Preliminary 2006 AXA Earnings Conference Call (London) - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

HENRI DE CASTRIES, CHAIRMAN OF THE MANAGEMENT BOARD AND CEO, AXA: Good afternoon, ladies and gentlemen. I'm very happy to be here this afternoon. We'll skip through the main result with the [Chairman], with the U.K. management team. I'm here with Nicolas, with Paul, with Peter. We are ready to, I would say, to answer all your questions.

I'm not sure I should go again through the presentation. Most of you have listened to it this morning. If you want me to do it I can do it. No. Okay. So I think maybe the best thing is to take questions. The only thing I'd like to say is a few words of introduction.

And, as you have seen in the numbers, 2006 is clearly a great year for us because we think it's the first year where the full deployment of the strategy is visible, fully visible, in the numbers.

One of the very important things -- because most of you had been asking the question over the last years, yes, you are delivering a good performance this year but what's going to happen next year? Are you generating the revenue growth which is going to fuel future earnings?

I think you have the answer. If you compare the 11% revenue growth to what's happening in other major firms, you will see that there we are ahead of the curve.

The second point which I think is very important is what has happened with the new business profitability on the life side. You've seen that this was ahead of your expectation for good reasons. It's some volume growth and it's improved margins everywhere. In some very symbolic places we are starting to see significant [emphasis].

Germany is an interesting case. Many people were doubtful about our ability to change the picture as far as the profitability of the life business in Germany was concerned.

TwinStar, even if it's only early days, is helping us very much changing the picture, the value of the new business is shooting over the year, despite the fact that TwinStar is representing only 12% of the sales. So today we're going to represent more than 12% of the sales it's going to be even more interesting. It's something we are not going to stop there. We are introducing the accumulative product for the Group now at what we hope is an accelerated pace.

The next point I wanted to highlight is the classic question we've had every year over the last four years is on the property casualty side. Is it going to deteriorate next year? Or sometimes it's not a question it's an assumption, it's going to deteriorate next year.

I think, as you see, it's improving further. The combined ratio is [done], the resulting situation is a very, very strong one. The profitability is a high one. And when you see the pricing evolution and when you perhaps compare it to what we are doing in terms of claims management, you see that we have no reason to be pessimistic about the property casualty business.

Asset management is doing very well. We had a record year with very strong inflows. It's the competitiveness and the competitiveness of the offer.

Last but not least, Winterthur integration. We were told by some people, I'm sure nobody in the room, in June when we did it, [no way will] there be profitability, potential integration issues. As you see, there is growth there and we think we can accelerate it. It's a sound business. The profitability of Winterthur in 2006 was a very decent one. And the integration is going well and fast, which means we are able to increase the amount of synergies we are expecting from the deal.

So, overall, it's a great picture. What's the outlook? Well, the outlook depends on three levels. The world, the business in the world and our own strengths. The world, we don't control it. But it's interesting. It's a mixture of high growth and significant risks. But so far we see the growth. We haven't seen the risks materialize which doesn't seem to have disappeared.

The sector, the fundamentals of the sector remain -- they remain very strong for the same reasons for the pharmaceutical industry, people are getting older and richer. So we think there is no reason to be pessimistic about it. On the contrary, I think, if anything, the fact that more and more people are becoming affluent is great news for us.

We have our own specificities which are making us confident in the future. We think that the business model we've put in place is now showing its efficiency and we just intend to continue because we are far from having the feeling that we have optimized the organization.

We all think that we still have a lot to do in terms of product innovation, in terms of credit card service, in terms of distribution management. All this leading to one conclusion. In 2006, like in 2005, we are ahead of the curve as far as reaching the 2012 goals are concerned. And we are confident that we will reach them and that 2007 should be, I would say, another good year for the business.

So this is it for the summary and now we are happy to take questions. Who will start?

OPERATOR: [OPERATOR INSTRUCTIONS].

UNIDENTIFIED AUDIENCE MEMBER: [inaudible]. A couple of questions. I wasn't sure, the new synergies that you've put out, could you give us an idea of the pace with which those will be recognized and what's the schedule for those to be recognized?

Also, on Winterthur, the slide on page 35, have you got a feeling for how much of those earnings will actually come through into your own earnings after the purchase gap and, obviously, the difference between IFRS and U.S. GAAP? I don't expect an exact number, just a flavor if possible.

And how much -- or what was the growth in the Winterthur, excluding capital gains? Thanks.

HENRI DE CASTRIES: Okay. On the synergies, I think you have the answer on the phasing on page 39. Where will it come from? I think, as I said, everything is going faster than expected.

And especially one thing, if you look at what we had to do, so one of the things is integrating the operations and having a number of people go because they are redundant, it has been going faster than what we were expecting, especially in Switzerland. It doesn't mean that it's over. Especially in Germany, in Spain and in Belgium where we still have negotiations going on. But the pace at which we are getting close to the, I would say, what we want to be the final numbers, is faster than expected. This is one of the elements.

Denis, do you want to say something on the purchase gap and on the --.

DENIS DUVERNE, MEMBER OF THE MANAGEMENT BOARD AND CFO, AXA: Yes. When you look at on 35 -- the slide 35, the what's happening to the net income in Winterthur, we've taken out of the EUR1.4b the discontinued operations of EUR352m, Winterthur U.S., EUR103m, that gives you a EUR964m. The difference here includes capital gains.

We will try to give you a better understanding of the proportion of capital gains either at the first quarter or more likely at the half year. But you could assume that at least 25% of this number is capital gains. And [in southern Spain], you shouldn't expect large capital gains coming out of Winterthur because we'll do a purchase gapping at on January 1, so we'll start to do a fresh start with no underlying capital gains.

HENRI DE CASTRIES: Does that answer your question there? Are you fine with the answer?

UNIDENTIFIED AUDIENCE MEMBER: [inaudible]. Moving from the EUR964m, taking as capital gains, anything else that needs to come out?

DENIS DUVERNE: Yes. I believe that there may be some -- a little bit of non-recurring improvement in the combined ratio in Spain but that's not going to be a big amount.

UNIDENTIFIED AUDIENCE MEMBER: Amortization of [this].

DENIS DUVERNE: The allocation of [this] would be probably a [in a rush] with the elimination of the amortization of tax that they previously had. However, their [organization] and their [inaudible] taxation will about match the new amortization that we have. If I'm clear. Okay.

HENRI DE CASTRIES: Okay. Next question. Yes. Nick?

UNIDENTIFIED AUDIENCE MEMBER: I had a couple of questions. One is about P&C pricing and I wondered whether you could tell us a little bit more about pricing on new business since your chart is on renewals. In particular, which areas are you seeing most pressure on and which are you seeing most upside on?

The second question is a little bit more difficult to answer. I wonder if you could share with us any views that you've formed on the implications for capital management and product pricing for [inaudible]? So if you're able to say something on it on the [inaudible] sector that you think might come out of the Solvency II work.

And also I'd be interested in your views on the new capital model which S&P is developing. And I suppose try and provide some sort of more focus on this, perhaps, some -- for example, equity weighting is a pretty controversial element within both Solvency II and the new S&P model and perhaps that would be something that would be very interesting for you to comment on.

HENRI DE CASTRIES: Very good. Okay. On the P&C pricing for the new business, if you take the same sort of chart as the chart we've been using for the existing business, you will see flags above the line and you will see some flags below the line. And I would think pretty much within the same range.

If you look at the big markets we are in, in the French market there is some competitive pressure, but not a very big one. I would say it's probably around 2%. The place where the pressure is …