solvency and financial condition report 2017 - axa… · 1 axa ppp healthcare limited solvency and...

1 AXA PPP healthcare limited

SOLVENCY AND FINANCIAL CONDITION REPORT 2017

This report is the Solvency and Financial Condition Report (“SFCR”) of AXA PPP healthcare limited for the reporting period ended 31 December 2017, pursuant to article 51 of Directive 2009/138/EC (the

“Directive”) and articles 290 to 298 of Delegated Regulation 2015/35 (the “Regulation” and, together with the Directive, the “Solvency II Regulations”).

CERTAIN PRELIMINARY INFORMATION ABOUT THIS SFCR REPORT

Presentation of the information

In this Report, unless provided otherwise, (i) the “Company”, “AXA PPP healthcare” and "AXA PPP" refer to “AXA PPP healthcare limited”, a private limited liability company under the Companies Act

2006, which is incorporated and domiciled in the United Kingdom (“UK”), and (ii) “AXA Group”, the “Group” and “AXA” refer to AXA SA together with its direct and indirect consolidated subsidiaries.

The Company is part of the AXA Group as an indirect subsidiary of AXA SA, a société anonyme

(public limited company) incorporated in France, which is the publicly traded parent company of the AXA Group.


SUMMARY In recent years, the European Union developed a new regulatory regime for European insurers which

became effective on 1 January 2016, following the adoption of the 2009 Solvency II Directive on the taking-up and pursuit of the business of insurance and reinsurance, as amended in 2014 by the 2014/51/EU Directive (“Omnibus II”). The regime is designed to implement solvency requirements that

better reflect the risks that insurance companies face and deliver a supervisory system that is consistent across all European member states. The Solvency II framework is based on three main pillars: (1) Pillar 1 consists of the quantitative requirements around own funds, valuation rules for

assets and liabilities and capital requirements; (2) Pillar 2 sets out qualitative requirements for the governance and risk management of insurers, as well as for the effective supervision of insurers including the requirement for insurers to submit an Own Risk and Solvency Assessment (“ORSA”)

which will be used by the regulator as part of the supervisory review process; and (3) Pillar 3 focuses on enhanced reporting and disclosure requirements. The Solvency II framework covers, among other matters, valuation of assets and liabilities, the treatment of insurance groups, the definition of capital

and the overall level of required capital.

/ Key Figures

(In £m except Solvency II ratio data) 2017 2016

Profit and Loss Account under FRS 101

Total gross written premiums 1,496.3 1,437.5

Underwriting result 75.4 71.6

Investment result 22.7 23.0

Profit on ordinary activities before tax 98.1 94.6

Solvency II Balance Sheet Data

Total assets 912.3 947.6

Available Financial Resources (AFR) 296.7 358.5

Capital Requirement Data

Solvency Capital Requirement (SCR) 220.0 267.3

Solvency II ratio 134.8% 134.1%


/ Key Highlights B

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The results of the Company for the year show a profit on ordinary activities

before tax of £98.1m (2016: £94.6m). The underwriting result, including other operational income and expenses,

shows a profit of £75.4m (2016: £71.6m). The Company has continued to focus on profitable growth in revenue and customer numbers, both in the UK and internationally.

The investment return for the year is a profit of £22.7m (2016: £23.0m). Whilst the total investment return is broadly in line with prior year, there has been a

large fall in foreign exchange gains of £64.4m, which is offset by a corresponding decrease in losses on derivatives of £66.0m, due to the foreign exchange forwards used to hedge the currency exposure. Prior year foreign

currency movements were unusually large due to the Brexit vote in June. Other operating income of £23.0m (2016: £22.1m) includes £23.0m

(2016: £18.4m) relating to non-insurance business administration fees. Other operating expenses of £9.9m (2016: £10.6m) includes restructuring costs of £2.6m (2016: £3.6m), current year contributions to the AXA UK Pension Scheme

of £4.5m (2016: £6.8m) and foreign exchange losses of £2.4m (2016: £0.2m) and £0.4m (2016: £nil) relating to non-insurance business.

At 31 December 2017, there are no amounts due to the immediate parent company (2016: £6.4m), with the exception of a foreseeable dividend of £120m; and an interim dividend of £50m was paid in addition to the interim dividend of

£100m relating to 2016.

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AXA PPP healthcare operates with a unitary Board of Directors, with a Chairman and a Chief Executive Officer.

The Board of Directors has delegated authority to three specialised AXA UK Committees: the AXA UK Audit Committee, the AXA UK Remuneration and Nomination Committee (for certain remuneration and nomination matters as set

out in the Corporate Authorities and in the Terms of Reference of the Committee) and the AXA UK Investment Committee. In addition, the Board of Directors established an AXA PPP healthcare Board Risk Committee in 2017,

following the disbandment of the AXA UK Risk Committee and several sub-committees which previously had oversight duties over all AXA UK entities. The Board Risk Committee assists the Board in its responsibility for the oversight and

management of risk. As further described in Section B.1 of this report, AXA PPP healthcare as a

subsidiary of AXA Insurance UK plc has four key functions, in compliance with Solvency II Regulations: 1) risk management; 2) compliance; 3) internal audit and 4) actuarial. Each of these functions has a direct link to one of the persons

who effectively run the Company, and each of these functions has direct access to the Board of Directors.

AXA PPP healthcare is engaged in the provision of private medical healthcare, and as such, it is exposed to a wide variety of risks, including insurance risks, market risks, credit risks and operational risks.


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As an integrated part of all business processes, Risk Management is responsible

for the definition and the deployment of the Enterprise Risk Management (“ERM”) framework within AXA PPP healthcare, including the conduct of the Own Risk and Solvency Assessment (“ORSA”). This framework is based on the

following four pillars, bound by a strong risk culture: 1. Risk Management independence and comprehensiveness: the Chief Risk

Officer is independent from operations (“first line of defence”) and the Internal Audit Department (“third line of defence”). The Risk Management and Compliance Department, together with the Internal Financial Control

Department, constitutes the “second line of defence” the objective of which is to develop, coordinate and monitor a consistent risk framework across the Company;

2. Risk appetite framework; 3. Systematic second opinion on key processes; and 4. Robust Internal Model.

In order to manage these risks, AXA PPP healthcare has put in place a comprehensive system of internal controls designed to ensure that executives

are informed of significant risks on a timely and continuing basis, have the necessary information and tools to appropriately analyse and manage these risks, and that the Company’s financial statements and other market disclosures

are timely and accurate. These mechanisms and procedures principally include:

• The Company’s corporate governance structures, designed to ensure

appropriate supervision and management of AXA PPP healthcare’s business as well as clear allocation of roles and responsibilities at the

highest level; • Management structures and control mechanisms designed to ensure that

AXA PPP executives have a clear view of the principal risks the Company

faces and the tools necessary to analyse and manage these risks; and • Disclosure controls and procedures designed to ensure that executives

have the necessary information to make fully informed disclosure decisions on a timely basis and that the Company’s disclosures on material

information (both financial and non-financial) to the markets are timely, accurate and complete.

These mechanisms and procedures, taken together, constitute a comprehensive control environment that executives believe is appropriate and well adapted to AXA PPP healthcare’s business.


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The AXA Group internal capital model provides a concrete and powerful tool to

control and measure exposure to most risks, in line with the Solvency II framework.

In presenting the risks below, management have prioritised the three categories

of risks in a manner that corresponds to management’s current view as to the potential impact (from higher to lower) of risks for AXA PPP healthcare.

Property & Casualty (“P&C”) insurance risks

These comprise premium risk from underwriting future business and reserving risks from inadequate prior year reserves. The primary business focus for AXA PPP healthcare is writing General Insurance Classes 1 and 2, Accident and

Sickness business, and specifically UK private medical insurance (“PMI”) which consists of short term insurance contracts in Personal and Commercial lines. In addition, a moderate section of the portfolio is the provision of PMI to UK

expatriates and to foreign nationals through partnership arrangements.

Risks relating to the financial markets and financial position

AXA PPP healthcare is exposed to financial market risks through its core

business of private health insurance and through the financing of its activities.

A wide variety of risk management techniques are used to control and mitigate the market risks to which AXA PPP healthcare is exposed. These techniques

include: Asset & Liability Management (“ALM”), a disciplined investment process, hedging strategies, reinsurance and regular monitoring of the financial risks to the economic and solvency position of AXA PPP healthcare.

The key risks faced on a Solvency II basis for AXA PPP healthcare are:

• Interest-rate, property and spread risk which are related to the operating

and investment activities of AXA PPP healthcare;

• Credit risk; and

• Liquidity risk.

There is also Pension Scheme risk, following the attribution of a part of the AXA UK Group Pension Scheme obligations to AXA PPP healthcare, most notably in

respect of corporate bond spread exposure.

Risks relating to the evolving regulatory environment

In addition to risks that bear a capital charge through the Solvency Capital

Requirement calculation, AXA PPP healthcare also considers liquidity risk, reputational risk, strategic risk and regulatory risk as well as emerging risks (under all categories) and risks arising from its relationships (financial or non-

financial) with Group and other related parties.

There is also an element of Operational Risk inherent in doing business in a General Insurance environment.


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The AXA PPP healthcare Solvency II balance sheet is prepared as of

31 December. The balance sheet is prepared in compliance with the Solvency II Regulations.

Assets and liabilities are valued based on the assumption that the Company will pursue its business as a going concern.

The Solvency II balance sheet only includes the value of business in force and therefore only presents a partial view of the value of the Company.

Technical provisions are recognised with respect to all insurance and reinsurance obligations towards policyholders and beneficiaries of insurance or reinsurance contracts. The value of technical provisions corresponds to the

current amount that the Company would have to pay if it were to transfer its insurance and reinsurance obligations immediately to another insurance or reinsurance undertaking.

Other assets and liabilities are recognised in compliance with Financial Reporting Standard 101 'Reduced Disclosure Framework' (“FRS 101”), provided

that those standards and interpretations include valuation methods that are in accordance with the following market consistent valuation approach set out in Article 75 of the Solvency II Directive 2009/138/EC:

• Assets shall be valued at the amount for which they could be exchanged

between knowledgeable willing parties in an arm’s length transaction; and

• Liabilities shall be valued at the amount for which they could be transferred,

or settled, between knowledgeable willing parties in an arm’s length

transaction (without adjustment to take account of the Company’s own credit standing).

As at 31 December 2017, the Company included the PPP pension scheme deficit less 6% of the AXA UK plc FRS 101 pension scheme surplus net of deferred tax in its balance sheet. The net provision amounted to £3.2m

(2016: £25.9m).

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The Solvency II ratio at 31 December amounted to 134.8% (2016: 134.1%),

this is driven by: Available Financial Resources decreased by £61.8m to £296.7m

(2016: £358.5m) during the year reflecting the profit for the year net of the £50m dividend paid and £120m foreseeable dividend; and

Solvency Capital Requirement decreased by £47.3m to £220.0m (2016: £267.3m), mainly due to refined solvency model validation testing confirming that additional capital held at 31 December 2016 is no longer required and

reduced financial risk. The drivers are explained in Section E Solvency Capital requirement.


BUSINESS AND PERFORMANCE

A.1 Business

General information

Information on the Company

Major shareholders and related parties

Business overview

Significant business and other events

A.2 Underwriting Performance

Aggregate underwriting performance

Underwriting performance by geographical area

Underwriting performance by product line

A.3 Investment Performance

Net investment result

Gains and losses directly recognised in equity

Investments in securitisation

A.4 Performance of other activities

Profit and loss account

Leasing arrangements

A.5 Any other information

A


A.1 BUSINESS

/ General information

The Company is a subsidiary within the AXA Group, a worldwide leader in financial protection. The Group operates primarily in Europe, North America, the Asia-Pacific Region and, to a lesser extent, in

other regions including the Middle East, Africa and Latin America.

The Company is the UK healthcare arm of the AXA Group and provides healthcare insurance cover for individuals and employers (both based in the UK and living and working overseas), and employee

wellbeing, counselling, eldercare support, occupational health and rehabilitation services through its specialist related Health Services division.

/ Information on the Company

The Company is a private limited liability company under the Companies Act 2006 and is incorporated

and domiciled in the UK. The address of its registered office is 5 Old Broad Street, London, EC2N 1AD; and the registered number is 03148119.

Supervisory authority

The Company’s principal supervisors are (i) the Prudential Regulation Authority (“PRA”) (firm reference number 202947) and (ii) the Financial Conduct Authority (“FCA”).

Prudential Regulation Authority 20 Moorgate, London, EC2R 6DA, United Kingdom +44 (0)20 3461 7000

Financial Conduct Authority 25 The North Colonnade, London E14 5HS, United Kingdom

+44 (0)20 7066 1000 AXA Group is engaged in regulated business activities on a global basis through numerous operating subsidiaries, and the Group’s principal business activities of insurance and asset management are

subject to comprehensive regulation and supervision in each of the various jurisdictions where the Group operates. Given that the AXA Group is headquartered in Paris, France, this supervision is based to a significant extent on European Union directives and on the French regulatory sys tem. The

AXA Group’s principal supervisor is the French Autorité de Contrôle Prudentiel et de Résolution (“ACPR”).

AUTORITE DE CONTROLE PRUDENTIEL ET DE RESOLUTION 61, rue Taitbout – 75436 Paris Cedex, 9, France +33 (0)1 49 95 40 00

Statutory auditors

Incumbent auditors

Mazars LLP, Chartered Accountants and Statutory Auditor, Tower Bridge House, St Katharine’s Way,

London, E1W 1DD

Mazars LLP is a limited liability partnership registered in England with registered number OC308299.

Mazars LLP is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales under reference number C001139861.


/ Major shareholders and related parties

Capital ownership

On 31 December 2017, the Company’s fully paid up and issued share capital amounted to

£185,000,000 divided into 185,000,000 ordinary shares, each with a par value of £1 and eligible for dividends as of 1 January 2018.

The Company’s immediate parent is AXA Insurance UK plc, a company which is incorporated and

domiciled in the UK.

Related companies

AXA SA, a société anonyme (public limited company) incorporated in France, directly held 53.1% of

the issued shares in AXA UK plc and a further 46.9% via a 99.9% owned subsidiary company, AXA Equity & Law plc. They were entitled to act in concert to exercise 100% of voting power attached thereto, at any Annual General Meeting of AXA UK plc. In turn, AXA UK plc owns 100% of the issued

share capital of Guardian Royal Exchange plc which owns 100% of the issued share capital of AXA Insurance plc.

AXA Insurance UK plc, itself a wholly-owned subsidiary of AXA Insurance plc, owns 100% of the

issued share capital of AXA PPP healthcare limited.

This is illustrated in the structure chart to follow; however, this is a simplified structure and does not include all the AXA UK group entities.


/ Business overview

MATERIAL LINES AND GEOGRAPHICAL AREAS OF BUSINESS

Products and services

The Company is the UK healthcare arm of the AXA Group and provides healthcare insurance coverage for individuals and employers (both based in the UK and living and working overseas), and employee wellbeing, counselling, occupational health and rehabilitation services through its specialist

related Health Services division.

Markets and competition

The private medical insurance market remains challenging and competitive; however, the Company remains actively focussed on profitably increasing customer numbers and revenues. The Company has a number of initiatives to develop business capability and to strengthen the customer proposition,

in line with its strategic goals.

/ Significant business and other events

There were no significant business or other events that had a material impact on the Company during

the period.


A.2 UNDERWRITING PERFORMANCE

/ Aggregate underwriting performance

The aggregate underwriting performance on a FRS 101 basis is as follows:

2017 2016

Gross written premiums

£1,496.3m £1,437.5m

Current accident year loss ratio (net) 70.7% 71.8% Ratio of claims incurred net of reinsurance, to earned premiums net of reinsurance

including other operating income

All accident year loss ratio (net)

70.0% 70.8%

Net operating expenses

£355.9m £329.5m

Combined operating ratio 94.9% 94.9% Ratio of claims incurred net of reinsurance including

acquisition costs, administration expenses, operational income and expenses; to earned

premiums net of reinsurance including other operating income

Underwriting result £75.4m £71.6m Result of insurance activities

reflected in technical account,

and operational income and expenses

/ Underwriting performance by geographical area

The table below sets out the gross written premium by geographic region based on risk location in

accordance with the QRT S.05.02.01:

(in £m except percentages) 2017 2016

UK 1,224 82% 1,186 83%

Hong Kong 31 2% 39 3%

Cyprus 29 2% 24 2%

Jersey 19 1% 18 1%

Singapore 18 1% 14 1%

Other 175 12% 156 10%

TOTAL 1,496 100% 1,437 100%

Other includes all other EEA and non-EEA countries.

/ Underwriting performance by product line

Underwriting performance is largely medical expense insurance.


A.3 INVESTMENT PERFORMANCE

/ Net investment result

The investment return for the financial year decreased by £0.3m (1.3%) to £22.7m (2016: £23.0m).

(In £m)

31 December 2017

Net investment

income

Net realised

and unrealised gains and

losses

Change in investment impairment

Net investment

result

Investment management

expenses

Investment in real estate properties 0.9 0.2 - 1.1 (0.1)

Debt instruments 14.6 (9.2) - 5.4 (1.4)

Equity instruments - - - - (0.1)

Investment funds 3.7 (2.0) - 1.7 (0.1)

Loans 1.7 (0.3) 1.6 3.0 -

Derivative instruments 1.1 12.5 - 13.6 (0.1)

Other (0.2) (0.1) - (0.3) -

TOTAL 21.8 1.1 1.6 24.5 (1.8)

(In £m)

31 December 2016

Net investment

income

Net realised

and

unrealised gains and

losses

Change in investment impairment

Net investment

result

Investment management

expenses

Investment in real estate properties 1.0 1.3 0.4 2.7 (0.1)

Debt instruments 18.5 43.9 - 62.4 (1.3)

Investment funds 3.5 8.6 - 12.1 (0.1)

Loans 0.3 - - 0.3 -

Derivative instruments (0.1) (51.9) - (52.0) (0.1)

Other (0.1) (0.8) - (0.9) -

TOTAL 23.1 1.1 0.4 24.6 (1.6)

The investment impairment amount in 2017 relates to the write back of impairment on a loan in

recognition of the repayment in January 2018.

Net investment income is presented net of impairment charges on directly-owned investment properties, and net of amortisation of debt instruments premiums/discounts.

All investment management fees are also included in the aggregate figure.

Net realised gains and losses relating to investment at cost and at fair value through shareholders’ equity include write back of impairment following investment sales.


Net realised gains and losses and change in fair value of investments designated as at fair

value through profit or loss consists mainly of:

• Changes in the fair value of investments designated as at fair value through profit or loss; and

• Changes in fair value of underlying hedged items in fair value hedges (as designated by IAS 39,

Financial Instruments: Recognition and Measurement).

The changes in investments impairment for available for sale assets include impairment charges on investments and releases of impairment only following revaluation of the recoverable amount. Write

back of impairment following investment sales is included in the net realised capital gains or losses on investments aggregate.

/ Gains and losses directly recognised in equity

Changes in the fair value of investments designated as available for sale are £2.7m loss on debt

instruments (2016: £6.9m gain), £0.3m gain on equities (2016: £nil) and £0.7m gains on investment funds (2016: £0.1m gain);

/ Investments in securitisation

Investments in securitised instruments are closely monitored by different analyses performed at Group

level by issuer, sector and geographic region, in addition to local procedures and by a set of Group and local issuer limits.

As of 31 December 2017, the economic breakdown of the total value of Asset Backed Securities

(“ABS”) was as follows:

2017 2016

£m % £m %

Collateral Loan Obligations (CLO) 47.3 100.0 35.8 100.0

Prime Residential Mortgage Backed

Security (PRMBS - - - -

TOTAL 47.3 100.0 35.8 100.0

The variance from the prior year is mainly due to an increased investment of £11.4m into the overall ABS portfolio.

As of 31 December 2017, ratings of underlying investments were the following:

2017 2016

£m % £m %

AAA 44.0 93.0 26.2 73.2

AA - - 6.6 18.4

A 3.3 7.0 - -

NR - - 3.0 8.4

TOTAL 47.3 100.0 35.8 100.0


A.4 PERFORMANCE OF OTHER ACTIVITIES

/ Profit and loss account

The profit for the financial year increased by £3.8m (5.1%) to £78.7m (2016: £74.9m).

The following table presents the profit and loss of the Company for the periods indicated.

2017 2016

£m £m

Balance on the general business technical account 62.3 60.1 Investment return 22.7 23.0

Investment income 38.3 71.7

Unrealised gains on investments at fair value through profit and loss

4.2

7.9

Investment expenses and charges (19.8) (56.6)

Unrealised (losses) on investments at fair value through profit and loss

-

-

Other operating income 23.0 22.1 Other operating expenses (9.9) (10.6)

Total balance on the non-technical account 35.8 34.5

Profit on ordinary activities before tax 98.1 94.6 Tax on profit on ordinary activities (19.4) (19.7)

Profit for the financial year 78.7 74.9

Other operating income of £23.0m (2016: £22.1m) relates to non-insurance business administration

fees of £23.0m (2016: £18.4m) and foreign exchange gains of £nil (2016: £4.6m).

Other operating expenses of £9.9m (2016: £10.6m) includes restructuring costs of £2.6m

(2016: £3.6m), current year contributions to the AXA UK Pension Scheme of £4.5m (2016: £6.8m),

foreign exchange losses of £2.4m (2016: £0.2m) and £0.4m (2016: £nil) relating to non-insurance

business.

Tax expenses decreased by £0.3m (1.5%) to £19.4m (2016: £19.7m). The standard rate of tax applied to the reported profit on ordinary activities is 19.25% (2016: 20.0%). Legislation was introduced in the Finance (no 2) Act 2015 to reduce the UK corporation tax rate to 19% for Financial

Years 2017 to 2019. Finance Act 2016 set the UK corporation tax rate to 17% for the financial year 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in the financial results. The impact included in the tax charge for the year is a charge of

£0.1m (2016: £0.2m).

/ Leasing arrangements

Please refer to “Leasing arrangements” in Section D.1 Assets.

A.5 ANY OTHER INFORMATION

Not applicable.


SYSTEM OF GOVERNANCE

B.1 General information on the system of governance

Governance

Compensation policy

LTI

Directors’ Fees

Executive Officers Benefits

Material transactions with shareholders, persons who exercise a significant influence on the Company and corporate officers or executives

Assessment of the adequacy of the system of governance

B.2 Fit and proper requirements

Fit and Proper assessment process for persons who effectively run the Company and key function holders

B.3 Risk management system including the own risk and solvency

assessment

Risk management system

AXA Group internal model

Own Risk and Solvency Assessment

B.4 Internal control system

Internal control objectives and organisational principles

Corporate governance structures

Management structures and controls

Financial reporting, disclosure, controls and procedure

B.5 Internal audit function

Internal audit function

B.6 Actuarial function

Actuarial function

B.7 Outsourcing

Outsourcing arrangements

B.8 Any other information

B


B.1 General information on the system of governance

/ Governance

Board of Directors

ROLE AND POWERS

AXA PPP healthcare operates with a unitary Board of Directors, with a Chairman and a Chief Executive Officer.

The Board determines the strategic orientation of the Company’s activities and ensures their

implementation. Subject to the appropriate legal and regulatory constraints, the Board is responsible for considering all material questions and taking all material decisions related to the Company and its business.

The Board exercises the following powers in particular:

• Helping to develop high-level Company-specific strategies, plans and objectives;

• Approving the annual Strategic Plan;

• Reviewing those plans and other financial targets / performance indicators from a regulated entity

perspective; • Approving the Company’s Risk Appetite and associated limits ;

• Monitoring and reviewing the control and governance frameworks;

• Monitoring solvency through the application of the Internal Model;

• Reviewing and signing off public reporting and approving the annual reports and financial

statements; and • Embedding Treating Customers Fairly (“TCF”) effectively into the culture of the business so that

customers are consistently treated fairly and the six TCF outcomes are delivered by the development of appropriate processes, controls and standards.

The Board has ultimate responsibility for the Internal Control and Risk Management Systems, regularly monitoring their comprehensiveness, functionality and efficiency (including those in respect of outsourced activities), and for satisfying both the general obligations placed on it by the applicable

legislation and its regulatory requirements. This entails the Board undertaking certain key tasks itself, and ensuring appropriate reporting of delegated tasks.

The Board ensures that the risk management framework allows the Company to identify, assess and monitor, in a forward-looking approach, the risks the Company is exposed to, in order to maintain an

adequate level of solvency in a medium to long-term view.

The Board is also required to approve certain types of material transactions including extension of the Company’s activities into new business or geographic areas not contemplated in the Strategic Plan and M&A activity by the Company in excess of £10 million (including deferred consideration) or which

is otherwise of a material nature, unless contained in the agreed strategic plan or annual budget.

OPERATING PROCEDURES

The guidelines governing the operation and organisation of the Board (and its Committees) are set out

in the AXA PPP healthcare Corporate Authorities (incorporating the Board Terms of Reference and Schedule of Matters Reserved). The Corporate Authorities detail, in particular, the powers, missions

and obligations of the Board of Directors and its Committees.

The Board meets at least quarterly, and at the request of any Director. Prior to each meeting, the Board members receive documentation concerning matters to be reviewed.


COMPOSITION OF THE BOARD

Directors are appointed by resolution of the Board, as per the Board terms of reference and following

the recommendation of the AXA UK Remuneration and Nomination Committee. As with any Director in the UK, appointments are not for a fixed period.

On 31 December 2017, the Board of Directors was comprised of nine members. Two Board members were citizens of countries other than the United Kingdom, and four of them were independent.

The Board members were as follows:

Peter Hazell (Chairman, Non-Executive), appointed on 27 March 2017

Michael Jackson (Non-Executive)

Howard Posner (Non–Executive)

Thierry Sciard (Non-Executive)

Amanda Blanc (Group Chief Executive, AXA UK CEO, AXA UK & Ireland), resigned on 10 April 2018

Bertrand Poupart-Lafarge (Group Chief Financial Officer, AXA UK)

Keith Gibbs (Chief Executive AXA PPP healthcare)

Amber Wilkinson (Finance Director, AXA PPP healthcare), appointed on 9 March 2017

Stephen Harland (Interim Finance Director, AXA PPP healthcare limited), appointed as alternate director to Amber Wilkinson on 18 July 2017, and removed on 9 April 2018

BOARD OF DIRECTORS’ COMMITTEES

The Board of Directors has delegated authority to four specialised Committees: the AXA UK Audit

Committee, the AXA UK Remuneration and Nomination Committee, the AXA UK Investment Committee and the AXA PPP healthcare Board Risk Committee.

The role, organisation and operating procedures of each Committee are set forth in the Committee

Terms of Reference.

Each Committee issues opinions, proposals or recommendations to the Board of Directors, and is empowered to undertake or commission specific studies or reviews, on matters within the scope of its

documented responsibilities. The Committees may request external consulting expertise if necessary.

Save for the AXA UK Remuneration and Nomination Committee, minutes of these Committees are circulated to the Board and the summaries of key matters are shared at each Board meeting as these

arise.

The following tables detail the key activities, responsibilities and composition of the respective Committees in 2017.


Board of Directors’

Committees Principal responsibilities Principal activities in 2017

AXA UK Audit

Committee

Composition on

31 December 2017 (all

AXA UK non-executive

directors):

Peter Hazell (Chairman)

Michael Jackson (Non-

Executive Director)

How ard Posner (Non-

Executive Director)

Thierry Sciard (Non-

Executive Director)

The Board of Directors has

review ed the qualif ications

of all Audit Committee

members in terms of their

f inancial expertise and

business experience and

believes that all members

have the requisite

expertise, experience and

qualif ications to fulf il their

assignments as Audit

Committee members.

The scope of the Audit Committee’s responsibilities is

set out in its Terms of Reference w hich are reviewed

and approved each year by the Board of Directors.

The Committee assists the Board in oversight of the:

• adequacy and effectiveness of the internal control

and risk management framew orks;

• f inancial reporting process and the integrity of the

publicly reported results and disclosures made in

the f inancial statements; and

• the effectiveness, performance and independence

of the internal and external auditors.

It considers, in particular:

• the results of management’s testing of internal

controls over f inancial reporting;

• the quality and clarity of the draft FRS 101

f inancial statements; and

• reconciliation betw een FRS 101 f inancial

statements and the f inancial statements reported

for consolidation by the AXA Group.

Among other topics, it also considers the risk of over-

payment of remuneration.

The Audit Committee met eight times in

2017. The average attendance rate w as

97%.

The Committee focused on:

• Risk management and internal control;

• Financial statements and reporting processes; and

• External and internal audit.




AXA UK Remuneration

and Nomination

Committee

Composition on

31 December 2017 (all

AXA UK non-executive

directors):

Scott Whew ay (Chairman)

Peter Hazell (Non-

Executive Director)

• This Committee establishes the principles and

parameters of remuneration policy for the AXA UK

Group, overseeing remuneration policy and

outcomes regarding executive remuneration

generally. The Committee is authorised by the

Board of AXA UK plc and also has delegated

authority from AXA PPP healthcare limited.

• The Committee applies the AXA Group

Remuneration Policy to AXA UK, as required by

regulation in relation to executive remuneration

and the entire individual remuneration packages

for executive directors and other Senior

Executives. It determines the participation of the

executive directors and Senior Executives in any

discretionary employee share or other incentive

schemes. Other duties of the Committee focus on

performance-related payments, pension

arrangements, termination payments, and benefits

of executive directors and Senior Executives. The

Committee also oversees the governance of

remuneration matters concerning Remuneration

Code Staff and/or Solvency II Identif ied Staff along

w ith any other relevant regulatory requirements,

ensuring that associated policies and procedures

are complied w ith.

The Remuneration and Nomination

Committee met four times in 2017 (it

approved a number of matters by w ritten

resolution). The average attendance rate

w as 100%.


• Application of the AXA Group

Remuneration policy to AXA UK;

• Participation of executive

directors/senior executives in any

discretionary employee share or other

incentive schemes;

• Determining targets for performance-

related payments for senior

executives;

• Determining policy and scope of

pension arrangements and

termination payments;

• Ensuring contractual terms on

termination and payments made to

senior executives are fair to the

individual and company;

• Determining the provision of benefits

under the terms of service

agreements or otherw ise of senior

executives; and

• Determining fees of company-

appointed directors of AXA UK

Pension Trustees Limited and review

AXA Group Remuneration Policy.




AXA UK Investment

Committee

Composition on

31 December 2017:

Scott Whew ay (Chairman)

Peter Hazell (Non-

Executive Director)

Thierry Sciard (Non-

Executive Director)

Amanda Blanc (Group

Chief Executive, AXA UK)

Bertrand Poupart-Lafarge

(Group CFO, AXA UK)

Matthieu Bonte (CIO, AXA

UK)

Laurent Clamagirand

(Group CIO, AXA SA)

Evan Waks (CRO, AXA

UK)

• The Committee determines, monitors and

maintains the investment strategy w ithin risk

appetite guidelines approved separately by the

Board, taking into account the nature and liquidity

requirements of the liabilities, and considers such

other investment matters that may arise from time

to time in light of internal and external

developments.

• The duties of the Committee include

recommending the strategic asset allocation to the

Board, monitoring and agreeing the annual

Investment Plan, recommending Financial SCR

limits, approving f inancial risk appetite, agreeing

the Investment Approval Process ("IAP") and

monitoring investment and market risk taken.

The Investment Committee met six times

in 2017. The average attendance rate w as

92%.


• Recommending to the Board the

strategic asset allocation to support

the achievement of f inancial

objectives regarding capital and

earnings w ithin approved risk

appetite, taking account of AXA

Group guidance or requests, w here

appropriate.

• Monitoring and agreeing the annual Investment Plan.

• Approving the f inancial risk appetite including appropriate alerts and limits

on asset classes and f inancial risk.

• Approving any f inancial risk appetite breach resolution.

• Approving the framew ork for managing investment risk.

• Agreeing the Investment Approval Process ("IAP") and approving

investment proposals brought to the Committee in accordance with the IAP or w hich are otherwise sensitive, material in nature or w hich the

Committee or any of its members decide to require full scrutiny by the Committee, including approval of commitment programmes w hich lead

to long-term contractual obligations (e.g. private equity, infrastructure).

• Approving new and existing investment manager or custodian proposals and material change to

existing mandates on the recommendation of the Chief Investment Officer, AXA UK plc.

• Taking account of AXA Group Central Investment, ALM & GRM teams’ advice/recommendations.

• Agreeing the Company view regarding the AXA UK Group Pension Scheme investments (including

strategic asset allocation, IAPs).




AXA PPP healthcare

Board Risk Committee

Composition on

31 December 2017:

How ard Posner (Non-

Executive Director) Chair

Michael Jackson (Non-

Executive Director)

Evan Waks (CRO, AXA

UK)

The scope of the Risk Committee’s responsibilities is

set out in its Terms of Reference w hich are reviewed

annually by the Committee and any changes approved

by the Board of Directors.

The Committee’s purpose is to:

• Assist the Board in its responsibility for the

oversight and management of risk;

• Provide advice, oversight and challenge necessary

to embed and maintain a supportive risk culture

throughout the AXA PPP healthcare business;

• Review the AXA PPP healthcare risk profile;

• Review the effectiveness of the AXA PPP

healthcare risk management framew ork;

• Monitor prudential, conduct, f inancial crime, data

protection, health and safety and other relevant

regulatory requirements;

• Report its conclusions and, w here appropriate,

make suitable recommendations to the Board of

Directors.

The Risk Committee met three times in

2017. The average attendance rate w as

100%.


• Risk Management Framew ork;

• Monitoring of operational, insurance,

conduct and market risks;

• Consideration of strategic and

emerging risks;

• Compliance issues;

• Reinsurance arrangements;

• Brexit impact;

• General Data Protection Regulation

("GDPR") implementation; and

• Cyber Risk management.

EXECUTIVE MANAGEMENT

AXA PPP healthcare Executive Management is constituted by the Chief Executive Officer and other persons who effectively run the Company. An Executive Committee also supports the operational management of the Company.

THE CHIEF EXECUTIVE OFFICER

Keith Gibbs was appointed Chief Executive Officer by the Board of Directors on 1 March 2002.

AXA PPP healthcare is organised according to the principle of separation of the powers of Chairman of the Board of Directors and the Chief Executive Officer.

The Chairman of the Board of Directors organises and directs the Board of Directors’ work. The Chairman ensures the proper operation of the Company’s bodies.

The General Management of the Company is the responsibility of the Chief Executive Officer, under

the control of the Board of Directors and subject to the guidelines approved by the Board of Directors.

The Chief Executive Officer is appointed by the Board of Directors and is granted full authority for the running of the business, including authority to make changes to the management and control

structure, authority to approve agreements (including the novation, extension and/or variation of such agreements) and accept risks, rights and obligations on behalf of the Company, other than those matters reserved by the Board for its decision and subject to defined limits of authority. The CEO is

also authorised to sub-delegate such authority as he/she sees fit, including the power to further sub-delegate, provided that any such sub-delegation is within the limits of authority and evidenced in writing.

The Chief Executive Officer of the Company is, under the Regulation, deemed to be a person “who effectively runs” the Company and must fulfil the requirements for a fit and proper assessment, as set forth in the Company’s internal procedure, and their appointment is required to be notified to and

approved by the PRA and FCA.


Main roles and responsibilities of key functions

The Solvency II Regulations, which became effective on 1 January 2016, require AXA PPP healthcare

to have in place a comprehensive system of governance, which provides for sound and prudent risk management. The governance system is based on a clear separation of responsibilities and is proportionate to the nature, extent and complexity of the Company’s operations.

AXA PPP healthcare has defined four key functions in accordance with the Solvency II Regulations:

• The risk-management function, which is responsible for the definition and deployment of the

Enterprise Risk Management ("ERM") framework within AXA PPP healthcare. In particular, it is in charge of the design, implementation and validation of the internal model, model documentation

and any subsequent changes made to it as well as analysis of the performance of the model and the production of summary reports thereof;

• The compliance function, which is responsible for advising on compliance with the laws,

regulations and administrative provisions regarding insurance and reinsurance activities , as well as ensuring that compliance is effective;

• The internal audit function, which is responsible for performing an evaluation of the adequacy and

effectiveness of AXA PPP healthcare’s internal control system and other elements of the system of governance. The internal audit function must be objective and is independent from the operational functions; and

• The actuarial function, which is responsible for overseeing the calculation of technical provisions

(including ensuring the appropriateness of the methodologies and underlying models used as well as the assumptions made in the calculation of technical provisions), assessing the sufficiency and quality of the data used in the calculation of technical provisions and comparing best estimates

against experience.

Within AXA PPP healthcare, the Solvency II Key Function Holders are:

• The Chief Risk Officer, who is the Risk Management Key Function holder and currently also the

Compliance Key Function holder; • The Director Group Internal Audit, who is the Internal Audit Key Function holder; and

• The Chief Actuary, who is the Actuarial Key Function holder.

The PRA Senior Insurance Managers Regime ("SIMR"), in addition to the Solvency II Key Function

Holders, introduces other firm specific key functions. The firm specific Key Function Holders identified by AXA PPP include:

• Investment Key Function;

• Claims Management Key Function;

• IT Key Function; and

• Reinsurance Key Function.

Each person in charge of a key function must, as for the Chief Executive Officer, fulfil the requirements

of the fit and proper assessment mentioned herein above, as set forth in the Company’s internal procedure, and each key function’s appointment must also be notified to and approved by the Prudential Regulation Authority and the Financial Conduct Authority. As required by Solvency II

Regulations, AXA PPP healthcare has established procedures whereby the key function holders have direct access to the Board of Directors.

To secure the operational independence of the key functions, the key function holders also have direct

access to the Chief Executive Officer.

To ensure the necessary authority and resources to carry out their tasks, the key function holders have a right by request to report to the Board of Directors directly at their own initiative when events of

a nature to justify such a report occur, and have the same direct access to the Executive Committee, the AXA UK Audit Committee, the AXA UK Investment Committee and the AXA PPP healthcare Board Risk Committee. In addition, the key functions have sufficient staff and other resources to fulfil their

remits.


Material changes in the system of governance in 2017

In November 2016, the AXA UK plc Board decided to change the AXA UK risk governance structure

by disbanding a number of risk sub-committees. The AXA UK Board also recommended that regulated entity risk committees were reformulated to comprise Non-Executive Chairmen, together with Non-Executive Members, with revised and extended duties to cover the entire risk spectrum associated

with the activities of each entity. On 1 March 2017, the Board establ ished a Board Risk Committee to assist the Board in its responsibility for the oversight and management of risk. The Board Risk Committee has adopted a forward-looking approach, anticipating changes in business conditions as

well as reviewing the Company’s risk profile, the effectiveness of its risk management framework, use of the capital model and relevant regulatory requirements.

/ Compensation policy

AXA PPP healthcare applies the AXA Group Remuneration policy.

AXA Group’s global executive compensation policy is designed to align the interests of the Company’s executives with those of its shareholders while establishing a clear and straightforward link between performance and compensation. In this context, its main objective is to encourage the achievement of

ambitious objectives and the creation of long-term value by setting challenging performance criteria.

AXA Group’s executive compensation structure is based on an in-depth analysis of market practices in the United Kingdom and abroad, within the financial services sector (including insurance companies,

banks and asset managers) and compared to the compensation practices of other international groups.

AXA Group’s overall policy on executive compensation focuses on the variable part of the

compensation package, which is the compensation at risk for beneficiaries. The structure of AXA’s executive compensation is composed of a variable portion which represents a significant portion of the aggregate remuneration. This is designed to align executive compensat ion more directly with the

operational strategy of the Group and the interests of the shareholders while encouraging performance:

• Both on an individual and collective level; and

• Over the short, medium and long term.

Principles

The AXA Group remuneration policy became applicable to all AXA Group companies and their employees as of 1 January 2016.

This compensation policy is designed to support the Group’s long-term business strategy and to align the interests of its employees with those of the shareholders by (i) establishing a clear link between performance and remuneration over the short, medium and long term; (ii) ensuring that the Group can

offer competitive compensation arrangements across the multiple markets in which it operates while avoiding potential conflicts of interest that may lead to undue risk taking for short -term gain; and (iii) ensuring compliance with Solvency II Regulations and any other applicable regulatory requirement.

The AXA Group compensation policy is designed to:

• Attract, develop, retain and motivate critical skills and best talents;

• Drive superior performance;

• Align compensation levels with business performance;

• Ensure that employees are not incentivised to take inappropriate and/or excessive risks and that

they operate within AXA’s overall risk framework; and • Ensure compliance of our practices with all applicable regulatory requirements.

It follows three guiding principles:

• Competitiveness and market consistency of the remuneration practices;

• Internal equity, based on individual and collective performance, in order to ensure fair and

balanced compensation reflecting employee’s individual quantitative and qualitative

achievements and impact; and


• Achievement of the Group’s overall financial and operational objectives over the short, medium

and long term as well as execution of medium and long-term strategic objectives as a prerequisite to fund any medium to long-term award.

The requirements set out in the Group Remuneration policy may be supplemented where necessary in

order to comply with local regulatory requirements or identified best practices.

COMPENSATION OF THE EXECUTIVE OFFICERS

Compensation structure

AXA broadly applies a “pay-for-performance” approach which (i) recognises achievement of defined financial and operational targets aligned with AXA’s business plan; (ii) promotes long-term sustainable performance by incorporating risk adjustment measures in performance metrics (such as cash Return-

On-Equity which takes into account the capital required to deliver performance); and (iii) determines individual compensation amounts on the basis of both financial results and demonstrated individual leadership and behaviours.

The overall remuneration structure is based on the following components, which are designed to provide balance and avoid excessive risk-taking for short-term financial gain:

• A fixed component which comprises guaranteed elements, such as base salary and any other

fixed allowances. It takes into account the position, responsibilities, experience, market practices, technical skills and leadership competences, and also sustained individual performance and criticality or scarcity of skills; and

• A variable component which comprises an upfront cash element (Short Term Incentive - STI) and

a deferred element which is awarded through equity based instruments or equivalents such as stock options and/or performance shares (Long Term Incentive - LTI). For most executives, this variable component depends on the AXA Group’s global performance, on the AXA PPP

performance, and on the achievement of the executive’s individual objectives including demonstrated abilities for leadership. For key control functions, as designated in accordance with Solvency II, business performance is not taken into account in the calculation of bonus.

AXA endeavors to ensure a suitable balance between fixed and variable components so that the fixed component represents a sufficiently high proportion of the total remuneration to avoid employees being overly dependent on the variable components and to allow AXA to operate a fully flexible bonus

policy, including the possibility of paying no variable compensation. All variable remunerat ion amounts are awarded in accordance with performance and there is no minimum payment guaranteed.

The target level of the executives’ compensation and the structure of the elements which compose

such compensation are based on a detailed analysis of market practices as well as potentially applicable national and international regulations, and also take into consideration various other factors, including the Group’s internal equity principles and the previous compensation level of

executives.

Long Term Incentive (LTI) annual allotment

Each year, LTI is granted to the AXA Group executives.

AXA recognises the importance of aligning remuneration over long term value creation by deferring a substantial portion of the individual’s total variable compensation (i.e. STI and LTI). Two main deferred Long Term Incentive instruments are currently used: Performance Shares and Stock Options.

These LTIs are integrally subject to performance conditions and therefore do not guarantee any grant or minimal gain for the beneficiaries.

For those individuals covered by Solvency II (as Identified Staff or Key Function holders), there must

be a minimum of 40% of overall variable deferred via the LTIP.


/ LTI

Performance Shares

Performance Shares are designed to recognise and retain the Group’s best talents and critical skills by

aligning the individuals interests with the overall performance of the Group, and the corresponding operational Entity/Business Unit as well as with the stock performance over the medium -term (3-5 years).

Performance shares are subject to a minimum deferral period ranging from 4 to 5 years 1.

In addition Performance Shares are subject to performance conditions over a period of 3 years. The performance indicators measure both (i) the Group’s overall financial and operational performance;

and (ii) the participant’s operational Entity/Business Unit performance.

Under the terms of the plan, the initial number of performance shares granted is adjusted to reflect achievement against the defined performance conditions and final individual pay-outs range from 0%

to 130% of the initial grant amount depending on the level of achievement against the performance conditions2.

In the event that no dividend payment is proposed by the Group Board of Directors with respect to any

year during the three year performance period, a malus provision applies and automatically reduces by 50% the number of performance shares that would have otherwise been acquired by the beneficiary at the end of the three year performance period3.

Stock Options

Stock Options are designed to align long term interests of Group Senior Executives with shareholders

through the performance of the AXA share price.

Stock options are valid for a maximum period of 10 years. They are granted at market value, with no discount, and become exercisable by tranches between 3 and 5 years following the grant date.

Stock Options are subject to performance conditions. In the event the performance condition is not met during the performance period, all the corresponding Stock Options will be forfeited.

ADDITIONAL PROVISION ON PERFORMANCE CONDITIONS

In addition to the conditions noted above, under the terms of the plans, all unvested Performance Shares and all unexercised Stock Options (both vested and unvested) are automatically forfeited in the event a participant’s employment is terminated for any reason including, without limitation:

• Where an employee has materially violated AXA’s Code of Conduct or other key Risk and

Compliance policies; or

• There is evidence of serious misconduct or misbehaviour and/or the employee causes material

detriment to the business or reputation of AXA or one of its subsidiaries.

LTI GRANT PROCEDURE

Within the global cap authorised by the shareholders, the AXA Board of Directors approves LTI programs prior to their implementation.

1 Participants can receive AXA shares after a 3-year acquisition period (4-year acquisition period outside of France) depending

on performance achievement. In France, once the shares are acquired, an additional holding period of 2 years is required.

2 The threshold w hich currently applies is respectively 65% for Group and 60% for Entity performance.

3 The performance score ranging from 0%-130% is divided by tw o in the event no dividend has been proposed by the Board of Directors during any of the 3 year performance period, providing the beneficiary w ith 50% only of the adjusted number of Performance Shares.


Each year, the AXA Board of Directors, acting upon the recommendation of its Compensation and

Governance Committee, approves a global LTI pool to be granted.

The recommendations for individual grants (Performance Shares and Stock-Options) are made by the management of beneficiaries. These recommendations are reviewed by AXA Executive Management

to ensure a global coherence and respect of the Group’s internal equity principles. Individual grants of Performance Shares are then decided by the AXA Board of Directors.

All LTIPs are subject to Malus and Clawback whereby unvested or paid grants can in part or in full be

cancelled/reclaimed in the event of excess risk taking or fraud.

/ Directors’ Fees

Only Non-Executive Directors are entitled to fees. The directors exercising executive functions within the Company or within the Group do not receive any specific compensation for their directorship.

Composition of the single annual fee received by Non-Executive Directors varies according to factors such as committee chairmanships.

In case of a Non-Executive Director joining part-way through the year, the annual fee shall be

calculated on a pro rata basis.

/ Executive Officer Benefits

PENSION SCHEMES

Pension schemes are determined within the framework of their country of origin, depending on local

regulations and local company frameworks.

/ Material transactions with shareholders, persons who exercise a significant influence on the Company and corporate officers or executives

SHAREHOLDERS

At 31 December 2017, there are no amounts due to the immediate parent company (2016: £6.4m),

with the exception of a foreseeable dividend of £120m; and an interim dividend of £50m was paid in addition to the interim dividend of £100m relating to 2016.

PERSONS WHO EXERCISE A SIGNIFICANT INFLUENCE ON THE COMPANY

To the best of the Company’s knowledge, based on information reported to it, there were no material transactions between the Company and any person who exercise a significant influence on the Company.

EXECUTIVE MANAGEMENT AND DIRECTORS

To the best of the Company’s knowledge, based on information reported to it, there were no material transactions between the Company and any members of the Company’s executive management or

Board of Directors for the 31 December 2017 financial reporting period.

Various members of the Company’s Board of Directors as well as various other executive officers of the Company may, from time to time, purchase insurance, other products or services offered by AXA

in the ordinary course of its business. The terms and conditions of these transactions are substantially similar to the terms and conditions generally available to the public or to AXA employees in general.

/ Assessment of the adequacy of the system of governance

The Company believes that its system of governance described herein is adequate in light of the

nature, scale and complexity of the risks inherent in the Company’s business.

Detailed information on the internal control mechanisms and procedures implemented by the Company is provided in Section B.4.


B.2 Fit and proper requirements

/ Fit and Proper assessment process for persons who effectively run the Company and key function holders

The Chief Executive Officer, who, under Solvency II, is deemed to be a “person who effectively runs”

the Company, and the key functions holders must fulfil the requirements for a fit and proper assessment, as set in the AXA Group's internal procedure, adopted in compliance with the

requirements of Solvency II Regulations.

According to these guidelines, AXA PPP healthcare has implemented regular assessments to ensure that the Chief Executive Officer and key function holders meet the following requirements both at appointment stage and on an ongoing basis:

• Appropriate competence and capability, taking into account professional qualifications, training,

knowledge and relevant experience including understanding of regulatory requirements to enable

sound and prudent management (fit); and

• Propriety, taking into account reputation, financial soundness and personal charac teristics such

as integrity and transparency (proper).

Furthermore, appointment of the Chief Executive Officer or each key function holder is required to be notified to the PRA and the FCA, through a formal process, including submission of a detailed

questionnaire addressing the fitness and propriety of such person. In addition, the PRA and FCA must approve an individual to undertake the role of Chief Executive Officer.


B.3 Risk management system including the own risk and solvency assessment

/ Risk management system

Risk management objectives

As an integrated part of all business processes, Risk Management is responsible for the definition and

deployment of the Enterprise Risk Management (“ERM”) framework within AXA PPP healthcare, in terms of limits/thresholds (covering Financial, Insurance and Operational risks), policies, guidelines and monitoring of the risk exposure, subject to Group standards and within a clearly defined Risk

Appetite consistent with the Group’s Risk Appetite.

The Chief Risk Officer reports key risk matters directly to the Board Risk Committee, which establishes the risk control framework by validating both risk policy and risk strategy.

This framework is based on the four following pillars, cemented by a strong risk culture:

1. Risk Management independence and comprehensiveness: The Chief Risk Officer is independent from operations (“first line of defence”) and the Internal Audit Department (“third line of defence”).

The Risk Management Department, together with Compliance and Internal Financial Control constitute the “second line of defence”, whose objective is to develop, coordinate and monitor a consistent risk framework across AXA PPP healthcare.

2. Common risk appetite framework: The Chief Risk Officer is responsible for ensuring that the top

management reviews and approves the risks to which the Company is exposed, understands the consequences of an adverse development of these risks, and have action plans that can be implemented in case of unfavourable developments.

3. Systematic second opinion on key processes: The Chief Risk Officer provides a systematic and independent second opinion on AXA PPP healthcare’s material decision processes, for example

new product characteristics (risk-adjusted pricing and profitability), P&C Economic reserves, Asset and Liability Management studies, Asset allocation and new investments and Reinsurance.

4. Robust Internal Model: The AXA Group internal model is intended to offer a concrete and powerful tool to control and measure exposure to most risks, in line with the Solvency II framework. The

Internal Model is designed as a consistent and comprehensive risk management tool, which also forms an important element in the capital management and planning process.

5. Proactive Risk Management: The Chief Risk Officer is responsible for early detection of risks. This is promoted through challenge of and constant dialogue with the business and supported by the

emerging risks management framework.

AXA PPP healthcare Risk Management

Risk Management is a local responsibility, in accordance with Group Risk Management standards and

guidelines.

The roles and responsibilities of Risk Management are validated jointly by the Executive Committee of the Company and the Group Chief Risk Officer to ensure better alignment of central and local

interests.

The minimum requirements of local Risk Management are:

• To coordinate the second line of defence locally through specific governance;

• To implement risk appetite on all risks consistently with Group’s risk appetite, with strengthened

reporting, risk limits and decision processes; • To perform a second opinion on key processes, such as P&C reserves, Asset and Liabilities

Management (“ALM”) studies & asset allocation, and reinsurance strategy; • To coordinate pre-launch product approval procedures and regular pricing reviews after launch;

and


• On the Internal Model, to check the adequacy of the risk profile and to implement, test and

validate the internal model.

The AXA PPP healthcare Chief Risk Officer heads the local Risk Management team and reports both to the CEO of the Company and to the AXA UK CRO. The Chief Risk Officer role is independent from operations and Internal Audit Departments.

The AXA PPP healthcare Finance Director and Chief Risk Officer deliver regular reporting to the

Board of Directors on risk management and capital matters and to the Audit Committee by periodic request.

The Risk Management team is responsible for developing, facilitating and monitoring (within policies and limits) effective risk and control frameworks and strategies, and validating investment or underwriting decisions through Risk Committees.

Other functions

Management and staff are responsible for day to day risk management and decision making and

therefore have primary responsibility for establishing and maintaining an effective control environment (first line of defence).

The Compliance and Internal Financial Control Departments are responsible for developing, facilitating

and monitoring an effective risk and control framework and strategy (second line of defence), in coordination with Risk Management. Internal Audit performs, as part of its role, an assessment of risks and governance processes on a periodic basis to provide independent opinion on the effectiveness of

the system of internal control (third line of defence).

Risk governance within AXA PPP healthcare

In order to efficiently manage local and global risks, the decision process within the risk governance

structure is divided into two main levels:

1. The Committees detailed above in Section B.1 (‘Board of Directors’ Committees’), covering all risk

types relevant to AXA PPP healthcare. Note that the AXA UK Audit Committee, AXA UK Remuneration and Nomination Committee and AXA UK Investment Committee are committees of the AXA UK plc Board. They operate transversally across all relevant UK entities and have a

delegation from AXA PPP healthcare limited. The Company’s risk framework is overseen by the AXA PPP healthcare Board Risk Committee, chaired by a Non-Executive Director. The duties of the Board Risk Committee are detailed in Section B.1.

2. Five committees contribute to risk management as follows:

• The overall risk framework and decision processes relating to the management of all risks

(including P&C insurance, operational, conduct, reputational, emerging and financial risks) is governed by the AXA PPP healthcare Board Risk Committee, chaired by a Non-Executive

Director of AXA PPP healthcare. The Committee reviews and monitors the Company’s risk strategy and appetite and makes recommendations to the Board of Directors. Membership includes an additional Non-Executive Director and the AXA UK Group CRO. It is attended by

the CEO, the Finance Director, the CRO and the Chief Actuary.

• Both the Capital Committee and the Insurance Risk Committee are advisory to the Chief

Risk Officer and Finance Director. The Capital Committee ensures ongoing compliance with

the Solvency II Directive and provides oversight of the Solvency II requirements and capital management position. The Insurance Risk Committee ensures all significant insurance and non-investment credit risks facing the PPP group are identified, assessed, monitored and

controlled. • The AXA UK Investment Committee defines the implementation of investment strategy,

reviews strategic asset allocation, steers tactical asset allocation, evaluates new investment

opportunities and monitors the Company’s investment performance. The Committee monitors risk appetite, ensuring the business operates within approved appetite and limits. It is also responsible for approving new investment proposals. Membership includes the AXA UK CEO,

the AXA UK CIO, the AXA UK Group CFO and the AXA UK Group CRO.


• The AXA PPP Operational Risk Committee , chaired by the AXA PPP CRO, reviews

operational risks, controls and indicators, and monitors associated action plans.

Matters of significance arising from these committees are required to be raised at the Board Risk

Committee and/ or Board.

/ AXA Group internal model

AXA has developed a robust internal model since 2007 and the AXA Group internal model has been

used since 2009 in the risk management system and decision making processes. AXA’s main purpose of using an internal model as opposed to the standard formula is to better reflect the company’s risk profile in the Solvency Capital Requirement. This is considered from several aspects.

• Taking into account local specific circumstances – AXA is a global company, and caters to a wide

range of insurance markets with a variety of products offered, targeting certain demographics and

with differing risk exposures. It is therefore appropriate, to the extent possible, to calibrate stresses specific for these risk profiles and to allow for the benefits of diversification of risks which arise as a result of being spread over these markets.

• Addressing shortcomings of the standard formula – Based on its expertise, the Group can

improve on the approach of the standard formula (which is naturally constrained by its general scope) by having models more appropriate to the scope of the Group.

• Allowing for better evolution of the model over time – As the Group experience increases,

business expands to new markets and product innovations create different risks to consider, the flexibility of an internal model allows the specifics of these developments to be reflected.

Main differences between the internal model used at Group level and the

internal model used at Company level

The main difference between the Group’s Internal Model and the internal model used by AXA PPP

healthcare, results from the requirements of the Prudential Regulation Authority ("PRA"), the UK supervisory authority:

The Internal Model on market risk includes a haircut of 25% to the modelling of the change in AA corporate bond spreads that are passed onto the IAS19 (“Employee benefits”) discount rate for the

valuation of pension scheme liabilities in the calculation of the Company’s SCR. For the local calculation of SCR for AXA PPP healthcare, the haircut is increased to 50%. The changes do not impact the UK contribution to the Group’s SCR calculation.

Internal model governance

At Group level, the governance bodies involved in the Internal Model governance are the following

ones:

• The Board of Directors;

• The Audit, Risk and Compliance Committee; and

• The Solvency II Committee (Group Model Committee).

At Group level, the Internal Model is reviewed, challenged and approved on an ongoing basis by the

Solvency II Committee, co-chaired by the Group CRO and the Group CFO. The Solvency II Committee is supported by risk technical working groups reviewing changes proposed to the AXA Group internal model and presenting conclusions of these studies to the Solvency II Committee. The

Solvency II Committee also reviews internal model validation and model change processes, including links with local governance of the model. It also reviews the conclusions of the regular validation activities.

The Group results are presented quarterly to the Audit, Risk and Compliance Committee.

Group provides guidance on Internal Model design and operational processes that are defined locally.


In AXA PPP healthcare limited, the governance bodies involved in Internal Model governance are the

following:

• The Company's Board of Directors;

• The AXA PPP healthcare Board Risk Committee;

• The AXA PPP Capital Committee; and

• The AXA PPP Operational Risk Committee.

The AXA PPP Capital Committee reviews, challenges and makes recommendations for model governance, with ultimate authority and decision making from the AXA PPP healthcare Board of

Directors.

Internal model validation

AXA has implemented and documented an overall regular validation process of the internal model to

monitor its performance and ongoing appropriateness. This process and associated governance are

documented in the Group Validation policy, endorsed by the AXA Group Management Committee.

The AXA Group validation policy is complemented by the AXA UK Model Validation policy which specifies the local validation activities and responsibilities. This is endorsed by the AXA PPP Capital Committee.

Validation is applied to all parts of the Internal Model. Hence, it applies not only to the quantitative

aspects of the model (input data, theory & methodology, parameters & assumptions, data and results) but also to the qualitative aspects of the model: expert judgment, documentation, model governance, use test and systems / IT.

The Risk Management function performs regular integrated validation activities, described in this policy, mostly organised around:

• Validation of the model structure, modelling choices, parameters and assumptions; and

• Validation of the internal capital model calculation and results.

These tasks are performed mostly within the Risk Management department in charge of the model, through controls and validation activities using validation tools such as sensitivity tests, back testing,

scenario testing, stability analysis and any other relevant activity.

The validation process specifies that any validation failures that could lead to potential model and / or estimation errors should be escalated for assessment with appropriate mitigation either through a combination of SCR adjustments and / or improvement plans.

The Validation Coordinator role provides quality assurance on the validation framework to ensure

completeness and adequacy of the validation cycle in accordance with regulatory requirements. They ensure that findings and conclusions of the validation activities are reported to the CRO and to the Board, highlighting any material deficiencies.

These validation procedures are complemented by challenge and validation of assumptions, key parameters and results through committees (such as the AXA PPP Capital Committee, or other local

committees organised by risk type), providing the adequate level of expertise and seniority .

In addition, a comprehensive independent review process is defined and implemented to provide adequate confidence to management and the Board on the ongoing appropriateness of the design and operation of the Internal Model and its output.

The independent reviews are performed by two internal teams and by a third party:

• The Internal Financial Control ("IFC") team, at local and Group level, responsible for assessing

the effectiveness of the internal control framework over Solvency II, on the basis of the testing of

processes and controls over the AFR and SCR, at least annually.


• The Internal Model Review ("IMR") team, a Group team responsible for the in-depth actuarial

review of the model under local teams' responsibility, the conception and methodology when locally developed, and the local implementation of the Group principles when relevant. IMR controls are performed on a three-year rolling basis, independently from closing agenda.

• Both IMR and IFC are fully independent from the development, the governance and the

processing of the Internal Model.

At the end of the annual validation process, the Board is provided with a report summarising the

conclusions of the internal review by Risk Management, including review by an independent third party, and the conclusions of the independent review by IMR and IFC.

/ Own Risk and Solvency Assessment The Own Risk and Solvency Assessment (“ORSA”) encompasses processes to identify, assess,

monitor, manage and report the short to medium term risks of AXA PPP healthcare and to ensure the level of own funds adequacy against its solvency targets, taking into account the risk profile, approved

risk tolerance limits and business strategy. As an important component of the risk management system, it is intended to give a comprehensive and complete vision of the risks embedded in the business.

ORSA mainly encompasses risk management and financial activities, which are organised around the

following processes:

• Solvency Capital Requirement ("SCR") and Available Financial Resources ("AFR") quarterly

calculation;

• Liquidity risk reporting;

• Strategic planning and financial projections;

• Risk appetite process;

• Stress and scenario testing analysis and monitoring (transversal stress scenario and reverse

stress test); and

• Reputation and strategic risk assessment and review.

The Group has established a policy on the Own Risk and Solvency Assessment (“ORSA”) to set and describe the common framework and rules necessary to consistently run and report on the ORSA

across the Group.

The Finance Director and Chief Risk Officer of AXA PPP healthcare are responsible for contributing to the development of the AXA UK ORSA Policy, implementing this through the local ORSA procedure and coordinating ORSA reporting.

Executive Management approves the policy, ensures that procedures are in place to implement and

monitor the ORSA process and approves the ORSA report.

The AXA PPP healthcare Board owns and is responsible for the ORSA process, and for endorsing the risk culture and strategy across the business. The Board takes an active part in the ORSA, including steering how the assessment is to be performed and challenging the outputs.

In addition to receiving periodic updates on the ORSA process and results, the Board is presented

with the results and conclusions of the ORSA (whether annually or ad hoc, triggered by significant change in the risk profile) for approval, and grants Management the authority to submit the ORSA report to the supervisors.

The ORSA report provides an assessment on:

a) The overall solvency needs, derived through an assessment which uses the Internal Model for calculating economic capital for quantifiable risks considering risk mitigation actions implemented

in the current economic context and approved business strategy and within approved risk appetite limits. Stress scenario analyses are performed to ensure adequacy of the economic capital


assessed. This is supported by enterprise risk management including the identification and

monitoring of non-quantifiable risks.

b) The compliance, on a continuous basis, with the regulatory capital requirements, through the assessment of the ability to meet capital requirements using the approved Internal Model, in

compliance with Solvency II Regulations. Stress scenario analyses are performed to ensure adequacy of the economic capital assessed. In addition, the extensive use of the internal model outputs for key decision making processes provides a feedback loop for improving the modelling

according to the evolution of the risk profile.

c) The extent to which the risk profile of AXA PPP healthcare deviates from the assumptions underlying the Solvency Capital Requirement calculated with the Internal Model. Extensive

validation tests are performed to assess the relevance of the internal model and the model error. Limitations of the internal model and an evolution plan resulting from the validation activities are presented.


B.4 Internal control system

/ Internal control objectives and organisational principles

AXA PPP is engaged in the provision of private medical healthcare, and as such, is exposed to a variety of risks including insurance risks, financial market risks and other types of risks.

In order to manage these risks, AXA PPP has put in place a comprehensive system of internal

controls designed to ensure that executives are informed of significant risks on a timely and continuing basis, have the necessary information and tools to appropriately analyse and manage these risks, and that the Company’s financial statements and other market disclosures are timely and accurate.

These mechanisms and procedures principally include:

• The Company’s corporate governance structures which are designed to ensure appropriate

supervision and management of AXA PPP’s business as well as clear allocation of roles and responsibilities at the highest level;

• Management structures and control mechanisms designed to ensure that AXA PPP executives

have a clear view of the principal risks the Company faces and the tools necessary to analyse and

manage these risks, including processes relating to the identification, capture and testing of key control effectiveness, escalation of material risk events, risk appetite monitoring, risk tolerance monitoring, reporting against a comprehensive suite of risk indicators and regular review of top

and emerging risks facing the enterprise; and

• Disclosure controls and procedures designed to ensure that executives have the necessary

information to make fully informed disclosure decisions on a timely basis and that the Company’s disclosures on material information (both financial and non-financial) to the markets are timely, accurate and complete.

These mechanisms and procedures, taken together, constitute a comprehensive control environment

that executives believe is appropriate and well adapted to the AXA PPP business.

The internal control framework being implemented at AXA PPP is in line with AXA Group methodology, which will provide a greater level of visibility and ownership of the effectiveness of key controls across all key business processes in the Company. This is further underpinned by the already

embedded IFC control environment which ensures that all key financial reporting controls are independently tested annually with the result reported to senior management.

The internal control process at AXA PPP primarily relies on:

• The Company’s general operating and organisational principles;

• Controls implemented within each operating, functional and financial department, which

contribute to the effectiveness of the permanent control system; and

• Control functions that enable an independent and objective assessment of the Company’s

security and operating quality to be provided to management.

/ Corporate governance structures

AXA has taken steps designed to harmonise corporate governance standards throughout the Group. This effort is focused, among other matters, on standardising, to the extent practicable, principles relating to various corporate governance matters including board composition and size, directors’

independence criteria, board committees and their roles, and directors’ fees.

The group governance standards are part of a larger set of Group standards that apply to all AXA Group companies (comprising the Group Standards Handbook and Solvency II Policies). These Group

Standards and Policies are designed to ensure that all the companies of the Group have effective Risk Management processes and appropriate governance structures, and meet the Group’s minimum control requirements. The Chief Executive Officer is therefore required to annually certify that AXA

PPP is in compliance with these Standards and Policies.


Executive Management

Executive Management oversees implementation of the internal control system and the existence and

appropriateness of internal control and risk management monitoring systems within AXA PPP healthcare.

Board of Directors

The Board of Directors determines the Company’s business strategy and oversees its implementation. The Board considers all material questions related to the proper functioning of the Company and takes

decisions it deems appropriate for the Company’s business. The Board of Directors also directs relevant controls and verifications as it deems appropriate from time to time.

The Board of Directors delegate authority to three specialised AXA UK Committees to assist it in

fulfilling its responsibilities: the AXA UK Audit Committee, AXA UK Remuneration and Nomination Committee and AXA UK Investment Committee. In addition, the Board of Directors established a Board Risk Committee during 2017, chaired by a non-executive director. These Committees exercise

their activities under the responsibility of the Board of Directors and report regularly to the Board of Directors on matters within the scope of their respective responsibilities.

The Board Committees constitute an important part of the AXA PPP healthcare overall internal control

environment and executes an important oversight role on internal control and risk related issues.

Audit Committee

The Audit Committee has a critical role in reviewing financial results and other financial information prepared by management including, financial reporting and control processes, critical accounting policies, particular accounting issues, key risks and systems of internal control, fraud and simila r

issues.

The scope of the Audit Committee’s responsibilities is set forth in the Audit Committee Terms of Reference, approved by the AXA UK plc Board of Directors.

Based on AXA Group corporate governance standards, AXA PPP healthcare’s general organisational principles contributing to the management of the internal control system are primarily based on:

• An organisational structure that respects the segregation of duties;

• AXA PPP’s compliance with AXA Group standards, included in the Group Standards Handbook

("GSH") and in the Professional Family Policy Manual ("PFPM"). These standards are applied through:

• The risk management policies, which specify the procedures to be implemented in order to

identify, assess, monitor and manage all the risks included in the AXA PPP healthcare risk profile (including financial risk, insurance risk, operational risk, liquidity risk, regulatory risk,

strategic risk, emerging risks and reputational risk);

• The compliance policy, which specifies the role and duties of the Compliance Function;

• The internal IFC program, which specifies the internal control system for the financial reporting

process;

• The internal control programme rollout, will be completed by 2019, and will formally document the

key controls across all main business processes, incorporating 1st line certification of control effectiveness and 2nd line testing of operational effectiveness on a rolling cycle;

• Familiarity with the processes in place through an ongoing improvement of operating processes;

and

• The introduction of preventive measures such as the promotion of corporate ethics, which aims to

encourage all employees to abide by the principles of professional ethics, integrity and fairness.


/ Management structures and controls

The Board of Directors is responsible for the internal control framework, ensuring its implementation, maintenance and continuous improvement in order to achieve business objectives, whilst managing

the risks that can affect the key business processes.

With this purpose, a control framework with three lines of defence has been designed and the boundaries between them are clearly defined. The objective is to ensure that this framework is in place

to systematically identify, measure, manage, and control all the risks that AXA PPP healthcare may face.

There are three levels of responsibility in the internal control framework:

• 1st Line of Defence owns and manages the risks. Line Management and staff are responsible for

day to day risk-taking, management and decision-making and have primary responsibility for establishing and maintaining an effective control environment. The 1st line of defence is the one responsible for identifying and managing the risks inherent in the products, services and activities

for which they are responsible.

Management, as the primary risk owner, should as first line of defence design, implement, maintain, monitor, evaluate, and report on the organisation’s internal control system in

accordance with risk strategy and policies on internal control as approved by the governing body.

Each person within the organisation – management and other employees alike – should be held accountable for proper understanding and execution of risk management and internal control

within his or her span of authority.

• 2nd Line of Defence: Risk Management, Internal Financial Control ("IFC") and Compliance are

set as functions of second level control, independent of the business. The 2nd line of defence is

responsible for developing, facilitating and monitoring effective risk and control frameworks and strategies.

• 3rd Line of Defence is providing independent assurance on the effectiveness of the internal

control system. Internal Audit exists to help the Board and Executive Management protect the assets, reputation and sustainability of the organisation by providing an independent and objective assurance activity designed to add value and improve the organisation’s operations.

Governance

In order to manage the various risks to which it is exposed, AXA PPP healthcare has a management

structure and control mechanisms designed to ensure that executives have a clear and timely view of the principal risks facing the Company and the tools necessary to analyse and manage these risks.

These management structures and controls are explained in Section B.1.

Executive Committee

On 31 December 2017, AXA PPP healthcare had a 9-member Executive Committee composed of the

Chief Executive Officer, the Interim Finance Director, the Chief Risk Officer, the Commercial Director, the Individual Health Director, the Distribution Director, the Chief Operating Officer, the Managing Director of AXA PPP International and the Membership Director.

The Committee plays an important role in managing the operating businesses, considering strategic initiatives, addressing compliance and legal topics and other subjects the Board Management deems appropriate from time to time. The Executive Committee meets a minimum of six times a year.

The strategic plan is reviewed by the Executive Committee before being presented to the Board of Directors.


Departments and committees principally focused on internal control and risk management

Risk management department

The role of Risk Management is to identify, quantify and manage the main risks to which the Company is exposed. To this end, Group Risk Management ("GRM") develops and deploys a number of risk measurements, monitoring instruments and methods, including a standardised methodology and

framework for stochastic modelling (through the AXA Group internal model) including the ORSA (Own Risk and Solvency Assessment) required under Solvency II. This framework is fully deployed within AXA PPP healthcare through the AXA PPP CRO office.

The Risk Management activities aim to create and maintain an appropriate risk management system

in order to identify, assess, monitor and mitigate the most significant risks to which AXA PPP is

exposed, and which could jeopardise its solvency, in accordance with the AXA Group ’s “Risk Management” standards.

To that end, all the Company’s operating technical and cross -divisional functions contribute to this

system depending on their expertise and business sector.

When appropriate, as part of risk response processes, management will make decisions to mitigate

known risks/exposures in order to maintain an appropriate solvency position, including managing the volatility of AXA’s earnings through improved understanding of the risks taken and optimisation of capital allocation.

The types of risks covered include risks coming from the invested assets, from the insurance liabilities, asset/liability mismatch risks and operational risks. Under the Solvency II Regulations, AXA PPP is required to produce an ORSA Report which is filed with the regulator. GRM has defined and

implemented a set of policies and procedures to ensure that all risks embedded in the business processes are appropriately reviewed on an annual basis.

AXA PPP healthcare Board Risk Committee

The committee is responsible to the AXA PPP Board from which risk matters have been delegated. The committee monitors, reviews and advises the AXA PPP Board on overall enterprise risk, covering

both current and emerging risks. It advises the Board on risk appetite and risk tolerance, supported by a range of metrics. It also monitors and evaluates risk culture, the appropriateness and effectiveness of the risk management and control framework and the appropriateness and use of the capital model

in the context of the framework. It reviews items with a material impact on the AXA PPP risk profile or that exceed its risk appetite or tolerance and makes decisions to manage out of appetite or tolerance risks or that are otherwise material in nature and require oversight of the Board. The overall risk

framework is governed by the Risk Committee which is chaired by a Non-Executive Director. The members of the AXA PPP Healthcare Board Risk Committee are the AXA UK CRO and two Non-Executive Directors. The Risk Committee is attended by the AXA PPP CEO and AXA PPP CRO, as

well as other Executive/Managers from the Company as appropriate.

Operational risk committee

The Operational Risk Committee ("ORC") is chaired by the AXA PPP CRO. It is comprised of a number of 1st and 2nd line senior managers, each of whom perform the duties as set out in the committee terms of reference. Functions represented include Finance, IT, Underwriting, Sales,

Customer Services, Operations, Procurement and Human Resources. There is also representation from Internal Audit and Group Legal and Business Security. Additional guests may be invited to participate depending on the topics.

The ORC’s purpose is to ensure that all operational risks (including conduct risks) facing AXA PPP are adequately identified, assessed, monitored, controlled and their consideration is an integral part of the decision making process. The committee will consider operational risks with particular regard to how

these may affect customers and impact on corporate strategy and objectives.

The ORC challenges 1st line business activity, including the effectiveness of the control environment, with action plans monitored by this committee to ensure that the business is addressing issues

promptly in respect of audit findings, control gaps, policy gaps, the crystallisation of material risk events, breach of key risk indicators and for any outside of tolerance/appetite risks.


It also approves the operational risk profile of the Company, which drives the operational risk SCR

calculation and monitors a broad range of management information and, by exception, will discuss areas that present a concern either through trend analysis or risk indicator results.

The committee doesn’t have decision making authority, and instead advises the CRO and through

their attendance at the AXA PPP Board Risk Committee, to that committee also.

Capital Committee and Insurance Risk Committee

Both the Capital Committee and the Insurance Risk Committee are advisory to the Chief Risk Officer and Finance Director. The Capital Committee ensures ongoing compliance with the Solvenc y II

Directive and provides oversight of the Solvency II requirements and capital management position. The Insurance Risk Committee ensures all significant insurance and non-investment credit risks facing the PPP group are identified, assessed, monitored and controlled.

All material items are required to be escalated to the Board Risk Committee.

/ Financial reporting, disclosure, controls and procedure

Finance department

The Finance Department’s role in AXA PPP healthcare encompasses the following principal activities:

• Adherence to both accounting and reporting standards;

• Reviewing the production of financial statements in accordance with Financial Reporting

Standard 101 (“FRS 101”) and analysing key performance indicators prepared by AXA UK Finance department;

• Producing the economic balance sheet (according to the Solvency II valuation principles);

• Using management control tools;

• Strategy and budget planning and monitoring of targets;

• Coordinating the production of reports filed with the PRA related to Solvency; and

• Liaising with the Statutory Auditors and contributing to Committee meetings as required.

The activities of the Finance Department are conducted in compliance with the AXA Group

Professional Family Policies Manual.

Based on group standards, the AXA Group Finance Division has defined and implemented a set of

policies and procedures to ensure that the consolidation process leading to the consolidated financial statements is timely and accurate. This consolidation process is based on the following:

• Definition of standards and maintenance of an  information system

AXA Group accounting standards, which are consistent with accounting and regulatory principles, are set forth in the “AXA Group Accounting Manual” and updated regularly by the Group PBRC (Planning, Budgeting, Reporting and Consolidation) team. These guidelines are submitted to

AXA’s Statutory Auditors for review before being made available to AXA subsidiaries.

The information system is based on “Magnitude”, a consolidation tool managed and updated by a dedicated team. This system is also used to deliver management reporting information used to

produce an economic perspective on the consolidated financial statements and the economic balance sheet. The process through which this management reporting information and the economic balance sheet are produced and validated is the same as the one used to prepare

consolidated financial information.

• Operating control mechanisms

At entity level, AXA PPP is responsible for entering and controlling accounting and financial data that comply with the “AXA Group Accounting Manual” and reflect consolidation rules under

International Financial Reporting Standards (“IFRS”). In this respect, the Financial Director of the Company signs off on the accuracy of their respective contribution to the consolidated figures reported through Magnitude and their compliance with both the Group accounting manual and

instructions in all frameworks produced (including IFRS and economic balance sheet) within the Internal Financial Control program.


At PBRC level, accounting, financial and economic information reported by entities is analysed by

teams that liaise with subsidiaries on a full-time basis. In particular, these teams analyse the compliance with the “AXA Group Accounting Manual” and Group actuarial standards.

Legal and Compliance

The AXA UK Legal Department is responsible for identifying and managing the significant legal risks to

which the AXA UK companies are exposed. It provides expertise and advice on all significant corporate legal matters at the AXA UK level and manages the legal aspects of transactions. It provides support and expertise to various departments of the Company to assess situations, analyses legal risk

and contributes to the design of solutions that mitigate those risks. The AXA UK Legal Department reports to the AXA UK CFO.

In AXA PPP, the interim Head of Compliance is responsible for the AXA PPP Compliance Function.

The interim Head of Compliance reports to the UK Group Head of Regulatory and Compliance who, in turn, reports to the AXA UK CRO. Until a permanent Head of Compliance is appointed, the Compliance Key Function is held by the AXA PPP CRO. Framework guidance, expert support and

minimum standards is provided by AXA UK Compliance and AXA PPP has its own local Compliance function working closely with business areas to ensure compliance risks are understood and that regulatory compliance is embedded in the Company’s operations.

The Compliance Function manages a wide range of compliance including relevant legislation enforced or of interest to the regulators; FCA and PRA rules excluding Solvency II, financial risk compliance, Data Protection and Privacy and Financial Crime including sanctions, the Bribery Act and anti-money

laundering controls.

The Compliance Function undertakes an annual Compliance Risk Assessment to identify the major compliance risks to which the business is exposed. Based on the Compliance Risk Assessment, an

Annual Compliance Plan is developed at the end of each year for the following year and is presented to the Board Risk Committee.

The compliance activities within AXA PPP are articulated around a number of Group Standards and Policies which set the minimum requirements expected to be covered. The Compliance Group

Standards Handbook ("GSH") and the Compliance Professional Family Policy Manual ("PFPM") contain standards and policies on significant risks affecting the compliance activities as well as the high-level control and monitoring principles to which AXA Insurance must adhere. Both the standards

and policies contained in the GSH and PFPM (e.g. Anti-Money Laundering, Sanctions, Anti-Bribery) are mandatory. In addition, the AXA UK Compliance function has adapted the Group requirements and policies and created local UK Group policies to align with the relevant laws and regulations in the

jurisdiction in the UK, and AXA PPP has adopted those policies and extended them as necessary to reflect the nature of its business.

The AXA UK Compliance Function reports on a regular basis to the Audit Committee, on significant

compliance matters, including key compliance risks, major regulatory changes that have compliance implications, the Annual Compliance Plan, Annual Data Protection Report, Annual Financial Crime Report and any other significant issues that require escalation. The AXA PPP Interim Head of

Compliance also provides a compliance report to the AXA PPP Board Risk Committee.

Internal Audit

See Section B.5 for detail of this function and its role in the risk management system.

Internal control over financial reporting

AXA’s Internal Control Over Financial Reporting (“ICOFR”) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the

Company’s financial statements.

AXA UK’s transversal ICOFR includes policies and procedures that:

• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the

transactions;


• Provide reasonable assurance that transactions are recorded as necessary to permit the

preparation of financial statements in accordance with the applicable generally accepted accounting principles; and

• Provide reasonable assurance that receipts and expenditures are being made only in accordance

with the authorisation of executives and managers of the Group.

Based on Group guidance, AXA UK has implemented (across all UK and Ireland entities) a comprehensive program, managed by a dedicated team within the Risk function, enti tled Internal

Financial Control (“IFC”), designed to ensure that the AXA PPP healthcare Chief Executive Officer has a reasonable basis to conclude that the AXA PPP healthcare ICOFR is effective as of the end of each year.

The IFC program is based on AXA’s IFC Standard, which is an internal control and governance standard. AXA’s IFC Standard is based on the "Internal Control – Integrated Framework" issued by the Committee of Sponsoring Organisations of the Treadway Commission (“COSO”). It is designed to

define the IFC scope and governance, ensure consistency and quality in AXA PPP healthcare and AXA Group financial reporting, and provide an overall framework for the annual IFC program.

In accordance with AXA’s IFC Standard, AXA UK transversally (i) documents significant processes

and controls, as well as the rationale of how the associated risk of material misstatement due to error or fraud can be reduced to an acceptable level; and (ii) tests the design and operational effectiveness of key controls based on the test plans.

These tests form part of a continuous improvement process in the internal control exercised over financial reporting. Areas for improvement are identified by specific test plans designed by management with insight into the risks covered. These processes then help remediate the identified

potential control deficiencies and maintain high standards of internal control within AXA PPP healthcare.

At each year-end, AXA PPP healthcare is required to perform an evaluation of its ICOFR as part of an

internal certification process. This process involves formal sign-off by the process owners and culminates with a formal management report from the Finance Director sent to Group PBRC (Planning, Budgeting, Reporting and Consolidation) stating its conclusion as to the effectiveness of the

Company’s ICOFR.

Disclosure controls and procedures

The AXA Group has implemented a formal internal review and sign-off process pursuant to which all Executive Committee members, CFOs and certain other senior executives are required to certify various matters covered in AXA’s Annual Report.

This process is based on the following four pillars:

1. CFO Sign-Off Certificates required to be submitted by all local CFOs (or Finance Director) to Group PBRC, together with the required subsidiary financial reporting and consolidation

information;

2. IFC Management reports are required to be submitted by the Chief Financial Officer or another senior executive of every in-scope entity, as part of the IFC program dedicated to ICOFR;

3. Disclosure Controls and Procedures Certificates required to be submitted by AXA’s Executive Committee members, regional CFOs and certain other senior executives (including heads of General Management Services Departments) pursuant to which each of these executives is

required to review the Group’s Annual Report and formally certify (i) the accuracy and completeness of the information in the Annual Report with respect to the companies under his/her responsibility; and (ii) the effectiveness of disclosure controls and procedures and ICOFR at

companies under his/her responsibility (with specific disclosure of any significant deficiencies or material weaknesses). In addition, as part of this “sub-certification” process, these executives are required to review and comment on a number of transversal disclosures in the Annual Report

relating to risk and other matters; and

4. Finance Director Sign-Off on notes to the Consolidated Financial Statements: PBRC provide regional CFOs with the contribution of the companies under their responsibility to the


consolidated financial statements in order to facilitate their certification on the accuracy and

completeness of the information in the Annual Report of the Group.

In order to fulfil such requirements, a sign-off process has been defined under the responsibility of the AXA PPP healthcare Finance Director, involving all contributors to the financial statements in order to

finalise their own sign-off to the Group.

The Accounting Department within AXA UK Finance is responsible for preparing the financial statements. This department pools the information required to prepare the financial statements, by

issuing instructions at each period-end date for the teams that contribute the period-end statements. These instructions ensure consistency of financial reporting; the correct application of these instructions is formally set down by a sign-off letter from each entity. The Group Chief Financial Officer

uses the sign-off letters from the various contributors to the financial statements to produce the sign-off letter related to the AXA UK and Ireland consolidated financial position for the attention of the Group. Financial statements for the local entity are presented to the AXA PPP Finance Director by

AXA UK Finance for consideration and approval before presentation to the Board.

The AXA Group and AXA PPP healthcare believe they have put in place a comprehensive system of internal control procedures and mechanisms that is appropriate and well adapted to their business and

the global scale of their operations.

However, all internal control systems, no matter how well designed, have inherent limitations and do not constitute a guarantee or provide absolute certainty. Even systems determined to be effective by

executives may not prevent or detect all human errors, all system malfunctions, all fraud or all misstatements and can provide only reasonable assurance. In addition, effective cont rols may become inadequate over time because of changes in conditions, deterioration of compliance with procedures

or other factors.


B.5 Internal audit function

/ Internal audit function

Group Internal Audit exists to help the Board and Executive Management protect the assets, reputation and sustainability of the organisation by providing an independent and objective assurance

activity designed to add value and improve the organisation’s operations. It helps the organisation meet its objectives by bringing a systematic, disciplined approach to challenge Executive Management and evaluate the effectiveness of risk management, control and governance processes.

The Group Internal Audit function has an audit charter to document its mission, independence, scope, accountabilities, responsibilities, authorities and standards. The charter is approved by the relevant Audit Committee each year.

The head of the Group Internal Audit function has a direct and unfettered reporting line directly to the Audit Committee Chairman.

Group Internal Audit functionally reports through to the Global Head of Audit who reports to the Group

Audit Committee Chairman.

Group Internal Audit annually sets up an internal audit plan of work, based on an assessment of both the inherent risk and the adequacy of controls. Its performance is formally monitored and reported to

the Audit Committee.

Over a five year period, all applicable Common Audit Universe categories for each entity are expected to be audited. Any exceptions identified are notified to the Audit Committee for ratification.

A report is issued at the conclusion of each audit assignment to the relevant senior management. The results of the audits and resolution status of internal audit issues are presented to the Audit Committee and Executive Management on a regular basis.


B.6 Actuarial function

/ Actuarial function

To comply with Solvency II Regulations, an effective Actuarial Function has been set up with the specific role of performing the following tasks:

a) Coordinate the calculation of technical provisions;

b) Ensure the appropriateness of the methodologies and underlying models used as well as the assumptions made in the calculation of technical provisions;

c) Assess the sufficiency and quality of the data used in the calculation of technical provisions;

d) Compare best estimates against experience;

e) Inform the management and the Board of the reliability and adequacy of the calculation of

technical provisions;

f) Express an opinion on the overall underwriting policy;

g) Express an opinion on the adequacy of reinsurance arrangements; and

h) Contribute to the effective implementation of the risk-management system, in particular with respect to the risk modelling underlying the calculation of the capital requirements.

AXA PPP’s Actuarial Function Holder reports to the Chief Risk Officer of AXA PPP healthcare, and as

such is independent of revenue generating functions. Professional body membership and Regulatory Control Function status help provide assurance that the Actuarial Function Holder provides appropriate independence.

AXA PPP’s Head of Actuarial Function:

• Is an invited attendee of the AXA PPP healthcare Board Risk Committee; and

• Is an occasional attendee of the AXA PPP healthcare Board, through which the Board is informed

about conclusions and potential concerns on the tasks undertaken by the actuarial function.

AXA PPP’s Head of Actuarial Function prepares the Actuarial Function Holder's Report to inform the

Management and the Board on their conclusions about the reliability and adequacy of the calculation

of technical provisions. This report also provides an overview of the activities undertaken by the actuarial function in each of its areas of responsibility during the reporting period. This actuarial function report is also communicated to the Group Actuarial Function Holder.


B.7 Outsourcing

/ Outsourcing arrangements

Outsourcing refers to the delegation to a third party of the execution of certain ongoing activities as part of a servicing agreement. The AXA Outsourcing Policy describes the mandatory Group

requirements to comply with Solvency II Regulations and requires that material relationships with third party providers are subjected to appropriate due diligence, approval and on-going monitoring. The objective of the policy is to ensure that “AXA does not abdicate responsibility” for the functions

delegated to an AXA internal subsidiary or external third party and that risks inherent in the outsourcing of material relationships (i.e. those deemed critical to the principal activities of the business) are identified, monitored and appropriately mitigated.

The Company has entered into contractual outsourcing arrangements with third-party service providers for services required in connection with the day-to-day operation of its business. Appropriate due diligence is conducted regularly to ensure the Company maintains full responsibility over the

outsourced functions or activities. Based on a current risk assessment, the most significant outsourced activities are operated within the AXA Group and relate to: (i) data centre services located in Switzerland and France; (ii) IT development and support services in India; (iii) buying and selling of

investments by AXA Investment Managers in the UK; (iv) payment processing and administration in India. Sales and administration of individual and SME health insurance policies are also outsourced by AXA PPP to a fellow subsidiary company, Health-On-Line Company UK Limited. A third-party

processor agreement also exists with AXA Global Protect Limited, an AXA Group company based in the UK, for the sale and claims administration of international policies. This company was renamed AXA Global Healthcare (UK) Limited on 21 December 2017.

B.8 Any other information

Not applicable.


RISK PROFILE

Foreword

Solvency II capital requirements and the Internal Model

C.1 Underwriting Risk

Insurance Risk Exposure

Risk Control and Risk Mitigation

C.2 Market Risk

Market Risk Exposure


Governance of investment strategy and asset & liability management (“ALM”)

C.3 Credit Risk

Credit Risk Exposure


C.4 Liquidity Risk

Liquidity position and risk management framework

C.5 Operational Risk

C.6 Other material risks

Strategic risk

Reputational risk

Emerging risks

C.7 Any other information

C


/ Foreword

This section describes the main risks to which AXA PPP healthcare is exposed through its business.

AXA PPP’s business is to provide protection to its members via the provision of private medical insurance. AXA collects premiums from its policyholders and invests the collected premiums for the period between collection and the event that generates a claim or the expiration of the policy.

Insurance is a transaction whereby a client pays a premium or contribution to an insurer to ensure coverage in the event of an insured loss (medical claim). Premiums collected by the insurer are used to settle the claims filed by its policyholders, as well as its own operating costs. By pooling risks

among policyholders, the insurance industry protects them at a reasonable cost. Risk assessment is a key element allowing the insurer to price its risk correctly (the premium), to pool it and to optimise its own operating and administrative costs.

AXA’s expertise lies in its ability to assess, mutualise or transfer individual or business risk. In this context, AXA has developed consistent and comprehensive tools to measure and control its main risks as detailed in the sections below.

/ Solvency II capital requirements and the Internal Model

Solvency II capital requirement

The Solvency II Directive introduces a risk-based capital requirement which can be assessed either using an internal model or a standard formula.

The AXA Group internal model aims to cover all the material and quantifiable risks the entity is

exposed to. The AXA Group internal model offers a concrete and powerful tool to control and measure exposure to most risks, in line with the Solvency II framework.

The Internal Model is based on a common definition of risks used consistently throughout the AXA

Group. It aims to ensure that the Company risk mapping is comprehensive and is followed in a consistent way across the Company and that efficient procedures and reporting are in place so that roles and responsibilities are allocated to identify, measure, monitor, manage and report key risks.

The Group risk grid4 identifies all material risks applicable for the Company insurance business. The

AXA Group internal model captures all material risks applicable for the Company insurance business in order to assess the different sub-risks and the overall aggregation of risks. The underlying methodologies used in the Internal Model are regularly reviewed to ensure that they accurately reflect

AXA PPP’s risk profile and new methods are developed and integrated regularly (in accordance with the internal model change policy).

The AXA Group internal model is calibrated to represent the value at risk of Group Economic Value at

the 99.5th percentile over a one year horizon. In other words, the Solvency Capital requirement (“SCR”) is the capital needed to sustain a 1 in 200 years shock. It strives to include all measurable risks (market, credit, insurance and operational) and reflects AXA’s unique diversified profile.

In addition to the risks that bear a SCR through the AXA Group internal model calculation, AXA also considers liquidity risk, reputation risk, strategic risk, regulatory risks as well as emerging threats.

4 The Group risk grid identif ies all applicable risks for AXA businesses. Risk categories are further split into sub-risks. The risk assessment is performed at the sub-risk level. The risk grid is regularly review ed and validated at Group Level.


The table below details the Solvency Capital requirement for AXA PPP healthcare by risk category.

Figure 1- Solvency Capital Requirement for AXA PPP on full Internal Model in £m (QRT TEMPLATE S.25.03.21)

AXA PPP healthcare’s target capital and risk sensitivity

Under the Solvency II Regulations, AXA PPP healthcare is required to hold eligible own funds that

cover its Solvency Capital Requirement to absorb significant losses and to comply with Solvency II Regulations. AXA PPP healthcare’s Solvency Capital Requirement is calibrated so as to ensure that all quantifiable risks to which it is exposed are taken into account .

Under normal conditions, AXA PPP healthcare should maintain a Solvency II ratio above 100%, allowing it to have sufficient eligible own funds to sustain a 1 in 200 years shock.

In addition, to ensure a comfort level over a 100% Solvency II ratio, AXA PPP healthcare monitors its

ability to absorb possible severe financial or technical shocks. In this context, AXA PPP healthcare assesses the sensitivities of its Solvency II ratio to financial shocks on corporate bond spreads, on interest rates, and on equity (as detailed in the figure below). These sensitivity analyses do not take

into account preemptive management actions that might be taken to mitigate the effects of the defined shocks. The analyses allow the Company to ensure through the risk appetite framework that local executive management reviews and approves the risk carried by the company, understands the

consequences of any adverse development of these risks, and has action plans that can be implemented in case of unfavorable developments.

It is also worth mentioning that AXA PPP healthcare is a subsidiary of the AXA Group which under the

Solvency II Regulations has defined a clear capital management framework with 170-230% as a central target range for the Solvency II ratio. AXA’s consolidated Solvency Capital Requirement takes into account the global diversification of risks that exist across all its insurance and reinsurance

undertakings, reflecting properly the AXA Group risk exposure. AXA Group also performs sensitivity analyses of its Solvency II ratio to material risks and events on a regular basis, demonstrating that its Solvency II ratio is resilient to a wide range of shocks.

Unique number of componentComponents

description

Calculation of the

Solvency Capital

Requirement

C0010 C0020 C0030

A1A A1 B1

Market 58.9

Credit 32.1

Life Insurance -

P&C Insurance 128.8

Operational Risk 35.2

Pensions Risk 30.9

Deferred Taxes (5.5)

Calculation of Solvency Capital Requirement C0100

Total undiversified components R0110 280.4

Diversification R0060 (60.4)

Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC

(transitional)R0160 -

Solvency capital requirement excluding capital add-on R0200 220.0

Capital add-ons already set R0210 -

Solvency capital requirement R0220 220.0

Other information on SCR

Amount/estimate of the overall loss-absorbing capacity of technical provisions R0300

Amount/estimate of the overall loss-absorbing capacity ot deferred taxes R0310 (5.5)

Total amount of Notional Solvency Capital Requirements for remaining part R0410

Total amount of Notional Solvency Capital Requirements for ring fenced funds (other than

those related to business operated in accordance with Art. 4 of Directive 2003/41/EC

(transitional))

R0420

Total amount of Notional Solvency Capital Requirement for matching adjustment portfolios R0430

Diversification effects due to RFF nSCR aggregation for article 304 R0440


(in £m)

AFR

impact

AFR after

stress

Coverage

ratio

Points

impact

+50bps IR -3 293 133% -1%

-50bps IR 3 300 136% 1%

+75bps Corporate Spreads -2 295 134% -1%

+25% Equity Markets 14 311 141% 6%

-25% Equity Markets -11 285 130% -5%

Note that:

• The Solvency Capital Requirement is assumed to remain unchanged.

• The sensitivities presented include the impact on the AXA UK Pension Scheme pushdown. The

impact of an increase in corporate spreads is positive for AXA PPP healthcare, driven by the effect of this movement on the Pension Scheme pushdown. Pension liabilities decrease when corporate spreads widen, as the discount rate applied to liabilities is sensitive to corporate

spreads. The reduction in liabilities more than offset the losses in the fixed income portfolios of Property & Casualty and the Pension Scheme.

• The impacts do not consider tax effects.


C.1 Underwriting Risk

/ Insurance Risk Exposure

AXA PPP healthcare is responsible for managing its insurance risks linked to underwriting, pricing and

reserving. It is also responsible for taking appropriate action in response to changes in insurance

cycles and to the political and economic environments in which it operates.

In the context of the business underwritten, AXA PPP healthcare is exposed to P&C Insurance risks which arise when there is unexpected volatility in the underwriting results. P&C Insurance risks are defined into two main categories: volatility of premium and claims of the business written in the coming

year through causes other than catastrophes (premium risk); and volatility of prior year reserves (reserve risk).

AXA PPP’s overall exposure to underwriting risks is covered by AXA’s Solvency Capital Requirement

metric, as detailed in the above paragraph 'Solvency II capital requirements and the Internal Model', and taken into account in AXA’s liquidity risk management framework (see Section C.4). Sensitivity analyses of its Solvency II ratio to material risk events are detailed in the above paragraph ‘AXA PPP’s

target capital and risk sensitivity’ of the introduction to Section C.

AXA’s asset management policies and investment strategy are addressed in the below paragraph 'Governance of investment strategy and asset & liability management (“ALM”).'

/ Risk Control and Risk Mitigation

Insurance risks for the healthcare business are controlled through four major processes, defined at Group level but performed by local teams:

• Risk controls on new and existing products that complement underwriting rules and product

profitability analyses;

• Optimising of reinsurance strategies in order to limit the peak exposures of the Company thereby

protecting its solvency by reducing volatility;

• Reviewing technical reserves including a roll forward analysis; and

• Monitoring emerging risks to share expertise within the underwriting and risk communities.

Product approval

Group Risk Management (“GRM”) has defined a set of procedures to approve new product launches

and review profitability of existing products. These procedures, adapted and implemented locally, foster product innovation across the Group whilst controlling risk.

This product approval process includes risk based metrics derived from the economic capital Internal

Modelling of AXA PPP healthcare. The process covers new and existing products.

• Prior to launch: any new products or lines of business undergo a thorough approval process to

ensure that new risks are appropriately scrutinised prior to accepting risks; and

• Post launch: appropriate profitability and risk control analyses are performed to check that the

business remains in line with the Company’s risk framework.

This framework complements underwriting rules by ensuring that no risks are taken outside pre-

defined tolerance levels and that value is created by adequate risk pricing.

Exposure analysis

GRM has developed and deployed common models and metrics to consistently measure risks throughout the Group (in particular, through its Internal Model framework). These models and metrics are implemented locally. This enables AXA PPP healthcare to check that its exposure complies with

consolidated risk appetite limits along the dimensions of earnings, value, capital and liquidity.


Reinsurance

Together with the business lines, Risk Management contributes to the elaboration of AXA PPP

healthcare reinsurance cover. In alignment with Group Standards, AXA PPP healthcare reinsurance treaties are placed through AXA Global Re, unless a documented approval to place the treaty outside the Group is obtained.

For healthcare operations, risks are assessed for each portfolio and protected with reinsurance cover

aligned with the risk appetite limits set at Group and AXA PPP healthcare level .

Technical reserves

AXA PPP healthcare specifically monitors its reserve risks. Claims reserves are evaluated using various statistical and actuarial methods. These calculations are performed by technical staff within Finance and reviewed by Senior Management. An independent second line review is conducted

biannually by the Actuarial Function.

The process of assessing the reserves ensures that:

• A sufficient number of elements have been scrutinised (including contracts, premiums and claims

patterns, handling and reinsurance effects);

• The technical assumptions and actuarial methodologies are in line with professional practices and

sensitivity analyses are performed at least for the most significant ones; • Boni-Mali backtesting has been performed, the regulatory and economic context references are

taken into account and material deviations are explained; and • The Best Estimate Liabilities have been calculated in accordance with Articles 75 to 86 of the

Solvency II Directive and AXA Group guidelines.

As part of the Solvency II framework, the local Actuarial Function Holder (“AFH”) for AXA PPP

coordinates the calculation of technical provisions ensuring the appropriateness of the methodologies and underlying models used. The annual AFH report to the Board also provides an opinion on the overall underwriting policy and on the adequacy of reinsurance arrangements.


C.2 Market Risk

/ Market Risk Exposure

AXA PPP healthcare is exposed to financial market risks through its core business of financial protection (i.e. insurance) and through the financing of its activities as part of its equity and debt

management.

Description of market risks for Private Medical Insurance

The market risks to which the private medical insurance portfolio is exposed arise from a variety of factors including:

• An increase in interest rates and spreads of fixed-income investments reduces the market value

of fixed-income investments and could adversely impact the solvency margin;

• A decline in asset market value (including equity, real estate and alternative investments) could

adversely impact the solvency margin, as well as available surplus; and

• A change in foreign exchange rates would have limited impact, since foreign currency

commitments are matched to a large extent by assets in the same currency or covered by hedges, but it could affect the earnings contribution in sterling.

Sensitivity to interest rates and spread movements has remained stable over the period. The spread shock is applied to the corporate bond portfolio and c redit default swaps (“CDS”) which partly mitigate the impact.

AXA PPP’s overall exposure to market risks is covered by AXA’s Solvency Capital Requirement metric, as detailed in the above paragraph 'Solvency II capital requirements and the Internal Model', and taken into account in AXA’s liquidity risk management framework (see Section C.4). Sensitivity

analyses of its Solvency II ratio to material risk events are detailed in the above paragraph ‘AXA PPP’s target capital and risk sensitivity’ of the introduction to Section C. A quantitative analysis of market risk is detailed in the Management of Financial Risk note in the statutory financial statements.

AXA’s asset management policies and investment strategy, which covers investments of assets that cover insurance technical provisions as well as surplus assets , are addressed in the below paragraph 'Governance of investment strategy and asset & liability management (“ALM”).'


AXA PPP healthcare is primarily responsible for managing its financial risks (market risk, credit risk, liquidity risk), while abiding by the risk framework defined at Group level, in terms of limits / thresholds and standards. This approach aims to allow reacting swiftly in an accurate and

targeted manner to changes in financial markets, political and economic environments in which the Company operates.

A wide variety of risk management techniques are used to control and mitigate the market risks to

which the Company is exposed. These techniques include:

• Asset Liability Management (“ALM”), i.e. defining an optimal strategic asset allocation with

respect to the liabilities’ structure, to reduce the risk to a desired level;

• A disciplined investment process, requiring for any sophisticated investment a formal thorough

analysis by the Investment Team, and a second opinion by Risk Management;

• Hedging of financial risks when they exceed the tolerance levels set by the Group. An alerts and

limits framework for managing investment risk is in place (in line with the Group investment risk

appetite framework), including the scope of assets included for each risk category and how exposures should be calculated to enable AXA UK Investment and Treasury to monitor exposures against the alerts and limits and ensure that they remain within their risk budget; and

• Regular monitoring of the financial risks on the economic and solvency position of the Company .


/ Governance of investment strategy and asset & liability management (“ALM”)

Group and Local Guidance on Investments

Investment and ALM activities are steered by the AXA UK Chief Investment Officer (“CIO”) through a

delegation given by the AXA PPP healthcare Board. The AXA UK CIO manages local portfolios, aiming at an optimised risk-return ratio, maintains reporting lines to the Group, and manages close relationships with the Finance Director of AXA PPP healthcare. Moreover, they are responsible for the

investment performance and for implementing and executing sound asset liability management.

Group and Local Governance Bodies

In order to efficiently coordinate local and global investment processes, decisions within the investment community are taken by two main governance bodies:

• The Group Investment Committee which is chaired by the Group Chief Financial Officer. This

committee defines investment strategies, steers tactical asset allocation, evaluates new

investment opportunities and monitors the Group’s investment performance; and

• The Group Asset Liability Management Supervisory Committee, of which the Group Investment

and ALM Management Department is an important member, is co-chaired by the Group Chief

Financial Officer and the Group Chief Risk Officer.

AXA UK has a local Investment Committee whose terms of reference are approved by the AXA UK plc Board.

This committee is responsible for, among other things, defining the entity’s Strategic Asset Allocation, approving and monitoring investments, meeting local compliance obligations and reviewing the participation in investment proposals syndicated by the Group, as well as local investment proposals.

ALM Studies and Strategic Asset Allocation

ALM aims to match the liabilities generated by the sale of insurance policies with the appropriate asset

allocation. The objective is to define the optimal asset allocation so that all liabilities can be met with the highest degree of confidence while maximising the expected investment return.

ALM studies are performed by the AXA UK Investments Department with a second opinion provided

by the Risk Management Department. They use methodologies and modelling tools that develop deterministic and stochastic scenarios, financial market evolution for the assets and taking into account existing interaction between the two. This process aims at maximising expected returns given

a defined level of risk. Furthermore, a series of additional constraints are taken into account, such as Solvency II Internal Model considerations, earnings stability, protection of the solvency margin and preservation of liquidity, as well as local and consolidated capital adequacy and requirement.

For AXA PPP healthcare, the strategic asset allocation is reviewed by local management and presented to the Board for approval. The strategic asset allocation allows for taking tactical stance within a given leeway.

Investment Approval Process

Investment opportunities, including non-standard investments, new strategies or new structures, are

subject to an Investment Approval Process (“IAP”). The IAP ensures key characteristics of the investment are analysed, such as risk and return expectations, experience and expertise of the investment management teams, as well as accounting, tax, legal and reputational issues.

The IAP is completed at Group level for any significant investment, notably if several local entities are participating to the same investment. In that case, the successful completion of an IAP is performed after the production of a second independent opinion by GRM. The IAP is used and completed at local

level to cover local characteristics (including tax and statutory accounting).

Local IAP is also run for investments in new asset classes for local entities under the same principles.


Governance Framework for Derivatives

Products involving hedging programs based on derivative instruments are designed with the support of

dedicated teams at AXA Bank Europe, AXA Investment Managers, Alliance Bernstein (“AB”), AXA US and AXA SA. In a similar way, this set-up ensures all entities benefit from technical expertise, legal protection and good execution of such transactions within the following governance framework for

derivatives.

Derivative strategies are systematically reviewed and validated by the Investment Committee. In addition, there is a segregation of duties between those responsible for making investment decisions,

executing transactions, processing trades and instructing the custodian. This segregation of duties aims in particular to avoid conflicts of interest.

The market risks arising from derivatives are regularly monitored taking into account the Group’s

various constraints (such as risk appetite and Internal Model). Such monitoring is designed to ensure that market risks, coming either from cash or derivative instruments, are properly controlled and remain within approved limits.

Legal risk is addressed by defining a standardised master agreement. AXA PPP healthcare may trade derivatives only if they are covered by legal documentation which complies with the requirements set out in the Group standard. Any change to certain mandatory provisions defined in the Group

standards must be approved by GRM.

Additionally, there is a centralised counterparty risk policy. GRM has established rules on authorised counterparties, minimum requirements regarding collateral and counterparty exposure limits.

The operational risk related to derivatives is measured and managed in the context of AXA’s global operational risk framework. Furthermore, execution and management of derivatives are centralised within dedicated teams, reducing AXA Group’s and AXA PPP’s operational risk.

Valuation Risk is addressed through the use of expert teams. They independently counter-value the derivatives positions so as to get appropriate accounting, payment and collateral management. They also challenge the prices proposed by counterparties in case AXA PPP wishes to initiate, terminate early or restructure derivatives. Such capacity in pricing requires high-level expertise, which relies on

rigorous market analysis and the ability to follow the most up-to-date market developments for new derivatives instruments.

Investment and Asset Management

For a large proportion of AXA PPP’s assets, the AXA UK investment department utilises the services

of asset managers to invest in the market:

• AXA PPP mandates the day-to-day management of its asset portfolios primarily to AXA’s asset

management subsidiaries, i.e. AXA Investment Managers and Alliance Bernstein. The AXA UK CIO continuously monitors, analyses, and challenges asset managers’ performances for AXA

PPP’s portfolio.

• In order to benefit from more asset specific and/or geographical expertise, AXA PPP can also

decide to invest through external asset managers. In these cases, thorough due diligence

analyses are performed by the Investment and Risk Management communities and a continuous monitoring is implemented.


C.3 Credit Risk

/ Credit Risk Exposure

Counterparty credit risk is defined as the risk that a third party in a transaction will default on its commitments. Given the nature of its core business activities, AXA PPP monitors two major types of

counterparties, using methods suitable to each type:

• Investment portfolios, including cash and derivative exposures; and

• Policyholders, reinsurers, partnerships and broker relationships.

AXA PPP’s overall exposure to credit risk is covered by AXA’s Solvency Capital Requirement metric, as detailed in the above paragraph 'Solvency II capital requirements and the Internal Model', and taken into account in AXA’s liquidity risk management framework (see Section C.4). Sensitivity

analyses of its Solvency II ratio to material risk events are detailed in the above paragraph ‘AXA PPP’s target capital and risk sensitivity’ of the introduction to Section C. A quantitative analysis of credit risk is detailed in the Management of Financial Risk note in the statutory financial statements.

AXA’s asset management policies and investment strategy are addressed in the above paragraph 'Governance of investment strategy and asset & liability management (“ALM”).'


Invested Assets

Concentration risk is monitored by different analyses performed at Group level by issuer, sector and geographic region, in addition to local procedures and by a set of Group and local issuer limits.

These limits aim at managing the default risk of a given issuer, depending on its rating and on the maturity and seniority of all bonds issued by the issuer and held by AXA PPP (including corporate, Government agency and sub-sovereign).

The limits also take into account all exposure on issuers through debt securities, equity, derivatives and reinsurance counterparty risk.

On Sovereign debt, specific limits have also been defined on government bonds and government -

guaranteed bonds and are monitored at Group and local levels.

Compliance with the limits is ensured through defined governance processes. The Financial Risk Management and the Investment Department handles, on a monthly basis, any issuer exposure

breaches to the Group’s limit tolerances and determines coordinated actions for excessive credi t concentrations. Also, a Group Credit Team reporting to the Group Chief Investment Officer provides credit analysis independently from Group asset managers, in addition to local CIO teams. The ALM

Supervisory Committee is regularly kept informed of the work performed.

Credit Derivatives

AXA PPP, as part of its investment and credit risk management activities, uses strategies that involve credit derivatives (mostly Credit Default Swaps or CDS), which are mainly used as an alternative to debt security portfolios, when coupled with government debt securities, but also as a protection on

single corporate names or specific portfolios.

Limits applied to issuers take into account the credit derivative positions.

Credit risk relating to CDOs (Collateralised Debt Obligation) is monitored separately, depending on the

tranches held, and regardless of the type of assets held (such as debt securities or credit derivatives).

Counterparty Risk arising from Over-The-Counter ("OTC") Derivatives

AXA PPP actively manages counterparty risk generated by OTC derivatives through a specific Group-

wide policy. This policy includes:

• Rules on derivative contracts (such as International Swaps and Derivatives Association (“ISDA”)

or Credit Support Annex (“CSA”) documentation);


• Mandatory collateralisation;

• A list of authorised counterparties; and

• A limit framework and an exposure monitoring process.

Receivables from Reinsurers: Rating Processes and Factors

At Group level, to manage the risk of reinsurers’ insolvency, a Security Committee is responsible for assessing reinsurers’ quality and acceptable commitments. The Committee is under the joint authority

of GRM and AXA Global Re. This risk is monitored to avoid any excessive exposure to any specific reinsurer. The Group Security Committee meets monthly – and more frequently during renewal periods – and decides on any action to be taken with the aim of limiting AXA’s exposure to the risk of

default by any of its reinsurers.

Other receivables

Receivables risk arises from the risk of default of counterparties related to insurance operations. The exposures are monitored by the accounting department by nature of counterparties (such as policyholders, intermediaries, intragroup, taxes and others) and are actively managed to ensure the

correct representation of the risk in the balance sheet on a quarterly basis.

The Risk Management team assesses on an annual basis the capital charge for each type of counterparty, using internal risk factors or standard factors.


C.4 Liquidity Risk

/ Liquidity position and risk management framework

Liquidity risk is the uncertainty, emanating from business operations, investments or financing activities, that AXA PPP will have the ability to meet payment obligations in a full and timely manner, in

current or stressed environments. Liquidity risk concerns assets and liabilities as well as their interplay.

For AXA PPP, the liquidity risk is measured by the “Excess Liquidity” metric, which is defined as the

worst liquidity position, measured over four different time horizons: one week, one month, three months and twelve months.

For each time horizon, the post-stress liquidity resources available and the post-stress liquidity needs

(i.e. net outflows) to be paid are projected over the time-horizon allowing an estimation of the excess liquidity (i.e. the amount of available post-stress liquidity resources minus the post-stress outflows projected over a defined time horizon).

The stressed conditions are calibrated so as to reflect extreme circumstances, and include:

• Distressed financial markets (in terms of asset prices, liquidity and access to funding through

capital markets); and

• Confidence crisis towards AXA (increase in lapses, decrease of premiums received, no new

business).

In addition, all these events are considered to occur simultaneously. Therefore, the calibration of the

liquidity stress is a very prudent metric.

In conclusion, as of 31 December 2017:

i. AXA PPP shows significant positive excess liquidity, which is monitored on a quarterly basis ;

ii. The main liquidity resources are cash, money market instruments, credit lines and a conservative proportion of assets considered sellable even in period of distress, including high quality government bonds. The main needs come from operating cash flows (including

premium, claims and expenses); and

iii. The liquidity position remains relatively stable over time.

A quantitative analysis of liquidity risk is detailed in the Management of Financial Risk note in the

statutory financial statements.

As of 31 December 2017, the expected profit included in future premiums as calculated in accordance with Article 260(2) of the Solvency II Regulations totalled £7.2m (2016: £7.3m).


C.5 Operational Risk

AXA Group has defined a framework to identify and measure its operational risks that may arise from a failure in its organisation, systems and resources or from external events. Ensuring an adequate

mitigation of these risks across the Group is a key pillar of the Risk Management functions.

/ General principles

One objective of AXA PPP’s operational risk internal model is to understand and reduce losses resulting from operational failures and to define an appropriate risk response strategy for major

Operational risk scenarios.

Based on the Solvency II definition, AXA PPP defines operational risk as the risk of loss arising from inadequate or failed internal processes, personnel or systems or from external events. Operational risk

includes legal risks and excludes risks arising from strategic decisions, as well as reputation risks.

AXA has defined a single Group framework for identifying, quantifying and monitoring the main operational risks, involving the deployment of a common system, dedicated operational risk teams and

a common operational risk typology classifying operational risks into seven risk categories: in ternal fraud, external fraud, employment practices and workplace safety, clients, products and business practices, damages to physical assets, business disruption and system failures and execution, delivery

and process management.

Both quantitative and qualitative requirements are defined.

• The most critical operational risks of AXA PPP healthcare are subject to detailed quantification

based upon a risk scenario approach to estimate the capital requirement needed to cover a 1 in 200 exposure of that particular risk event utilising the Internal Model based on Solvency II principles. The operational risk management process is embedded into local governance through

senior management validation to ensure the adequacy, appropriateness and comprehensiveness of the risk assessment but also to ensure that adequate corrective and pre-emptive actions are defined and implemented in front of the main risks; and

• In addition, a loss data collection process is in place within AXA PPP in order to track and

appropriately mitigate actual operational risk losses. This process is also used as a valuable source of information to back-test the assumptions taken in risk assessments.

The implementation of the Operational Risk framework covers all of AXA PPP healthcare’s operations.

In 2017 the Operational Risk profile was reasonably well spread over the seven operational risk categories covered and the main risks being cyber-attack, a business continuity event impacting third

party operations in India, material data breach, failure of provider relationships and reserving error due to claims data error.

AXA PPP’s overall exposure to operational risk is covered by AXA’s Solvency Capital Requirement

metric, as detailed in the above paragraph 'Solvency II capital requirements and the Internal Model', and taken into account in AXA’s liquidity risk management framework (see Section C.4). Sensitivity analyses of its Solvency II ratio to material operational risk events are detailed in the above paragraph

‘AXA PPP’s target capital and risk sensitivity’ of the introduction to Section C.

AXA’s asset management policies and investment strategy, which covers investments of assets to address operational risks, are addressed in the above paragraph 'Governance of investment strategy

and asset & liability management (“ALM”).'


C.6 Other material risks

/ Strategic risk

A strategic risk is the risk that a negative impact (current or prospective) on earnings or capital, material at AXA PPP level, arises from a lack of responsiveness to industry changes or adverse

business decisions regarding:

• Significant changes in footprint, including through mergers and acquisitions;

• Product offering and client segmentation; and

• Distribution model (channel mix including alliances/partnerships, multi -access and digital

distribution).

Given the nature of strategic risks, there is no required capital charge assessment but rather a strong strategic risk management framework in place in order to assess, anticipate and mitigate these risks.

/ Reputational risk

Reputational risk is the risk that an event, internal or external, will negatively influence the stakeholders’ perceptions of the Company or where there is a gap between stakeholders’ expectation and the Company’s behaviours, attitudes, values, actions, or inactions.

AXA has defined a global framework with a two-fold approach to reactively protect and proactively monitor, manage and mitigate reputational issues in order to minimise value destruction, and build and maintain brand equity and trust among stakeholders.

AXA Group has created a Global Reputation Network whose purpose is to locally implement a reputational risk management framework. The objectives of the reputational risk management approach are in line with AXA’s overall enterprise risk management approach aiming to develop a

reputational risk culture across the enterprise.

Three main objectives drive the reputational risk management approach:

• Proactively manage reputational risks, avoid or minimise negative issues impacting on the

reputation of AXA and build trust among all of AXA stakeholders. • Define accountability for reputational risks across the organisation (Marketing, HR, Finance /

Investors Relations), at Group and local levels.

• Implement a common reputational risk management framework throughout the organisation.

The implementation of the reputational risk framework encompasses all AXA activities including insurance and internal service providers.

/ Emerging risks

Emerging risks are risks which may develop or which already exist and are continuously evolving.

Emerging risks are marked by a high degree of uncertainty; indeed, some of them will never emerge.

AXA has established processes to qualify and quantify emerging risks which could develop over time and become significant. The emerging risk framework encompasses a network of approximately 50

individuals within AXA Group, including AXA PPP healthcare.

Emerging risks surveillance is organised through a detection process including monitoring, for instance, of scientific publications and court decisions. Risks are monitored and classified within a risk

mapping constituted of six sub-groups (regulatory and legal, environmental, social and political, economic and financial, medical and technological). After prioritisation of the monitored risks or after a warning from an entity, a working group is launched on a yearly basis by GRM to review a specific risk

and its potential impact in terms of insurance.

By developing relationships with researchers and supporting innovative projects in environmental, socio-economic and life risks, the AXA Research Fund is a key contributor to AXA’s commitment to

better understand the evolution of these risks.

By seeking to develop new solutions, acting as an advisor on risk management and actively contributing to the overall debate about the issues involved, along with other major market players,

AXA intends to promote a better understanding and better forecasting of the emerging risks and to support sustainable development.


C.7 Any other information

Not applicable.


VALUATION FOR SOLVENCY PURPOSES

Basis for preparation

D.1 Assets

Fair value measurement

Intangible assets

Property, Plant & Equipment held for own use

Investments and loans

Derivative instruments

Deferred taxes


Other assets

D.2 Technical provisions

General principles

Best Estimate Liabilities

Statement on the use of the volatility adjustment

Statement on the use of the transitional measures for technical provisions

Risk Margin

Reinsurance and special purpose vehicles recoverables

D.3 Other liabilities

Contingent liabilities

Provisions other than technical provisions

Pension benefit obligations

Deferred taxes

Derivative instruments

Financial liabilities


Payables

Other liabilities

D.4 Alternative methods for valuation

D.5 Any other information

D


/ Basis for preparation

AXA PPP healthcare limited Solvency II balance sheet is prepared as of 31 December. The balance

sheet is prepared in compliance with the Solvency II Regulations.

Assets and liabilities are valued based on the assumption that the Company will pursue its business

as a going concern.

The Solvency II balance sheet only includes the value of business in force and therefore only presents a partial view of the value of the Company.

Technical provisions are recognised with respect to all insurance and reinsurance obligations towards policyholders and beneficiaries of insurance or reinsurance contracts. The value of technical

provisions corresponds to the current amount that the Company would have to pay if it were to transfer its insurance and reinsurance obligations immediately to another insurance or reinsurance undertaking.

Other assets and liabilities are recognised in compliance with Financial Reporting Standard 101 'Reduced Disclosure Framework' (“FRS 101”), provided that those standards and interpretations

include valuation methods that are in accordance with the following market consistent valuation approach set out in Article 75 of the Solvency II Directive 2009/138/EC:

• Assets shall be valued at the amount for which they could be exchanged between knowledgeable

willing parties in an arm’s length transaction; and

• Liabilities shall be valued at the amount for which they could be transferred, or settled, between

knowledgeable willing parties in an arm’s length transaction (without adjustment to take account

of the Company own credit standing).

The main adjustments between FRS 101 and Solvency II assets and liabilities relate to:

• Elimination of intangible assets including goodwill;

• Re-measurement of assets that are not measured at fair value in the statutory financial

statements;

• Re-measurement of technical provisions;

• Recognition of the Market Value Margin;

• Re-measurement of reinsurance assets and liabilities;

• Recognition of contingent liabilities if any;

• Re-measurement at fair value of financial debt;

• Provision for a share of the AXA UK Group pension scheme; and

• Tax impacts related to the adjustments above.

These adjustments are detailed hereafter in this section.

The preparation of the balance sheet in accordance with Solvency II requires the use of estimates and

assumptions. It requires a degree of judgment in the application of Solvency II principles described below. The main balance sheet captions concerned are assets accounted at fair value, deferred tax assets, assets and liabilities relating to the insurance business, pension benefit obligations and

balances related to share-based compensation. The principles set out below specify the measurement methods used for these items.

Unless otherwise stated, the Company ’s valuation principles have been consistently applied to all the periods presented.

The Solvency II balance sheet is presented in GBP (£), which is the Company’s presentational

currency. Assets and liabilities resulting from transactions denominated in foreign currencies are translated at the local closing exchange rate.


D.1 Assets

/ Fair value measurement

The table below summarises for each material class of assets, the value of the assets of the Company

according to Solvency II provisions together with the values of the assets recognised and valued on a FRS 101 accounting basis as at 31 December 2017:

(in £m) Fair Value (Solvency II)

Carrying Value (FRS 101)

% (fair value of Balance Sheet)

Goodwill - 7.5 - Deferred acquisition costs - 89.6 -

Intangible assets - 5.5 -

Deferred tax assets - 2.1 -

Pension benefit surplus - - -

Property, plant & equipment held for own use 47.8 38.0 5%

Investments (other than assets held for

index-linked and unit-linked contracts) 666.5 662.5 73%

Investment in real estate properties 21.4 17.4 2%

Holdings in related undertakings, including

participations - - -

Equities 20.2 20.2 2%

Debt instruments 533.7 533.7 59%

Investment funds 83.6 83.6 9%

Derivatives 7.6 7.6 1%

Other investments - - -

Assets held for index-linked and unit-linked

contracts - - -

Loans and mortgages 80.4 80.5 9%

Reinsurance recoverables 5.8 8.4 1%

Receivables 55.3 487.2 6%

Cash and cash equivalents 53.4 53.4 6%

Other 3.1 3.1 -

Total Assets 912.3 1,437.8 100%

The Company applies the IFRS 13 (Fair value measurement) fair value hierarchy as described below for all assets and liabilities (excluding technical provisions). This fair value hierarchy is consistent with

the one defined in the Solvency II Regulations.

a) Active market: quoted price

Fair values of assets and liabilities traded on active markets are determined using quoted market

prices when available. An instrument is regarded as quoted in an active market if quoted prices are

readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis between a willing seller and a willing buyer. For financial instruments traded in

active markets, quotes received from external pricing services represent consensus prices, i.e. using similar models and inputs resulting in a very limited dispersion.


b) Active versus inactive markets – financial instruments

Equity instruments quoted on exchange traded markets and bonds act ively traded on liquid markets

(for which prices are regularly provided by external pricing services that represent consensus with limited dispersion and for which quotes are readily available), are generally considered as being

quoted in an active market. Liquidity may be defined as the possibility to sell or dispose of the asset in the ordinary course of business within a certain limited time period at approximately the price at which the investment is valued. Liquidity for debt instruments is assessed us ing a multi criteria approach

including the number of quotes available, the place of issuance and the evolution of the widening of bid ask spreads.

A financial instrument is regarded as not quoted in an active market if there is little observation of transaction prices as an inherent characteristic of the instrument; when there is a significant decline in

the volume and level of trading activity, in case of significant illiquidity or if observable prices cannot be considered as representing fair value because of dislocated market conditions. Characteristics of inactive markets can therefore be very different in nature, inherent to the instrument or indicative of a

change in the conditions prevailing in certain markets.

c) Assets and liabilities not quoted in an active market

The fair values of assets and liabilities that are not traded in an active market are estimated:

• Using external and independent pricing services;

• Using valuation techniques; and

• No active market: use of external pricing services.

External pricing services may be fund asset managers in the case of investments in funds. To the

extent possible, the Company collects quotes from external pricing providers as inputs to measure fair value. Prices received may form tight clusters or dispersed quotes which may then lead to the use of valuation techniques. The dispersion of quotes received may be an indication of the large range of

assumptions used by external pricing providers given the limited number of transactions to be observed or reflect the existence of distress transactions. In addition, given current market conditions since the financial crisis and the persistency of complete inactivity of some markets since then, many

financial institutions closed their desks dedicated to structured assets deals and are no longer in a position to deliver meaningful quotes.

NO ACTIVE MARKET: USE OF VALUATION TECHNIQUES

The objective of valuation techniques is to arrive at the price at which an orderly transaction would

take place between market participants (a willing buyer and a willing seller) at the measurement date. Valuation technique models include:

• Market approach: the consideration of recent prices and other relevant information generated by

market transactions involving substantially similar assets or liabilities; • Income approach: use of discounted cash flow analysis, option pricing models, and other present

value techniques to convert future amounts to a single current (i.e. discounted) amount ; and • Cost approach: the consideration of amounts that would currently be required to construct or

replace the service capacity of an asset.

Valuation techniques are subjective in nature and significant judgment is involved in establishing fair values. They include recent arm’s length transactions between knowledgeable willing parties on similar assets if available and representative of fair value and involve various assumptions regarding

the underlying price, yield curve, correlations, volatility, default rates and other factors. Unlisted equity instruments are based on cross checks using different methodologies such as discounted cash flows techniques, price earnings ratios multiples, adjusted net asset values, taking into account recent

transactions on instruments which are substantially the same if conc luded at arm’s length between knowledgeable willing parties, if any. The use of valuation techniques and assumptions could produce different estimates of fair value. However, valuations are determined using generally accepted models

(such as discounted cash flows or Black & Scholes models) based on quoted market prices for similar instruments or underlying factors (such as index or credit spread) whenever such directly observable data are available and valuations are adjusted for liquidity and credit risk.


Valuation techniques may be used when there is little observation of transaction prices as an inherent

characteristic of the market, when quotes made available by external pricing providers are too dispersed or when market conditions are so dislocated that observed data cannot be used or need significant adjustments. Internal marks to model valuations are therefore normal market practices for

certain assets and liabilities inherently scarcely traded or exceptional processes implemented due to specific market conditions.

USE OF VALUATION TECHNIQUES IN DISLOCATED MARKETS

The dislocation of certain markets may be evidenced by various factors, such as very large widening

of bid ask spreads which may be helpful indicators in understanding whether market participants are willing to transact, wide dispersion in the prices of the small number of current transactions, varying prices over time or among market participants, inexistence of secondary markets, disappearance of

primary markets, closing down of dedicated desks in financial institutions, distress and forced transactions motivated by strong needs of liquidity or other difficult financial conditions implying the necessity to dispose of assets immediately with insufficient time to market the assets to be sold, and

large bulk sales to exit such markets at all costs that may involve side arrangements (such as sellers providing finance for a sale to a buyer). Primary transactions’ prices in markets supported by government through specific measures following the financial crisis do not represent fair value.

In such cases, the Company uses valuation techniques including observable data whenever possible

and relevant, adjusted if needed to develop the best estimate of fair value, including adequate risk premiums or develops a valuation model based on unobservable data representing estimates of assumptions that willing market participants would use when prices are not current, relevant or

available without undue costs and efforts: in inactive markets, transactions may be inputs when measuring fair value, but would likely not be determinative and unobservable data may be more appropriate than observable inputs.

/ Intangible assets

Under Solvency II, only intangible assets related to the business in force, that are separable and for

which there is evidence of exchange transactions for the same or similar assets, indicating they are saleable in the market place, are recognised. In accordance with the Solvency II principles, goodwill, deferred acquisition costs and other intangible assets recognised under FRS 101 have no value in the

Solvency II balance sheet. Under FRS 101, goodwill is measured at cost less accumulated impairment losses and reviewed for impairment on an annual basis; and other intangible assets are recognised at cost and amortised over the period over which the benefits will be received, with limited useful lives.

/ Property, Plant & Equipment held for own use

Under Solvency II, property, plant and equipment held for own use is recognised at fair value; whereas under FRS 101, these assets are stated at historical cost less accumulated depreciation and an

allowance for impairment, where appropriate. Historical cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Under FRS 101, when an asset is intended to be sold within twelve months, it is measured at the

lower of net carrying value and fair value net of selling costs.

/ Investments and loans

The investments aggregate on the Solvency II balance sheet include investment in real estate properties (other than for own use), participations (including entities other than investment funds that

are accounted for under the equity method), equity instruments, bonds, investment funds, derivatives and deposits other than cash equivalents.

Property

Under Solvency II, investment in real estate property is recognised at fair value; whereas under FRS 101, these assets are recognised at cost and depreciated over their estimated useful lives, and

reversible impairment is recognised if conditions are met. Under FRS 101, when an asset is intended to be sold within twelve months, it is measured at the lower of net carrying value and fair value net of selling costs.


Financial assets including loans

Under Solvency II, financial assets are recognised at fair value.

Under FRS 101, these are recognised at fair value, except:

• Debt securities held to maturity, accounted for at amortised cost; and

• Loans and receivables (including some debt instruments not quoted in an active market)

accounted for at amortised cost using the effective interest rate method.

Under FRS 101, these instruments accounted for at amortised cost are subject to impairment based respectively on future cash flows discounted using the initial effective interest rate or on fair value if future cash flows may not be fully recoverable due to a credit event relating to the instrument issuer. If

the credit risk is eliminated or improves, the impairment may be released.

/ Derivative instruments

Under both FRS 101 and Solvency II, derivatives are recognised at fair value.

/ Deferred taxes

Deferred tax balances arise under Solvency II due to differences in underlying valuation principles for assets and liabilities as compared to tax basis. Indeed, there are generally tax impacts on adjustments

between FRS 101 and Solvency II assets and liabilities.

However, similar recognition and valuation principles apply under both FRS 101 and Solvency II frameworks.

Under Solvency II, deferred tax assets and liabilities emerge from temporary differences with tax values of assets and liabilities, and when applicable from tax loss carry forwards. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available to offset the

temporary differences, taking into account the existence of tax groups and any legal or regulatory requirements on the limits (in terms of amounts or timing) relating to the carry forward of unused tax losses or the carry forward of unused tax credits. The recoverability of deferred tax assets recognised

in previous periods is re-assessed at each closing.

The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact , at the balance sheet date that would follow the way the Company expects to recover or settle the

carrying amount of its assets and liabilities. When income taxes are calculated at a different rate if dividends are paid, deferred taxes are measured at the tax rate applicable to undistributed profits. The income tax consequences of dividends are only accounted for when a liability to pay the dividend is

recognised.

For presentation purpose of the balance sheet, deferred tax assets are offset with deferred t ax liabilities at fiscal entity (or tax group if any) level.

As of 31 December 2017, a net deferred tax liability of £5.5m (2016: net deferred tax asset £2.1m) has been recognised in the Solvency II balance sheet.


Operating lease commitments – where the Company is the lessee

The commitments relate mainly to land and buildings and are subject to rent reviews.

The future aggregate annual minimum lease payments under non-cancellable operating leases are as

follows:

2017 2016

£m £m

No later than 1 year 0.2 0.3

Later than 1 year and no later than 5 years 0.6 0.7

Later than 5 years 0.1 0.2

Total operating lease commitments 0.9 1.2


Operating lease rental receivable – where the Company is the lessor

The rental receivable relates to investment properties and is subject to rent reviews. The carrying

amount of the associated assets is £17.4m (2016: £18.7m).

The future aggregate minimum lease payments receivable under non-cancellable operating leases are

as follows:

2017 2016

£m £m

No later than 1 year 1.3 1.5

Later than 1 year and no later than 5 years 4.0 6.0

Later than 5 years 3.5 4.4

Total operating lease commitments 8.8 11.9

/ Other assets

Reinsurance receivables

Under Solvency II, reinsurance receivables are adjusted from their FRS 101 value to take into account

the expected losses due to the probability of default of the counterparty. Reinsurance receivables in the Solvency II balance sheet represent only amounts past due. Any receivable items in the FRS 101 balance sheet that are not past due are accounted for within technical provisions.

Insurance and intermediaries receivables

Insurance and intermediaries receivables in the Solvency II balance sheet presentation only include

amounts past due. Any receivable items in the FRS 101 balance sheet that are not past due are accounted for within technical provisions under Solvency II.


D.2 Technical provisions


Under Solvency II Regulations, technical provisions are divided among non-life (excluding health), health (similar to non-life), health (similar to life), life (excluding health, index-linked and unit-linked),

index-linked and unit-linked.

Technical provisions are measured using a twofold “building block” approach:

• Best Estimate Liabilities (“BEL”); and

• Risk margin for non-hedgeable risks that is added to the best estimate liabilities.

The Best Estimate Liability corresponds to the probability-weighted average of future cash flows, including policyholder’s benefit payments, expenses, taxes, premiums related to existing insurance

and reinsurance contracts taking into account the time value of money (i.e. by discounting these future cash flows to present value). The calculation of the Best Estimate Liability is based upon up-to-date reliable information and realistic assumptions. The cash-flow projection used in the calculation

includes all the cash in- and out-flows required to settle the insurance and reinsurance obligations over their lifetime.

The Best Estimate Liability is recognised on a gross of reinsurance basis, without deduction of

amounts recoverable from reinsurance contracts. The latter are recognised separately.

The risk margin is defined as the cost of non-hedgeable risk, i.e. a margin in addition to the expected present value of liability cash flows required to manage the business on the basis of transferring the

liabilities to a willing third party. It is deemed to be the present value of the cost of future economic capital requirements for non-hedgeable risks.

This valuation requires analysis of the underlying obligations, collection of qualitative and quantitative

information, projection tools and models, and expert judgment in a number of areas.

The table below summarises the Company’s technical provisions under Solvency II together with a comparison on an FRS 101 basis as at 31 December 2017:



Technical provisions: non-life 292.6 814.3

Technical provisions: health (similar to non-life) 292.6 814.3

Best estimate 286.8

Risk margin 5.8

/ Best Estimate Liabilities

A best estimate assumption is defined as one where there is as much probability that the actual experience develops over the assumption as below it. It is neither a prudent nor an optimistic

assumption. It is set at a level that is neither deliberately overstated nor deliberately understated. Due to the inherent uncertainties, if two assumptions are equally reasonable the more prudent one is retained. The value of the Company’s technical provisions is set out in QRT template 17.01.01 (Non-

Life Technical Provisions).

Assumptions and framework

Assumptions regarding future experience are intended to be reasonable, and, to the extent possible, take into account the actual historical and current experience of the Company, adjusted to reflect known changes in the environment and identifiable trends. Experience studies have been reviewed

where available and where not available, they have been developed wherever appropriate and practical. In some instances, data may not be available or may be insufficient to provide a credible


basis on which to develop assumptions. Consequently, it may be necessary to rely more on judgment,

taking into consideration the Company’s pricing and/or reserving assumptions and the experience of other companies with comparable products, markets, and operating procedures.

The assumptions are used to project future cash flows, and are therefore selected with due regard to

the future context or expected future operating environment of the Company. Thus, they may or may not be consistent with past experience.

The development of future experience will depend on the context and the risk characteristics of the

products analysed. The impact of the external environment on the future cash flows and financial statements must also be recognised. Setting corresponding assumptions requires sound knowledge of the current and projected policies of management in charge of investment, underwriting, reinsurance,

claim settlement, marketing, pricing and administration. Specific considerations include economic factors such as inflation or recession as well as the regulatory, legislative and political environments.

Assumptions in respect of best estimate metrics are derived consistently over time and within

homogeneous risk groups and lines of business without arbitrary changes. The assumptions are designed to reflect any uncertainty underlying the cash flows.

Non-market assumptions, based on latest best estimate assumptions (historical data and expert

judgment), include the following:

• Loss ratio and best estimate claims payment;

• Best estimate schedule of lapses;

• Policyholder behaviour; and

• Management actions.

Specificities of some assumptions

Expenses

Expenses include administrative expenses, investment management expenses, claims management expenses and acquisition expenses which relate to recognised insurance and reinsurance obligations.

The assumptions underlying expenses projections are consistent with the s trategy of the Company, taking into account future new business and any change in the expenses agreed by the management.

Expenses are inflated over the duration of the projection. The inflation assumption is assessed on the

basis of the economic environment and the specifics of the Company.

Boundary of an insurance or reinsurance contract

The Solvency II balance sheet excludes all premiums expected from new business not yet written and

some future premiums expected from existing contracts if the Company has the power to either reject them or fully re-price them.

Non-life Best Estimate Liabilities

Non-life Best Estimate Liabilities ("BEL") represent expected future cash flows discounted to take into account the time value of money for non-life obligations and do not generally require stochastic

projections and dynamic assumptions.

The valuation of non-life technical provisions is based on the application of a wide range of actuarial projection models, including a balanced mix of the following elements:

• Portfolio's main features in terms in particular of risks mapping, underwriting and claims policies,

social, economic and legal context, local requirements (such as reporting, accounting, tax), market conditions and policyholders’ behaviours;

• Quality, relevance and consistency over time of available statistical data;

• Consistency and limits of the set of selected forecasting methods, given the business features

and the available data; • Selection of relevant actuarial assumptions sets and their adequate application t o actuarial

projection models; and • Ability to economically document the projected range of results, both quantitatively and

qualitatively.


The Company applies a wide range of actuarial and statistical methods. Analyses are performed by

lines of business and projections are performed using tools developed either internally or externally.

Non-life technical provisions are valued based on internally modelled run-offs.

No significant changes to assumptions were made in 2017 for the calculation of technical provisions.

Unearned premium reserves

In addition to the valuation above, the non-life BEL includes the adjusted valuation of the accounting unearned premium reserves that aim to cover the unexpired risk period for which the Company

received a premium.

Under FRS 101, unearned premium reserves are usually based on a pro-rata of premiums received related to the unexpired period of coverage.

Under Solvency II, such reserves are adjusted taking into account a best estimate expected combined loss ratio to the proportion of the premiums related to the unexpired period and the time value of money.

Events Not In Data ("ENID")

A provision for ENID was implemented in 2017, which amounted to £1m. It was deemed that certain events were missing from the data used to set the IFRS claims provision. Therefore, an adjustment

was necessary to align with Solvency II, where all possible cash flows should be considered when setting the claims provision.

/ Statement on the use of the volatility adjustment

The volatility adjustment is not applicable to AXA PPP healthcare limited.

/ Statement on the use of the transitional measures for technical provisions

AXA PPP healthcare limited did not apply the transitional risk-free interest rate-term structure referred to Article 308c of Directive 2009/138/EC nor the transitional deduction referred to in Article 308d of the same Directive.

/ Risk Margin

In addition to the Best Estimate Liabilities (“BEL”), a risk margin is recognised to obtain values consistent with the determination of market prices when there are no deep and liquid markets. The risk margin is defined as the cost of non-hedgeable risk, i.e. a margin in addition to the expected present

value of liability cash flows required to manage the business on the basis of transferring the liabilities to a willing third party. In general, most insurance risks (e.g. mortality or property risks) are deemed to be non-hedgeable risks.

The non-hedgeable risks comprise:

• Property & Casualty;

• Reinsurance default risks; and

• Operational risks.

The Solvency Capital Requirement (“SCR”) for the non-hedgeable risks is projected for the future years until the run-off of the portfolio.

The risk margin is determined as the present value at the basic risk -free interest rate structure of the

future capital charges using a 6% cost of capital for all lines of business.

The cost of capital is a premium over the risk-free rate that represents the reduction in economic "value" (cost) linked to the risks considered.


/ Reinsurance and special purpose vehicles recoverables

As technical provisions are reported gross of reinsurance, a reinsurance asset is identified separately;

although not material for AXA PPP. Transactions related to reinsurance assumed and ceded are accounted for in the balance sheet in a similar way to direct business transactions in agreement with contractual clauses. Indeed, the methods used to value reinsurance balances depend on the type of

reinsurance contracts (e.g. treaties / facultatives, proportional/non-proportional), the nature of the business and the ceded portion.

AXA PPP does not utilise any Special Purpose vehicles.

Reinsurance receivables / payables

Under Solvency II provisions, receivables from reinsurance contracts are adjusted from their FRS 101 value to take into account the expected losses due to default of the counterparty. Reinsurance receivables/payables in the Solvency II balance sheet represent only amounts past due. Any

receivable and payable items in the FRS 101 balance sheet that are not past due are accounted for within technical provisions.

(in £m) Fair Value

(Solvency II)

Gross technical provisions: non-life 292.6

Reinsurance recoverable (5.8)

Net technical provisions 286.8


D.3 Other liabilities

The table below summarises the Company’s other liabilities under So lvency II together with a comparison of the FRS 101 carrying value as at 31 December 2017:



Contingent liabilities - -

Provisions other than technical provisions 27.0 27.0

Pension benefit obligations 3.9 -

Deposits from reinsurers - -

Deferred tax liabilities 5.5 -

Derivatives 2.9 2.9

Debts owed to credit institutions - -

Financial liabilities other than debts owed to credit institutions - -

Payables 119.9 172.3

Subordinated liabilities - -

Other 43.9 43.9

/ Contingent liabilities

Contingent liabilities are:

• A possible obligation that arise from past events and whose existence will be confirmed only by

the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or

• A present obligation that arises from past events but it is not probable that an outflow of

resources embodying economic benefits will be required to settle the obligation.

Under Solvency II, contingent liabilities that are material are recognised as liabilities, unlike FRS 101 where they are only disclosed. Contingent liabilities are material where information about the current

or potential size or nature of those liabilities could influence the decision-making or judgment of the intended user of that information, including the supervisory authorities.

The value of contingent liabilities is equal to the expected present value of future cash flows required

to settle the contingent liability over the lifetime of that contingent liability, using the basic risk-free interest rate term structure.

The Company currently has a contingent liability, for which no provision is made under FRS 101 or

Solvency II. “With the approval of the PRA, the Company, its intermediate parent company, AXA Insurance plc, its immediate parent company, AXA Insurance UK plc, and a fellow subsidiary undertaking, have entered into a mutual guarantee whereby each company guarantees payment of all

liabilities incurred by the others in respect of general insurance business. AXA Insurance plc receives no benefit from the guarantee.”

/ Provisions other than technical provisions

The same approach prevails under both FRS 101 and Solvency II frameworks. Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of past

events, when it is probable that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at management’s best estimate, at the balance sheet date .


/ Pension benefit obligations

Pension benefit obligations include the benefits payable to the Company employees after they retire

(including retirement compensation, additional pension benefit and health insurance). In order to meet those obligations, some regulatory frameworks have allowed or enforced the set -up of dedicated funds (plan assets).

• Defined contribution plans: payments are made by the employer to a third party (e.g. pension

trusts). These payments free the employer of any further commitment, and the obligation to pay acquired benefits to the employees is transferred. No liability needs to be recorded once

contributions are made. • Defined benefit plans: an actuarial assessment of the commitments based on each plan’s internal

rules is performed. The present value of the future benefits paid by the employer, known as the

Defined Benefit Obligation, is calculated annually on the basis of long-term projections of rate of salary increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee defined benefit plans is the

difference between the present value of the Defined Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment for any minimum funding requirement or any asset ceiling effect. If the net result is positive, a provision is

recorded. If the net result is negative, a prepaid pension asset is recorded in the balance sheet but not more than its recoverable amount (asset ceiling).

The FRS 101 financial statements have no defined benefit pension provision.

Staff engaged in the Company’s activities are members of the AXA UK Pension Scheme (“the Scheme”). The Scheme supports a number of companies in the AXA UK Group through both defined benefit and defined contribution schemes. The defined benefit schemes share risks between the

companies in the AXA UK Group and are not facilitated by a contractual agreement or stated policy to charge the individual companies the net defined benefit cost. As a result of various restructuring activities and movement of staff between companies in the AXA UK Group, it is not feasible to allocate

the defined benefit scheme assets and liabilities to individual participating companies. Consequently, the Company recognises its contribution payable for the period as permitted by IAS 19 ‘Employee benefits (revised 2011)’ for defined benefit plans that share risks between companies under common

control.

In addition, AXA PPP Healthcare Group Limited, a fellow subsidiary, offers healthcare benefits on a non-contributory basis to certain employees on retirement. The expected costs of the benefits have

been assessed in accordance with IAS 19 ‘Employee benefits (revised 2011)’ and the advice of an independent qualified actuary at 31 December 2017.

The charge for pension costs principally represents the costs of providing pension benefits to the

Company’s staff in respect of their service during the year. The staff are employed by AXA PPP Healthcare Group Limited, a fellow subsidiary, and the associated costs of providing pensions are recharged to the Company, as the contributions become payable in accordance with the rules of the

relevant scheme.

Under Solvency II, the Company included the PPP pension scheme deficit less 6% of the AXA UK plc FRS 101 pension scheme surplus net of deferred tax in its balance sheet . The FRS 101 financial

statements disclose a nil provision in accordance with IAS 19.

/ Deferred taxes

Please refer to Section D.1.

/ Derivative instruments

Under both FRS 101 and Solvency II, derivatives are recognised at fair value.


/ Financial liabilities

Under FRS 101, financial liabilities, including financing debts issued to finance the solvency

requirements of operational entities or to acquire a portfolio of contracts, are accounted for at amortised cost.

Under Solvency II, financial liabilities are re-measured at fair value.


Leases are classified as operating leases where a significant proportion of the risks and rewards of ownership of the asset concerned are retained by the lessor. Payments made under operating leases, less any incentives received from the lessor, are charged/(credited) to the FRS 101 profit and loss

account on a straight-line basis over the lease term.

/ Payables

Under FRS 101, payables arising from direct insurance, inward reinsurance and direct outward reinsurance operations are measured at amortised cost. Under Solvency II, payables are remeasured

at fair value.

/ Other liabilities

All other debt is also recorded at fair value under Solvency II but by default, the FRS 101 value is kept.


D.4 Alternative methods for valuation

For detailed information on alternative methods used for valuation of assets and other liabilities, please refer to the subsection Fair Value Measurement in Section D.1.

For detailed information on alternative methods used for valuation of liabilities other than technical

provisions, please refer to the Section D.3.

D.5 Any other information Not applicable.


CAPITAL MANAGEMENT

E.1 Own funds

Capital Management Objectives

Information on the Capital Structure

Change in capital resources in 2017

Tiering analysis of capital

Reconciliation to FRS 101 shareholders’ equity

E.2 Solvency Capital Requirement and Minimum Capital

Requirement

General principles

Solvency Capital Requirement

Minimum Capital Requirement

E.3 Use of the duration-based equity risk sub-module in the

calculation of the Solvency Capital Requirement

E.4 Differences between the standard formula and any internal

model used

General information

Main differences between the Standard Formula and the Internal Model

E.5 Non-compliance with the Minimum Capital Requirement and

non-compliance with the Solvency Capital Requirement

E.6 Any other information

E


E.1 Own funds

/ Capital Management Objectives

Capital is managed both at the legal entity level and the AXA UK Group level (which includes the regulated entities AXA Insurance UK plc, AXA PPP healthcare limited and AXA Insurance dac)

according to the following overriding principles: • Compliance with Solvency II capital and tiering requirements.

• Compliance with AXA Group capital management standards.

• Maintaining a board approved level of capital, which includes the requirement to hold sufficient

resources to fund planned growth and a share of deficit payments to the defined benefit pension scheme.

• Maintaining oversight of inter-company exposures including reinsurance.

• Optimising dividends to AXA UK plc at the legal entity level.

• Optimising cash return on equity to AXA Group.

From a regulatory perspective, the Company will take all reasonable steps to ensure that a Solvency Coverage Ratio of at least 100% of the Solvency Capital Requirement (“SCR”) is maintained and

supported with basic own funds, under normal macroeconomic conditions. The Company reviews its capital resources and requirements on an economic basis each year. Management monitors the solvency position of the Company on an ongoing basis, both for regulatory

compliance purposes and to ensure that the Company is appropriately positioned from a competitive point of view. The Solvency Coverage Ratio is monitored through a series of daily, weekly, monthly and quarterly monitoring processes. Any breach (i.e. where the Solvency Coverage Ratio has

deteriorated below the required level) is reported to the Board of the Company. The Board will determine appropriate management actions over a suitable timeframe.

/ Information on the Capital Structure

As of 31 December 2017, Available Financial Resources totalled £296.7m (2016: £358.5m). The capital resources are presented in the table below:

(in £m)

At 31 December 2017

At 31 December 2016

Evolution

Share capital 185.0 185.0 -

Reconciliation reserve 111.7 171.4 (59.7)

Net deferred tax asset - 2.1 (2.1)

Available Financial Resources 296.7 358.5 (61.8)

Reconciliation reserve represents the excess of asset over liabilities from the Solvency II balance sheet, reduced by capital items in the financial statements (share capital and capital in excess of nominal value (share premium)), and net of a foreseeable dividend of £120m to be paid in 2018.


/ Change in capital resources in 2017

Available Financial Resources

Available Financial Resources decreased by £61.8m (-17.2%) to £296.7m as a result of:

• A dividend of £50m paid in 2017 and a foreseeable dividend of £120m to be paid in 2018;

• Offset by a positive impact of model changes and opening adjustments for £22.7m; and

• A further offset by a positive total return of £83.8m, driven by new premium contribution and

positive investment return.

/ Tiering analysis of capital

Repartition of capital by tier

Solvency II available own funds represent Available Financial Resources (“AFR”) available to the

Company before any consideration for tiering eligibility restriction and after limitation over the potential non-availability of certain elements of capital.

Available own funds are split into tiers (this analysis is only done for the purpose of calculating the Solvency ratio), i.e. three different buckets of capital determined according to the quality of such components as defined in the Solvency II Regulation. Eligibility limits apply to those available elements

to cover respectively the Solvency Capital Requirement (“SCR”) or the Minimum Capital Requirement (“MCR”).

As far as compliance with the Solvency Capital Requirement is concerned, the following quantitative limits shall apply: (a) the eligible amount of Tier 1 items shall be at least one half of the Solvency

Capital Requirement; (b) the eligible amount of Tier 3 items shall be less than 15% of the Solvency Capital Requirement; (c) the sum of the eligible amounts of Tier 2 and Tier 3 items shall not exceed 50% of the Solvency Capital Requirement.

AFR is the amount of eligible own funds after the tiering limits are applied. The structure of tiering is

presented in the table below:

(in £m) Total

Unrestricted Tier 1

Restricted Tier 1

Tier 2 Tier3

AFR (Eligible own funds)

at 31 December 2017 296.7 296.7 - - -

Of which ancillary - - - - -

Of which subject to transitional measures - - - - - AFR (Eligible own funds)

at 31 December 2016 358.4 356.4 - - 2.0

Of which ancillary - - - - -

Of which subject to transitional measures - - - - -

(in £m)

Available financial

resources

FY16 Available Financial Resources 358.5

Modelling changes and opening adjustments 22.7

Total return 83.8

Dividend paid/payable (170.0)

Others 1.7

FY17 Available Financial Resources 296.7


The various components of what AXA PPP healthcare considers as eligible capital are determined in

accordance with Solvency II regulatory requirements. At 31 December 2017, eligible capital amounted to £296.7m of which: • Unrestricted Tier 1 capital: £296.7m, mainly comprise of ordinary shares of £185.0m and a

reconciliation reserve of £111.7m. At 31 December 2017, a foreseeable dividend to be paid in 2018 amounted to £120m.

As far as compliance with the Minimum Capital Requirements is concerned, the following quantitative

limits shall apply: (a) the eligible amount of Tier 1 items shall be at least 80% of the Minimum Capital Requirement; (b) the eligible amounts of Tier 2 items shall not exceed 20% of the Minimum Capital Requirement.

In accordance with the methods of calculation implemented by AXA in line with existing regulations, AXA PPP’s eligible financial resources to cover its Minimum Capital Requirement under the Solvency II Regulations amounted to 360.4% at 31 December 2017 compared to 462.5% at

31 December 2016.

Dated and undated subordinated debts description

There are no dated or undated subordinated notes issued by the Company.

/ Reconciliation to FRS 101 shareholders’ equity

As of 31 December 2017, FRS 101 shareholder’s equity totalled £377.4m. The reconciliation movements in capital resources between the FRS 101 shareholders’ equity and the Solvency II

Available Financial Resources are presented in the table below:

(in £m) At 31 December 2017

FRS 101 Shareholders' Equity 377.4

Full market value of assets (1) 13.7

Intangible assets (2) (102.6)

Best estimate liabilities and market value margin (3) 139.6

Other (4) (11.4)

Available Financial Resources (AFR) 416.7

The key differences between the FRS 101 and the Solvency II frameworks are further explained

below:

1. The adjustment of the market value of assets relates to the recognition of unrealised gains and

losses of assets (loans and real estate) recognised at cost in the FRS 101 balance sheet.

2. Intangible assets and deferred acquisition costs that are re-measured through the Best Estimate

Liabilities calculation, are removed.

3. Best Estimate Liabilities and Market Value Margin adjustment relates to the re-measurement in

the Solvency II framework of policyholder reserves as compared to those in accordance with FRS 101.

4. Other relates mainly to deferred taxes and employee benefit adjustments.

At 31 December 2017, the Company had a foreseeable dividend of £120m which reduces the AFR

from £416.7m to £296.7m. The dividend is foreseeable at the date of approval of the FY17

submission.


E.2 Solvency Capital Requirement and Minimum Capital Requirement

The AXA Group received formal approval for its internal model application in November 2015. The AXA Group internal model is designed to allow AXA entities to choose the local calibrations which best

reflect the local risk profile and to capture all the material risks to which AXA is exposed. As a result, it is believed the Internal Model better aligns the capital requirement metrics with management decision making.


The Solvency II Directive provides for two separate levels of solvency margin: (i) the Minimum Capital Requirement (“MCR”), which is the amount of own funds below which policy holders and beneficiaries are exposed to an unacceptable level of risk should the Company be allowed to continue its

operations; and (ii) the Solvency Capital Requirement (“SCR”), which corresponds to a level of eligible own funds that enables insurance and reinsurance companies to absorb significant losses and that gives reasonable assurance to policyholders and beneficiaries that payments will be made.

The Company did not have any capital add-on during the transitional period ending

31 December 2017.

/ Solvency Capital Requirement

On 17 November 2015, AXA Group’s internal model (including AXA PPP healthcare limited) received approval from the ACPR, the supervisor of the AXA Group, to use its internal model to calculate its

group and solo regulatory capital under Solvency II. See subsection ‘AXA Group internal model’ of Section B.3 for additional information on the main differences between the Group’s internal model and the Company’s internal model.

AXA Group published on 22 February 2018, its Solvency II capital ratio at 205% as at 31 December

2017 (2016: 197%).As at 31 December 2017 the Solvency II capital ratio of AXA PPP healthcare limited, a UK regulated subsidiary of AXA Group, is 134.8% (2016: 134.1%). The Solvency II capital ratio of 134.8% includes a foreseeable dividend to be paid in 2018. In the absence of this foreseeable

dividend, the Solvency II capital ratio at 31 December 2017 would be disclosed as 189.7%.

The data used in the Internal Model for the calculation of the Solvency Capital Requirement satisfies Article 121 of the Directive on statistical quality standards for completeness, accuracy and appropriateness. The PRA, AXA PPP healthcare’s solo supervisor, continues to review regularly the

underlying methodologies and assumptions of AXA PPP healthcare’s model for adequacy and such review may lead to adjustments to the level of capital required by the PRA. The European Insurance and Occupational Pensions Authority (“EIOPA”) is also expected to carry out a review of the

consistency of European insurer’s models and any such review may lead to regulatory changes to increase convergence and to strengthen oversight of cross-border groups.

At 31 December 2017, the breakdown of the Solvency Capital Requirement (£220.0m) by risk

categories was: 45% in Property & Casualty (comprising of premium and reserve risks), 21% in Market, 11% in Credit risk, and 12% in Operational risk. In addition, the pension scheme obligation risks contribution a further 11% of the SCR.

The chart shows that on an undiversified basis, Reserve and Premium risks (both part of insurance risks) are key drivers of the risk profile, as expected for a P&C insurer like AXA PPP healthcare.

The majority of the decrease is due to refinement of the solvency model validation testing confirming

that additional capital held at 31 December 2016 is no longer required.

There has also been a decrease in Financial risk (comprising Market and Credit) due to a dec rease in Corporate spread.

The Pensions risk has decreased which reflects AXA PPP’s share of the decrease in the SCR for the

AXA UK Group Pension Scheme.


/ Minimum Capital Requirement

The Minimum Capital Requirement is a minimum level below which the amount of financial resources

should not fall. That amount is calculated in accordance with a simple formula, which is subject to a defined floor and cap based on the Solvency Capital Requirement of the Company in order to allow for an escalating ladder of supervisory intervention, and that it is based on the data which can be audited.

For non-life entities, the Minimum Capital Requirement is calculated based on a factor-based formula taking into consideration the amounts of Best Estimate Liabilities net of the amounts recoverable from reinsurance contracts and special purpose vehicles, and written premiums for each segment of

business. Different factors are applied to those amounts according to each relevant segment .

In accordance with the methods of calculation implemented by AXA PPP healthcare in line with existing regulations, AXA PPP healthcare’s Minimum Capital Requirement amounted to £82m at

31 December 2017 (up +6.4% or +£5m), and the increase is mainly due to volume growth.

E.3 Use of the duration-based equity risk sub-module in the calculation of the Solvency Capital Requirement Not applicable.


E.4 Differences between the standard formula and any internal model used

/ General information

AXA has developed a robust Internal Model since 2007 which has been implemented and used since 2009 in the risk management system and decision-making processes. AXA’s main goal in using an

Internal Model as opposed to the standard formula is to better reflect the Company’s risk profile in the Solvency Capital Requirement. This is considered from several aspects.

• Taking into account local specificities – AXA is a global Company, and operates in a wide range of

insurance markets offering a variety of products and targeting different demographics and different risk exposures. It is therefore appropriate, to the extent possible, to calibrate stresses specifically to these risk profiles and to allow for the benefits of diversification of the different risks across such

markets.

• Addressing shortcomings of the standard formula – Based on its expertise, the Group can improve

on the approach of the standard formula, which is naturally constrained by its general scope, to

have models which are more appropriate for the scope of the Group. For example, the Internal Model for market risks adds some risks not covered by the standard formula (government spread risk, interest rate implied volatility and equity implied volatility risk).

• Allowing for better evolution of the model over time – As the Group’s experience increases, its

business expands to new markets and product innovations create different risks, the flexibility of an Internal Model allows the specificities of these developments to be reflected.

The AXA Group internal model is calibrated to represent the value-at-risk of the loss distribution of the

Company over a one year time horizon at the 99.5th percentile at Company and Group level.

• The AXA Group internal model forms an important piece of the AXA system of governance of

which usage has been built and developed in strong relationship with the operating business lines

and risk management department in a way to develop an Internal Model adapted to the undertaking’s needs.

• The AXA Group internal model is used for assessing and managing the economic capital and is

also a supportive decision-making tool in different business processes: strategic planning, underwriting, investment decisions, and project management. Besides, as integrated within the risk management system, the AXA Group internal model provides information for implementing

the Own Risk and Solvency Assessment (“ORSA”) process, formulating risk strategies, monitoring risk appetite or producing risk reporting.

/ Main differences between the Standard Formula and the Internal Model

The AXA Group internal model is a centralised model which is based on Group methodologies. This

ensures a full consistency in the modelling of similar risks across the Group while still allowing for local specificities when they exist, in particular via the calibration of underwriting risks at local levels, these local calibrations being then presented and validated by Group Risk Management. Validation

encompasses both quantitative and qualitative aspects of the Internal Model, amongst which, in particular data quality. AXA’s data quality policy requires data used as input in the Internal Model to be complete, accurate and appropriate.

The general architecture of the AXA Group internal model consists of five main modules (Life, Market, Credit, P&C and operational risks). The Standard Formula considers a separate Health risk category. However, within the AXA Group internal model (i) the health risk similar to Life is included in the

Medical expense sub-risk category and treated as a Life risk; and (ii) the health risk not similar to Life is included in the Property and Casualty risk.


In general in the four risks categories, the Internal Model provides models for sub-risks that are

not adequately captured in the Standard Formula but are material to the AXA Group.

Market risk : Interest rate implied volatility, Equity implied volatility, Government Spread and Inflation are explicitly modelled in the Internal Model. The risk of concentrations in the portfolio is included in

the Corporate Default calculation.

Due to the higher numbers of sub-risks and risk factors used in the Internal Model, the risks of the different asset classes and the diversifications among them can be captured more precisely than in the

standard formula. For instance the shocks depend on the economy, which means that for volatile markets higher shocks are assumed.

Credit risks: The Internal Model separately models the default risk of corporate bonds whereas it is

included in the calibration of spreads in the standard formula.

Property and Casualty risks: Lapse risk is taken through the portfolio modelling, including combined impacts of lapses and New Business evolution and through the volatility around the Gross Earned

Premium.

Operational risk : The standard formula for operational risk is factor-based (percentage of gross written premiums or technical provisions) and is not risk sensitive. The AXA Group internal model for

operational risks follows a forward-looking and Scenario-Based Approach (“SBA”). It relies on the identification and assessment of the most critical Operational risks of each entity complemented by a set of transversal Group scenarios.

Additionally, for AXA PPP healthcare, the scope of the Internal Model is expanded to include risks from pensions schemes. Pensions risk relating to the UK Group Pension Scheme is not captured by the standard formula as the obligation does not sit directly on the balance sheet of the insurance

company, but on the balance sheet of the UK Group Holding company. The Internal Model captures the potential risk arising from AXA PPP healthcare’s share of pension obligations to the UK Group Pension Scheme. The modelling is consistent with the modelling for the risk categories of the Internal

Model for insurance companies as described above, but applied to the pension scheme.

Modelling techniques

In the standard formula simple models are used for most risk categories in order to derive the SCR. In

most cases an extreme scenario is defined, which represents the 99.5% quantile.

In the Internal Model, extreme scenarios are used only for the calculation of the Life internal economic capital model figures.

For the other risk categories, sophisticated models are applied. In particular for Market, Credit Reinsurance, Property and Casualty and Operational risk, Monte Carlo simulations are used, which produces a full loss distribution, not just the 99.5th quantile.

Diversification

In the standard formula, no geographical diversification is explicitly recognised. The Internal Model aggregation considers geographical diversification as AXA Group is operating globally.

The Solvency II framework requires the provision of a Probability Distribution Forecast (“PDF”) underlying the Internal Model that assigns probabilities to changes in the amount of Company’s own funds. The following orientations have been chosen for the Internal Model assessment:

• The Property and Casualty and Market modules’ modelling, using simulation-based approaches,

allow exhibiting a full Probability Distribution Forecast. • The modelling of the Credit risk leans on both simulation-based techniques and shock-

approaches depending on the considered sub-risk. For the first techniques, full Probability Distribution Forecasts are available. Regarding shock-approaches, several percentiles, similarly to the approach performed for the life risk, are calculated.

The overall aggregation process is based on an elliptical aggregation of the Market, Credit, P roperty & Casualty and Operational requirements. This modular approach allows for the ranking of the main risks or sub-risks and provides a better understanding of the risks (sub-risks) and their impacts.


AXA PPP healthcare also performs reverse stress scenarios. The aim of such scenarios is to exhibit

combinations of Market, Credit, Life, P&C and Operational events (the shocks defined in the scenario are occurring simultaneously) that would yield the same amount of SCR for a chosen valuation date. They allow assessment of several impacts inherent to the Internal Model. They provide a back-testing

for the correlation coefficients used in the Internal Model. Indeed, performing such scenarios allows analysis to highlight potential cross and non-linearity effects that could lead to potential adjustments to the correlations in the model to take into account such impacts. This approach results in conservative

correlation coefficients assumed in the model. These back-testing techniques are useful as they mitigate potential shortcomings coming from the aggregation structure (relying on an elliptical framework and the associated assumptions).

E.5 Non-compliance with the Minimum Capital Requirement and non-compliance with the Solvency Capital Requirement

Not applicable.

E.6 Any other information Not applicable.


SIGN-OFF CERTIFICATE

F.1 APPROVAL BY THE BOARD OF THE SFCR AND REPORTING

TEMPLATES

TEMPLATES

The following Quantitative Reporting Templates (“QRTs”) are required for the SFCR and these are included as Annex I in the document ‘AXA PPP healthcare limited SFCR QRTs 31.12.2017’:

QRT reference QRT template description

S.02.01.02 Balance Sheet

S.05.01.02 Premiums, claims and expenses by line of business

S.05.02.01 Premiums, claims and expenses by country

S.17.01.02 Non-life Technical Provisions

S.19.01.21 Non-life Insurance Claims Information

S.23.01.01 Own funds

S.25.03.21 Solvency Capital Requirements – for undertakings on Full Internal Models

S.28.01.01 Minimum Capital Requirement – only life or non-life insurance or reinsurance activity

F


F.1 APPROVAL BY THE BOARD OF THE SFCR AND REPORTING TEMPLATES

AXA PPP healthcare limited

Approval by the Board of Directors of the Solvency and Financial Condition Report

for the year ended 31 December 2017

We certify that:

1) The Solvency and Financial Condition Report has been properly prepared in all material respects in accordance with the PRA Rules and the Solvency II Regulations; and

2) We are satisfied that:

a) throughout the financial year in question, the insurer has complied in all material respects with the requirements of the PRA Rules and the Solvency II Regulations as applicable to the insurer; and

b) it is reasonable to believe that the insurer has continued so to comply subsequently and will

continue so to comply in future.

A. Wilkinson

Finance Director 25 April 2018


AUDIT REPORT

G.1 Independent auditor’s report

G


G.1 Audit report

Report of the external independent auditor to the Directors of AXA PPP healthcare limited (‘the

Company’) pursuant to Rule 4.1 (2) of the External Audit Chapter of the PRA Rulebook

applicable to Solvency II firms

Report on the Audit of the relevant elements of the Solvency and Financial Condition Report

Opinion

Except as stated below, we have audited the following documents prepared by the Company as at

31 December 2017:

• The ‘Valuation for Solvency Purposes’ and ‘Capital Management’ sections of the Solvency

and Financial Condition Report of AXA PPP healthcare limited (‘the Company’) as at

31 December 2017 (‘the Narrative Disclosures subject to audit’); and

• Company templates S.02.01.02, S.17.01.02, S.23.01.01 and S.28.01.01 (‘the Templates

subject to audit’).

The Narrative Disclosures subject to audit and the Templates subject to audit are collectively referred

to as the ‘relevant elements of the Solvency and Financial Condition Report’ .

We are not required to audit, nor have we audited, and as a consequence do not express an opinion

on the Other Information, which comprises:

• Information contained within the relevant elements of the Solvency and Financial Condition

Report set out above which are, or derive from the Solvency Capital Requirement, as

identified in the Appendix to this report;

• The ‘Business and Performance’, ‘System of Governance’ and ‘Risk Profile’ elements of the

Solvency and Financial Condition Report;

• Company templates S.05.01.02, S.05.02.01, S.19.01.21 and S.25.03.21; and

• The written acknowledgement by management of their responsibilities, including for the

preparation of the solvency and financial condition report (‘the Responsibility Statement’).

To the extent the information subject to audit in the relevant elements of the Solvency and Financial

Condition Report includes amounts that are totals, sub-totals or calculations derived from the Other

Information, we have relied without verification on the Other Information.

In our opinion, the information in the relevant elements of the Solvency and Financial Condition Report

of the Company as at 31 December 2017 is prepared, in all material respects, in accordance with the

financial reporting provisions of the PRA Rules and Solvency II Regulations on which they are based,

as modified by relevant supervisory modifications, and as supplemented by supervisory approvals and

determinations.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (UK ) (“ISAs (UK)”),

including International Standard on Auditing (UK) 800 (“ISA (UK) 800”) and International Standard on

Auditing (UK) 805 (“ISA (UK) 805”) and applicable law. Our responsibilities under those standards are

further described in the Auditor’s Responsibilities for the Audit of the relevant elements of the Solvency

and Financial Condition Report section of our report. We are independent of the Company in

accordance with the ethical requirements that are relevant to our audit of the Solvency and Financial

Condition Report in the UK, including the FRC’s Ethical Standard as applied to public interest entities,

and we have fulfilled our other ethical responsibilities in accordance with these requirements. We

believe the audit evidence we have obtained is sufficient and appropriate to provide a bas is for our

opinion.


Use of the audit report

This report, including the opinion, has been prepared for the Directors of the Company to enable them

to comply with their obligations under External Audit rule 2.1 of the Solvency II Firms Sector of the

PRA Rulebook and for no other purpose. To the fullest extent permitted by law, we do not accept or

assume responsibility to anyone other than the Directors for our audit work, for this report, or for the

opinions we have formed.

Conclusions relating to going concern

We have nothing to report to you in respect of the following matters in relation to which the ISAs (UK)

require us to report to you where:

• the Directors’ use of the going concern basis of accounting in the preparation of the Solvency

and Financial Condition Report is not appropriate; or

• the Directors have not disclosed in the Solvency and Financial Condition Report any identified

material uncertainties that may cast significant doubt about the Company’s ability to continue to

adopt the going concern basis of accounting for a period of at least twelve months from the date

when the Solvency and Financial Condition Report is authorised for issue.

Emphasis of Matter - Basis of Accounting

We draw attention to ’Valuation for Solvency Purposes’ and ‘Capital Management’ sections of the

Solvency and Financial Condition Report, which describe the basis of accounting. The Solvency and

Financial Condition Report is prepared in compliance with the financial reporting provisions of the PRA

Rules and Solvency II Regulations, and therefore in accordance with a special purpose financial

reporting framework. The Solvency and Financial Condition Report is required to be published, and

intended users include but are not limited to the Prudential Regulation Authority. As a result, the

Solvency and Financial Condition Report may not be suitable for another purpose. Our opinion is not

modified in respect of this matter.

Other Information

The Directors are responsible for the Other Information.

Our opinion on the relevant elements of the Solvency and Financial Condition Report does not cover

the Other Information and, we do not express and audit opinion or any form of assurance conclusion

thereon.

In connection with our audit of the Solvency and Financial Condition Report, our responsibility is to

read the Other Information and, in doing so, consider whether the Other Information is materially

inconsistent with the relevant elements of the Solvency and Financial Condition Report, or our

knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify such

material inconsistencies or apparent material misstatements, we are required to determine whether

there is a material misstatement in the relevant elements of the Solvency and Financial Condition

Report or a material misstatement of the Other Information. If, based on the work we have performed,

we conclude that there is a material misstatement of this Other Information, we are required to report

that fact. We have nothing to report in this regard.

Responsibilities of Directors for the Solvency and Financial Condition Report

The Directors are responsible for the preparation of the Solvency and Financial Condition Report in

accordance with the financial reporting provisions of the PRA rules and Solvency II Regulations.

The Directors are also responsible for such internal control as they determine is necessary to enable

the preparation of a Solvency and Financial Condition Report that is free from material misstatement,

whether due to fraud or error.


Auditor’s Responsibilities for the Audit of the relevant elements of the Solvency and Financial

Condition Report

It is our responsibility to form an independent opinion as to whether the relevant elements of the

Solvency and Financial Condition Report are prepared, in all material respects, in accordance with the

financial reporting provisions of the PRA Rules and the Solvency II Regulations on which they are

based.

Our objectives are to obtain reasonable assurance about whether the relevant elements of the

Solvency and Financial Condition Report are free from material misstatement, whether due to fraud or

error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level

of assurance, but it is not a guarantee that an audit conducted in accordance with ISAs (UK) will

always detect a material misstatement when it exists. Misstatements can arise from fraud or error and

are considered material if, individually or in the aggregate, they could reasonably be expected to

influence the decision making or the judgement of the users taken on the basis of the Solvency and

Financial Condition Report.

A further description of our responsibilities for the audit of the financial statements is located on the

Financial Reporting Counc il’s website at www.frc.org.uk/auditorsresponsibilities.

Other Matter

The Company has authority to calculate its Solvency Capital Requirement using an internal model

(‘‘the Model’’) approved by the Prudential Regulation Authority in accordance with the Solvency II

Regulations. In forming our opinion (and in accordance with PRA Rules), we are not required to audit

the inputs to, design of, operating effectiveness of and outputs from the Model, or whether the Model

is being applied in accordance with the Company’s application or approval order.

Report on Other Legal and Regulatory Requirements

In accordance with Rule 4.1 (c) of the External Audit Chapter of the PRA Rulebook we are required to

consider whether the Other Information is materially inconsistent with our knowledge obtained in the

audit of AXA PPP healthcare limited’s statutory financial statements. If, based on the work we have

performed, we conclude that there is a material misstatement of this Other Information, we are

required to report that fact. We have nothing to report in this regard.

Mazars LLP

Chartered Accountants

Tower Bridge House

St Katharine’s Way

London E1W 1DD

25 April 2018

http://www.frc.org.uk/auditorsresponsibilities


Appendix – relevant elements of the Solvency and Financial Condition Report that are not

subject to audit

The relevant elements of the Solvency and Financial Condition Report that are not subject to audit

comprise:

• The following elements of template S.02.01.02:

- Row R0550: Technical provisions – non-life (excluding health) – risk margin

- Row R0590: Technical provisions – health (similar to non-life) – risk margin

- Row R0640: Technical provisions – health (similar to life) – risk margin

- Row R0680: Technical provisions – life (excluding health and index-linked and unit-

linked) – risk margin

- Row R0720: Technical provisions – Index-linked and unit-linked – risk margin


- Row R0100: Technical provisions calculated as a sum of BE and RM – Risk margin

- Rows R0110 to R0130 – Amount of transitional measure on technical provisions


- Row R0280: Technical provisions calculated as a sum of BE and RM – Risk margin

- Rows R0290 to R0310 – Amount of transitional measure on technical provisions


- Row R0580: SCR

- Row R0740: Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced funds


- Row R0310: SCR

• Elements of the Narrative Disclosures subject to audit identified as ‘unaudited’.

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