AXA S.A.

Andrew Wallace-Barnett - Senior Vice President & Head Investor Relations Gérald Harlin - Chief Financial Officer

Paul De'Ath - RBC Nick Holmes - Société Générale James Shuck - UBS Niccolo Dalla Palma - Exane BNP Paribas Blair Stewart - Bank of America Merrill Lynch Michael Huttner - JPMorgan Ralph Hebgen - KBW Jon Hocking - Morgan Stanley Andrew Crean - Autonomous Research Farooq Hanif - Citi

Thank you, and good morning, everyone. Welcome to the AXA conference call on our activity indicators for the nine months of 2015.

Gérald Harlin, our Group CFO would like to give you a quick overview of the main figures included in the press release, which we issued last night, and which I know many of you have found that it's on our website. Following that, Gérald would be happy to answer your questions.

Gérald, I hand over to you.

Hello. Good morning, and thank you, Andrew.

Indeed, before moving to the Q&A session, let me give you an overview of the main figures for these nine months. We have continued to see growth across all business lines with total revenues up 2% on a comparable basis, and 9% on a reported basis to €76 billion.

The higher level of reporting numbers is coming from the strengthening of all major currencies versus the euro. The reported growth in the period illustrates the benefits of the geographical diversification of the group.

Let's start with Life & Savings. On Life & Savings, post-momentum continued with 8% APE growth.

We continue to see strong top line performance in Southeast Asia, India, China region with 21%, France was 11%, and the rest of continental Europe mainly as a result of our success in hybrid and pure unit-linked products, and the U.S. plus 5%.

We also had a very good performance in the UK with high sales of corporate pension schemes underlining the strength of our UK Life Business. This growth more than offsets the negative impact of the regulatory changes in Hong Kong minus 10% which are impacting our Unit-Linked business.

The repositioning of the Group Life product mix in Switzerland minus 14%, and the continuous strategy of curtailing General Account Savings business. Overall, the NBV margin remains strong at 32%, a decrease of 2 points year-on-year.

Such impacts were alleged favorable mix mainly due to the high sales of the UK corporate pension scheme and the negative impact of lower increased rates in the U.S. via products which more than offset an improvement in margin in other countries.

Life & Savings net flows for the quarter were fully up at €9.1 billion versus €2.8 billion in the nine months last year. We saw strong inflows in both Protection & Health and Unit-Linked businesses and outflows in General Account Savings totally in line with our strategy.

P&C revenues grew at 1%. In fact, it's 1.4%, to be more detailed, versus last year.

Price increases were 2.3% on average. In the competitive market, we remain committed to selling profitable business as was the case at the half year.

In mature markets, we continued to increase prices mainly in France, the UK, and Ireland, and Germany, while at the same time focusing on more selective underwriting notably in Spain and in construction in France. High-growth market revenues increased by 4% as we continued to improve the business mix, notably in Turkey and Mexico, and increased prices.

Direct revenues were up 7%, mostly driven by strong volume growth mainly in the UK, France and Japan, and tariff increases mainly in the UK, France and South Korea. International insurance revenues increased by 9%, reflecting the strong growth of AXA Assistance with third-party clients, notably new large accounts won recently in the UK, Italy and France.

Asset Management business had strong net inflows at €32 billion with €27 billion net inflows at AXA IM and €5 billion at AB. Economic solvency ratio was estimated at around 212%, down 3% versus June 30, 2015 as the negative impact of financial market exposure was partially offset by operating return contribution.

I would like to take the opportunity to remind you that we plan to share with you our capital management framework at the beginning of December this year. It could be on the 3rd of December.

We have fixed this date, and the presentation will be held in the late afternoon at our London office. I'm now happy to answer your questions.

Yeah. Hi.

Good morning. I've got a couple of questions, if I may.

Firstly, on the P&C business. Obviously, there's [indiscernible] on the price increases, but there seem to be quite significant price increases in the quarter.

How much of that is - would you say is kind of AXA-specific and how much is any market hardening in any of those markets that you've been raising the prices in? And that's question one.

And second point is just on the UK corporate and health institutional pension sales have come through in the quarter and they're obviously much lower margin than a lot of the other stuff you have in the Life business. And I just wanted to get some clarification on this.

So, are these essentially asset management mandates? And if so, where do the earnings come through?

Do they come through in the Life business, or do they go into the Asset Management business? Thanks.

As far as the price increases are concerned, you can see on the press release on page 15, the tariff increases by country and business line, and you can notice that on personal lines, we are 2.5%, on commercial lines, 2.1%. And yes, there is, we started it out, hardening in the UK with 4.8% on personal lines and in Ireland, as you know.

We could tell also that there are some countries and specific countries we have some price increases, which on a relative basis have increased. The prices increased in the third quarter, and that's Turkey, for example, in Mexico.

So, that's mostly what I can tell you about these price increases. You can see that we still have a capacity to increase prices, which is quite strong, which is a good news in line with our strategy to keep a strong profitability.

On your second question, about UK Corporate, I could say that from an accounting point of view, it's not accounted for the revenues, meaning that it's considered as a deposit, so it's considered as a - I would say just like an asset management, but that's not asset management because it's a yearly insurance contract, but of course, it's an insurance contract with low capital requirement which makes the other contracts, but it's clearly an insurance contract, but you know that's what we call the deposit accounting and that means that contract which are considered mobile deposit also being real insurance contracts are accounted for direct deposit.

Okay. Thanks.

Hi, Gérald. Nick Holmes of SocGen here.

Just a couple of questions. First is I wondered if you could give us updates on the French flood in South France, what your explanation might be.

Also, hurricane Patricia, I know last year O!Deal cost you quite lot in Mexico and I guess Patricia is going to be quite a lot less than that, but your explanation there will be great. And then, finally, on commercial P&C, [indiscernible] fairly cautious in your guidance on pricing and yet tariff increases were up 2% and that seems pretty good, and I just wondered whether you're becoming more optimistic about commercial pricing.

Thanks very much.

Okay. Starting first with your first question.

The global cost of flood in France is roughly €600 million gross, but we have a market share received roughly 15% and we have a reinsurance, which is a quota share on 50%, which means that the net cost for AXA, let's say, would be €40 million to €50 million net, €100 million growth and roughly 40% to 50% net before tax. As far as Patricia is concerned, it's quite early to give you an update on this.

But what I could send, as you noticed, and hopefully it's been less dramatic than what we feel - much less dramatic that what we feel on Friday night. So, that means that we don't expect it to be quite significant.

It won't be - not at all significant, nothing to do with the deal at all.

Okay. That's very clear.

Just out of interest, Gérald, have you increased your reinsurance covers in Mexico, just in case we get more hurricanes?

Yes, we did.

Okay.

Yes, we did because you remember that - and I mentioned it in previous presentations and calls that we considered that we were not sufficiently protected, so it's done now. But this time which, in fact, is good news.

On commercial P&C, yes, I would say you're right. On commercial P&C, what I can say that we had - we made a lot of tuning in different countries like it was the case in France, it was the case in Spain.

It's been the case also in different countries, in emerging countries and especially in [indiscernible]. So, that means that at the cost of a decrease of the top line, we indeed increased our prices, which again is a good news, which means that we have this capacity, for example, the evolution up to now, the evolution of construction in France is quite good.

So, let's wait, but this is a trend, and these trends confirm our capacity. At the same time, you can notice that that's on commercial line.

We still were slightly positive, which means that we had the capacity to increase our prices in these commercial lines. So, so far so good.

Again, it's a strong focus on profitability.

Okay. That's very clear.

Just one quick follow-up, where in commercial lines would you be most concerned, which geography would you say?

Nothing specific, I would say. Nothing specific because I believe that now, after all the changes that we have implemented and the price increases that we have implemented, Nick, this year, I consider that most of the negative situation has been restored.

It doesn't mean that there won't be any areas where we could do better. But I believe that most has been done, which bodes quite well for next year.

And - so that's mostly.

Okay. Thank you very much.

Very clear.

Hi. Good morning.

Three quick ones from my side, please. Firstly, on asset management.

I was surprised to see Q3, you had €3 billion of outflows, €2 billion Alliance Bernstein and €1 at AXA IM. Could you just shed some light on what's happening there?

I mean, previous quarters had turned to inflows, so I was a bit surprised to see the outflows in Q3. Secondly on Hong Kong APE, I understand there's been regulator changes mainly around the disclosure of certain fees.

I'm not seeing the same kind of declines there is, though. A lot of peers are seeing improved efficiency and strong sales of products into Mainland China.

So, could you just explain a little bit why you're numbers don't compared with certain peers? And then my third question is just a quick update on the Department of Labor proposal, so the 10% to 30% decline in sales that you guided to early this year, is that still - do you still feel comfortable with that kind of level?

Thank you.

Okay. Let's start first with your question on net inflows.

So, net outflows, that's true, we had €3 billion of net outflows in Q3 after a strong start of the year. So, that means that on a cumulative basis, at Q3 we have a strong net inflows.

Let's say that in - at AB, I would say the consequence of the turmoil that we had during the summer coming from China with some outflows of institutional and retail. On AXA IM, minus €1 billion was partly due to - it's not in Asia, it's mostly coming on other countries and of which we have Friends Life, as you know, which represent part of it, and with the merger of Aviva.

Aviva is reintegrating part of their business. So, that's mostly it.

On the second question on Hong Kong APE, you should - that's a good question, and you should take into account the fact that most of our peers - we have been quite successful in the past year in selling and developing a lot of Unit-Linked business in Hong Kong. And as you know, as you mentioned, due to change in regulation, our new business in Unit-Linked in Hong Kong went down quite sharply roughly more than 55% in Q3.

Why? Because there have been a change of regulation due to this disclosure of commissions.

But most of our peers were not on Unit-Linked business, they were on traditional G/A business. And we checked [indiscernible] why they are still progressing.

So, as far as we are concerned, sure, we foresee the minus 10% APE for the first nine months. We are working on new products that is actually part of them being Unit-Linked that is different design.

And others - with other products that could be general account product also but with a low risk and result any larger economic capital consumption, I could say. So, that's what I can tell you, and we are preparing ourselves to rebound in the future months and especially in 2016.

An update on DOL , unfortunately, I cannot tell you more than what we said at the end of - at the beginning of August, meaning that we, most probably, will get news now mostly at the beginning of 2016. As you know, there are a lot of lobbying coming from congressmen and so on because there are - the Life - taking the example of the UK products, it's not in the best interest of the policyholders, especially it's not the case for high net worth, but for the other one, it's not a good news.

So, let's wait. That's what I can say.

And I cannot be more precise, unfortunately, on what we said last time, i.e., minus 10% to minus 30%. So, let's wait.

Okay. Very helpful.

Thanks very much.

Yeah. Hi.

Good morning, everyone. I had a couple of questions on P&C.

The first one, if you can give us an indication on whether you're seeing some impact on churn in France from the new [indiscernible]? And the second one is concerning the reduction in net new contracts in Spain and Turkey which has clearly been quite substantial.

Could you give us at all the total number of contracts in Turkey and Spain to get a better feeling about - on what - on how big in percentage the €558 million would be in Turkey and the €279 million reduction in Spain? Thank you.

Okay. Let's start with the [indiscernible].

We can't consider that today. Roughly speaking, we have 10% of our surrenders which are due to [indiscernible].

And for Household, it's roughly 90% so - of surrenders. So, it's a bit early because it's a bit early to judge what will be the global impact, but there is an impact.

At the same time, keep in mind that there is obviously a negative impact because that means that the duration of our policyholders will go down, but an opportunity as well because we will have the opportunity to write new business. At the same time, keep in mind that the direct business, it's an opportunity for us as well to write much more direct business.

And you can see that we have been globally, we have been a plus 7% in direct business. And for - let me check, for France, Direct was at plus 7.9%.

So, let's say, plus 8% for the first half, which in fact is a good news. So, yeah, plus and minus.

That's exactly my point. About Spain and Turkey, we could say that in Turkey, we had at the beginning of 2015, let's say 4 million contracts and we had net outflows, I would say, of 558,000 contracts for the first 9 months, which means 14% down.

So, that mostly came from [indiscernible], for the reason we have already explained to you. That means that due to bodily injury, we increased our prices in Turkey by 70% this year.

So, you can see that it's - and we can expect that now, we are at the highest level of profitability. This concerned only TPL only.

It doesn't concern our KAFCO because KAFCO was profitable and we didn't have to change the figures. Your last question was about Spain.

Do you have this figure? I'm sorry.

I have to come back to you because I don't have the Spanish figure. I have the global figure for MedLA, but not for Spain.

We'll come to you. I'm sorry for that.

No problem. Thanks very much.

Okay.

Thank you.

Thank you. A couple of questions left.

Could you talk about the increase in - the 17% increase in UK Personal Motor volumes? What's going on there?

Secondly, could you talk about the - into the some claims inflation? You've talked a little bit about higher price increases, but what's happening to the situation net of claims inflation?

Is that getting better or worse? And thirdly, just coming back to the UK, I just wonder, what's the point in writing huge volumes of practically zero margin business?

In Q3, the margin dropped about 1%, I think at this rate. So, I just wonder what's the benefit of writing that business, Gérald?

Okay. Your question was about the increase of UK Motor.

As you know, most of the UK Motor we had an increase of 17%, and we had on average, 10% price increase in Motor in UK and Ireland. And on top of this, we had an increasing volume in the UK of 7%, and minus 1% in Ireland.

So that's the combination of those, which makes that - we have a strong performance, and on top, we have direct and in direct we have very strong performance as well because in direct, we had an increase in the UK of 12.2%. So, you can see that we are performing quite well in the UK on both additional and direct mainly due to this price increase and also volumes which is indeed served as a good news.

About the claims inflation, I would say that we - I don't believe that we have no specific news compared to what I've told you for the first half. That means that we don't see any real claims inflation stocking injunctive.

Where we have claims inflation are the UK and Ireland, and for the other countries, nothing new and nothing specific over the last payment. And your last question is about UK.

I would say that we cannot - there are products, of course, which are less profitable, but when you have opportunities to [indiscernible] contracts and when you contribute to your profitability, covering some part of your fixed cost, then you do it. That's the first point.

Second point, I repeat what I have said at the beginning, which is, Blair, that - it doesn't consume any capital almost. So, that means on a capital return basis, it's quite good.

So, just going back in a couple, Gérald, do you expect to revise your unit cost assumptions in the UK given you've taken on that volume, or has that already come through, firstly. And secondly, coming back to UK motor, and it's such a competitive market, how can you get a 10% price increase plus 7% volume.

It seems incredible?

Please pay attention. Most of the capital increase was coming from Ireland.

And as you know, Ireland is a very specific situation where prices increase a lot. And your other question was about the cost of - it's the cost in the UK.

Costs that are adjusted, so that means that costs are already adjusted, take this already into account in the margin. So, that is - for Spain, we have €3.4 million contract at the end of 2015.

Okay.

2014. At the end of 2014, beginning of 2015, so to say [Inaudible].

Okay, Blair.

Yeah. Thank you.

Yeah. Thanks very much.

I just wondered, could you possibly give us a walkthrough of the change in the Solvency from 215% to 212%. It's a lovely number but a little bit of detail would be very, very helpful.

Thank you.

Okay. We could say, and that's what I said.

As you know, roughly speaking and remember what I presented for the first half, the operational return represent roughly 10 points for the half year. So let's say that this half is 5%, 5% to 6% for the quarter, and we had a negative impact of lower equity market, lower interest rates.

And that's the reason why we are moving from 215 to 212. So nothing new, relatively predictable, so that's what I can tell you.

Nothing specific more to say.

Excellent. And would there be - this economic sources and along December and [indiscernible] London, you talked about [indiscernible] we should think about?

We said that - yeah. If your question is what about the final regulatory solvency, that, we will share with you on the third of December.

I cannot say more than what we, Denis and myself, we told you that means that it could be plus-minus 10%. So that's the points.

So nothing new on that side, but let's wait a few more weeks, and you will have the final figures.

Good enough. Thank you very much.

Yes. Hi.

Good morning, guys. Just two things.

One is on the solvency ratio. Again, we know that you are neutralizing the sensitivity to corporate credit spreads by implementing the liquidity premium.

I wonder whether you could share with us what the impact of that was. In other words, where would your solvency ratio have been had you not implemented the liquidity premiums and neutralized spread sensitivity?

And second, just two details on P&C rate increases. One is in personal lines in Switzerland.

We see in the third quarter an acceleration of negative trends, if that makes sense. And I was wondering whether you could comment on that.

And in commercial lines in Asia, the third quarter was the first time that we see a notable swing from increases to rate decreases. I would just welcome perhaps some commentary on these dynamics.

Thank you.

Okay. First of all, relative to you first question, spreads didn't move so much in the first quarter, so - in the third quarter between last year and nine months.

So, Ralph, I can tell you that the impact of liquidity premium is very minor. It's really - what I said, it's really impact of interest rates that went down quite significantly and equity markets.

But as far as the spreads are concerned, nothing specific to mention. About the P&C market and the negative trends that we highlight on the personal inn Switzerland.

You know that - I would say that and as you know, it's an extremely profitable market, and you cannot understand these moves as a softening of the market. Not at all.

Nothing specific to mention. We had a slight decrease but it's - look, inflation in Switzerland is negative so [indiscernible] are negative and so on and so forth.

So, nothing specific, and it remains an excellent and very profitable market. On commercial in Asia - can you repeat your question, Ralph, on this one?

Oh, yeah. It was just that I noticed that the premium rates in commercial lines in Asia have become negative for the first time when - in recent history.

I was just wondering what was going on there.

No specific - we should go into a bit more detail but I have nothing in mind that would be a matter of worry on that side. So, we should have a more granular - I believe that it's more to a more granular detailed analysis that I could - that we could give explanation, but it's a lot of plus and minuses and I don't see any specific and real trends that you could extrapolate for the future as far as this is concerned.

Okay. Thank you very much.

Morning, everybody. I've just got some - two questions please.

[indiscernible] your comments on reinvestment yields and how that's trended over the quarter and what your current view is given what's happening with spreads over the summer period. And also the fallback in yields?

And the second, just to clarify, on the 3rd of December, are we going to get full appraisals, number based on the nine months balance sheet? Is that the intention?

Thank you.

Okay. On the investment yields, as you know, I mentioned to you last time in - for the first half, I told you that we have been reinvesting at an average at 2%.

And indeed, at the end of let's say - yeah, at the end of September, we should be maybe slightly above but it's a matter of basis points basis point. That means that - so, in other words, we will benefit but it will be small.

We will benefit from higher spreads because you know that spreads went up. But spreads went up quite recently in October mostly, but it is offset by lower rates.

So, I believe I'm quite conscious, I'm quite confident in the fact that we won't be lower than 2%. Maybe we could be somewhere between 2% and 2.1%, but something around this.

And so in line, so that means that nothing - I'm not worried at all because we planned and we assumed that we would be on this level. But for the time being, I cannot say that we'll be much above this level.

About Solvency 2, yes, we will update on the 3rd we will update you on the levels and on the level of Solvency, including at the end of September for sure.

Okay. Can I just come back on the investment yields?

Okay. Can I just come back on the investment yields?

Has your risk appetite changed in any way given what we've seen in high yields because obviously there's been some high-profile spread deals [indiscernible] names in Europe? Have you changed your operation [indiscernible]?

Recently you've been quite short-duration high yields, I just wonder whether you've changed that view at all? Yes.

We have invested in short-duration high yield. As I told you last time, we consider that it's a good risk.

Everything that's globally are risk appetite increase, I wouldn't say so. I would say that the big difference is that we are the - in the first half of the year, we were quite kin on investing in liquid assets.

And we are still doing it. But now, your proximity for corporate bonds is more positive due to the slight increase, for example.

We had an increase of roughly over the last weeks of roughly 30 basis points on the senior lending, which indeed is a good news in that end. It makes the return, taking into account the cost of equity, the return is better than it was before, and we are investing in such class of assets.

Okay. Thanks and thank you very much.

Okay.

Good morning, Gérald. I have a question along the longer-term side.

Just looking back to 2007, I think your revenue ex-exchange are growing by 81% from 2007 to 2015. And over the period, I think, on my numbers your underlying earnings was growing to 13% although most of that, I think, is probably post-exchange.

And so, the point I'm making is that over the long term, your profits grow in line with your revenues. Now, just wondering as you look forward to the next sort of Ambition AXA, whether in order to grow profit to sort of 5% to 10%, you need to accelerate revenues or whether you think that in the digital world, it is possible to grow profits meaningfully fast than revenues.

That means that, first of all, we should say that over the period that you described, we had been hit by financial conditions which have been quite difficult. Over the long term, it's both.

[indiscernible] still an increase in the profitability, and we have still levels in order to increase our profitability, both on P&C side and on the Life side, of which, without any doubt, I would mention the technical side of mix products, especially Life and some sort of expense savings and, at the same time, in the top line. That means that we can expect that over the next year, we will have opportunities.

And I would like to mention the fact that we will have some opportunity to cross-sell, and that's all what we are expecting. You know that we have been investing a lot in digital, €950 million, over the last three years, €450 million this year.

So, we are expecting a lot on that side. So, that's why I'm telling you that it will come from both sides.

Thank you.

Hi, everybody. Thanks very much.

I just wanted to ask a little bit about margins from an IFRS point of view, earnings point of view in the Unit-Linked business. So, obviously, you've had this big growth in the UK which is very kind of low margin unit-linked to market.

And if you look at 2014, 2013 kind of numbers for the margin that you make on average unit-linked liability, you're in the kind of 65 to 70 basis point level versus - close to, I would have thought, closer to zero in UK in the corporate pensions business. I was wondering, are you confident, generally speaking, that you can maintain that level of high margin in Unit-Linked going forward given growth potentially in the UK, in particular, or do you see that margin coming down?

Thanks.

Well, for the time being I don't expect on average that the traditional unit-linked business, especially the individual unit-linked business, because here we are speaking from a very a specific corporate line, corporate [indiscernible] that we will keep the same level of margin. I would not say that it's forever, but at least we could say that in the foreseeable future, I don't expect it to go down.

Okay. Thanks so much.

Okay. Well, thank you very much, everybody.

Thanks to all. Have a good day.

Have a good day. See you on...

And thanks for attending this call.

See you on December 3rd.

Yes. See you on December 3rd.

Thank you.

Bye-bye.