AXA S.A.

Henri de Castries - Chairman & Chief Executive Officer Denis Duverne - Deputy Chief Executive Officer Gerald Harlin - Chief Financial Officer

Nick Holmes - Societe Generale Fahad Changazi - Nomura Peter Eliot - Berenberg Blair Stewart - Bank of America Merrill Lynch James Shuck - UBS

Thanks, Andrew. Good afternoon, everybody.

Pleasure to be here again and especially to present a strong set of results. We are going to share the presentation with Denis and Gerald.

So, what I want to say as an introduction is that, when we look at these earnings, the way we see them is, first, strong earnings growth per share on an underlying and an adjusted basis, which I think you understand is important for a number of things. Second point, a very strong solvency ratio.

A lot of people are speaking about Solvency II, what is it going to change and so on and so forth. I think you can see there that we are well prepared, well capitalized.

Third point, we are coming towards the end of Ambition AXA. And this set of numbers is showing very clearly that we will reach the targets which we had set five years ago.

And they were demanding targets, and the story will not stop there. We'll come back to that later.

Last point, and probably a very important one for you, if you look at where is the growth, where are the earnings coming from, I think it's showing the resilience and the diversification of the AXA model, because it's coming both from mature and high growth markets. It's also starting to come in some of the growth from the digital initiatives we are taking.

So, let's come back to some of these numbers; underlying earnings growth 12% reported, 2% on a constant basis. The currency effects have been negative for years.

Now at least for one semester they are positive. Let's enjoy them.

If you look at the earnings on the comparable basis, the growth of course is lower. It doesn't mean that we don't think we have some resources for the future.

If you look at the underlying earnings per share and at the adjusted earnings per share, as I say, double digit growth. I think this bodes well for the dividend at the end of the year.

Solvency; the solvency ratio, because of the movements in interest rates, was down in the first quarter when compared to the end of the year. Now, with the evolution of the rates plus the, I would say, accumulation of earnings, we are at 215% at the end of the first half, which means once more that we are well prepared.

On the internal model approval process, we are pretty relaxed and we think that we will get the approval pretty soon. We will share with you our capital management framework at the next analysts' conference in December 2015, and you will see that we have pretty clear views on that.

We are, as I said, pretty well positioned to deliver Ambition AXA at the end of the year. We've taken there some of the ebb and flow of the key indicators.

Underlying earnings per share growth since the beginning, we are on track. Operating free cash flows, we will reach the €24 billion.

The return on equity, we will be comfortably within the 13%, 15% range. You know that always for the first half the return on equity is slightly higher than for the second half, and we are this year again above 16%.

And on the debt gearing front, we are at the bottom end of the range we had decided to determine. A couple of additional points on where do we stand in terms of operational model, one of the important things you have to have in mind is the evolution of the business mix.

If I look at the life and savings business, the first good thing is that APEs are growing, growing at 5% on a constant basis, 16% on a reported basis. They are growing, and the shift in mix is continuing.

General account products are only representing now 12% of the total of the sales. It's important to have in mind, because it showed that we are well positioned to resist any further period of low long term interest rates because we have been able to increase the unit-linked proportion to increase health and protection.

So, a continued diversification of the mix with an NBV, which has been growing at 5% on a constant basis, meaning that the margins are preserved. On the P&C side, slightly more tension, and you won't be surprised by that.

It's tougher to grow the revenues in this environment on a constant basis because we cannot expect as much as before from the pricing cycle. There are more competitive pressures in some markets, but nevertheless we grow even if it's modestly.

And we grow at a level of combined ratio which keeps improving. The current year combined ratio is slightly below 97% and the all-year combined ratio is better.

Denis will explain to you the favorable impact the natural catastrophes had during the first half. But, this is not the only reason for the satisfactory performance.

In asset management, this is one of the -- I think good and strong elements of the quarter. The two entities, AB and AXA IM, have solidly positive inflows, one more than the other.

I mean, AIX IM is delivering a very, very strong performance for this half year, so the asset management earnings are progressing because of the growth of assets, but also because of the -- due to market effects but also due to these very positive inflows. It's a reflection of a combination of two things, good investment performance and a stronger distribution footprint, even if we think that there some progress remains to be done.

Cost savings, it's another element of the Ambition AXA plans. We will comfortably reach the 1.9 billion we had set up as a revised ambition for this plan at the end of the year, having achieved 200 million during the first half.

So, overall three sources of growth; mature markets, and you can see that quarter after quarter the efficiency of the capital allocation there is bearing fruit; high growth markets with a focus on profitability, but also some disciplined capital reallocation. We have completed some acquisitions over the first half of the year which is positioning us pretty well for the future.

Last but not least, the digital transformation of the Group. The combination of the use of digital on the distribution and service side and big data on the underwriting side is, I think, something where we need to continue to push, because we see there the opportunity to create a competitive advantage for the Group going forward.

It's, of course, unavoidable, but the sooner you embrace it the more efficient you are going to be going forward. If I want to illustrate with some examples this story about growth in mature and high growth markets, if you look at the performance we have delivered in health and protection and unit-linked, the segments where we had decided to focus at the very beginning of this plan, the growth between 2010 and the first half of 2015 has been 8% a year in APEs.

So, you see that there we've been delivering. In terms of growth in the mature markets and preparing the future, one illustration is one of the operations we've done this semester with the acquisition of Genworth.

Genworth is going to position us better in the protection side of the business, because it's doubling our market share in creditor insurance, positioning us as the third largest player in Europe. So, we think these are things we need to do to comfort our competitive advantage in these mature markets.

If we look at high growth markets, the two examples of the Chinese ventures are very telling. If you look first at the life venture with ICBC since 2010, Group share, the growth of the APEs has been 64% a year, which is a pretty decent performance.

We have become the first foreign venture in China, and we are becoming a sizeable Chinese player. And the business is now profitable.

The second thing, AXA Tian Ping. It's a much more recent acquisition, but nevertheless 20% growth rate in P&C.

And we think it's a good platform to do more direct and digital business in China. Digital, I thought it would be useful to remind you what we've been doing there.

What we want to do is to position us, embedding these techniques in our value chain at each and every element of this value chain. And here we've given you some very specific examples of what the data innovation labs are doing to support and develop the business.

On the acquisition front, what we are doing here, audience and consumer value targeting. It's using smart leads, using a better marketing segmentation.

Same thing on the selection side. AXA France is having developments done for it by the digital innovation lab on the household geo pricing.

It's another example. On the service, AXA Spain intelligent body shop orientation, and so on and so forth.

So, what it means is digital is, for us, not just words. It's people.

Its people working on very precise projects with the goal of making the value chain more efficient and developing, I would say, the future model of the business. We hope, of course, it's going to bear fruit in the form of better acquisition of customers, better retention because the service will be better and because the products will be better designed.

Digital assets for AXA, very basically and very simplistically three attitudes. Scout, we need to detect what the emerging trends are.

We need to accelerate the digital awareness internally. And there is less and less defensiveness and resistance to that.

And for that, we have the AXA labs, both in San Francisco and in Shanghai, helping us understand what's going on outside, helping us convince people inside that, because it's unavoidable, they should better relax and embrace it. Second thing, engage, attracting new skills and developing talents, learning, piloting, and implementing.

It's what the data innovation labs are doing. And I've given you in the previous slides some very specific examples.

Last but not least, investing. We are of course absolutely convinced that we are not going to do everything on our own and that we are not going to be the only ones being successful.

But, because we scout the landscape, because we see things happening in fin techs, we think we are in a good position to invest in some startups which could be interesting to support our companies or creating new and disruptive business models close to our sector or in our sector. And this is a target of access to strategic ventures which is basically operating in the three key continents.

So, that's the -- very clearly the approach. And as you know, the amount of digital investments is now very, very significant within the Group.

We think it's important. We do not neglect the existing business.

We do not intend to jeopardize it. But, we think we have to be prepared for the future, and we prepare it.

And now I'm going to hand over to Denis, who is going to go into the detail of these numbers.

Thank you all here, and good afternoon to everyone. So, I'll start with the Group earnings, underlying earnings on a comparable basis of 2%.

On the life side, the growth is 2% thanks to the strong performance of the unit-linked business. On the P&C side, the improvement of the combined ratio is offset by lower investment income across the board.

Asset management had a growth of 6%, which represents both higher average AUM but also margin expansion at our asset managers, which are growing their revenue base faster than their cost base. International insurance is down 11%.

Again, lower investment income but also a slightly higher loss ratio at AXA corporate solutions. All in all, a good performance at plus 2%.

On the adjusted earnings, the growth is 3%. It's a reflection of the growth of the underlying earnings and a slightly stronger level of realized capital gains at 382 million.

We are not changing the guidance for the full year, which is €300 million to €500 million per annum. We'll probably be closer to the upper end of the range than to the lower end at the end of the year.

Net income was down 7% on a comparable basis, up 2% on a reported basis. We have a negative 411 million on interest rate hedges that do not qualify for hedge accounting.

It's mostly the hedges that help us manage the duration of our debt. A large part of our sub-debt is equity from an accounting standpoint.

And the hedges for duration purposes are going through the P&L, so the increasing interest rates led to a negative on this element. On the life side now in more details, we had a growth of our new business sales of 3% in mature markets.

This growth was particularly strong in Italy with AXA NPS, in France, in Japan, and in the U.S. High growth markets had a growth of 12% of new business, thanks to Asia for the most part.

In total, a growth of new business of 5%. The margin was stable in mature markets, slightly higher in high growth markets and -- I mean a little bit higher, 0.2 points overall.

Looking now at the new business sales and margins by sub-segments and at the net flows, we have the same hierarchy of NPV margin between G/A protection and health, with an NPV margin of 54%, unit-linked with 31%, and G/A savings at 14%. We continue to stick to our word, that we are focusing on protection and health and unit-linked.

You see that the net flows overall have improved from 2.8 billion in the first half of last year to 5.3 billion in the first half of this year. They are positive 5.1 billion in protection and 1.6 billion in unit-linked.

In unit-linked, we don't have a repeat of the GMxB buyout in the U.S. And therefore, we have benefitted this first half of stronger flows, and will continue to have negative flows in G/A savings, in line with the strategy that we have defined five years ago.

One more point on protection and health, the growth in APE was only 2%. This is a reflection of stronger growth in France and Asia, offset by negative growth in Switzerland.

Again, we continue to, I would say, manage or control the sales of group pension in Switzerland, which is a very capital intensive business line. Looking now at the pre-tax earnings by subcomponent, you see that the growth of earnings was negative in protection and health, minus 3%.

We had a better mortality in France and the U.S., but we had an acceleration of DAC amortization in the U.S. because of investment -- changing investment assumptions and a slightly lower investment margin.

G/A savings was negative 12% because of the non-repeat of a prior year reserve development in France last year. Unit-linked was very strong at plus 32%, both thanks to higher management fees, in line with a higher asset base, and higher mortality margin in the U.S.

Moving now to the property/casualty side, a growth of revenues of 1.4%, 2% on personal lines with average price increases of 1.9%; 0% in commercial lines with average price increases of 1.8%. This is the reflection of more active pruning, particularly in France with the construction business lines, which had been problematic for us last year.

Looking now in more detail at the price evolution by country and business lines, you see that we've been able to put in significant price increases again in most geographies, most strikingly plus 4.6% in commercial lines in France, again the re-pricing of our construction portfolio, 4.4% in personal lines in the UK, a hardening of rates in the UK personal lines, which is reflected in our numbers. Going forward, you see on the right-hand side of this slide that prices are relatively soft across the board, with the exception of hardening in motor in the UK and also slight hardening in Spain on motor.

But otherwise, I would say it's going to be more difficult going forward to increase prices if we want to maintain our exposures. On the revenues and margins by market in P&C, I am on Slide A29, you see that in mature markets the growth of revenues was 0% because of the pruning actions I mentioned.

We have improved the current year combined ratio by 0.8 points to 96%. High growth markets, the growth of revenues was 4%, 6% in Asia.

We saw a deterioration of the combined ratio to 99.9%, mainly attributable to Turkey and, to a lesser extent, to Mexico. The direct business has had a solid growth of 7% and improved its combined ratio by close to 1 point to 98.8%.

Overall, our combined ratio -- current year combined ratio improved slightly to 96.9%. Looking at the development of our combined ratio, you can notice a few elements.

The natural catastrophe element is significantly smaller than in the first half of last year at 0.1% against 1.7%. We had the positive price increases that I mentioned earlier, a higher claim severity as our claim costs have increased, and we also had better prior reserve development at 1.8 points against 1.3% last year, translating all in all in a 95.1% combined ratio compared to 95.8% last year.

Offsetting, as I mentioned earlier, this better combined ratio, investment income went down 7% with an annualized investment yield of 3.7% against 4.2%. There was an exceptional positive last year in France with exceptional dividends of €67 million, which makes the drop more important than it would have been otherwise.

Moving to asset management, you can see that the picture is quite positive, with net flows of €28 billion at AXA investment managers, of which €19 billion from the joint ventures in Asia and, of that, €18 billion coming from our joint venture with SPDB in China. The flows other than the joint ventures are still positive €9 billion, which is an indication of the strong investment performance and good distribution that we have an AXA IM.

Average AUM, excluding the joint ventures, have gone up 11%, and revenues are up 8%. On AB, net flows are also positive at €7 billion compared to €3 billion last year, average AUM growing by 6% and revenues by 5%.

All in all, you see a growth of the earnings in asset management of 6%, 7% at AXA IM, 5% at AB. Thank you very much for your attention.

I'll now hand over to Gerald for the balance sheet. Thank you.

Thank you, Denis. Good afternoon.

So, asset allocation didn't change. So, that means that, roughly speaking, we have 83% in fixed income with 42% in govies, 33% in corporate bonds.

Our investments in listed equities are at 4%. And alternative investment, i.e., private equity and hedge funds, is 3%.

We still manage a very long duration, 7.7 years in life and savings and 5 years for P&C. I'll remind you that our duration gap still remains at around 1 year.

You can see at the bottom right that in life and savings our investment yield is still at 3.7%. But, in line with what we presented to you in February, we can expect to have some dilution coming from investment at a lower rate.

And in P&C, we moved down from 3.1% to 3.7%. The in-force book of business, starting first with the resilient investment margin, our investment margin is moved down by 1 basis point from 79 to 78 basis points, in the lower end of our range.

And this is possible due to -- just have a look at the left-hand side -- we have a significant spread above the guaranteed rate with investment yield at 3.7% and guaranteed rates at 2.1%, giving us some flexibility. On new business, it's the same picture.

That means that we have been reinvesting in life at 2.1%. But, we are giving guarantee -- an average guarantee of 0.5%, 50 basis points only.

It should be mentioned that we are selling only general accounts in association with the unit-linked business. And mostly it's -- we are dealing here with hybrid sales.

About the investment, we have been investing 28 billion in the first half in fixed income, and you can see that it's mostly in investment grade credit at 54%. We slightly benefitted from the slightly higher spreads.

And we have been investing 32% in government bonds, below investment grade at 10%, representing 10% of this 28 billion, corresponding mostly to short term high yield products. You can see on the top right that we have been investing on average at 2%, 2.3% in the euro zone, 2.8% in the U.S.

and by definition at low rates in Japan and Switzerland. Shareholders' equity went up by 1.7 billion, from 65.2 billion to 66.9 billion.

And you can see on the right-hand side that the first three movements -- the first three elements explain most of the movements, starting first with the ForEx movement, because we have a lot of our assets which are denominated in other currencies than in euros, especially in Swiss francs, in dollars, in British pounds, €3.4 billion positive. Net income for the period, 3.1 billion positive.

The change in net annualized gains was negative, minus 2 billion, explained by average rates creeping up by 20 basis points and with some slight widening of the spreads, and dividends that we paid, the 0.95 that we paid in May, minus 2.3 billion. Debt gearing, the net debt moved up from 13.5 billion to 14.1 billion, mostly explained by ForEx effects.

And you can see that, as explained by Henri before, the debt gearing is down from 24% to 23%. And the interest coverage improved from 9.9 times to 11.9.

Last on economic solvency, our economic solvency improved from 201% to 215%. And you can see at the bottom of the graphs in the roll-forwards that the operating return explains most of the movement.

And you can expect that, on a quarterly basis, the operating return is between 5 and 6 points. We have some market effects, small market effects.

And in the 3 points, you have the FX effect. You can see on the top right that we are still sensitive to the interest rates.

For the rest, for equities, it's less important; same for corporate bonds -- for corporate spreads. I'll hand over to Henri for the conclusion.

Thanks, Gerald. The conclusion will be brief.

The first point is insisting on the continuous delivery. I mean, you see that we've been able to deliver profitable growth despite an environment which has not always been easy, especially on the life side, and that the balance sheet is definitely a strong one.

The second point on the first half earnings, you can see what the benefits of diversification are, including the currency effect. It's a secondary effect of the diversification.

You can see the resilience to low rates. Two years ago, many of your questions were centered around are you going to be able to sustain a protracted period of low interest rates in the life business.

And I think we show, with the change in the mix, with the margins, with the progression in earnings that, yes, we are. Solvency II is now nearly a nonevent for us.

Going forward, I think Ambition AXA has more or less becoming the past. We will focus on the next plan, which is going to be presented to you around the end of the first half next year in June.

I remain very confident, because we have multiple sources of growth. The model is very well diversified between life and asset management, health and protection, property/casualty, the geographies.

We now have a solid footprint in the emerging countries, and we have optimized operations in the mature countries. And last but not least, I think we are starting to create real digital assets for the Group, which should in the long run help us support a decent level of growth.

So, this is what I wanted to share with you at this stage. I'm sure you'll have plenty of questions, so let's open the floor to questions.

Well, good. Let's start on this side.

Just two; one is on Turkey. I wonder if you can give some numbers and maybe give an outlook of when it gets better or how much better.

I don't know. And then, the other thing is on the DAC amortization.

I was just wondering -- so, this is a leading question. I was wondering whether you'd understated your earnings a little bit.

You probably think, well, we never understate earnings. But, if the DAC amortization is maybe higher than it would have been, maybe you can give a feel for what's happened there.

Thank you very much for this very politely asked question on the conservatism of the DAC amortization. Denis, you want to take the DAC?

And Gerald, do you want to take Turkey and the reserving, or do you want to take both? I mean, do you want to do it the other way?

I'd rather take Turkey and let DAC to Gerald, if that's okay with you.

Great. Okay, fine.

So, Turkish delight.

No, not this time. I think it's the most difficult question, because I think Turkey is a difficult case.

In Turkey, we have been suffering since 2012 from a change in the court decisions on bodily injury claims. And we saw an initial trebling of the costs or the indemnification of bodily injury claims in 2012, and we took a significant reserve hit at the time.

We increased prices by roughly 50%, and we thought the issue was behind us. We were surprised by two subsequent events, the last one being this year.

The first one -- I mean three subsequent events. The first one has been that we -- the courts have made further changes in their jurisprudence by asking us to also indemnify the liable drivers.

This took place in 2014. And the second one, more recently the government adopted a new -- I mean new terms and conditions for third party liability contracts which forced us to repair the cars to, I would say, a brand new status after a liable -- or a liability claim.

The third change that we observed was that, as customers can claim eight years back, the proportion of claimants has increased steadily since 2012. And we have been surprised by the proportion of claimants.

We are now at 69% of the proportion of claimants. And so, we have not reserved for 100%.

We are again assessing the situation, so it may not be fully the end of the Turkish situation. We have increased prices again this year by 56%.

We believe that the market is still not pricing for the level of claims. We believe that Turkey is an important market for us.

We have lost some market share. In 2012, we had 25% market share in third party liability.

We are down to 15%. We have increased our market share in casco, the comprehensive cover, to 18%.

So, we've moved from the number one position to number two, and possibly even number three now. We believe that the market will rationalize at some point, but we are not there yet.

About DAC, so we had higher DAC amortization in the U.S. which is on the life side, mostly corresponding due to the lower interest rate environment.

This represents €80 million. At the same time, I just wanted to remind you that also linked to the very low interest rates, we had to amortize VBI, an exceptional amortization of VBI for 43 million in Germany and in Switzerland.

At the same time, we could say, and maybe you noticed, that we had to adjust the return to the mean because we moved from 9% to 7%. So, it's a 50 million negative.

So, if you take 80 million plus 43 minus 50, that means that we have a bit more than 70 million of, I would say, a negative drag on the earnings which corresponds to intangibles.

Let's go on the other side for the next question. Blair or whoever, just grab the mic.

Nick Holmes at Soc Gen, a couple of questions on growth, please. The first one is you've talked about a target of 100 million customers in Asia by 2030, and I wondered if -- this sounds very exciting.

I wondered if you could tell us a little bit more about this in terms of business mix, P&C, life, geographic mix, etc. The second question is you've achieved 7% CAGR in the AXA Ambition.

I wondered if you could tell us your feelings about this. I mean, are you disappointed?

Are you pleased with that? And looking forward to the next plan, what feelings do you have about growth?

Would 7% seem conservative or not? Thank you.

The wonder of being in Britain for these sort of meetings is that you very politely ask your questions, to which you know we are not going to give all the answers because you will have to wait until the analysts' conference in June. But, to come back to some of your questions, the 100 million in 2030 in Asia is a big number, but we think it's perfectly achievable.

Its 15 years from now. We have discussed that at length with Jean Laurent Josi, who is now the head of the Asian operations.

But, if you look at the markets we are in, I mean, China, India, Indonesia, the Philippines, Thailand, and add Malaysia and Hong Kong, but if you look at the size of the population, if you look at what are the reasonable assumptions in terms of growth of the middle class, and if you look at what ambitions we can have both on the life and P&C front in these markets given the partners we have, if you add to that what we could do with new technologies in some of the micro insurance fields, then you realize that reaching 100 million clients in Asia 15 years from now is of course ambitious but far from being a crazy assumption. Look at what the growth rate has been on the ICBC venture since 2010.

And this despite the fact that these were, A, early days in our partnership so both partners had to learn how to live with each other; B, only with limited access to the ICBC branches, just to give an example. Look at the Philippines where I was two weeks ago, more than 100 million inhabitants' country, probably the next growth story in the region after Indonesia.

We are in partnership with probably the best private bank in the country, who by the way has exactly the same shareholder as the one who has the Toyota dealership, very probably a significant source of growth. Look at Indonesia, the partnership with Mandiri.

I mean, I think we have positioned ourselves in a way where, given the business mix and given the quality of the partners, we can achieve very significant growth in Asia over the next 15 years. On your second question, yes, we are satisfied with 7%, because since 2010 I wouldn't say that the front has been a quiet one.

We have seen a lot of uncertainties and a significant amount of turmoil. We all remember what 2011 was as a year, not a particularly attractive one, and we all know what the evolution of interest rates has been over this period.

What we are satisfied with is, if you look at the track record, I think the Group is a well controlled one, because despite the turbulences and despite some events which were not foreseen at the very beginning of the exercise, we have been able to deliver consistently within the range, consistently, which means that, A, the engine is well controlled; B, we have the ability to react if something unexpected happens. Look back -- we won't do it because I don't think it has a lot of meaning, but look back at what the macroeconomic assumptions were when we started the exercise in 2010.

It was certainly not to have interest rates where they are today, and it was certainly not to have seen such a subpar growth in most of the developed economies and such turmoil in some of the emerging ones. So, overall we are within the range, and it's a reason for being satisfied.

If I look forward, what is the next plan going to be? Well, I mean, you will discover it in June 2016.

And we have been working, I would say, very, very deeply on it over the last two years. I'm pretty confident that this Group has the sources of growth it needs for the future, and that the diversification play we have been putting in place over the last now 20 years is a good model to face the future.

And I don't think -- I mean, forgive me, but I don't think I can say more at this stage. But, if you ask me are we comfortable with the fact that we will have an interesting story to tell, the answer is yes, of course.

Just, a very quick follow up. If interest rates stay at current levels, would that -- how negative would that be for the future growth prospects longer term?

I think we've already given the answer. I mean, quarter after quarter, semester after semester, we have, quote, de-risked the portfolios.

Of course it's going to have an impact on the in-force. But, of course at the very same time progressively, because of the diversification of the business mix, the future earnings are coming from different sources.

So, it's something I'm pretty relaxed with. So, whoever takes the mic.

Yes?

It's John Hocking from Morgan Stanley. I've got three questions, please firstly on P&C.

Denis was talking about the rate environment getting softer. I just wonder if you can comment on where the P&C revenues are versus claims inflation.

And with investment income being difficult, is there a chance that the P&C profits, at least on an economic basis, start going backwards in the short term? And the second one, on digital, is it fair to say that most of your digital initiatives are sort of P&C and retail P&C, or is this -- are there things happening on the life side in addition to distribution initiatives?

And then finally, just on the communication of the next AXA plan, it's sort of drifting from -- I think it was Q1, now Q2 next year. Is that in any way linked to Solvency II clarity or is that just basically finding a good time in the calendar to communicate?

No, I mean, on the last part of your question, it's pure opportunism. I mean, there is nothing -- don't try to find complex reasons behind that.

It's because we think it's the right time to communicate. And by the way, I think we will have probably to adjust the very precise date, because we have seen that there was a World Cup competition in Paris the day where we were intending to do it.

So, we don't want to make the booking complicated for you.

John, sorry, on the Solvency II clarification, we expect to have clarity on the 3rd of December when we come to talk to you about our --.

Capital model.

Capital position.

Denis or Gerald, do you want to take the question on P&C claims inflation versus soft evolution of the rates?

So, maybe I can start. So, on the pricing side, you saw that we had price increases of 1.8%, 1.9%.

When you look at the appendix to our presentation, in slide B --.

33.

B33 -- thank you, Gerald -- B33, we show the impact on P&C of net cat price effect, frequency, severity. So, you have an impact of frequency and severity combined of 2 points, so more or less in line with the price increases.

And I would say that traditionally when we have less than our fair share of net cat in the first half, we don't really see it all in the first half. So, we expect that we might have a bigger part of natural catastrophes in the second half.

So, this severity element is probably a little bit of overstated.

On the last part -- well, it's not the last, but on the not answered part of your question on the digital initiatives, I wouldn't draw that conclusion. I mean, we have taken some examples which are probably mostly in P&C, but I would make the following points.

First, when these initiatives are about customer 360 or activation or better activation of the distribution, it relates as well to P&C as to life or protection and health. And we have a number of initiatives going on there including, of course, what we do in the U.S.

where we have some very interesting things. But, I could have mentioned to you things we have been doing in France to identify better the orphan clients, as an example, which are of course more life clients than P&C clients.

So, I wouldn't draw the conclusion that it's more biased towards P&C than towards life. Yes, let's go to the other side.

Hi, thank you. Two questions.

Firstly, could you comment on how much risk you see in the short term and then longer term in qualified variable annuity sales because of the Department of Labor changes? And secondly, with Genworth, you've mentioned the market position that it gives you.

But, how confident are you that it is delivering you something strategically that you couldn't have done yourself, because you have some of these businesses? And how confident are you that quantitatively it's going to deliver the goods?

Yes, okay. On the DOL thing, yes?

So, we have made -- I mean, this is obviously something that is not final, because there is a draft regulation by the Department of Labor. And we have to take a -- we thought that we couldn't leave you totally in the blue on this one.

So, on our MD&A on page six, we've made a statement which assesses that the impact for us will be, depending on how hard the regulation hits us, between 10% and 30% of APE, because we don't know yet what the final state of this regulation will be. That's between 10% and 30% of APE in the U.S.

which would be 2% to 7% of the Group consolidated APE for the half year ended on 30th of June. We believe that if we had this reduction of our APEs, we would have two kinds of offsets.

One would be to reduce our expenses. The other one would be to change our business mix to sell more products that are not affected.

To give you two examples, our life sales are not affected. It's only our VA sales that are impacted and, within our VA sales, the 403(b) and 457.

So, the sales to government employees, employees of schools and hospitals are not affected either. So, that's how we assess the 10% to 30% impact.

So, that's our current assessment of the impact. The impact on earnings would be over an extended period time, obviously.

And we believe that we have offsetting measures to reduce that impact.

On the Genworth thing, I mean, it's a classical dilemma between organic growth and external growth. In that case, I mean, the attraction for us is pretty simple.

A, it gives us access to some markets, especially in northern Europe, where we were not exposed to these types of risks with a pretty solid and profitable portfolio. B, there is an expense gain to be played, because when you double the size of the portfolio you don't need to double the amount of expenses.

And thirdly, I mean, it gives us a new portfolio of clients which the other way to acquire would have been by being more aggressive commercially. I mean, we gain time.

And doubling the market share is going to make us a very, very solid and visible player. So, it's a way to play our scale.

So, I think it's a very reasonable deal.

I would add two points, if I may. So, our market share moves from 5% to 9% globally, so we become number three in that space.

And the second point is that we also have capital synergies because we would bring the new business on our French balance sheet, and it we would be doing it on a, I would say, more effective capital base.

Hi, Andy Hughes from Macquarie. I wanted to follow up on the DOL point, if I could.

You don't see any fall in lapse rates as a result of the DOL changes? So, my biggest concern on the VA is not really sales, but the fact that, as a result of reduced churn, people were less likely to hand in their old policies, which could have a negative effect on lapse rates, particularly where you've done buybacks and things like that, or even conversion rates into annuities on these products.

You don't see any risk from that at all in this statement?

Yes, we do; very difficult to assess at this point. And there would be good lapses and bad lapses.

So, I would say overall we would benefit from lower lapses because we would have a higher asset base. We might have to revisit our lapse assumptions on the GMxB part of the portfolio, but our portfolio is not just GMxB.

We have a significant non-GMxB portfolio which will benefit from lower lapse rates.

Can we go to the other side of the room, because -- yes, Blair or Andrew?

Three questions, two fairly techie ones. One, how do you manage to get a 2.3% reinvestment rate in eurozone when a third of the money is going into govies and over half is going into investment grade bonds?

Secondly, you continue with this idea that 75 basis point spread widening on corporate bonds has no affect on your economic capital because you're still using quiz five. Could you give us some sort of sense, as you move to Solvency II, as to the sensitivity of your economic capital to corporate bond spreads, because there's obviously something there?

And then thirdly, I think even before you made your statement about no interest in RSA, I think there's a general acceptance now of a disciplined approach to M&A from AXA. You name was never mentioned in the frame, although I suspect you'll turn from a net seller to a net buyer in future years.

Could you give us some sort of sense as to, within your own earnings capacity, how much year to year you're prepared to apply to acquisitions? And you've got a bit of debt capacity, I would expect.

Thank you, Andrew. Gerald, you want to explain the magic?

Your question is about the 2.3% in the eurozone. First, we have a long duration.

Second, as you can see, 54% is invested in investment grade credit. And we are investing at single A, so we have -- we are not very far from a 100 basis point spread.

And at the same time, we have some below investment grade credit. I said that it was a short duration high yield.

That means that there we have a more than 200 basis point spread which, even if it's 10%, it's 20 basis points. And since it's very short terms, that means that it's extremely resilient.

That means that we had no delinquency on such type of assets. So, that's it.

I would just like to remind you that in February we told you that we would invest at 2%. So, for the time being, we are pretty in line with what we said.

And for the time being, we could say that we might be slightly higher, but it's a matter of 10 basis points. So, we are still -- today we are investing maybe between 2% and 2.10%.

That's where we are on average. On the last part of your question, we will discuss with you our capital model in December.

But, I mean, you know already what the numbers are. I mean, look at what you project in terms of earnings.

Look at what our payout ratio is. I mean, we've said that the payout range was, for the time being, 40% to 50%.

We were at the bottom of the range. We are at the middle, not at the top.

What it means is there are 50% of the earnings -- today a little more because we are only at 45% payout. There are ultimately 50% of the earnings which we see as being potentially used either to finance organic growth or to possibly finance acquisitions.

If we have the feeling that the market is not attractive, this could lead us to change the view we have on the payout. If we have the feeling that the market is attractive, this could lead us to be slightly more aggressive.

But, basically I think we now have the flexibility we need, because the leverage ratio is at the bottom of the range. And we keep screening the portfolio because there are always things you can sell.

I hope you are more confused than before you asked the question.

Yes, on your second question that was, Andrew, about the economic solvency and the sensitivity with VAs of corporate spreads, I could say that -- what I can tell you is that we -- the sensitivity would be more or less the same as the one we show on the slide. I presented the Slide on page A40.

And as you can see, we had, with corporate spread widening from 75 basis points, we were staying at the same level. We can expect, and the VA with a volatility adjuster, not to have such type of sensitivity.

So, that means that it will be the same. What I can say as well is that, with the volatility adjuster, we can expect that the sensitivity of interest rates wouldn't be higher than what we have today.

[Indiscernible] not fully in sensitivity, within certain -- within certain ranges.

No. Yes, it's more.

It's more.

I mean, the last thing I would add on the investment capacity, Andrew, is we would wish to see more capital being used for organic growth, because this would mean that the organic growth would become higher. I think we have become more efficient in allocating capital to growth.

I mean, our growth is less capital intensive than it used to be, but we would like to see more organic growth.

Good morning. It's Fahad Changazi from Nomura.

Could I just follow up on John's question in terms of granularity? Could you tell us what's happening to the rates other than the UK, and claims inflation in the UK as well?

And secondly, it sounds pretty exciting in Asia. But, in the near term, could you just tell us if there's been an impact from the Chinese market -- stock market volatility on the ground?

I appreciate we're talking about a small base.

Can you repeat your question on the UK? The first question was, I understand, rates and claims inflation in the UK.

Paul, do you want to --? Paul, you are well positioned to answer that.

Obviously it varies and, honestly, by line. So, looking at rates in the UK first, so motor is the area that is seeing rate strength.

In our first half, if we grew our motor account by 15%, broadly half of that was rate and half was volume. That rate increase in motor has been driven by the increased frequency we've seen both here and in Ireland, in part linked to the economic recovery and the fuel prices.

So, in other words, rate increase are just about keeping pace but is a bit behind. So, our motor core was about 0.7 points worth in the direct segment than this time last year, so our rate increases are just a bit behind inflation, but they're carrying through.

They're all carrying through into the second half of the year. Home rates are quite soft.

Soft reinsurance and lower frequency of major weather events in recent years has led to rates in home falling back. Therefore, we've shrunk our account back to maintain profitability.

In commercial, rates again are starting to soften in the SME end of the market. You saw earlier rate increases around 1%, probably stronger in motor than in property and in liability.

And that -- I think our combined ratio there is broadly in line. So, in other words, we are just mitigating the impact of claims inflation.

Claim inflation across the board is probably highest in motor, where we are continuing to see increased levels of personal injury claims, but rates are starting to compensate it from the beginning of this year. Does that answer your question, or do you want me to go into more detail?

On China, so as you know, we have three businesses, life, P&C, and asset management. On the life side, I don't believe that the impact will be significant because traditionally ICBC AXA is selling a lot of single premium in the first quarter because of the Chinese New Year.

It's a tradition in the Chinese market. A large part of the single premium sales in the bank are done around Chinese New Year, or just ahead of the Chinese New Year, and the rest of the year is devoted to regular premium business, which I believe is much less sensitive to market movements.

On the P&C side, we are sensitive to what's happening in the motor market. And you've seen for the first time declining sales of cars.

We had a growth of 14% in the first half. That may have a negative impact on our growth in the second half.

It's too early to tell at this point. Asset management, we had €18 billion of net inflow in the first half.

I believe we had €1.5 billion of outflows in July. It's, again, too early to say whether this will be significant.

A large part of the sales are of fixed income products to the clients of the banks, where I believe this is less sensitive to market movements. But, the equity piece might be affected by the market movements.

So, just to complete the circle, could I also ask what's happening in Indonesia and Malaysia?

What do you want to know about Indonesia and Malaysia?

In terms of what's -- if there's been any flow over given the Asia market volatility in terms of sales on the ground. And I appreciate it's very small.

Malaysia is quite small for us. Indonesia is more substantial.

We are on track in terms of our plan for Indonesia.

Yes?

Sorry. Andy Hughes, Macquarie again.

Just a follow up question on the economic capital and movements in credit spreads. Is the reason you're not very sensitive to credit spreads because all the sub-investment grade stuff is short duration?

And if the long duration stuff is single A, surely the biggest risk is that gets downgraded rather than credit spreads widened. So, how should we think about that in the context of what is the biggest risk, really, that you worry about?

So, in terms of the credit market, is it that some of your single A bonds become non-investment grade and therefore at that point in time it becomes more of a concern because you've got long dated credit spread assets rather than short dated ones? Thanks.

I could say that we -- first of all, our average corporate bond is single A. I don't see a big -- we have been suffering in the first part of the year from the tightening of the spreads.

And it was -- going back to the previous questions, that means that we invested at low rates. Now we are back to normal, I would say, to what it was back six months ago.

And I don't see really any -- in the present environment, taking into account the macroeconomic outlook, I don't see any big risk. We are investing in BBB, single A bonds.

And that's what we do. Last year we mentioned that we were investing in loans.

The loans market is quite small and we have less opportunity. So, we -- that's why we invested in the first half more than 50% in corporate bonds.

Maybe one additional comment. You are talking about long duration for our corporate bond portfolio as our investment grade corporate bond portfolio.

You need to have in mind that, to manage our duration, we have -- I mean, even though our investment grade corporate bond portfolio has a longer duration than our short term duration high yields, it's not -- the long duration is with sovereigns. And we are managing, I would say, medium term duration for our corporate bonds because it's costing a lot of economic capital to invest in long dated corporate bonds.

So, I think that's an important point to have in mind in the way we look at our balance sheet.

On this side?

Thanks a lot. Peter Eliot from Berenberg.

If I could follow up perhaps on Nick's earlier question and appear a little less polite, sorry, but just to give you an opportunity to -- but if I were to play devil's advocate, looking at the last one year rather than the last five years on the underlying earnings CAGR, then you get the sort of 2% rather than 7%. Is there anything you would sort of particularly highlight to people looking forward as to why that is the wrong number looking forward?

And obviously we've got the low interest rate environment, etc. But, just wonder whether you wanted to highlight anything in that that made that -- sort of stood and extraordinary.

And then, the second question I wanted to ask was we've seen a number of positive tax one-offs come through this year and last year. Is there anything you can say on the -- any sort of guidance or anything just on the outlook for those looking forward?

Thank you. Gerald, do you want to take the --.

To answer your last question about the tax one-offs, yes, we had tax one-offs last year in the first half which were slightly higher than this year. On top of my head, we were at 140 million one year ago.

We should be at 125 million, so that means that we have €15 million less tax one-off this time than we had one year ago.

And we've tended to have tax one-offs every year as far as I can remember. So, we are managing our tax position, I would say, conservatively.

And we clear those one-offs when we are at the end of the year examination period by the tax authorities. So, that's not, I would say, something that is new.

As far as the gross trends are concerned, first you have mixed the per share basis. So, on an earnings per share basis, growth of 7% is earnings per share growth, which arguably benefits from the currency impact this year.

But, before that, without currency effect, we were at 6% compound. So, I think we have a good track record.

Secondly, on the more recent period, I would say that on the life side there are a number of negative one-offs, a little more than 50 million, which translate into 3 points of growth of the earnings. So, you could look at the life growth on a normalized basis more as a 5% normalized basis.

P&C, yes, on the P&C side we'll see whether we can -- I mean, I think going forward our P&C performance will need to benefit from both expense efficiencies and -- I mean a combination of expense efficiencies, top line growth, and underwriting improvements. It's true that it's going to be more difficult going forward, given the combined ratio that we've reached, to have 5% plus growth in the P&C earnings, but asset management is on a very good trend, 6% in this first half and very strong flows.

So, I guess that life and asset management should make up for the slower growth of the P&C side.

But, if you want us to say that we will have to grow the revenues at a higher pace to have the earnings keep growing fast, I'm comfortable in saying that. It's very clear that in the very first years of Ambition AXA we had to streamline some portfolios and to take out some efficiencies which, having been achieved, are not any more there.

So, we need to grow the revenues, and I'm confident that we are putting in place the initiatives which are going to help us grow the revenues to grow the earnings.

Yes, Blair?

It's Blair Stewart from B of A Merrill. Just a couple left over really.

Denis, you said you were 69% reserved in Turkey. What would be the impact of going to 100% reserving?

On the DOL, you've addressed most of it, and I know it's early days and there's some guesswork involved, clearly. But, what lies behind your 10% to 30%?

Is it a suitability of sales issue? Is it the possibility that some of your distribution disappears in some way?

Or, just any color around that would be helpful. And thirdly, one acquisition or investment that you haven't talked about is buying your own shares.

You spent 700 million buying your own shares. Is that something that you look to do going forward as well to mitigate the dilution from the employee share issues?

You want to go ahead on Turkey?

So, the first question on Turkey, I have not said that we are 69% reserved. I have said that we -- right now we are reserved on the basis that 69% of people are claiming.

Okay. So, moving to 100% would be a big number, I think something like 300 million -- 300 million, 400 million on a pre-tax basis, something like that.

So, basically 69% of people --.

Of all customers who have had claims over the last eight years. So, going to 100% is a pretty radical approach.

Yes. So, it would be a significant number.

I don't believe that we'll get to 100% of people that have claimed in the past, that have had a bodily injury claim claiming for this -- claiming retroactively among the people that have been affected by bodily injury in the last eight years. But, yes, this is a significant number.

On the 10 to 30, I mean, I am not an expert of the DOL regulation. But, there are different gradiations of this regulation.

And one of them would be to continue -- I mean one of the things that the DOL draft regulation does is to eliminate the seller's exemption of the fiduciary duty. So, that's probably a big element which would -- if this seller's exemption is maintained, we would be more towards the 10%.

If the seller's exemption is removed, we'd be more towards the 30%. And the share buyback, it's a question for you, Henri.

Yes, we have said what we would do. I mean, I think it's pretty clear.

I mean, it's unchanged. Yes, we intend to neutralize.

Thank you. It's James Shuck from UBS.

I had three quick questions, please. Firstly, I appreciate just focusing on the bad news.

And Ambition 2015, most of the targets seem like they'll be met. But, when you look at the detail behind them, it looks like there'll be a number of targets that won't be met or things that should have gone better.

So, I mean, just briefly, I'm kind of thinking about the combined ratio for 2015, which you were targeting below 96% which, if you normalize for nat cats, you'll probably just about do. But, obviously interest rates are -- we're in a much lower interest rate environment now.

So, arguably you should have done a lot more than that to be able to maintain economic earnings. So, could you just clarify a little bit about what you could have done more to keep the economic earnings up at a target level?

And linked to that question, the high growth markets, I mean, you were looking at improving earnings in high growth markets by a factor of 2.5 times and doubling your business value. Neither of those look to be met.

So, I mean, I think one of the things in that also included developing a new territory on the same scale as Hong Kong, and that doesn't look like that's been met either. So, could you just comment about -- a little bit about what's gone wrong in high growth markets outside of the Turkey, which you've already spoken about?

So, that's my first kind of topic of conversation. Secondly, the general account margin.

You're obviously guiding to 70% to 80%, and that's been there for a number of years now.

70 basis points.

70, sorry, basis points, yes. That's been there for a number of years now.

If I look out over the coming years, obviously new money is coming on the books at 2%. You've got a running yield of 3.7%.

Are you still confident in that 70 to 80 basis point range, or is it likely to be at the bottom end of that or even below it? And then finally, just my final point, could you just update on where we are with the conversations around the HLA and the global systemically important situation?

Thank you.

Yes, I'll start with the last point. The conversation is going on.

And to say the least, it's not a very structured one because the -- what we were waiting for was a clarification of what non-traditional non-insurance activities were, and who were the reinsurers on the list. So far, no answer to any of these two questions coming from the regulators, because it's probably slightly difficult to define what non-traditional non-insurance is, and because we understand that there are some strong discussions between the U.S.

and the rest of the world on who should be on the reinsurers list, because the U.S. doesn't want to see one name on the list.

So, it's -- we are waiting for that. And it seems to us that -- I would say it's premature to decide on what an HLA should be before having agreed on what are the non-traditional activities, what are the real names of the list, and what is really what this HLA was supposed to address.

So, we will see how it goes. I mean, discussions are continuing.

We would wish to see them being, I would say, more structured and testing more real assumptions. It's probably going to be another source of admin work for a significant period of time.

What we hope is that we are going to end with something reasonable, because the worst of all systems would be to have something which would not be consistent with Solvency II. You have to have in mind that Solvency II is now going to be enforced very shortly, that it's a very conservative system, and that there is one thing you cannot ask to people leading financial institutions.

It's to pilot these animals with two different and inconsistent system. And there is a real risk if the process is not carefully watched to see that happen.

Having said that, whatever is decided will have to be endorsed by the European Commission. I mean, it will have to be transposed.

And it's not necessarily a given. So, we watch that with a lot of attention.

We are very vocal in the debate. And we think that there are still a number of elements on which we need to have further information or further clarification before coming to any substantial conclusion.

This is for HLA.

I can take the question around --.

Do you want to take the question on emerging?

I'll take the first question on combined ratio and high growth markets. And Gerald, you'll take the general accounts margin, if that's okay.

So, on the combined ratio, first, overall on Ambition AXA, there are a number of targets that we have exceeded. So, expense efficiencies, we've moved our target from €1.5 million to €1.9 million.

One of the reasons for moving it to €1.9 million was as you pointed out, the fact that interest rates were lower, and the fact that the top line growth was lower because a large part of our footprint is continental Europe, where we didn't have the growth in the economy that we assumed which led to a lower premium growth in continental Europe. So, our reaction was to reduce expenses, and I'm reasonably confident that we will achieve the 96% combined ratio.

And I would say and now we re-target for P&C, which is clearly above 15%. So, I am not ashamed about our combined ratio performance within Ambition AXA.

High growth markets, you're absolutely right. We have missed our target in high growth markets and several organic targets.

I would say on the other hand that, in terms of our footprint, we've achieved probably more than what we anticipated by being as we indicated earlier, number one among the foreign insurers in China, both in life and in P&C. The disappointing territories have been, beyond Turkey, Mexico where our earnings are just a fraction of what we anticipated.

We have seen more competition in the motor side. We are not at the right level of expertise in health yet, so we have to work further.

And our IT -- I would say our IT efficiency is far from perfect. We probably underestimated the difficulty of moving the IT to the adequate level of efficiency.

We've done a lot of cost savings, but if our IT infrastructure was stronger we would have been able to do more. And the third country where we have seen some disappointments has been the growth of new business in Indonesia.

Our business mix was too much focused on single premium. We have shifted the business mix now to more regular premiums.

We are working better and better with our banking model, Bank Mandiri, but we are behind in terms of the new business growth. Our profitability is there, but our new business growth is not where it should have been.

So, those are the three places where we are disappointed. Overall we are quite happy with the evolution of our footprint.

About the investment margin, so first of all I would like to -- it's important to keep in mind that in terms of general account we have been -- we have negative outflows. So, it happens that we don't dilute our investment margin.

And that's also the reason why we have been quite resilient. Second, I would say that we mentioned at the previous meeting in February that we could expect to have an impact on the investment side from 200 million negative that would be offset by 100 million on the -- in ForEx.

So, the ForEx is far better. We could say that the 200 million is still true.

As I said before, it will depend on the evolution of the interest rates. So, it could be slightly better, but in the foreseeable future I don't see why we would go out of the 70 to 80 basis point guidance.

Next question? Yes, Nick?

Nick Holmes, Soc Gen. Just a very quick one on Solvency II.

Any update on equivalents? The RBC coverage ratio I'm thinking of, where you have the highest in the sector at 300%.

Others are lower. Any likelihood that you will reduce yours, do you think?

No.

No?

No. I think -- yes, it's a good question, and we've told you that we are 300%, equivalent to the 100%.

We can tell you that we have not been asked a capital add-on on that basis, and we are not privy to the discussion between the supervisors and our peers.

Nice and clear. Thank you.

Okay. Do we have any question on the Web or -- no?

Any other question in the room? Yes?

First and last.

Yes. Well, it's a very geeky question.

So, if you -- the required capital split, which you show, it's a pie chart, 8% at the half year for the U.S and its 6% at the full year. So, it's gone up by 2 points.

And if you do the math, and maybe my math is wrong so I'm not guaranteeing it, it's a much bigger rise than you'd expect just for foreign currency. So, I just wondered what's happened in the U.S, whether you -- it's not a big number.

It goes from 1.6 billion to 2.3 billion, but maybe you've got a number.

It's a currency effect. That means that the why it works is that the RBC is calculating in dollars, which means that, since your reference was on the required capital side, of course the dollar -- the euro weakening and the dollar increasing made the difference.

And the average -- I mean, here it's the end of period, but it's probably 18% to 20% difference. So, with the rounding's, I think it's the right figure.

Okay. Do we have a question?

Yes, we have one question on the Web from [Fulin Leong] from Morgan Stanley. It's a question about asset management.

Would you please comment on the trend regarding revenue growth versus earnings growth for your asset management business?

So, my recollection is that revenue growth was 5% and 6% respectively, and that earnings growth was 6 and 7 for the two asset managers. I said that there was a little bit of margin expansion in both asset managers, a bigger margin expansion at AXA IM than at AB, but margin expansion on both companies.

So, as revenues grow more than expenses, we have a margin expansion, which explains the difference.

Yes. And the net flows on the appreciation of the assets are only -- they are reflected in revenue growth progressively.

We all know that. The last question?

No? No regrets?

Sold.

Thank you very much. Have a good summer.