III COLÓQUIO INTERNACIONAL SOBRE SEGUROS E FUNDOS DE PENSÕES July 7th, 2004

1. III COLÓQUIO INTERNACIONAL SOBRE SEGUROS E FUNDOS DE PENSÕES July 7th, 2004 Denis Duverne Member of AXA Management Board Chief Financial Officer

2. The Future of the Insurance Business : Challenges and Perspectives

3. What happened in the past 10 years... • CONSOLIDATION, DEMUTUALIZATION • Increased competition, with market share strategy a strong option • More capital oriented, with ROE a key theme • Emergence of sophisticated capital management • Increased pressure from regulators • Increased risk outsourcing (from large reinsurance capacity to stretched capacities with selective approach from reinsurers) PRODUCTS • More single premium products • Unit-linked products • Bigger demand for private pensions • Emergence of hedge funds, mutual funds,derivatives • Blurring distinction between life insurance and mutual funds DISTRIBUTION • Development of Financial planning and Asset Allocation advice • Emergence of : • Direct insurance, • Bancassurance, • Move towards Open-architecture CUSTOMER • More demanding • More risk adverse • Seeking for advice

4. Since 2000, the insurance sector has undergone a more challenging environment Property & Casualty • Unprecedented level of claims • Sept 11 • Natural catastrophes • Asbestos • Judicial inflation : “Deep pocket syndrome” • Increasing price of reinsurance • Life and Savings • Lower return & uncertain equity market • Widening pension GAAP • Volatility & Risk awareness • Demand for “safer” products • Relative failure of recent regulatory changes (stakeholder, riester …) Investment margin squeeze Lower fees on UL High level of equity losses Increased demand for protection Low technical margin Pressure on solvency and profitability

5. In L&S, insurers had to quickly adapt to lower returns and tight capital • Following the recent financial market collapse, client turned to safer products, with guaranteed rates. • To face this challenging environment and preserve theirs margins, insurers had to : • Reduce credited rates, in line with low fixed income returns and depleted capital gains • Reinforce Asset/Liability Management • Foster unit-linked sales, being less capital intensive and more profitable products in the long run, while providing various forms of guarantees

6. In P&C, emphasis was on efficiency, through disciplined underwriting This challenging environment has forced companies to focus on underwriting. More and more, P&C insurersare going “Back to Basics” to reduce expenses, while focusing on profitable clients through selective price increases. Market share-led strategies seem no longer to be an option. "BACK to BASICS" • Selective underwriting • Increased retention and cross selling through efficient CRM • Higher productivity through service centers & call centers • Reduced claims costs through relationship with approved repairers and spare parts distributors Source : Average investment return and combined ratio for Allianz, AXA, Generali and AIG, based on company public disclosure

7. +9% +3,5% -1,5% +17% +3% +9% Industrialized countries Emerging countries Despite the recent turmoil, worldwide insurance premiums have increased... • Worldwide gross insurance premiums evolution between 2001- 2002 (%)* • Premiums per capita in USD, 2001- 2002* ...with emerging markets posting a particularly strong growth, especially in Asia *Source: Swiss Re, Economic Research & Consulting, sigma No. 8/2003 and No. 6/2002

8. Future and challenges for the insurance sector ? • To remain attractive, the insurance sector has to grow profitably while satifying client needs… • What future in terms of growth? • What future in terms of distribution ? • What future in terms of offer ? • What future in terms of margins ? • What future in terms of required capital ?

9. 3,000 Japan Switzerland United Kingdom 2,500 2,000 Life density: GWP per capita +30% Finland Ireland United States 1,500 Netherlands Sweden Denmark North America France +3500% Hong Kong Australia Belgium 1,000 Western Europe South Korea Singapore Norway Australia & Canada Taiwan Luxembourg Italy NZ Germany Austria 500 South Africa Israel Spain Portugal Middle East South East Asia New Zealand 0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 Central & Eastern Europe Latin America and Caribbean Source: Swiss Re; World Bank. GDP per capita Emerging markets represent a sizeable growth engine... • Geographical mix is the key variable with emerging markets offering the highest margins and the highest growth rates

10. ...while developed countries will see further rationalizations • Due to capital requirements, strategic fit, minimum size and profitability, the insurance sector continues to rationalize. • According to a study by The Boston Consulting Group*, many insurance groups suffer from highly fragmented European portfolios, consisting of sub-critical units that have “severe structural disadvantages”. Many potentially sub-scale local positions within top players’ portfolios Average western European market share outside home country Number of western European markets outside home country 1 * Back to the Future: The European Insurance Landscape 1 Life and P&C markets in UK, Germany, France, Italy, Spain, Netherlands, Switzerland, Belgium and Austria 2 Two home markets: Netherlands & Belgium Source: Boston Consulting Group, companies, press

11. Changing demographics will provide opportunities for Life & Savings products • Recent market studies* indicate that in the US for example, variable and fixed life insurance should grow as baby boomers enter retirement Source: United Nations, US Census bureau • 82% of baby boomers believe their lifestyle would decline upon the death of a spouse • 72% of baby boomers who own life insurance believe they don’t own enough • 7 of 10 non-buyers believe they still need to buy life insurance Source: United Nations *Sources: AXA Financial Nest Egg Study (2003), LIMRA 2003

12. 2 business models emerge in L&S, with insurers well positionned on Mass Affluent • Towards a more segmented and differentiated distribution • High quality network • Advice tools • Wide product offer (innovation, performance…) • Rich Internet proposition (value added services, information…) • Standardised product offer • Recruiting machine • Cost-effective channel management • Low cost / streamlined back-office operations • “Off-the-shelf” selling proposition Focus of business model Mass Affluent Advice & Relationship Sales and Service industrialization Mass market Source: McKinsey & Company, “Reinventing for growth”

13. Partnerships are increasingly important, notably in bancassurance • Bancassurance, one of the avenues for third-party distribution can be dealt with three different approaches... • Capital intensive • Potential conflict of interest (capital allocation) Full Ownership Bancassurance • Co-Ownership of a separate entity to cross-sell products: • Alignment of interests • Governance is key Joint-Ventures • Capital allocation similar to proprietary distribution • Allocation of profits between manufacturer and distributor is key Distribution Agreements

14. Offering innovative and tailor made products and services will be key …to answer clients needs for Insurers will have to focus on • Innovative & tailor made products • Development of unit-linked business with guarantees (GMIB, WB…) • Development of protection products • Development of tailor-made offering in P&C • Specialized and trained life agents • Open-architecture • Improved customer service • IT investment (consolidated customer view) • Expanded internet proposition • advice/education • transparency • availability • faster settlements • quality • broad range of products and services • protection • retirement income • elderly care solutions

15. Maintaining margins will require : • A better leverage of technology investments • A constant discipline to improve internal processes • A more rigourous analysis of opportunities offered by outsourcing (components of risk as well as components of the service proposition) • Improved risk management and capital allocation practices • A focus on market segments where sustainable competitive advantages can be gained

16. What future in terms of required capital ? • After softening rules during the market turmoil, European Regulators are revisiting their models Solvency II project aims at developing a more risk sensitive system for assessing the overall solvency and risk management discipline of the industry • What is the true level of capital required • Existing regulatory capital • Risk Based Capital (RBC) • Internal models • Rating agencies’ models • Adequacy of reserves • What adjustements are needed to reflect the quality of risk management ?

17. Capital should be allocated to one core business Capital is a very expensive resources that need to be tightly managed Capital is the last currency you need to use Financial protection only Economic capital methodology Selective expansion and divestments Key success factors - Capital management and discipline ...

18. Conclusion • Insurance will remain a growth business • Thanks to a reduced capitalization and improved risk management practices, future cycles should be less pronounced • The unbundling of the various components of the value proposition will be key to the future success of insurance companies

19. Thank you