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

Lisbonne- Denis Duverne - 07/07/04 - Page 2 The Future of the Insurance Business : Challenges and Perspectives

Lisbonne- Denis Duverne - 07/07/04 - Page 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) DISTRIBUTION Development of Financial planning and Asset Allocation advice Emergence of : Direct insurance, Bancassurance, Move towards Open-architecture 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 CUSTOMER More demanding More risk adverse Seeking for advice

Lisbonne- Denis Duverne - 07/07/04 - Page 4 Investment margin squeeze Lower fees on UL High level of equity losses Low technical margin Increased demand for protection Pressure on solvency and profitability 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 …)

Lisbonne- Denis Duverne - 07/07/04 - Page 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

Lisbonne- Denis Duverne - 07/07/04 - Page 6 "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 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 insurers are 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. Source : Average investment return and combined ratio for Allianz, AXA, Generali and AIG, based on company public disclosure

Lisbonne- Denis Duverne - 07/07/04 - Page 7 Despite the recent turmoil, worldwide insurance premiums have increased... *Source: Swiss Re, Economic Research & Consulting, sigma No. 8/2003 and No. 6/2002 Worldwide gross insurance premiums evolution between (%)* Industrialized countriesEmerging countries +9% -1,5% +17% +3% +9% +3,5% Premiums per capita in USD, *...with emerging markets posting a particularly strong growth, especially in Asia

Lisbonne- Denis Duverne - 07/07/04 - Page 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 ?

Lisbonne- Denis Duverne - 07/07/04 - Page 9 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

Lisbonne- Denis Duverne - 07/07/04 - Page 10 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 Many potentially sub-scale local positions within top players portfolios 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. Number of western European markets outside home country 1 Average western European market share outside home country * Back to the Future: The European Insurance Landscape...while developed countries will see further rationalizations

Lisbonne- Denis Duverne - 07/07/04 - Page 11 Changing demographics will provide opportunities for Life & Savings products 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 dont own enough 7 of 10 non-buyers believe they still need to buy life insurance *Sources: AXA Financial Nest Egg Study (2003), LIMRA 2003 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 Source: United Nations

Lisbonne- Denis Duverne - 07/07/04 - Page 12 Mass Affluent Mass market 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 Advice & Relationship Sales and Service industrialization Focus of business model Source: McKinsey & Company, Reinventing for growth 2 business models emerge in L&S, with insurers well positionned on Mass Affluent Towards a more segmented and differentiated distribution

Lisbonne- Denis Duverne - 07/07/04 - Page 13 Full Ownership Bancassurance Capital intensive Potential conflict of interest (capital allocation) Joint-Ventures Co-Ownership of a separate entity to cross-sell products: Alignment of interests Governance is key Partnerships are increasingly important, notably in bancassurance Capital allocation similar to proprietary distribution Allocation of profits between manufacturer and distributor is key Bancassurance, one of the avenues for third-party distribution can be dealt with three different approaches... Distribution Agreements

Lisbonne- Denis Duverne - 07/07/04 - Page 14 Offering innovative and tailor made products and services will be key 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 Insurers will have to focus on …to answer clients needs for

Lisbonne- Denis Duverne - 07/07/04 - Page 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

Lisbonne- Denis Duverne - 07/07/04 - Page 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 ?

Lisbonne- Denis Duverne - 07/07/04 - Page 17 Key success factors - Capital management and discipline... 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

Lisbonne- Denis Duverne - 07/07/04 - Page 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

Thank you