’s funding policy to its qualified pension plans (other than
those of AllianceBernstein) is to make annual aggregate contributions of
approximately $30.0 million unless the minimum contributions required by ERISA
are greater. AllianceBernstein’s policy is to satisfy its funding
obligation to its qualified retirement plan each year in an amount not less than
the minimum required by ERISA and not greater than the maximum it can deduct for
Federal income tax purposes.
In the
first nine months of 2009, cash contributions by AllianceBernstein and AXA
Financial Group (other than AllianceBernstein) to their respective qualified
pension plans were $12.8 million and $44.0 million. AllianceBernstein
and AXA Financial Group do not plan on making any additional contributions this
year.
Components
of net periodic pension expense for the qualified and non-qualified plans
follow:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
Service
cost
|
$ | 9.0 | $ | 15.6 | $ | 37.2 | $ | 44.7 | ||||||||
Interest
cost on projected benefit obligation
|
47.3 | 47.0 | 143.5 | 143.9 | ||||||||||||
Expected
return on
assets
|
(33.1 | ) | (55.9 | ) | (104.0 | ) | (171.2 | ) | ||||||||
Net
amortization
|
29.1 | 13.6 | 86.5 | 39.7 | ||||||||||||
Curtailment
gain
|
- | (.8 | ) | - | (.8 | ) | ||||||||||
Net
Periodic Pension
Expense
|
$ | 52.3 | $ | 19.5 | $ | 163.2 | $ | 56.3 |
Components
of net postretirement benefit costs follow:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
Service
cost
|
$ | .4 | $ | .5 | $ | 1.5 | $ | 1.8 | ||||||||
Interest
cost on accumulated postretirement
|
||||||||||||||||
benefit
obligation
|
9.1 | 9.1 | 26.7 | 27.0 | ||||||||||||
Net
amortization
|
.9 | 1.1 | 2.1 | 3.2 | ||||||||||||
Net
Postretirement
Benefits
|
$ | 10.4 | $ | 10.7 | $ | 30.3 | $ | 32.0 |
Components
of net postemployment benefit costs follow:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
Service
cost
|
$ | 1.4 | $ | 1.2 | $ | 3.7 | $ | 3.6 | ||||||||
Interest
cost projected benefit obligation
|
.5 | .4 | 1.2 | 1.2 | ||||||||||||
Net
amortization
|
1.9 | (2.0 | ) | 1.9 | (2.0 | ) | ||||||||||
Net
Periodic Postemployment Costs
|
$ | 3.8 | $ | (.4 | ) | $ | 6.8 | $ | 2.8 |
On June
27, 2008, AXA Financial announced certain benefit plans
changes. Subject to specific grandfathering provisions, active
participants in certain MONY Life retirement plans will accrue future benefits
under formulas the same as or similar to those provided under AXA Equitable
plans. Some of these changes took effect as of October 1, 2008 while
others took effect as of January 1, 2009. In addition, effective
January 1, 2009, certain sales force participants under AXA Equitable’s
non-qualified pension plan received their plan benefits on an annual basis
rather than after separation from service. Also, retiree life
coverage for former MONY Life employees and sales force were adjusted to the
standard amount offered under the AXA Equitable Group Life Insurance Plan as of
January 1, 2009, subject to certain grandfathering provisions. In
second quarter 2008, AXA Financial recognized an aggregate reduction in its
pension and other postretirement benefits obligations of approximately $35.3
million resulting from remeasurement of the respective benefit obligations
coincident with announcement of these modifications in benefits
entitlements. This reduction was reflected as an increase in other
comprehensive income and will reduce net periodic benefit cost in future periods
based on applicable recognition or amortization requirements.
45
9)
|
SHARE-BASED
COMPENSATION PROGRAMS
|
For the
third quarter and first nine months of 2009 and of 2008, respectively, AXA
Financial Group recognized compensation costs of $19.6 million, $49.0 million,
$16.4 million and $53.0 million for share-based payment
arrangements.
On May
10, 2009, approximately 318,051 performance units earned under the AXA
Performance Unit Plan 2007 were fully vested for total value of approximately
$5.1 million. Distributions to participants were made on May 21,
2009, resulting in cash settlements of approximately 85% of these performance
units for aggregate value of approximately $4.3 million and equity settlements
of the remainder with approximately 46,615 restricted AXA ADRs for aggregate
value of approximately $0.8 million. These AXA ADRs were sourced from
settlement on May 10, 2009 of a forward purchase contract entered into on
September 26, 2007 by which AXA Financial took delivery of 78,000 shares for
payment of approximately $3.6 million.
On March
20, 2009, approximately 1.7 million options to purchase AXA ordinary shares were
granted under the terms of the Stock Option Plan at an exercise price of 10.00
euros. Approximately 1.4 million of those options have a four-year
graded vesting schedule, with one-third vesting on each of the second, third,
and fourth anniversaries of the grant date, and approximately 0.3 million have a
four-year cliff vesting term. In addition, approximately 0.2 million
of the total options awarded on March 20, 2009 are further subject to
conditional vesting terms that require the AXA ordinary share price to
outperform the Euro Stoxx Insurance Index measured between March 20, 2009 and
March 20, 2013. All of the options granted on March 20, 2009 have a
ten-year contractual term. The weighted average grant date fair value
per option award was estimated at $2.57 using a Monte-Carlo simulation approach
to model the value of the conditional vesting feature. Key
assumptions used in the valuation included expected volatility of 57.5%, a
weighted average expected term of 5.5 years, an expected dividend yield of
10.69% and a risk-free interest rate of 2.74%. The total fair value
of this award, net of expected forfeitures, of approximately $3.7 million is
charged to expense over the shorter of the vesting term or the period up to the
date at which the participant becomes retirement eligible. In third
quarter and first nine months of 2009, the expense associated with the March 20,
2009 grant of options was approximately $0.3 million and $3.0 million,
respectively.
On March
20, 2009, under the terms of the AXA Performance Unit Plan 2009, the AXA
Management Board awarded approximately 1.3 million unearned performance units to
employees of AXA Financial’s subsidiaries. During each year that the
performance unit awards are outstanding, a pro-rata portion of the units may be
earned based on criteria measuring the performance of AXA and AXA Financial
Group. The extent to which performance targets are met determines the
number of performance units earned, which may vary between 0% and 130% of the
number of performance units at stake. Performance units earned under
the 2009 plan cliff-vest on the second anniversary of their award
date. When fully-vested, the performance units earned will be settled
in cash or, in some cases, a combination of cash (70%) and stock (30%), the
latter equity portion having transfer restrictions for a two-year
period. For 2009 awards, the price used to value the performance
units at settlement will be the average opening price of the AXA ordinary share
for the last 20 trading days of the vesting period converted to U.S. dollars
using the Euro to U.S. dollar exchange rate on March 31, 2011. In
third quarter and first nine months of 2009, the expense associated with the
March 20, 2009 grant of performance units was approximately $2.5 million and
$10.0 million, respectively.
On June
16, 2008, AXA Financial entered into a total return swap and a forward purchase
contract on the AXA ADR to limit its price exposure on awards expected to vest
on April 1, 2010 under the terms of the AXA Performance Unit Plan
2008. Terms of the swap agreement require quarterly payments by AXA
Financial of a LIBOR-based spread in exchange for a total return payment on the
AXA ADR based on 773,000 notional shares. The forward purchase
contract requires AXA Financial to take delivery of 220,000 AXA ADRs on April
10, 2010 for payment of $33.7329 per share, or approximately $7.4
million. The forward purchase obligation has been recognized by AXA
Financial Group in its consolidated balance sheets at September 30, 2009 and
December 31, 2008 as a direct reduction of capital in excess of par value and
does not require adjustment in future periods for changes in value.
46
During
the reservation period from September 1, 2009 through September 16, 2009 and the
November 2, 2009 through November 13, 2009 period (the “Retraction/Subscription
Period”), eligible employees of participating AXA Financial subsidiaries were
offered the opportunity to reserve a subscription to purchase newly issued AXA
stock, subject to plan limits, under the terms of AXA Shareplan
2009. The U.S. dollar purchase price of $22.06 per share was
determined by
applying the U.S. dollar/Euro forward exchange rate on October 28, 2009 to the
discounted formula subscription price in Euros. Reserved
subscriptions not cancelled during the Retraction/Subscription Period become
binding and irrevocable at November 13, 2009.
10)
|
INCOME
TAXES
|
Income
taxes for the interim periods ended September 30, 2009 and September 30, 2008
have been computed using an estimated annual effective tax rate. This
rate is revised, if necessary, at the end of each successive interim period to
reflect the current estimate of the annual effective tax rate. In
addition, the tax benefit for the period ended September 30, 2009 reflected an
additional benefit in the amount of $15.1 million for the release in second
quarter of tax audit reserves held by the Investment Management
segment.
At
September 30, 2009, unrecognized tax benefits increased by $9.5 million from
$605.8 million at December 31, 2008 to $615.3 million. The net
increase was attributable to unrecognized tax benefits related to the filing of
the 2008 Federal income tax return partially offset by the release of tax audit
reserves related to the completion of various state and city tax audits and
developments in the Federal tax law. Of the total $615.3 million of unrecognized
tax benefits held at September 30, 2009, $501.0 million would affect the
effective tax rate and $114.3 million are tax positions for which the ultimate
deductibility is highly certain but for which there is uncertainty about the
timing of such deductibility.
11)
|
LITIGATION
|
There
have been no new material legal proceedings and no material developments in
specific litigations previously reported in AXA Financial Group’s Notes to
Consolidated Financial Statements for the year ended December 31, 2008, except
as described below:
In Wiggenhorn, in April
2009, plaintiffs filed a petition for a writ of certiorari with the Supreme
Court of the United States. In October 2009, the Supreme Court of the
United Stated declined to grant plaintiffs petition for writ of
certiorari.
In the
Meola
consolidated wage and hour litigation, in May 2009, the Court granted
preliminary approval of the settlement and the settlement proceeds were turned
over to the Class Administrator. In June 2009, notices were sent out
to class members. In September 2009, the Court granted final approval
of the settlement.
Although
the outcome of litigation generally cannot be predicted with certainty,
management intends to vigorously defend against the allegations made by the
plaintiffs in the actions described above and those described in AXA Financial
Group’s Notes to Consolidated Financial Statements for the year ended December
31, 2008, and believes that the ultimate resolution of the litigation described
therein involving AXA Financial and/or its subsidiaries should not have a
material adverse effect on the consolidated financial position of AXA Financial
Group. Management cannot make an estimate of loss, if any, or predict
whether or not any of the litigations described above or in AXA Financial
Group’s Notes to Consolidated Financial Statements for the year ended December
31, 2008 will have a material adverse effect on AXA Financial Group’s
consolidated results of operations in any particular period.
In
addition to the matters described above and in AXA Financial Group’s Notes to
Consolidated Financial Statements for the year ended December 31, 2008, lawsuits
continue to be filed against life and health insurers in the jurisdictions in
which AXA Equitable, MONY Life, and their respective insurance subsidiaries do
business involving insurers’ sales practices, alleged agent misconduct, alleged
failure to properly supervise agents, contract administration and other
matters. The resolution of lawsuits alleging these and other claims
in the past have resulted in the award of substantial judgments against other
insurers, including material amounts of punitive damages, or in substantial
settlements. In some states, juries have substantial discretion in
awarding punitive damages. AXA Equitable, AXA Life, MONY Life, MLOA
and USFL, like other life and health insurers, from time to time are involved in
such litigations. Some of these actions and proceedings filed against
AXA Financial and its subsidiaries have been brought on behalf of various
alleged classes of claimants and certain of these claimants seek damages of
unspecified amounts. While the ultimate outcome of such matters
cannot be predicted with certainty, in the opinion of management no such pending
matter is likely to have a material adverse effect on AXA Financial Group’s
consolidated financial position or results of operations. However, it
should be noted that the frequency of large damage awards, including large
punitive damage awards that bear little or no relation to actual economic
damages incurred by plaintiffs in some jurisdictions, continues to create the
potential for an unpredictable judgment in any given matter.
47
12)
|
SEGMENT
INFORMATION
|
The
following tables reconcile segment revenues and earnings from continuing
operations before income taxes to total revenues and earnings as reported on the
consolidated statements of earnings and segment assets to total assets on the
consolidated balance sheets, respectively:
Three
Months Ended September
30, |
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
Segment
revenues:
|
||||||||||||||||
Financial
Advisory/Insurance
|
$ | 783.7 | $ | 2,928.3 | $ | (51.5 | ) | $ | 8,008.9 | |||||||
Investment
Management (1)
|
824.4 | 848.4 | 2,154.8 | 2,956.7 | ||||||||||||
Consolidation/elimination
|
(12.2 | ) | (22.1 | ) | (26.6 | ) | (64.7 | ) | ||||||||
Total
Revenues
|
$ | 1,595.9 | $ | 3,754.6 | $ | 2,076.7 | $ | 10,900.9 |
(1) Net
of interest expense incurred on securities borrowed.
Segment
(loss) earnings from
|
||||||||||||||||
continuing
operations before income taxes:
|
||||||||||||||||
Financial
Advisory/Insurance
|
$ | (690.2 | ) | $ | 62.4 | $ | (4,082.6 | ) | $ | 1,481.8 | ||||||
Investment
Management
|
215.9 | 233.4 | 341.9 | 802.8 | ||||||||||||
Consolidation/elimination
|
.4 | (2.6 | ) | 1.5 | (3.1 | ) | ||||||||||
Total
(Loss) Earnings from Continuing
|
||||||||||||||||
Operations
before Income Taxes
|
$ | (473.9 | ) | $ | 293.2 | $ | (3,739.2 | ) | $ | 2,281.5 |
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(In
Millions)
|
||||||||
Segment
assets:
|
||||||||
Financial
Advisory/Insurance
|
$ | 158,263.3 | $ | 144,467.7 | ||||
Investment
Management
|
12,602.8 | 13,377.3 | ||||||
Consolidation/elimination
|
(98.5 | ) | (21.5 | ) | ||||
Total
Assets
|
$ | 170,767.6 | $ | 157,823.5 |
48
13)
|
COMPREHENSIVE
INCOME (LOSS)
|
The
components of comprehensive (loss) income follow:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
Millions)
|
||||||||||||||||
Net
(loss)
earnings
|
$ | (275.3 | ) | $ | 185.8 | $ | (2,306.3 | ) | $ | 1,550.2 | ||||||
Other
comprehensive income (loss),
|
||||||||||||||||
net
of income taxes
|
||||||||||||||||
Change
in unrealized gains (losses) ,
|
||||||||||||||||
net
of reclassification adjustment
|
979.1 | (943.8 | ) | 1,703.0 | (1,561.3 | ) | ||||||||||
Change
in defined benefit plan related items
|
||||||||||||||||
not
yet recognized in periodic benefit cost,
|
||||||||||||||||
net
of reclassification adjustment
|
(43.8 | ) | 8.5 | (75.2 | ) | 48.6 | ||||||||||
Total
other comprehensive income (loss),
|
||||||||||||||||
net
of income taxes
|
935.3 | (935.3 | ) | 1,627.8 | (1,512.7 | ) | ||||||||||
Comprehensive
income (loss)
|
660.0 | (749.5 | ) | (678.5 | ) | 37.5 | ||||||||||
Comprehensive
income attributable to
|
||||||||||||||||
noncontrolling
interest
|
(159.3 | ) | (68.7 | ) | (237.0 | ) | (284.4 | ) | ||||||||
Comprehensive
Income (Loss)
|
||||||||||||||||
Attributable
to AXA Financial, Inc.
|
$ | 500.7 | $ | (818.2 | ) | $ | (915.5 | ) | $ | (246.9 | ) |
49
Item
2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Management’s
discussion and analysis is omitted pursuant to General Instruction H of Form
10-Q. The management narrative for AXA Financial Group that follows
should be read in conjunction with the Consolidated Financial Statements and the
related Notes to Consolidated Financial Statements included elsewhere herein,
with information provided under “Forward-looking Statements” included elsewhere
herein and with the management narrative found in the Management’s Discussion
and Analysis (“MD&A”) and the “Risk Factors” sections included in AXA
Financial, Inc.’s Annual Report on Form 10-K for the year ended December 31,
2008 (“2008 Form 10-K”) and Part II, Item 1A in this Form 10-Q.
INTRODUCTION
During
the third quarter 2009, equity markets continued to improve from the lows
experienced during first quarter 2009. At the end of third quarter 2009, U.S.
Treasury interest rate yields, especially on longer maturities, remained above
year-end 2008 interest rate yields. Volatility for both equity
markets and interest rates continued to subside during third quarter 2009, and
were considerably below the high levels experienced during the fourth quarter
2008. Market volatility, equity market performance and interest rate
levels all impact AXA Financial Group’s business and consolidated results of
operations.
For
information on measures management has taken to mitigate the effects of equity
market performance, interest rates and market volatility, see “Management's
Discussion and Analysis of Financial Condition and Results of Operations” in the
2008 Form 10-K.
GENERAL
In recent
years, variable annuity products with GMDB, GMIB and GWBL features (the “VA
Guarantee Features”) have been the predominant products issued by AXA
Equitable. These products account for over half of AXA Equitable’s
Separate Accounts assets and have been a significant driver of its
results. Because the future claims exposure on these products is
sensitive to movements in the equity markets and interest rates, the Insurance
Group has in place hedging and reinsurance programs that are designed to
mitigate the impact of movements in the equity markets and interest
rates. These programs generally include, among others, the
following:
·
|
GMIB
reinsurance contracts. GMIB reinsurance contracts are
used to cede to affiliated and non-affiliated reinsurers a portion of the
exposure on variable annuity products that offer the GMIB
feature. Under U.S. GAAP, the GMIB reinsurance contracts ceded
to non-affiliated reinsurers are accounted for as derivatives and are
reported at fair value. Gross reserves for GMIB, on the other
hand, are calculated under U.S. GAAP on the basis of assumptions related
to projected benefits and related contract charges over the lives of the
contracts and therefore will not immediately reflect the offsetting impact
on future claims exposure resulting from the same capital market and/or
interest rate fluctuations that cause gains or losses on the fair value of
the GMIB reinsurance contracts. Because the changes in the fair
value of the GMIB reinsurance contracts are recorded in the period in
which they occur while offsetting changes in gross reserves for GMIB will
be recognized over time, earnings will tend to be more volatile,
particularly during periods in which equity markets and/or interest rates
change significantly. This was the case during the first nine
months of 2009 as the significant increase in long-term interest rates
caused a decline in the fair value of the reinsurance contracts, which was
not fully offset by the change in the gross reserves, contributing to the
significant loss for the period.
|
·
|
Hedging
programs. Hedging programs are used to hedge certain
risks associated with the VA Guarantee Features. These programs
currently utilize various derivative instruments that are managed in an
effort to reduce the economic impact of unfavorable changes in VA
Guarantee Features’ exposures attributable to movements in the equity
markets and interest rates. Although these programs are
designed to provide a measure of economic protection against the impact
adverse market conditions may have with respect to VA Guarantee Features,
they do not qualify for hedge accounting treatment under US. GAAP, meaning
that as in the case of the GMIB reinsurance contracts, changes in the
value of the derivatives will be recognized in the period in which they
occur while offsetting changes in reserves will be recognized over time,
which will contribute to earnings volatility. This was the case
during the first nine months of 2009, as significant increases in equity
markets and long-term interest rates caused a decline in the fair value of
derivatives used in these hedging programs, which was not fully offset by
the change in the gross reserves, contributing to the significant loss for
the period.
|
50
For the
first nine months of 2009, the decrease in consolidated net earnings and
earnings from continuing operations were largely due to the increases in equity
markets and long-term interest rates which resulted in a decrease in the fair
value of the GMIB reinsurance contracts and hedging program derivatives, which
were not fully offset by the change in the U.S. GAAP
reserves. Conversely, during fiscal year 2008, the decline in the
equity markets and interest rates resulted in increases to the fair value of the
GMIB reinsurance contracts and hedging program derivatives, which significantly
exceeded the change in the gross reserves, significantly contributing to the
earnings for full year 2008. The table below shows, for the nine
months ended September 30, 2009 and 2008 and the year ended December 31, 2008,
the impact on (Loss) earnings from continuing operations before income taxes of
the items discussed above (prior to the impact of Amortization of deferred
acquisition costs):
Nine
Months Ended
September
30,
|
Year
Ended
December
31,
|
|||||||||||
2009
|
2008
|
2008
|
||||||||||
(In
Millions)
|
||||||||||||
Decrease
(increase) in GMDB, GMIB and GWBL
|
||||||||||||
reserves,
net of related GMDB reinsurance (1)
|
$ | 394.6 | $ | (229.0 | ) | $ | (2,612.0 | ) | ||||
(Decrease)
increase in fair value of
|
||||||||||||
GMIB
reinsurance contracts (2)
|
(741.1 | ) | 389.9 | 1,860.7 | ||||||||
(Losses)
gains on free-standing derivatives (3)
|
(5,364.3 | ) | 1,449.4 | 6,753.5 | ||||||||
Total
|
$ | (5,710.8 | ) | $ | 1,610.3 | $ | 6,002.2 |
(1)
|
Reported
in Policyholders’ benefits in the consolidated statement of
earnings
|
(2)
|
Reported
in (Decrease) increase in fair value of reinsurance contracts in the
consolidated statement of earnings
|
(3)
|
Reported
in Net investment (loss) income in the consolidated statement of
earnings
|
The
consolidated and segment results of operations narratives that follow discuss
the results for the first nine months of 2009 compared to the corresponding 2008
period’s results.
CONSOLIDATED
RESULTS OF OPERATIONS
Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
There was
a $2.51 billion net loss attributable to the AXA Financial Group in the first
nine months of 2009, a difference of $3.76 billion from the $1.25 billion of net
earnings attributable to AXA Financial Group during the first nine months
of 2008.
Net
earnings attributable to the noncontrolling interest was $203.6 million in the
first nine months of 2009 as compared to $302.7 million in the 2008 period; the
decrease was principally due to lower AllianceBernstein earnings.
A total
enterprise net loss of $2.31 billion was reported in the first nine months of
2009, a decrease of $3.86 billion from the $1.55 billion of net earnings
reported for the first nine months of 2008. The first nine months of
2008 net earnings included $68.2 million related to the positive earnings impact
of the January 1, 2008 adoption of new accounting guidance related to fair value
measurement and disclosure of the GMIB reinsurance asset’s fair value (net of
the related increases of $104.3 million in DAC amortization and $36.5 million in
income taxes).
During
the first nine months of 2009, the discontinued Wind-up Annuities business
produced post-tax losses of $11.8 million; in the corresponding 2008 period,
Wind-up Annuities’ net earnings/loss was zero. In the first nine
months of 2008, a post-tax loss of $0.5 million was recognized related to the
disposition of AXA Enterprise Funds with post-tax income of $1.1 million and
losses of $3.4 million from the discontinued Enterprise operations reported in
the first nine months of 2009 and 2008, respectively. Post-tax
earnings and gains from real estate held for sale, which are reported as
discontinued operations, were $1.6 million and $6.3 million, respectively, in
the first nine months of 2008; there were no results from real estate held for
sale in the first nine months of 2009.
51
The
income tax benefit in the first nine months of 2009 was $1.44 billion as
compared to an income tax expense of $735.3 million in the first nine months of
2008. The change was primarily due to the change in pre-tax results
from earnings in the 2008 period to losses in the current
period. Included in the 2009 tax benefit was $15.1 million of tax
benefit related to the release of tax audit reserves held by the Investment
Management segment. Income taxes for the first nine months of
2009 were determined using an estimated annual effective tax rate. The tax
benefit for the first nine months of 2009 was greater than the expected tax
benefit primarily due to non-taxable investment income and the Separate Account
dividends received deduction.
Loss from
continuing operations before income taxes was $3.74 billion for the first nine
months of 2009, as compared to the $2.28 billion in pre-tax earnings reported
for the year earlier period. The Financial Advisory/Insurance
segment’s pre-tax loss from continuing operations of $4.08 billion in the first
nine months of 2009, $5.72 billion lower than the first nine months of 2008’s
earnings of $1.48 billion, was primarily due to net investment losses resulting
from losses on derivative instruments and the decline in the fair value of the
reinsurance contracts as compared to an increase in the 2008 period partially
offset by lower DAC amortization and lower policyholders’ benefits as well as
lower investment losses in the first nine months of 2009. The
Investment Management segment’s pre-tax earnings from continuing operations were
$1.81 billion in the first nine months of 2009, $341.0 million lower than in the
first nine months of 2008, as lower investment advisory and services fees and
distribution revenues were partially offset by lower compensation and benefits
and investment gains at AllianceBernstein in the 2009 period as compared to
investment losses in the first nine months of 2008.
Revenues. In the
first nine months of 2009, revenues decreased $8.82 billion to $2.08 billion as
a result of the $8.22 billion decrease for the Financial Advisory/Insurance
segment and the $801.9 million decrease for the Investment Management
segment. The revenue decline to a negative $51.5 million for the
Financial Advisory/Insurance segment was principally due to net investment
losses caused by declines in the fair values of derivative instruments in the
2009 period as compared to income in the related 2008 period, a decrease in the
fair value of the reinsurance contracts as compared to an increase in the 2008
period, and lower commissions, fees and other income partially offset by lower
investment losses in the first nine months of 2009 while the Investment
Management segment’s decrease in revenues to $2.15 billion resulted principally
from lower investment advisory and services fees and lower distribution revenues
at AllianceBernstein that were partially offset by mark-to-market gains on its
trading portfolio in the 2009 period rather than losses as in the first nine
months of 2008.
Policy
fee income totaled $2.31 billion in the first nine months of 2009, $81.2 million
lower than for the first nine months of 2008. This decrease resulted
from lower fees earned on lower average Separate Account balances due primarily
to market depreciation during 2008, partially offset by higher life insurance
policy charges and higher GMDB/GMIB fees.
In the
first nine months of 2009, net investment losses totaled $3.21 billion, a
decrease of $6.68 billion from the $3.47 billion of net investment income
reported in the 2008 period. The $6.96 billion decline in the
Financial Advisory/Insurance segment was partially offset by a $283.2 million
increase in the Investment Management segment. The Financial
Advisory/Insurance segment’s decrease was primarily due to the decrease in the
fair value of derivative instruments (a $5.36 billion decline in fair value in
the first nine months of 2009 as compared to an increase of $1.45 billion in the
first nine months of 2008). Further respective decreases of $193.1
million, $44.6 million and $22.9 million were reported in investment income
related to equity limited partnerships, short-term investments, and mortgage
loans. These declines were partially offset by the $49.8 million
increase related to trading account securities, $6.4 million in earnings as
compared to $26.9 million in investment losses on Separate Accounts surplus and
a $17.1 million increase in fixed maturities’ investment income. The
Investment Management segment’s increase in the 2009 period was primarily due to
mark-to-market gains of $130.7 million as compared to $187.1 million of
mark-to-market losses in the first nine months of 2008 on investments related to
deferred compensation plan obligations at AllianceBernstein, partially offset by
lower dividend and interest income. AllianceBernstein expects
that for 2009 and future years, all deferred awards will be in the form of
restricted AllianceBernstein Holding units. As a result, the amount
of deferred compensation related investments on which it recognizes
mark-to-market gains and losses will decline as the
corresponding awards previously made vest and are paid.
Investment
losses totaled $17.9 million in the first nine months of 2009, as compared to
$369.2 million in the prior year’s comparable period as a result of lower losses
in the Financial Advisory/Insurance segment and higher gains in the Investment
Management segment. Net OTTI losses were $222.7 million in the 2009
period, as compared to $382.5 million in losses in the first nine months of
2008. The 2009 net OTTI losses were due to writedowns on the
Insurance Group’s fixed maturities portfolio including $32.7 million on certain
CMBS securities. The 2008 net OTTI losses
included writedowns on Lehman Brothers Holdings Inc. and Washington Mutual, Inc.
debt of $188.4 million and $92.8 million, respectively. There were $159.7
million of other investment gains for the Financial Advisory/Insurance segment
in the first nine months of 2009 as compared to losses of $13.3 million in the
first nine months of 2008 primarily due to $175.6 million of gains from the sale
of fixed maturities, up from $(17.1) million of losses in the year earlier
period, offset by $16.4 million in losses as compared to $8.4 of gains on
mortgage loans in the 2009 and 2008 periods, respectively. The
Investment Management segment’s $18.8 million increase resulted from higher
gains on sales of investments.
52
Commissions,
fees and other income decreased $ 1.25 billion to $ 2.63 billion in the first
nine months of 2009 with a $1.10 billion decrease in the Investment Management
segment and $178.6 million lower income in the Financial Advisory/Insurance
segment. The Investment Management segment decrease was due to the
$947.9 million, $117.5 million and $27.8 million respective decreases in
investment advisory and services fees, distribution revenues and institutional
research services income at AllianceBernstein in the first nine months of 2009
as compared to the first nine months of 2008. The decrease to $1.38
billion in investment advisory and services fees was primarily due to a 29.2%
decrease in average assets under management (“AUM”) and the impact of a shift in
product mix toward fixed income and domestic equity services, which generally
have lower fee rates, partially offset by slightly higher performance-based fees
($13.4 million and $12.0 million in the 2009 and 2008 periods,
respectively). The decline in distribution revenues to $196.4 million
was principally due to lower average mutual fund AUM. The decrease to
$325.8 million in institutional research services revenues related to lower
levels of client trading activity and lower security valuations in European
markets, partially offset by market share gains. The Financial
Advisory/Insurance segment decrease to $704.0 million in the first nine months
of 2009 was principally due to a $168.6 million decline in gross investment
management and distribution fees received from EQAT and VIP Trust due to a lower
asset base.
In the
first nine months of 2009, there was a $741.1 million decrease in the fair value
of the GMIB reinsurance contracts, which are accounted for as derivatives, as
compared to a $389.9 million increase in their fair value in the first nine
months of 2008; both periods’ changes reflected market
fluctuations, However, the 2008 period’s increase also included the
January 1, 2008 increase of $209.2 million related to the fair value adjustment
of the GMIB reinsurance contracts upon the adoption of new guidance on fair
value measurement and disclosure.
Benefits and Other
Deductions. Total benefits and other deductions decreased
$2.80 billion in the first nine months of 2009 to $5.82 billion principally due
to the Financial Advisory/Insurance segment’s reported decrease of $2.50 billion
primarily as a result of lower DAC and VOBA amortization, the decline in
policyholders’ benefits and lower commissions in the first nine months of 2009
supplemented by the $341.0 million decline in the Investment Management
segment.
Policyholders’
benefits totaled $1.85 billion, a decrease of $600.1 million from the $2.45
billion reported for the first nine months of 2008. The decrease was
principally due to the $232.1 million decline in the GMDB/GMIB reserves as
compared to an $182.1 million increase in the year earlier period and a $162.5
million decrease in the GWBL reserve as compared to a $46.9 million increase in
the 2008 period, partially offset by a $19.6 million increase in death claims
and $35.8 million higher policyholder dividends.
Total
compensation and benefits decreased $173.0 million to $1.76 billion in the first
nine months of 2009 due to the decrease of $205.2 million for the Investment
Management segment. The Investment Management segment’s decrease in
the first nine months of 2009 to $1.01 billion resulted from: an $84.4 million
decrease in base compensation, fringe benefits and other employment costs due
primarily to workforce reductions and lower recruitment costs, partially
offset by higher severance costs; a $30.7 million decrease in incentive
compensation at AllianceBernstein due to lower headcount, lower estimated
year-end cash incentive payments partially offset by higher deferred
compensation expense; and $25.0 million lower commission expense reflecting
lower sales volume and revenues across all three distribution
channels. Compensation and benefits for the Financial
Advisory/Insurance segment increased $32.1 million to $748.2 million during the
first nine months of 2009 as decreases in salaries and share-based compensation
were more than offset by higher pension plan expenses resulting from the market
driven depreciation in the fair value of the plan’s assets in 2008 and a lower
expected rate of return on plan assets.
For the
first nine months of 2009, commissions in the Financial Advisory/Insurance
segment totaled $692.9 million, a decrease of $326.1 million from the first nine
months of 2008 principally due to lower sales of interest-sensitive life
insurance and variable annuity products.
53
There was
an $81.5 million decline in distribution plan payments in the Investment
Management segment, from $227.9 million in the first nine months of 2008 to
$146.4 million in the first nine months of 2009. The decrease
resulted from lower average Retail Services’ AUM at
AllianceBernstein.
Interest
expense rose $77.9 million to $224.8 million in the first nine months of 2009 as
compared to $146.9 million in the comparable 2008 period, with the Financial
Advisory/Insurance segment’s $93.8 million increase being partially offset by
the Investment Management segment’s $12.4 million decline. The
increase to $192.3 million for the Financial Advisory/Insurance segment was due
to an $88.4 million increase related to interest on fourth quarter 2008 and
first quarter 2009 borrowings from AXA and a $3.3 million increase related to
AXA Bermuda’s short-term credit facility, partially offset by the absence of
$4.1 million of interest on the $250 million Senior Note and AXA Equitable’s
short-term promissory note, both repaid in 2008. The Investment
Management segment’s decrease was the result of significantly lower interest
rates and lower borrowing levels in the first nine months of 2009 as compared to
the first nine months of 2008 at AllianceBernstein.
DAC and
VOBA amortization was a negative $68.9 million in the first nine months of 2009,
a decline of $1.87 billion from the $1.80 billion charge reported in the
corresponding 2008 period. In the first nine months of 2009, the
level of amortization for the DAC associated with the Accumulator® products was
negative due to reactivity to negative gross profits in the first nine months of
2009 and lower projected future costs of hedging of the GMIB feature of the
Accumulator® products as higher interest rates have reduced the projected hedge
levels. Due primarily to the significant decline in Separate Accounts
balances during 2008, future estimated gross profits for certain issue years for
the Accumulator® products were expected to be negative as the increases in the
fair values of derivatives used to hedge certain risks related to these products
are recognized in current earnings while the related reserves do not fully and
immediately reflect the impact of equity markets and interest rate
fluctuations. As required under U.S. GAAP, for those issue years with
future estimated negative gross profits, the DAC amortization method was changed
in fourth quarter 2008 from one based on estimated gross profits to one based on
estimated account balances for the Accumulator® products. In second
quarter 2009, the surrender assumption for the variable life products was
updated to reflect emerging deterioration in persistency which resulted in an
increase in amortization, which partially offset the negative DAC amortization
associated with the Accumulator® products. In the first nine months
of 2008, DAC amortization reflected reactivity to a material increase in the
fair value of the derivative instruments associated with the GMDB/GMIB hedging
program and of the related GMIB reinsurance contracts. This was
offset by the $28.7 million effect of DAC unlocking in the 2008 period,
principally related to the recognition of higher estimated future margins
associated with GMDB/GMIB hedging programs, higher expected fees related to
variable life and annuity contracts, and expectations of life mortality
improvements partially offset by the impact of the reversion to the mean
methodology on Separate Account fee revenue for variable annuity products as
well as higher mortality on certain older life contracts and higher surrenders
of certain older annuity contracts.
For
universal life insurance products and investment-type products, DAC and VOBA are
amortized over the expected total life of the contract group as a constant
percentage of estimated gross profits arising principally from investment
results, Separate Account fees, mortality and expense margins and surrender
charges based on historical and anticipated future experience, updated at the
end of each accounting period. If, at any point in time, estimated
gross profits are expected to be negative during the contract life, thereafter,
DAC is amortized using the present value of estimated
assessments. The effect on the amortization of DAC and VOBA of
revisions to estimated gross profits or assessments is reflected in earnings in
the period such estimated gross profits or assessments are revised. A
decrease in expected gross profits or assessments would accelerate DAC and VOBA
amortization. Conversely, an increase in expected gross profits or
assessments would slow DAC and VOBA amortization. The effect on the
DAC and VOBA assets that would result from realization of unrealized gains
(losses) is recognized with an offset to accumulated comprehensive income in
consolidated equity as of the balance sheet date.
A
significant assumption in the amortization of DAC and VOBA on variable and
interest-sensitive life insurance and variable annuities relates to projected
future Separate Account performance. Management sets estimated future
gross profit assumptions related to Separate Account performance using a
long-term view of expected average market returns by applying a reversion to the
mean approach. In applying this approach to develop estimates of
future returns, it is assumed that the market will return to an average gross
long-term return estimate, developed with reference to historical long-term
equity market performance and subject to assessment of the reasonableness of
resulting estimates of future return assumptions. For purposes of
making this reasonableness assessment, management has set limitations as to
maximum and minimum future rate of return assumptions, as well as a limitation
on the duration of use of these maximum or minimum rates of
return. Currently, the average gross long-term annual return estimate
is 9.0% (6.7% net of product weighted average Separate Account fees), and the
gross maximum and minimum short-term annual rate of return limitations are 15.0%
(12.7% net of product weighted average Separate Account fees) and 0.0% ((2.3%)
net of product weighted average Separate Account fees),
respectively. The maximum duration over which these rate limitations
may be applied is 5 years. This approach will continue to be applied
in future periods. If actual market returns continue at levels that
would result in assuming future market returns of 15.0% for more than 5 years in
order to reach the average gross long-term return estimate, the application of
the 5 year maximum duration limitation would result in an acceleration of DAC
and VOBA amortization. Conversely, actual market returns resulting in
assumed future market returns of 0.0% for more than 5 years would result in a
required deceleration of DAC and VOBA amortization. As of September
30, 2009, current projections of future average gross market returns assume a 0%
annualized return for the next five quarters, which is within the maximum and
minimum limitations, and assume a reversion to the mean of 9%
thereafter.
54
In
addition, projections of future mortality assumptions related to variable and
interest-sensitive life insurance products are based on a long-term average of
actual experience. This assumption is updated quarterly to reflect
recent experience as it emerges. Improvement of life mortality in
future periods from that currently projected would result in future deceleration
of DAC and VOBA amortization. Conversely, deterioration of life
mortality in future periods from that currently projected would result in future
acceleration of DAC and VOBA amortization. Generally, life mortality
experience has been improving in recent years.
Other
significant assumptions underlying gross profit estimates relate to contract
persistency and General Account investment spread.
DAC
capitalization totaled $758.6 million, a decrease of $356.3 million from the
$1.11 billion reported in the first nine months of 2008 primarily due to lower
sales of interest-sensitive life insurance and variable annuity
products.
The
$137.9 million decrease in other operating costs and expenses resulted from
decreases of $149.4 million and $25.4 million for the Financial
Advisory/Insurance and Investment Management segments,
respectively. The decrease in the Financial Advisory/Insurance
segment was principally due to lower sub-advisory fees at EQAT and VIP
Trust due to the declines in average asset balances as well as lower
travel, advertising and legal expenses, partially offset by higher consulting
fees. The Investment Management segment’s decrease in the first nine
months of 2009 primarily resulted from lower travel and entertainment expenses
and lower legal costs, partially offset by the absence of an
insurance reimbursement of $35.3 million received in third quarter
2008, at AllianceBernstein.
Premiums and
Deposits. The market for annuity and life insurance products
of the types issued by the Insurance Group continues to be very dynamic as a
result of the recent upheaval in the capital markets. Among other
things:
·
|
features
and pricing of various products, including but not limited to variable
annuity products, continue to change rapidly, in response to changing
customer preferences, company risk appetites, capital utilization and
other factors,
|
·
|
various
insurance companies, including one or more in the Insurance Group, have
eliminated and/or limited sales of certain annuity and life insurance
products or features, and
|
·
|
overall
industry sales of variable annuity and life insurance products
have declined, in some cases substantially, due in part to changing
customer preferences, a phenomenon also observed following previous
periods of significant market decline and/or
volatility.
|
Recent
changes to certain features including, e.g., guarantee features, pricing and/or
Separate Account investment options, have made some of the annuity and life
insurance products offered by the Insurance Group less competitive in the
marketplace. This, in turn, has adversely affected and may continue
to adversely affect overall sales of the Insurance Group’s annuity and life
insurance products. The Insurance Group continues to assess its
product offerings in light of changing market conditions and other factors, with
a view toward appropriately balancing risk management, cost, marketability and
other considerations. As conditions in the marketplace and capital
markets continue to evolve, the Insurance Group plans to offer new and/or
different products, and it may also further revise, suspend or discontinue one
or more of its product offerings.
Total
premiums and deposits for insurance and annuity products for the first nine
months of 2009 were $9.22 billion, a decrease of $4.76 billion from the $13.98
billion in the 2008 period while total first year premiums and deposits
decreased $4.65 billion to $5.02 billion in the first nine months of 2009 from
$9.67 billion in the first nine months of 2008. The first year
annuity premiums and deposits decreased $4.51 billion to $4.72 billion due to
the 49.2% decrease in sales of variable annuities (decreases of $3.67 billion to
$2.24 billion in the wholesale channel and of $850.0 million to $2.43 billion in
the retail channel) due to the difficult economic and market environment and
actions taken by management in response thereto. First year life
insurance premiums and deposits decreased $129.4 million, with the $78.2 million
decrease in sales of interest-sensitive life insurance products in the wholesale
channel and the $49.5 million and $6.6 million respective decreases in variable
and interest-sensitive life insurance sales in the retail channel being
partially offset by a $6.5 million increase in first year variable life
insurance sales in the wholesale channel.
55
Surrenders and
Withdrawals. Surrenders and withdrawals decreased $1.75
billion, from $6.90 billion in the first nine months of 2008 to $5.15 billion
for the first nine months of 2009. There were $1.76 billion and $15.8
million decreases in individual annuities and variable and interest-sensitive
life insurance surrenders and withdrawals, respectively, with an increase of
$37.2 million reported for the traditional life insurance line. The
annualized annuities surrender rate decreased to 6.8% in the first nine months
of 2009 from 7.9% in the first nine months of 2008. The individual
life insurance products’ annualized surrender rate increased to 4.7% in the
first nine months of 2009 from 4.2% in the 2008 period. The surrender
and withdrawal rates described above continue to fall within the range of
expected experience and the Insurance Group continues to closely monitor
surrender and withdrawal rates.
Assets Under
Management. Breakdowns of assets under management
follow:
Assets
Under Management
(In
Millions)
September 30,
|
||||||||
2009
|
2008
|
|||||||
Third
party
|
$ | 437,830 | $ | 535,653 | ||||
General
Account and
other
|
61,067 | 52,330 | ||||||
Insurance
Group Separate
Accounts
|
83,678 | 83,655 | ||||||
Total
Assets Under
Management
|
$ | 582,575 | $ | 671,638 |
Third
party assets under management at September 30, 2009 decreased $97.82 billion
from September 30, 2008 primarily due to market depreciation and net
outflows. General Account and other assets under management increased
$8.74 billion from the first nine months of 2008. The Insurance Group
Separate Account assets under management were basically unchanged from September
30, 2008.
AllianceBernstein
assets under management at September 30, 2009 totaled $497.82 billion as
compared to $589.56 billion at September 30, 2008 with market depreciation of
$11.5 billion and net outflows of $80.2 billion. The gross outflows
of $69.9 billion, $36.6 billion and $17.1 billion in institutional investment,
retail and private client channels, respectively, were partially offset by
inflows of $17.7 billion, $18.8 billion and $6.9 billion,
respectively. Non-US clients accounted for 56.6% of the September 30,
2009 total. During third quarter 2009, outflows slowed in all three
distribution channels, most notably in the Institutional channel and a majority
of AllianceBernstein’s investment services outperformed their benchmarks and/or
peer averages.
LIQUIDITY
AND CAPITAL RESOURCES
AXA Financial. On
June 16, 2009, AXA Financial issued a $440.0 million short-term note to
AXA. This note bears interest at a rate of LIBOR plus 15 basis
points. The proceeds from this note, whose original July 31, 2009
maturity date was amended to extend to October 16, 2009 and amended again to
December 16, 2009, was contributed to a newly formed non-insurance subsidiary to
support the purchase of investment real estate from AXA Equitable. In
connection with this purchase (the “AXA Equitable Property”), this subsidiary
issued $660.0 million of 8% mortgage notes with a ten year term, $400.0 million
to AXA Equitable, which is eliminated in consolidation, and $260.0 million to
AXA UK PLC, an AXA affiliate, which is reported in Loans from affiliates on the
consolidated balance sheet.
On June
3, 2009, AXA Financial and its parent, AXA, initiated a commercial paper program
on a private placement basis under which AXA Financial or AXA may issue
short-term unsecured notes in an aggregate amount not to exceed $1.50 billion
outstanding at any time. On June 15, 2009, AXA Financial issued $0.3
million which was repaid on June 16, 2009.
56
On March
31, 2008, AXA Financial issued a $250.0 million short-term note to
AXA. The note, which matured on June 16, 2008, bore interest at the
rate of three-month LIBOR plus 10 basis points. The note was rolled
over to December 16, 2008, at an interest rate of three-month LIBOR plus 25
basis points and rolled over on December 16, 2008 to December 16, 2009 maturity
date. The funds were used to pay the $250.0 million of third-party debt that
matured on April 1, 2008.
AXA
Financial continues to expect to fund most of its liquidity needs through
borrowings from AXA or its affiliates and/or from third parties.
The Insurance
Group. On June 17, 2009, AXA Equitable’s continuing operations
and its discontinued Wind-up Annuities business sold the AXA Equitable Property
valued at $1.10 billion to a non-insurance subsidiary of AXA Financial in
exchange for $700.0 million in cash and $400.0 million in 8% ten year term
mortgage notes on the property. The $440.0 million excess of the AXA
Equitable Property’s fair value over its carrying value was accounted for as a
capital contribution to AXA Equitable that is eliminated in
consolidation. For segment reporting purposes, the financial position
and operating results of the AXA Financial subsidiary are included in the
Financial Advisory/Insurance segment.
On
February 13, 2009, AXA Bermuda entered into an agreement with AXA that makes
available a $500.0 million revolving credit facility. On May 6, 2009,
the revolving credit facility was amended to make a total of $1.00 billion
available under the facility. During second quarter 2009, $900.0
million was utilized under the facility; the entire amount plus interest of $3.3
million was repaid during the quarter. No amounts were outstanding
under this facility on September 30, 2009.
At
September 30, 2009, AXA Equitable had no short-term debt or commercial paper
outstanding. During the first nine months of 2008, AXA Equitable’s
$350.0 million short-term promissory note, of which $101.7 million was reported
in the discontinued Wind-up Annuities business, bore interest at a rate of
three-month LIBOR plus 50 basis points and was repaid on September 23,
2008.
Members
of the Insurance Group monitor their capital requirements on an ongoing basis
taking into account the prevailing conditions in the capital
markets. Lower interest rates and/or poor equity market performance,
both of which have been experienced recently, increase the capital needed to
support the variable annuity guarantee business. While future capital
requirements will depend on future market conditions, management believes that
the Insurance Group will continue to have the ability to meet the capital
requirements necessary to support its business.
AllianceBernstein. For
the nine months ended September 30, 2008, cash flows included inflows of $13.4
million representing the additional investment by AllianceBernstein Holding with
proceeds from the exercise of options to acquire AllianceBernstein Holdings
units; no such investments were made in the related 2009
period. Outflows related to purchases of AllianceBernstein Holdings
units totaled $0.2 million and $3.2 million for the nine months ended September
30, 2009 and 2008, respectively, which were used to fund deferred compensation
plans. Cash flows in the first nine months of 2009 included $25.0
million and $693.0 million of net proceeds from bank loans. There was
a net reduction in cash flows of $258.7 million and $475.4 million in the
respective 2009 and 2008 periods related to net repayments of commercial
paper. Capital expenditures at AllianceBernstein were $43.5 million
in the first nine months of 2009 compared to $61.2 million in the comparable
2008 period. Net purchases of investments in the first nine months of
2009 totaled $6.1 million while net sales of investments totaled $10.6 million
in the first nine months of 2008. Available cash flow for cash
distributions from AllianceBernstein totaled $365.5 million and $711.6 million
for the first nine months of 2009 and 2008, respectively, while distributions
paid were $265.7 million and $835.1 million for the same respective
periods.
At
September 30, 2009, AllianceBernstein had $27.0 million outstanding under its
commercial paper program and $25.0 million outstanding under SCB LLC’s revolving
credit facility.
57
Item
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted
pursuant to General Instruction H to Form 10-Q.
Item
4(T). CONTROLS
AND PROCEDURES
Evaluation of Disclosure
Controls and Procedures
An
evaluation was performed under the supervision and with the participation of
management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of AXA Financial
Group's disclosure controls and procedures (as defined in Rule 13a -15(e) of the
Securities Exchange Act of 1934, as amended) as of September 30,
2009. Based on that evaluation, management, including the Chief
Executive Officer and Chief Financial Officer, concluded that AXA Financial
Group's disclosure controls and procedures were effective as of September 30,
2009.
Changes in Internal Control
Over Financial Reporting
There has
been no change in AXA Financial Group’s internal control over financial
reporting that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, AXA Financial
Group’s internal control over financial reporting.
58
PART
II OTHER
INFORMATION
Item
1.
|
Legal
Proceedings
See
Note 11 of Notes to Consolidated Financial Statements contained
herein. Except as disclosed in Note 11 of Notes to Consolidated
Financial Statements, there have been no new material legal proceedings
and no new material developments in legal proceedings previously reported
in the 2008 Form 10-K.
|
Item
1A.
|
Risk
Factors
|
There
have been no material changes to the risk factors described in Item 1A,
“Risk Factors,” included in the 2008 Form 10-K except as noted
below:
In
2007 and again in 2009, Congress proposed tax legislation that would cause
certain publicly-traded partnerships (“PTPs”) to be taxed as corporations,
thus subjecting their income to a higher level of income
tax. AllianceBernstein Holding is a PTP that derives its income
from asset manager or investment management services through its ownership
interest in AllianceBernstein. However, the legislation, in the
form proposed, would not affect AllianceBernstein Holding’s tax
status. In addition, AllianceBernstein continues to receive
consistent indications from a number of individuals involved in the
legislative process that AllianceBernstein Holding’s tax status is not the
focus of the proposed legislation, and that they do not expect to change
that approach. However, AllianceBernstein cannot predict
whether, or in what form, the proposed tax legislation will pass, and is
unable to determine what effect any new legislation might have on
AllianceBernstein. If AllianceBernstein Holding were to lose
its Federal tax status as a grandfathered PTP, it would be subject to
corporate income tax, which would reduce materially its net income and
quarterly distributions to AllianceBernstein Holding
unitholders.
In
its current form, the proposed legislation would not affect
AllianceBernstein because it is a private
partnership.
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
Omitted
pursuant to General Instruction H to Form
10-Q.
|
Item
3.
|
Defaults
Upon Senior Securities
|
Omitted
pursuant to General Instruction H to Form
10-Q.
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
Omitted
pursuant to General Instruction H to Form
10-Q.
|
Item
5.
|
Other
Information
|
None
|
59
Item
6.
|
Exhibits
|
Number
|
Description
and Method of Filing
|
||
31.1
|
Certification
of the Registrant’s Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
||
31.2
|
Certification
of the Registrant’s Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
||
32.1
|
Certification
of the Registrant’s Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
||
32.2
|
Certification
of the Registrant’s Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
60
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, AXA Financial, Inc.
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AXA
FINANCIAL, INC.
|
Date:
|
November
9, 2009
|
By:
|
/s/
Richard S. Dziadzio
|
||
Name:
|
Richard
S. Dziadzio
|
||||
Title:
|
Executive
Vice President and
|
||||
Chief
Financial Officer
|
|||||
Date:
|
November
9, 2009
|
/s/
Alvin H. Fenichel
|
|||
Name:
|
Alvin
H. Fenichel
|
||||
Title:
|
Senior
Vice President and
|
||||
Chief
Accounting Officer
|
|||||
61