10-K 1 axaeq-123116x10k.htm 10-K Document

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________
(Mark One)
 
FORM 10-K
  
 

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to         
Commission File Number 000-20501
AXA EQUITABLE LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
  New York
 
  13-5570651
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
  1290 Avenue of the Americas, New York, New York  
 
  10104
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (212) 554-1234
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on
which registered
None
 
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  ¨    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes  ¨    No  x
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
x  (do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨    No  x
No voting or non-voting common equity of the registrant is held by non-affiliates of the registrant as of June 30, 2016.
As of March 24, 2017, 2,000,000 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of AllianceBernstein L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 are incorporated by reference into Part I hereof.


TABLE OF CONTENTS
Part I
 
Page
 
 
 
Item 1.
 
 
 
 
 
 
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
Part II
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A
Item 9B.
 
 
 
Part III
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
Part IV
 
 
 
 
 
Item 15.
Item 16.
 
 
 
 
 

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FORWARD-LOOKING STATEMENTS
Certain of the statements included or incorporated by reference in this Annual Report on Form 10-K, including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon AXA Equitable Life Insurance Company and its subsidiaries (“AXA Equitable”). There can be no assurance that future developments affecting AXA Equitable will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (i) difficult conditions in the global capital markets and economy; (ii) equity market declines and volatility causing, among other things, a reduction in the demand for our products, a reduction in the revenue derived from asset-based fees, a reduction in the value of securities held for investment, including the investment in AllianceBernstein L.P. (“AB”), an acceleration in deferred acquisition cost amortization and an increase in the liabilities related to annuity contracts offering enhanced guarantee features, which may lead to changes in the fair value of our guaranteed minimum income benefit reinsurance contracts, causing our earnings to be volatile; (iii) interest rate fluctuations or prolonged periods of low interest rates causing, among other things, a reduction in our portfolio earnings, a reduction in the margins on interest sensitive annuity and life insurance contracts and an increase in the reserve requirements for such products, and a reduction in the demand for the types of products we offer; (iv) ineffectiveness of our reinsurance and hedging programs to protect against the full extent of the exposure or loss we seek to mitigate; (v) changes in policyholder assumptions, the performance of AXA RE Arizona Company (“AXA Arizona”) hedge program, its liquidity needs and changes in regulatory requirements could adversely impact our reinsurance arrangements with AXA Arizona; (vi) regulatory or legislative changes, including government actions in response to the stress experienced by the global financial markets; (vii) changes to statutory capital requirements; (viii) our requirements to pledge collateral or make payments related to declines in estimated fair value of certain assets may impact our liquidity or expose us to counterparty credit risk; (ix) counterparty non-performance; (x) changes in statutory reserve requirements; (xi) differences between actual experience regarding mortality, morbidity, persistency, surrender experience, interest rates or market returns and the assumptions used in pricing products, establishing liabilities and reserves or for other purposes; (xii) changes in assumptions related to deferred policy acquisition costs; (xiii) our use of numerous financial models, which rely on estimates, assumptions and projections that are inherently uncertain and involve the exercise of significant judgment; (xiv) market conditions could adversely affect our goodwill; (xv) investment losses and defaults, and changes to investment valuations; (xvi) liquidity of certain investments; (xvii) changes in claims-paying or credit ratings; (xviii) adverse determinations in litigation or regulatory matters; (xix) changes in tax law or interpretation thereof; (xx) heightened competition, including with respect to pricing, entry of new competitors, consolidation of distributors, the development of new products by new and existing competitors and personnel; (xxi) our inability to recruit, motivate and retain experienced and productive financial professionals and key employees and the ability of our financial professionals to sell competitors’ products; (xxii) changes in accounting standards, practices and/or policies; (xxiii) our computer systems failing or their security being compromised; (xxiv) the effects of business disruption or economic contraction due to terrorism, other hostilities, pandemics, or natural or man-made catastrophes; (xxv) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (xxvi) the perception of our brand and reputation in the marketplace; (xxvii) the impact on our business resulting from changes in the demographics of our client base, as baby-boomers move from the asset-accumulation to the asset-distribution stage of life; (xxviii) the impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including our ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions; (xxix) significant changes in securities market valuations affecting fee income, poor investment performance resulting in a loss of clients or other factors affecting the performance of AB; and (xxx) other risks and uncertainties described from time to time in AXA Equitable’s filings with the United States Securities and Exchange Commission.
AXA Equitable does not intend, and is under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included elsewhere herein for discussion of certain risks relating to its businesses.
 

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Part I, Item 1.
BUSINESS1 
GENERAL

AXA Equitable, established in the State of New York in 1859, is among the largest life insurance companies in the United States. We are part of a diversified financial services organization offering a broad spectrum of insurance, financial advisory and investment management products and services. Together with our subsidiaries, including AB, we are a leading asset manager, with total assets under management of approximately $582.7 billion at December 31, 2016, of which approximately $480.2 billion were managed by AB. We are an indirect, wholly-owned subsidiary of AXA Financial, which is an indirect, wholly-owned subsidiary of AXA. For additional information regarding AXA, see “Business - Parent Company.”


SEGMENT INFORMATION

We conduct our operations in two business segments, the Insurance segment and the Investment Management segment.

Insurance. The Insurance segment is principally comprised of the insurance business of AXA Equitable.

Investment Management. The Investment Management segment is principally comprised of the investment management business of AB. For additional information about AB, see AB’s Annual Report on Form 10-K for the year-ended December 31, 2016 filed with the United States Securities and Exchange Commission (the “SEC”) on February 14, 2017 (the “AB 10-K”), the AB Risk Factors in Exhibit 13.1 hereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

At December 31, 2016, our economic interest in AB was 29.0%. At December 31, 2016, AXA and its subsidiaries’ total economic interest in AB was approximately 63.7%.

For additional information on business segments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results Of Continuing Operations By Segment” and Note 19 of Notes to Consolidated Financial Statements.

Insurance

General

We seek to be a recognized leader for providing solutions to our clients by offering an innovative, competitive and diversified product portfolio that serves the needs of existing and new markets, expanding and leveraging our distribution channels to effectively deliver these products to a wide array of clients, and effectively managing our in-force business.

We offer a variety of term, variable and universal life insurance products, variable annuity products, employee benefit products, and investment products including mutual funds, principally to individuals, small and medium-size businesses and professional and trade associations. Variable annuity and variable life insurance products continue to account for the majority of our new sales. Variable annuity and variable life insurance products offer policyholders the opportunity to invest some or all of their account values in various Separate Account investment options. The growth of Separate Account assets under management remains a strategic objective, as we seek to increase fee-based revenues derived from managing funds for our clients.
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1 As used in this Form 10-K, the terms “AXA Equitable”, “we”, “our” and/or “us” refers to AXA Equitable Life Insurance Company, a New York stock life insurance corporation, “AXA Financial” refers to AXA Financial, Inc., a Delaware corporation incorporated in 1991, “AXA Financial Group” refers to AXA Financial and its consolidated subsidiaries, and the “Company” refers to AXA Equitable and its consolidated subsidiaries. The term “AXA Distributors” refers to our subsidiary, AXA Distributors, LLC, “AXA Advisors” refers to our affiliate, AXA Advisors, LLC, a Delaware limited liability company, “AXA Network” refers to our affiliate, AXA Network, LLC, a Delaware limited liability company and its subsidiary, “AXA Equitable FMG” refers to our subsidiary, AXA Equitable Funds Management Group, LLC, a Delaware limited liability company and “AXA Arizona” refers to our affiliate, AXA RE Arizona Company, an Arizona corporation. The term “AB” refers to AllianceBernstein L.P., a Delaware limited partnership, and its subsidiaries and “AB Holding” refers to AllianceBernstein Holding L.P., a Delaware limited partnership. The term “MONY America” refers to our affiliate, MONY Life Insurance Company of America, an Arizona life insurance corporation and wholly-owned subsidiary of AXA Financial. The term “AXA” refers to AXA S.A., a société anonyme organized under the laws of France. The term “General Account” refers to the assets held in the general account of AXA Equitable and all of the investment assets held in certain of AXA Equitable’s separate accounts on which AXA Equitable bears the investment risk. The term “Separate Accounts” refers to the separate account investment assets of AXA Equitable excluding the assets held in those separate accounts on which AXA Equitable bears the investment risk.

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Products

We offer a balanced and diversified product portfolio that takes into account the macroeconomic environment and customer preferences and drives profitable growth while appropriately managing risk. For additional information, see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Life Insurance Products. We offer a broad range of life insurance products and services, which are aimed at serving the financial needs of our customers throughout their lives. Our primary life insurance product offerings include:

Term Life. Term life is a simple form of life insurance. Term life products provide a guaranteed benefit upon the death of the insured for a specific time period (the term) in return for the periodic payment of premiums. Some of our term products include, within certain policy limits, a conversion feature that allows the policyholder to convert the policy into permanent life insurance coverage.

Universal Life. Universal life is a form of permanent life insurance that provides protection in case of death, as well as a savings or cash value component. The cash value of a universal life policy is based on the amount of premiums paid, the declared interest crediting rate and the policy charges. Unlike term life insurance, flexible premium universal life policies permit flexibility in the amount and timing of premium payments (within limits), and they generally offer the policyholder the ability to choose one of two death benefit options: a level benefit equal to the policy’s original face amount or a variable benefit equal to the original face amount plus any existing policy account value.

We also offer an indexed universal life product. Indexed universal life insurance combines life insurance with equity-linked accumulation potential. The equity linked option(s) provide upside potential for cash value accumulation up to certain growth cap rates and downside protection through a floor for certain investment periods. This floor will limit the impact of decreases over the investment period in the values of the indices selected.

Variable Universal Life. Variable universal life is a form of permanent life insurance that combines the premium and death benefit flexibility of universal life insurance with investment opportunity. A policyholder can invest premiums in one or more underlying portfolios offering different levels of risk and growth potential. The investment portfolios provide long-term growth potential, tax deferred earnings and the ability to make tax free transfers among the investment portfolios. A policyholder can choose one of two death benefit options: level benefit equal to the policy’s original face amount or a variable benefit equal to the original face amount plus any existing policy account value. Variable universal life insurance products offered by us include single-life products, second-to-die policies (which pay death benefits following the death of both insureds) and products for the corporate-owned life insurance (“COLI”) market.

We offer an investment option, on our variable universal life product that offers a policyholder growth potential (up to a cap) and downside protection through a buffer. Through the use of the upside caps and a downside buffer, this investment option helps a policyholder manage volatility in his/her variable universal life policy, which may reduce or potentially eliminate losses.

Life insurance products accounted for 2.0% of our total first year premiums and deposits in 2016.

As part of AXA Financial’s ongoing efforts to efficiently manage capital amongst its subsidiaries, improve the quality of the product line-up of its insurance subsidiaries and enhance the overall profitability of AXA Financial Group, most sales of indexed universal life insurance products to policyholders located outside of New York are being issued through MONY America, another life insurance subsidiary of AXA Financial, instead of AXA Equitable. We expect that AXA Financial will continue to issue newly developed life insurance products to policyholders located outside of New York through MONY America instead of AXA Equitable. Since future decisions regarding product development and availability depend on factors and considerations not yet known, management is unable to predict the extent to which additional products will be offered through MONY America or another subsidiary of AXA Financial instead of or in addition to AXA Equitable, or what the impact to AXA Equitable will be. For additional information, see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Continuing Operations by Segment - Insurance.”

Annuity Products. We offer a variety of variable annuities which are primarily marketed and sold to individuals saving for retirement or seeking retirement income and employers seeking to offer retirement savings programs such as 401(k) or 403(b) plans. Our primary annuity product offerings include:

Variable Annuities. Variable annuities provide for both asset accumulation and asset distribution needs. Variable annuities allow the policyholder to make deposits into various investment accounts, as determined by the policyholder. The investment accounts are separate accounts and risks associated with such investments are borne entirely by the policyholder, except where enhanced

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guarantee features have been elected in certain variable annuities, for which additional fees are charged. Additionally, certain variable annuity products permit policyholders to allocate a portion of their account to the General Account and are credited with interest rates that we determine, subject to certain limitations.

Certain of our variable annuity products offer one or more enhanced guarantee features in addition to the standard return of principal death benefit guarantee. Such enhanced guarantee features may include guaranteed minimum living benefits and/or an enhanced guaranteed minimum death benefit (“GMDB”). Guaranteed minimum living benefits principally include guaranteed minimum income benefits (“GMIB”) and guaranteed income benefits (“GIB”). We have issued variable annuities with a guaranteed minimum accumulation benefit and guaranteed withdrawal benefit for life (“GWBL”) rider. For additional information regarding these guaranteed minimum benefit features, see Notes 2, 8 and 9 of Notes to Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates.”

In furtherance of our efforts to develop an innovative and diversified variable annuity product offering, over the past several years, we have introduced several new and/or enhanced variable annuities. Certain of these variable annuities do not offer enhanced guarantee features.

For example, we offer variable annuity products with index-linked features. These variable and index-linked annuities provide for asset accumulation and distribution needs. The index-linked feature allows the policyholder to make deposits into various segments, as determined by the policyholder. The segments are separate accounts whose performance is tied to that of a securities index, a commodities index, or exchange-traded fund that tracks an index for a set period (e.g. 1, 3, or 5 years). The risks associated with such segments are borne entirely by the policyholder, except the portion of any negative performance that we absorb (a buffer) upon segment maturity. We currently offer segment buffers ranging from -10% to -30%. These variable annuity products do not offer enhanced guarantee features and they are general account obligations.

Variable annuity products continue to account for the majority of our sales, with 97.8% of our total first year premium and deposits in 2016 attributable to variable annuities. For additional information, see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Employee Benefit Products. In 2016, we entered the group employee benefits business. We currently offer a suite of insurance products to small and medium-size businesses located in New York. Sales of employee benefit products to businesses located outside of New York are being issued through MONY America.

Our primary employee benefit product offerings include:

Dental. We have partnered with a leading national PPO network to provide flexible, comprehensive dental coverage, as well as access to an extensive network with approximately 200,000 dental access points and over 80,000 unique dental providers. Our plans cover routine cleanings, fillings and major dental procedures, as well as optional orthodontia and teeth whitening benefits.

Vision. We have partnered with a leading vision network with over 71,000 access points and nearly 4,500 participating retail chain locations. Our plans cover eye exams, glasses, and contact lenses as well as discounts on laser vision correction surgery.

Life Insurance. Life insurance can provide security and help offset financial burdens in the event of death. Additional benefits options can include supplemental life, voluntary life, or family protection.

Short- and Long-Term Disability. Disability insurance provides partial replacement of lost earnings for insured employees who become disabled, as defined by their plan provisions. Our products include both short- and long-term disability coverage options.

Deductible Insurance. Deductible insurance provides employees with access to additional coverage that can relieve the expenses of high out-of-pocket medical costs and help cover deductibles, coinsurance and copays.

Hospital-Plus. Hospital Plus (aka Hospital Indemnity) provides employees with coverage for a variety of expenses, including hospital stays, emergency room visits, rehabilitation and even childcare during hospitalization.

Critical Illness. Critical illness coverage protects employees from expenses that can arise from a serious illness, such as a heart attack, stroke, or cancer. Payments are made directly to employees and can be used for items not covered by their medical plans, such as paying for childcare or making necessary modifications to their home.

Sales of employee benefit products were not significant in 2016.


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Retail Mutual Funds. AXA Equitable FMG (in this respect, d/b/a 1290 Asset Managers) serves as investment adviser and administrator to 1290 Funds, an open-end investment company currently consisting of eight retail mutual funds. At December 31, 2016, 1290 Funds had total net assets of $228.7 million. Portfolio management services for the retail mutual funds may be provided, on a sub-advisory basis, by various affiliated and unaffiliated sub-advisers.  AXA Investment Managers, Inc. and AXA Rosenberg Investment Management LLC provided sub-advisory services to the retail mutual funds representing approximately 27% of the total net assets in the retail mutual funds at December 31, 2016, and unaffiliated investment sub-advisers provided sub-advisory services in respect of the balance of the assets in the retail mutual funds.

Funding Agreements. We offer a funding agreement that offers an alternative to an escrow account used in a merger or acquisition transaction. These funding agreements provides acquiring and selling parties with the ability to preserve the principal value of escrow payments while earning a competitive crediting rate. We also issue funding agreements to receive advances from the Federal Home Loan Bank of New York (“FHLBNY”). The funding agreements issued to the FHLBNY require us to pledge qualified mortgage-backed assets and/or government securities as collateral. For additional information of funding agreements see “Management Discussion and Analysis of Financial Condition and Results of Operations” and Note 2, 7 and 16 of Notes to Consolidated Financial Statements.

For additional information regarding products, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Premiums and Deposits.”

Separate Account Assets

As noted above, variable annuity and variable life products offer purchasers the opportunity to direct the investment of their account values into various Separate Account investment options. Separate Account assets for individual variable annuities and variable life insurance policies totaled $111.4 billion at December 31, 2016. Of the 2016 year-end amount, approximately $99.4 billion was invested in EQ Advisors Trust (“EQAT”) and AXA Premier VIP Trust (“VIP Trust”), each of which are mutual funds for which our subsidiary, AXA Equitable FMG, serves as the investment manager and administrator. The balance of such Separate Account assets is invested through various other mutual funds for which third parties serve as investment manager.

EQAT is a mutual fund offering variable life and annuity policyholders a choice of single or multi-advised equity, bond and money market investment portfolios that employ either passively managed or actively managed strategies, “hybrid” portfolios that employ both passively managed and actively managed strategies and whose assets are allocated among multiple sub-advisers, and thirteen asset allocation portfolios that invest in other portfolios of EQAT and other unaffiliated mutual funds or exchange traded funds. VIP Trust is a mutual fund offering variable life and annuity policyholders a choice of twenty-three asset allocation portfolios that invest in other portfolios of EQAT and other unaffiliated mutual funds or exchange traded funds. Certain of the EQAT portfolios employ a managed volatility strategy that seeks to reduce equity exposure during periods in which market volatility has increased to levels that are meaningfully higher than long-term historic averages.

As of December 31, 2016, policyholders allocated $46.0 billion to the allocation portfolios of EQAT and VIP Trust and $53.4 billion to the individual portfolios of EQAT. Of the $99.4 billion invested in EQAT and VIP Trust, approximately 71% of these assets are passively managed and seek to replicate the returns of an applicable index and approximately 29% of these assets are actively managed.

Markets

We primarily target affluent and emerging affluent individuals and families, employees of public school systems, universities, not-for-profit entities and certain other tax-exempt organizations, small business owners and existing clients. Variable annuity products are primarily targeted to individuals saving for retirement or seeking retirement income (using either qualified programs, such as individual retirement annuities, or non-qualified investments), as well as employers (including, among others, educational and not-for-profit entities, and small and medium-sized businesses) seeking to offer retirement savings programs such as 401(k) or 403(b) plans. Variable and universal life insurance is targeted to individuals for protection and estate planning purposes, and at business owners to assist in, among other things, business continuation planning and funding for executive benefits. Our employee benefit products are targeted to small and medium-size businesses located in New York seeking to streamline employee benefits management. Mutual funds and other investment products are intended for a broad spectrum of clients to meet a variety of asset accumulation and investment needs. Mutual funds and other investment products add breadth and depth to the range of needs-based services and products we are able to provide.


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Distribution

We distribute our products through retail and wholesale distribution channels.

Retail Distribution. Our products are offered on a retail basis by financial professionals associated with AXA Advisors, an affiliated broker-dealer, and AXA Network, an affiliated insurance general agency. These financial professionals also have access to and can offer a broad array of annuity, life insurance, employee benefits products and investment products and services from unaffiliated insurers and other financial service providers.

We have entered into agreements pursuant to which we compensate AXA Advisors and AXA Network for distributing and servicing our products. The agreements provide that compensation will not exceed any limitations imposed by applicable law. Under separate agreements, we also provide to each of AXA Advisors and AXA Network personnel, property and services reasonably necessary for their operations. AXA Advisors and AXA Network reimburse us for their actual costs (direct and indirect) and expenses under the respective agreements.

Wholesale Distribution. AXA Distributors, our broker-dealer and insurance general agency subsidiary, distributes our annuity products on a wholesale basis through national and regional securities firms, independent financial planning and other broker-dealers, banks, property and casualty insurers, and brokerage general agencies. AXA Distributors also distributes our life insurance products on a wholesale basis principally through brokerage general agencies and property and casualty insurers.

For our employee benefits business we have developed targeted partnerships with influential regional, national and local brokers and general agents across the country. We have also developed strategic partnerships with other types of employee benefits distributors in the market - including private exchanges, health plans, and professional employer organizations.

For additional information on premiums and deposits by the retail and wholesale channels, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Premium and Deposits.”

Reinsurance and Hedging

We have in place reinsurance and hedging programs to reduce our exposure to mortality, equity market fluctuations, interest rate fluctuations and certain other product features.

Reinsurance. We utilize reinsurance to mitigate a portion of the risks that we face, principally in certain of our in-force life insurance and annuity products with regard to mortality, and in certain of our annuity products with regard to a portion of the enhanced guarantee features. Under our reinsurance arrangements, other insurers assume a portion of the obligation to pay claims and related expenses to which we are subject. However, we remain liable as the direct insurer on all risks we reinsure and, therefore, are subject to the risk that our reinsurer is unable or unwilling to pay or reimburse claims at the time demand is made. We evaluate the financial condition of our reinsurers in an effort to minimize our exposure to significant losses from reinsurer insolvencies. We are not a party to any risk reinsurance arrangement with any non-affiliated reinsurer pursuant to which the amount of reserves on reinsurance ceded to such reinsurer equals more than approximately 1.0% of our total policy reserves (including Separate Accounts).

In 2016, we generally retained up to $25 million of mortality risk on single-life policies and $30 million of mortality risk on second-to-die policies. For amounts issued in excess of those limits, and for certain lower amounts, we typically obtained reinsurance from unaffiliated third parties. The reinsurance arrangements obligate the reinsurer to pay a portion of any death claim in excess of the amount retained by us in exchange for an agreed-upon premium.

We also have reinsured to non-affiliated reinsurers a portion of our exposure on variable annuity products that offer a GMIB and/or GMDB feature issued through February 2005. At December 31, 2016, we had reinsured to non-affiliated reinsurers, subject to certain maximum amounts or caps in any one period, approximately 18.2% of our net amount at risk resulting from the GMIB feature and approximately 3.8% of our net amount at risk to the GMDB obligation on annuity contracts in force as of December 31, 2016.

In addition to non-affiliated reinsurance, we have ceded to our affiliate, AXA Arizona, a captive reinsurance company established by AXA Financial in 2003, a 100% quota share of all liabilities for variable annuities with enhanced GMDB and GMIB riders issued on or after January 1, 2006 and in-force on September 30, 2008. The GMDB/GMIB reinsurance transaction currently allows for a more efficient use of our capital and design of our hedging programs. AXA Arizona also reinsures a 90% quota share of level premium term insurance issued by AXA Equitable on or after March 1, 2003 through December 31, 2008 and lapse protection riders under universal life insurance policies issued by AXA Equitable on or after June 1, 2003 through June 30, 2007.

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For additional information on reinsurance, see “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and Notes 9 and 11 of Notes to Consolidated Financial Statements.

Hedging. We have adopted certain hedging programs that are designed to mitigate certain risks associated with the GMDB, GMIB, GWBL, and GIB liabilities and some associated fee revenue that have not been reinsured. A wide range of derivative contracts are used in these hedging programs. For GMDB, GMIB, GWBL and GIB, we retain certain risks including basis, credit spread and some volatility risk and risk associated with actual versus expected assumptions for mortality, lapse and surrender, withdrawal and contract-holder election rates, among other things. The derivative contracts are managed to correlate with changes in the value of the GMDB, GMIB, GWBL and GIB features that result from financial markets movements. A portion of exposure to realized equity volatility is hedged using equity options and variance swaps and a portion of exposure to credit risk is hedged using total return swaps and fixed income indices.

We also hedge crediting rates to mitigate certain risks associated with certain of our products and investment options that permit the contract owner to participate in the performance of an index, ETF or a commodity price movement up to a cap for a set period of time while we absorb, up to a certain percentage, the loss of value in an index, ETF or commodity price. In order to support the returns associated with these products and features, we enter into derivative contracts whose payouts, in combination with fixed income investments, emulate those of the index, ETF or commodity price, subject to caps and buffers.

We also use derivatives contracts and other financial instruments for other asset and liability management purposes. This includes, among other things, the management of interest rate risks in the General Account, the hedging of interest rate risks in anticipated sales of variable annuities and the hedging of equity linked and commodity indexed crediting rates in life and annuity products.

For additional information about reinsurance and hedging strategies, see “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Derivatives - Liquidity and Capital Resources,” “Quantitative and Qualitative Disclosures about Market Risk” and Notes 2, 8, and 9 of Notes to Consolidated Financial Statements.

Reinsurance Assumed. We also act as a retrocessionaire by assuming life reinsurance from non-affiliated reinsurers. Mortality risk through reinsurance assumed is managed using the same corporate retention limits noted above (i.e., $25 million on single-life policies and $30 million on second-to-die policies), although in practice, we currently use lower internal retention limits for life reinsurance assumed. We have also assumed accident, health, aviation and space risks by participating in or reinsuring various reinsurance pools and arrangements. We generally discontinued our participation in new accident, health, aviation and space reinsurance pools and arrangements for years following 2000, but continue to be exposed to claims in connection with pools we participated in prior to that time. We audit or otherwise review the records of many of these reinsurance pools and arrangements as part of our ongoing efforts to manage our claims risk. For additional information on reinsurance assumed, see Notes 9 and 11 of Notes to Consolidated Financial Statements.

Policyholder Liabilities and Reserves

We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet our policy obligations when a policy matures or is surrendered, an insured dies or becomes disabled or upon the occurrence of other covered events, or to provide for future annuity payments. Our reserve requirements are calculated based on a number of estimates and assumptions, including estimates and assumptions related to future mortality, morbidity, interest rates, future equity performance, reinvestment rates, persistency, claims experience and policyholder elections (i.e., lapses and surrenders, withdrawals and amounts of withdrawals, contributions and the allocation thereof, etc.) which we modify to reflect our actual experience and/or refined assumptions when appropriate.

Pursuant to state insurance laws, we establish statutory reserves, reported as liabilities, to meet our obligations on our policies. These statutory reserves are established in amounts sufficient to meet policy and contract obligations, when taken together with expected future premiums and interest at assumed rates. Statutory reserves generally differ from actuarial liabilities for future policy benefits determined using U.S. GAAP.

State insurance laws and regulations require that we submit to state insurance departments, with each annual report, an opinion and memorandum of a “qualified actuary” that the statutory reserves and related actuarial amounts recorded in support of specified policies and contracts, and the assets supporting such statutory reserves and related actuarial amounts, make adequate provision for its statutory liabilities with respect to these obligations.

For additional information on Policyholder Liabilities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Continuing Operations by Segment - Insurance” and “Risk Factors.”

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Underwriting and Pricing

Underwriting. We employ detailed underwriting policies, guidelines and procedures designed to align mortality results with the assumptions used in product pricing while providing for competitive risk selection. The risk selection process is carried out by underwriters who evaluate policy applications based on information provided by the applicant and other sources. Specific tests, such as blood analysis, are used to evaluate policy applications based on the size of the policy, the age of the applicant and other factors. The purpose of this process is to determine the type and amount of risk that we are willing to accept. In addition, we continue to utilize and further develop alternative underwriting methods that rely on predictive modeling.

For our group employee benefit products that do not require submission of medical evidence, risk is assessed at the group level. We will set appropriate plans for the group based on demographic information and, on larger groups, will also evaluate the experience of the group. For group employee benefit products that require submission of medical evidence, risk is assessed at the individual level. For individual employee benefit products, guarantee issue is offered based on plan design and/or achievement of minimum participation requirements.

We have senior level oversight of the underwriting process in order to facilitate quality sales and serve the needs of our customers, while supporting our financial strength and business objectives. The application of our underwriting guidelines is continuously monitored through internal underwriting audits in order to achieve high standards of underwriting and consistency.

Pricing. Pricing for our products is designed to allow us to make an appropriate profit after paying benefits to customers, and taking account of all the risks we assume. Product pricing is calculated through the use of estimates and assumptions for mortality, morbidity, withdrawal rates and amounts, expenses, persistency, policyholder elections and investment returns, as well as certain macroeconomic factors. Assumptions used are determined in light of our underwriting standards and practices. Investment-oriented products are priced based on various factors, which may include investment return, expenses, persistency and optionality.

Our annuity, life insurance and employee benefit products are highly regulated and approved by the individual state regulators where these products are sold. Annuity products generally include penalties for early withdrawals and policyholder benefit elections to tailor the form of the product’s benefits to the needs of the opting policyholder. From time to time, we reevaluate the type and level of guarantee and other features currently being offered and may change the nature and/or pricing of such features for new sales.

We continually review our underwriting and pricing guidelines with a view to maintaining competitive offerings that are consistent with maintaining our financial strength and meeting profitability goals.

Investment Management

General

The Investment Management segment is principally comprised of the investment management business of AB. Our consolidated economic interest in AB as of December 31, 2016 was approximately 29.0%, including the general partnership interests held indirectly by AXA Equitable as the parent company of AllianceBernstein Corporation, the general partner (“AB General Partner”) of AB Holding and AB. For additional information about AB, see the AB 10-K.

Clients

AB provides research, diversified investment management and related services globally to a broad range of clients through three buy-side distribution channels: Institutions, Retail and Private Wealth Management, and its sell-side business, Bernstein Research Services.

As of December 31, 2016, 2015, and 2014, AB’s client assets under management (“AUM”) were approximately $480 billion, $467 billion and $474 billion, respectively, and its net revenues as of each December 31, 2016, 2015 and 2014 were approximately $3.0 billion. AXA and its subsidiaries (including AXA Equitable), whose AUM consist primarily of fixed income investments, together constitute AB’s largest client. AB’s affiliates represented approximately 24%, 24% and 23% of its AUM as of December 31, 2016, 2015 and 2014, respectively, and AB earned approximately 5% of its net revenues from services it provided to its affiliates in each of those years.

Generally, AB is compensated for its investment services on the basis of investment advisory and services fees calculated as a percentage of AUM.

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For additional information about AB, see the AB 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Continuing Operations by Segment - Investment Management” and Note 1 of Notes to Consolidated Financial Statements.

Research

AB’s high-quality, in-depth research is the foundation of its business. AB believes that its global team of research professionals, whose disciplines include economic, fundamental equity, fixed income and quantitative research, gives it a competitive advantage in achieving investment success for its clients. AB also has experts focused on multi-asset strategies, wealth management and alternative investments.

Investment Services

AB’s broad range of investment services includes: (a) actively-managed equity strategies with global and regional portfolios across capitalization ranges and investment strategies, including value, growth, and core equities; (b) actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies; (c) passive management, including index and enhanced index strategies; (d) alternative investments, including hedge funds, funds of funds and private equity (e.g., direct real estate investing and direct lending); and (e) multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds.

AB’s services span various investment disciplines, including market capitalization (e.g., large-, mid- and small-cap equities), term (e.g., long-, intermediate- and short-duration debt securities), and geographic location (e.g., U.S., international, global, emerging markets, regional and local), in major markets around the world.

Distribution Channels

Institutions. AB offers to its institutional clients, which include private and public pension plans, foundations and endowments, insurance companies, central banks and governments worldwide, and various of AB’s affiliates, separately-managed accounts, sub-advisory relationships, structured products, collective investment trusts, mutual funds, hedge funds and other investment vehicles (“Institutional Services”).

AB manages the assets of its institutional clients pursuant to written investment management agreements or other arrangements, which generally are terminable at any time or upon relatively short notice by either party. In general, AB’s written investment management agreements may not be assigned without the client’s consent.

AXA and its subsidiaries (including AXA Equitable) together constitute AB’s largest institutional client. AXA’s AUM accounted for approximately 35%, 33% and 32% of AB’s institutional AUM as of December 31, 2016, 2015 and 2014, respectively, and approximately 28%, 26% and 22% of AB’s institutional revenues for 2016, 2015 and 2014, respectively. No single institutional client other than AXA and its subsidiaries accounted for more than approximately 1% of AB’s net revenues for the year ended December 31, 2016.

As of December 31, 2016, 2015 and 2014, Institutional Services represented approximately 50%, 51% and 50%, respectively, of AB’s AUM, and the fees AB earned for providing these services represented approximately 14% of AB’s net revenues for each of those years.

Retail. AB provides investment management and related services to a wide variety of individual retail investors, both in the U.S. and internationally, through retail mutual funds AB sponsors, mutual fund sub-advisory relationships, separately-managed account programs, and other investment vehicles (“Retail Products and Services”).

AB distributes its Retail Products and Services through financial intermediaries, including broker-dealers, insurance sales representatives, banks, registered investment advisers and financial planners. These products and services include open-end and closed-end funds that are either (i) registered as investment companies under the Investment Company Act (“U.S. Funds”), or (ii) not registered under the Investment Company Act and generally not offered to United States persons (“Non-U.S. Funds” and, collectively with the U.S. Funds, “AB Funds”). They also include separately-managed account programs, which are sponsored by financial intermediaries and generally charge an all-inclusive fee covering investment management, trade execution, asset allocation, and custodial and administrative services. In addition, AB provides distribution, shareholder servicing, transfer agency services and administrative services for its Retail Products and Services.


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Fees paid by the U.S. Funds are reflected in the applicable investment management agreement, which generally must be approved annually by the boards of directors or trustees of those funds, including by a majority of the independent directors or trustees. Increases in these fees must be approved by fund shareholders; decreases need not be, including any decreases implemented by a fund’s directors or trustees. In general, each investment management agreement with the U.S. Funds provides for termination by either party at any time upon 60 days’ notice.

Fees paid by Non-U.S. Funds are reflected in investment management agreements that continue until they are terminated. Increases in these fees generally must be approved by the relevant regulatory authority, depending on the domicile and structure of the fund, and Non-U.S. Fund shareholders must be given advance notice of any fee increases.

The mutual funds AB sub-advises for AXA and its subsidiaries (including AXA Equitable) together constitute AB’s largest client. They accounted for approximately 21%, 22% and 21% of AB’s retail AUM as of December 31, 2016, 2015, and 2014, respectively, and approximately 4%, 4% and 3% of AB’s retail net revenues as of 2016, 2015 and 2014, respectively.

Certain subsidiaries of AXA, including AXA Advisors, a subsidiary of AXA Financial, were responsible for approximately 2%, 4% and 3% of total sales of shares of open-end AB Funds in 2016, 2015 and 2014, respectively. HSBC was responsible for approximately 12% of AB’s open-end AB Fund sales in 2016. UBS AG was responsible for approximately 8% and 11% of AB’s open-end AB Fund sales in 2015 and 2014, respectively. Neither AB’s affiliates, HSBC or UBS AG are under any obligation to sell a specific amount of AB Fund shares and each also sells shares of mutual funds that it sponsors and that are sponsored by unaffiliated organizations. No other entity accounted for 10% or more of AB’s open-end AB Fund sales.

Most open-end U.S. Funds have adopted a plan under Rule 12b-1 of the Investment Company Act that allows the fund to pay, out of assets of the fund, distribution and service fees for the distribution and sale of its shares. The open-end U.S. Funds have entered into such agreements with AB, and AB has entered into selling and distribution agreements pursuant to which it pays sales commissions to the financial intermediaries that distribute AB’s open-end U.S. Funds. These agreements are terminable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares.

As of December 31, 2016, retail U.S. Fund AUM were approximately $41 billion, or 26% of retail AUM, as compared to $45 billion, or 29%, as of December 31, 2015, and $49 billion, or 30%, as of December 31, 2014. Non-U.S. Fund AUM, as of December 31, 2016, totaled $59 billion, or 37% of retail AUM, as compared to $52 billion, or 33%, as of December 31, 2015, and $57 billion, or 36%, as of December 31, 2014.

AB’s Retail Services represented approximately 33%, 33% and 34% of AB’s AUM as of December 31, 2016, 2015 and 2014, respectively, and the fees AB earned from providing these services represented approximately 42%, 45% and 46% of AB’s net revenues for the years ended December 31, 2016, 2015 and 2014, respectively.

Private Wealth Management. AB offers to its private clients, which include high-net-worth individuals and families, trusts and estates, charitable foundations, partnerships, private and family corporations, and other entities, separately-managed accounts, hedge funds, mutual funds and other investment vehicles (“Private Wealth Services”).

AB manages these accounts pursuant to written investment advisory agreements, which generally are terminable at any time or upon relatively short notice by any party and may not be assigned without the client’s consent.

AB’s Private Wealth Services represented approximately 17%, 16% and 16% of AB’s AUM as of December 31, 2016, 2015 and 2014, and the fees AB earned from providing these services represented approximately 23%, 23% and 22% of AB’s net revenues for 2016, 2015 and 2014, respectively.

Bernstein Research Services. AB offers high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options to institutional investors, such as pension fund, hedge fund and mutual fund managers, and other institutional investors (“Bernstein Research Services”). AB serves its clients, which are based in the United States and in other major markets around the world, through AB’s trading professionals, who are primarily based in New York, London and Hong Kong, and AB’s sell-side analysts, who provide fundamental company and industry research along with quantitative research into securities valuation and factors affecting stock price movements.

AB earns revenues for providing investment research to, and executing brokerage transactions for, institutional clients. These clients compensate AB principally by directing AB to execute brokerage transactions on their behalf, for which AB earns commissions. These services accounted for approximately 16% of AB’s net revenues as of each December 31, 2016, 2015 and 2014.

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Custody

AB’s U.S.- based broker-dealer subsidiary acts as custodian for the majority of AB’s Private Wealth Management AUM and some of its Institutions AUM. Other custodial arrangements are maintained by client-designated banks, trust companies, brokerage firms or custodians.

For additional information about AB’s investment advisory fees, including performance-based fees, see the AB 10-K, the AB Risk Factors in Exhibit 13.1 hereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Continuing Operations by Segment - Investment Management.”


EMPLOYEES

As of December 31, 2016, the Company had approximately 7,442 full time employees. Of these, approximately 4,004 were employed full-time by AXA Equitable and approximately 3,438 were employed full-time by AB.

COMPETITION
Insurance. There is strong competition among insurers, banks, brokerage firms and other financial institutions and providers seeking clients for the types of products and services we provide. Competition is intense among a broad range of financial institutions and other financial service providers for retirement and other savings dollars. For additional information regarding competition, see “Risk Factors.”

The principal competitive factors affecting our business are our financial strength as evidenced, in part, by our financial and claims-paying ratings; access to capital; access to diversified sources of distribution; size and scale; product quality, range, features/functionality and price; our ability to bring customized products to the market quickly; technological capabilities; our ability to explain complicated products and features to our distribution channels and customers; crediting rates on fixed products; visibility, recognition and understanding of our brand in the marketplace; reputation and quality of service; the tax-favored status certain of our products receive under the current federal and state laws and (with respect to variable insurance and annuity products, mutual funds and other investment products) investment options, flexibility and investment management performance.

We and our affiliated distributors must attract and retain productive sales representatives to sell our products. Strong competition continues among financial institutions for sales representatives with demonstrated ability. We and our affiliated distribution companies compete with other financial institutions for sales representatives primarily on the basis of financial position, product breadth and features, support services and compensation policies. For additional information, see “Risk Factors.”

Legislative and other changes affecting the regulatory environment can affect our competitive position within the life insurance industry and within the broader financial services industry. For additional information, see “Business - Regulation” and “Risk Factors.”

Investment Management. AB competes in all aspects of its business with numerous investment management firms, mutual fund sponsors, brokerage and investment banking firms, insurance companies, banks, savings and loan associations and other financial institutions that often provide investment products that have similar features and objectives as those AB offers. AB’s competitors offer a wide range of financial services to the same customers that AB seeks to serve. Some of AB’s competitors are larger, have a broader range of product choices and investment capabilities, conduct business in more markets, and have substantially greater resources than AB. These factors may place AB at a competitive disadvantage, and AB can give no assurance that its strategies and efforts to maintain and enhance its current client relationships, and create new ones, will be successful.

In addition, AXA and certain of its subsidiaries (including AXA Financial and AXA Equitable) provide financial services, some of which compete with those offered by AB. AB’s partnership agreement specifically allows AXA and its subsidiaries (other than the AB General Partner) to compete with AB and to pursue opportunities that may be available to AB. AXA, AXA Financial, AXA Equitable and certain of their respective subsidiaries have substantially greater resources than AB does and are not obligated to provide resources to AB.

To grow its business, AB believes it must be able to compete effectively for AUM. Key competitive factors include (i) AB’s investment performance for clients; (ii) AB’s commitment to place the interests of its clients first; (iii) the quality of AB’s research; (iv) AB’s ability to attract, motivate and retain highly skilled, and often highly specialized, personnel; (v) the array of investment products AB offers; (vi) the fees AB charges; (vii) Morningstar/Lipper rankings for the AB Funds; (viii) AB’s ability to sell its

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actively-managed investment services despite the fact that many investors favor passive services; (ix) AB’s operational effectiveness; (x) AB’s ability to further develop and market its brand; and (xi) AB’s global presence.

REGULATION

Insurance Regulation

We are licensed to transact insurance business, and are subject to extensive regulation and supervision by insurance regulators, in all 50 states of the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and nine of Canada’s twelve provinces and territories. We are domiciled in New York and are primarily regulated by the New York State Department of Financial Services (the “NYDFS”). The extent of regulation by jurisdiction varies, but most jurisdictions have laws and regulations governing the financial aspects and business conduct of insurers. State laws in the U.S. grant insurance regulatory authorities broad administrative powers with respect to, among other things, sales practices, establishing statutory capital and reserve requirements and solvency standards, reinsurance and hedging, protecting privacy, regulating advertising, restricting the payment of dividends and other transactions between affiliates, permitted types and concentrations of investments and business conduct to be maintained by insurance companies as well as agent licensing, approval of policy forms and, for certain lines of insurance, approval or filing of rates. Insurance regulators have the discretionary authority to limit or prohibit new issuances of business to policyholders within their jurisdictions when, in their judgment, such regulators determine that the issuing company is not maintaining adequate statutory surplus or capital. Additionally, New York Insurance Law limits sales commissions and certain other marketing expenses that we may incur. For additional information on Insurance Supervision, see “Risk Factors.”

We are required to file detailed annual financial statements, prepared on a statutory accounting basis, with supervisory agencies in each of the jurisdictions in which we do business. Such agencies may conduct regular or targeted examinations of our operations and accounts, and make requests for particular information from us. From time to time, regulators raise issues during examinations or audits of us that could, if determined adversely, have a material adverse effect on us. In addition, the interpretations of regulations by regulators may change and statutes may be enacted with retroactive impact, particularly in areas such as accounting or statutory reserve requirements. In addition to oversight by state insurance regulators in recent years, the insurance industry has seen an increase in inquiries from state attorneys general and other state officials regarding compliance with certain state insurance, securities and other applicable laws. We have received and responded to such inquiries from time to time. For additional information on Legal and Regulatory Risk, see “Risk Factors.”

Holding Company and Shareholder Dividend Regulation. Most states, including New York, regulate transactions between an insurer and its affiliates under insurance holding company acts. The insurance holding company laws and regulations vary from jurisdiction to jurisdiction, but generally require a controlled insurance company (insurers that are subsidiaries of insurance holding companies) to register with state regulatory authorities and to file with those authorities certain reports, including information concerning its capital structure, ownership, financial condition, certain intercompany transactions and general business operations.

State insurance statutes also typically place restrictions and limitations on the amount of dividends or other distributions payable by insurance company subsidiaries to their parent companies, as well as on transactions between an insurer and its affiliates. The New York insurance laws were amended, effective for dividends paid in 2016 and thereafter, to permit payment of ordinary dividends without regulatory approval based on one of two standards. The first standard allows a domestic stock life insurer to pay an ordinary dividend out of earned surplus. The second standard allows an insurer to pay an ordinary dividend out of other than earned surplus if such insurer does not have sufficient positive earned surplus to pay an ordinary dividend. Dividends in excess of these limits are considered to be extraordinary transactions and require explicit approval from the NYDFS.

For additional information on shareholder dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

NAIC. The mandate of the National Association of Insurance Commissioners (the “NAIC”) is to benefit state insurance regulatory authorities and consumers by promulgating model insurance laws and regulations for adoption by the states. The NAIC provides standardized insurance industry accounting and reporting guidance through its Accounting Practices and Procedures Manual (the “Manual”). However, statutory accounting principles continue to be established by individual state laws, regulations and permitted practices. Changes to the Manual or modifications by the various state insurance departments may impact the statutory capital and surplus of our U.S. insurance companies.

In September 2012, the NAIC adopted the Risk Management and Own Risk and Solvency Assessment Model Act (“ORSA”), which has been enacted by New York. ORSA requires that insurers maintain a risk management framework and conduct an internal risk and solvency assessment of the insurer’s material risks in normal and stressed environments.  The assessment is documented

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in a confidential annual summary report, a copy of which must be made available to regulators as required or upon request. We have been filing an ORSA summary report with the NYDFS since 2015.

In December 2012, the NAIC approved a new valuation manual containing a principles-based approach to life insurance company reserves. Principles-based reserving is designed to better address reserving for products, including the current generation of products for which the current formulaic basis for reserve determination does not work effectively. The principles-based reserving approach became effective for new business on January 1, 2017 in the states where it has been adopted with a three-year phase-in period. The NYDFS has publicly stated its intention to implement the principles-based reserving approach beginning in January 2018, subject to a working group of the NYDFS establishing the necessary reserves safeguards.

Captive Reinsurer Regulation. As described above, we utilize a captive reinsurer as part of our capital management strategy. During the last few years, the NAIC and certain state regulators, including the NYDFS, have been scrutinizing insurance companies’ use of affiliated captive reinsurers or off-shore entities.

In December 2014, the NAIC adopted a new actuarial guideline, known as “AG 48” that governs the reinsurance of term and universal life insurance business to captives by prescribing requirements for the types of assets that may be held by captives to support the reserves. The requirements in AG 48 became effective on January 1, 2015, and apply in respect of term and universal life insurance policies written from and after January 1, 2015, or written prior to January 1, 2015, but not included in a captive reinsurer financing arrangement as of December 31, 2014.

In March 2015, the NAIC established the Variable Annuities Issues (E) Working Group to oversee the NAIC’s efforts to study and address regulatory issues resulting in variable annuity captive transactions. In September 2015, a third-party consultant engaged by the NAIC provided the NAIC with a preliminary report covering several sets of recommendations regarding Actuarial Guideline 43 and C3 Phase II requirements. These recommendations generally focused on (i) mitigating the asset-liability mismatch between hedge instruments and statutory liabilities, (ii) removing the non-economic volatility in statutory capital charges and solvency ratios and (iii) facilitating greater harmonization across insurers and products for greater comparability. A variable annuity reserve and capital framework proposal was presented at the August 2016 NAIC meeting, and there was a 90-day comment period on the proposal. This proposal included the initial recommendations from 2015, but also some new aspects. These recommendations, if adopted, would apply to all existing business and could significantly change the sensitivity of reserve and capital requirements to capital markets including interest rate and equity markets and create prescribed assumptions for policyholder behavior. While the exact nature and scope of the final framework is not predictable at this time, some of the recommendations being discussed in the current proposal would adversely impact the capital management benefits we receive under our reinsurance arrangement with AXA Arizona.

We cannot predict what, if any, changes may result from these reviews, further regulation and/or pending lawsuits regarding the use of captive reinsurers. If the NYDFS or other state insurance regulators were to restrict the use of such captive reinsurers or if we otherwise are unable to continue to use our captive reinsurer, the capital management benefits we receive under this reinsurance arrangement could be adversely affected. This could cause us to recapture the business reinsured to AXA Arizona and adjust the design of our risk mitigation and hedging programs. For additional information on our use of a captive reinsurance company, see “Business - Reinsurance and Hedging”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Surplus and Capital; Risk Based Capital (“RBC”). Insurers are required to maintain their capital and surplus at or above minimum levels. Regulators have discretionary authority, in connection with the licensing of insurance companies, to limit or prohibit an insurer’s sales to policyholders if, in their judgment, the regulators determine that such insurer has not maintained the minimum surplus or capital or that the further transaction of business will be hazardous to policyholders. We report our RBC based on a formula calculated by applying factors to various asset, premium and statutory reserve items, as well as taking into account the risk characteristics of the insurer. The major categories of risk involved are asset risk, insurance risk, interest rate risk, market risk and business risk. The formula is used as a regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose RBC ratio does not meet or exceed certain RBC levels. As of the date of the most recent annual statutory financial statements filed with insurance regulators, our RBC was in excess of each of those RBC levels. For additional information on RBC, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

Guaranty Associations and Similar Arrangements. Each of the states in which we are admitted to transact business require life insurers doing business within the jurisdiction to participate in guaranty associations, which are organized to pay certain contractual insurance benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the

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premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer is engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets.

During each of the past five years, the assessments levied against us have not been material.

Dodd-Frank Wall Street Reform and Consumer Protection Act

Currently, the U.S. federal government does not directly regulate the business of insurance. While the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) does not remove primary responsibility for the supervision and regulation of insurance from the states, Title V of the Dodd-Frank Act establishes the Federal Insurance Office (the “FIO”) within the U.S. Treasury Department and reforms the regulation of the non-admitted property and casualty insurance market and the reinsurance market. The FIO has authority that extends to all lines of insurance except health insurance, crop insurance and (unless included with life or annuity components) long-term care insurance. Under the Dodd-Frank Act, the FIO is charged with monitoring all aspects of the insurance industry (including identifying gaps in regulation that could contribute to a systemic crisis), recommending to the Financial Stability Oversight Council (“FSOC”) the designation of any insurer and its affiliates (potentially including AXA and its affiliates) as a non-bank financial company subject to oversight by the Board of Governors of the Federal Reserve System (including the administration of stress testing on capital), assisting the Treasury Secretary in negotiating “covered agreements” with non-U.S. governments or regulatory authorities, and, with respect to state insurance laws and regulation, determining whether such state insurance measures are pre-empted by such covered agreements. In addition, the FIO is empowered to request and collect data (including financial data) on and from the insurance industry and insurers (including reinsurers) and their affiliates. In such capacity, the FIO may require an insurer or an affiliate of an insurer to submit such data or information as the FIO may reasonably require. In addition, the FIO’s approval will be required to subject an insurer or a company whose largest U.S. subsidiary is an insurer to the special orderly liquidation process outside the federal bankruptcy code, administered by the Federal Deposit Insurance Corporation pursuant to the Dodd-Frank Act. The Dodd-Frank Act also reforms the regulation of the non-admitted property/casualty insurance market (commonly referred to as excess and surplus lines) and the reinsurance markets, including the ability of non-domiciliary state insurance regulators to deny credit for reinsurance when recognized by the ceding insurer’s domiciliary state regulator.

Other aspects of our operations could also be affected by the Dodd-Frank Act. These include:

Heightened Standards and Safeguards. The FSOC may recommend that state insurance regulators or other regulators apply new or heightened standards and safeguards for activities or practices we and other insurers or other financial services companies engage in if the FSOC determines that those activities or practices could create or increase the risk that significant liquidity, credit or other problems spread among financial companies. We cannot predict whether any such recommendations will be made or their effect on our business, consolidated results of operations or financial condition.

Over-The-Counter Derivatives Regulation. The Dodd-Frank Act includes a framework of regulation of the over-the-counter (“OTC”) derivatives markets. Regulations approved to date require clearing of previously uncleared transactions and will require clearing of additional OTC transactions in the future. In addition, recently approved regulations impose margin requirements on OTC transactions not required to be cleared. As a result of these regulations, our costs of risk mitigation have and may continue to increase under the Dodd-Frank Act. For example, margin requirements, including the requirement to pledge initial margin for OTC cleared transactions entered into after June 10, 2013 and for OTC uncleared transactions entered into after the phase-in period, which would be applicable to us in 2019, have increased. In addition, restrictions on securities that will qualify as eligible collateral, will require increased holdings of cash and highly liquid securities with lower yields causing a reduction in income. Centralized clearing of certain OTC derivatives exposes us to the risk of a default by a clearing member or clearinghouse with respect to our cleared derivative transactions. We use derivatives to mitigate a wide range of risks in connection with our business, including the impact of increased benefit exposures from certain of variable annuity products that offer enhanced guarantee features. We have always been subject to the risk that our hedging and other management procedures might prove ineffective in reducing the risks to which insurance policies expose us or that unanticipated policyholder behavior or mortality, combined with adverse market events, could produce economic losses beyond the scope of the risk management techniques employed. Any such losses could be increased by higher costs of writing derivatives (including customized derivatives) and the reduced availability of customized derivatives that might result from the enactment and implementation of the Dodd-Frank Act.

Broker-Dealer Regulation. The Dodd-Frank Act provides that the SEC may promulgate rules to provide that the standard of conduct for all broker-dealers, when providing personalized investment advice about securities to retail customers (and any other customers as the SEC may by rule provide) will be the same as the standard of conduct applicable to an investment adviser under the Investment Advisers Act of 1940. Although the full impact of such a provision can only be measured when the implementing regulations are adopted, the intent of this provision is to authorize the SEC to impose on broker-dealers fiduciary duties to their customers, as applies to investment advisers under existing law. At the same time that the SEC is considering rulemaking as

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directed by the Dodd-Frank Act, the Financial Industry Regulatory Authority, Inc. (“FINRA”) is also focusing on how broker-dealers identify and manage conflicts of interest.

Although many of the regulations implementing portions of the Dodd-Frank Act have been promulgated, we are still unable to predict how this legislation may be interpreted and enforced or the full extent to which implementing regulations and policies may affect us. Also, the Trump administration and Congressional majority have indicated that the Dodd-Frank Act will be under further scrutiny and some of the provisions of the Dodd-Frank Act may be revised, repealed or amended. There is considerable uncertainty with respect to the impact the Trump administration and Congressional majority may have, if any, and any changes likely will take time to unfold. We cannot predict the ultimate content, timing or effect of any reform legislation or the impact of potential legislation on us.

ERISA Considerations

We provide certain products and services to employee benefit plans that are subject to the Employment Retirement Income Security Act (“ERISA”) and certain provisions of the Internal Revenue Code. As such, our activities are subject to the restrictions imposed by ERISA and the Internal Revenue Code, including the requirement that fiduciaries must perform their duties solely in the interests of plan participants and beneficiaries, and fiduciaries may not cause or permit a covered plan to engage in certain prohibited transactions with persons (parties-in-interest) who have certain relationships with respect to such plans. The applicable provisions of ERISA and the Internal Revenue Code are subject to enforcement by the U.S. Department of Labor (the “DOL”), the Internal Revenue Service (“IRS”) and the Pension Benefit Guaranty Corporation.

The DOL issued a final rule (the “Rule”) on April 6, 2016 that significantly expands the range of activities that would be considered to be fiduciary investment advice under ERISA when our affiliated advisors and our employees provide investment-related information and support to retirement plan sponsors, participants, and Individual Retirement Account (“IRA”) holders. Implementation of the Rule is currently scheduled to be phased in starting on April 10, 2017, although certain aspects of it covering existing business would not be implemented until January 1, 2018. In February 2017, however, the DOL was directed by executive order and memorandum (the “President’s Order and Memorandum”) to review the Rule and determine whether the Rule should be rescinded or revised, in light of the new administration’s policies and orientations. On March 2, 2017, the DOL submitted a proposal to delay for sixty days the applicability date of the Rule and invited comments on both the proposed extension and the examination described in the President’s Order and Memorandum. Comments on the proposed extension are due by March 17, 2017, and on the President’s Order and Memorandum by April 17, 2017. While the outcome of the foregoing cannot be anticipated at this time, it is likely to result in implementation of the Rule being delayed. Although implementation of the Rule remains uncertain, and is currently subject to judicial challenge, management continues to evaluate its potential impact on our business. If the Rule is implemented as planned, it is likely to result in adverse changes to the level and type of services we provide, as well as the nature and amount of compensation and fees that we and our affiliated advisors and firms receive for investment-related services to retirement plans and IRAs, which may have a significant adverse effect on our business and consolidated results of operations

International Regulation

Regulators and lawmakers in non-U.S. jurisdictions are engaged in addressing the causes of the financial crisis and means of avoiding such crises in the future. On July 18, 2013, the International Association of Insurance Supervisors (“IAIS”) published an initial assessment methodology for designating global systemically important insurers (“GSIIs”), as part of the global initiative launched by the G20 with the assistance of the Financial Stability Board (the “FSB”) to identify those insurers whose distress or disorderly failure, because of their size, complexity and interconnectedness, would cause significant disruption to the global financial system and economic activity On the same date, the FSB published its initial list of nine GSIIs, which included the AXA Group. The GSII list is updated annually following consultation with the IAIS and respective national supervisory authorities. The AXA Group remained on the list as updated in November 2014, 2015 and 2016.

On July 18, 2013, the FSB published its initial list of nine GSIIs, which included the AXA Group. The GSII list is updated annually following consultation with the IAIS and respective national supervisory authorities. The AXA Group remained on the list as updated in November 2014, 2015 and 2016. The policy measures for GSIIs, published by the IAIS in July 2013, include (1) the introduction of new capital requirements; a “basic” capital requirement (“BCR”) applicable to all GSII activities which serves as a basis for an additional level of capital, called “Higher Loss Absorbency” (“HLA”) required from GSIIs in relation to their systemic activities, (2) greater regulatory oversight over holding companies, (3) various measures to promote the structural and financial “self-sufficiency” of group companies and reduce group interdependencies including restrictions on intra-group financing and other arrangements, and (4) in general, a greater level of regulatory scrutiny for GSIIs (including a requirement to establish a Systemic Risk Management Plan (“SRMP”), a Liquidity Risk Management Plan (“LRMP”) and a Recovery and Resolution Plan

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(“RRP”)) which have entailed significant new processes, reporting and compliance burdens and costs. The contemplated policy measures include the constitution of a Crisis Management Group (“CMG”) by the group-wide supervisor, the preparation of the above-mentioned documents (SRMP, LRMP and RRP) and the development and implementation of the BCR in 2014, while other measures are to be phased in more gradually, such as the HLA (the first version of which was endorsed by the FSB in October 2015 but which is expected to be revised before its implementation in 2019).

On June 16, 2016, the IAIS published an updated assessment methodology, applicable to the 2016 designation process, which is yet to be endorsed by the FSB. To support some adjustments proposed by the revised assessment methodology, the IAIS also published a paper on June 16, 2016, describing the “Systemic Features Framework” that the IAIS intends to employ in assessing whether certain contractual features and other factors are likely to expose an insurer to a greater degree of systemic risk, focusing specifically on two sets of risks: macroeconomic exposure and substantial liquidity risk. Also, the IAIS stated that the 2016 assessment methodology, along with the Systemic Features Framework, will lead to a change in HLA design and calibration.

As part of its efforts to create a common framework for the supervision of internationally active insurance groups (“IAIGs”), the IAIS has also been developing a comprehensive, group-wide international insurance capital standard (the “ICS”) to be applied to both GSIIs and IAIGs, although it is not expected to be finalized until at least 2019. Although the BCR and HLA are more developed than the ICS at present, the IAIS has stated that it intends to revisit both standards following development and refinement of the ICS, and that the BCR will eventually be replaced by the ICS.

These measures could have far reaching regulatory and competitive implications for the AXA Group, which in turn could materially affect our competitive position, consolidated results of operations, financial condition, liquidity and how we operate our business. For additional information, see “Risk Factors.”

In addition, many of AB’s subsidiaries are subject to the oversight of regulatory authorities in jurisdictions outside of the United States in which they operate, including the European Securities and Markets Authority, the Financial Conduct Authority in the U.K., the CSSF in Luxembourg, the Financial Services Agency in Japan, the Securities & Futures Commission in Hong Kong, the Monetary Authority of Singapore, the Financial Services Commission in South Korea and the Financial Supervisory Commission in Taiwan. While these regulatory requirements often may be comparable to the requirements of the SEC and other U.S. regulators, they are sometimes more restrictive and may cause AB to incur substantial expenditures of time and money related to AB’s compliance efforts.

Federal Tax Legislation, Regulation, and Administration
Although we cannot predict what legislative, regulatory, or administrative changes may or may not occur with respect to the federal tax law, we nevertheless endeavor to consider the possible ramifications of such changes on the profitability of our business and the attractiveness of our products to consumers. In this regard, we analyze multiple streams of information, including those described below.
Enacted Legislation. At present, the federal tax laws generally permit certain holders of life insurance and annuity products to defer taxation on the build-up of value within such products (commonly referred to as “inside build-up”) until payments are made to the policyholders or other beneficiaries. From time to time, Congress considers legislation that could enhance or reduce (or eliminate) the benefit of tax deferral on some life insurance and annuity products. As an example, the American Taxpayer’s Relief Act increased individual tax rates for higher-income taxpayers. Higher tax rates increase the benefits of tax deferral on inside build-up and, correspondingly, tend to enhance the attractiveness of life insurance and annuity products to consumers that are subject to those higher tax rates.

Tax Reform Initiatives. Tax reform initiatives have been underway in Congress over the last several years. During that discourse, wholesale changes to long-standing provisions governing the taxation of insurance companies have been considered, including proposals that would modify (i) the calculation of the dividends-received deduction (“DRD”) with respect to life insurance company separate accounts in a way that largely would eliminate the benefit that life insurance companies receive, (ii) the calculation of insurance reserves in a manner that would decrease the federal tax deduction available to life insurance companies for such reserves, and (iii) the rules concerning the capitalization of certain policy acquisition expenses in a way that would increase the amount of policy acquisition expense that an insurance company would be required to capitalize and amortize for federal tax purposes. Recent proposals would limit the ability of companies, potentially including life insurance companies, to claim deductions for interest expenses in excess of annual interest income and would potentially impose a border adjustment on imported services, potentially including reinsurance purchased from non-US companies that could increase our costs of doing business. In addition, the tax reform plan released by President Trump during the presidential campaign would limit the tax deferral on inside build-up for high-income consumers. The likelihood of enactment of these (or of any other) proposals, whether as part of a comprehensive tax

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reform package or as discrete legislative changes, is uncertain at this time due to the current political and economic environment as well as the ambiguity that comes with any tax reform initiative.

Presidential Budget Proposals. The President submits a budget proposal to Congress on an annual basis. To varying degrees, these budget proposals typically include federal tax and related proposals that, if enacted into law, could affect our profitability and the attractiveness of our products to consumers. For example, budget proposals from the Obama Administration included proposals that sought to modify the calculation of the DRD with respect to life insurance company separate accounts and impose a “financial fee” on certain firms in the financial sector, including insurance companies. If enacted into law, these proposals could have an adverse effect on our profitability. Budget proposals from the Obama Administration also proposed changes to the federal tax laws that could affect purchasers of products offered and sold through our various business lines, including proposals that would (i) expand the pro‑rata interest expense disallowance for COLI policies, (ii) increase the top capital gains rate, and (iii) restore and permanently extend the estate, gift, and generation-skipping transfer tax exemptions and tax rates as they applied in prior years. Some of these proposals, should they become law, could have the potential to improve the attractiveness of our products to consumers and enhance our sales, while other proposals could have the opposite effect. It remains to be seen to what extent any of these budget proposals will be included in tax reform initiatives or Trump administration budget proposals. To date, indications from the Trump administration have suggested that it plans to comprehensively modify and simplify the tax code, including the imposition of significantly lower tax rates.

Regulatory and Other Administrative Guidance from the Treasury Department and the Internal Revenue Service. Regulatory and other administrative guidance from the Treasury Department and the Internal Revenue Service also could impact the amount of federal tax that we pay. For example, the adoption of “principles based” approaches for calculating statutory reserves may lead the Treasury Department and the Internal Revenue Service to issue guidance that changes the way that deductible insurance reserves are determined, potentially reducing future tax deductions for us.

Broker-Dealer and Securities Regulation

We and certain policies and contracts offered by us are subject to regulation under the Federal securities laws administered by the SEC, self-regulatory organizations and under certain state securities laws. These regulators may conduct examinations of our operations, and from time to time make requests for particular information from us.

Certain subsidiaries and affiliates of AXA Equitable including, AXA Advisors, AXA Distributors, AllianceBernstein Investments, Inc., and Sanford C. Bernstein & Co., LLC (“SCB LLC”) are registered as broker-dealers (collectively, the “Broker-Dealers”) under the Exchange Act. The Broker-Dealers are subject to extensive regulation by the SEC and are members of, and subject to regulation by, FINRA, a self-regulatory organization subject to SEC oversight. The Broker-Dealers are subject to the capital requirements of the SEC and/or FINRA, which specify minimum levels of capital (“net capital”) that the Broker-Dealers are required to maintain and also limit the amount of leverage that the Broker-Dealers are able to employ in their businesses. The SEC and FINRA also regulate the sales practices of the Broker-Dealers. In recent years, the SEC and FINRA have intensified their scrutiny of sales practices relating to variable annuities, variable life insurance and alternative investments, among other products. In addition, the Broker-Dealers are also subject to regulation by state securities administrators in those states in which they conduct business, who may also conduct examinations and direct inquiries to the Broker-Dealers.

The SEC, FINRA and other governmental regulatory authorities, including state securities administrators, may institute administrative or judicial proceedings that may result in censure, fines, the issuance of cease-and-desist orders, the suspension or expulsion of a broker-dealer or member, its officers, registered representatives or employees or other similar sanctions.

Certain of our Separate Accounts are registered as investment companies under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Separate Account interests under certain annuity contracts and insurance policies issued by us are also registered under the Securities Act of 1933, as amended (the “Securities Act”). EQAT and VIP Trust are registered as investment companies under the Investment Company Act and shares offered by these investment companies are also registered under the Securities Act. Many of the investment companies managed by AB, including a variety of mutual funds and other pooled investment vehicles, are registered with the SEC under the Investment Company Act, and, if appropriate, shares of these entities are registered under the Securities Act.

Certain subsidiaries and affiliates of AXA Equitable including, AXA Equitable FMG, AXA Advisors and AB and certain of its subsidiaries and affiliates are registered as investment advisors under the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”). The investment advisory activities of such registered investment advisors are subject to various Federal and state laws and regulations and to the laws in those foreign countries in which they conduct business. These laws and regulations generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply with such laws and regulations. In case of such an event, the possible sanctions that may be

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imposed include the suspension of individual employees or investment adviser representatives, limitations on engaging in business for specific periods, revocation of registration of the firm as an investment advisor or of the registration of its investment advisor representatives, censures and fines.

AXA Equitable FMG is registered with the CFTC as a commodity pool operator with respect to certain portfolios and is also a member of the National Futures Association (“NFA”). AB and certain of its subsidiaries are also separately registered with the CFTC as commodity pool operators and commodity trading advisers; SCB LLC is also registered with the CFTC as a commodities introducing broker. The CFTC is a federal independent agency that is responsible for, among other things, the regulation of commodity interests and enforcement of the Commodity Exchange Act (“CEA”). The NFA is a self-regulatory organization to which the CFTC has delegated, among other things, the administration and enforcement of commodity regulatory registration requirements and the regulation of its members. As such, AXA Equitable FMG is subject to regulation by the NFA and CFTC and is subject to certain legal requirements and restrictions in the CEA and in the rules and regulations of the CFTC and the rules and by-laws of the NFA on behalf of itself and any commodity pools that it operates, including investor protection requirements and antifraud prohibitions, and is subject to periodic inspections and audits by the CFTC and NFA. AXA Equitable FMG is also subject to certain CFTC-mandated disclosure, reporting and recordkeeping obligations. Violations of the rules of the CFTC or NFA could result in remedial actions including censures, fines, registration restrictions, trading prohibitions, limitations on engaging in business for specific periods or the revocations of CFTC registration or NFA membership.

Regulators, including the SEC, FINRA, CFTC, NFA and state attorneys general, continue to focus attention on various practices in or affecting the investment management and/or mutual fund industries, including portfolio management, valuation and the use of fund assets for distribution.

We and certain of our subsidiaries have provided, and in certain cases continue to provide, information and documents to the SEC, FINRA, CFTC, NFA, state attorneys general, state insurance regulators and other regulators regarding our compliance with insurance, securities and other laws and regulations regarding the conduct of our businesses. For example, we are responding to inquiries from the SEC requesting information with regard to contract language and accompanying disclosure for certain variable annuity contracts. For additional information on regulatory matters, see Note 17 of Notes to Consolidated Financial Statements.

Ongoing or future regulatory investigations could potentially result in fines, other sanctions and/or other costs.

Privacy of Customer Information

We are subject to federal and state laws and regulations which require financial institutions to protect the security and confidentiality of customer information, and to notify customers about their policies and practices relating to their collection and disclosure of customer information and their practices relating to protecting the security and confidentiality of that information. We have adopted a privacy policy outlining procedures and practices to be followed by members of the AXA Financial Group relating to the collection, disclosure and protection of customer information. As required by law, a copy of the privacy policy is mailed to customers on an annual basis. Federal and state laws generally require that we provide notice to affected individuals, law enforcement, regulators and/or potentially others if there is a situation in which customer information is intentionally or accidentally disclosed to and/or acquired by unauthorized third parties. Federal regulations require financial institutions to implement programs to detect, prevent, and mitigate identity theft. Federal and state laws and regulations regulate the ability of financial institutions to make telemarketing calls and to send unsolicited e-mail or fax messages to both consumers and customers, and also regulate the permissible uses of certain categories of customer information. Violation of these laws and regulations may result in significant fines and remediation costs. It may be expected that legislation considered by either the U.S. Congress and/or state legislatures could create additional and/or more detailed obligations relating to the use and protection of customer information.

Environmental Considerations

Federal, state and local environmental laws and regulations apply to our ownership and operation of real property. Inherent in owning and operating real property are the risk of environmental liabilities and the costs of any required clean-up. Under the laws of certain states, contamination of a property may give rise to a lien on the property to secure recovery of the costs of clean-up, which could adversely affect our mortgage lending business. In some states, this lien may have priority over the lien of an existing mortgage against such property. In addition, in some states and under the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, we may be liable, in certain circumstances, as an “owner” or “operator,” for costs of cleaning-up releases or threatened releases of hazardous substances at a property mortgaged to us. We also risk environmental liability when we foreclose on a property mortgaged to us. However, Federal legislation provides for a safe harbor from CERCLA liability for secured lenders, provided that certain requirements are met. Application of various other federal and state environmental laws could also result in the imposition of liability on us for costs associated with environmental hazards.


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We routinely conduct environmental assessments prior to making a mortgage loan or taking title to real estate, whether through acquisition for investment, or through foreclosure on real estate collateralizing mortgages. Although unexpected environmental liabilities can always arise, we seek to minimize this risk by undertaking these environmental assessments consistent with regulatory guidance and complying with our internal procedures. As a result, we believe that any costs associated with compliance with environmental laws and regulations or any clean-up of properties would not have a material adverse effect on our consolidated results of operations.

Intellectual Property

We rely on a combination of copyright, trademark, patent and trade secret laws to establish and protect our intellectual property rights. AXA Financial has entered into a licensing arrangement with AXA concerning the use by AXA Financial Group of the “AXA” name. Since 2014, AXA Financial Group companies have been using AXA as the single brand for AXA Financial’s advice, retirement and life insurance lines of business. As a result, we have simplified our brand in the U.S. marketplace to “AXA” from AXA Equitable. We also have an extensive portfolio of trademarks and service marks that we consider important in the marketing of our products and services. We regard our intellectual property as valuable assets and protect them against infringement.

AB has also registered a number of service marks with the U.S. Patent and Trademark Office and various foreign trademark offices, including the mark “AllianceBernstein.” The [A/B] logo and “Ahead of Tomorrow” are service marks of AB. In January 2015, AB established two new brand identities. Although the legal names of AB did not change, the corporate entity, and its Institutions and Retail businesses now are referred to as “AB”. Private Wealth Management and Bernstein Research Services now are referred to as “AB Bernstein”. Also, AB adopted the [A/B] logo and “Ahead of Tomorrow” service marks described above. AB has acquired all of the rights and title in, and to, the Bernstein service marks, including the mark “Bernstein” and the W.P. Stewart & Co., Ltd. services marks, including the logo “WPSTEWART”.

Iran Threat Reduction and Syria Human Rights Act

AXA Financial, AXA Equitable and their global subsidiaries had no transactions or activities requiring disclosure under the Iran Threat Reduction and Syria Human Rights Act (“Iran Act”), nor were they involved in the AXA Group matters described immediately below.

The non-U.S. based subsidiaries of AXA operate in compliance with applicable laws and regulations of the various jurisdictions where they operate, including applicable international (United Nations and European Union) laws and regulations. While AXA Group companies based and operating outside the United States generally are not subject to U.S. law, as an international group, AXA has in place policies and standards (including the AXA Group International Sanctions Policy) that apply to all AXA Group companies worldwide and often impose requirements that go well beyond local law. For additional information regarding AXA, see “Business - Parent Company.”

AXA has informed us that AXA Konzern AG, an AXA insurance subsidiary organized under the laws of Germany, provides car insurance to diplomats based at the Iranian embassy in Berlin, Germany. The total annual premium of these policies is approximately $13,000 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $1,950. These policies were underwritten by a broker who specializes in providing insurance coverage for diplomats. Provision of motor vehicle insurance is mandatory in Germany and cannot be cancelled until the policies expire.

In addition, AXA has informed us that AXA Insurance Ireland, an AXA insurance subsidiary, provides statutorily required car insurance under four separate policies to the Iranian embassy in Dublin, Ireland. AXA has informed us that compliance with the Declined Cases Agreement of the Irish Government prohibits the cancellation of these policies unless another insurer is willing to assume the coverage. The total annual premium for these policies is approximately $6,094 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $914.

Also, AXA has informed us that AXA Sigorta, a subsidiary of AXA organized under the laws of Turkey, provides car insurance coverage for vehicle pools of the Iranian General Consulate and the Iranian embassy in Istanbul, Turkey. Motor liability insurance coverage is mandatory in Turkey and cannot be cancelled unilaterally. The total annual premium in respect of these policies is approximately $3,150 and the annual net profit, which is difficult to calculate with precision, is estimated to be $473.

Additionally, AXA has informed us that AXA Ukraine, an AXA insurance subsidiary, provides car insurance for the Attaché of the Embassy of Iran in Ukraine. Motor liability insurance coverage cannot be cancelled under Ukrainian law. The total annual premium in respect of this policy is approximately $1,000 and the annual net profit, which is difficult to calculate with precision, is estimated to be $150.


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AXA also has informed us that AXA Ubezpieczenia, an AXA insurance subsidiary organized under the laws of Poland, provides car insurance to two diplomats based at the Iranian embassy in Warsaw, Poland. Provision of motor vehicle insurance is mandatory in Poland. The total annual premium of these policies is approximately $535 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $80.

In addition, AXA has informed us that AXA Winterthur, an AXA insurance subsidiary organized under the laws of Switzerland, provides Naftiran Intertrade, a wholly-owned subsidiary of the Iranian state-owned National Iranian Oil Company, with life, disability and accident coverage for its employees. The provision of these forms of coverage is mandatory for employees in Switzerland. The total annual premium of these policies is approximately $373,668 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $56,000.

Lastly, AXA has informed us that AXA France, an AXA insurance subsidiary, has identified a property insurance contract for Bank Sepah in Paris, France. This business commenced in July 2016 for a total annual premium of approximately $1,400 and the annual net profit arising from this policy, which is difficult to calculate with precision, is estimated to be $210. This business was cancelled in September 2016.

The aggregate annual premium for the above-referenced insurance policies is approximately $398,847, representing approximately 0.0004% of AXA’s 2016 consolidated revenues, which are approximately $100 billion. The related net profit, which is difficult to calculate with precision, is estimated to be $59,777, representing approximately 0.0009% of AXA’s 2016 aggregate net profit.

PARENT COMPANY
AXA, our ultimate parent company, is the holding company for the AXA Group, a worldwide leader in financial protection. AXA operates primarily in Europe, North America, the Asia/Pacific regions and, to a lesser extent, in other regions including the Middle East, Africa and Latin America. AXA has five operating business segments: Life and Savings, Property and Casualty, International Insurance, Asset Management and Banking.

Neither AXA nor any affiliate of AXA has any obligation to provide additional capital or credit support to AXA Financial, AXA Equitable or any of its subsidiaries.

Voting Trust. In connection with AXA’s application to the Superintendent for approval of its acquisition of the capital stock of AXA Financial, AXA and certain trustees (the “Voting Trustees”) of the Voting Trust entered into a Voting Trust Agreement dated as of May 12, 1992 (as amended by the First Amendment, dated January 22, 1997, and as amended and restated by the Second Amended and Restated Voting Trust Agreement, dated April 29, 2011, the “Voting Trust Agreement”). Pursuant to the Voting Trust Agreement, AXA and its affiliates (“AXA Parties”) have deposited the shares of AXA Financial’s Common Stock held by them in the Voting Trust. The purpose of the Voting Trust is to ensure for insurance regulatory purposes that certain indirect minority shareholders of AXA will not be able to exercise control over AXA Financial or AXA Equitable.

AXA and any other holder of Voting Trust certificates are the beneficial owner of the shares deposited by it, except that the Voting Trustees are entitled to exercise all voting rights attached to the deposited shares so long as such shares remain subject to the Voting Trust. In voting the deposited shares, the Voting Trustees must act to protect the legitimate economic interests of AXA and any other holders of Voting Trust certificates (but with a view to ensuring that certain indirect minority shareholders of AXA do not exercise control over AXA Financial or AXA Equitable). All dividends and distributions (other than those that are paid in the form of shares required to be deposited in the Voting Trust) in respect of deposited shares are paid directly to the holders of Voting Trust certificates. If a holder of Voting Trust certificates sells or transfers deposited shares to a person who is not an AXA Party and is not (and does not, in connection with such sale or transfer, become) a holder of Voting Trust certificates, the shares sold or transferred will be released from the Voting Trust. The initial term of the Voting Trust ended in 2002 and the term of the Voting Trust has been extended, with the prior approval of the NYDFS, until April 29, 2021. Future extensions of the term of the Voting Trust remain subject to the prior approval of the NYDFS.



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Part I, Item 1A.
RISK FACTORS

In the course of conducting our business operations, we could be exposed to a variety of risks. This “Risk Factors” section provides a summary of some of the significant risks that have affected and could affect our business, consolidated results of operations or financial condition. In this section, the terms “we,” “us” and “our” refer to AXA Equitable. As noted below, risk factors relating to AB’s business, reported in the Investment Management segment, are specifically incorporated by reference herein.

Risks relating to conditions in the capital markets and economy

Conditions in the global capital markets and the economy could adversely affect our business, consolidated results of operations and financial condition.

Our business, consolidated results of operations and financial condition are materially affected by conditions in the global capital markets and the economy generally. While financial markets in the U.S. generally performed well in 2016, a wide variety of factors continue to impact economic conditions and consumer confidence. These factors include, among others, concerns over the pace of economic growth in the U.S., continued low interest rates, the U.S. Federal Reserve’s plans to further raise short-term interest rates, the strength of the U.S. Dollar, the uncertainty created by what actions the Trump administration may pursue, global economic factors including quantitative easing or similar programs by the European Central Bank, the United Kingdom’s vote to exit from the European Union, and geopolitical issues. Given our interest rate and equity market exposure, certain of these factors could have an adverse effect on us. Our revenues may decline, our profit margins could erode and we could incur significant losses.

Factors such as consumer spending, business investment, government spending, the volatility and strength of the equity markets, interest rates, deflation and inflation all affect the business and economic environment and, ultimately, the amount and profitability of our business. In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending, the demand for our annuity, insurance and/or investment products and our investment returns could be adversely affected. In addition, the levels of surrenders and withdrawals of our variable life and annuity contracts we face may be adversely impacted. Our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. Adverse changes in the economy could affect our earnings negatively and could have a material adverse effect on our business, consolidated results of operations and financial condition. See “Business - Products” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Continuing Operations by Segment.”

Interest rate fluctuations and/or prolonged periods of low or negative interest rates may negatively impact our business, consolidated results of operations and financial condition.

Some of our life insurance and annuities products and certain of our investment products, and our investment returns, are sensitive to interest rate fluctuations, and changes in interest rates may adversely affect our investment returns and results of operations, including in the following respects:

•
changes in interest rates may reduce the spread on some of our products between the amounts that we are required to pay under the contracts and the rate of return we are able to earn on our general account investments supporting the contracts. When interest rates decline, we have to reinvest the cash income from our investments in lower yielding instruments, potentially reducing net investment income. Since many of our policies and contracts have guaranteed minimum interest or crediting rates or limit the resetting of interest rates, the spreads could decrease and potentially become negative. When interest rates rise, we may not be able to replace the assets in our general account as quickly with the higher yielding assets needed to fund the higher crediting rates necessary to keep these products and contracts competitive, which may result in higher lapse rates;

•
when interest rates rise rapidly, policy loans and surrenders and withdrawals of life insurance policies and annuity contracts may increase as policyholders seek to buy products with perceived higher returns, requiring us to sell investment assets potentially resulting in realized investment losses, or requiring us to accelerate the amortization of DAC;


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•
a decline in interest rates accompanied by unexpected prepayments of certain investments may result in reduced investment income and a decline in our profitability. An increase in interest rates accompanied by unexpected extensions of certain lower yielding investments may result in a decline in our profitability;

•
changes in the relationship between long-term and short-term interest rates may adversely affect the profitability of some of our products;

•
changes in interest rates could result in changes to the fair value of our GMIB reinsurance contracts asset, which could increase the volatility of our earnings. Higher interest rates reduce the value of the GMIB reinsurance contract asset which reduces our earnings while lower interest rates increase the value of the GMIB reinsurance contract asset which increases our earnings;

•
changes in interest rates may adversely impact our liquidity and increase our costs of financing;

•
our mitigation efforts with respect to interest rate risk are primarily focused on maintaining an investment portfolio with diversified maturities that has a weighted average duration that is approximately equal to the duration of our estimated liability cash flow profile. However, our estimate of the liability cash flow profile may turn out to be inaccurate. In addition, there are practical and capital market limitations on our ability to accomplish this matching. Due to these and other factors we may need to liquidate investments prior to maturity at a loss in order to satisfy liabilities or be forced to reinvest funds in a lower rate environment;

•
although we take measures, including hedging strategies utilizing derivative instruments, to manage the economic risks of investing in a changing interest rate environment, we may not be able to effectively mitigate, and we may sometimes choose based on economic considerations and other factors not to fully mitigate or to increase the interest rate risk of our assets relative to our liabilities; and

•
for certain of our products, a delay between the time we make changes in interest rate and other assumptions used for product pricing and the time we are able to reflect these assumptions in products available for sale may negatively impact the long-term profitability of products sold during the intervening period.

Recent periods have been characterized by low interest rates. A prolonged period during which interest rates remain at levels lower than those anticipated may result in greater costs associated with certain of our product features which guarantee death benefits or income streams for stated periods or for life; higher costs for derivative instruments used to hedge certain of our product risks; or shortfalls in investment income on assets supporting policy obligations as our portfolio earnings decline over time, each of which may require us to record charges to increase reserves. In addition to compressing spreads and reducing net investment income, such an environment may cause policies to remain in force for longer periods than we anticipated in our pricing, potentially resulting in greater claims costs than we expected and resulting in lower overall returns on business in force.

Equity market declines and volatility may adversely affect our business and consolidated results of operations and financial condition.

Declines or volatility in the equity markets can negatively impact our investment returns as well as our business and profitability. For example, equity market declines and/or volatility may, among other things:

•
decrease the account values of our variable life and annuity contracts which, in turn, reduces the amount of revenue we derive from fees charged on those account and asset values. At the same time, for annuity contracts that provide enhanced guarantee features, equity market declines and/or volatility increases the amount of our potential obligations related to such enhanced guarantee features and may increase the cost of executing product guarantee related hedges beyond what was anticipated in the pricing of the products being hedged. This could result in an increase in claims and reserves related to those contracts, net of any reinsurance reimbursements or proceeds from our hedging programs;

•
influence policyholder behavior, which may adversely impact the levels of surrenders, withdrawals and amounts of withdrawals of our variable life and annuity contracts or cause policyholders to reallocate a portion of their account balances to more conservative investment options (which may have lower fees), which could negatively impact our future profitability and/or increase our benefit obligations particularly if they were to remain in such options during an equity market increase;

•
negatively impact the value of equity securities we hold for investment, including our investment in AB, thereby reducing our statutory capital;

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•
reduce demand for variable products relative to fixed products;

•
lead to changes in estimates underlying our calculations of DAC that, in turn, could accelerate our DAC amortization and reduce our current earnings; and

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result in changes to the fair value of our GMIB reinsurance contracts, which could increase the volatility of our earnings.

Market conditions and other factors could adversely affect our goodwill and negatively impact our consolidated results of operations and financial condition.

Business and market conditions may impact the amount of goodwill related to the Investment Management segment we carry in our consolidated balance sheet. As the value of certain of our businesses is significantly impacted by such factors as the state of the financial markets and ongoing operating performance, significant deterioration or prolonged weakness in the financial markets or economy generally, or our failure to meet operating targets which in some respects are ambitious, could adversely impact goodwill impairment testing and also may require more frequent testing for impairment. Any impairment would reduce the recorded goodwill amount with a corresponding charge to earnings, which could be material. See “Management’s Discussion and Analysis of Financial Condition - Critical Accounting Estimates” and Note 4 of Notes to Consolidated Financial Statements.

Risks relating to our reinsurance and hedging programs

Our reinsurance and hedging programs may be inadequate to protect us against the full extent of the exposure or losses we seek to mitigate.

Certain of our products contain enhanced guarantee features and/or minimum crediting rates. Downturns in equity markets, increased equity volatility, and/or reduced interest rates could result in an increase in the valuation of liabilities associated with such products, resulting in increases in reserves and reductions in net earnings. In the normal course of business, we seek to mitigate some of these risks to which our business is subject through our reinsurance and hedging programs. However, these programs cannot eliminate all of the risks and no assurance can be given as to the extent to which such programs will be effective in reducing such risks.

Reinsurance. We utilize reinsurance to mitigate a portion of the risks that we face, principally in certain of our in-force life insurance and annuity products with regard to mortality, and in certain of our annuity products with regard to a portion of the enhanced guarantee features. Under our reinsurance arrangements, other insurers assume a portion of the obligation to pay claims and related expenses to which we are subject. However, we remain liable as the direct insurer on all risks we reinsure and, therefore, are subject to the risk that our reinsurer is unable or unwilling to pay or reimburse claims at the time demand is made. Although we evaluate periodically the financial condition (including the applicable capital requirements) of our reinsurers, the inability or unwillingness of a reinsurer to meet its obligations to us (or the inability to collect under our reinsurance treaties for any other reason) could have a material adverse impact on our consolidated results of operations and financial condition. See “Business - Reinsurance and Hedging” and Notes 2, 8 and 9 of Notes to Consolidated Financial Statements.

We are continuing to utilize reinsurance to mitigate a portion of our risk on certain new life insurance sales. Prolonged or severe adverse mortality or morbidity experience could result in increased reinsurance costs, and ultimately may reduce the availability of reinsurance for future life insurance sales. If, for new sales, we are unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient, we would either have to be willing to accept an increase in our net exposures, revise our pricing to reflect higher reinsurance premiums or limit the amount of new business written on any individual life. If this were to occur, we may be exposed to reduced profitability and cash flow strain or we may not be able to price new business at competitive rates.

Hedging Programs. We utilize a hedging program to mitigate a portion of the unreinsured risks we face in, among other areas, the enhanced guarantee features of our annuity products and minimum crediting rates on our life and annuity products from unfavorable changes in benefit exposures due to movements in the capital markets. In certain cases, however, we may not be able to apply these techniques to effectively hedge these risks because the derivative market(s) in question may not be of sufficient size or liquidity or there could be an operational error in the application of our hedging strategy or for other reasons. The operation of our hedging programs is based on models involving numerous estimates and assumptions, including, among others, mortality, lapse, surrender and withdrawal rates and amounts of withdrawals, election rates, fund performance, market volatility, interest rates and correlation among various market movements. There can be no assurance that ultimate actual experience will not differ materially from our assumptions, particularly (but not only) during periods of high market volatility, which could adversely impact

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consolidated results of operations and financial condition. For example, in the past, due to, among other things, levels of volatility in the equity and interest rate markets above our assumptions as well as deviations between actual and assumed surrender and withdrawal rates, gains from our hedging programs did not fully offset the economic effect of the increase in the potential net benefits payable under the guarantees offered in certain of our products. If these circumstances were to reoccur in the future or if, for other reasons, results from our hedging programs in the future do not correlate with the economic effect of changes in benefit exposures to customers, we could experience economic losses which could have a material adverse impact on our consolidated results of operations and financial condition.

Our hedging programs do not directly hedge our statutory capital position. Additionally, we may choose to hedge these risks on a basis that does not correspond to their anticipated or actual impact upon our results of operations or financial position under U.S. GAAP, which may decrease our earnings or increase the volatility of our results of operations or financial position. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Continuing Operations By Segment.”

See “Business - Reinsurance and Hedging” and Notes 2, 8 and 9 of Notes to Consolidated Financial Statements.

Our reinsurance arrangements with AXA Arizona may be adversely impacted by changes to policyholder behavior assumptions under the reinsured contracts, the performance of AXA Arizona’s hedge program, its liquidity needs, its overall financial results and changes in regulatory requirements regarding the use of captives.

We currently reinsure to AXA Arizona, an indirect, wholly-owned subsidiary of AXA Financial, a 100% quota share of all liabilities for variable annuities with enhanced GMDB and GMIB riders issued on or after January 1, 2006 and in-force on September 30, 2008.  AXA Arizona also reinsures a 90% quota share of level premium term insurance issued by AXA Equitable on or after March 1, 2003 through December 31, 2008 and lapse protection riders under universal life insurance policies issued by AXA Equitable on or after June 1, 2003 through June 30, 2007. The reinsurance arrangements with AXA Arizona provide important capital management benefits to AXA Equitable. Under applicable statutory accounting rules, we are entitled to a credit in our calculation of reserves for amounts reinsured to AXA Arizona to the extent AXA Arizona holds assets in an irrevocable trust and/or letters of credit. Under the reinsurance transactions, AXA Arizona is permitted to transfer assets from the trusts under certain circumstances. The level of assets required to be maintained in the trust fluctuates based on market and interest rate movements, mortality experience and policyholder behavior (i.e., the exercise or non-exercise of rights by policyholders under the contracts including, but not limited to, lapses and surrenders, withdrawal rates and amounts and contributions). Increasing reserve requirements may necessitate that additional assets be placed in trust and/or securing additional letters of credit, which could impact AXA Arizona’s liquidity.

In addition, like AXA Equitable, AXA Arizona employs a dynamic hedging strategy which utilizes derivative contracts as well as repurchase agreement transactions that are collectively managed to help reduce the economic impact of unfavorable changes to GMDB and GMIB reserves. The terms of these contracts in many cases require AXA Arizona to post collateral for the benefit of counterparties or cash settle hedges when there is a decline in the estimated fair value of specified instruments. This would occur, for example, as interest rates and/or equity markets rise and AXA Arizona may not be permitted to transfer assets from the trust under the terms of the reinsurance treaty.

While management believes that AXA Arizona has adequate liquidity and credit facilities to deal with a range of market scenarios and increasing reserve requirements, larger market movements, including but not limited to a significant increase in interest rates, could require AXA Arizona to post more collateral or cash settle more hedges than its own resources would permit. While AXA Arizona’s management intends to take all reasonable steps to maintain adequate sources of liquidity to meet AXA Arizona’s obligations, there can be no assurance that such sources will be available in all market scenarios. The potential inability of AXA Arizona to post such collateral or cash settle such hedges could cause AXA Arizona to reduce the size of its hedging programs, which could ultimately adversely impact AXA Arizona’s ability to perform under the reinsurance arrangements and our ability to receive full statutory reserve credit for the reinsurance arrangements.

Recently, the NAIC, certain state regulators, including the NYDFS, and others have been scrutinizing and further regulating insurance companies’ use of affiliated captive reinsurers or off-shore entities. For example, the NAIC’s Variable Annuities Issues (E) Working Group is developing a revised variable annuities framework that is expected to include a number of changes to the statutory requirements dealing with variable annuities. While the exact nature and scope of the final framework is not predictable at this time, some of the recommendations being discussed in the most recent proposal would adversely impact the capital management benefits we receive under our reinsurance arrangement with AXA Arizona and could cause us to recapture the business reinsured to AXA Arizona and adjust the design of our risk mitigation and hedging programs. In addition, a number of lawsuits have been filed against insurance companies, including AXA Equitable, over the use of captive reinsurers. For additional information, see “Business - Regulation - Insurance Regulation” and Note 17 of Notes to Consolidated Financial Statements. If

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the NYDFS or other state insurance regulators were to restrict the use of such captive reinsurers or if we otherwise are unable to continue to use a captive reinsurer, the capital management benefits we receive under this reinsurance arrangement could be adversely affected which could adversely affect our competitive position, capital, liquidity and financial condition and results of operations.

The inability to secure additional required capital and/or liquidity in the circumstances described above could have a material adverse effect on our business, consolidated results of operations and/or financial condition.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources and Note 11 of Notes to Consolidated Financial Statements.

Risks relating to the nature of our business, the products we offer, our structure and product distribution

Our products contain numerous features and are subject to extensive regulation and failure to administer or meet any of the complex product requirements may reduce profitability.

Our products are subject to a complex and extensive array of state and federal tax, securities, insurance and employee benefit plan laws and regulations, which are administered and enforced by a number of different governmental and self-regulatory authorities, including, among others, state insurance regulators, state securities administrators, state banking authorities, the SEC, FINRA, the DOL and the IRS. See “Business - Regulation.”

For example, U.S. federal income tax law imposes requirements relating to insurance and annuity product design, administration and investments that are conditions for beneficial tax treatment of such products under the Internal Revenue Code. Additionally, state and federal securities and insurance laws impose requirements relating to insurance and annuity product design, offering and distribution and administration. Failure to administer product features in accordance with contract provisions or applicable law, or to meet any of these complex tax, securities, or insurance requirements could subject us to administrative penalties imposed by a particular governmental or self-regulatory authority, unanticipated costs associated with remedying such failure or other claims, litigation, harm to our reputation or interruption of our operations. If this were to occur, it could adversely impact our profitability, results of operations and financial condition.

The amount of statutory capital that we have and the amount of statutory capital we must hold to meet our statutory capital requirements and our financial strength and credit ratings can vary significantly from time to time.

Statutory accounting standards and capital and reserve requirements for AXA Equitable are prescribed by the applicable state insurance regulators and the NAIC. State insurance regulators have established regulations that govern reserving requirements and provide minimum capitalization requirements based on RBC ratios for life insurance companies. This RBC formula establishes capital requirements relating to insurance, business, asset and interest rate risks, including equity, interest rate and expense recovery risks associated with variable annuities and group annuities that contain death benefits or certain living benefits. In any particular year, statutory surplus amounts and RBC ratios may increase or decrease depending on a variety of factors, including but not limited to the amount of statutory income or losses we generate (which itself is sensitive to equity market and credit market conditions), changes in reserves, the amount of additional capital we must hold to support business growth, changes in equity market levels, the value of certain fixed-income and equity securities in our investment portfolio (including the value of AB units), changes in interest rates, as well as changes to existing RBC formulas. Additionally, state insurance regulators have significant leeway in how to interpret existing regulations, which could further impact the amount of statutory capital or reserves that we must maintain. We are primarily regulated by the NYDFS, which from time to time has taken more stringent positions than other state insurance regulators on matters affecting, among other things, statutory capital and/or reserves. In certain circumstances, particularly those involving significant market declines, the effect of these more stringent positions may be that our financial condition appears to be worse than competitors who are not subject to the same stringent standards, which could have a material adverse impact on our competitiveness, results of operations and/or financial condition. Moreover, rating agencies may implement changes to their internal models that have the effect of increasing or decreasing the amount of capital we must hold in order to maintain our current ratings. To the extent that our statutory capital resources are deemed to be insufficient to maintain a particular rating by one or more rating agencies, our financial strength and credit ratings might be downgraded by one or more rating agencies. There can be no assurance that we will be able to maintain our current RBC ratio in the future or that our RBC ratio will not fall to a level that could have a material adverse effect on our business and consolidated results of operations or financial condition.

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Changes in statutory reserve or other requirements and/or the impact of adverse market conditions could result in changes to our product offerings that could negatively impact our business.

Changes in statutory reserve or other requirements, increased costs of hedging, other risk mitigation techniques and financing and other adverse market conditions could result in certain products becoming less profitable or unprofitable. These circumstances may cause us to modify and/or eliminate certain features of various products and/or cause the suspension or cessation of sales of certain products in the future. Any modifications to products that we may make could result in certain of our products being less attractive and/or competitive. This could adversely impact sales, which could negatively impact AXA Advisors’ ability to retain its sales personnel and our ability to maintain our distribution relationships. This, in turn, may negatively impact our business and consolidated results of operations and financial condition.

A downgrade in our financial strength and claims-paying ratings could adversely affect our business and consolidated results of operations and financial condition.

Claims-paying and financial strength ratings are important factors in establishing the competitive position of insurance companies. A downgrade of our ratings or those of AXA and/or AXA Financial could adversely affect our business and results of operations by, among other things, reducing new sales of our products, increasing surrenders and withdrawals from our existing contracts, possibly requiring us to reduce prices or take other actions for many of our products and services to remain competitive, or adversely affecting our ability to obtain reinsurance or obtain reasonable pricing on reinsurance. A downgrade in our ratings may also adversely affect our cost of raising capital or limit our access to sources of capital.

AXA Financial could sell insurance, annuity and/or investment products through another one of its subsidiaries which would result in reduced sales of our products and total revenues.

We are a wholly owned subsidiary of AXA Financial, a diversified financial services organization offering a broad spectrum of financial advisory, insurance and investment management products and services. As part of AXA Financial’s ongoing efforts to efficiently manage capital amongst its subsidiaries, improve the quality of the product line-up of its insurance subsidiaries and enhance the overall profitability of AXA Financial Group, AXA Financial could sell insurance, annuity, investment and/or employee benefit products through another one of its subsidiaries. For example, most sales of indexed universal life insurance to policyholders located outside of New York and sales of employee benefit products to businesses located outside of New York are issued through MONY America, another life insurance subsidiary of AXA Financial, instead of AXA Equitable. It is expected that AXA Financial will continue to issue newly-developed life insurance products to policyholders located outside of New York through MONY America instead of AXA Equitable. This has impacted sales and may continue to reduce sales of our insurance products outside of New York, which will continue to reduce our total revenues. Since future decisions regarding product development and availability depend on factors and considerations not yet known, management is unable to predict the extent to which additional products will be offered through MONY America or another subsidiary instead of or in addition to AXA Equitable, or the impact to AXA Equitable.

Our consolidated results of operations and financial condition depend in significant part on the performance of AB’s business.

AB is one of our principal subsidiaries. Consequently, our results of operations and financial condition depend in significant part on the performance of AB’s business. For information regarding risk factors associated with AB and its business, see “Item 1A - Risk Factors” included in AB’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which item is incorporated into this section by reference to Exhibit 13.1 filed with this Report.

We face competition from other insurance companies, banks and other financial institutions, which may adversely impact our market share and profitability.

There is strong competition among insurers, banks, brokerage firms and other financial institutions and providers seeking clients for the types of products and services we provide. Competition is intense among a broad range of financial institutions and other financial service providers for retirement and other savings dollars. This competition makes it especially difficult to provide unique insurance products since, once such products are made available to the public, they often are reproduced and offered by our competitors. Also, this competition may adversely impact our market share and profitability.

Our ability to compete is dependent on numerous factors including, among others, the successful implementation of our strategy; our financial strength as evidenced, in part, by our financial and claims-paying ratings; new regulations and/or different interpretations of existing regulations; our access to diversified sources of distribution; our size and scale; our product quality, range, features/functionality and price; our ability to bring customized products to the market quickly; our technological capabilities; our ability to explain complicated products and features to our distribution channels and customers; crediting rates on our fixed

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products; the visibility, recognition and understanding of our brands in the marketplace; our reputation and quality of service; the tax-favored status certain of our products receive under current federal and state laws; and (with respect to variable insurance and annuity products, mutual funds and other investment products) investment options, flexibility and investment management performance. See “Business - Competition.”


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The ability of financial professionals associated with AXA Advisors and AXA Network to sell our competitors’ products could result in reduced sales of our products and revenues.

Most of the financial professionals associated with AXA Advisors and AXA Network can sell products from competing unaffiliated insurance companies. To the extent the financial professionals sell our competitors’ products rather than our products, we will experience reduced sales and revenues.

The inability of AXA Advisors and AXA Network to recruit, motivate and retain experienced and productive financial professionals and our inability to recruit, motivate and retain key employees may adversely affect our business.

Financial professionals associated with AXA Advisors and AXA Network and our key employees are key factors driving our sales. Intense competition exists among insurers and other financial services companies for financial professionals and key employees. Companies compete for financial professionals principally with respect to compensation policies, products and sales support. Competition is particularly intense in the hiring and retention of experienced financial professionals. Although we believe that we and AXA Advisors and AXA Network offer key employees and financial professionals a strong value proposition, we cannot provide assurances that we and/or AXA Advisors and AXA Network will be successful in our respective efforts to recruit, motivate and retain key employees and top financial professionals.

Consolidation of distributors of insurance products may adversely affect the insurance industry and the profitability of our business.

The insurance industry distributes many of its products through other financial institutions such as banks and broker-dealers. An increase in the consolidation activity of bank and other financial services companies may create firms with even stronger competitive positions, negatively impact the industry’s sales, increase competition for access to distributors, result in greater distribution expenses and impair our ability to market insurance products to our current customer base or expand our customer base. Consolidation of distributors and/or other industry changes may also increase the likelihood that distributors will try to renegotiate the terms of any existing selling agreements to terms less favorable to us.

Risks relating to estimates, assumptions and valuations

Our reserves could be inadequate due to differences between our actual experience and management’s estimates and assumptions.

We establish and carry reserves to pay future policyholder benefits and claims. Our reserve requirements for our direct and reinsurance assumed business are calculated based on a number of estimates and assumptions, including estimates and assumptions related to future mortality, morbidity, interest rates, future equity performance, reinvestment rates, persistency, claims experience, and policyholder elections (i.e., the exercise or non-exercise of rights by policyholders under the contracts). Examples of policyholder elections include, but are not limited to, lapses and surrenders, withdrawals and amounts of withdrawals, and contributions and the allocation thereof. The assumptions and estimates used in connection with the reserve estimation process are inherently uncertain and involve the exercise of significant judgment. We review the appropriateness of reserves and the underlying assumptions on a quarterly basis and make adjustments when appropriate. We cannot, however, determine with precision the amounts that we will pay for, or the timing of payment of, actual benefits and claims or whether the assets supporting the policy liabilities will grow to the level assumed prior to payment of benefits or claims. Our claim costs could increase significantly and our reserves could be inadequate if actual results differ significantly from our estimates and assumptions. If so, we will be required to increase reserves or reduce DAC, which could adversely impact our earnings and/or capital. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Estimates.”

Our profitability may decline if mortality rates or persistency rates differ significantly from our pricing expectations.

We set prices for many of our insurance and annuity products based upon expected claims and payment patterns, using assumptions for mortality rates of our policyholders. In addition to the potential effect of natural or man-made disasters, significant changes in mortality could emerge gradually over time, due to changes in the natural environment, the health habits of the insured population, the economic environment, or other factors. Pricing of our insurance and annuity products is also based in part upon expected persistency of these products, which is the probability that a policy or contract will remain in force from one period to the next. Persistency within our annuities products may be significantly impacted by the value of guaranteed minimum benefits contained in many of our variable annuity products being higher than current account values in light of poor equity market performance or extended periods of low interest rates as well as other factors. Results may also vary based on differences between actual and expected premium deposits and withdrawals for these products. Persistency within our life products may be significantly impacted by, among other things, conditions in the capital markets, the changing needs of our policyholders, the manner in which a product

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is marketed or illustrated, and competition, including the availability of new products. The development of a secondary market for life insurance, including life settlements or “viaticals” and investor owned life insurance, and to a lesser extent third party investor strategies in the annuities market, could adversely affect the profitability of existing business and our pricing assumptions for new business. Significant deviations in actual experience from our pricing assumptions could have an adverse effect on the profitability of our products. Although some of our products permit us to increase premiums or adjust other charges and credits during the life of the policy or contract, the adjustments permitted under the terms of the policies or contracts may not be sufficient to maintain profitability. Many of our products do not permit us to increase premiums or adjust other charges and credits or limit those adjustments during the life of the policy or contract.

Our earnings are impacted by DAC estimates that are subject to change.

Our earnings for any period depend in part on the amount of our life insurance and annuity product acquisition costs (including commissions, underwriting, agency and policy issue expenses) that can be deferred and amortized rather than expensed immediately. They also depend in part on the pattern of DAC amortization and the recoverability of DAC which is based on models involving numerous estimates and subjective judgments, including those regarding investment results including hedging costs, Separate Account performance, Separate Account fees, mortality and expense margins, expected market rates of return, lapse rates and anticipated surrender charges. These estimates and judgments are required to be revised periodically and adjusted as appropriate. Revisions to our estimates may result in a change in DAC amortization, which could negatively impact our earnings.

We use financial models that rely on a number of estimates, assumptions and projections that are inherently uncertain and which may contain errors.

We use models in our hedging programs and many other aspects of our operations, including but not limited to, product development and pricing, capital management, the estimation of actuarial reserves, the amortization of DAC, the fair value of the GMIB reinsurance contracts and the valuation of certain other assets and liabilities. These models rely on estimates, assumptions and projections that are inherently uncertain and involve the exercise of significant judgment. Due to the complexity of such models, it is possible that errors in the models could exist and our controls could fail to detect such errors. Failure to detect such errors could result in a negative impact to our consolidated results of operations and financial position.

The determination of the amount of allowances and impairments taken on our investments is subjective and could materially impact our consolidated results of operations and financial condition.

The determination of the amount of allowances and impairments vary by investment type and is based upon our evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. There can be no assurance that management’s judgments, as reflected in our financial statements, will ultimately prove to be an accurate estimate of the actual and eventual diminution in realized value. Furthermore, additional impairments may need to be taken or allowances provided for in the future.

Credit, counterparty and investments related risks

Our requirements to pledge collateral or make payments related to declines in estimated fair value of specified assets may adversely affect our liquidity and expose us to counterparty credit risk.

Some of our transactions with financial and other institutions specify the circumstances under which the parties are required to pledge collateral related to any decline in the market value of the specified assets. In addition, under the terms of some of our transactions, we may be required to make payments to our counterparties related to any decline in the market value of the specified assets. The amount of collateral we may be required to pledge and the payments we may be required to make under these agreements may increase under certain circumstances, which could adversely affect our liquidity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

If the counterparties to the derivative contracts and other instruments we use to hedge our business risks default or fail to perform, we may be exposed to risks we had sought to mitigate, which could materially adversely affect our financial condition and results of operations.

We use derivatives and other instruments to help us mitigate various business risks. We enter into a variety of contracts, including, among other things, exchange traded futures contracts, over the counter derivative contracts, as well as repurchase agreement transactions, with a number of counterparties. The vast majority of these contracts are subject to collateral agreements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Derivatives.” If our counterparties

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fail or refuse to honor their obligations under these contracts, we could face significant losses to the extent collateral agreements do not fully offset our exposures. Such failure could have a material adverse effect on our consolidated financial condition and results of operations.

Losses due to defaults, errors or omissions by third parties and affiliates, including outsourcing relationships, could materially adversely impact our business and consolidated results of operations and financial condition.

We depend on third parties and affiliates that owe us money, securities or other assets to pay or perform under their obligations. These parties include the issuers whose securities we hold in our investment portfolios, borrowers under the mortgage loans we make, customers, trading counterparties, counterparties under swap and other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real estate values, operational failure or other reasons.

We also depend on third parties and affiliates in other contexts. For example, in establishing the amount of the liabilities and reserves associated with the risks assumed in connection with reinsurance pools and arrangements, we rely on the accuracy and timely delivery of data and other information from ceding companies. In addition, as investment manager and administrator of several mutual funds, we rely on various affiliated and unaffiliated subadvisors to provide day-to-day portfolio management services for each investment portfolio.

We also rely on third parties and affiliates to whom we outsource certain technology platforms, information systems and administrative functions, including records retention. If we do not effectively implement and manage our outsourcing strategy, third party vendor providers do not perform as anticipated, such vendors’ internal controls fail or are inadequate, or we experience technological or other problems associated with outsourcing transitions, we may not realize anticipated productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and reputational damage.

Losses associated with defaults or other failures by these third parties and outsourcing partners upon whom we rely could materially adversely impact our business, and consolidated results of operations and financial condition.

Some of our investments are relatively illiquid and may be difficult to sell, or to sell in significant amounts at acceptable prices, to generate cash to meet our needs.

We hold certain investments that may lack liquidity, such as privately placed fixed maturity securities, mortgage loans, commercial mortgage backed securities, equity real estate and limited partnership interests. These asset classes represented approximately 30.8% of the carrying value of our total cash and invested assets as of December 31, 2016. Although we seek to adjust our cash and short-term investment positions to minimize the likelihood that we would need to sell illiquid investments, if we were required to liquidate these investments on short notice, we may have difficulty doing so and be forced to sell them for less than we otherwise would have been able to realize. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - General Accounts Investment Portfolio.”

Gross unrealized losses on fixed maturity and equity securities may be realized or result in future impairments, resulting in a reduction in our net earnings.

Fixed maturity and equity securities classified as available-for-sale are reported at fair value. Unrealized gains or losses on available-for-sale securities are recognized as a component of other comprehensive income (loss) and are, therefore, excluded from net earnings. Our gross unrealized losses on fixed maturity and equity securities at December 31, 2016 were approximately $859 million. The accumulated change in estimated fair value of these available-for-sale securities is recognized in net earnings when the gain or loss is realized upon the sale of the security or in the event that the decline in estimated fair value is determined to be other-than-temporary and an impairment charge to earnings is taken. Realized losses or impairments may have a material adverse effect on our net earnings in a particular quarterly or annual period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - General Accounts Investment Portfolio.”

Legal and regulatory risks

We are heavily regulated, and changes in regulation may reduce our profitability and limit our growth.

Insurance Regulation: We are subject to a wide variety of insurance and other laws and regulations. State insurance laws regulate most aspects of our insurance business. We are domiciled in New York and are primarily regulated by the NYDFS and by the states in which we are licensed. See “Business - Regulation”.


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Our products are highly regulated and approved by the individual state regulators where such products are sold. State insurance regulators and the NAIC regularly reexamine existing laws and regulations applicable to insurance companies and their products. Changes in these laws and regulations, or in interpretations thereof, including potentially rescinding prior product approvals, are often made for the benefit of the consumer at the expense of the insurer and, thus, could have a material adverse effect on our financial condition and consolidated results of operations. See “Business - Regulation - Insurance Regulation” and “Business - Regulation - NAIC.”

U.S. Federal Regulation Affecting Insurance: Currently, the U.S. federal government does not directly regulate the business of insurance. While the Dodd-Frank Act does not remove primary responsibility for the supervision and regulation of insurance from the states, Title V of the Dodd-Frank Act establishes the FIO within the U.S. Treasury Department and reforms the regulation of the non-admitted property and casualty insurance market and the reinsurance market. Federal legislation and administrative policies can significantly and adversely affect insurance companies, including policies regarding financial services regulation, securities regulation, derivatives regulation, pension regulation, health care regulation, privacy, tort reform legislation and taxation. In addition, various forms of direct and indirect federal regulation of insurance have been proposed from time to time, including proposals for the establishment of an optional federal charter for insurance companies. Other aspects of our insurance operations could also be affected by the Dodd-Frank Act. For example, the Dodd-Frank Act includes a new framework of regulation of the OTC derivatives market. See “Business - Regulation - Dodd-Frank Wall Street Reform and Consumer Protection Act.”

Regulation of Broker-Dealers: The Dodd-Frank Act provides that the SEC may promulgate rules to provide that the standard of conduct for all broker-dealers, when providing personalized investment advice about securities to retail customers (and any other customers as the SEC may by rule provide) will be the same as the standard of conduct applicable to an investment adviser under the Investment Advisers Act of 1940. See “Business - Regulation - Regulation of Broker-Dealers.”

ERISA: The DOL issued a final Rule on April 6, 2016 that significantly expands the range of activities that would be considered to be fiduciary investment advice under ERISA when our affiliated advisors and our employees provide investment-related information and support to retirement plan sponsors, participants, and IRA holders. Implementation of the Rule is currently scheduled to be phased in starting on April 10, 2017, although certain aspects of it covering existing business would not be implemented until January 1, 2018. In February 2017, however, the DOL was directed by the President’s Order and Memorandum to review the Rule and determine whether the Rule should be rescinded or revised, in light of the new administration’s policies and orientations. On March 2, 2017, the DOL submitted a proposal to delay for sixty days the applicability date of the Rule and invited comments on both the proposed extension and the examination described in the President’s Order and Memorandum. Comments on the proposed extension are due by March 17, 2017, and on the President’s Order and Memorandum by April 17, 2017. While the outcome of the foregoing cannot be anticipated at this time, it is likely to result in implementation of the Rule being delayed. Although implementation of the Rule remains uncertain, and is currently subject to judicial challenge, management continues to evaluate its potential impact on our business. If the Rule is implemented as planned, it is likely to result in adverse changes to the level and type of services we provide, as well as the nature and amount of compensation and fees that we and our affiliated advisors and firms receive for investment-related services to retirement plans and IRAs, which may have a significant adverse effect on our business and consolidated results of operations. See “Business - Regulation - ERISA Considerations.”

International Regulation: In addition, regulators and lawmakers in non-U.S. jurisdictions are engaged in addressing the causes of the financial crisis and means of avoiding such crises in the future. For example, the FSB has identified nine G-SIIs, which include the AXA Group. While the precise implications of being designated a G-SII are still developing, it could have far reaching regulatory and competitive implications for the AXA Group and adversely impact AXA’s capital requirements, profitability, the fungibility of AXA’s capital and ability to provide capital/financial support for AXA Group companies, including potentially AXA Equitable, AXA’s ability to grow through future acquisitions, internal governance and could change the way AXA conducts its business and adversely impact AXA’s overall competitive position versus insurance groups that are not designated G-SIIs. The multiplicity of different regulatory regimes, capital standards and reporting requirements could increase AXA’s operational complexity and costs. All of these possibilities, if they occurred, could affect the way we conduct our business (including, for example, which products we offer) and manage capital, and may require us to satisfy increased capital requirements, all of which in turn could materially affect our competitive position, consolidated results of operations, financial condition and liquidity. See “Business - Regulation - International Regulation.”

General: The NYDFS is completing its periodic statutory examinations of the books, records and accounts of AXA Equitable for the years 2011 through 2015, but has not yet issued its final report. We have responded to various information requests made during this examination. From time to time, regulators raise issues during examinations or audits of us and regulated subsidiaries that could, if determined adversely, have a material impact on us. In addition, the interpretations of regulations by regulators may change and statutes may be enacted with retroactive impact, particularly in areas such as accounting or statutory reserve requirements. We are also subject to other regulations and may in the future become subject to additional regulations. See “Business

30

- Regulation.” Compliance with applicable laws and regulations is time consuming and personnel-intensive, and changes in these laws and regulations may materially increase our direct and indirect compliance and other expenses of doing business, thus having a material adverse effect on our consolidated results of operations and financial condition.

The results of the 2016 United States Presidential and Congressional elections have created regulatory uncertainty for the financial services industry.

During the 2016 U.S. Presidential election campaign and following his inauguration, President Trump has consistently argued that the U.S. is over-regulated and requested a review of a wide range of government laws and regulations. While we cannot ascertain what actions the Trump administration may ultimately pursue and what actions will have the support of the U.S. Congress, some of the items being discussed could negatively impact our business, consolidated results of operations and financial condition.

Changes in U.S. tax laws and regulations or interpretations thereof could reduce our earnings and negatively impact our business.
 
Currently, we derive federal and state corporate income tax benefits from certain items, including but not limited to, the DRD, various tax credits and insurance reserve and interest expense deductions. There is a risk that, in the context of deficit reduction or overall tax reform, federal and/or state tax legislation could modify or eliminate these or other items from which we derive tax benefits.  Such modifications or eliminations could reduce our earnings by increasing our actual tax rate and adversely affect our financial condition, consolidated results of operations and liquidity.  The modification or elimination of interest expense deductions could also impact our investments and investment strategies.
 
Moreover, many of the products that we sell benefit from one or more forms of tax-favored status under current federal and state income tax regimes. For example, life insurance and annuity contracts currently allow policyholders to defer the recognition of taxable income earned within the contract. The modification or elimination of this tax-favored status could reduce demand for our products.  Also, if the treatment of earnings accrued inside an annuity contract was changed prospectively, and the tax-favored status of existing contracts was grandfathered, holders of existing contracts would be less likely to surrender or rollover their contracts.  It is difficult to predict how this would impact our business.
 
Finally, a decrease in individual income tax rates could also affect the demand for our products.  See “Business - Regulation - Federal Tax Legislation.”

Changes in accounting standards could have a material adverse effect on our consolidated results of operations and/or financial condition.

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America that are revised from time to time. Accordingly, from time to time we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board (“FASB”). In the future, new accounting pronouncements, as well as new interpretations of existing accounting pronouncements, may have material adverse effects on our consolidated results of operations and/or financial condition. See Note 2 of Notes to Consolidated Financial Statements.

In addition AXA, our ultimate parent company prepares consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”). From time to time AXA may be required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the International Accounting Standards Board (“IASB”). In the future, new accounting pronouncements, as well as new interpretations of existing accounting pronouncements, may have material adverse effects on AXA’s consolidated results of operations and/or financial condition which could impact the way we conduct our business (including, for example, which products we offer), our competitive position and the way we manage capital.

Legal and regulatory actions could have a material adverse effect on our business, reputation, and consolidated results of operations and financial condition.

A number of lawsuits, claims, assessments and regulatory inquiries have been filed or commenced against life and health insurers and asset managers in the jurisdictions in which we do business. These actions and proceedings involve, among other things, insurers’ sales practices, alleged agent misconduct, alleged failure to properly supervise agents, contract administration, product design, features and accompanying disclosure, cost of insurance increases, the use of captive reinsurers, payment of death benefits and the reporting and escheatment of unclaimed property, alleged breach of fiduciary duties, alleged mismanagement of client funds and other matters. In addition, a number of lawsuits, claims, assessments and regulatory inquiries have been filed or commenced against businesses in the jurisdictions in which we do business, including actions and proceedings related to alleged

31

discrimination, alleged breaches of fiduciary duties in connection with qualified pension plans and other general business-related matters.  Some of these matters have resulted in the award of substantial fines and judgments including material amounts of punitive damages, or in substantial settlements. In some states, juries have substantial discretion in awarding punitive damages.

From time to time, we are involved in such actions and proceedings and our consolidated results of operations and financial position could be affected by defense and settlement costs and any unexpected material adverse outcomes in such matters as well as in other material actions and proceedings pending against us. The frequency of large damage awards, including large punitive damage awards and regulatory fines that bear little or no relation to actual economic damages incurred, continues to create the potential for an unpredictable judgment in any given matter.

In addition, examinations by Federal and state regulators and other governmental and self-regulatory agencies including, among others, the SEC, state attorneys general, insurance and securities regulators and FINRA could result in adverse publicity, sanctions, fines and other costs. We have provided and, in certain cases, continue to provide information and documents to the SEC, FINRA, state attorneys general, NYDFS and other state insurance departments and other regulators on a wide range of issues. At this time, management cannot predict what actions the SEC, FINRA and/or other regulators may take or what the impact of such actions might be. See “Business - Regulation” and Note 17 of Notes to Consolidated Financial Statements.

Operational and other risks

Our computer systems may fail or their security may be compromised, which could adversely impact our business and consolidated results of operations and financial condition.

Our business is highly dependent upon the effective operation of our computer systems. We also have arrangements in place with outside vendors and other third-party service providers through which we share and receive information. We rely on these systems throughout our business for a variety of functions, including processing claims and applications, providing information to customers and distributors, performing actuarial analyses and modelling, hedging and maintaining financial records. Despite the implementation of security and back-up measures, our computer systems and those of our outside vendors and third-party service providers may be vulnerable to physical or cyber-attacks, computer viruses or other computer related attacks, programming errors and similar disruptive problems. The failure of these systems for any reason could cause significant interruptions to our operations, which could result in a material adverse effect on our business, financial condition or results of operations.

We retain confidential information in our computer systems, and we rely on commercial technologies to maintain the security of those systems. Anyone who is able to circumvent our security measures and penetrate our computer systems could access, view, misappropriate, alter or delete any information in the systems, including personally identifiable customer information and proprietary business information. Our employees, distribution partners and other vendors may use portable computers or mobile devices which may contain similar information to that in our computer systems, and these devices have been and can be lost, stolen or damaged. In addition, an increasing number of states require that customers be notified if a security breach results in the inappropriate disclosure of personally identifiable customer information. Any compromise of the security of our computer systems through cyber-attacks or for any other reason that results in inappropriate disclosure of personally identifiable customer information could damage our reputation in the marketplace, deter people from purchasing our products, subject us to significant civil and criminal liability and require us to incur significant technical, legal and other expenses.

Our business could be adversely affected by the occurrence of a catastrophe, including natural or man-made disasters.

Any catastrophic event, such as pandemic diseases, terrorist attacks, floods, severe storms or hurricanes or computer cyber-terrorism, could have an adverse effect on our business in several respects:

•
we could experience long-term interruptions in our service and the services provided by our significant vendors due to the effects of catastrophic events. Some of our operational systems are not fully redundant, and our disaster recovery and business continuity planning cannot account for all eventualities. Additionally, unanticipated problems with our disaster recovery systems could further impede our ability to conduct business, particularly if those problems affect our computer-based data processing, transmission, storage and retrieval systems and destroy valuable data;

•
the occurrence of a pandemic disease could have a material adverse effect on our liquidity and the operating results of the Insurance Segment due to increased mortality and, in certain cases, morbidity rates;

•
the occurrence of any pandemic disease, natural disaster, terrorist attacks or any other catastrophic event that results in our workforce being unable to be physically located at one of our facilities could result in lengthy interruptions in our service;

32


•
a localized catastrophic event that affects the location of one or more of our COLI and/or employer sponsored life insurance customers could cause a significant loss due to the corresponding mortality claims; and

•
another terrorist attack in the United States could have long-term economic impacts that may have severe negative effects on our investment portfolio and disrupt our business operations. Any continuous and heightened threat of terrorist attacks could also result in increased costs of reinsurance.

Our risk management policies and procedures may not be adequate to identify, monitor and manage risks, which may leave us exposed to unidentified or unanticipated risks, which could negatively affect our businesses or result in losses.

Our policies and procedures to identify, monitor and manage risks may not be adequate or fully effective. Many of our methods of managing risk and exposures are based upon our use of historical market behavior or statistics based on historical models. As a result, these methods may not predict future exposures, which could be significantly greater than the historical measures indicate, such as the risk of pandemics causing a large number of deaths or terrorism. Other risk management methods depend upon the evaluation of information regarding markets, clients, catastrophe occurrence or other matters that is publicly available or otherwise accessible to us, which may not always be accurate, complete, up-to-date or properly evaluated.

We may not be able to protect our intellectual property and may be subject to infringement claims by a third party.

We rely on a combination of contractual rights, copyright, trademark, and trade secret laws to establish and protect our intellectual property. Although we use a broad range of measures to protect our intellectual property rights, third parties may infringe or misappropriate our intellectual property. The loss of intellectual property protection or the inability to secure or enforce the protection of our intellectual property assets could have a material adverse effect on our business and our ability to compete.

Third parties may have, or may eventually be issued, patents or other protections that could be infringed by our products, methods, processes or services or could limit our ability to offer certain product features. In recent years, there has been increasing intellectual property litigation in the financial services industry challenging, among other things, product designs and business processes. If a third party were to successfully assert an intellectual property infringement claim against us, or if we were otherwise precluded from offering certain features or designs, or utilizing certain processes, it could have a material adverse effect on our business, consolidated results of operations and financial condition. See “Business - Intellectual Property.”

33

Part I, Item 1B.
UNRESOLVED STAFF COMMENTS
None.

34

Part I, Item 2
PROPERTIES
Insurance

AXA Equitable’s principal executive offices at 1290 Avenue of the Americas, New York, NY are occupied pursuant to a lease that extends to 2023. At this location, AXA Equitable currently leases approximately 423,174 square feet of space, within which AXA Equitable currently occupies 135,065 square feet of space and has sub-let 288,109 square feet of space.

AXA Equitable also has the following significant office space leases: 316,332 square feet of space in Syracuse, NY, under a lease that expires in 2023; 244,957 square feet of space in Jersey City, NJ, under a lease that expires in 2023, within which AXA Equitable occupies 228,043 square feet of space and is seeking to sublet 16,914 square feet of space; 144,647 square feet of space in Charlotte, NC, under a lease that expires in 2028; and 100,993 square feet of space in Secaucus, NJ, under a lease that expires in 2018.

Investment Management

AB’s principal executive offices at 1345 Avenue of the Americas, New York, NY are occupied pursuant to a lease expiring in 2024. At this location, AB currently leases 992,043 square feet of space, within which AB currently occupies approximately 600,060 square feet of space and has sub-let approximately 391,983 square feet of space. AB also leases space at two other locations in New York City; AB acquired these leases in connection with an acquisition.

In addition, AB leases approximately 263,083 square feet of space at One North Lexington, White Plains, NY under a lease expiring in 2021 with options to extend to 2031. At this location, AB currently occupies approximately 69,013 square feet of space and has sub-let (or is seeking to sub-let) approximately 194,070 square feet of space. AB also leases 92,067 square feet of space in San Antonio, TX under a lease expiring in 2019 with options to extend to 2029. At this location, AB currently occupies approximately 59,004 square feet of space and has sub-let approximately 33,063 square feet of space.

AB also leases additional property both domestically and abroad for its operations.

35

Part I, Item 3.
LEGAL PROCEEDINGS
The matters set forth in Note 17 of Notes to Consolidated Financial Statements for the year ended December 31, 2016 (Part II, Item 8 of this report) are incorporated herein by reference.

36

Part I, Item 4.
MINE SAFETY DISCLOSURES
Not Applicable.

37

Part II, Item 5
MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
At December 31, 2016, all of AXA Equitable’s common equity was owned by AXA Equitable Financial Services, LLC, a wholly-owned, direct subsidiary of AXA Financial, Inc., which is an indirect, wholly-owned subsidiary of AXA. Consequently, there is no established public market for AXA Equitable’s common equity. In 2016, 2015 and 2014, AXA Equitable paid $1.1 billion, $767 million and $382 million, respectively, in shareholder dividends. For information on AXA Equitable’s present and future ability to pay dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” (Part II, Item 7 of this report) and Note 18 of Notes to Consolidated Financial Statements.

38

Part II, Item 6.

SELECTED FINANCIAL DATA

The following selected financial data have been derived from the Company’s audited consolidated financial statements. The consolidated statements of earnings (loss) for the years ended December 31, 2016, 2015 and 2014, and the consolidated balance sheet data at December 31, 2016 and 2015 have been derived from the Company’s audited financial statements included elsewhere herein. The consolidated statements of earnings (loss) for the years ended December 31, 2013 and 2012, and the consolidated balance sheet data at December 31, 2014, 2013 and 2012 have been derived from the Company’s previously reported audited financial statements not included herein. This selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited financial statements and related notes included elsewhere herein.
 
Years Ended December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
 
(In Millions)
Statements of Earnings (Loss) Data:
 
 
 
 
 
 
 
 
 
REVENUES
 
 
 
 
 
 
 
 
 
Universal life and investment-type product policy fee income
$
3,423

 
$
3,208

 
$
3,115

 
$
3,164

 
$
2,940

Premiums
880

 
854

 
874

 
878

 
908

Net investment income (loss):
 
 
 
 
 
 
 
 
 
Investment income (loss) from derivative instruments
(462
)
 
(81
)
 
1,605

 
(2,866
)
 
(978
)
Other investment income
2,318

 
2,057

 
2,210

 
2,237

 
2,316

Total net investment income (loss)
1,856

 
1,976

 
3,815

 
(629
)
 
1,338

Investment gains (losses), net:
 
 
 
 
 
 
 
 
 
Total other-than-temporary impairment losses
(65
)
 
(41
)
 
(72
)
 
(81
)
 
(96
)
Portion of loss recognized in other comprehensive income (loss)
—

 
—

 
—

 
15

 
2

Net impairment losses recognized
(65
)
 
(41
)
 
(72
)
 
(66
)
 
(94
)
Other investment gains (losses), net
81

 
21

 
14

 
(33
)
 
(3
)
Total investment gains (losses), net
16

 
(20
)
 
(58
)
 
(99
)
 
(97
)
Commissions, fees and other income
3,791

 
3,942

 
3,930

 
3,823

 
3,574

Increase (decrease) in fair value of the reinsurance contract asset
(261
)
 
(141
)
 
3,964

 
(4,297
)
 
497

Total revenues
$
9,705

 
$
9,819

 
$
15,640

 
$
2,840

 
$
9,160


39

 
Years Ended December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
 
(In Millions)
Statements of Earnings (Loss) Data continued:
 
 
 
 
 
 
 
 
 
BENEFITS AND OTHER DEDUCTIONS
 
 
 
 
 
 
 
 
 
Policyholders’ benefits
$
2,893

 
$
2,799

 
$
3,708

 
$
1,691

 
$
2,989

Interest credited to policyholders’ account balances
1,555

 
978

 
1,186

 
1,373

 
1,166

Compensation and benefits
1,723

 
1,783

 
1,739

 
1,743

 
1,672

Commissions
1,095

 
1,111

 
1,147

 
1,160

 
1,248

Distribution related payments
372

 
394

 
413

 
423

 
367

Amortization of deferred sales commissions
 
 
—

 
 
 
 
 
 
Interest expense
16

 
20

 
53

 
88

 
108

Amortization of deferred policy acquisition costs, net
162

 
(331
)
 
(413
)
 
(75
)
 
(142
)
Other operating costs and expenses
1,458

 
1,415

 
1,692

 
1,746

 
1,694

Total benefits and other deductions
9,274

 
8,169

 
9,525

 
8,149

 
9,102

Earnings (loss) from operations, before income taxes
431

 
1,650

 
6,115

 
(5,309
)
 
58

Income tax (expense) benefit
113

 
(186
)
 
(1,695
)
 
2,073

 
158

Net earnings (loss)
544

 
1,464

 
4,420

 
(3,236
)
 
216

Less: net (earnings) loss attributable to the noncontrolling interest
(469
)
 
(403
)
 
(387
)
 
(337
)
 
(121
)
Net Earnings (Loss) Attributable to AXA Equitable
$
75

 
$
1,061

 
$
4,033

 
$
(3,573
)
 
$
95



40

 
December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
 
(In Millions)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total investments
$
58,416

 
$
52,527

 
$
51,783

 
$
45,977

 
$
47,962

Separate Accounts assets
111,403

 
107,497

 
111,059

 
108,857

 
94,139

Total Assets
203,764

 
194,626

 
196,005

 
183,401

 
176,843

Policyholders’ account balances
38,782

 
33,033

 
31,848

 
30,340

 
28,263

Future policy benefits and other policyholders’ liabilities
25,358

 
24,531

 
23,484

 
21,697

 
22,687

Short-term and long-term debt
513

 
584

 
689

 
468

 
523

Loans from affiliates
—

 
—

 


 
825

 
1,325

Separate Accounts liabilities
111,403

 
107,497

 
111,059

 
108,857

 
94,139

Total liabilities
186,945

 
177,018

 
177,880

 
169,960

 
158,913

Total AXA Equitable’s equity
13,331

 
14,509

 
15,119

 
10,538

 
15,436

Noncontrolling interest
3,085

 
3,086

 
2,989

 
2,903

 
2,494

Total equity
$
16,416

 
$
17,595

 
$
18,108

 
$
13,441

 
$
17,930

 
 
 
 
 
 
 
 
 
 
 
December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
 
(In Millions)
Assets Under Management :
$
582,709

 
$
566,858

 
$
572,672

 
$
548,594

 
$
519,491


41

Part II, Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) for the Company should be read in conjunction with “Forward-looking Statements,” “Risk Factors,” “Selected Financial Data” and the consolidated financial statements and related notes to consolidated financial statements included elsewhere in this Form 10-K.
BACKGROUND

Established in 1859, AXA Equitable is among the oldest and largest life insurance companies in the United States. AXA Equitable is part of a diversified financial services organization that offers a broad spectrum of insurance, financial advisory and investment management products and services. Together with its subsidiaries, including AB, AXA Equitable is a leading asset manager, with total assets under management of approximately $582.7 billion at December 31, 2016, of which approximately $480.2 billion were managed by AB. AXA Equitable is an indirect, wholly-owned subsidiary of AXA Financial, which is itself an indirect, wholly-owned subsidiary of AXA.
The Company conducts operations in two business segments, the Insurance segment and the Investment Management segment. The Insurance segment offers a variety of term, variable and universal life insurance products, variable annuity products, employee benefit products, and investment products including mutual funds, principally to individuals, small and medium-size businesses and professional and trade associations. The Investment Management segment is principally comprised of the investment management business of AB. AB provides research, diversified investment management and related services globally to a broad range of clients through three buy-side distribution channels: Institutions, Retail and Private Wealth Management, and its sell-side business, Bernstein Research Services. This segment also includes institutional Separate Accounts principally managed by AB that provide various investment options for large group pension clients, primarily defined benefit and contribution plans, through pooled or single group accounts.
EXECUTIVE OVERVIEW

Earnings (loss). The Company’s business and consolidated results of operations are significantly affected by conditions in the capital markets and the economy. While financial markets in the U.S. generally performed well in 2016, a wide variety of factors continue to impact economic conditions and consumer confidence. These factors include, among others, concerns over the pace of economic growth in the U.S., continued low interest rates, the U.S. Federal Reserve’s plans to further raise short-term interest rates, the strength of the U.S. Dollar, the uncertainty created by what actions the Trump administration may pursue, global economic factors including quantitative easing or similar programs by the European Central Bank, the United Kingdom’s vote to exit from the European Union, and geopolitical issues. For additional information on how the Company’s business and consolidated results of operations are effected by conditions in the capital markets and the economy, see “Item 1A - Risk Factors - Risks relating to conditions in the capital markets and economy” included elsewhere herein.

The accounting of reserves for GMDB and GMIB features do not fully and immediately reflect the impact of equity and interest market fluctuations. If the reserves were calculated on a basis that would fully and immediately reflect the impact of equity and interest market fluctuations, earnings would be higher than the $75 million consolidated net earnings of the Company and $24 million consolidated net loss of the Insurance segment in 2016. These lower net earnings were largely due to the market driven investment losses from derivative instruments used to hedge the variable annuity products with GMDB, GMIB and GWBL features (collectively, the “VA Guarantee Features”) and decreases in the fair values of the GMIB reinsurance contract asset which were not fully offset by the market driven decrease in VA Guarantee Features reserves. For additional information, see “Accounting For VA Guarantee Features” below.
 
Sales. The Company offers a balanced and diversified product portfolio that takes into account the macroeconomic environment and customer preferences and drives profitable growth while appropriately managing risk. In 2016, life insurance and annuities first year premiums and deposits increased by $468 million from the comparable 2015 period. The increase in first year premiums and deposits during 2016 was driven by $488 million higher annuity sales partially offset by $20 million lower life insurance sales. For additional information on sales, see “Premiums and Deposits” below.


42

In-force management. The Company continues to proactively manage its in-force business. For example:

•
GMDB/GMIB Buyout Programs. Since 2012, the Company has initiated several programs to purchase from certain contractholders the GMDB and GMIB riders contained in their Accumulator® contracts. In March 2016, a program to give contractholders an option to elect a full buyout of their rider or a new partial (50%) buyout of their rider expired. The Company believes that the buyout programs are mutually beneficial to the Company and contractholders who no longer need or want all or part of the GMDB or GMIB rider. To reflect the actual payments and reinsurance credit received from the buyout program that expired in March 2016, the Company recognized a $4 million increase to Net earnings. For additional information, see “Accounting for VA Guarantee Features” below.

Cost of Insurance Rates (“COI”). In 2015 the Company announced it would raise COI rates for certain universal life (“UL”) policies issued between 2004 and 2007 which have both issue ages 70 and above and a current face value amount of $1 million and above, effective in 2016. The Company raised the COI rates for these policies as management expects future mortality and investment experience to be less favorable than what was anticipated when the original schedule of COI rates was established. This COI rate increase was larger than the increase that previously had been anticipated in management’s reserve assumptions. As a result management updated the assumption to reflect the actual COI rate increase, resulting in a $46 million increase to net earnings in 2015.

Legislative and Regulatory Developments and NYDFS statutory examination. The U.S. life insurance industry is primarily regulated at the state level, with some products and services also subject to federal regulation. From time to time, our regulators may refine capital requirements, introduce new reserving standards and propose other rulemaking and/or legislation that may significantly impact our business. Recent regulatory initiatives that may affect our business include the NAIC’s efforts to revise reserve and capital requirements for variable annuities, the DOL’s issuance of the final fiduciary rule, and New York’s intention to implement a modified version of principles-based reserving.  In addition, the NYDFS is in the process of completing our periodic statutory examination for the years 2011 through 2015.  As part of this examination, we have responded to various information requests including inquiries related to our statutory reserves methodology.  While we cannot predict the final outcomes of these regulatory initiatives or of the statutory examination, it is possible that our business, capital requirements, consolidated results of operations and financial condition may be materially impacted.  For additional information, see “Item 1 - Business - Regulation” and “Item 1A - Risk Factors” included elsewhere herein.

AB AUM. AB’s, total assets under management (“AUM”) as of December 31, 2016 were $480.2 billion, an increase of $12.8 billion, or 2.7%, compared to December 31, 2015. The increase was driven by market appreciation of $23.1 billion partially and $2.5 billion from an acquisition offset by net outflows of $9.8 billion (Institutional outflows of $5.4 billion, and Retail outflows of $4.8 billion offset by Private Wealth Management inflows of $400 million) and by a $3.0 billion reduction in AUM due to AB’s shift from providing asset management services to consulting services for a client.

ACCOUNTING FOR VA GUARANTEE FEATURES

The Company has offered and continues to offer certain variable annuity products with VA Guarantee Features. These products continue to account for over half of the Company’s Separate Accounts assets and have been a significant driver of its results. Because the future claims exposure on these products is sensitive to movements in the equity markets and interest rates, the Company has in place various hedging and reinsurance programs that are designed to mitigate the economic risks of movements in the equity markets and interest rates. Due to the accounting treatment, certain of these hedging and reinsurance programs contribute to earnings volatility. These programs generally include, among others, the following:

•
Dynamic VA Hedging programs. Hedging programs are used to mitigate certain risks associated with the VA Guarantee Features. These programs utilize various derivative instruments that are managed in an effort to reduce the economic impact of unfavorable changes in VA Guarantee Features’ exposures attributable to movements in the equity markets and interest rates. Although these programs are designed to provide a measure of economic protection against the impact adverse market conditions may have with respect to VA Guarantee Features, they do not qualify for hedge accounting treatment, meaning that changes in the value of the derivatives will be recognized in the period in which they occur while offsetting changes in reserves will be recognized over time.

•
GMIB reinsurance contracts. GMIB reinsurance contracts are used to cede to affiliated and non-affiliated reinsurers a portion of the exposure on variable annuity products that offer the GMIB feature. The GMIB reinsurance contracts are accounted for as derivatives and are reported at fair value. Gross reserves for GMIB as noted above, on the other hand, are calculated on the basis of assumptions related to projected benefits and related contract charges over the lives of the contracts and therefore will not immediately reflect the offsetting impact on future claims exposure resulting from the same capital market and/or interest rate fluctuations that cause gains or losses on the fair value of the GMIB reinsurance

43

contracts. Because the changes in the fair value of the GMIB reinsurance contracts are recorded in the period in which they occur while offsetting changes in gross reserves for GMIB will be recognized over time, earnings will tend to be more volatile.

Changes in interest rates and equity markets have contributed to earnings volatility. The table below shows, for 2016, 2015 and 2014, the impact on Earnings (Loss) from continuing operations before income taxes of the items discussed above (prior to the impact of Amortization of deferred acquisition costs):
 
2016
 
2015
 
2014
 
(In Millions)
Income (loss) on free-standing derivatives(1)
$
(1,004
)
 
$
(245
)
 
$
1,372

Increase (decrease) in the fair value of the GMIB reinsurance contracts asset(2)
(261
)
 
(141
)
 
3,964

(Increase) decrease in GMDB, GMIB and GWBL and other features reserves, net of related GMDB reinsurance(3)
(362
)
 
(367
)
 
(1,590
)
Total
$
(1,627
)
 
$
(753
)
 
$
3,746

(1)
Reported in Net investment income (loss) in the consolidated statements of earnings (loss).
(2)
Reported in Increase (decrease) in the fair value of reinsurance contracts asset in the consolidated statements of earnings (loss).
(3)
Reported in Policyholders’ benefits in the consolidated statements of earnings (loss).

Reinsurance ceded - AXA Arizona. The Company currently reinsures to AXA Arizona a 100% quota share of all liabilities for GMDB/GMIB riders on the Accumulator® products sold on or after January 1, 2006 and in-force at September 30, 2008. AXA Arizona also reinsures a 90% quota share of level premium term insurance issued by AXA Equitable on or after March 1, 2003 through December 31, 2008 and lapse protection riders under universal life insurance policies issued by AXA Equitable on or after June 1, 2003 through June 30, 2007. For AXA Equitable, these reinsurance transactions currently provide statutory capital relief and mitigate the volatility of capital requirements.

The Company receives statutory reserve credits for reinsurance treaties with AXA Arizona to the extent AXA Arizona holds assets in an irrevocable trust ($9.4 billion at December 31, 2016) and/or letters of credit ($3.7 billion at December 31, 2016). AXA Arizona is required to hold a combination of assets in the trust and/or letters of credit so that the Company can take credit for the reinsurance. These letters of credit are guaranteed by AXA.

For further information regarding this transaction, see “Item 1A-Risk Factors” and Note 11 of Notes to Consolidated Financial Statements included elsewhere herein.

2016 Assumption Updates and Model Changes. In 2016, the Company made several assumption updates and model changes including the following (1) updated the premium funding assumption used in setting variable life policyholder benefit reserves; (2) made changes in the model used in calculating premium loads, which increased interest sensitive life policyholder benefit reserves; (3) updated its mortality assumption for certain VISL products as a result of favorable mortality experience for some of its older products and unfavorable mortality experience on some of its newer products and (4) updated the General Account spread and yield assumptions for certain VISL products to reflect lower expected investment yields.

The net impact of these model changes and assumption updates in 2016 decreased policyholders’ benefits by $77 million, increased the amortization of DAC by $276 million, increased Universal life and investment-type product policy fee income by $25 million, decreased Earnings from continuing operations before income taxes by $174 million and decreased Net earnings by approximately $113 million.

2015 Assumption Updates. In 2015, expectations of long-term lapse and partial withdrawal rates for variable annuities with GMDB and GMIB guarantees were updated based on emerging experience. These updates increased expected future claim costs and the fair value of the GMIB reinsurance contract asset. Also in 2015, expectations of GMIB election rates were lowered for certain ages based on emerging experience. This update decreased the expected future GMIB claim cost and the fair value of the GMIB reinsurance contract asset, while increasing the expected future GMDB claim cost. The impact of these assumption updates in 2015 was a net decrease in the fair value of the GMIB reinsurance contract asset of $746 million, a decrease in the GMDB/GMIB reserves of $637 million and a decrease in the amortization of DAC of $17 million.

Additionally in 2015, based upon management’s current expectations of interest rates and future fund growth, the Company updated its reversion to the mean (“RTM”) assumption used to calculate GMDB/GMIB and variable and interest sensitive life (“VISL”)

44

reserves and amortization of DAC from 9.0% to 7.0%. The impact of this assumption update in 2015 was an increase in GMIB/GMDB reserves of $723 million, an increase in VISL reserves of $29 million and decrease in amortization of DAC of $67 million.

The assumption updates mentioned above resulted in a net decrease to the 2015 Earnings from continuing operations before income taxes and Net earnings of approximately $777 million and $505 million, respectively.

2014 Assumption Updates and Model Changes.  In 2014, the Company updated its mortality assumption used to value future GMIB costs for contracts that receive GMIB benefits as a result of the contract value going to $0. The mortality for these policyholders is expected to be the same as the mortality experienced by inforce policyholders who have not yet exercised their GMIB benefit. This mortality assumption is higher (shorter expected lifespan) than for policyholders who exercise their GMIB benefit. Also, in 2014, the Company updated its assumptions of future GMIB costs as a result of lower expected short-term lapses for those policyholders who did not accept the GMIB buyout offer that expired in third quarter 2014. The impacts of these assumption updates in 2014 resulted in a decrease in the fair value of the GMIB reinsurance contract asset of $91 million and a decrease in the GMIB reserves of $42 million.

Additionally, in 2014, the Company made a change in its model used for the fair value calculation of the GMIB reinsurance contract asset and GWBL, GIB and guaranteed minimum accumulated benefit (“GMAB”) liabilities, utilizing scenarios that explicitly reflect risk free bond and equity components separately (previously aggregated and including counterparty risk premium embedded in swap rates) and stochastic interest rates for projecting and discounting cash flows (previously a single yield curve). The Company also changed its model used for the fair value calculation of the GMIB reinsurance contract asset to use Life-only annuity purchase rates for certain reinsurance contracts to be consistent with the treaty terms. The net impacts of these model changes in 2014 were a $655 million increase to the GMIB reinsurance contract asset and a $37 million increase in the GWBL, GIB and GMAB liability which are reported in the Company’s consolidated statements of Earnings (Loss) as Increase (decrease) in the fair value of the reinsurance contract asset and Policyholders’ benefits, respectively.

The assumption updates and model changes mentioned above resulted in a net increase to the 2014 to Earnings from continuing operations before income taxes and Net earnings of approximately $569 million and $369 million, respectively.

CRITICAL ACCOUNTING ESTIMATES
Application of Critical Accounting Estimates
The Company’s MD&A is based upon its consolidated financial statements that have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires the application of accounting policies that often involve a significant degree of judgment, requiring management to make estimates and assumptions (including normal, recurring accruals) that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management, on an ongoing basis, reviews and evaluates the estimates and assumptions used in the preparation of the consolidated financial statements, including those related to investments, recognition of insurance income and related expenses, DAC, future policy benefits, recognition of Investment Management revenues and related expenses and benefit plan costs. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The results of such factors form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If management determines that modifications in assumptions and estimates are appropriate given current facts and circumstances, the consolidated results of operations and financial position as reported in the Consolidated Financial Statements could change significantly.
Management believes the critical accounting policies relating to the following areas are most dependent on the application of estimates, assumptions and judgments:
•
Insurance Revenue Recognition
•
Insurance Reserves and Policyholder Benefits
•
DAC
•
Goodwill and Other Intangible Assets
•
Investment Management Revenue Recognition and Related Expenses
•
Pension Plans
•
Share-based Compensation Programs
•
Investments – Impairments, Valuation Allowances and Fair Value Measurements
•
Income Taxes

45

Insurance Revenue Recognition
Profits on non-participating traditional life policies and annuity contracts with life contingencies emerge from the matching of benefits and other expenses against the related premiums. Profits on participating traditional life, universal life and investment-type contracts emerge from the matching of benefits and other expenses against the related contract margins. This matching is accomplished by means of the provision for liabilities for future policy benefits and the deferral, and subsequent amortization, of policy acquisition costs. Trends in the general population and the Company’s own mortality, morbidity, persistency and claims experience have a direct impact on the benefits and expenses reported in any given period.
Insurance Reserves and Policyholder Benefits
Participating Traditional Life Insurance Policies
For participating traditional life policies, substantially all of which are in the Closed Block, future policy benefit liabilities are calculated using a net level premium method accrued as a level proportion of the premium paid by the policyholder. The net level premium method reflects actuarial assumptions equal to guaranteed mortality and dividend fund interest rates. The liability for annual dividends represents the accrual of the annual dividends earned. Terminal dividends are accrued in proportion to gross margins over the life of the contract. Gains and losses related to participating traditional life policies do not create significant volatility in results of operations as the Closed Block recognizes a cumulative policyholder dividend obligation expense in “Policyholders’ dividends,” for the excess of actual cumulative earnings over expected cumulative earnings as determined at the time of demutualization. If the actual cumulative earnings from the Closed Block are greater than the expected cumulative earnings, only the expected earnings will be recognized in net income. Actual cumulative earnings in excess of expected cumulative earnings at any point in time are recorded as a policyholder dividend obligation because they will ultimately be paid to Closed Block policyholders as an additional policyholder dividend unless offset by future performance that is less favorable than originally expected. If a policyholder dividend obligation has been previously established and the actual Closed Block earnings in a subsequent period are less than the expected earnings for that period, the policyholder dividend obligation would be reduced (but not below zero). If over the period the policies and contracts in the Closed Block remain in force, the actual cumulative earnings of the Closed Block are less than the expected cumulative earnings, only actual earnings would be recognized in income from continuing operations. If the Closed Block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside the Closed Block.
Non-participating Traditional Life Policies
The future policy benefit reserves for non-participating traditional life insurance policies relate primarily to non-participating term life products and are calculated using a net level premium method equal to the present value of expected future benefits plus the present value of future maintenance expenses less the present value of future net premiums. The expected future benefits and expenses are determined using actuarial assumptions as to mortality, persistency and interest established at policy issue. Reserve assumptions established at policy issue reflect best estimate assumptions based on the Company’s experience that, together with interest and expense assumptions, includes a margin for adverse deviation. Mortality assumptions are reviewed annually and are generally based on the Company’s historical experience or standard industry tables, as applicable; expense assumptions are based on current levels of maintenance costs, adjusted for the effects of inflation; and interest rate assumptions are based on current and expected net investment returns.
Universal Life and Investment-type Contracts
Policyholders’ account balances for UL and investment-type contracts are equal to the policy account values. The policy account values represent an accumulation of gross premium payments plus credited interest, including interest linked to market indices for certain products, less expense and mortality charges and withdrawals.
The Company has issued and continues to offer certain variable annuity products with GMDB, GMIB and GIB features. The GMDB feature provides that in the event of an insured’s death, the beneficiary will receive the higher of the current contract account balance or another amount defined in the contract. The GMIB feature, if elected by the policyholder after a stipulated waiting period from contract issuance, guarantees a minimum lifetime annuity based on predetermined annuity purchase rates that may be in excess of what the contract account value can purchase at then-current annuity purchase rates. This minimum lifetime annuity is based on predetermined annuity purchase rates applied to a GMIB base. The GIB feature provides a lifetime annuity based on predetermined annuity purchase rates if and when the contract account value is depleted. This lifetime annuity is based on predetermined annuity purchase rates applied to a GIB base.

46

The Company previously issued certain variable annuity products with GWBL, guaranteed minimum withdrawal benefit (“GMWB”) and GMAB features (collectively, “GWBL and other features”). The GWBL feature allows the policyholder to withdraw, each year for the life of the contract, a specified annual percentage of an amount based on the contract’s benefit base. The GMWB feature allows the policyholder to withdraw at minimum, over the life of the contract, an amount based on the contract’s benefit base. The GMAB feature increases the contract account value at the end of a specified period to a GMAB base.
Reserves for GMDB and GMIB obligations are calculated on the basis of actuarial assumptions related to projected benefits and related contract charges generally over the lives of the contracts. The determination of this estimated liability is based on models that involve numerous estimates and subjective judgments, including those regarding expected market rates of return and volatility, contract surrender and withdrawal rates and amounts of withdrawals, mortality experience, and, for contracts with the GMIB feature, GMIB election rates. Assumptions related to contractholder behavior and mortality are updated when a material change in behavior or mortality experience is observed in an interim period.
The Structured Capital Strategies® (“SCS”) variable annuity, Structured Investment Option in the EQUI-VEST® variable annuity series (“SIO”), Market Stabilizer Option® (“MSO”) in the variable life insurance products and Indexed Universal Life (“IUL”) insurance products, GIB and GWBL and other features are accounted for as embedded derivatives, with fair values calculated as the present value of future expected benefit payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature. The determination of the fair value for the GIB and GWBL and other features is based upon models involving numerous estimates and subjective judgments.
Sensitivity of Future Rate of Return Assumptions on GMDB/GMIB Reserves
The future rate of return assumptions used in establishing reserves for GMDB and GMIB features regarding Separate Account performance used for purposes of this calculation are set using a long-term view of expected average market returns by applying a reversion to the mean approach, consistent with that used for DAC amortization. For additional information regarding the future expected rate of return assumptions and the reversion to the mean approach, see, “—DAC”.
The GMDB/GMIB reserve balance before reinsurance ceded was $7.2 billion at December 31, 2016. The following table provides the sensitivity of the reserves for GMDB and GMIB features related to variable annuity policies relative to the future rate of return assumptions by quantifying the adjustments to these reserves that would be required assuming both a 100 basis point (“BP”) increase and decrease in the future rate of return. This sensitivity considers only the direct effect of changes in the future rate of return on operating results due to the change in the reserve balance before reinsurance ceded and not changes in any other assumptions such as persistency, mortality, or expenses included in the evaluation of the reserves, or any changes on DAC or other balances including hedging derivatives and the GMIB reinsurance asset.
GMDB/GMIB Reserves
Sensitivity - Rate of Return
December 31, 2016
 
Increase/(Reduction) in
GMDB/GMIB Reserves    
 
(In Millions)
100 BP decrease in future rate of return
$
1,113

100 BP increase in future rate of return
(706
)
Traditional Annuities
The reserves for future policy benefits for annuities include group pension and payout annuities, and, during the accumulation period, are equal to accumulated contractholders’ fund balances and, after annuitization, are equal to the present value of expected future payments based on assumptions as to mortality, retirement, maintenance expense, and interest rates. Interest rates used in establishing such liabilities range from 1.6% to 5.5% (weighted average of 4.3%). If reserves determined based on these assumptions are greater than the existing reserves, the existing reserves are adjusted to the greater amount.


47

Reinsurance

For reinsurance contracts other than those covering GMIB exposure, reinsurance recoverable balances are calculated using methodologies and assumptions that are consistent with those used to calculate the direct liabilities. GMIB reinsurance contracts are used to cede affiliated and non-affiliated reinsurers a portion of the exposure on variable annuity products that offer the GMIB feature. The GMIB reinsurance contracts are accounted for as derivatives and are reported at fair value. Gross reserves for GMIB, on the other hand, are calculated on the basis of assumptions related to projected benefits and related contract charges over the lives of the contracts, therefore, will not immediately reflect the offsetting impact on future claims exposure resulting from the same capital market and/or interest rate fluctuations that cause gains or losses on the fair value of the GMIB reinsurance contracts.

Health

Individual health benefit liabilities for active lives are estimated using the net level premium method and assumptions as to future morbidity, withdrawals and interest. Benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest.
DAC

Acquisition costs that vary with and are primarily related to the acquisition of new and renewal insurance business, reflecting incremental direct costs of contract acquisition with independent third parties or employees that are essential to the contract transaction, as well as the portion of employee compensation, including payroll fringe benefits and other costs directly related to underwriting, policy issuance and processing, medical inspection, and contract selling for successfully negotiated contracts including commissions, underwriting, agency and policy issue expenses, are deferred. Depending on the type of contract, DAC is amortized over the expected total life of the contract group, based on the Company’s estimates of the level and timing of gross margins, gross profits or assessments, or anticipated premiums. In calculating DAC amortization, management is required to make assumptions about investment results including hedging costs, Separate Account performance, Separate Account fees, mortality and expense margins, lapse rates and anticipated surrender charges that impact the estimates of the level and timing of estimated gross profits or assessments, margins and anticipated future experience. DAC is subject to loss recognition testing at the end of each accounting period.
Participating Traditional Life Policies
For participating traditional life policies (substantially all of which are in the Closed Block), DAC is amortized over the expected total life of the contract group as a constant percentage based on the present value of the estimated gross margin amounts expected to be realized over the life of the contracts using the expected investment yield.
At December 31, 2016, the average rate of assumed investment yields, excluding policy loans, was 4.7% grading to 4.3% over 7 years. Estimated gross margins include anticipated premiums and investment results less claims and administrative expenses, changes in the net level premium reserve and expected annual policyholder dividends. The effect on the accumulated amortization of DAC of revisions to estimated gross margins is reflected in earnings in the period such estimated gross margins are revised. The effect on the DAC assets that would result from realization of unrealized gains (losses) is recognized with an offset to accumulated other comprehensive income (loss) (“AOCI”) in consolidated equity as of the balance sheet date. Many of the factors that affect gross margins are included in the determination of the Company’s dividends to these policyholders. DAC adjustments related to participating traditional life policies do not create significant volatility in results of operations as the Closed Block recognizes a cumulative policyholder dividend obligation expense in “Policyholders’ dividends,” for the excess of actual cumulative earnings over expected cumulative earnings as determined at the time of demutualization.
Non-participating Traditional Life Insurance Policies
DAC associated with non-participating traditional life policies is amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are estimated at the date of policy issue and are consistently applied during the life of the contracts. Deviations from estimated experience are reflected in earnings (loss) in the period such deviations occur. For these contracts, the amortization periods generally are for the total life of the policy.
Universal Life and Investment-type Contracts
DAC associated with certain variable annuity products is amortized based on estimated assessments, with the remainder of variable annuities, UL and investment-type products amortized over the expected total life of the contract group as a constant percentage of estimated gross profits arising principally from investment results, Separate Account fees, mortality and expense margins and

48

surrender charges based on historical and anticipated future experience, updated at the end of each accounting period.When estimated gross profits are expected to be negative for multiple years of a contract life, DAC is amortized using the present value of estimated assessments. The effect on the amortization of DAC of revisions to estimated gross profits or assessments is reflected in earnings (loss) in the period such estimated gross profits or assessments are revised. A decrease in expected gross profits or assessments would accelerate DAC amortization. Conversely, an increase in expected gross profits or assessments would slow DAC amortization. The effect on the DAC assets that would result from realization of unrealized gains (losses) is recognized with an offset to AOCI in consolidated equity as of the balance sheet date.
Quarterly adjustments to the DAC balance are made for current period experience and market performance related adjustments, and the impact of reviews of estimated total gross profits. The quarterly adjustments for current period experience reflect the impact of differences between actual and previously estimated expected gross profits for a given period. Total estimated gross profits include both actual experience and estimates of gross profits for future periods. To the extent each period’s actual experience differs from the previous estimate for that period, the assumed level of total gross profits may change. In these cases, cumulative adjustment to all previous periods’ costs is recognized.

During each accounting period, the DAC balances are evaluated and adjusted with a corresponding charge or credit to current period earnings for the effects of the Company’s actual gross profits and changes in the assumptions regarding estimated future gross profits. A decrease in expected gross profits or assessments would accelerate DAC amortization. Conversely, an increase in expected gross profits or assessments would slow DAC amortization. The effect on the DAC assets that would result from realization of unrealized gains (losses) is recognized with an offset to AOCI in consolidated equity as of the balance sheet date.

For the variable and UL policies a significant portion of the gross profits is derived from mortality margins and therefore, are significantly influenced by the mortality assumptions used. Mortality assumptions represent the Company’s expected claims experience over the life of these policies and are based on a long-term average of actual company experience. This assumption is updated quarterly to reflect recent experience as it emerges. Improvement of life mortality in future periods from that currently projected would result in future deceleration of DAC amortization. Conversely, deterioration of life mortality in future periods from that currently projected would result in future acceleration of DAC amortization.
Premium Deficiency Reserves and Loss Recognition Tests
After the initial establishment of reserves, premium deficiency and loss recognition tests are performed using best estimate assumptions as of the testing date without provisions for adverse deviation. When the liabilities for future policy benefits plus the present value of expected future gross premiums for the aggregate product group are insufficient to provide for expected future policy benefits and expenses for that line of business (i.e., reserves net of any DAC asset), DAC would first be written off and thereafter, if required, a premium deficiency reserve would be established by a charge to earnings.
Sensitivity of DAC to Changes in Future Mortality Assumptions
The variable and UL policies DAC balance was $1.8 billion at December 31, 2016. The following table demonstrates the sensitivity of the DAC balance relative to future mortality assumptions by quantifying the adjustments that would be required, assuming an increase and decrease in the future mortality rate by 1.0%. This information considers only the direct effect of changes in the mortality assumptions on the DAC balance and not changes in any other assumptions used in the measurement of the DAC balance and does not assume changes in reserves.
DAC Sensitivity - Mortality
December 31, 2016
 
Increase/(Reduction)
in DAC
 
(In Millions)
Decrease in future mortality by 1%
$
41

Increase in future mortality by 1%
(35
)

Sensitivity of DAC to Changes in Future Rate of Return Assumptions

A significant assumption in the amortization of DAC on variable annuities and, to a lesser extent, on variable and interest-sensitive life insurance relates to projected future Separate Account performance. Management sets estimated future gross profit or assessment assumptions related to Separate Account performance using a long-term view of expected average market returns by

49

applying a reversion to the mean approach, a commonly used industry practice. This future return approach influences the projection of fees earned, as well as other sources of estimated gross profits. Returns that are higher than expectations for a given period produce higher than expected account balances, increase the fees earned resulting in higher expected future gross profits and lower DAC amortization for the period. The opposite occurs when returns are lower than expected.

In applying this approach to develop estimates of future returns, it is assumed that the market will return to an average gross long-term return estimate, developed with reference to historical long-term equity market performance. In second quarter 2015, based upon management’s current expectations of interest rates and future fund growth, the Company updated its RTM assumption from 9.0% to 7.0%. The average gross long-term return measurement start date was also updated to December 31, 2014. Management has set limitations as to maximum and minimum future rate of return assumptions, as well as a limitation on the duration of use of these maximum or minimum rates of return. At December 31, 2016, the average gross short-term and long-term annual return estimate on variable and interest-sensitive life insurance and variable annuities was 7.0% (4.67% net of product weighted average Separate Account fees), and the gross maximum and minimum short-term annual rate of return limitations were 15.0% (12.67% net of product weighted average Separate Account fees) and 0.0% (-2.33% net of product weighted average Separate Account fees), respectively. The maximum duration over which these rate limitations may be applied is 5 years. This approach will continue to be applied in future periods. These assumptions of long-term growth are subject to assessment of the reasonableness of resulting estimates of future return assumptions.

If actual market returns continue at levels that would result in assuming future market returns of 15.0% for more than 5 years in order to reach the average gross long-term return estimate, the application of the 5 year maximum duration limitation would result in an acceleration of DAC amortization. Conversely, actual market returns resulting in assumed future market returns of 0.0% for more than 5 years would result in a required deceleration of DAC amortization. At December 31, 2016, current projections of future average gross market returns assume a 15.0% annualized return for the next two quarters, grading to a reversion to the mean of 7.0% in five quarters.

Other significant assumptions underlying gross profit estimates for UL and investment type products relate to contract persistency and General Account investment spread.

The variable annuity contracts DAC balance was $2.0 billion at December 31, 2016. The following table provides an example of the sensitivity of the DAC balance of variable annuity and variable and interest-sensitive life insurance relative to future return assumptions by quantifying the adjustments to the DAC balance that would be required assuming both an increase and decrease in the future rate of return by 1.0%. This information considers only the effect of changes in the future Separate Account rate of return and not changes in any other assumptions used in the measurement of the DAC balance.
DAC Sensitivity - Rate of Return
December 31, 2016
 
Increase/(Reduction)
in DAC
 
(In Millions)
Decrease in future rate of return by 1%
$
(86
)
Increase in future rate of return by 1%
100

Goodwill and Other Intangible Assets
Goodwill recognized in the Company’s consolidated balance sheet at December 31, 2016 was $3.7 billion, solely related to the Investment Management segment and arising primarily from AB’s acquisition of SCB Inc. (the "Bernstein Acquisition") and purchases of AB Units. The Company tests goodwill for recoverability on an annual basis as of December 31 each year and at interim periods if events occur or circumstances change that would indicate the potential for impairment. The test requires a comparison of the fair value of the Investment Management segment to its carrying amount, including goodwill. If this comparison results in a shortfall of fair value, the impairment loss would be calculated as the excess of recorded goodwill over its implied fair value, the latter measure requiring application of business combination purchase accounting guidance to determine the fair value of all individual assets and liabilities of the reporting unit. Any impairment loss would reduce the recorded amount of goodwill with a corresponding charge to earnings.
The remaining useful lives of intangible assets being amortized are evaluated each period to determine whether events and circumstances warrant their revision. All intangible assets are periodically reviewed for impairment if events or circumstances indicate that the carrying value may not be recoverable. If the carrying value exceeds fair value, additional impairment tests are

50

performed to measure the amount of the impairment loss, if any, to be charged to earnings with a corresponding reduction of the carrying value of the intangible asset.
Investment Management
The Company primarily uses a discounted cash flow valuation technique to measure the fair value of its Investment Management reporting unit for purpose of goodwill impairment testing. Market transactions and metrics, including the market capitalization of AB and implied pricing of comparable companies, are used to corroborate the resulting fair value measure. Cash flow projections used by the Company in the discounted cash flow valuation technique are based on AB’s current four-year business plan, which factors in current market conditions and all material events that have impacted, or that management believes at the time could potentially impact, future expected cash flows, and a declining annual growth rate thereafter. The resulting present value amount, net of noncontrolling interest, is tax-effected to reflect taxes incurred at the Company level.
Key assumptions and judgments applied by management in the context of the Company’s goodwill impairment testing are particularly sensitive to equity market levels, including AB’s assets under management, revenues and profitability. Other risks to which the business of AB is subject, including, but not limited to, retention of investment management contracts, selling and distribution agreements, and existing relationships with clients and various financial intermediaries, could negatively impact future cash flow projections used in the discounted cash flow technique. Significant or prolonged weakness in the financial markets and the economy generally would adversely impact the goodwill impairment testing for the Company’s Investment Management reporting unit. Similarly, significant or prolonged downward pressure on the market capitalization of AB relative to its carrying value likely would increase the frequency of goodwill impairment testing by AXA Equitable for its Investment Management reporting unit.
The Company annually tests goodwill for recoverability at December 31. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of its investment in AB, the reporting unit, to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered to be impaired and the second step of the impairment test is not performed. However, if the carrying value of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed by measuring the amount of impairment loss only if the result indicates a potential impairment. The second step compares the implied fair value of the reporting unit to the aggregated fair values of its individual assets and liabilities to determine the amount of impairment, if any. The Company also assesses this goodwill for recoverability at each interim reporting period in consideration of facts and circumstances that may indicate a shortfall of the fair value of its investment in AB as compared to its carrying value and thereby require re-performance of its annual impairment testing.
Intangible assets related to the Investment Management segment principally relate to the Bernstein Acquisition and purchases of AB Units and include values assigned to investment management contracts acquired based on their estimated fair values at the time of purchase, less accumulated amortization generally recognized on a straight-line basis over their estimated useful life of approximately 20 years. The gross carrying amount and accumulated amortization of these intangible assets were $625 million and $468 million, respectively, at December 31, 2016 and $610 million and $439 million, respectively, at December 31, 2015. Amortization expense related to these intangible assets totaled $29 million, $28 million and $27 million for the years ended December 31, 2016, 2015 and 2014, respectively, and estimated amortization expense for each of the next 5 years is expected to be approximately $29 million.

Investment Management Revenue Recognition and Related Expenses
The Investment Management segment’s revenues are largely dependent on the total value and composition of AUM. The most significant factors that could affect this segment’s results include, but are not limited to, the performance of the financial markets and the investment performance and composition of sponsored investment products and separately managed accounts.
Investment advisory and services fees, generally calculated as a percentage of AUM are recorded as the related services are performed. Certain investment advisory contracts, including those associated with hedge funds, provide for a performance-based fee, in addition to or in lieu of a base fee. Performance fees are calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. Performance-based fees are recorded as revenue at the end of the specified period and will generally be higher in favorable markets and lower in unfavorable markets, which may increase the volatility of the segment’s revenues and earnings.
Commissions paid to financial intermediaries in connection with the sale of shares of open-end mutual funds sold without a front-end sales charge are capitalized as deferred sales commissions and are amortized over periods not exceeding five and one-half years, the periods of time during which the deferred sales commissions are generally recovered from distribution fees received from those funds and from contingent deferred sales commissions received from shareholders of those funds upon redemption of

51

their shares. The recoverability of these commissions is estimated based on management’s assessment of these future revenue flows.
Pension Plans

AXA Equitable sponsors the AXA Equitable 401(k) Plan, a qualified defined contribution plan for eligible employees and financial professionals. The plan provides for both a company contribution and a discretionary profit-sharing contribution.

AXA Equitable also sponsors the AXA Equitable Retirement Plan (the “AXA Equitable QP”), a frozen qualified defined benefit pension plan covering its eligible employees (including certain qualified part-time employees) and financial professionals. This pension plan is non-contributory and its benefits are generally based on a cash balance formula and/or, for certain participants, years of service and average earnings over a specified period in the plan.

Effective December 31, 2015, primary liability for the obligations of AXA Equitable under the AXA Equitable QP was transferred from AXA Equitable to AXA Financial under the terms of an Assumption Agreement (the “Assumption Transaction”). Immediately preceding the Assumption Transaction, the AXA Equitable QP had plan assets (held in a trust for the exclusive benefit of plan participants) with market value of approximately $2.2 billion and liabilities of approximately $2.4 billion. The assumption by AXA Financial and resulting extinguishment of AXA Equitable’s primary liability for its obligations under the AXA Equitable QP was recognized by AXA Equitable as a capital contribution in the amount of $211 million ($137 million, net of tax), reflecting the non-cash settlement of its net unfunded liability for the AXA Equitable QP at December 31, 2015. In addition, approximately $1.2 billion ($772 million, net of tax) unrecognized net actuarial losses related to the AXA Equitable QP and accumulated in AOCI were also transferred to AXA Financial due to the Assumption Transaction. AXA Equitable remains secondarily liable for its obligations under the AXA Equitable QP and would recognize such liability in the event AXA Financial does not perform under the terms of the Assumption Agreement.

AXA Financial has also legally assumed primary liability from AXA Equitable for all current and future liabilities of AXA Equitable under certain employee benefit plans that provide participants with medical, life insurance, and deferred compensation benefits; AXA Equitable remains secondarily liable. AXA Equitable reimburses AXA Financial, Inc. for costs associated with all of these plans, as described in Note 11 of Notes to the Consolidated Financial Statements, included herein.

AB maintains the Profit Sharing Plan for Employees of AB, a tax-qualified retirement plan for U.S. employees. Employer contributions under this plan are discretionary and generally are limited to the amount deductible for Federal income tax purposes.

AB also maintains a qualified, non-contributory, defined benefit retirement plan covering current and former employees who were employed by AB in the United States prior to October 2, 2000. AB’s benefits are based on years of credited service and average final base salary.

For 2016, 2015 and 2014, respectively, the Company recognized net periodic cost of $2 million, $53 million and $73 million related to its qualified pension plans. Net periodic pension benefits cost is based on the Company’s best estimate of long-term actuarial (including mortality) and investment return assumptions and consider, as appropriate, an assumed discount rate, an expected rate of return on plan assets, inflation costs, expected increases in compensation levels and trends in health care costs. Mortality experience had biggest impact over last couple of years. Actual experience different from that assumed generally is recognized prospectively over future periods; however, significant variances could result in immediate recognition of net periodic cost or benefit if they exceed certain prescribed thresholds or in conjunction with a reconsideration of the related assumptions.

The discount rate assumptions used by AXA Equitable to measure the benefits obligations and related net periodic cost of the AXA Equitable QP reflected the rates at which those benefits could be effectively settled. Projected nominal cash outflows to fund expected annual benefits payments under the AXA Equitable QP were discounted using a published high-quality bond yield curve for which AXA Equitable replaced its reference to the Citigroup-AA curve with the Citigroup Above-Median-AA curve beginning in 2014, thereby reducing the PBO of AXA Equitable’s qualified pension plan and the related charge to equity to adjust the funded status of the plan by $25 million in 2014. At December 31, 2015, AXA Equitable refined its calculation of the discount rate to use the discrete single equivalent discount rate for each plan as compared to its previous use of an aggregate, weighted average practical expedient. Use of the discrete approach at December 31, 2015 produced a discount rate for the AXA Equitable QP of 3.98% as compared to a 4.00% aggregate rate, thereby increasing the net unfunded PBO of the AXA Equitable QP immediately preceding the Assumption Transaction by approximately $4 million in 2015.

In fourth quarter 2015, the Society of Actuaries (SOA) released MP-2015, an update to the mortality projection scale for pension plans issued last year by the SOA, indicating that while mortality data continued to show longer lives, longevity was increasing at a slower rate and lagging behind that previously suggested. For the year ended December 31, 2015, valuations of its defined

52

benefits plans, AXA Equitable considered this new data as well as observations made from current practice regarding how best to estimate improved trends in life expectancies. As a result, AXA Equitable concluded to change the mortality projection scale used to measure and report its defined benefit obligations from 125% Scale AA to Scale BB, representing a reasonable “fit” to the results of the AXA Equitable QP mortality experience study and more aligned to current thinking in practice with respect to projections of mortality improvements. Adoption of that change increased the net unfunded PBO of the AXA Equitable QP immediately preceding the Assumption Transaction by approximately $83 million. At December 31, 2014, AXA Equitable modified its then-current use of Scale AA by adopting 125% Scale AA and introduced additional refinements to its projection of assumed mortality, including use of a full generational approach, thereby increasing the year-end 2014 valuation of the AXA Equitable QP PBO by approximately $54 million.

The following table discloses assumptions used to measure the Company’s pension benefit obligations and net periodic pension cost at and for the years ended December 31, 2016 and 2015. As described above, AXA Equitable refined its calculation of the discount rate for the year ended December 31, 2015 valuation of its defined benefits plans to use the discrete single equivalent discount rate for each plan as compared to its previous use of an aggregate, weighted average practical expedient.

 
December 31,
 
2016
 
2015
Discount rates:
 
 
 
Benefit obligations:
 
 
 
AXA Equitable QP, immediately preceding Transfer to AXA Financial
N/A

 
3.98
%
Other AXA Equitable defined benefit plans
3.48
%
 
3.66
%
AB Qualified Retirement Plan
4.75
%
 
4.3
%
Periodic cost
3.7
%
 
3.6
%
Rates of compensation increase:
 
 
 
Benefit obligation
N/A

 
6.00
%
Periodic cost
N/A

 
6.46
%
Expected long-term rates of return on pension plan assets (periodic cost)
6.5
%
 
6.75
%

Note 12 of Notes to Consolidated Financial Statements, included elsewhere herein, describes the respective funding policies of AB to its qualified pension plans, AB currently estimates it will contribute $4 million to the AB retirement plan in 2017 . Contribution estimates, which are subject to change, are based on regulatory requirements, future market conditions, and assumptions used for actuarial computations of the plans’ obligations and assets.

Share-based Compensation Programs

As further described in Note 13 of Notes to Consolidated Financial Statements, included elsewhere herein, AXA and AXA Financial sponsor various share-based compensation plans for eligible employees and financial professionals of AXA Financial and its subsidiaries, including the Company. AB also sponsors its own unit option plans for certain of its employees. For 2016, 2015, and 2014, respectively, the Company recognized compensation costs of $187 million, $211 million and $192 million for share-based payment arrangements. Compensation expense related to these awards is measured based on the estimated fair value of the equity instruments issued or the liabilities incurred. The Company uses the Black-Scholes option valuation model to determine the grant-date fair values of equity share/unit option awards and similar instruments, requiring assumptions with respect to the expected term of the award, expected price volatility of the underlying share/unit, and expected dividends. These assumptions are significant factors in the resulting measure of fair value recognized over the vesting period and require use of management judgment as to likely future conditions, including employee exercise behavior, as well as consideration of historical and market observable data.

Investments – Impairments, Valuation Allowances and Fair Value Measurements
The Company’s investment portfolio principally consists of public and private fixed maturities, mortgage loans, equity securities, and derivative financial instruments, including exchange traded equity, currency and interest rate futures contracts, total return and/or other equity swaps, interest rate swap and floor contracts, swaptions, variance swaps as well as equity options used to manage various risks relating to its business operations. In applying the Company’s accounting policies with respect to these investments, estimates, assumptions, and judgments are required about matters that are inherently uncertain, particularly in the identification and recognition of OTTI, determination of the valuation allowance for losses on mortgage loans, and measurements of fair value.

53

Impairments and Valuation Allowances
The assessment of whether OTTIs have occurred is performed quarterly by the Company’s Investment Under Surveillance ("IUS") Committee, with the assistance of its investment advisors, on a security-by-security basis for each available-for-sale fixed maturity and equity security that has experienced a decline in fair value for purpose of evaluating the underlying reasons. The analysis begins with a review of gross unrealized losses by the following categories of securities: (i) all investment grade and below investment grade fixed maturities for which fair value has declined and remained below amortized cost by 20% or more; (ii) below-investment-grade fixed maturities for which fair value has declined and remained below amortized cost for a period greater than 12 months; and (iii) equity securities for which fair value has declined and remained below cost by 20% or greater or remained below cost for a period of 6 months or greater. Integral to the analysis is an assessment of various indicators of credit deterioration to determine whether the investment security is expected to recover, including, but not limited to, consideration of the duration and severity of the unrealized loss, failure, if any, of the issuer of the security to make scheduled payments, actions taken by rating agencies, adverse conditions specifically related to the security or sector, the financial strength, liquidity, and continued viability of the issuer and, for equity securities only, the intent and ability to hold the investment until recovery, resulting in identification of specific securities for which OTTI is recognized.
If there is no intent to sell or likely requirement to dispose of the fixed maturity security before its recovery, only the credit loss component of any resulting OTTI is recognized in earnings and the remainder of the fair value loss is recognized in OCI. The amount of credit loss is the shortfall of the present value of the cash flows expected to be collected as compared to the amortized cost basis of the security. The present value is calculated by discounting management’s best estimate of projected future cash flows at the effective interest rate implicit in the debt security prior to impairment. Projections of future cash flows are based on assumptions regarding probability of default and estimates regarding the amount and timing of recoveries. These assumptions and estimates require use of management judgment and consider internal credit analyses as well as market observable data relevant to the collectability of the security. For mortgage- and asset-backed securities, projected future cash flows also include assumptions regarding prepayments and underlying collateral value.
Mortgage loans also are reviewed quarterly by the IUS Committee for impairment on a loan-by-loan basis, including an assessment of related collateral value. Commercial mortgages 60 days or more past due and agricultural mortgages 90 days or more past due, as well as all mortgages in the process of foreclosure, are identified as problem mortgages. Based on its monthly monitoring of mortgages, a class of potential problem mortgages also is identified, consisting of mortgage loans not currently classified as problems but for which management has doubts as to the ability of the borrower to comply with the present loan payment terms and which may result in the loan becoming a problem or being restructured. The decision whether to classify a performing mortgage loan as a potential problem involves significant subjective judgments by management as to likely future industry conditions and developments with respect to the borrower or the individual mortgaged property.
For problem mortgage loans a valuation allowance is established to provide for the risk of credit losses inherent in the lending process. The allowance includes loan specific reserves for loans determined to be non-performing as a result of the loan review process. A non-performing loan is defined as a loan for which it is probable that amounts due according to the contractual terms of the loan agreement will not be collected. The loan specific portion of the loss allowance is based on the Company’s assessment as to ultimate collectability of loan principal and interest. Valuation allowances for a non-performing loan are recorded based on the present value of expected future cash flows discounted at the loan’s effective interest rate or based on the fair value of the collateral if the loan is collateral dependent. The valuation allowance for mortgage loans can increase or decrease from period to period based on such factors.
Fair Value Measurements
Investments reported at fair value in the consolidated balance sheets of the Company include fixed maturity and equity securities classified as available-for-sale, trading securities, and certain other invested assets, such as freestanding derivatives. In addition, reinsurance contracts covering GMIB exposure and the liabilities in the SCS variable annuity, SIO in the EQUI-VEST® variable annuity series, MSO in the variable life insurance products, IUL insurance products and the GMAB, GIB, GMWB and GWBL feature in certain variable annuity products issued by the Company are considered embedded derivatives and reported at fair value.
When available, the estimated fair value of securities is based on quoted prices in active markets that are readily and regularly obtainable; these generally are the most liquid holdings and their valuation does not involve management judgment. When quoted prices in active markets are not available, the Company estimates fair value based on market standard valuation methodologies, including discounted cash flow methodologies, matrix pricing, or other similar techniques. For securities with reasonable price transparency, the significant inputs to these valuation methodologies either are observable in the market or can be derived principally from or corroborated by observable market data. When the volume or level of activity results in little or no price transparency, significant inputs no longer can be supported by reference to market observable data but instead must be based on management’s

54

estimation and judgment. Substantially the same approach is used by the Company to measure the fair values of freestanding and embedded derivatives with exception for consideration of the effects of master netting agreements and collateral arrangements as well as incremental value or risk ascribed to changes in own or counterparty credit risk.
As required by the accounting guidance, the Company categorizes its assets and liabilities measured at fair value into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique, giving the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). For additional information regarding the key estimates and assumptions surrounding the determinations of fair value measurements, see Note 7 to the Consolidated Financial Statements – Fair Value Disclosures.
Income Taxes
Income taxes represent the net amount of income taxes that the Company expects to pay to or receive from various taxing jurisdictions in connection with its operations. The Company provides for Federal and state income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryforward periods under the tax law in the applicable jurisdiction. Valuation allowances are established when management determines, based on available information, that it is more likely than not that deferred tax assets will not be realized. Management considers all available evidence including past operating results, the existence of cumulative losses in the most recent years, forecasted earnings, future taxable income and prudent and feasible tax planning strategies. The Company’s accounting for income taxes represents management’s best estimate of the tax consequences of various events and transactions.
Significant management judgment is required in determining the provision for income taxes and deferred tax assets and liabilities, and in evaluating the Company’s tax positions including evaluating uncertainties under the guidance for Accounting for Uncertainty in Income taxes. Under the guidance, the Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. Tax positions are then measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.
The Company’s tax positions are reviewed quarterly and the balances are adjusted as new information becomes available.


55

CONSOLIDATED RESULTS OF OPERATIONS

AXA Equitable
Consolidated Results of Operations
 
2016
 
2015
 
2014
 
(In Millions)
REVENUES
 
 
 
 
 
Universal life and investment-type product policy fee income
$
3,423

 
$
3,208

 
$
3,115

Premiums
880

 
854

 
874

Net investment income (loss):
 
 
 
 
 
Investment income (loss) from derivative instruments
(462
)
 
(81
)
 
1,605

Other investment income (loss)
2,318

 
2,057

 
2,210

Total net investment income (loss)
1,856

 
1,976

 
3,815

Investment gains (losses), net:
 
 
 
 
 
Total other-than-temporary impairment losses
(65
)
 
(41
)
 
(72
)
Portion of loss recognized in other comprehensive income
—

 
—

 
—

Net impairment losses recognized
(65
)
 
(41
)
 
(72
)
Other investment gains (losses), net
81

 
21

 
14

Total investment gains (losses), net
16

 
(20
)
 
(58
)
Commissions, fees and other income
3,791

 
3,942

 
3,930

Increase (decrease) in the fair value of the reinsurance contract asset
(261
)
 
(141
)
 
3,964

Total revenues
9,705

 
9,819

 
15,640

BENEFITS AND OTHER DEDUCTIONS
 
 
 
 
 
Policyholders’ benefits
2,893

 
2,799

 
3,708

Interest credited to policyholders’ account balances
1,555

 
978

 
1,186

Compensation and benefits
1,723

 
1,783

 
1,739

Commissions
1,095

 
1,111

 
1,147

Distribution related payments
372

 
394

 
413

Interest expense
16

 
20

 
53

Amortization of deferred policy acquisition costs, net
162

 
(331
)
 
(413
)
Other operating costs and expenses
1,458

 
1,415

 
1,692

Total benefits and other deductions
9,274

 
8,169

 
9,525

Earnings (loss) from operations, before income taxes
431

 
1,650

 
6,115

Income tax (expense) benefit
113

 
(186
)
 
(1,695
)
Net earnings (loss)
544

 
1,464

 
4,420

Less: net (earnings) loss attributable to the noncontrolling interest
(469
)
 
(403
)
 
(387
)
Net Earnings (Loss) Attributable to AXA Equitable
$
75

 
$
1,061

 
$
4,033


The consolidated earnings narratives that follow discuss the results for 2016 compared to 2015’s results, followed by the results for 2015 compared to 2014’s results. For additional information, see “Accounting for VA Guarantee Features”, above.

Year ended December 31, 2016 Compared to the Year Ended December 31, 2015

Net earnings attributable to the Company in 2016 were $75 million, a decrease of $986 million from the $1.1 billion of net earnings attributable to the Company in 2015. The decrease is primarily attributable to a $462 million investment loss from derivative instruments, a $261 million decrease in the fair value of the GMIB reinsurance contract asset and by the $362 million increase in GMDB/GMIB/GWBL/GMAB reserves in 2016 compared to a $81 million investment loss from derivative instruments, a $141 million decrease in the fair value of the GMIB reinsurance contract asset and by the $367 million increase in GMDB/GMIB/GWBL/GMAB reserves in 2015. The 2016 lower Net earnings also included $577 million higher interest credited to policyholders’ account balances, a $151 million decrease in commissions, fees and other income and $493 million higher amortization of DAC, net partially offset by $263 million higher other investment income and $215 million higher Universal life and investment-type

56

product policy fee income when compared to 2015. The Company recorded an income tax benefit of $113 million in 2016 compared to an income tax expense of $186 million in 2015.

Net earnings attributable to the noncontrolling interest were $469 million in 2016 as compared to $403 million in 2015 primarily reflecting earnings from AB in both periods.

Net earnings inclusive of earnings (losses) attributable to noncontrolling interest were $544 million in 2016, a decrease of $920 million from net earnings of $1.5 billion reported in 2015.

Income tax benefit in 2016 was $113 million, primarily due to the $274 million pre-tax loss in the Insurance segment, compared to income tax expense of $186 million in 2015, primarily due to the $1.0 billion pre-tax earnings in the Insurance segment. Income tax expense in 2015 was decreased by a $77 million benefit related to a settlement with the IRS on the appeal of proposed adjustments to the Company’s 2004 and 2005 Federal corporate income tax returns. Income taxes for 2016 and 2015 were computed using an estimated annual effective tax rate. In 2016 and 2015, Federal income taxes attributable to consolidated operations were different from the amounts determined by multiplying the earnings before income taxes and noncontrolling interest by the expected Federal income tax rate of 35%. The primary differences were dividend received deductions, nontaxable investment income and noncontrolling interest permanent differences. Additionally, the Company does not provide Federal and state income taxes on the undistributed earnings of non-U.S. corporate subsidiaries except to the extent that such earnings are permanently invested outside the United States.

Earnings from operations before income taxes were $431 million in 2016, a decrease of $1.2 billion from the $1.7 billion in pre-tax earnings reported in 2015. The Insurance segment’s pre-tax loss from operations totaled $274 million in 2016, $1.3 billion lower than the pre-tax earnings of $1.0 billion in 2015. The Investment Management segment’s pre-tax earnings from operations were $706 million in 2016 as compared to $618 million for 2015. The Insurance segment’s pre-tax loss in 2016 as compared to pre-tax earnings in 2015 was primarily due to a $447 million investment loss from derivative instruments, a $261 million decrease in the fair value of the GMIB reinsurance contract asset and by the $362 million increase in GMDB/GMIB/GWBL/GMAB reserves in 2016 compared to a $96 million investment loss from derivative instruments, a $141 million decrease in the fair value of the GMIB reinsurance contract asset and by the $367 million increase in GMDB/GMIB/GWBL/GMAB reserves in 2015. The 2016 Insurance segment Loss from continuing operations before income taxes also included $577 million higher interest credited to policyholders’ account balances and $493 million higher amortization of DAC, net partially offset by $215 million higher Universal life and investment-type product policy fee income and $124 million higher other investment income when compared to 2015. The Investment Management segment’s higher pre-tax earnings in 2016 as compared to 2015 was primarily due to $102 million higher net investment income, $37 million lower compensation and benefit expenses and $22 million lower distribution related payments partially offset by $100 million lower commission fees and other income.

Total revenues were $9.7 billion in 2016, a decrease of $114 million from revenues from $9.8 billion reported in 2015. The Insurance segment reported total revenues of $6.7 billion in 2016, a $119 million decrease from the $6.8 billion reported in 2015. The Investment Management segment reported total revenues of $3.0 billion, a $4 million decrease from the $3.0 billion of revenues reported in 2015. The decrease in Insurance segment revenues was primarily due to a $447 million investment loss from derivative instruments and a $261 million decrease in the fair value of the GMIB reinsurance contract asset in 2016 compared to a $96 million investment loss from derivative instruments and a $141 million decrease in the fair value of the GMIB reinsurance contract asset in 2015. These decreases were partially offset by $215 million higher Universal life and investment-type product policy fee income and $134 million higher other investment income when compared to 2015. The $4 million increase in the Investment Management segment’s revenues in 2016 was primarily due to $102 million higher net investment income and $2 million higher investment gains partially offset by $100 million lower other commission fees and other income.

Total benefits and expenses were $9.3 billion in 2016, an increase of $1.1 billion from the $8.2 billion reported in 2015. The Insurance segment’s total benefits and expenses were $7.0 billion, an increase of $1.2 billion from 2015 total of $5.8 billion. The Investment Management segment’s total expenses for 2016 were $2.3 billion, $84 million lower than the $2.4 billion in expenses in 2015. The Insurance segment’s increase was principally due to $577 million higher interest credited to policyholders’ account balances, $493 million higher amortization of DAC, net and $94 million higher policyholders’ benefits. The decrease in expenses for the Investment Management segment was principally due to $37 million lower compensation and benefits expenses, a $27 million decrease in other operating expenses and $22 million lower distribution related payments.
Year ended December 31, 2015 Compared to the Year Ended December 31, 2014

Net earnings attributable to the Company in 2015 were $1.1 billion, a decrease of $3.0 billion from the $4.0 billion of net earnings attributable to the Company in 2014. The decrease is primarily attributable to a $141 million decrease in the fair value of the GMIB reinsurance contract asset, $81 million of investment losses from derivative instruments and a $367 million increase in GMDB/

57

GMIB/GWBL reserves in 2015 compared to a $4.0 billion increase in the fair value of the GMIB reinsurance contract asset, $1.6 billion of investment income from derivative instruments and a $1.6 billion increase in GMDB/GMIB/GWBL reserves in 2014. The decrease was partially offset by lower interest credited to policyholder’s account balances and higher Universal life and investment-type product policy fee income in 2015 as compared to the comparable 2014 period. The Company recorded an income tax expense of $186 million and $1.7 billion in 2015 and 2014, respectively.

Net earnings attributable to the noncontrolling interest were $403 million in 2015 as compared to $387 million in 2014. The increase was principally due to higher earnings from AB in 2015 as compared to 2014.

Net earnings inclusive of earnings (losses) attributable to noncontrolling interest were $1.5 billion in 2015, a decrease of $2.9 billion from net earnings of $4.4 billion reported in 2014.

Income tax expense in 2015 was $186 million, primarily due to the $1.0 billion pre-tax earnings in the Insurance segment, compared to income tax expense of $1.7 billion in 2014, primarily due to the $5.5 billion pre-tax earnings in the Insurance segment. Income tax expense in 2015 decreased by a $77 million benefit related to a settlement with the IRS on the appeal of proposed adjustments to the Company’s 2004 and 2005 Federal corporate income tax returns. Income tax expense in 2014 was decreased by a $212 million benefit related to the completion of the 2006 and 2007 IRS audit. In 2015 and 2014, Federal income taxes attributable to consolidated operations were different from the amounts determined by multiplying the earnings before income taxes and noncontrolling interest by the expected Federal income tax rate of 35%. The primary differences were dividend received deductions, nontaxable investment income and noncontrolling interest permanent differences. The Company does not provide Federal and state income taxes on the undistributed earnings of non-U.S. corporate subsidiaries as such earnings are permanently invested outside of the United States.

Earnings from operations before income taxes were $1.7 billion in 2015, a decrease of $4.5 billion from the $6.1 billion in pre-tax earnings reported in 2014. The Insurance segment’s pre-tax earnings from operations totaled $1.0 billion in 2015; $4.5 billion lower than the $5.5 billion pre-tax earnings in 2014. The Investment Management segment’s pre-tax earnings were $618 million in 2015, $15 million higher than the $603 million pre-tax earnings reported in 2014. The Insurance segment’s lower pre-tax earnings in 2015 as compared to 2014 were primarily due to a $141 million decrease in the fair value of the GMIB reinsurance contract asset, $96 million of investment losses from derivative instruments and a $367 million increase in GMDB/GMIB/GWBL reserves in 2015 compared to a $4.0 billion increase in the fair value of the GMIB reinsurance contract asset, $1.6 billion of investment income from derivative instruments and a $1.6 billion increase in GMDB/GMIB/GWBL reserves in 2014. The $15 million higher pre-tax earnings from operations in the investment management segment in 2015 were primarily due to $15 million of investment income from derivative instruments in 2015 compared to $19 million of investments losses from derivative instruments in 2014 and $19 million lower distribution related payments partially offset by $16 million lower other investment income, $7 million higher amortization of deferred sales commission, $6 million higher compensation and benefits and $6 million higher other operating expenses in 2015 as compared to 2014.

Total revenues were $9.8 billion in 2015, a decrease of $5.8 billion from revenues of $15.6 billion reported in 2014. The Insurance segment reported total revenues of $6.8 billion in 2015, a $5.8 billion decrease from the $12.6 billion reported in 2014. The Investment Management segment reported total revenues of $3.0 billion, a $14 million increase from the $3.0 billion of revenues reported in 2014. The decrease in Insurance segment revenues was principally due to a $141 million decrease in the fair value of the GMIB reinsurance contract asset and $1.7 billion lower investment income from derivative instruments ($96 million investment losses in 2015 compared to $1.6 billion investment income in 2014) partially offset by $93 million higher Universal life and investment-type product policy fee income and $43 million lower investment losses. The increase in the Investment Management segment’s revenues in 2015 was primarily due to an increase in income from derivative instruments ($15 million of income in 2015 compared to a $19 million loss in 2014) partially offset by $16 million lower other investment income.

Total benefits and expenses were $8.2 billion in 2015, a decrease of $1.3 billion from the $9.5 billion reported in 2014. The Insurance segment’s total benefits and expenses were $5.8 billion, a decrease of $1.3 billion from 2014 total of $7.1 billion. The Investment Management segment’s total expenses for 2015 were $2.4 billion, $1 million lower than the $2.4 billion in expenses in 2014. The Insurance segment’s decrease was principally due to $909 million lower policyholders’ benefits, $208 million lower interest credited to policyholder’s account balances and $293 million lower other operating costs and expenses partially offset by $82 million higher amortization of DAC, net. The decrease in expenses for the Investment Management segment was principally due to $19 million lower distribution related payments offset by $7 million higher amortization of deferred sales commissions, $6 million higher other operating expenses and $6 million higher compensation and benefits expenses.

58

RESULTS OF OPERATIONS BY SEGMENT
Insurance.
Insurance - Results of Operations
 
2016
 
2015
 
2014
 
(In Millions)
REVENUES
 
 
 
 
 
Universal life and investment-type product policy fee income
$
3,423

 
$
3,208

 
$
3,115

Premiums
880

 
854

 
874

Net investment income (loss):
 
 
 
 
 
Investment income (loss) from derivative instruments
(447
)
 
(96
)
 
1,624

Other investment income
2,118

 
1,994

 
2,136

Total net investment income (loss)
1,671

 
1,898

 
3,760

Investment gains (losses), net:
 
 
 
 
 
Total other-than-temporary impairment losses
(65
)
 
(41
)
 
(72
)
Portion of loss recognized in other comprehensive income
—

 
—

 
-

Net impairment losses recognized
(65
)
 
(41
)
 
(72
)
Other investment gains (losses), net
83

 
25

 
13

Total investment gains (losses), net
18

 
(16
)
 
(59
)
Commissions, fees and other income
972

 
1,019

 
1,002

Increase (decrease) in the fair value of the reinsurance contract asset
(261
)
 
(141
)
 
3,964

Total revenues
6,703

 
6,822

 
12,656

BENEFITS AND OTHER DEDUCTIONS
 
 
 
 
 
Policyholders’ benefits
2,893

 
2,799

 
3,708

Interest credited to policyholders’ account balances
1,555

 
978

 
1,186

Compensation and benefits
470

 
493

 
455

Commissions
1,095

 
1,111

 
1,147

Amortization of deferred policy acquisition costs, net
162

 
(331
)
 
(413
)
Interest expense
13

 
19

 
52

All other operating costs and expenses
789

 
720

 
1,009

Total benefits and other deductions
6,977

 
5,789

 
7,144

Earnings (Loss) from Operations, Before Income Taxes
$
(274
)
 
$
1,033

 
$
5,512

Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015 – Insurance
Revenues

In 2016, the Insurance segment’s revenues decreased $119 million to $6.7 billion from $6.8 billion in 2015. The decrease was primarily due to a $447 million investment loss from derivative instruments and a $261 million decrease in the fair value of the GMIB reinsurance contract asset in 2016 compared to a $96 million investment loss from derivative instruments and a $141 million decrease in the fair value of the GMIB reinsurance contract asset in 2015. These decreases were partially offset by $215 million higher Universal life and investment-type product policy fee income and $134 million higher other investment income when compared to 2015.
  
Universal life and investment-type product policy fee income increased $215 million to $3.4 billion in 2016 from $3.2 billion in 2015 principally due a $20 million decrease in the initial fee liability in 2016 compared to an increase of $145 million in the initial fee liability in 2015. The 2016 decrease in the initial fee liability includes the impact from assumption updates and model changes for certain VISL products, which decreased the initial fee liability by $8 million. The 2015 increase in the initial fee liability includes a $112 million out of period adjustment related to the amortization of initial fee liability for certain VISL products and $29 million from favorable changes in expected future margins on certain VISL products. Additionally,in 2016 higher policy fee income earned on annuity and VISL products increased Universal life and investment-type product policy fee income by $50 million.


59

Premiums totaled $880 million in 2016, $26 million higher than the $854 million in 2015. This increase primarily resulted from lower reinsurance premiums ceded and higher renewal sales of traditional products.

Net investment income decreased $227 million to $1.7 billion in 2016 from $1.9 billion in 2015. The decrease resulted from a decrease of $351 million in investment income from derivative instruments and $124 million higher other investment income. The Insurance segment reported $447 million of investment losses from derivative instruments including those related to hedging programs implemented to mitigate certain risks associated with the GMDB/GMIB/GWBL features of certain variable annuity contracts and those used to hedge risks associated with interest margins on interest sensitive life and annuity contracts as compared to $96 million of investment losses from derivative instruments during 2015. The 2016 investment loss from derivative instruments was primarily driven by improvements in equity markets. The 2015 investment loss from derivatives instruments was primarily driven by an increase in interest rates and equity market volatility during 2015. The increase in other investment income is primarily attributable to a $65 million prepayment penalty charged to an affiliate for early prepayment of a loan, $57 million higher investment income from mortgage loans on real estate and $157 million higher realized and unrealized investment gains from trading account securities partially offset by $14 million lower income from equity in limited partnerships and $10 million higher investment expenses.

Investment gains (losses), net was a gain of $18 million in 2016, as compared to a loss of $16 million in 2015. The Insurance segment’s 2016 higher net gains were primarily due to $40 million higher gains on sales of fixed maturities and a $21 million realized gain on sale of artwork in 2016 which were partially offset by $24 million higher writedowns of fixed maturities.

Commissions, fees and other income decreased $47 million to $1.0 billion in 2016 as compared to $1.0 billion in 2015. The decrease was primarily due to $42 million lower gross investment management and distribution fees. Included in commission fees and other income were fees earned by AXA Equitable FMG of $674 million and $707 million in 2016 and 2015 respectively.

In 2016, there was a $261 million decrease in the fair value of the GMIB reinsurance contract asset as compared to the $141 million decrease in its fair value in 2015; both periods’ changes reflected existing capital market conditions. Included in 2016 were the impacts of improvements in equity markets in 2016 and the December 2015 buyback program which was completed in March 2016 and decreased the fair value of the GMIB reinsurance contract asset by $839 million and $53 million, respectively. Partially offsetting the decrease was the impact from lower swap rates for the longer maturities at year-end 2016, compared to the year-end 2015, which increased the fair value of the reinsurance contract asset by $262 million. Other changes in the fair value of the GMIB reinsurance contract asset resulting from capital market volatility, credit spreads, and other items increased the fair value of the GMIB reinsurance contract asset by $369 million. Included in 2015 were the impacts from increasing interest rates and decreasing equity markets which increased the fair value of the reinsurance contract asset by $490 million and $33 million, respectively. These increases were more than offset by the impacts of updated assumptions resulting from managements’ expectation of future pro-rata withdrawals, election rates and lapse rates which collectively decreased the fair value of the GMIB reinsurance contract asset by $746 million. In addition, management updated its assumptions reflecting inforce management actions from the Company’s lump sum option and the 2015 GMIB buyback offer to certain policyholder’s GMIB contracts which decreased the fair value of the reinsurance contract asset by $306 million. Other changes in the fair value of the GMIB reinsurance contract asset including volatility and inforce spreads increased the fair value of the GMIB reinsurance contract asset by $448 million.
Benefits and Other Deductions

In 2016, total benefits and other deductions increased $1.2 billion to $7.0 billion from $5.8 billion in 2015. The Insurance segment’s increase was principally due to $577 million higher interest credited to policyholders’ account balances, $493 million higher DAC amortization and $94 million higher policyholders’ benefits partially offset by a $23 million decrease in compensation and benefits expense and a $16 million decrease in commission expense

Policyholders’ benefits increased $94 million to $2.9 billion in 2016 from $2.8 billion in 2015. The increase was primarily due to the $58 million higher increase in reserves and $53 million higher benefits paid partially offset by $17 million lower policyholders’ dividend expense. The 2016 higher increase in reserves includes a $145 million increase in payout annuity reserves , $36 million additional loss recognition in Non-par Wind-up annuity reserves and $19 million higher increase in GMDB/GMIB reserves (an increase of $372 million in 2016 as compared to an increase of $353 million in 2015). Partially offsetting the increase in reserves was a $23 million net decrease in GWBL and GMAB reserves (a decrease of $9 million in 2016 as compared to an increase of $14 million in 2015), a $102 million lower increase in the no lapse guarantee reserve and an $87 million decrease in VISL policyholders’ reserves resulting from mortality assumption updates and changes in the premium funding reserve model. In 2015, reserves for VISL products were decreased by $71 million to reflect an assumption update for the actual COI rate increase.

The 2016 increase in GMDB/GMIB reserves includes a $56 million decrease in GMDB/GMIB reserves as a result of the December 2015 buyback that completed in March 2016. The 2015 increase in the GMDB/GMIB reserves reflects the impacts of changes

60

in capital markets which increased the GMDB/GMIB reserves by $249 million. The 2015 GMDB/GMIB reserve balance also includes a $723 million increase in reserves resulting from the Company’s update to the RTM assumption and a $129 million increase in reserves to reflect updated assumptions of future GMIB costs as a result of lower expected short-term lapses for those policyholders who do not accept the GMIB buyout offer program initiated in fourth quarter 2015. Partially offsetting these increases was a $637 million decrease in reserves resulting from the Company’s updated expectations of election, partial withdrawal and long-term lapse rates. Also decreasing the GMIB and GWBL reserves in 2015 were the impacts of updated assumptions resulting from the Company’s lump sum option added to certain policyholder’s GMIB and GWBL contracts in 2015 which decreased the GMIB and GWBL reserve by $55 million.

In 2016, interest credited to policyholders’ account balances totaled $1.6 billion, an increase of $577 million from the $1.0 billion reported in 2015 primarily due to higher interest credited on certain variable annuity contracts which is based upon performance of market indices subject to guarantees.

Total compensation and benefits totaled $470 million in 2016, a $23 million decrease from $493 million in 2015. The decrease is primarily a result of a $46 million decrease in employee benefit costs and stock plan expenses partially offset by $23 million higher employee salaries.

In 2016, commission expense totaled $1.1 billion, a decrease of $16 million compared to 2015, principally due to a decrease in indexed universal life product sales.

In 2016, interest expense totaled $13 million; a decrease of $6 million from $19 million in 2015. The decrease is due to the repayment at maturity of a $200 million callable 7.7% surplus note during fourth quarter 2015, partially offset by $8 million higher interest expense on repurchase agreement transactions.

Amortization of DAC, net was $162 million in 2016, an increase of $493 million from $(331) million of amortization of DAC, net in 2015. DAC amortization in 2016 included $218 million of unfavorable changes in expected future margins primarily on VISL products (partially offset in the initial fee liability) resulting from updates to the General Account spread assumption to reflect lower expected investment yields and the impact of reflecting the updated benefit reserve projection in the DAC calculation which increased the amortization of DAC by $105 million. In addition, in 2016 the Company recorded $116 million of accelerated DAC amortization after performing the loss recognition testing of the VISL line of business. Partially offsetting the increase in amortization were updates to the mortality assumption and updates to the persistency assumption on certain VISL products which decreased the amortization of DAC by $46 million. Other one-time updates including balance true ups which decreased the amortization of DAC by $43 million. DAC amortization in 2015 included $191 million of favorable changes in expected future margins on VISL products (partially offset in the initial fee liability) primarily a result of updates to the RTM, mortality, lapse and pro-rata withdrawal assumptions. Other drivers offsetting the increase in DAC amortization primarily resulted from baseline amortization and DAC reactivity to realized capital gains (losses). The increase in Amortization of DAC also included a $17 million and $4 million decrease in capitalization of first year commissions and deferrable operating expenses, respectively.

Other operating costs and expenses totaled $789 million in 2016, an increase of $69 million from the $720 million reported in 2015. The increase is primarily related to $120 million higher amortization of reinsurance costs related to the deferred asset recorded from the Company’s reinsurance transaction with AXA Arizona and unaffiliated reinsurers and a $21 million donation to the AXA Foundation from the proceeds received from the sale of artwork in 2016. Partially offsetting the increase in other operating expenses were $27 million lower legal expenses, $17 million lower consulting expenses and $20 million lower other general and administrative expenses.
Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014 – Insurance
Revenues

In 2015, the Insurance segment reported total revenues of $6.8 billion, a $5.9 billion decrease from the $12.7 billion reported in 2014. The decrease in Insurance segment revenues was principally due to a $141 million decrease in the fair value of the GMIB reinsurance contract asset compared to a $4.0 billion increase in the fair value of the GMIB reinsurance contract asset in 2015, $1.7 billion lower investment income from derivative instruments ($96 million investment losses in 2015 compared to $1.6 billion investment income in 2014) and $142 million lower other investment income partially offset by $93 million higher Universal life and investment-type product policy fee income and $43 million lower investment losses.

Universal life and investment-type product policy fee income increased $93 million to $3.2 billion in 2015 from $3.1 billion in 2014. The increase was principally due to $205 million higher policy fee income earned on variable annuity and variable and interest sensitive life products partially offset by a $112 million higher increase in the initial fee liability in 2015 as compared

61

to 2014. During 2015, management made an out of period adjustment in the amortization of initial fee liability for certain VISL products resulting in a $112 million increase in the initial fee liability and favorable changes in expected future margins on VISL products increased the initial fee liability by $29 million and $20 million in 2015 and 2014, respectively.

Premiums totaled $854 million in 2015, $20 million lower than the $874 million in 2014. This decrease primarily resulted from lower traditional life insurance sales.

Net investment income (loss) decreased $1.9 billion to $1.9 billion in 2015 from $3.8 billion in 2014. The decrease resulted from a $1.7 billion decrease in investment income from derivative instruments ($96 million investment losses in 2015 compared to $1.6 billion investment income in 2014), a $123 million decrease in equity income in limited partnerships, a $15 million decrease in interest income on loans to an affiliate and $27 million and $11 million lower investment income from trading account securities and fixed maturities, respectively, partially offset by $32 million higher income from mortgage loans on real estate. The Insurance segment reported a $245 million loss from derivative instruments related to hedging programs implemented to mitigate certain risks associated with the GMDB/GMIB/GWBL features of certain variable annuity contracts and $149 million of income from derivatives used to hedge risks associated with interest margins on interest sensitive life and other annuity contracts in 2015 as compared to $1.4 billion of income from derivative instruments related to hedging programs implemented to mitigate certain risks associated with the GMDB/GMIB/GWBL features of certain variable annuity contracts and $252 million of income from derivatives used to hedge risks associated with interest margins on interest sensitive life and other annuity contracts in 2014. The 2015 investment loss from derivatives instruments was primarily driven by an increase in interest rates and equity market volatility during 2015. The 2014 investment income from derivative instruments was primarily driven by a decrease in interest rates and relatively flat equity markets.

Investment gains (losses), net was a loss of $16 million in 2015, as compared to a loss of $59 million in 2014. The Insurance segment’s investment loss, net in 2015 was primarily due to $31 million lower write-downs of fixed maturities ($41 million in 2015 and $72 million in 2014) and $6 million higher realized gains from fixed maturities.

Commissions, fees and other income increased $17 million to $1.0 billion in 2015 as compared to $1.0 billion in 2014. This increase was primarily due to $17 million higher fee income for AXA Distributors, including $10 million higher service fee income from MONY Life Insurance Company of America ("MONY America") as a result of AXA Financial’s strategy to sell life insurance product outside of New York through MONY America. Included in commission fees and other income were fees earned by AXA Equitable FMG of $707 million and $711 million in 2015 and 2014, respectively.

In 2015, there was a $141 million decrease in the fair value of the GMIB reinsurance contract asset as compared to the $4.0 billion increase in its fair value in 2014; both periods’ changes reflected existing capital market conditions. Included in 2015 were the impacts from increasing interest rates and decreasing equity markets which increased the fair value of the reinsurance contract asset by $490 million and $33 million, respectively. These increases were more than offset by the impacts of updated assumptions resulting from managements’ expectation of future pro-rata withdrawals, election rates and lapse rates which collectively decreased the fair value of the GMIB reinsurance contract asset by $746 million. In addition, management updated its assumptions reflecting inforce management actions from the Company’s lump sum option and the 2015 GMIB buyback offer to certain policyholder’s GMIB contracts which decreased the fair value of the reinsurance contract asset by $306 million. Other changes in the fair value of the GMIB reinsurance contract asset including volatility and inforce spreads increased the fair value of the GMIB reinsurance contract asset by $448 million.

Included in 2014 was the impact from decreasing interest rates which increased the fair value of the GMIB reinsurance contract asset by $3.7 billion. In addition in 2014, refinements to the fair value calculation of the GMIB reinsurance contract asset and updated assumptions of future GMIB costs as a result of lower expected short-term lapses for those policyholders who did not accept the GMIB buyout offer that expired in third quarter 2014 increased the fair value of the GMIB reinsurance contract asset by $655 million and $62 million, respectively. Partially offsetting these increases was the impact from improvements in equity markets which decreased the fair value of the GMIB reinsurance contract asset by $609 million. In addition, in 2014, the Company updated its mortality assumption used to value future GMIB costs for contracts that receive GMIB benefits as a result of the contract value going to $0, which decreased the fair value of the GMIB reinsurance contract asset by $153 million.

Benefits and Other Deductions

In 2015 total benefits and other deductions were $5.8 billion, a decrease of $1.3 billion from the 2014 total of $7.1 billion. The decrease was principally due to $909 million lower policyholders’ benefits, $208 million lower interest credited to policyholder’s account balances and $289 million lower other operating costs and expenses partially offset by $82 million higher amortization of DAC.


62

Policyholders’ benefits decreased $909 million to $2.8 billion in 2015 from $3.7 billion in 2014. The decrease was primarily due to a $1.2 billion lower increase in GMDB/GMIB reserves (increase of $353 million and $1.5 billion in 2015 and 2014, respectively) and a $31 million lower increase in GWBL and GMAB reserves (increases of $14 million and $45 million in 2015 and 2014 respectively). In addition, in 2015 reserves for variable and interest-sensitive life products were decreased by $71 million to reflect an assumption update for the actual COI rate increase. These decreases were partially offset by a $173 million increase in benefits paid and $116 million higher net increase in the no lapse guarantee reserve (reflecting a $55 million decrease in ceded reserves as a result of model refinements in the calculation of affiliated ceded reserves).

The $353 million increase in the GMDB/GMIB reserves in 2015 reflects the impacts of changes in capital markets which increased the GMDB/GMIB reserves by $249 million. The 2015 GMDB/GMIB reserve balance also includes a $723 million increase in reserves resulting from the Company’s update to the RTM assumption and a $129 million increase in reserves to reflect updated assumptions of future GMIB costs as a result of lower expected short-term lapses for those policyholders who do not accept the GMIB buyout offer program initiated in fourth quarter 2015. Partially offsetting these increases was a $637 million decrease in reserves resulting from the Company’s updated expectations of election, partial withdrawal and long-term lapse rates. Also decreasing the GMIB and GWBL reserves in 2015 were the impacts of updated assumptions resulting from the Company’s lump sum option added to certain policyholder’s GMIB and GWBL contracts in 2015 which decreased the GMIB and GWBL reserve by $55 million.

The $1.5 billion increase in the GMDB/GMIB reserves in 2014 reflects the impacts of changes in capital markets which increased the GMDB/GMIB reserves by $1.8 billion. The increase in the GMDB/GMIB reserves also includes updated assumptions of future GMIB costs as a result of lower expected short-term lapses for those policyholders who did not accept the GMIB buyout offer that expired in third quarter 2014, model refinements and updated assumptions of future GMIB costs for contracts that receive GMIB benefits as a result of the contract value going to $0, which decreased the GMIB/DB reserves by $152 million. The 2014 increase in GWBL and GMAB reserves reflects refinements in the fair value calculation of these reserves which increased the reserve by $37 million.

In 2015, interest credited to policyholders’ account balances totaled $978 million, a decrease of $208 million from the $1.2 billion reported in 2014 primarily due to lower interest credited on certain variable annuity contracts which is based upon performance of market indices subject to guarantees and lower amortization of sales inducements.

Total compensation and benefits totaled $493 million in 2015, a $38 million increase from $455 million in 2014, primarily due to higher salary costs, employee benefits and share based compensation.

In 2015, commission expense totaled $1.1 billion, a decrease of $36 million compared to 2014, principally due to a decrease in indexed universal life product sales.

In 2015, interest expense totaled $19 million; a decrease of $33 million from $52 million in 2014. The decrease is due to the repayment of a $500 million callable 7.1% surplus note during the second quarter of 2014 and repayment of a $325 million surplus note with an interest rate of 6.0% in fourth quarter 2014 to AXA Financial.

Amortization of DAC, net was $(331) million in 2015, an increase of $82 million from $(413) million of amortization of DAC, net in 2014. The increase in DAC amortization is primarily due to higher baseline amortization partially offset by $103 million favorable changes in expected future margins on variable and interest-sensitive life products (partially offset in the initial fee liability) and updates to the RTM and lapse assumptions in 2015 compared to $56 million favorable changes in expected future margins on variable and interest-sensitive life products (partially offset in the initial fee liability) in 2014. Also increasing the amortization of DAC were the impacts of a $12 million and a $1 million decrease in capitalization of first year commissions and deferrable operating expenses, respectively.

Other operating costs and expenses totaled $720 million in 2015, a decrease of $289 million from the $1.0 billion reported in 2014. The decrease is primarily related to a $195 million lower amortization of reinsurance costs related to the deferred asset recorded from the Company’s reinsurance transaction with AXA Arizona, a decrease of $68 million in amortization of deferred cost of reinsurance with third parties and $39 million lower restructuring costs partially offset by an increase of $30 million in consulting fees and $26 million higher legal expenses.
 

63

Premiums and Deposits

The Company offers a balanced and diversified product portfolio that takes into account the macroeconomic environment and customer preferences and drives profitable growth while appropriately managing risk. Variable annuity products continue to account for the majority of the Company’s sales.

The following table lists sales for major insurance product lines for 2016, 2015 and 2014. Premiums and deposits are presented gross of internal conversions and are presented gross of reinsurance ceded:
Premiums and Deposits
 
2016
 
2015
 
2014
 
(In Millions)
Retail:
 
 
 
 
 
Annuities
 
 
 
 
 
First year
$
3,669

 
$
3,702

 
$
3,775

Renewal
2,244

 
2,195

 
2,146

 
5,913

 
5,897

 
5,921

Life(1)
 
 
 
 
 
First year
144

 
156

 
174

Renewal
1,649

 
1,682

 
1,712

 
1,793

 
1,838

 
1,886

Other(2)
 
 
 
 
 
First year
—

 
—

 
—

Renewal
233

 
229

 
240

 
233

 
229

 
240

Total retail
7,939

 
7,964

 
8,047

Wholesale:
 
 
 
 
 
Annuities
 
 
 
 
 
First year
4,658

 
4,137

 
4,228

Renewal
297

 
247

 
187

 
4,955

 
4,384

 
4,415

Life(1)
 
 
 
 
 
First year
25

 
33

 
32

Renewal
701

 
630

 
627

 
726

 
663

 
659

Total wholesale
5,681

 
5,047

 
5,074

Total Premiums and Deposits(3)
$
13,620

 
$
13,011

 
$
13,121

(1)
Includes variable, interest-sensitive and traditional life products.
(2)
Includes reinsurance assumed and health insurance.
(3)
Excludes funding agreement deposits
2016 Compared to 2015.

Total premiums and deposits for insurance and annuity products for 2016 were $13.6 billion, a $609 million increase from $13.0 billion in 2015 while total first year premiums and deposits increased $468 million to $8.5 billion in 2016 from $8.0 billion in the 2015. The annuity line’s first year premiums and deposits increased $488 million to $8.3 billion principally due to the $521 million increase in sales in the wholesale channel. The increase in first year annuity sales in the wholesale channel is primarily due to higher sales of the Company’s SCS and other variable annuity products that do not offer enhanced guaranteed living benefits partially offset by lower sales of Retirement Cornerstone® and Accumulator® products. First year premiums and deposits for the life insurance products decreased $20 million, primarily due to a decrease in sales of Indexed universal life insurance products in both the retail and wholesale channels.

64

2015 Compared to 2014.
Total premiums and deposits for insurance and annuity products for 2015 were $13.0 billion, a $110 million decrease from $13.1 billion in 2014 while total first year premiums and deposits decreased $181 million to $8.0 billion in 2015 from $8.2 billion in 2014. The annuity line’s first year premiums and deposits decreased $164 million to $7.8 billion principally due to a $91 million and $73 million decrease in sales in the wholesale and retail channels, respectively. First year premiums and deposits for the life insurance products decreased $17 million, primarily due to lower sales of UL and term life products in the retail channel.
The decrease in variable annuity sales for 2015 was primarily due to lower sales of certain variable annuity products with enhanced guarantee benefits, generally consistent with industry wide decreases of annuity sales. The decrease in first year annuity sales were partially offset by higher sales of certain variable annuities that do not include enhanced guarantee benefits.
Surrenders and Withdrawals.

The following table presents surrender and withdrawal amounts and rates for major insurance product lines. Annuity surrenders and withdrawals are presented net of internal replacements.

 
 
 
 
 
 
 
Rates(1)
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
 
(Dollars in Millions)
 
 
 
 
 
 
Annuities
$
8,051

 
$
7,493

 
$
9,202

 
6.6
%
 
6.3
%
 
7.8
%
Variable and interest-sensitive life
696

 
737

 
747

 
3.4
%
 
3.6
%
 
3.6
%
Traditional life
190

 
189

 
192

 
2.6
%
 
2.6
%
 
2.5
%
Total (2)
$
8,937

 
$
8,419

 
$
10,141



 
 
 
 

(1)
Surrender rates are based on the average surrenderable future policy benefits and/or policyholders’ account balances for the related policies and contracts in force during each year.
(2)
Excludes funding agreements withdrawals
2016 Compared to 2015.
Surrenders and withdrawals increased $518 million, from $8.4 billion in 2015 to $8.9 billion in 2016. There was an increase of $558 million and $1 million in annuities and traditional life, respectively, and a decrease of $41 million in VISL products surrenders and withdrawals. The increase in annuities surrenders for 2016 is due to the impact of $558 million of surrenders related to the Company’s 2015 buyback program to purchase from certain policyholders the GMDB and GMIB riders contained in their Accumulator® contracts. The buyback program expired in March 2016.
2015 Compared to 2014.
Surrenders and withdrawals decreased $1.7 billion, from $10.1 billion in 2014 to $8.4 billion in 2015. There was a decrease of $1.7 billion in individual annuities surrenders and withdrawals with decreases of $10 million and $3 million, respectively, in variable and interest sensitive and traditional life products. The annuities surrender rate decreased to 6.3% in 2015 from 7.8% in 2014. Annuity surrenders in 2015 and 2014 include $201 million and $1.8 billion of surrenders related to the Company’s buyback programs to purchase from certain policyholders the GMDB and GMIB riders contained in their Accumulator® contracts. As a result of these programs, the Company expects a change in the short-term behavior of policyholders, as those who do not accept the offer are assumed to be less likely to lapse their contract over the short term.

65

Investment Management.
The table that follows presents the operating results of the Investment Management segment, consisting principally of AB’s operations, for 2016, 2015 and 2014.
Investment Management - Results of Operations
 
2016
 
2015
 
2014
 
(In Millions)
Revenues:
 
 
 
 
 
Investment advisory and service fees
$
1,933

 
$
1,974

 
$
1,958

Distribution revenues
384

 
427

 
445

Bernstein research services
480

 
493

 
483

Other revenues
99

 
102

 
109

Commissions, fees and other income
2,896

 
2,996

 
2,995

Net investment income (losses)
135

 
33

 
15

Investment gains (losses), net
(2
)
 
(4
)
 
1

Total revenues
3,029

 
3,025

 
3,011

Expenses:
 
 
 
 
 
Compensation and benefits
1,254

 
1,291

 
1,285

Distribution related payments
372

 
394

 
413

Interest expense
3

 
1

 
1

Other operating costs and expenses
694

 
721

 
709

Total expenses
2,323

 
2,407

 
2,408

Earnings (losses) from Operations before Income Taxes
$
706

 
$
618

 
$
603

Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015 – Investment Management
Revenues
Revenues totaled $3.0 billion in 2016, an increase of $4 million from $3.0 billion in 2015. The increase is primarily due to $102 million higher Net investment income and $2 million lower net investment losses partially offset by a $41 million decrease in Investment advisory and services fees, $43 million lower Distribution revenues, a $13 million decrease in Bernstein research revenues and a $3 million decrease in other revenues.
Investment advisory and services fees include base fees and performance-based fees. The increase or decrease in base fees is primarily attributable to an increase or decrease in average AUM. In 2016, investment advisory and services fees totaled $1.9 billion, a decrease of $41 million from the $2.0 billion in 2015. The decrease includes a decrease in base fees of $49 million partially offset by an increase of $9 million in performance-based fees. Retail investment advisory and services fees and Institutional investment advisory and services base and performance fees decreased $47 million and $14 million respectively, primarily due to a decrease in average AUM in 2016, as compared to 2015, partially offset by an increase in Private Wealth Management base and performance fees of $20 million.

Bernstein research revenues decreased $13 million in 2016 as compared to 2015. The decrease was the result of declines in client revenues across the U.S., Europe and Asia.

Distribution revenues were $384 million in 2016 as a decrease of $43 million as compared to the $427 million in 2015, while the corresponding average AUM of these mutual funds decreased.

Net investment income (loss) consisted principally of realized and unrealized gains (losses) on trading investments, income (losses) from derivative instruments and dividend and interest income, offset by interest expense related to interest accrued on cash balances in customers’ brokerage accounts. The $102 million increase in net investment income to $135 million in 2016 as compared to $33 million in 2015 was principally due to a $75 million investment gain from the sale of an investment holding $27 million higher income from seed capital investments, $15 million higher income from AB private equity investment fund and other consolidated VIE investments partially offset by $31 million lower investment income from derivative instruments ($16 million of investment losses from derivative instruments in 2016 as compared to $15 million of investment income from derivative instruments in 2015).

66


Expenses

The Investment Management segment’s total expenses were $2.3 billion in 2016, a decrease of $84 million from the $2.4 billion in 2015 attributed to lower compensation and benefits of $37 million, lower distribution related expenses of $22 million, and lower Other operating charges of $27 million.
 
For 2016, employee compensation and benefits expenses for the Investment Management segment were $1.3 billion a decrease of $37 million as compared to $1.3 billion in 2015. The decrease was primarily attributable to lower incentive compensation of $34 million, lower commissions of $6 million, and lower fringes and other costs of $8 million partially offset by an increase in base compensation of $10 million, reflecting higher severance costs.

The distribution related payments decreased $22 million to $372 million in 2016 from $394 million in 2015 primarily as a result of lower distribution revenues.

The $27 million decrease in other operating costs and expenses to $694 million for 2016 as compared to $721 million in 2015 was primarily due to $17 million lower general and administrative expenses and an $8 million decrease in amortization of deferred sales commissions partially offset by an $18 million real estate charge recorded in 2016.
Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014 – Investment Management
Revenues
Revenues totaled $3.0 billion in 2015, an increase of $14 million from $3.0 billion in 2014. The increase is primarily due to higher net investment income, Investment advisory services fees and Bernstein research services of $18 million, $16 million and $10 million, respectively, partially offset by decreases in distribution revenues and investment gains of $18 million and $5 million, respectively.

Investment advisory and services fees include base fees and performance-based fees. The increase or decrease in base fees is primarily attributable to an increase or decrease in average AUM. In 2015, investment advisory and services fees totaled $2.0 billion, an increase of $16 million from the $2.0 billion in 2014. The increase includes an increase of $45 million in base fees offset by decrease of $29 million in performance-based fees. The decrease in performance-based fees primarily resulted from major equity market declines during the year. Institutional investment advisory and services fees increased $1 million primarily due to a $12 million increase in base fees offset by decrease in performance based fees of $11 million. Retail investment advisory and services fees decreased $11 million, primarily due to a $12 million decrease in performance base fees. Private Wealth Management base and performance fees increased $25 million, primarily as a result of a $32 million increase in base fees, which primarily resulted from an increase in average billable AUM, partially offset by decrease of $7 million in performance based fees.

Bernstein research revenues increased $10 million in 2015 as compared to 2014. The increase was the result of growth in the U.S. and Asia, partially offset by a combination of pricing pressure in Europe and weakness in European currencies compared to the U.S. dollar.

Distribution revenues decreased $18 million in 2015 as compared to 2014, while the corresponding average AUM of these mutual funds decreased.

Net investment income (loss) consisted principally of realized and unrealized gains (losses) on trading investments, income (losses) from derivative instruments and dividend and interest income, offset by interest expense related to interest accrued on cash balances in customers’ brokerage accounts. The $18 million increase in net investment income (loss) to $33 million in 2015 as compared to $15 million of income in 2014 was principally due to $34 million higher investment income from derivative instruments ($15 million of income in 2015 as compared to a loss of $19 million in 2014) and $17 million higher investment income from mark-to-market income on investments held by AB’s consolidated private equity fund ($11 million of investment income in 2015 as compared to $6 million of investment loss in 2014). These increases were offset by a $35 million decrease in unrealized losses from equity trading securities ($15 million unrealized losses in 2015 as compared to $20 million of unrealized gains in 2014).

Investment gains (losses), net were losses of $4 million in 2015 as compared to gains of $1 million in 2014 principally from realized and unrealized gains (losses) on deferred compensation related investments.


67

Expenses

The Investment Management segment’s total expenses were $2.4 billion in 2015, a decrease of $1 million from the $2.4 billion in 2014 primarily due to $19 million lower distribution related payments offset by a $12 million higher other operating expenses and $6 million higher compensation and benefit expenses.
 
For 2015, employee compensation and benefits expenses for the Investment Management segment were $1.3 billion as compared to $1.3 billion in 2014. The $6 million increase was primarily attributable to higher base compensation of $16 million and higher fringes/other of $6 million partially offset by lower commissions of $14 million and incentive compensation of $6 million.

The distribution related payments decreased $19 million to $394 million in 2015 from $413 million in 2014 primarily as a result of lower distribution revenues.

The $12 million increase in other operating costs and expenses to $516 million for 2015 as compared to $510 million in 2014 was primarily due to higher portfolio services expenses of $8 million, $7 million higher amortization of deferred sales commissions, $4 million higher technology expenses and $4 million higher execution and clearing costs. The increases were partially offset by an $8 million decrease in marketing costs, office related and travel and entertainment expenses.




68

FEES AND ASSETS UNDER MANAGEMENT
A breakdown of fees and AUM follows:
Fees and Assets Under Management
 
At or For the Years Ended December 31,
 
2016
 
2015
 
2014
 
(In Millions)
FEES
 
 
 
 
 
Third party
$
1,858

 
$
1,900

 
$
1,894

General Account and other
49

 
46

 
36

AXA Financial Insurance Segment Separate Accounts
26

 
28

 
27

Total Fees
$
1,933

 
$
1,974

 
$
1,957

ASSETS UNDER MANAGEMENT
 
 
 
 
 
Assets by Manager
 
 
 
 
 
AB
 
 
 
 
 
Third party(1)
$
396,828

 
$
387,872

 
391,946

General Account and other(2)
51,545

 
48,405

 
48,802

AXA Financial Insurance Segment Separate Accounts(3)
31,827

 
31,163

 
33,252

Total AB
480,200

 
467,440

 
474,000

Insurance Segment
 
 
 
 
 
General Account and other(4)
21,171

 
21,367

 
19,039

AXA Financial Insurance Segment Separate Accounts
81,338

 
78,051

 
79,633

Total Insurance Segment
102,509

 
99,418

 
98,672

Total by Account:
 
 
 
 
 
Third party
396,828

 
387,872

 
391,946

General Account and other
72,716

 
69,788

 
67,841

AXA Financial Insurance Segment Separate Accounts
113,165

 
109,198

 
112,885

Total Assets Under Management
$
582,709

 
$
566,858

 
$
572,672


(1)
Includes $43.1 billion and $41.4 billion of assets managed on behalf of AXA affiliates at December 31, 2016 and 2015, respectively. Third party AUM includes 100% of the estimated fair value of real estate owned by joint ventures in which third party clients own an interest.

(2)
Includes all General Account and other invested assets of the Company managed by AB as well as General Account investments of other members of the AXA Financial Insurance Segment.

(3)
Includes $1.8 billion and $1.7 billion of MONY America Separate Accounts’ assets and $31.8 billion and $31.2 billion of AXA Equitable Separate Accounts’ assets managed by AB at December 31, 2016 and 2015, respectively.

(4)
Includes invested assets of the Company not managed by AB, principally cash and short-term investments and policy loans, totaling approximately $11.4 billion and $13.7 billion at December 31, 2016 and 2015, respectively, as well as mortgages and equity real estate totaling $9.8 billion and $7.7 billion at December 31, 2016 and 2015, respectively.

Fees for assets under management decreased 2.1% from 2015 to 2016 and increased 0.9% from 2014 to 2015, in line with the change in average assets under management for the General Account and third parties.

Total assets under management at December 31, 2016 increased $15.9 billion to $582.7 billion.  The $15.9 billion increase at December 31, 2016 as compared to  December 31, 2015 primarily resulted from market appreciation and an acquisition of $2.5 billion of AUM by AB partially offset by net outflows and a $3.0 billion AUM adjustment due to AB’s shift from providing asset management services to consulting services for a client.


69

Changes in assets under management at AB for 2016 and 2015 were as follows:
 
Investment Service
 
Equity
Actively
Managed
 
Equity
Passively
Managed(1)
 
Fixed
Income
Actively
Managed-
Taxable
 
Fixed
Income
Actively
Managed
-Tax-
Exempt
 
Fixed
Income
Passively
Managed(1)
 
Other(2)
 
Total
 
(In billions)
Balance as of December 31, 2015
$
110.6

 
$
46.4

 
$
207.4

 
$
33.5

 
$
10.0

 
$
59.5

 
$
467.4

Long-term flows:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales/new accounts
14.4

 
0.5

 
45.8

 
8.5

 
0.2

 
3.6

 
73.0

Redemptions/terminations
(19.3
)
 
(1.0
)
 
(31.0
)
 
(5.0
)
 
(0.6
)
 
(8.9
)
 
(65.8
)
Cash flow/unreinvested dividends
(2.7
)
 
(2.0
)
 
(9.1
)
 
(0.2
)
 
1.1

 
(4.1
)
 
(17.0
)
Net long-term (outflows) inflows
(7.6
)
 
(2.5
)
 
5.7

 
3.3

 
0.7

 
(9.4
)
 
(9.8
)
Acquisitions
—

 
—

 
—

 
—

 
—

 
2.5

 
2.5

AUM adjustment(3)
—

 
—

 
—

 
—

 
—

 
(3.0
)
 
(3.0
)
Market appreciation
(depreciation)
8.9

 
4.2

 
7.8

 
0.1

 
0.4

 
1.7

 
23.1

Net change
1.3

 
1.7

 
13.5

 
3.4

 
1.1

 
(8.2
)
 
12.8

Balance as of December 31, 2016
$
111.9

 
$
48.1

 
$
220.9

 
$
36.9

 
$
11.1

 
$
51.3

 
$
480.2

Balance as of December 31, 2014
$
112.5

 
$
50.4

 
$
219.4

 
$
31.6

 
$
10.1

 
$
50.0

 
$
474.0

Long-term flows:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales/new accounts
18.6

 
0.9

 
36.2

 
5.6

 
0.6

 
13.5

 
75.4

Redemptions/terminations
(17.2
)
 
(1.5
)
 
(34.6
)
 
(4.4
)
 
(0.5
)
 
(3.2
)
 
(61.4
)
Cash flow/unreinvested dividends
(3.7
)
 
(2.5
)
 
(4.6
)
 
(0.1
)
 
(0.1
)
 
0.2

 
(10.8
)
Net long-term (outflows) inflows
(2.3
)
 
(3.1
)
 
(3.0
)
 
1.1

 
—

 
10.5

 
3.2

Acquisitions
—

 
—

 
—

 
—

 
—

 
—

 
—

AUM adjustment(3)
0.1

 
—

 
—

 
(0.1
)
 
—

 
—

 
—

Market appreciation (depreciation)
0.3

 
(0.9
)
 
(9.0
)
 
0.9

 
(0.1
)
 
(1.0
)
 
(9.8
)
Net change
(1.9
)
 
(4.0
)
 
(12.0
)
 
1.9

 
(0.1
)
 
9.5

 
(6.6
)
Balance as of December 31, 2015
$
110.6

 
$
46.4

 
$
207.4

 
$
33.5

 
$
10.0

 
$
59.5

 
$
467.4

(1)
Includes index and enhanced index services.
(2)
Includes multi-asset solutions and services and certain alternative investments.
(3)
Excludes Institutional assets for which we provide administrative services but not investment management services and Retail funds seed capital for which we do not charge an investment management fee from AUM.

70

Average assets under management at AB by distribution channel and investment services were as follows:
 
Years Ended December 31,
 
% Change        
 
2016
 
2015
 
2014
 
2016-15
 
2015-14
 
(In Billions)
Distribution Channel:
 
 
 
 
 
 
 
 
 
Institutions
$
243.4

 
$
242.9

 
$
234.3

 
0.2
 %
 
3.6
 %
Retail
157.7

 
160.6

 
159.6

 
(1.8
)
 
0.6

Private Wealth Management
78.9

 
77.2

 
73.6

 
2.2

 
4.9

Total
$
480.0

 
$
480.7

 
$
467.5

 
(0.1
)%
 
2.8
 %
Investment Service:
 
 
 
 
 
 
 
 
 
Equity Actively Managed
$
109.4

 
$
113.2

 
$
111.2

 
(3.4
)%
 
1.8
 %
Equity Passively Managed(1)
46.5

 
49.3

 
49.6

 
(5.7
)
 
(0.6
)
Fixed Income Actively
 
 
 
 
 
 
 
 
 
Managed – Taxable
221.5

 
217.7

 
219.5

 
1.7

 
(0.8
)
Fixed Income Actively
 
 
 
 
 
 
 
 
 
Managed – Tax-exempt
36.3

 
32.6

 
30.4

 
11.3

 
7.2

Fixed Income Passively
 
 
 
 
 
 
 
 
 
Managed(1)
11.0

 
10.1

 
9.7

 
8.9

 
4.1

Other(2)
55.3

 
57.8

 
47.1

 
(4.3
)
 
22.7

Total
$
480.0

 
$
480.7

 
$
467.5

 
(0.1
)%
 
2.8
 %
(1)
Includes index and enhanced index services.
(2)
Includes multi-asset solutions and services, and certain alternative investments.

71

GENERAL ACCOUNT INVESTMENT PORTFOLIO
The General Account investment assets (“GAIA”) portfolio consists of a well-diversified portfolio of public and private fixed maturities, commercial and agricultural mortgages and other loans, equity securities and other invested assets.
The Company has asset/liability management (“ALM”) with separate investment objectives for specific classes of product liabilities. The Company establishes investment strategies to manage each product class’ investment return, duration and liquidity requirements, consistent with management’s overall investment objectives for the GAIA portfolio.
The GAIA portfolio and investment results support the insurance and annuity liabilities of the Insurance segment’s business operations. The following table reconciles the consolidated balance sheet asset and liability amounts to GAIA.
Net General Account Investment Assets
December 31, 2016
Balance Sheet Captions:
Balance
  Sheet Total  
 
Other(1)
 
GAIA
 
(In Millions)
Fixed maturities, available for sale, at fair value(2)
$
32,570

 
$
1,493

 
$
31,077

Mortgage loans on real estate
9,757

 
45

 
9,712

Policy Loans
3,361

 
(104
)
 
3,465

Other equity investments
1,408

 
82

 
1,326

Trading securities
9,134

 
505

 
8,629

Other invested assets
2,186

 
2,186

 
—

Total investments
58,416

 
4,207

 
54,209

Cash and cash equivalents
2,950

 
862

 
2,088

Short-term and long-term debt
(513
)
 
(513
)
 
—

Total
$
60,853

 
$
4,556

 
$
56,297

(1)
Assets listed in the “Other” category principally consist of the Company’s loans to affiliates and other miscellaneous assets or liabilities related to GAIA that are reclassified from various balance sheet lines held in portfolios other than the General Account which are not managed as part of GAIA, including related accrued income or expense, certain reclassifications and intercompany adjustments, other invested assets related to Derivatives and Alliance investments and, for fixed maturities, the reversal of net unrealized gains (losses). The “Other” category is deducted in arriving at GAIA.
(2)
The liability for repurchase agreements is included with Fixed Maturities at December 31, 2016, 2015 and 2014.

72

Investment Results of General Account Investment Assets

The following table summarizes investment results by asset category for the periods indicated.
 
2016
 
2015
 
2014
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
(Dollars in Millions)
Fixed Maturities:
 
 
 
 
 
 
 
 
 
 
 
Investment grade
 
 
 
 
 
 
 
 
 
 
 
Income (loss)
4.53
 %
 
$
1,367

 
4.44
 %
 
$
1,297

 
4.62
 %
 
$
1,329

Ending assets
 
 
29,487

 
 
 
28,998

 
 
 
28,958

Below investment grade
 
 
 
 
 
 
 
 
 
 
 
Income
7.02
 %
 
109

 
6.98
 %
 
109

 
6.57
 %
 
121

Ending assets
 
 
1,590

 
 
 
1,321

 
 
 
1,847

Mortgages:
 
 
 
 
 
 
 
 
 
 
 
Income (loss)
5.54
 %
 
462

 
5.07
 %
 
354

 
5.27
 %
 
336

Ending assets
 
 
9,712

 
 
 
7,480

 
 
 
6,794

Other Equity Investments:
 
 
 
 
 
 
 
 
 
 
 
Income (loss)
4.70
 %
 
62

 
4.5
 %
 
66

 
12.14
 %
 
204

Ending assets
 
 
1,326

 
 
 
1,339

 
 
 
1,632

Policy Loans:
 
 
 
 
 
 
 
 
 
 
 
Income
6.03
 %
 
210

 
6.09
 %
 
213

 
6.13
 %
 
216

Ending assets
 
 
3,465

 
 
 
3,499

 
 
 
3,515

Cash and Short-term Investments:
 
 
 
 
 
 
 
 
 
 
 
Income
—
 %
 
11

 
—
 %
 
1

 
—
 %
 
1

Ending assets
 
 
2,088

 
 
 
2,530

 
 
 
2,845

Trading Securities:
 
 
 
 
 
 
 
 
 
 
 
Income
0.67
 %
 
49

 
0.80
 %
 
44

 
0.91
 %
 
38

Ending assets
 
 
8,629

 
 
 
6,303

 
 
 
4,513

Total Invested Assets:
 
 
 
 
 
 
 
 
 
 
 
Income
4.19
 %
 
2,270

 
4.1
 %
 
2,084

 
4.53
 %
 
2,245

Ending Assets
 
 
56,297

 
 
 
51,470

 
 
 
50,104

Debt and Other:
 
 
 
 
 
 
 
 
 
 
 
Interest expense and other
 
 
—

 
 
 
(9
)
 
 
 
(15
)
Ending assets (liabilities)
 
 
—

 
 
 
—

 
 
 
(201
)
Total:
 
 
 
 
 
 
 
 
 
 
 
Investment income
4.19
 %
 
2,270

 
4.10
 %
 
2,075

 
4.63
 %
 
2,230

Less: investment fees
(0.11
)%
 
(60
)
 
(0.11
)%
 
(55
)
 
(0.11
)%
 
(52
)
Investment Income, Net
4.08
 %
 
$
2,210

 
3.99
 %
 
$
2,020

 
4.52
 %
 
$
2,178

Ending Net Assets
 
 
$
56,297

 
 
 
$
51,470

 
 
 
$
49,903


The increase in the book yield in 2016 when compared to 2015 was primarily due to prepayment of fixed maturities and mortgage loans.


73

Fixed Maturities

The fixed maturity portfolio consists largely of investment grade corporate debt securities and includes significant amounts of U.S. government and agency obligations. At December 31, 2016, 75.0% of the fixed maturity portfolio was publicly traded. At December 31, 2016, GAIA held commercial mortgage backed securities (“CMBS”) with an amortized cost of $415 million. The General Account had a $0.3 million exposure to the sovereign debt of Italy and no exposure to the sovereign debt of Greece, Portugal, Spain and the Republic of Ireland.  The General Account had $2.1 billion or 6.4% of exposure to the oil and gas industry ($1.4 billion in the Energy sector, $630 million in the Utility sector and $88 million in other sectors) at December 31, 2016. Of the total oil and gas industry related securities the General Account held at December 31, 2016 an amortized cost of $1.9 billion or 92.0% was above investment grade. Given recent market conditions the Company expects some of these securities to fall below investment grade in the future. See “Fixed Maturities by Industry” below.

Fixed Maturities by Industry

The General Account’s fixed maturities portfolios include publicly-traded and privately-placed corporate debt securities across an array of industry categories.


74

The following table sets forth these fixed maturities by industry category as of the dates indicated along with their associated gross unrealized gains and losses.
Fixed Maturities by Industry(1) 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
(In Millions)
At December 31, 2016
 
 
 
 
 
 
 
Corporate Securities:
 
 
 
 
 
 
 
Finance
$
4,764

 
$
150

 
$
20

 
$
4,894

Manufacturing
5,525

 
249

 
40

 
5,734

Utilities
3,395

 
201

 
24

 
3,572

Services
3,095

 
133

 
22

 
3,206

Energy
1,383

 
70

 
15

 
1,438

Retail and wholesale
1,017

 
34

 
9

 
1,042

Transportation
748

 
50

 
6

 
792

Other
74

 
3

 
—

 
77

Total corporate securities
20,001

 
890

 
136

 
20,755

U.S. government
10,724

 
221

 
624

 
10,321

Commercial mortgage-backed
415

 
28

 
72

 
371

Residential mortgage-backed(2)
294

 
20

 
—

 
314

Preferred stock
519

 
45

 
10

 
554

State & municipal
432

 
63

 
2

 
493

Foreign governments
375

 
29

 
14

 
390

Asset-backed securities
51

 
10

 
1

 
60

Total
$
32,811

 
$
1,306

 
$
859

 
$
33,258

At December 31, 2015
 
 
 
 
 
 
 
Corporate Securities:
 
 
 
 
 
 
 
Finance
$
4,680

 
$
188

 
$
18

 
$
4,850

Manufacturing
5,837

 
270

 
110

 
5,997

Utilities
3,235

 
200

 
44

 
3,391

Services
2,942

 
126

 
35

 
3,033

Energy
1,728

 
46

 
96

 
1,678

Retail and wholesale
1,069

 
38

 
10

 
1,097

Transportation
819

 
49

 
12

 
856

Other
74

 
2

 
1

 
75

Total corporate securities
20,384

 
919

 
326

 
20,977

U.S. government
8,783

 
279

 
305

 
8,757

Commercial mortgage-backed
591

 
29

 
87

 
533

Residential mortgage-backed(2)
607

 
32

 
—

 
639

Preferred stock
592

 
57

 
2

 
647

State & municipal
437

 
68

 
1

 
504

Foreign governments
397

 
36

 
17

 
416

Asset-backed securities
68

 
10

 
1

 
77

Total
$
31,859

 
$
1,430

 
$
739

 
$
32,550

(1)
Investment data has been classified based on standard industry categorizations for domestic public holdings and similar classifications by industry for all other holdings.
(2)
Includes publicly traded agency pass-through securities and collateralized mortgage obligations.


75

Fixed Maturities Credit Quality

The Securities Valuation Office (“SVO”) of the National Association of Insurance Commissioners (“NAIC”), evaluates the investments of insurers for regulatory reporting purposes and assigns fixed maturity securities to one of six categories (“NAIC Designations”). NAIC designations of “1” or “2” include fixed maturities considered investment grade, which include securities rated Baa3 or higher by Moody’s or BBB- or higher by Standard & Poor’s. NAIC Designations of “3” through “6” are referred to as below investment grade, which include securities rated Ba1 or lower by Moody’s and BB+ or lower by Standard & Poor’s. As a result of time lags between the funding of investments and the completion of the SVO filing process, the fixed maturity portfolio generally includes securities that have not yet been rated by the SVO as of each balance sheet date. Pending receipt of SVO ratings, the categorization of these securities by NAIC designation is based on the expected ratings indicated by internal analysis.

The amortized cost of the General Account’s public and private below investment grade fixed maturities totaled $1.2 billion, or 3.5%, of the total fixed maturities at December 31, 2016 and $895 million, or 2.8%, of the total fixed maturities at December 31, 2015. Gross unrealized losses on public and private fixed maturities increased from $739 million in 2015 to $859 million in 2016. Below investment grade fixed maturities represented 5.2% and 12.4% of the gross unrealized losses at December 31, 2016 and 2015, respectively. For public, private and corporate fixed maturity categories, gross unrealized gains were lower and gross unrealized losses were higher in 2016 than in the prior year.

Public Fixed Maturities Credit Quality. The following table sets forth the General Account’s public fixed maturities portfolios by NAIC rating at the dates indicated.

Public Fixed Maturities
NAIC
        Designation(1)        
Rating Agency Equivalent
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
 
(In Millions)
At December 31, 2016
 
 
 
 
 
 
 
 
 
1
Aaa, Aa, A
 
$
17,819

 
$
653

 
$
696

 
$
17,776

2
Baa
 
6,303

 
367

 
41

 
6,629

 
Investment grade
 
24,122

 
1,020

 
737

 
24,405

3
Ba
 
345

 
6

 
—

 
351

4
B
 
132

 
1

 
1

 
132

5
C and lower
 
—

 
—

 
—

 
—

6
In or near default
 
15

 
1

 
1

 
15

 
Below investment grade
 
492

 
8

 
2

 
498

Total Public Fixed Maturities
 
$
24,614

 
$
1,028

 
$
739

 
$
24,903

At December 31, 2015
 
 
 
 
 
 
 
 
 
1
Aaa, Aa, A
 
$
16,263

 
$
789

 
$
360

 
$
16,692

2
Baa
 
6,831

 
332

 
137

 
7,026

 
Investment grade
 
23,094

 
1,121

 
497

 
23,718

3
Ba
 
354

 
4

 
29

 
329

4
B
 
101

 
—

 
7

 
94

5
C and lower
 
28

 
—

 
2

 
26

6
In or near default
 
3

 
—

 
—

 
3

 
Below investment grade
 
486

 
4

 
38

 
452

Total Public Fixed Maturities
 
$
23,580

 
$
1,125

 
$
535

 
$
24,170


(1)
At December 31, 2016 and 2015, no securities had been categorized based on expected NAIC designation pending receipt of SVO ratings.


76

Private Fixed Maturities Credit Quality.     The following table sets forth the General Account’s private fixed maturities portfolios by NAIC rating at the dates indicated.
Private Fixed Maturities
NAIC
        Designation(1)        
Rating Agency Equivalent
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
 
(In Millions)
At December 31, 2016
 
 
 
 
 
 
 
 
 
1
Aaa, Aa, A
 
$
3,913

 
$
149

 
$
54

 
$
4,008

2
Baa
 
3,623

 
123

 
23

 
3,723

 
Investment grade
 
7,536

 
272

 
77

 
7,731

3
Ba
 
491

 
3

 
14

 
480

4
B
 
128

 
1

 
9

 
120

5
C and lower
 
28

 
1

 
12

 
17

6
In or near default
 
14

 
1

 
8

 
7

 
Below investment grade
 
661

 
6

 
43

 
624

Total Private Fixed Maturities
 
$
8,197

 
$
278

 
$
120

 
$
8,355

At December 31, 2015
 
 
 
 
 
 
 
 
 
1
Aaa, Aa, A
 
$
4,167

 
$
180

 
$
47

 
$
4,300

2
Baa
 
3,703

 
120

 
103

 
3,720

 
Investment grade
 
7,870

 
300

 
150

 
8,020

3
Ba
 
243

 
1

 
7

 
237

4
B
 
46

 
—

 
7

 
39

5
C and lower
 
76

 
—

 
17

 
59

6
In or near default
 
44

 
4

 
23

 
25

 
Below investment grade
 
409

 
5

 
54

 
360

Total Private Fixed Maturities
 
$
8,279

 
$
305

 
$
204

 
$
8,380

(1)
Includes, as of December 31, 2016 and 2015, respectively, 12 securities with amortized cost of $190 million (fair value, $180 million) and 19 securities with amortized cost of $313 million (fair value, $307 million) that were categorized based on expected NAIC designation pending receipt of SVO ratings.


77

Corporate Fixed Maturities Credit Quality.     The following table sets forth the General Account’s holdings of public and private corporate fixed maturities by NAIC rating at the dates indicated.
Corporate Fixed Maturities
NAIC
        Designation         
Rating Agency Equivalent
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
 
(In Millions)
At December 31, 2016
 
 
 
 
 
 
 
 
 
1
Aaa, Aa, A
 
$
9,593

 
$
432

 
$
70

 
$
9,955

2
Baa
 
9,353

 
444

 
50

 
9,747

 
Investment grade
 
18,946

 
876

 
120

 
19,702

3
Ba
 
828

 
9

 
14

 
823

4
B
 
214

 
2

 
1

 
215

5
C and lower
 
13

 
1

 
1

 
13

6
In or near default
 
—

 
2

 
—

 
2

 
Below investment grade
 
1,055

 
14

 
16

 
1,053

Total Corporate Fixed Maturities
 
$
20,001

 
$
890

 
$
136

 
$
20,755

At December 31, 2015
 
 
 
 
 
 
 
 
 
1
Aaa, Aa, A
 
$
9,800

 
$
514

 
$
54

 
$
10,260

2
Baa
 
9,911

 
396

 
232

 
10,075

 
Investment grade
 
19,711

 
910

 
286

 
20,335

3
Ba
 
568

 
6

 
36

 
538

4
B
 
75

 
—

 
3

 
72

5
C and lower
 
29

 
—

 
1

 
28

6
In or near default
 
1

 
3

 
—

 
4

 
Below investment grade
 
673

 
9

 
40

 
642

Total Corporate Fixed Maturities
 
$
20,384

 
$
919

 
$
326

 
$
20,977

(1)
Includes, as of December 31, 2016 and 2015, respectively, 12 securities with amortized cost of $190 million (fair value, $180 million) and 18 securities with amortized cost of $312 million (fair value, $306 million) that were categorized based on expected NAIC designation pending receipt of SVO ratings.
Asset-backed Securities
At December 31, 2016, the amortized cost and fair value of asset-backed securities held were $51 million and $60 million, respectively; at December 31, 2015, those amounts were $68 million and $77 million, respectively.

78

Commercial Mortgage-backed Securities
The following table sets forth the amortized cost and fair value of the General Account’s commercial mortgage-backed securities at the dates indicated by credit quality and by year of issuance (vintage).
Commercial Mortgage-Backed Securities
December 31, 2016
Vintage
Moody’s Agency Rating
 
Total December 31, 2016
 
Total December 31, 2015
Aaa
 
Aa
 
A
 
Baa
 
Ba and
Below
 
(In Millions)
At amortized cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
2004 and Prior Years
$
14

 
$
2

 
$
3

 
$
7

 
$
23

 
$
49

 
$
103

2005
3

 
—

 
1

 
20

 
112

 
136

 
217

2006
—

 
—

 
—

 
15

 
143

 
158

 
196

2007
—

 
—

 
—

 
—

 
72

 
72

 
75

Total CMBS
$
17

 
$
2

 
$
4

 
$
42

 
$
350

 
$
415

 
$
591

At fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
2004 and Prior Years
$
14

 
$
2

 
$
3

 
$
7

 
$
22

 
$
48

 
$
96

2005
3

 
—

 
1

 
20

 
111

 
135

 
212

2006
—

 
—

 
—

 
15

 
107

 
122

 
157

2007
—

 
—

 
—

 
—

 
65

 
65

 
68

Total CMBS
$
17

 
$
2

 
$
4

 
$
42

 
$
305

 
$
370

 
$
533

Mortgages
Investment Mix
At December 31, 2016 and 2015, respectively, approximately 16.8% and 14.7%, respectively, of GAIA were in commercial and agricultural mortgage loans. The table below shows the composition of the commercial and agricultural mortgage loan portfolio, before the loss allowance, as of the dates indicated. A portion of the funds used to originate new mortgage loans in 2016 were received from the issuance of approximately $1.7 billion of long term funding agreements to the FHLBNY.
 
December 31, 2016
 
December 31, 2015
 
(In Millions)
Commercial mortgage loans
$
7,264

 
$
5,230

Agricultural mortgage loans
$
2,501

 
$
2,330

Total Mortgage Loans
$
9,765

 
$
7,560



79

The investment strategy for the mortgage loan portfolio emphasizes diversification by property type and geographic location with a primary focus on asset quality. The tables below show the breakdown of the amortized cost of the General Account’s investments in mortgage loans by geographic region and property type as of the dates indicated.
Mortgage Loans by Region and Property Type
 
December 31, 2016
 
December 31, 2015
 
Amortized Cost
 
% of Total
 
Amortized Cost
 
% of Total
 
(Dollars in Millions)
By Region:
 
 
 
 
 
 
 
U.S. Regions:
 
 
 
 
 
 
 
Pacific
$
2,760

 
28.3
%
 
$
2,014

 
26.6
%
Middle Atlantic
2,671

 
27.4

 
2,101

 
27.8

South Atlantic
1,069

 
10.9

 
879

 
11.6

East North Central
818

 
8.4

 
535

 
7.1

Mountain
725

 
7.4

 
567

 
7.5

West North Central
713

 
7.3

 
603

 
8.0

West South Central
448

 
4.6

 
413

 
5.5

New England
371

 
3.8

 
272

 
3.6

East South Central
190

 
1.9

 
176

 
2.3

Total Mortgage Loans
$
9,765

 
100
%
 
$
7,560

 
100
%
By Property Type:
 
 
 
 
 
 
 
Office Buildings
$
3,249

 
33.3
%
 
$
2,251

 
29.8
%
Agricultural properties
2,501

 
25.6

 
2,330

 
30.8

Apartment complexes
2,439

 
25.0

 
1,622

 
21.5

Retail Stores
585

 
6.0

 
471

 
6.2

Industrial Buildings
453

 
4.6

 
377

 
5.0

Hospitality
416

 
4.3

 
400

 
5.3

Other
122

 
1.2

 
109

 
1.4

Total Mortgage Loans
$
9,765

 
100
%
 
$
7,560

 
100
%

At December 31, 2016, the General Account investments in commercial mortgage loans had a weighted average loan-to-value ratio of 60% while the agricultural mortgage loans weighted average loan-to-value ratio was 46%.

80

The following table provides information relating to the Loan-to-value and debt service coverage ratios for commercial and agricultural mortgage loans as of December 31, 2016. The values used in these ratio calculations were developed as part of the periodic review of the commercial and agricultural mortgage loan portfolio, which includes an evaluation of the underlying collateral value.
Mortgage Loans by Loan-to-Value and Debt Service Coverage Ratios
December 31, 2016
 
Debt Service Coverage Ratio(1)
 
 
Loan-to-Value Ratio
Greater
than 2.0x
 
1.8x to
2.0x
 
1.5x to
1.8x
 
1.2x to
1.5x
 
1.0x to
1.2x
 
Less
than
1.0x
 
Total
Mortgage
Loans
 
(In Millions)
0% - 50%
$
992

 
$
233

 
$
355

 
$
524

 
$
286

 
$
49

 
$
2,439

50% - 70%
3,358

 
487

 
882

 
1,433

 
295

 
45

 
6,500

70% - 90%
282

 
65

 
231

 
131

 
28

 
46

 
783

90% plus
—

 
—

 
28

 
15

 
—

 
—

 
43

Total Commercial and Agricultural Mortgage Loans
$
4,632

 
$
785

 
$
1,496

 
$
2,103

 
$
609

 
$
140

 
$
9,765

(1)
The debt service coverage ratio is calculated using actual results from property operations.
The tables below show the breakdown of the commercial and agricultural mortgage loans by year of origination at December 31, 2016.
Mortgage Loans by Year of Origination
 
December 31, 2016
Year of Origination
Amortized Cost
 
% of Total
 
(Dollars In Millions)
2016
$
3,308

 
33.9
%
2015
1,437

 
14.7

2014
1,331

 
13.6

2013
1,642

 
16.8

2012
945

 
9.7

2011 and prior
1,102

 
11.3

Total Mortgage Loans
$
9,765

 
100
%

At December 31, 2016 and 2015, respectively, $6 million and $32 million of mortgage loans were classified as problem loans while $60 million and $63 million were classified as potential problem loans and $15 million and $16 million were classified as restructured loans.

The TDR mortgage loan shown in the table below has been modified five times since 2011. The modifications extended the maturity from its original maturity of November 5, 2014 to March 5, 2017 and extended interest only payments through maturity. In November 2015, the recorded investment was reduced by $45 million in conjunction with the sale of the majority of the underlying collateral and $32 million from a charge-off. The remaining $15 million mortgage loan balance reflects the value of the remaining underlying collateral and cash held in escrow supporting the mortgage loan. Since the fair market value of the underlying real estate and cash held in escrow collateral is the primary factor in determining the allowance for credit losses, modifications of loan terms typically have no direct impact on the allowance for credit losses, and therefore, no impact on the financial statements.

81

Troubled Debt Restructuring - Modifications
December 31, 2016
 
Number of Loans
 
Outstanding Recorded Investment
 
Pre-Modification  
 
Post-Modification  
 
 
 
(Dollars In Millions)
Commercial mortgage loans
1

 
$
15

 
$
15

There were no default payments on the above loan during 2016.
Valuation allowances for the commercial mortgage loan portfolio were related to loan specific reserves. The following table sets forth the change in valuation allowances for the commercial mortgage loan portfolio as of the dates indicated. There were no valuation allowances for agricultural mortgages at December 31, 2016 and 2015.
 
Commercial Mortgage Loans
 
2016
 
2015
 
2014
 
(In Millions)
Allowance for credit losses:
 
 
 
 
 
Beginning Balance, January 1,
$
6

 
$
37

 
$
42

Charge-offs
—

 
(32
)
 
(14
)
Recoveries
(2
)
 
(1
)
 
—

Provision
4

 
2

 
9

Ending Balance, December 31,
$
8

 
$
6

 
$
37

Ending Balance, December 31,
 
 
 
 
 
Individually Evaluated for Impairment
$
8

 
$
6

 
$
37

Other Equity Investments

At December 31, 2016, private equity partnerships, hedge funds and real-estate related partnerships were 87.5% of total other equity investments. These interests, which represent 2.1% of GAIA, consist of a diversified portfolio of LBO mezzanine, venture capital and other alternative limited partnerships, diversified by sponsor, fund and vintage year. The portfolio is actively managed to control risk and generate investment returns over the long term. Portfolio returns are sensitive to overall market developments. The General Account had $0.1 million of exposure (less than 0.1% of other equity investments) to private equity partnerships denominated in British currency at December 31, 2016.
Other Equity Investments - Classifications
 
December 31, 2016
 
December 31, 2015
 
(In Millions)
Common stock
$
171

 
$
105

Joint ventures and limited partnerships:
 
 
 
Private equity
823

 
884

Hedge funds
221

 
254

Real estate related
158

 
106

Total Other Equity Investments
$
1,373

 
$
1,349


Derivatives
The Company uses derivatives as part of its overall asset/liability risk management primarily to reduce exposures to equity market and interest rate risks. Derivative hedging strategies are designed to reduce these risks from an economic perspective and are all executed within the framework of a “Derivative Use Plan” approved by the NYDFS. Operation of these hedging programs is based on models involving numerous estimates and assumptions, including, among others, mortality, lapse, surrender and withdrawal rates, election rates, fund performance, market volatility and interest rates. A wide range of derivative contracts are used in these hedging programs, including exchange traded equity, currency and interest rate futures contracts, total return and/or other equity

82

swaps, interest rate swap and floor contracts, bond and bond-index total return swaps, swaptions, variance swaps, equity options as well as bond and repo transactions to support the hedging. The derivative contracts are collectively managed in an effort to reduce the economic impact of unfavorable changes in guaranteed benefits’ exposures attributable to movements in capital markets.
Derivatives utilized to hedge exposure to Variable Annuities with Guarantee Features
The Company has issued and continues to offer certain variable annuity products with GMDB, GMIB and GIB features. The Company had previously issued certain variable annuity products with GWBL and other features. The risk associated with the GMDB feature is that under-performance of the financial markets could result in GMDB benefits, in the event of death, being higher than what accumulated policyholders’ account balances would support. The risk associated with the GMIB feature is that under-performance of the financial markets could result in the present value of GMIB benefits, in the event of annuitization, being higher than what accumulated policyholders’ account balances would support, taking into account the relationship between current annuity purchase rates and the GMIB guaranteed annuity purchase rates. The risk associated with the GIB and GWBL and other features is that under-performance of the financial markets could result in the GIB and GWBL and other features’ benefits being higher than what accumulated policyholders’ account balances would support.
For GMDB, GMIB, GIB and GWBL and other features, the Company retains certain risks including basis, credit spread and some volatility risk and risk associated with actual versus expected assumptions for mortality, lapse and surrender, withdrawal and contractholder election rates, among other things. The derivative contracts are managed to correlate with changes in the value of the GMDB, GMIB, GIB and GWBL and other features that result from financial markets movements. A portion of exposure to realized equity volatility is hedged using equity options and variance swaps and a portion of exposure to credit risk is hedged using total return swaps on fixed income indices. Additionally, the Company is party to total return swaps for which the reference U.S. Treasury securities are contemporaneously purchased from the market and sold to the swap counterparty. As these transactions result in a transfer of control of the U.S. Treasury securities to the swap counterparty, the Company derecognizes these securities with consequent gain or loss from the sale. The Company has also purchased reinsurance contracts to mitigate the risks associated with GMDB features and the impact of potential market fluctuations on future policyholder elections of GMIB features contained in certain annuity contracts issued by the Company.

The Company has in place a hedge program utilizing interest rate swaps to partially protect the overall profitability of future variable annuity sales against declining interest rates.
Derivatives utilized to hedge crediting rate exposure on SCS, SIO, MSO and IUL products/investment options
The Company hedges crediting rates in the SCS variable annuity, SIO in the EQUI-VEST® variable annuity series, MSO in the variable life insurance products and IUL insurance products. These products permit the contract owner to participate in the performance of an index, ETF or commodity price movement up to a cap for a set period of time. They also contain a protection feature, in which the Company will absorb, up to a certain percentage, the loss of value in an index, ETF or commodity price, which varies by product segment.
In order to support the returns associated with these features, the Company enters into derivative contracts whose payouts, in combination with fixed income investments, emulate those of the index, ETF or commodity price, subject to caps and buffers.
Derivatives utilized to hedge risks associated with interest-rate risk arising from issuance of funding agreements
The Company issues fixed and floating rate funding agreements, to fund originated non-recourse commercial real estate mortgage loans, the terms of which may result in short term economic interest rate risk between mortgage loan commitment and mortgage loan funding. The Company uses forward interest-rate swaps to protect against interest rate fluctuations during this period.  Realized gains and losses from the forward interest rate swaps are amortized over the life of the loan in interest credited to policyholder’s account balances.
Derivatives utilized to hedge equity market risks associated with the General Account’s seed money investments in Separate Accounts, retail mutual funds and Separate Account fee revenue fluctuations

The Company’s General Account seed money investments in Separate Account equity funds and retail mutual funds exposes the Company to market risk, including equity market risk which is partially hedged through equity-index futures contracts to minimize such risk.


83

Periodically the Company enters into futures on equity indices to mitigate the impact on net earnings from Separate Account fee revenue fluctuations due to movements in the equity markets. These positions partially cover fees expected to be earned from the Company’s Separate Account products.
Derivatives utilized for General Account Investment Portfolio

Beginning in the second quarter of 2013, the Company implemented a strategy in its General Account investment portfolio to replicate the credit exposure of fixed maturity securities otherwise permissible under its investment guidelines through the sale of credit default swaps CDSs. Under the terms of these swaps, the Company receives quarterly fixed premiums that, together with any initial amount paid or received at trade inception, replicate the credit spread otherwise currently obtainable by purchasing the referenced entity’s bonds of similar maturity. These credit derivatives have remaining terms of five years or less and are recorded at fair value with changes in fair value, including the yield component that emerges from initial amounts paid or received, reported in Net investment income (loss). The Company manages its credit exposure taking into consideration both cash and derivatives based positions and selects the reference entities in its replicated credit exposures in a manner consistent with its selection of fixed maturities. In addition, the Company has transacted the sale of CDSs exclusively in single name reference entities of investment grade credit quality and with counterparties subject to collateral posting requirements. If there is an event of default by the reference entity or other such credit event as defined under the terms of the swap contract, the Company is obligated to perform under the credit derivative and, at the counterparty’s option, either pay the referenced amount of the contract less an auction-determined recovery amount or pay the referenced amount of the contract and receive in return the defaulted or similar security of the reference entity for recovery by sale at the contract settlement auction. To date, there have been no events of default or circumstances indicative of a deterioration in the credit quality of the named referenced entities to require or suggest that the Company will have to perform under these CDSs. The maximum potential amount of future payments the Company could be required to make under these credit derivatives is limited to the par value of the referenced securities which is the dollar-equivalent of the derivative notional amount. The SNAC under which the Company executes these CDS sales transactions does not contain recourse provisions for recovery of amounts paid under the credit derivative.

Periodically, the Company purchases TIPS and other sovereign bonds, both inflation linked and non-inflation linked, as General Account investments and enters into asset or cross-currency basis swaps, to result in payment of the given bond’s coupons and principal at maturity in the bond’s specified currency to the swap counterparty, in return for fixed dollar amounts. These swaps, when considered in combination with the bonds, together result in a net position that is intended to replicate a dollar-denominated fixed-coupon cash bond with a yield higher than a term-equivalent U.S. Treasury bond.

The Company implemented a strategy to hedge a portion of the credit exposure in its General Account investment portfolio by buying protection through a swap. These are swaps on the “super senior tranche” of the investment grade CDX index. Under the terms of these swaps, the Company pays quarterly fixed premiums that, together with any initial amount paid or received at trade inception, serve as premiums paid to hedge the risk arising from multiple defaults of bonds referenced in the CDX index. These credit derivatives have terms of five years or less and are recorded at fair value with changes in fair value, including the yield component that emerges from initial amounts paid or received, reported in Net investment income (loss) from derivative instruments.


84

The tables below present quantitative disclosures about the Company’s derivative instruments, including those embedded in other contracts required to be accounted for as derivative instruments.
Derivative Instruments by Category
At or For the Year Ended December 31, 2016
 
 
 
 
 
 
 
Gains (Losses) Reported in Net Earnings (Loss)
 
 
Fair Value
 
Notional
Amount
 
Asset
Derivatives
 
Liability
Derivatives
 
 
(In Millions)
Freestanding derivatives
 
 
 
 
 
 
 
Equity contracts:(1)
 
 
 
 
 
 
 
Futures
$
4,983

 
$
—

 
$
—

 
$
(823
)
Swaps
3,439

 
13

 
66

 
(281
)
Options
11,465

 
2,114

 
1,154

 
727

Interest rate contracts:(1)
 
 
 
 
 
 
 
Floors
1,500

 
11

 
—

 
4

Swaps
18,892

 
245

 
1,162

 
(224
)
Futures
6,926

 
—

 
 
 
87

Swaptions
—

 
—

 
 
 
—

Credit contracts:(1)
 
 
 
 
 
 
 
Credit default swaps
2,712

 
19

 
14

 
16

Other freestanding contracts:(1)
 
 
 
 
 
 
 
Foreign currency Contracts
549

 
48

 
1

 
47

Margin
—

 
101

 
—

 
—

Collateral
—

 
712

 
748

 
—

Net investment income
 
 
 
 
 
 
(447
)
Embedded derivatives:
 
 
 
 
 
 
 
GMIB reinsurance contracts
—

 
10,309

 
—

 
(261
)
GWBL and other features(2)
—

 
—

 
164

 
(20
)
SCS, SIO, MSO and IUL indexed features(3)
—

 
—

 
887

 
(754
)
Balance, December 31, 2016
$
50,466

 
$
13,572

 
$
4,196

 
$
(1,482
)
(1)
Reported in Other invested assets in the consolidated balance sheets.
(2)
Reported in Future policy benefits and other policyholders’ liabilities in the consolidated balance sheets.
(3)
SCS and SIO indexed features are reported in Policyholders’ account balances; MSO and IUL indexed features are reported in Future policyholders’ benefits and other policyholders’ liabilities in the consolidated balance sheets.

85

Derivative Instruments by Category
At or For the Year Ended December 31, 2015
 
 
 
 
 
 
 
Gains  (Losses) Reported in Net Earnings (Loss)
 
 
 
Fair Value
 
 
Notional
Amount
 
Asset
Derivatives
 
Liability
Derivatives
 
(In Millions)
Freestanding derivatives
 
 
 
 
 
 
 
Equity contracts:(1)
 
 
 
 
 
 
 
Futures
$
6,929

 
$
—

 
$
—

 
$
(92
)
Swaps
1,213

 
7

 
20

 
(45
)
Options
7,358

 
1,042

 
653

 
13

Interest rate contracts:(1)
 
 
 
 
 
 
 
Floors
1,800

 
61

 
—

 
12

Swaps
13,653

 
348

 
104

 
(7
)
Futures
8,685

 
—

 
 
 
(81
)
Swaptions
—

 
—

 
 
 
118

Credit contracts:(1)
 
 
 
 
 
 
 
Credit default swaps
2,412

 
14

 
37

 
(14
)
Net investment income
 
 
 
 
 
 
(96
)
Embedded derivatives:
 
 
 
 
 
 
 
GMIB reinsurance contracts
—

 
10,570

 
—

 
(141
)
GWBL and other features(2)
—

 
—

 
184

 
(56
)
SCS, SIO, MSO and IUL indexed features(3)
—

 
—

 
310

 
(38
)
Balance, December 31, 2015
$
42,050

 
$
12,042

 
$
1,308

 
$
(331
)
(1)
Reported in Other invested assets in the consolidated balance sheets.
(2)
Reported in Future policy benefits and other policyholders’ liabilities in the consolidated balance sheets.
(3)
SCS and SIO indexed features are reported in Policyholders’ account balances; MSO and IUL indexed features are reported in Future policyholders’ benefits and other policyholders’ liabilities in the consolidated balance sheets.
Dodd-Frank Wall Street Reform and Consumer Protection Act
Since June 2013, various new derivative regulations under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act have become effective, requiring financial entities, including U.S. life insurers, to clear certain types of newly executed OTC derivatives with central clearing houses, and to post larger sums of higher quality collateral, among other provisions. Counterparties subject to these regulations are required to post initial margin to the clearing house as well as variation margin to cover any daily negative mark-to-market movements in the value of OTC derivatives covered by these regulations. Centrally cleared OTC derivatives, protected by initial margin requirements and higher quality collateral are expected to reduce the risk of loss in the event of counterparty default. The Company has counterparty exposure to the clearing house and its clearing broker for futures and cleared OTC derivative contracts. Further regulations will increase the amount and quality of collateral required to be posted for non-cleared OTC derivatives by requiring initial margin for uncleared swaps, as well as mandate thresholds, transfer timing, and haircuts for variation margin. Additional regulations are expected to reduce various risks, including the risk of a “run on the bank” scenario in the event of the insolvency of a dealer.
Realized Investment Gains (Losses)
Realized investment gains (losses) are generated from numerous sources, including the sale of fixed maturity securities, equity securities, investments in limited partnerships and other types of investments, as well as adjustments to the cost basis of investments for OTTI. Realized investment gains (losses) are also generated from prepayment premiums received on private fixed maturity securities, recoveries of principal on previously impaired securities, provisions for losses on commercial mortgage and other loans,

86

fair value changes on commercial mortgage loans carried at fair value, and fair value changes on embedded derivatives and free-standing derivatives that do not qualify for hedge accounting treatment.
The following table sets forth “Realized investment gains (losses), net,” for the periods indicated:
Realized Investment Gains (Losses)
 
2016
 
2015
 
2014
 
(In Millions)
Fixed maturities
$
(2
)
 
$
(18
)
 
$
(54
)
Other equity investments
(9
)
 
3

 
(3
)
Other
(2
)
 
(1
)
 
(3
)
Total
$
(13
)
 
$
(16
)
 
$
(60
)
The following table further describes realized gains (losses), net for Fixed maturities:
Fixed Maturities
Realized Investment Gains (Losses), Net
 
2016
 
2015
 
2014
 
(In Millions)
Gross realized investment gains:
 
 
 
 
 
Gross gains on sales and maturities
$
141

 
$
43

 
$
47

Total gross realized investment gains
141

 
43

 
47

Gross realized investment losses:
 
 
 
 
 
Other-than-temporary impairments recognized in earnings (loss)
(65
)
 
(41
)
 
(72
)
Gross losses on sales and maturities
(78
)
 
(20
)
 
(29
)
Total gross realized investment losses
(143
)
 
(61
)
 
(101
)
Total
$
(2
)
 
$
(18
)
 
$
(54
)
The following table sets forth, for the periods indicated, the composition of other-than-temporary impairments recorded in Earnings (loss) by asset type.
Other-Than-Temporary Impairments Recorded in Earnings (Loss)
 
2016
 
2015
 
2014
 
(In Millions)
Fixed Maturities:
 
 
 
 
 
Public fixed maturities
$
(22
)
 
$
(22
)
 
$
(33
)
Private fixed maturities
(43
)
 
(19
)
 
(39
)
Total fixed maturities securities
(65
)
 
(41
)
 
(72
)
Equity securities
—

 
—

 
(3
)
Total
$
(65
)
 
$
(41
)
 
$
(75
)
OTTI on fixed maturities recorded in net earnings (loss) in 2016, 2015 and 2014 were due to credit events or adverse conditions of the respective issuer. In these situations, management believes such circumstances have caused, or will lead to, a deficiency in the contractual cash flows related to the investment. The amount of the impairment recorded in earnings (loss) is the difference between the amortized cost of the debt security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment.

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LIQUIDITY AND CAPITAL RESOURCES
Overview

The Company conducts operations in two business segments: the Insurance and Investment Management segments. The liquidity and capital resource needs of each of these segments are managed independently.
Analysis of Consolidated Statement of Cash Flows
Years Ended December 31, 2016 and 2015
Cash and cash equivalents of $3.0 billion at December 31, 2016 decreased $78 million from $3.0 billion at December 31, 2015.
Net cash used in operating activities was $461 million in 2016 as compared to net cash used in operating activities of $244 million in 2015. Cash flows from operating activities include such sources as premiums, investment management and advisory fees and investment income offset by such uses as life insurance benefit payments, policyholder dividends, compensation payments, other cash expenditures and tax payments.
Net cash used in investing activities was $5.4 billion, $2.9 billion higher than the $2.5 billion net cash used by investing activities in 2015. The increase was principally due to $3.0 billion higher net purchase of investments and $427 million lower cash inflows from cash settlement related to derivatives which was partially offset by $384 million decrease of loans to affiliates and $158 million lower purchase of short-term investments.
Cash flows provided by financing activities were $5.8 billion in 2016; $2.7 billion higher than the $3.0 billion net cash provided by financing activities in 2015. The impact of the net deposits to policyholders’ account balances was $8.1 billion (including $1.7 billion from the issuance of funding agreements to the FHLBNY) and $3.9 billion in 2016 and 2015, respectively. Net cash inflows related to repurchase and reverse repurchase agreements were $183 million and $860 million in 2016 and 2015 respectively. Partially offsetting these cash inflows were the impacts of $1.1 billion shareholder cash dividends, $552 million cash outflows from changes in collateralized pledged assets and liabilities, $522 million of cash outflows from cash distributions to noncontrolling interest of the Company and non-controlling interest of consolidated VIE's in 2016 compared to $767 million shareholder cash dividends, $272 million cash outflows from changes in collateralized pledged assets and liabilities and $414 million of cash outflows from cash distributions to noncontrolling interest of the Company in 2015.
Years Ended December 31, 2015 and 2014
Cash and cash equivalents of $3.0 billion at December 31, 2015 increased $302 million from $2.7 billion at December 31, 2014.
Net cash used in operating activities was $286 million in 2015 as compared to net cash used in operating activities of $617 million in 2014. Cash flows from operating activities include such sources as premiums, investment management and advisory fees and investment income offset by such uses as life insurance benefit payments, policyholder dividends, compensation payments, other cash expenditures and tax payments.
Net cash used in investing activities was $2.5 billion, $283 million lower than the $2.8 billion net cash used by investing activities in 2014. The decrease was principally due to $1.8 billion lower net purchase of investments which was partially offset by $818 million higher net purchases of trading account securities, $470 million lower cash inflows from cash settlement related to derivatives and $368 million higher purchase of short-term investments.
Cash flows provided by financing activities decreased $809 million from $3.8 billion in 2014 to $3.0 billion in 2015. The impact of the net deposits to policyholders’ account balances was $3.9 billion and $4.0 billion in 2015 and 2014, respectively. During 2015, the Company entered into $860 million of net repurchase and reverse repurchase agreements. Change in short-term borrowings decreased $95 million in 2015 compared to a decrease of $221 million in 2014, which primarily reflect AB’s commercial paper program activity. Change in collateralized pledged assets and liabilities decreased $272 million in 2015, $690 million less than the $418 million increase in 2014. In 2015, AXA Equitable paid $767 million of shareholder cash dividends to AXA Financial and repaid a $200 million surplus note to a third party at maturity. In 2014, AXA Equitable paid $382 million of shareholder cash dividends and repaid $825 million of surplus notes to AXA Financial.


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Insurance Segment

The Insurance segment’s liquidity management uses a centralized funds management process. This centralized process includes the monitoring and control of cash flow associated with policyholder receipts and disbursements and General Account portfolio principal, interest and investment activity including derivative transactions. Funds are managed through a banking system designed to reduce float and maximize funds availability. Information regarding liquidity needs and availability is used to produce forecasts of available funds and cash flow. Significant market volatility can affect daily cash requirements due to the settlement and collateral calls of derivative transactions.
In addition to gathering and analyzing information on funding needs, the Insurance segment has a centralized process for both investing short-term cash and borrowing funds to meet cash needs. In general, the short-term investment positions have a maturity profile of 1-7 days with considerable flexibility as to availability.
In managing the liquidity of the Insurance segment’s business, management also considers the risk of policyholder and contractholder withdrawals of funds earlier than assumed when selecting assets to support these contractual obligations. Surrender charges and other contract provisions are used to mitigate the extent, timing and profitability impact of withdrawals of funds by customers from annuity contracts and deposit liabilities. The following table sets forth withdrawal characteristics of the Insurance segment’s General Account annuity reserves and deposit liabilities (based on statutory liability values) as of the dates indicated.
General Accounts Annuity Reserves and Deposit Liabilities
 
December 31, 2016
 
December 31, 2015
 
Amount
 
% of Total
 
Amount
 
% of Total
 
(Dollars in Millions)
Not subject to discretionary withdrawal provisions
$
2,773

 
12.4
%
 
$
2,819

 
14.1
%
Subject to discretionary withdrawal, with adjustment:
 
 
 
 
 
 
 
With market value adjustment
29

 
0.1

 
31

 
0.2

At contract value, less surrender charge of 5% or more
1,174

 
5.2

 
1,399

 
7.0

Subtotal
1,203

 
5.3

 
1,430

 
7.2

Subject to discretionary withdrawal at contract value with no surrender charge or surrender charge of less than 5%
18,427

 
82.3

 
15,793

 
78.7

Total Annuity Reserves And Deposit Liabilities
$
22,403

 
100
%
 
$
20,042

 
100
%
Liquidity Requirements. The Insurance segment’s liquidity requirements principally relate to the liabilities associated with its various life insurance, annuity and funding agreements; the active management of various economic hedging programs; shareholder dividends; and operating expenses, including debt service. The Insurance segment’s liabilities include, among other things, the payment of benefits under life insurance, annuity and funding agreements as well as cash payments in connection with policy surrenders, withdrawals and loans.
The Insurance segment’s liquidity needs are affected by: fluctuations in mortality; other benefit payments; policyholder directed transfers from General Account to Separate Account investment options; and the level of surrenders and withdrawals previously discussed in “Results of Continuing Operations by Segment—Insurance,” as well as by cash settlements of its derivative hedging programs, debt service requirements and dividends to its shareholder.
Sources of Liquidity. The principal sources of the Insurance segment’s cash flows are premiums, deposits (including the issuance of funding agreements) and charges on policies and contracts, investment income, investment advisory fees, repayments of principal and sales proceeds from its fixed maturity portfolios, sales of other General Account Investment Assets, borrowings from third parties and affiliates, repurchase agreements and dividends and distributions from subsidiaries.
The Insurance segment’s primary source of short-term liquidity to support its insurance operations is a pool of liquid, high quality short-term instruments structured to provide liquidity in excess of the expected cash requirements. At December 31, 2016, this asset pool included an aggregate of $2.2 billion in highly liquid short-term investments, as compared to $2.5 billion at December 31, 2015. In addition, a substantial portfolio of public bonds including U.S. Treasury and agency securities and other investment grade fixed maturities is available to meet AXA Equitable’s liquidity needs.
Funding and repurchase agreements. As a member of the FHLBNY, AXA Equitable has access to collateralized borrowings.  AXA Equitable may also issue funding agreements to the FHLBNY.  Both the collateralized borrowings and funding agreements would

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require AXA Equitable to pledge qualified mortgage-backed assets and/or government securities as collateral.  At December 31, 2016 and 2015 AXA Equitable had $2.2 billion and $500 million respectively, of outstanding funding agreements with the FHLBNY.  During 2016, AXA Equitable issued an additional $1.7 billion of funding agreements to the FHLBNY in order to increase investment in commercial mortgage loans. At December 31, 2016 and 2015, the total outstanding balance of repurchase agreements was $2.0 billion and $1.9 billion, respectively.  The Company utilized these funding and repurchase agreements for cash management, asset liability management and spread lending purposes.

Third-party borrowings. In December 1995, AXA Equitable issued a $200 million callable 7.7% surplus note in exchange for cash to third parties. The note paid interest semi-annually and matured on December 1, 2015. The Company repaid the note at maturity.
Affiliated loans. In third quarter 2013, AXA Equitable purchased, at fair value, AXA Arizona’s $50 million note receivable from AXA for $56 million. This note pays interest semi-annually at an interest rate of 5.4% and matures on December 15, 2020.
In June 2009, AXA Equitable sold real estate property valued at $1.1 billion to a non-insurance subsidiary of AXA Financial in exchange for $700 million in cash and $400 million in 8.0% ten year term mortgage notes on the property reported in Loans to affiliates in the consolidated balance sheets. In November 2014, this loan was refinanced and a new $382 million, seven year term loan with an interest rate of 4.0% was issued. In January 2016, the property was sold and a portion of the proceeds was used to repay the $382 million term loan outstanding and a $65 million prepayment penalty.
In September 2007, AXA Equitable purchased a $650 million 5.4% Senior Unsecured Note from AXA. The note pays interest semi-annually and was scheduled to mature on September 30, 2012. In March 2011, the maturity date of the note was extended to December 30, 2020 and the interest rate was increased to 5.7%.
Off Balance Sheet Transactions. At December 31, 2016 and 2015, AXA Equitable was not a party to any off balance sheet transactions other than those guarantees and commitments described in Notes 10 and 16 of Notes to Consolidated Financial Statements.
Guarantees and Other Commitments. AXA Equitable had approximately $18 million of undrawn letters of credit issued in favor of third party beneficiaries primarily related to reinsurance as well as $697 million and $883 million of commitments under equity financing arrangements to certain limited partnership and existing mortgage loan agreements, respectively, at December 31, 2016.
Statutory Regulation, Capital and Dividends. AXA Equitable is subject to the regulatory capital requirements of New York law, which are designed to monitor capital adequacy. The level of an insurer’s required capital is impacted by many factors including, but not limited to, business mix, product design, sales volume, invested assets, liabilities, reserves and movements in the capital markets, including interest rates and equity markets. At December 31, 2016, the total adjusted capital was in excess of its regulatory capital requirements and management believes that AXA Equitable has (or has the ability to meet) the necessary capital resources to support its business.
AXA Equitable currently reinsures to AXA Arizona a 100% quota share of all liabilities for GMDB/GMIB riders on the Accumulator® products issued on or after January 1, 2006 and in-force on September 30, 2008. AXA Arizona also reinsures a 90% quota share of level premium term insurance issued by AXA Equitable on or after March 1, 2003 through December 31, 2008 and lapse protection riders under UL insurance policies issued by AXA Equitable on or after June 1, 2003 through June 30, 2007. The reinsurance arrangements with AXA Arizona provide important capital management benefits to AXA Equitable. AXA Equitable receives statutory reserve credits for reinsurance treaties with AXA Arizona to the extent AXA Arizona holds assets in an irrevocable trust ($9.4 billion at December 31, 2016) and/or letters of credit ($3.7 billion at December 31, 2016). These letters of credit are guaranteed by AXA. Under the reinsurance contracts, AXA Arizona is required to transfer assets into and is permitted to transfer assets from the Trust under certain circumstances. The level of statutory reserves held by AXA Arizona fluctuate based on market movements, mortality experience and policyholder behavior. Increasing reserve requirements may necessitate that additional assets be placed in trust and/or securing additional letters of credit, which could adversely impact AXA Arizona’s liquidity. For additional information, see “Item 1A - Risk Factors”.
AXA Equitable monitors its regulatory capital requirements on an ongoing basis taking into account the prevailing conditions in the capital markets. Interest rates and/or equity market performance impact the reserve requirements and capital needed to support the variable annuity guarantee business. While management believes that AXA Equitable currently has the necessary capital to support its business, future capital requirements will depend on future market conditions and regulations and there can be no assurance that sufficient additional required capital could be secured. For additional information, see “Item 1A – Risk Factors”.

90

Several states, including New York, regulate transactions between an insurer and its affiliates under insurance holding company acts. These acts contain certain reporting requirements and restrictions on provision of services and on transactions, such as intercompany service agreements, asset transfers, reinsurance, loans and shareholder dividend payments by insurers. Depending on their size, such transactions and payments may be subject to prior notice to, or approval by, the insurance department of the applicable state.
AXA Equitable is restricted as to the amounts it may pay as dividends to AXA Financial. Under New York Insurance law, a domestic life insurer may not, without prior approval of the NYDFS, pay a dividend to its shareholders exceeding an amount calculated based on a statutory formula. This formula would permit AXA Equitable to pay shareholder dividends not greater than approximately $1.2 billion during 2017. Payment of dividends exceeding this amount requires the insurer to file a notice of its intent to declare such dividends with the NYDFS, which then has 30 days to disapprove the distribution. In 2016, AXA Equitable paid $1,050 million in shareholder dividends. In 2015, AXA Equitable paid $767 million in shareholder dividends and transferred approximately 10.0 million in Units of AB (fair value of $245 million) in the form of a dividend to AEFS. In 2014, AXA Equitable paid $382 million in shareholder dividends.
For 2016, 2015 and 2014, respectively, AXA Equitable’s statutory net income (loss) totaled $679 million, $2.0 billion and $1.7 billion. Statutory surplus, capital stock and Asset Valuation Reserve (“AVR”) totaled $5.3 billion and $5.9 billion at December 31, 2016 and 2015, respectively.
For additional information, see “Item 1 – Business – Regulation” and “Item 1A – Risk Factors”.
Investment Management Segment

The Investment Management segment’s primary sources of liquidity have been cash flows from AB’s operations, the issuance of commercial paper and proceeds from sales of investments. AB requires financial resources to fund distributions to its General Partner and Unitholders, capital expenditures, repayments of commercial paper and purchases of Holding Units to fund deferred compensation plans.
Debt and Credit Facilities

At December 31, 2016 and 2015, AB had $513 million and $584 million, respectively, in commercial paper outstanding with weighted average interest rates of approximately 0.9% and 0.5% respectively. The commercial paper is short term in nature, and as such, recorded value is estimated to approximate fair value. Average daily borrowings of commercial paper during 2016 and 2015 were $423 million and $338 million, respectively, with weighted average interest rates of approximately 0.6% and 0.3%, respectively.

AB has a $1.0 billion committed, unsecured senior revolving credit facility (the “AB Credit Facility”) with a group of commercial banks and other lenders, which matures on January 17, 2017. The AB Credit Facility provides for possible increases in the principal amount by up to an aggregate incremental amount of $250 million, any such increase being subject to the consent of the affected lenders. The AB Credit Facility is available for AB’s and SCB LLC’s business purposes, including the support of AB’s $1.0 billion commercial paper program. Both AB and SCB LLC can draw directly under the AB Credit Facility and AB management expects to draw on the AB Credit Facility from time to time. AB has agreed to guarantee the obligations of SCB LLC under the AB Credit Facility.
The AB Credit Facility contains affirmative, negative and financial covenants, which are customary for facilities of this type, including, among other things, restrictions on dispositions of assets, restrictions on liens, a minimum interest coverage ratio and a maximum leverage ratio. As of December 31, 2016, AB was in compliance with these covenants. The AB Credit Facility also includes customary events of default (with customary grace periods, as applicable), including provisions under which, upon the occurrence of an event of default, all outstanding loans may be accelerated and/or lender’s commitments may be terminated. Also, under such provisions, upon the occurrence of certain insolvency- or bankruptcy-related events of default, all amounts payable under the AB Credit Facility would automatically become immediately due and payable, and the lender’s commitments would automatically terminate.

As of December 31, 2016 and 2015, AB and SCB LLC had no amounts outstanding under the AB Credit Facility. During 2016 and 2015, AB and SCB LLC did not draw upon the Credit Facility.

On December 1, 2016, AB entered into a $200 million, unsecured 364-day senior revolving credit facility (the “ AB Revolver”) with a leading international bank and the other lending institutions that may be party thereto. The AB Revolver is available for

91

AB's and SCB LLC's business purposes, including the provision of additional liquidity to meet funding requirements primarily related to SCB LLC's operations. Both AB and SCB LLC can draw directly under the AB Revolver and management expects to draw on the AB Revolver from time to time. AB has agreed to guarantee the obligations of SCB LLC under the AB Revolver. The AB Revolver contains affirmative, negative and financial covenants which are identical to those of the Credit Facility. As of December 31, 2016, we had no amounts outstanding under the AB Revolver and the average daily borrowings for 2016 were $7.3 million, with a weighted average interest rate of 1.6%.

In addition, SCB LLC has three uncommitted lines of credit with four financial institutions. Two of these lines of credit permit us to borrow up to an aggregate of approximately $200 million, with AB named as an additional borrower, while one has no stated limit.

As of December 31, 2016 and 2015, we had no uncommitted bank loans outstanding. Average daily borrowings of uncommitted bank loans during 2016 and 2015 were $4 million and $4 million, respectively, with weighted average interest rates of approximately 1.1% and 1.2% for 2016 and 2015, respectively.
AB’s financial condition and access to public and private debt markets should provide adequate liquidity for AB’s general business needs. AB’s Management believes that cash flow from operations and the issuance of debt and AB Units or Holding Units will provide AB with the resources necessary to meet its financial obligations. For further information, see AB’s Annual Report on Form 10-K for the year ended December 31, 2016.
Other AB Transactions
AB engages in open-market purchases of AB Holding Units (“Holding units”) to help fund anticipated obligations under its incentive compensation award program, for purchases of Holding units from employees and other corporate purposes. During 2016 and 2015, AB purchased 10.5 million and 8.5 million Holding units for $237 million and $218 million respectively. These amounts reflect open-market purchases of 7.9 million and 5.8 million Holding units for $176 million and $151 million, respectively, with the remainder relating to purchases of Holding Units from employees to allow them to fulfill statutory tax requirements at the time of distribution of long-term incentive compensation awards, offset by Holding units purchased by employees as part of a distribution reinvestment election.
During 2016, AB granted to employees and eligible directors 7.0 million restricted AB Holding unit awards (including 6.1 million granted in December for 2016 year-end awards). During 2015, AB granted to employees and eligible directors 7.4 million restricted AB Holding awards (including 7.0 million granted in December 2015 for year-end awards). Prior to third quarter 2014, AB funded these awards by allocating previously repurchased Holding units that had been held in its consolidated rabbi trust. In 2015, AB Holding used Holding units repurchased during the fourth quarter of 2015 and newly-issued Holding units to fund restricted Holding awards.
Effective July 1, 2013, management of AB and AB Holding retired all unallocated Holding units in AB’s consolidated rabbi trust. To retire such units, AB delivered the unallocated Holding units held in its consolidated rabbi trust to AB Holding in exchange for the same amount of AB units. Each entity then retired its respective units. As a result, on July 1, 2013, each of AB’s and AB Holding’s units outstanding decreased by approximately 13.1 million units. AB and AB Holding intend to retire additional units as AB purchases Holding units on the open market or from employees to allow them to fulfill statutory tax withholding requirements at the time of distribution of long-term incentive compensation awards, if such units are not required to fund new employee awards in the near future. If a sufficient number of Holding units is not available in the rabbi trust to fund new awards, AB Holding will issue new Holding units in exchange for newly-issued AB units, as was done in December 2015.
Off-Balance Sheet Arrangements
AB had no off-balance sheet arrangements other than the guarantees that are discussed below.
Guarantees
Under various circumstances, AB guarantees the obligations of its consolidated subsidiaries.
AB maintains a guarantee in connection with the $1.0 billion AB Credit Facility. If SCB LLC is unable to meet its obligations, AB will pay the obligations when due or on demand. In addition, AB maintains guarantees totaling $425 million for four of SCB LLC’s uncommitted lines of credit.

92

AB maintains a guarantee with a commercial bank, under which it guarantees the obligations in the ordinary course of business of SCB LLC, its U.K.-based broker-dealer and its Cayman subsidiary. AB also maintains three additional guarantees with other commercial banks, under which it guarantees approximately $366 million of obligations for AB’s U.K.-based broker-dealer. In the event any of these entities is unable to meet its obligations, AB will pay the obligations when due or on demand.
AB also has two smaller guarantees with a commercial bank totaling approximately $2 million, under which it guarantees certain obligations in the ordinary course of business of two foreign subsidiaries.
AB has not been required to perform under any of the above agreements and currently has no liability in connection with these agreements.

CONTRACTUAL OBLIGATIONS
The Company is involved in a number of ventures and transactions with AXA and certain of its affiliates: See Notes 10, 11, 12 and 16 of Notes to the Consolidated Financial Statements and “Certain Relationships and Related Party Transactions” contained elsewhere herein and AB’s Report on Form 10-K for the year ended December 31, 2016 for information on related party transactions.
A schedule of future payments under certain of the Company’s consolidated contractual obligations follows:
Contractual Obligations - December 31, 2016
 
 
 
Payments Due by Period
 
Total
 
Less than
1 year
 
1 - 3 years
 
4 -5 years
 
Over 5
years
 
(In Millions)
Contractual obligations:
 
 
 
 
 
 
 
 
 
Policyholders liabilities - policyholders’ account balances, future policy benefits and other policyholders liabilities(1)
$
91,177

 
$
1,990

 
$
4,599

 
$
5,575

 
$
79,013

FHLBNY Funding Agreements
2,238

 
500

 
—

 
58

 
1,680

AB commercial paper
513

 
513

 
—

 
—

 
—

Operating leases
1,392

 
218

 
401

 
327

 
446

AB Funding commitments
32

 
11

 
14

 
3

 
4

Employee benefits
65

 
4

 
12

 
11

 
38

Total Contractual Obligations
$
95,417

 
$
3,236

 
$
5,026

 
$
5,974

 
$
81,181

(1)
Policyholders liabilities represent estimated cash flows out of the General Account related to the payment of death and disability claims, policy surrenders and withdrawals, annuity payments, minimum guarantees on Separate Account funded contracts, matured endowments, benefits under accident and health contracts, policyholder dividends and future renewal premium-based and fund-based commissions offset by contractual future premiums and deposits on in-force contracts. These estimated cash flows are based on mortality, morbidity and lapse assumptions comparable with the Company’s experience and assume market growth and interest crediting consistent with assumptions used in amortizing DAC. These amounts are undiscounted and, therefore, exceed the Policyholders’ account balances and Future policy benefits and other policyholder liabilities included in the consolidated balance sheet included elsewhere herein. They do not reflect projected recoveries from reinsurance agreements. Due to the use of assumptions, actual cash flows will differ from these estimates (see “Critical Accounting Estimates – Future Policy Benefits”). Separate Accounts liabilities have been excluded as they are legally insulated from General Account obligations and will be funded by cash flows from Separate Accounts assets.

Unrecognized tax benefits of $394 million, including $13 million related to AB were not included in the above table because it is not possible to make reasonably reliable estimates of the occurrence or timing of cash settlements with the respective taxing authorities.

During 2009, AB entered into a subscription agreement under which it committed to invest up to $35 million, as amended in 2011, in a venture capital fund over a six-year period. As of December 31, 2016, AB had funded $34 million of this commitment.

During 2010, as general partner of the AllianceBernstein U.S. Real Estate L.P. Fund, AB committed to invest $25 million in the Real Estate Fund. As of December 31, 2016, AB had funded $21 million of this commitment.

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During 2012, AB entered into an investment agreement under which it committed to invest up to $8 million in an oil and gas fund over a three-year period. As of December 31, 2016, AB had funded $6 million of this commitment.

At year-end 2016, AB had a $226 million accrual for compensation and benefits, of which $137 million is expected to be paid in 2017, $49 million in 2018 and 2019, $13 million in 2020-2021 and the rest thereafter. Further, AB expects to make contributions to its qualified profit sharing plan of approximately $14 million in each of the next four years.

In addition, the Company has obligations under contingent commitments at December 31, 2016, including: AB’s Credit Facility and commercial paper program; AXA Equitable’s $18 million undrawn letters of credit; as well as the Company’s $697 million and $883 million commitments under equity financing arrangements to certain limited partnership and existing mortgage loan agreements, respectively. Information on these contingent commitments can be found in Notes 10, 16 and 17 of Notes to Consolidated Financial Statements.

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Part II, Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company’s businesses are subject to financial, market, political and economic risks, as well as to risks inherent in its business operations. The discussion that follows provides additional information on market risks arising from its insurance asset/liability management and asset management activities. Such risks are evaluated and managed by each business on a decentralized basis. Primary market risk exposure results from interest rate fluctuations, equity price movements and changes in credit quality.
Insurance Segment
Insurance Segment results significantly depend on profit margins or “spreads” between investment results from assets held in the GAIA and interest credited on individual insurance and annuity products. Management believes its fixed rate liabilities should be supported by a portfolio principally composed of fixed rate investments that generate predictable, steady rates of return. Although these assets are purchased for long-term investment, the portfolio management strategy considers them available for sale in response to changes in market interest rates, changes in prepayment risk, changes in relative values of asset sectors and individual securities and loans, changes in credit quality outlook and other relevant factors. See the “Investments” section of Note 2 of Notes to Consolidated Financial Statements for the accounting policies for the investment portfolios. The objective of portfolio management is to maximize returns, taking into account interest rate and credit risks. Insurance asset/liability management includes strategies to minimize exposure to loss as interest rates and economic and market conditions change. As a result, the fixed maturity portfolio has modest exposure to call and prepayment risk and the vast majority of mortgage holdings are fixed rate mortgages that carry yield maintenance and prepayment provisions.
Investments with Interest Rate Risk - Fair Value. Insurance Segment assets with interest rate risk include available-for-sale and trading fixed maturities and mortgage loans that make up 87.2% of the carrying value of General Account Investment Assets at December 31, 2016. As part of its asset/liability management, quantitative analyses are used to model the impact various changes in interest rates have on assets with interest rate risk. The table that follows shows the impact an immediate 100 BP increase in interest rates at December 31, 2016 and 2015 would have on the fair value of fixed maturities and mortgage loans:
Interest Rate Risk Exposure
 
December 31, 2016
 
December 31, 2015
 
Fair Value
 
Balance After
+100 BP
Change
 
Fair Value
 
Balance After
+100 BP
Change
 
(In Millions)
Fixed Income Investments:
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Fixed rate
$
31,978

 
$
28,944

 
$
30,677

 
$
28,656

Floating rate
591

 
590

 
523

 
522

Trading securities:
 
 
 
 
 
 
 
Fixed rate
8,127

 
7,947

 
5,690

 
5,587

Floating rate
546

 
542

 
466

 
463

Mortgage loans
$
9,608

 
$
9,062

 
$
7,171

 
$
6,875

A 100 BP increase in interest rates is a hypothetical rate scenario used to demonstrate potential risk; it does not represent management’s view of future market changes. While these fair value measurements provide a representation of interest rate sensitivity of fixed maturities and mortgage loans, they are based on various portfolio exposures at a particular point in time and may not be representative of future market results. These exposures will change as a result of ongoing portfolio activities in response to management’s assessment of changing market conditions and available investment opportunities.
Investments with Equity Price Risk – Fair Value.    The investment portfolios also have direct holdings of public and private equity securities. The following table shows the potential exposure from those equity security investments, measured in terms of fair value, to an immediate 10% drop in equity prices from those prevailing at December 31, 2016 and 2015:

95

Equity Price Risk Exposure
 
December 31, 2016
 
December 31, 2015
 
Fair
Value
 
Balance After
-10% Equity
Price Change
 
Fair
Value
 
Balance After
-10% Equity
Price Change
 
(In Millions)
Equity Investments
 
 
 
 
 
 
 
Available-For-Sale
$
110

 
$
99

 
$
32

 
$
29

Trading
$
265

 
$
238

 
$
108

 
$
98

A 10% decrease in equity prices is a hypothetical scenario used to calibrate potential risk and does not represent management’s view of future market changes. The fair value measurements shown are based on the equity securities portfolio exposures at a particular point in time and these exposures will change as a result of ongoing portfolio activities in response to management’s assessment of changing market conditions and available investment opportunities.
Liabilities with Interest Rate Risk - Fair Value. At December 31, 2016 and 2015, the aggregate carrying values of insurance contracts with interest rate risk were $4.5 billion and $2.7 billion, respectively. The aggregate fair value of such liabilities at December 31, 2016 and 2015 were $4.5 billion and $2.8 billion, respectively. The impact of a relative 1% decrease in interest rates would be an increase in the fair value of those liabilities of $236 million and $109 million, respectively. While these fair value measurements provide a representation of the interest rate sensitivity of insurance liabilities, they are based on the composition of such liabilities at a particular point in time and may not be representative of future results.
Asset/liability management is integrated into many aspects of the Insurance Segment’s operations, including investment decisions, product development and determination of crediting rates. As part of its risk management process, numerous economic scenarios are modeled, including cash flow testing required for insurance regulatory purposes, to determine if existing assets would be sufficient to meet projected liability cash flows. Key variables include policyholder behavior, such as persistency, under differing crediting rate strategies.
Derivatives and Interest Rate and Equity Risks – Fair Value.    The Company primarily uses derivative contracts for asset/liability risk management, to mitigate the Company’s exposure to equity market decline and interest rate risks and for hedging individual securities. In addition, the Company periodically enters into forward, exchange-traded futures and interest rate swap, swaptions, floor contracts and credit default swaps to reduce the economic impact of movements in the equity and fixed income markets, including the program to hedge certain risks associated with the GMDB and GMIB features of the Accumulator® series of annuity products. As more fully described in Notes 2 and 3 of Notes to Consolidated Financial Statements, various traditional derivative financial instruments are used to achieve these objectives, including interest rate floors to hedge crediting rates on interest-sensitive individual annuity contracts, interest rate futures to protect against declines in interest rates between receipt of funds and purchase of appropriate assets, interest rate swaps to modify the duration and cash flows of fixed maturity investments and long-term debt and open exchange-traded options to mitigate the adverse effects of equity market declines on the Company’s statutory reserves. To minimize credit risk exposure associated with its derivative transactions, each counterparty’s credit is appraised and approved and risk control limits and monitoring procedures are applied. Credit limits are established and monitored on the basis of potential exposures that take into consideration current market values and estimates of potential future movements in market values given potential fluctuations in market interest rates. To reduce credit exposures in over-the-counter (“OTC”) derivative transactions the Company generally enters into master agreements that provide for a netting of financial exposures with the counterparty and allow for collateral arrangements. The Company further controls and minimizes its counterparty exposure through a credit appraisal and approval process. Under the ISDA Master Agreement, the Company generally has executed a Credit Support Annex (“CSA”) with each of its OTC derivative counterparties that require both posting and accepting collateral either in the form of cash or high-quality securities, such as U.S. Treasury securities or those issued by government agencies.
Mark to market exposure is a point-in-time measure of the value of a derivative contract in the open market. A positive value indicates existence of credit risk for the Company because the counterparty would owe money to the Company if the contract were closed. Alternatively, a negative value indicates the Company would owe money to the counterparty if the contract were closed. If there is more than one derivative transaction outstanding with a counterparty, a master netting arrangement exists with the counterparty. In that case, the market risk represents the net of the positive and negative exposures with the single counterparty. In management’s view, the net potential exposure is the better measure of credit risk.

96

At December 31, 2016 and 2015, the net fair values of the Company’s derivatives were $54 million and $658 million, respectively. The table that follows shows the interest rate or equity sensitivities of those derivatives, measured in terms of fair value. These exposures will change as a result of ongoing portfolio and risk management activities.
Insurance Segment - Derivative Financial Instruments
 
 
 
 
 
Interest Rate Sensitivity
 
Notional
Amount    
 
Weighted    
Average
Term
(Years)
 
Balance After
-100 BP
Change
 
Fair
Value
 
Balance After
+100 BP
Change
 
(In Millions, Except for Weighted Average Term)
December 31, 2016
 
 
 
 
 
 
 
 
 
Floors
$
1,500

 
0
 
$
11

 
$
11

 
$
11

Swaps
19,441

 
5
 
960

 
(870
)
 
(2,396
)
Futures
6,926

 
 
 
(159
)
 
—

 
168

Credit Default Swaps
2,712

 
4
 
5

 
5

 
5

Total
$
30,579

 
 
 
$
817

 
$
(854
)
 
$
(2,212
)
December 31, 2015
 
 
 
 
 
 
 
 
 
Floors
$
1,800

 
2
 
$
75

 
$
61

 
$
42

Swaps
13,653

 
5
 
2,096

 
244

 
(1,294
)
Futures
8,685

 
 
 
(75
)
 
—

 
100

Credit Default Swaps
2,412

 
4
 
(23
)
 
(23
)
 
(23
)
Total
$
26,550

 
 
 
$
2,073

 
$
282

 
$
(1,175
)
 
 
 
 
 
Equity Sensitivity
 
Notional
Amount    
 
Weighted    
Average
Term
(Years)
 
Fair
Value
 
Balance after
-10% Equity
Price Shift
December 31, 2016
 
 
 
 
 
 
 
Futures
$
4,983

 
0
 
$
—

 
$
479

Swaps
3,439

 
1
 
(53
)
 
277

Options
11,465

 
2
 
961

 
494

Total
$
19,887

 
 
 
$
908

 
$
1,250

December 31, 2015
 
 
 
 
 
 
 
Futures
$
6,929

 
0
 
$
—

 
$
621

Swaps
1,213

 
1
 
(13
)
 
127

Options
7,358

 
2
 
389

 
68

Total
$
15,500

 
 
 
$
376

 
$
816


In addition to the freestanding derivatives discussed above, the Company has entered into reinsurance contracts to mitigate the risk associated with the impact of potential market fluctuations on future policyholder elections of GMIB features contained in certain annuity contracts. These reinsurance contracts are considered derivatives under the guidance on derivatives and hedging and were reported at their fair values of $10.3 billion and $10.6 billion at December 31, 2016 and 2015, respectively. The potential fair value exposure to an immediate 10% drop in equity prices from those prevailing at December 31, 2016 and 2015, respectively, would increase the balances of the reinsurance contract asset to $11.0 billion and $11.5 billion. Also, the SCS, SIO, MSO, IUL, GIB, GWBL and other feature’s liability associated with certain annuity contracts is similarly considered to be a derivative for accounting purposes and was reported at its fair value. The liability for SCS, SIO, MSO, IUL, GIB and GWBL and other features was $1.1 billion and $494 million at December 31, 2016 and 2015, respectively. The potential fair value exposure to an immediate 10% drop in equity prices from those prevailing at December 31, 2016 and 2015, respectively, would be to decrease the liability balance to $662 million and $258 million.

97

Investment Management
AB’s investments consist of trading and available-for-sale investments and other investments. AB’s trading and available-for-sale investments include U.S. Treasury bills and equity and fixed income mutual funds investments. Trading investments are purchased for short-term investment, principally to fund liabilities related to deferred compensation plans and to seed new investment services. Although available-for-sale investments are purchased for long-term investment, the portfolio strategy considers them available-for-sale from time to time due to changes in market interest rates, equity prices and other relevant factors. Other investments include investments in hedge funds sponsored by AB and other private investment vehicles.
Investments with Interest Rate Risk – Fair Value.    The table below provides AB’s potential exposure with respect to its fixed income investments, measured in terms of fair value, to an immediate 100 BP increase in interest rates at all maturities from the levels prevailing at December 31, 2016 and 2015:
Interest Rate Risk Exposure
 
December 31, 2016
 
December 31, 2015
 
Fair
Value
 
Balance After
+100 BP
Point
 
Fair
Value
 
Balance After
+100 BP
Change
 
(In Millions)
Fixed Income Investments:
 
 
 
 
 
 
 
Trading
$
121

 
$
113

 
$
208

 
$
196

Such a fluctuation in interest rates is a hypothetical rate scenario used to calibrate potential risk and does not represent AB management’s view of future market changes. While these fair value measurements provide a representation of interest rate sensitivity of its investments in fixed income mutual funds and fixed income hedge funds, they are based on AB’s exposures at a particular point in time and may not be representative of future market results. These exposures will change as a result of ongoing changes in investments in response to AB management’s assessment of changing market conditions and available investment opportunities.
Investments with Equity Price Risk – Fair Value.    AB’s investments include investments in equity mutual funds and equity hedge funds. The following table presents AB’s potential exposure from its equity investments, measured in terms of fair value, to an immediate 10% drop in equity prices from those prevailing at December 31, 2016 and 2015:
Equity Price Risk Exposure
 
December 31, 2016
 
December 31, 2015
 
Fair
Value
 
Balance After
-10% Equity
Price Change
 
Fair
Value
 
Balance After
-10% Equity
Price Change
 
(In Millions)
Equity Investments:
 
 
 
 
 
 
 
Trading
$
180

 
$
162

 
$
332

 
$
299

Available-for-sale and other investments
163

 
147

 
130

 
117

A 10% decrease in equity prices is a hypothetical scenario used to calibrate potential risk and does not represent AB management’s view of future market changes. While these fair value measurements provide a representation of equity price sensitivity of AB’s investments in equity mutual funds and equity hedge funds, they are based on AB’s exposure at a particular point in time and may not be representative of future market results. These exposures will change as a result of ongoing portfolio activities in response to AB management’s assessment of changing market conditions and available investment opportunities.
For further information on AB’s market risk, see AB L.P. and AB Holding’s Annual Reports on Form 10-K for the year ended December 31, 2016.

98

Part II, Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
AXA EQUITABLE LIFE INSURANCE COMPANY
 
 
Consolidated Financial Statements:
 
 
Financial Statement Schedules:
 

99

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of
AXA Equitable Life Insurance Company:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings (loss), comprehensive income (loss), equity and cash flows present fairly, in all material respects, the financial position of AXA Equitable Life Insurance Company and its subsidiaries (the “Company”) as of December 31, 2016 and December 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 24, 2017


100

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2016 AND 2015
 
2016
 
2015
ASSETS
(In Millions)
Investments:
 
 
 
Fixed maturities available for sale, at fair value (amortized cost of $32,123 and $31,201)
$
32,570

 
$
31,893

Mortgage loans on real estate (net of valuation allowances of $8 and $6)
9,757

 
7,171

Policy loans
3,361

 
3,393

Other equity investments
1,408

 
1,477

Trading securities, at fair value
9,134

 
6,805

Other invested assets
2,186

 
1,788

Total investments
58,416

 
52,527

Cash and cash equivalents
2,950

 
3,028

Cash and securities segregated, at fair value
946

 
565

Broker-dealer related receivables
2,100

 
1,971

Securities purchased under agreements to resell
—

 
79

Deferred policy acquisition costs
4,301

 
4,469

Goodwill and other intangible assets, net
3,741

 
3,733

Amounts due from reinsurers
4,635

 
4,466

Loans to affiliates
703

 
1,087

Guaranteed minimum income benefit reinsurance asset, at fair value
10,309

 
10,570

Other assets
4,260

 
4,634

Separate Accounts’ assets
111,403

 
107,497

Total Assets
$
203,764

 
$
194,626

LIABILITIES
 
 
 
Policyholders’ account balances
$
38,782

 
$
33,033

Future policy benefits and other policyholders liabilities
25,358

 
24,531

Broker-dealer related payables
484

 
404

Securities sold under agreements to repurchase
1,996

 
1,890

Customers related payables
2,360

 
1,715

Amounts due to reinsurers
125

 
131

Short-term debt
513

 
584

Current and deferred income taxes
3,816

 
4,647

Other liabilities
2,108

 
2,586

Separate Accounts’ liabilities
111,403

 
107,497

Total liabilities
186,945

 
177,018

Redeemable Noncontrolling Interest
$
403

 
$
13

 
 
 
 
Commitments and contingent liabilities (Notes 2, 7, 10, 11, 12, 13, 16 and 17)
 
 
 

101

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2016 AND 2015
(CONTINUED)
 
2016
 
2015
EQUITY
(In Millions)
AXA Equitable’s equity:
 
 
 
Common stock, $1.25 par value, 2 million shares authorized, issued and outstanding
$
2

 
$
2

Capital in excess of par value
5,339

 
5,321

Retained earnings
7,983

 
8,958

Accumulated other comprehensive income (loss)
7

 
228

Total AXA Equitable’s equity
13,331

 
14,509

Noncontrolling interest
3,085

 
3,086

Total equity
16,416

 
17,595

Total Liabilities, Redeemable Noncontrolling Interest and Equity
$
203,764

 
$
194,626


See Notes to Consolidated Financial Statements.


102

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
 
2016
 
2015
 
2014
 
(In Millions)
REVENUES
 
 
 
 
 
Universal life and investment-type product policy fee income
$
3,423

 
$
3,208

 
$
3,115

Premiums
880

 
854

 
874

Net investment income (loss):
 
 
 
 
 
Investment income (loss) from derivative instruments
(462
)
 
(81
)
 
1,605

Other investment income (loss)
2,318

 
2,057

 
2,210

Total net investment income (loss)
1,856

 
1,976

 
3,815

Investment gains (losses), net:
 
 
 
 
 
Total other-than-temporary impairment losses
(65
)
 
(41
)
 
(72
)
Portion of loss recognized in other comprehensive income (loss)
—

 
—

 
—

Net impairment losses recognized
(65
)
 
(41
)
 
(72
)
Other investment gains (losses), net
81

 
21

 
14

Total investment gains (losses), net
16

 
(20
)
 
(58
)
Commissions, fees and other income
3,791

 
3,942

 
3,930

Increase (decrease) in the fair value of the reinsurance contract asset
(261
)
 
(141
)
 
3,964

Total revenues
9,705

 
9,819

 
15,640

BENEFITS AND OTHER DEDUCTIONS
 
 
 
 
 
Policyholders’ benefits
2,893

 
2,799

 
3,708

Interest credited to policyholders’ account balances
1,555

 
978

 
1,186

Compensation and benefits
1,723

 
1,783

 
1,739

Commissions
1,095

 
1,111

 
1,147

Distribution related payments
372

 
394

 
413

Interest expense
16

 
20

 
53

Amortization of deferred policy acquisition costs, net
162

 
(331
)
 
(413
)
Other operating costs and expenses
1,458

 
1,415

 
1,692

Total benefits and other deductions
9,274

 
8,169

 
9,525

Earnings (loss) from operations, before income taxes
431

 
1,650

 
$
6,115

Income tax (expense) benefit
113

 
(186
)
 
(1,695
)
Net earnings (loss)
544

 
1,464

 
4,420

Less: net (earnings) loss attributable to the noncontrolling interest
(469
)
 
(403
)
 
(387
)
Net Earnings (Loss) Attributable to AXA Equitable
$
75

 
$
1,061

 
$
4,033

See Notes to Consolidated Financial Statements.

103

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
 
2016
 
2015
 
2014
 
(In Millions)
COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
Net earnings (loss)
$
544

 
$
1,464

 
$
4,420

Other comprehensive income (loss) net of income taxes:
 
 
 
 
 
Foreign currency translation adjustment
(18
)
 
(25
)
 
(21
)
Change in unrealized gains (losses), net of reclassification adjustment
(217
)
 
(881
)
 
969

Changes in defined benefit plan related items not yet recognized in periodic benefit cost, net of reclassification adjustment
(3
)
 
(4
)
 
(23
)
Total other comprehensive income (loss), net of income taxes
(238
)
 
(910
)
 
925

Comprehensive income (loss)
306

 
554

 
5,345

Less: Comprehensive (income) loss attributable to noncontrolling interest
(452
)
 
(388
)
 
(358
)
Comprehensive Income (Loss) Attributable to AXA Equitable
$
(146
)
 
$
166

 
$
4,987

See Notes to Consolidated Financial Statements.

104

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
 
2016
 
2015
 
2014
 
(In Millions)
EQUITY
 
 
 
 
AXA Equitable’s Equity:
 
 
 
 
 
Common stock, at par value, beginning and end of year
$
2

 
$
2

 
$
2

 
 
 
 
 
 
Capital in excess of par value, beginning of year
5,321

 
5,957

 
5,934

Deferred tax on dividend of AB Units
—

 
(35
)
 
(26
)
Non cash capital contribution from AXA Financial (See Note 12)
—

 
137

 
—

Transfer of unrecognized net actuarial loss of the AXA Equitable Qualified Pension Plan to AXA Financial (see Note 15)
—

 
(772
)
 
—

Changes in capital in excess of par value
18

 
34

 
49

Capital in excess of par value, end of year
5,339

 
5,321

 
5,957

 
 
 
 
 
 
Retained earnings, beginning of year
8,958

 
8,809

 
5,205

Net earnings (loss)
75

 
1,061

 
4,033

Shareholder dividends
(1,050
)
 
(912
)
 
(429
)
Retained earnings, end of year
7,983

 
8,958

 
8,809

 
 
 
 
 
 
Accumulated other comprehensive income (loss), beginning of year
228

 
351

 
(603
)
Transfer of unrecognized net actuarial loss of the AXA Equitable Qualified Pension Plan to AXA Financial (see Note 15)
—

 
772

 
—

Other comprehensive income (loss)
(221
)
 
(895
)
 
954

Accumulated other comprehensive income (loss), end of year
7

 
228

 
351

Total AXA Equitable’s equity, end of year
13,331

 
14,509

 
15,119

 
 
 
 
 
 
Noncontrolling interest, beginning of year
3,086

 
2,989

 
2,903

Repurchase of AB Holding units
(168
)
 
(154
)
 
(62
)
Net earnings (loss) attributable to noncontrolling interest
464

 
403

 
387

Dividends paid to noncontrolling interest
(384
)
 
(414
)
 
(401
)
Dividend of AB Units by AXA Equitable to AXA Financial
—

 
145

 
48

Other comprehensive income (loss) attributable to noncontrolling interest
(17
)
 
(15
)
 
(29
)
Other changes in noncontrolling interest
104

 
132

 
143

Noncontrolling interest, end of year
3,085

 
3,086

 
2,989

Total Equity, End of Year
$
16,416

 
$
17,595

 
$
18,108

See Notes to Consolidated Financial Statements.

105

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

 
2016
 
2015
 
2014
 
(In Millions)
Net earnings (loss)
$
544

 
$
1,464

 
$
4,420

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
 
 
 
 
 
Interest credited to policyholders’ account balances
1,555

 
978

 
1,186

Universal life and investment-type product policy fee income
(3,423
)
 
(3,208
)
 
(3,115
)
(Increase) decrease in the fair value of the reinsurance contract asset
261

 
141

 
(3,964
)
(Income) loss related to derivative instruments
462

 
81

 
(1,605
)
Investment (gains) losses, net
(16
)
 
20

 
58

Realized and unrealized (gains) losses on trading securities
41

 
43

 
(22
)
Non-cash long term incentive compensation expense
152

 
172

 
171

Amortization of deferred sales commission
41

 
49

 
42

Other depreciation and amortization
(98
)
 
(18
)
 
44

Amortization of deferred cost of reinsurance asset
159

 
39

 
302

Amortization of other intangibles
29

 
28

 
27

Changes in:
 
 
 
 
 
Net broker-dealer and customer related receivables/payables
608

 
(38
)
 
(525
)
Reinsurance recoverable
(534
)
 
(916
)
 
(488
)
Segregated cash and securities, net
(381
)
 
(89
)
 
505

Deferred policy acquisition costs
162

 
(331
)
 
(413
)
Future policy benefits
783

 
934

 
1,647

Current and deferred income taxes
(771
)
 
258

 
1,448

Accounts payable and accrued expenses
(66
)
 
38

 
(259
)
Other, net
31

 
111

 
(98
)
Net cash provided by (used in) operating activities
$
(461
)
 
$
(244
)
 
$
(639
)

106

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(CONTINUED)
 
2016
 
2015
 
2014
 
(In Millions)
Cash flows from investing activities:
 
 
 
 
 
Proceeds from the sale/maturity/prepayment of:
 
 
 
 
 
Fixed maturities, available for sale
$
7,154

 
$
4,368

 
$
3,157

Mortgage loans on real estate
676

 
609

 
652

Trading account securities
6,271

 
10,768

 
6,099

Other
32

 
134

 
99

Payment for the purchase/origination of:
 
 
 
 
 
Fixed maturities, available for sale
(7,873
)
 
(4,701
)
 
(5,184
)
Mortgage loans on real estate
(3,261
)
 
(1,311
)
 
(1,432
)
Trading account securities
(8,691
)
 
(12,501
)
 
(7,014
)
Other
(250
)
 
(132
)
 
(135
)
Cash settlements related to derivative instruments
102

 
529

 
999

Decrease in loans to affiliates
384

 
—

 
—

Change in short-term investments
(205
)
 
(363
)
 
(5
)
Investment in capitalized software, leasehold improvements and EDP equipment
(85
)
 
(71
)
 
(83
)
Purchase of business, net of cash acquired
(21
)
 
—

 
(61
)
Other, net
409

 
203

 
157

Net cash provided by (used in) investing activities
$
(5,358
)
 
$
(2,468
)
 
$
(2,751
)


107

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(CONTINUED)
 
2016
 
2015
 
2014
 
(In Millions)
Cash flows from financing activities:
 
 
 
 
 
Policyholders’ account balances:
 
 
 
 
 
Deposits
$
9,342

 
$
5,757

 
$
6,011

Withdrawals
(2,874
)
 
(2,861
)
 
(2,867
)
Transfer (to) from Separate Accounts
1,606

 
1,045

 
815

Change in short-term financings
(69
)
 
95

 
221

Change in collateralized pledged assets
(677
)
 
(2
)
 
(12
)
Change in collateralized pledged liabilities
125

 
(270
)
 
430

(Decrease) increase in overdrafts payable
(85
)
 
—

 
—

Repayment of Loans from Affiliates
—

 
—

 
(825
)
Repayment of long term debt
—

 
(200
)
 
—

Shareholder dividends paid
(1,050
)
 
(767
)
 
(382
)
Repurchase of AB Holding units
(236
)
 
(214
)
 
(90
)
Redemptions of non-controlling interests of consolidated VIEs, net
(137
)
 
—

 
—

Distribution to noncontrolling interest in consolidated subsidiaries
(385
)
 
(414
)
 
(401
)
Increase (decrease) in Securities sold under agreement to repurchase
104

 
939

 
950

(Increase) decrease in securities purchased under agreement to resell
79

 
(79
)
 
—

Other, net
8

 
5

 
(7
)
Net cash provided by (used in) financing activities
5,751

 
3,034

 
3,843

Effect of exchange rate changes on cash and cash equivalents
(10
)
 
(10
)
 
(20
)
Change in cash and cash equivalents
(78
)
 
312

 
433

Cash and cash equivalents, beginning of year
3,028

 
2,716

 
2,283

Cash and Cash Equivalents, End of Year
$
2,950

 
$
3,028

 
$
2,716

Supplemental cash flow information:
 
 
 
 
 
Interest Paid
$
11

 
$
19

 
$
72

Income Taxes (Refunded) Paid
$
613

 
$
(80
)
 
$
272




See Notes to Consolidated Financial Statements.

108

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1)
ORGANIZATION
AXA Equitable Life Insurance Company (“AXA Equitable,” and collectively with its consolidated subsidiaries the “Company”) is a direct, wholly-owned subsidiary of AXA Equitable Financial Services, LLC (“AEFS”). AEFS is a direct, wholly-owned subsidiary of AXA Financial, Inc. (“AXA Financial,” and collectively with its consolidated subsidiaries, “AXA Financial Group”). AXA Financial is an indirect wholly-owned subsidiary of AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in financial protection.
The Company conducts operations in two business segments: the Insurance and Investment Management segments. The Company’s management evaluates the performance of each of these segments independently.
Insurance
The Insurance segment offers a variety of term, variable and universal life insurance products, variable annuity products, employee benefit products and investment products including mutual funds principally to individuals and small and medium size businesses and professional and trade associations. This segment also includes Separate Accounts for individual insurance and annuity products.
The Company’s insurance business is conducted principally by AXA Equitable and its indirect, wholly-owned insurance subsidiaries and AXA Equitable Funds Management Group (“AXA Equitable FMG”).
Investment Management
The Investment Management segment is principally comprised of the investment management business of AllianceBernstein L.P., a Delaware limited partnership (together with its consolidated subsidiaries “AB”). AB provides research, diversified investment management and related services globally to a broad range of clients. This segment also includes institutional Separate Accounts principally managed by AB that provide various investment options for large group pension clients, primarily defined benefit and contribution plans, through pooled or single group accounts.
At December 31, 2016 and 2015, the Company’s economic interest in AB was 29.0% and 28.6%, respectively. At December 31, 2016 and 2015, respectively, AXA and its subsidiaries’ economic interest in AB (including AXA Financial Group) was approximately 63.7% and 62.8%. AXA Equitable is the parent of AllianceBernstein Corporation, the general partner (“General Partner”) of the limited partnership, as a result it consolidates AB in the Company’s consolidated financial statements.

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2)
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions (including normal, recurring accruals) that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. The accompanying consolidated financial statements reflect all adjustments necessary in the opinion of management for a fair presentation of the consolidated financial position of the Company and its consolidated results of operations and cash flows for the periods presented.
The accompanying consolidated financial statements include the accounts of AXA Equitable and its subsidiaries engaged in insurance related businesses (collectively, the “Insurance Group”); other subsidiaries, principally AB; and those investment companies, partnerships and joint ventures in which AXA Equitable or its subsidiaries has control and a majority economic interest as well as those variable interest entities (“VIEs”) that meet the requirements for consolidation.
All significant intercompany transactions and balances have been eliminated in consolidation. The years “2016”, “2015” and “2014” refer to the years ended December 31, 2016, 2015 and 2014, respectively. Certain reclassifications have been made in the amounts presented for prior periods to conform those periods to the current presentation.

Adoption of New Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued new guidance that amends the definition of a business to provide a more robust framework for determining when a set of assets and activities is a business. The definition primarily adds clarity for evaluating whether certain transactions should be accounted for as acquisitions/dispositions of assets or businesses, the latter subject to guidance on business combinations, but also may interact with other areas of accounting where the defined term is used, such as in the application of guidance on consolidation and goodwill impairment. The new guidance is effective for fiscal years ending December 31, 2018. The Company elected to early adopt the new guidance for the year ending December 31, 2016 with no significant impact to the Company’s consolidated financial statements.

In February 2015, the FASB issued a new consolidation standard that makes targeted amendments to the VIE assessment, including guidance specific to the analysis of fee arrangements and related party relationships, modifies the guidance for the evaluation of limited partnerships and similar entities for consolidation to eliminate the presumption of general partner control, and ends the deferral that had been granted to certain investment companies for applying previous VIE guidance. The Company adopted this new standard beginning January 1, 2016, having elected not to early-adopt in previous interim periods, and applied the guidance using a modified retrospective approach, thereby not requiring the restatement of prior year periods. The Company’s reevaluation of all legal entities under the new standard resulted in identification of additional VIEs and consolidation of certain investment products of the Investment Management segment that were not consolidated in accordance with previous guidance. See Consolidation of VIEs below.
In May 2015, the FASB issued new guidance related to disclosures for investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). Under the new guidance, investments measured at NAV, as a practical expedient for fair value, are excluded from the fair value hierarchy. Removing investments measured using the practical expedient from the fair value hierarchy was intended to eliminate the diversity in practice with respect to the categorization of these investments. The only criterion for categorizing investments in the fair value hierarchy is now the observability of the inputs. The amendment was effective retrospectively for interim and annual periods beginning after December 15, 2015. Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued new guidance, simplifying the presentation of debt issuance costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The new guidance was effective retrospectively for interim and annual periods beginning after December 15, 2015. Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.

In June 2014, the FASB issued new guidance for accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The new guidance was effective for interim

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and annual periods beginning after December 15, 2015. Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued new guidance which requires management to evaluate whether there is “substantial doubt” about the reporting entity’s ability to continue as a going concern and provide related footnote disclosures about those uncertainties, if they exist. The new guidance was effective for annual periods, ending after December 15, 2016 and interim periods thereafter. Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.

In January 2014, the FASB issued new guidance that allows investors to elect to use the proportional amortization method to account for investments in qualified affordable housing projects if certain conditions are met. Under this method, which replaces the effective yield method, an investor amortizes the cost of its investment, in proportion to the tax credits and other tax benefits it receives, to income tax expense. The guidance also introduces disclosure requirements for all investments in qualified affordable housing projects, regardless of the accounting method used for those investments. The guidance was effective for annual periods beginning after December 15, 2014. Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.

Future Adoption of New Accounting Pronouncements

In January 2017, the FASB issued updated guidance to simplify the accounting for goodwill impairment. The revised guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The revised guidance will be applied prospectively, and is effective for fiscal year ending December 31, 2020. Early adoption is permitted for fiscal periods beginning after January 1, 2017. Management is currently evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.

In October 2016, the FASB issued updated guidance on consolidation of interests held through related parties that are under common control, which alters how a decision maker needs to consider indirect interests in a VIE held through an entity under common control. The new guidance amends the recently adopted consolidation guidance analysis. Under the new guidance, if a decision maker is required to evaluate whether it is the primary beneficiary of a VIE, it will need to consider only its proportionate indirect interest in the VIE held through a common control party. The revised guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. Adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued new guidance to simplify elements of cash flow classification. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The new guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied using a retrospective transition method. Management is currently evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.

In June 2016, the FASB issued new guidance related to the accounting for credit losses on financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new guidance is effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted for annual periods beginning after December 15, 2018. Management is currently evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.

In March 2016, the FASB issued new guidance simplifying the transition to the equity method of accounting. The amendment eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investments had been held. The amendment is effective for interim and annual periods beginning after December 15, 2016 and should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. The amendment is not expected to have a material impact on the Company’s consolidated financial statements.


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In March 2016, the FASB issued new guidance on improvements to employee share-based payment accounting. The amendment includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements including: income tax effects of share-based payments, minimum statutory tax withholding requirements and forfeitures. The amendment is effective for interim and annual periods beginning after December 15, 2016. The provisions will be applied using various transition approaches (prospective, retrospective and modified retrospective). Management is currently evaluating the impact that the adoption of this standard will have on the Company’s consolidated financial statements.

In February 2016, the FASB issued revised guidance to lease accounting.  The revised guidance will require lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases.  Lessor accounting will continue to be similar to the current model, but updated to align with certain changes to the lessee model.  Extensive quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing contracts.  The revised guidance is effective for interim and annual periods, beginning after December 15, 2018, with early adoption permitted.  Management is currently evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.
In May 2014, the FASB issued new revenue recognition guidance that is intended to improve and converge the financial reporting requirements for revenue from contracts with customers with International Financial Reporting Standards (“IFRS”). The new guidance applies to contracts that deliver goods or services to a customer, except when those contracts are for: insurance, leases, rights and obligations that are in the scope of certain financial instruments (i.e., derivative contracts) and guarantees other than product or service warranties. The new guidance is effective for interim and annual periods, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. Management is currently evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.
Closed Block
As a result of demutualization, the Closed Block was established in 1992 for the benefit of certain individual participating policies that were in force on that date. Assets, liabilities and earnings of the Closed Block are specifically identified to support its participating policyholders.
Assets allocated to the Closed Block inure solely to the benefit of the Closed Block policyholders and will not revert to the benefit of AXA Equitable. No reallocation, transfer, borrowing or lending of assets can be made between the Closed Block and other portions of AXA Equitable’s General Account, any of its Separate Accounts or any affiliate of AXA Equitable without the approval of the New York State Department of Financial Services, (the “NYDFS”). Closed Block assets and liabilities are carried on the same basis as similar assets and liabilities held in the General Account.
The excess of Closed Block liabilities over Closed Block assets (adjusted to exclude the impact of related amounts in AOCI) represents the expected maximum future post-tax earnings from the Closed Block that would be recognized in income from continuing operations over the period the policies and contracts in the Closed Block remain in force. As of January 1, 2001, the Company has developed an actuarial calculation of the expected timing of the Closed Block’s earnings.
If the actual cumulative earnings from the Closed Block are greater than the expected cumulative earnings, only the expected earnings will be recognized in net income. Actual cumulative earnings in excess of expected cumulative earnings at any point in time are recorded as a policyholder dividend obligation because they will ultimately be paid to Closed Block policyholders as an additional policyholder dividend unless offset by future performance that is less favorable than originally expected. If a policyholder dividend obligation has been previously established and the actual Closed Block earnings in a subsequent period are less than the expected earnings for that period, the policyholder dividend obligation would be reduced (but not below zero). If, over the period the policies and contracts in the Closed Block remain in force, the actual cumulative earnings of the Closed Block are less than the expected cumulative earnings, only actual earnings would be recognized in income from continuing operations. If the Closed Block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside the Closed Block.
Many expenses related to Closed Block operations, including amortization of deferred policy acquisition costs (“DAC”), are charged to operations outside of the Closed Block; accordingly, net revenues of the Closed Block do not represent the actual profitability of the Closed Block operations. Operating costs and expenses outside of the Closed Block are, therefore, disproportionate to the business outside of the Closed Block.

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Investments
The carrying values of fixed maturities classified as available-for-sale (“AFS”) are reported at fair value. Changes in fair value are reported in OCI. The amortized cost of fixed maturities is adjusted for impairments in value deemed to be other than temporary which are recognized in Investment gains (losses), net. The redeemable preferred stock investments that are reported in fixed maturities include real estate investment trusts (“REIT”), perpetual preferred stock, and redeemable preferred stock. These securities may not have a stated maturity, may not be cumulative and do not provide for mandatory redemption by the issuer.
The Company determines the fair values of fixed maturities and equity securities based upon quoted prices in active markets, when available, or through the use of alternative approaches when market quotes are not readily accessible or available. These alternative approaches include matrix or model pricing and use of independent pricing services, each supported by reference to principal market trades or other observable market assumptions for similar securities. More specifically, the matrix pricing approach to fair value is a discounted cash flow methodology that incorporates market interest rates commensurate with the credit quality and duration of the investment.
The Company’s management, with the assistance of its investment advisors, monitors the investment performance of its portfolio and reviews AFS securities with unrealized losses for other-than-temporary impairments (“OTTI”). Integral to this review is an assessment made each quarter, on a security-by-security basis, by the Company’s Investments Under Surveillance (“IUS”) Committee, of various indicators of credit deterioration to determine whether the investment security is expected to recover. This assessment includes, but is not limited to, consideration of the duration and severity of the unrealized loss, failure, if any, of the issuer of the security to make scheduled payments, actions taken by rating agencies, adverse conditions specifically related to the security or sector, the financial strength, liquidity, and continued viability of the issuer and, for equity securities only, the intent and ability to hold the investment until recovery, and results in identification of specific securities for which OTTI is recognized.
If there is no intent to sell or likely requirement to dispose of the fixed maturity security before its recovery, only the credit loss component of any resulting OTTI is recognized in earnings (loss) and the remainder of the fair value loss is recognized in OCI. The amount of credit loss is the shortfall of the present value of the cash flows expected to be collected as compared to the amortized cost basis of the security. The present value is calculated by discounting management’s best estimate of projected future cash flows at the effective interest rate implicit in the debt security prior to impairment. Projections of future cash flows are based on assumptions regarding probability of default and estimates regarding the amount and timing of recoveries. These assumptions and estimates require use of management judgment and consider internal credit analyses as well as market observable data relevant to the collectability of the security. For mortgage- and asset-backed securities, projected future cash flows also include assumptions regarding prepayments and underlying collateral value.
Policy loans are stated at unpaid principal balances.
Partnerships, investment companies and joint venture interests that the Company has control of and has an economic interest in or those that meet the requirements for consolidation under accounting guidance for consolidation of VIEs are consolidated. Those that the Company does not have control of and does not have a majority economic interest in and those that do not meet the VIE requirements for consolidation are reported on the equity method of accounting and are reported in other equity investments. The Company records its interests in certain of these partnerships on a month or one quarter lag.
Equity securities, which include common stock, and non-redeemable preferred stock classified as AFS securities, are carried at fair value and are included in other equity investments with changes in fair value reported in OCI.
Trading securities, which include equity securities and fixed maturities, are carried at fair value based on quoted market prices, with unrealized gains (losses) reported in other investment income (loss) in the statements of Net earnings (loss).
Corporate owned life insurance (“COLI”) has been purchased by AXA Equitable and certain subsidiaries on the lives of certain key employees (including former employees) and AXA Equitable and these subsidiaries are named as beneficiaries under these policies. COLI is carried at the cash surrender value of the policies. At December 31, 2016 and 2015, the carrying value of COLI was $892 million and $864 million, respectively, and is reported in Other invested assets in the consolidated balance sheets.
Short-term investments are reported at amortized cost that approximates fair value and are included in Other invested assets.

113

Cash and cash equivalents includes cash on hand, demand deposits, money market accounts, overnight commercial paper and highly liquid debt instruments purchased with an original maturity of three months or less. Due to the short-term nature of these investments, the recorded value is deemed to approximate fair value.
All securities owned, including United States government and agency securities, mortgage-backed securities, futures and forwards transactions, are reported in the consolidated financial statements on a trade date basis.
Derivatives
Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices, values of securities or commodities, credit spreads, market volatility, expected returns, and liquidity. Values can also be affected by changes in estimates and assumptions, including those related to counterparty behavior and non-performance risk used in valuation models. Derivative financial instruments generally used by the Company include exchange traded equity, currency and interest rate futures contracts, total return and/or other equity swaps, interest rate swap and floor contracts, swaptions, variance swaps as well as equity options and may be exchange-traded or contracted in the over-the-counter market. All derivative positions are carried in the consolidated balance sheets at fair value, generally by obtaining quoted market prices or through the use of valuation models.
Freestanding derivative contracts are reported in the consolidated balance sheets either as assets within “Other invested assets” or as liabilities within “Other liabilities.” The Company nets the fair value of all derivative financial instruments with counterparties for which an ISDA Master Agreement and related Credit Support Annex ("CSA") have been executed. The Company uses derivatives to manage asset/liability risk and has designated some of those economic relationships under the criteria to qualify for hedge accounting treatment. All changes in the fair value of the Company’s freestanding derivative positions not designated to hedge accounting relationships, including net receipts and payments, are included in “Investment income (loss) from derivative instruments” without considering changes in the fair value of the economically associated assets or liabilities.
The Company is a party to financial instruments and other contracts that contain “embedded” derivative instruments. At inception, the Company assesses whether the economic characteristics of the embedded instrument are “clearly and closely related” to the economic characteristics of the remaining component of the “host contract” and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When those criteria are satisfied, the resulting embedded derivative is bifurcated from the host contract, carried in the consolidated balance sheets at fair value, and changes in its fair value are recognized immediately and captioned in the consolidated statements of earnings (loss) according to the nature of the related host contract. For certain financial instruments that contain an embedded derivative that otherwise would need to be bifurcated and reported at fair value, the Company instead may elect to carry the entire instrument at fair value.
Mortgage Loans on Real Estate (“mortgage loans”):
Mortgage loans are stated at unpaid principal balances, net of unamortized discounts and valuation allowances. Valuation allowances are based on the present value of expected future cash flows discounted at the loan’s original effective interest rate or on its collateral value if the loan is collateral dependent. However, if foreclosure is or becomes probable, the collateral value measurement method is used.
For commercial and agricultural mortgage loans, an allowance for credit loss is typically recommended when management believes it is probable that principal and interest will not be collected according to the contractual terms. Factors that influence management’s judgment in determining allowance for credit losses include the following:
•
Loan-to-value ratio – Derived from current loan balance divided by the fair market value of the property. An allowance for credit loss is typically recommended when the loan-to-value ratio is in excess of 100%. In the case where the loan-to-value is in excess of 100%, the allowance for credit loss is derived by taking the difference between the fair market value (less cost of sale) and the current loan balance.
•
Debt service coverage ratio – Derived from actual net operating income divided by annual debt service. If the ratio is below 1.0x, then the income from the property does not support the debt.
•
Occupancy – Criteria varies by property type but low or below market occupancy is an indicator of sub-par property performance.

114

•
Lease expirations – The percentage of leases expiring in the upcoming 12 to 36 months are monitored as a decline in rent and/or occupancy may negatively impact the debt service coverage ratio. In the case of single-tenant properties or properties with large tenant exposure, the lease expiration is a material risk factor.
•
Maturity – Mortgage loans that are not fully amortizing and have upcoming maturities within the next 12 to 24 months are monitored in conjunction with the capital markets to determine the borrower’s ability to refinance the debt and/or pay off the balloon balance.
•
Borrower/tenant related issues – Financial concerns, potential bankruptcy, or words or actions that indicate imminent default or abandonment of property.
•
Payment status – current vs. delinquent – A history of delinquent payments may be a cause for concern.
•
Property condition – Significant deferred maintenance observed during the lenders annual site inspections.
•
Other – Any other factors such as current economic conditions may call into question the performance of the loan.
Mortgage loans also are individually evaluated quarterly by the Company’s Investments Under Surveillance ("IUS") Committee for impairment, including an assessment of related collateral value. Commercial mortgages 60 days or more past due and agricultural mortgages 90 days or more past due, as well as all mortgages in the process of foreclosure, are identified as problem mortgages. Based on its monthly monitoring of mortgages, a class of potential problem mortgages are also identified, consisting of mortgage loans not currently classified as problems but for which management has doubts as to the ability of the borrower to comply with the present loan payment terms and which may result in the loan becoming a problem or being restructured. The decision whether to classify a performing mortgage loan as a potential problem involves significant subjective judgments by management as to likely future industry conditions and developments with respect to the borrower or the individual mortgaged property.
For problem mortgage loans a valuation allowance is established to provide for the risk of credit losses inherent in the lending process. The allowance includes loan specific reserves for mortgage loans determined to be non-performing as a result of the loan review process. A non-performing loan is defined as a loan for which it is probable that amounts due according to the contractual terms of the loan agreement will not be collected. The loan specific portion of the loss allowance is based on the Company’s assessment as to ultimate collectability of loan principal and interest. Valuation allowances for a non-performing loan are recorded based on the present value of expected future cash flows discounted at the loan’s effective interest rate or based on the fair value of the collateral if the loan is collateral dependent. The valuation allowance for mortgage loans can increase or decrease from period to period based on such factors.
Impaired mortgage loans without provision for losses are mortgage loans where the fair value of the collateral or the net present value of the expected future cash flows related to the loan equals or exceeds the recorded investment. Interest income earned on mortgage loans where the collateral value is used to measure impairment is recorded on a cash basis. Interest income on mortgage loans where the present value method is used to measure impairment is accrued on the net carrying value amount of the loan at the interest rate used to discount the cash flows. Changes in the present value attributable to changes in the amount or timing of expected cash flows are reported as investment gains or losses.
Mortgage loans are placed on nonaccrual status once management believes the collection of accrued interest is doubtful. Once mortgage loans are classified as nonaccrual mortgage loans, interest income is recognized under the cash basis of accounting and the resumption of the interest accrual would commence only after all past due interest has been collected or the mortgage loan on real estate has been restructured to where the collection of interest is considered likely. At December 31, 2016 and 2015, the carrying values of commercial mortgage loans that had been classified as nonaccrual mortgage loans were $34 million and $72 million, respectively.
Troubled Debt Restructuring
When a loan modification is determined to be a troubled debt restructuring (“TDR”), the impairment of the loan is re-measured by discounting the expected cash flows to be received based on the modified terms using the loan’s original effective yield, and the allowance for loss is adjusted accordingly. Subsequent to the modification, income is recognized prospectively based on the modified terms of the mortgage loans. Additionally, the loan continues to be subject to the credit review process noted above.

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Net Investment Income (Loss), Investment Gains (Losses), Net and Unrealized Investment Gains (Losses)
Realized investment gains (losses) are determined by identification with the specific asset and are presented as a component of revenue. Changes in the valuation allowances are included in Investment gains (losses), net.
Realized and unrealized holding gains (losses) on trading securities are reflected in Net investment income (loss).
Unrealized investment gains (losses) on fixed maturities and equity securities designated as AFS held by the Company are accounted for as a separate component of Accumulated Other Comprehensive Income ("AOCI"), net of related deferred income taxes, amounts attributable to certain pension operations, Closed Blocks’ policyholders dividend obligation, insurance liability loss recognition and DAC related to universal life (“UL”) policies, investment-type products and participating traditional life policies.
Changes in unrealized gains (losses) reflect changes in fair value of only those fixed maturities and equity securities classified as AFS and do not reflect any change in fair value of policyholders’ account balances and future policy benefits.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance established a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and identifies three levels of inputs that may be used to measure fair value:
Level 1
Unadjusted quoted prices for identical instruments in active markets. Level 1 fair values generally are supported by market transactions that occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, and inputs to model-derived valuations that are directly observable or can be corroborated by observable market data.
Level 3
Unobservable inputs supported by little or no market activity and often requiring significant management judgment or estimation, such as an entity’s own assumptions about the cash flows or other significant components of value that market participants would use in pricing the asset or liability.
The Company uses unadjusted quoted market prices to measure fair value for those instruments that are actively traded in financial markets. In cases where quoted market prices are not available, fair values are measured using present value or other valuation techniques. The fair value determinations are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such adjustments do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value cannot be substantiated by direct comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument.
Management is responsible for the determination of the value of investments carried at fair value and the supporting methodologies and assumptions. Under the terms of various service agreements, the Company often utilizes independent valuation service providers to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual securities. These independent valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted valuation models, provide a single fair value measurement for individual securities for which a fair value has been requested. As further described below with respect to specific asset classes, these inputs include, but are not limited to, market prices for recent trades and transactions in comparable securities, benchmark yields, interest rate yield curves, credit spreads, quoted prices for similar securities, and other market-observable information, as applicable. Specific attributes of the security being valued also are considered, including its term, interest rate, credit rating, industry sector, and when applicable, collateral quality and other security- or issuer-specific information. When insufficient market observable information is available upon which to measure fair value, the Company either will request brokers knowledgeable about these securities to provide a non-binding quote or will employ internal valuation models. Fair values

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received from independent valuation service providers and brokers and those internally modeled or otherwise estimated are assessed for reasonableness. To validate reasonableness, prices also are internally reviewed by those with relevant expertise through comparison with directly observed recent market trades.
Recognition of Insurance Income and Related Expenses
Deposits related to UL and investment-type contracts are reported as deposits to policyholders’ account balances. Revenues from these contracts consist of fees assessed during the period against policyholders’ account balances for mortality charges, policy administration charges and surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policyholders’ account balances.
Premiums from participating and non-participating traditional life and annuity policies with life contingencies generally are recognized in income when due. Benefits and expenses are matched with such income so as to result in the recognition of profits over the life of the contracts. This match is accomplished by means of the provision for liabilities for future policy benefits and the deferral and subsequent amortization of DAC.
For contracts with a single premium or a limited number of premium payments due over a significantly shorter period than the total period over which benefits are provided, premiums are recorded as revenue when due with any excess profit deferred and recognized in income in a constant relationship to insurance in-force or, for annuities, the amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over the period to which the premiums relate in proportion to the amount of insurance protection provided.
DAC
Acquisition costs that vary with and are primarily related to the acquisition of new and renewal insurance business, reflecting incremental direct costs of contract acquisition with independent third parties or employees that are essential to the contract transaction, as well as the portion of employee compensation, including payroll fringe benefits and other costs directly related to underwriting, policy issuance and processing, medical inspection, and contract selling for successfully negotiated contracts including commissions, underwriting, agency and policy issue expenses, are deferred. DAC is subject to recoverability testing at the time of policy issue and loss recognition testing at the end of each accounting period.
After the initial establishment of reserves, premium deficiency and loss recognition tests are performed each period end using best estimate assumptions as of the testing date without provisions for adverse deviation. When the liabilities for future policy benefits plus the present value of expected future gross premiums for the aggregate product group are insufficient to provide for expected future policy benefits and expenses for that line of business (i.e., reserves net of any DAC asset), DAC would first be written off and thereafter, if required, a premium deficiency reserve would be established by a charge to earnings.
In accordance with the guidance for the accounting and reporting by insurance enterprises for certain long-duration contracts and participating contracts and for realized gains and losses from the sale of investments, current and expected future profit margins for products covered by this guidance are examined regularly in determining the amortization of DAC.
DAC associated with certain variable annuity products is amortized based on estimated assessments, with DAC on the remainder of variable annuities, UL and investment-type products amortized over the expected total life of the contract group as a constant percentage of estimated gross profits arising principally from investment results, Separate Account fees, mortality and expense margins and surrender charges based on historical and anticipated future experience, updated at the end of each accounting period. When estimated gross profits are expected to be negative for multiple years of a contract life, DAC is amortized using the present value of estimated assessments. The effect on the amortization of DAC of revisions to estimated gross profits or assessments is reflected in earnings (loss) in the period such estimated gross profits or assessments are revised. A decrease in expected gross profits or assessments would accelerate DAC amortization. Conversely, an increase in expected gross profits or assessments would slow DAC amortization. The effect on the DAC assets that would result from realization of unrealized gains (losses) is recognized with an offset to AOCI in consolidated equity as of the balance sheet date.
A significant assumption in the amortization of DAC on variable annuities and, to a lesser extent, on variable and interest-sensitive life insurance relates to projected future Separate Account performance. Management sets estimated future gross profit or assessment assumptions related to Separate Account performance using a long-term view of expected average

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market returns by applying a reversion to the mean approach, a commonly used industry practice. This future return approach influences the projection of fees earned, as well as other sources of estimated gross profits. Returns that are higher than expectations for a given period produce higher than expected account balances, increase the fees earned resulting in higher expected future gross profits and lower DAC amortization for the period. The opposite occurs when returns are lower than expected.
In applying this approach to develop estimates of future returns, it is assumed that the market will return to an average gross long-term return estimate, developed with reference to historical long-term equity market performance. In second quarter 2015, based upon management’s current expectations of interest rates and future fund growth, the Company updated its Reversion to the Mean (“RTM”) assumption from 9.0% to 7.0%. The average gross long-term return measurement start date was also updated to December 31, 2014. Management has set limitations as to maximum and minimum future rate of return assumptions, as well as a limitation on the duration of use of these maximum or minimum rates of return. At December 31, 2016, the average gross short-term and long-term annual return estimate on variable and interest-sensitive life insurance and variable annuities was 7.0% (4.67% net of product weighted average Separate Account fees), and the gross maximum and minimum short-term annual rate of return limitations were 15.0% (12.67% net of product weighted average Separate Account fees) and 0.0% (-2.33% net of product weighted average Separate Account fees), respectively. The maximum duration over which these rate limitations may be applied is 5 years. This approach will continue to be applied in future periods. These assumptions of long-term growth are subject to assessment of the reasonableness of resulting estimates of future return assumptions.
If actual market returns continue at levels that would result in assuming future market returns of 15.0% for more than 5 years in order to reach the average gross long-term return estimate, the application of the 5 year maximum duration limitation would result in an acceleration of DAC amortization. Conversely, actual market returns resulting in assumed future market returns of 0.0% for more than 5 years would result in a required deceleration of DAC amortization.
In addition, projections of future mortality assumptions related to variable and interest-sensitive life products are based on a long-term average of actual experience. This assumption is updated quarterly to reflect recent experience as it emerges. Improvement of life mortality in future periods from that currently projected would result in future deceleration of DAC amortization. Conversely, deterioration of life mortality in future periods from that currently projected would result in future acceleration of DAC amortization.
Other significant assumptions underlying gross profit estimates for UL and investment type products relate to contract persistency and General Account investment spread.
For participating traditional life policies (substantially all of which are in the Closed Block), DAC is amortized over the expected total life of the contract group as a constant percentage based on the present value of the estimated gross margin amounts expected to be realized over the life of the contracts using the expected investment yield. At December 31, 2016, the average rate of assumed investment yields, excluding policy loans, was 5.1% grading to 4.5% over 10 years. Estimated gross margins include anticipated premiums and investment results less claims and administrative expenses, changes in the net level premium reserve and expected annual policyholder dividends. The effect on the accumulated amortization of DAC of revisions to estimated gross margins is reflected in earnings in the period such estimated gross margins are revised. The effect on the DAC assets that would result from realization of unrealized gains (losses) is recognized with an offset to AOCI in consolidated equity as of the balance sheet date. Many of the factors that affect gross margins are included in the determination of the Company’s dividends to these policyholders. DAC adjustments related to participating traditional life policies do not create significant volatility in results of operations as the Closed Block recognizes a cumulative policyholder dividend obligation expense in “Policyholders’ dividends,” for the excess of actual cumulative earnings over expected cumulative earnings as determined at the time of demutualization.
DAC associated with non-participating traditional life policies is amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are estimated at the date of policy issue and are consistently applied during the life of the contracts. Deviations from estimated experience are reflected in earnings (loss) in the period such deviations occur. For these contracts, the amortization periods generally are for the total life of the policy. DAC related to these policies is subject to recoverability testing as part of the Company’s premium deficiency testing. If a premium deficiency exists, DAC is reduced by the amount of the deficiency or to zero through a charge to current period earnings (loss). If the deficiency exceeds the DAC balance, the reserve for future policy benefits is increased by the excess, reflected in earnings (loss) in the period such deficiency occurs.

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Contractholder Bonus Interest Credits
Contractholder bonus interest credits are offered on certain deferred annuity products in the form of either immediate bonus interest credited or enhanced interest crediting rates for a period of time. The interest crediting expense associated with these contractholder bonus interest credits is deferred and amortized over the lives of the underlying contracts in a manner consistent with the amortization of DAC. Unamortized balances are included in Other assets.
Policyholders’ Account Balances and Future Policy Benefits
Policyholders’ account balances for UL and investment-type contracts are equal to the policy account values. The policy account values represent an accumulation of gross premium payments plus credited interest less expense and mortality charges and withdrawals.

The Company has issued and continues to offer certain variable annuity products with guaranteed minimum death benefits (“GMDB”) and Guaranteed income benefit (“GIB”) features. The Company previously issued certain variable annuity products with guaranteed withdrawal benefit for life (“GWBL”), guaranteed minimum withdrawal benefit (“GMWB”) and guaranteed minimum accumulation benefit (“GMAB”) features (collectively, “GWBL and other features”). The Company also issues certain variable annuity products that contain a guaranteed minimum income benefit (“GMIB”) feature which, if elected by the policyholder after a stipulated waiting period from contract issuance, guarantees a minimum lifetime annuity based on predetermined annuity purchase rates that may be in excess of what the contract account value can purchase at then-current annuity purchase rates. This minimum lifetime annuity is based on predetermined annuity purchase rates applied to a GMIB base. Reserves for GMDB and GMIB obligations are calculated on the basis of actuarial assumptions related to projected benefits and related contract charges generally over the lives of the contracts. The determination of this estimated liability is based on models that involve numerous estimates and subjective judgments, including those regarding expected market rates of return and volatility, contract surrender and withdrawal rates, mortality experience, and, for contracts with the GMIB feature, GMIB election rates. Assumptions regarding Separate Account performance used for purposes of this calculation are set using a long-term view of expected average market returns by applying a reversion to the mean approach, consistent with that used for DAC amortization. There can be no assurance that actual experience will be consistent with management’s estimates.
For reinsurance contracts other than those covering GMIB exposure, reinsurance recoverable balances are calculated using methodologies and assumptions that are consistent with those used to calculate the direct liabilities.
For participating traditional life policies, future policy benefit liabilities are calculated using a net level premium method on the basis of actuarial assumptions equal to guaranteed mortality and dividend fund interest rates. The liability for annual dividends represents the accrual of annual dividends earned. Terminal dividends are accrued in proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy benefit liabilities are estimated using a net level premium method on the basis of actuarial assumptions as to mortality, persistency and interest established at policy issue. Assumptions established at policy issue as to mortality and persistency are based on the Company’s experience that, together with interest and expense assumptions, includes a margin for adverse deviation. Benefit liabilities for traditional annuities during the accumulation period are equal to accumulated contractholders’ fund balances and, after annuitization, are equal to the present value of expected future payments. Interest rates used in establishing such liabilities range from 5.0% to 6.3% (weighted average of 5.1%) for approximately 99.0% of life insurance liabilities and from 1.6% to 5.5% (weighted average of 4.3%) for annuity liabilities.
Individual health benefit liabilities for active lives are estimated using the net level premium method and assumptions as to future morbidity, withdrawals and interest. Benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. While management believes its disability income (“DI”) reserves have been calculated on a reasonable basis and are adequate, there can be no assurance reserves will be sufficient to provide for future liabilities.
When the liabilities for future policy benefits plus the present value of expected future gross premiums for a product are insufficient to provide for expected future policy benefits and expenses for that product, DAC is written off and thereafter, if required, a premium deficiency reserve is established by a charge to earnings.

Funding agreements are reported in Policyholders’ account balances in the consolidated balance sheets. As a member of the Federal Home Loan Bank of New York (“FHLBNY”), AXA Equitable has access to collateralized borrowings. AXA

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Equitable may also issue funding agreements to the FHLBNY.  Both the collateralized borrowings and funding agreements would require AXA Equitable to pledge qualified mortgage-backed assets and/or government securities as collateral.

Accounting for Variable Annuities with GMDB and GMIB Features
Future claims exposure on products with GMDB and GMIB features are sensitive to movements in the equity markets and interest rates. The Company has in place various hedging programs utilizing derivatives that are designed to mitigate the impact of movements in equity markets and interest rates. These various hedging programs do not qualify for hedge accounting treatment. As a result, changes in the value of the derivatives will be recognized in the period in which they occur while offsetting changes in reserves and deferred policy acquisition costs DAC will be recognized over time in accordance with policies described below under “Policyholders’ Account Balances and Future Policy Benefits” and “DAC”. These differences in recognition contribute to earnings volatility.
GMIB reinsurance contracts are used to cede to affiliated and non-affiliated reinsurers a portion of the exposure on variable annuity products that offer the GMIB feature. The GMIB reinsurance contracts are accounted for as derivatives and are reported at fair value. Gross reserves for GMIB are calculated on the basis of assumptions related to projected benefits and related contract charges over the lives of the contracts and therefore will not immediately reflect the offsetting impact on future claims exposure resulting from the same capital market and/or interest rate fluctuations that cause gains or losses on the fair value of the GMIB reinsurance contracts. The changes in the fair value of the GMIB reinsurance contracts are recorded in the period in which they occur while offsetting changes in gross reserves and DAC for GMIB are recognized over time in accordance with policies described below under “Policyholders’ Account Balances and Future Policy Benefits” and “DAC”. These differences in recognition contribute to earnings volatility.

Policyholders’ Dividends

The amount of policyholders’ dividends to be paid (including dividends on policies included in the Closed Block) is determined annually by AXA Equitable’s board of directors. The aggregate amount of policyholders’ dividends is related to actual interest, mortality, morbidity and expense experience for the year and judgment as to the appropriate level of statutory surplus to be retained by AXA Equitable.

At December 31, 2016, participating policies, including those in the Closed Block, represent approximately 5.0% ($17,491 million) of directly written life insurance in-force, net of amounts ceded.
Separate Accounts
Generally, Separate Accounts established under New York State Insurance Law are not chargeable with liabilities that arise from any other business of AXA Equitable. Separate Accounts assets are subject to General Account claims only to the extent Separate Accounts assets exceed Separate Accounts liabilities. Assets and liabilities of the Separate Accounts represent the net deposits and accumulated net investment earnings (loss) less fees, held primarily for the benefit of contractholders, and for which the Company does not bear the investment risk. Separate Accounts’ assets and liabilities are shown on separate lines in the consolidated balance sheets. Assets held in Separate Accounts are reported at quoted market values or, where quoted values are not readily available or accessible for these securities, their fair value measures most often are determined through the use of model pricing that effectively discounts prospective cash flows to present value using appropriate sector-adjusted credit spreads commensurate with the security’s duration, also taking into consideration issuer-specific credit quality and liquidity. Investment performance (including investment income, net investment gains (losses) and changes in unrealized gains (losses)) and the corresponding amounts credited to contractholders of such Separate Accounts are offset within the same line in the consolidated statements of earnings (loss). For 2016, 2015 and 2014, investment results of such Separate Accounts were gains (losses) of $8,222 million, $1,148 million and $5,959 million, respectively.

Deposits to Separate Accounts are reported as increases in Separate Accounts assets and liabilities and are not reported in revenues. Mortality, policy administration and surrender charges on all policies including those funded by Separate Accounts are included in revenues.
The Company reports the General Account’s interests in Separate Accounts as Other equity investments in the consolidated balance sheets.

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Recognition of Investment Advisory and Administrative Services Revenues and Related Expenses
AXA Equitable FMG performs investment advisory and administrative services to investment companies, currently AXA Premier VIP Trust (“VIP Trust”), EQ Advisors Trust (“EQAT”), 1290 Funds, AXA Allocation Funds Trusts and AXA Offshore Multimanager Funds Trust (“Other AXA Trusts”). AXA Equitable FMG has entered into sub-advisory agreements with affiliated and unaffiliated registered investment advisers to provide sub-advisory services to AXA Equitable FMG with respect to certain portfolios of EQAT and the Other AXA Trusts. AXA Equitable FMG’s administrative services include, among others, fund accounting and compliance services. AXA Equitable FMG has entered into a sub-administration agreement with JPMorgan Chase Bank, N.A. to provide certain sub-administration services to AXA Equitable FMG as instructed by AXA Equitable FMG. AXA Equitable FMG earns fees related to these services; the fees are calculated as a percentage of assets under management and are recorded in Commissions, fees and other income in the Consolidated statements of earnings (loss) as the related services are performed.  Sub-advisory and sub-administrative expenses associated with the services are calculated and recorded as the related services are performed in Other operating costs and expenses in the Consolidated statements of earnings (loss).
Recognition of Investment Management Revenues and Related Expenses
Commissions, fees and other income principally include the Investment Management segment’s investment advisory and service fees, distribution revenues and institutional research services revenue. Investment advisory and service base fees, generally calculated as a percentage, referred to as basis points (“BPs”), of assets under management, are recorded as revenue as the related services are performed; they include brokerage transactions charges received by Sanford C. Bernstein & Co. LLC (“SCB LLC”) for certain retail, private client and institutional investment client transactions. Certain investment advisory contracts, including those associated with hedge funds, provide for a performance-based fee, in addition to or in lieu of a base fee which is calculated as either a percentage of absolute investment results or a percentage of the investment results in excess of a stated benchmark over a specified period of time. Performance-based fees are recorded as a component of revenue at the end of each contract’s measurement period. Institutional research services revenue consists of brokerage transaction charges received by SCB LLC and Sanford C. Bernstein Limited (“SCBL”) for independent research and brokerage-related services provided to institutional investors. Brokerage transaction charges earned and related expenses are recorded on a trade date basis. Distribution revenues and shareholder servicing fees are accrued as earned.
Commissions paid to financial intermediaries in connection with the sale of shares of open-end AB sponsored mutual funds sold without a front-end sales charge (“back-end load shares”) are capitalized as deferred sales commissions and amortized over periods not exceeding five and one-half years for U.S. fund shares and four years for non-U.S. fund shares, the periods of time during which the deferred sales commissions are generally recovered. These commissions are recovered from distribution services fees received from those funds and from contingent deferred sales commissions (“CDSC”) received from shareholders of those funds upon the redemption of their shares. CDSC cash recoveries are recorded as reductions of unamortized deferred sales commissions when received. Effective January 31, 2009, back-end load shares are no longer offered to new investors by AB’s U.S. funds. Management tests the deferred sales commission asset for recoverability quarterly and determined that the balance as of December 31, 2016 was not impaired.
AB’s management determines recoverability by estimating undiscounted future cash flows to be realized from this asset, as compared to its recorded amount, as well as the estimated remaining life of the deferred sales commission asset over which undiscounted future cash flows are expected to be received. Undiscounted future cash flows consist of ongoing distribution services fees and CDSC. Distribution services fees are calculated as a percentage of average assets under management related to back-end load shares. CDSC are based on the lower of cost or current value, at the time of redemption, of back-end load shares redeemed and the point at which redeemed during the applicable minimum holding period under the mutual fund distribution system.

Significant assumptions utilized to estimate future average assets under management and undiscounted future cash flows from back-end load shares include expected future market levels and redemption rates. Market assumptions are selected using a long-term view of expected average market returns based on historical returns of broad market indices. Future redemption rate assumptions are determined by reference to actual redemption experience over the five-year, three-year and one-year periods and current quarterly periods ended December 31, 2016. These assumptions are updated periodically. Estimates of undiscounted future cash flows and the remaining life of the deferred sales commission asset are made from these assumptions and the aggregate undiscounted cash flows are compared to the recorded value of the deferred sales commission asset. If AB’s management determines in the future that the deferred sales commission asset is not recoverable, an impairment condition would exist and a loss would be measured as the amount by which the recorded amount of the

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asset exceeds its estimated fair value. Estimated fair value is determined using AB’s management’s best estimate of future cash flows discounted to a present value amount.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of acquired companies, and relates principally to the acquisition of SCB Inc., an investment research and management company formerly known as Sanford C. Bernstein Inc. (“Bernstein Acquisition”) and the purchase of units of the limited partnership interest in AB (“AB Units”). In accordance with the guidance for Goodwill and Other Intangible Assets, goodwill is tested annually for impairment and at interim periods if events or circumstances indicate an impairment could have occurred.

Intangible assets related to the Bernstein Acquisition and purchases of AB Units include values assigned to contracts of businesses acquired based on their estimated fair value at the time of acquisition, less accumulated amortization. These intangible assets are generally amortized on a straight-line basis over their estimated useful life of approximately 20 years. All intangible assets are periodically reviewed for impairment as events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value exceeds fair value, additional impairment tests are performed to measure the amount of the impairment loss, if any.

Internal-use Software

Capitalized internal-use software, included in Other assets in the consolidated balance sheets, is amortized on a straight-line basis over the estimated useful life of the software that ranges between three and five years. If an impairment is determined to have occurred, software capitalization is accelerated for the remaining balance deemed to be impaired.

Income Taxes

AXA Financial and certain of its consolidated subsidiaries and affiliates, including the Company, file a consolidated Federal income tax return. The Company provides for Federal and state income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. Current Federal income taxes are charged or credited to operations based upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year. Deferred income tax assets and liabilities are recognized based on the difference between financial statement carrying amounts and income tax bases of assets and liabilities using enacted income tax rates and laws. Valuation allowances are established when management determines, based on available information, that it is more likely than not that deferred tax assets will not be realized.

Under accounting for uncertainty in income taxes guidance, the Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the consolidated financial statements. Tax positions are then measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement.

AB is a private partnership for Federal income tax purposes and, accordingly, is not subject to Federal and state corporate income taxes. However, AB is subject to a 4.0% New York City unincorporated business tax (“UBT”). Domestic corporate subsidiaries of AB are subject to Federal, state and local income taxes. Foreign corporate subsidiaries are generally subject to taxes in the foreign jurisdictions where they are located. The Company provides Federal and state income taxes on the undistributed earnings of non-U.S. corporate subsidiaries except to the extent that such earnings are permanently invested outside the United States.

Accounting and Consolidation of VIE’s

For all new investment products and entities developed by the Company (other than Collateralized Debt Obligations (“CDOs”)), the Company first determines whether the entity is a VIE, which involves determining an entity’s variability and variable interests, identifying the holders of the equity investment at risk and assessing the five characteristics of a VIE. Once an entity has been determined to be a VIE, the Company then identifies the primary beneficiary of the VIE. If the Company is deemed to be the primary beneficiary of the VIE, then the Company consolidates the entity.

The Company provides seed capital to its investment teams to develop new products and services for their clients. The Company’s original seed investment typically represents all or a majority of the equity investment in the new product is temporary in nature. The Company evaluates its seed investments on a quarterly basis and consolidates such investments as required pursuant to U.S. GAAP.

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Management of the Company reviews quarterly its investment management agreements and its investments in, and other financial arrangements with, certain entities that hold client assets under management (“AUM”) to determine the entities that the Company is required to consolidate under this guidance. These entities include certain mutual fund products, hedge funds, structured products, group trusts, collective investment trusts and limited partnerships.

A VIE must be consolidated by its primary beneficiary, which generally is defined as the party that has a controlling financial interest in the VIE. The Company is deemed to have a controlling financial interest in a VIE if it has (i) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive income from the VIE that potentially could be significant to the VIE. For purposes of evaluating (ii) above, fees paid to the Company as a decision maker or service provider are excluded if the fees are compensation for services provided commensurate with the level of effort required to be performed and the arrangement includes only customary terms, conditions or amounts present in arrangements for similar services negotiated at arm’s length.

If the Company has a variable interest in an entity that is determined not to be a VIE, the entity then is evaluated for consolidation under the voting interest entity (“VOE”) model. For limited partnerships and similar entities, the Company is deemed to have a controlling financial interest in a VOE, and would be required to consolidate the entity, if the Company owns a majority of the entity’s kick-out rights through voting limited partnership interests and other limited partners do not hold substantive participating rights (or other rights that would indicate that the Company does not control the entity). For entities other than limited partnerships, the Company is deemed to have a controlling financial interest in a VOE if it owns a majority voting interest in the entity.

The analysis performed to identify variable interests held, determine whether entities are VIEs or VOEs, and evaluate whether the Company has a controlling financial interest in such entities requires the exercise of judgment and is updated on a continuous basis as circumstances change or new entities are developed. The primary beneficiary evaluation generally is performed qualitatively based on all facts and circumstances, including consideration of economic interests in the VIE held directly and indirectly through related parties and entities under common control, as well as quantitatively, as appropriate.

At December 31, 2016, the Insurance segment’s General Account held approximately $1,209 million of investment assets in the form of equity interests issued by non-corporate legal entities determined under the new guidance to be VIEs, such as limited partnerships and limited liability companies, including hedge funds, private equity funds, and real estate-related funds. As an equity investor, the Insurance segment is considered to have a variable interest in each of these VIEs as a result of its participation in the risks and/or rewards these funds were designed to create by their defined portfolio objectives and strategies. Primarily through qualitative assessment, including consideration of related party interests and/or other financial arrangements, if any, the Insurance segment was not identified as primary beneficiary of any of these VIEs, largely due to its inability to direct the activities that most significantly impact their economic performance. Consequently, the Company continues to reflect these equity interests in the consolidated balance sheet as Other equity investments and to apply the equity method of accounting for these positions. The net assets of these non-consolidated VIEs are approximately $157,986 million. The Company’s maximum exposure to loss from its direct involvement with these VIEs is the carrying value of its investment of $1,209 million and approximately $697 million of unfunded commitments at December 31, 2016. The Company has no further economic interest in these VIEs in the form of guarantees, derivatives, credit enhancements or similar instruments and obligations.

As a result of adopting the new guidance, the Company identified for consolidation under the VIE model three investment funds sponsored by AB. In addition, the Company identified as a VIE an AB private equity fund previously consolidated at December 31, 2015 under the VOE model. The assets of these consolidated VIEs are presented within other invested assets and cash and cash equivalents and liabilities of these consolidated VIEs are presented within other liabilities on the face of the Company’s consolidated balance sheet at December 31, 2016; ownership interests not held by the Company relating to these consolidated VIEs are presented either as redeemable or non-redeemable non-controlling interest, as appropriate.

In 2016, subsequent to the initial adoption of the VIEs guidance, AB consolidated six additional investment funds that were classified as VIEs in which AB obtained a controlling financial interest due to its investment in those funds and deconsolidated a VIE of which AB no longer was the primary beneficiary due to the redemption of its seed money from the fund. At the time of adoption of the new consolidation guidance, AXA financial consolidated total assets of $265 million, total liabilities of $14 million and redeemable non-controlling interest of $251 million in the consolidated balance

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sheet. As of December 31, 2016 AXA financial consolidated $933 million of assets, liabilities of $293 million and redeemable non-controlling interest of $392 million associated with the consolidation of VIEs.

As of December 31, 2016, the net assets of investment products sponsored by AB that are non-consolidated VIEs are approximately $43,700 million and the Company’s maximum exposure to loss from its direct involvement with these VIEs is its investment of $13 million at December 31, 2016. The Company has no further commitments to or economic interest in these VIEs.

Assumption Updates and Model Changes

In 2016, the Company made several assumption updates and model changes including the following (1) updated the premium funding assumption used in setting variable life policyholder benefit reserves; (2) made changes in the model used in calculating premium loads, which increased interest sensitive life policyholder benefit reserves; (3) updated its mortality assumption for certain VISL products as a result of favorable mortality experience for some of its older products and unfavorable mortality experience on some of its newer products and (4) updated the General Account spread and yield assumptions for certain VISL products to reflect lower expected investment yields.

The net impact of these model changes and assumption updates in 2016 decreased policyholders’ benefits by $77 million, increased the amortization of DAC by $289 million, increased Universal life and investment-type product policy fee income by $22 million, decreased Earnings from continuing operations before income taxes by $189 million and decreased Net earnings by approximately $123 million. Included in these balances are out-of-period adjustments (“OOPA's”) which decreased Earnings from continuing operations before income taxes by $49 million in 2016.

In 2015 the Company announced it would raise cost of insurance (“COI”) rates for certain UL policies issued between 2004 and 2007, which have both issue ages 70 and above and a current face value amount of $1 million and above, effective in 2016. The Company raised the COI rates for these policies as management expects future mortality and investment experience to be less favorable than what was anticipated when the original schedule of COI rates was established. This COI rate increase was larger than the increase that previously had been anticipated in management’s reserve assumptions. As a result, management updated the assumption to reflect the actual COI rate increase, resulting in a $71 million and $46 million increase in Earnings from continuing operations before income taxes and Net earnings, respectively, in 2015.

In 2015, expectations of long-term lapse and partial withdrawal rates for variable annuities with GMDB and GMIB guarantees were lowered based on emerging experience. This update increased expected future claim costs and the fair value of the GMIB reinsurance contract asset. Also in 2015, expectations of GMIB election rates were lowered for certain ages based on emerging experience. This decreased the expected future GMIB claim cost and the fair value of the GMIB reinsurance contract asset, while increasing the expected future GMDB claim cost. The impact of these assumption updates in 2015 were a net decrease in the fair value of the GMIB reinsurance contract asset of $746 million, a decrease in the GMDB/GMIB reserves of $637 million and a decrease in the amortization of DAC of $17 million. In 2015, this assumption update decreased Earnings from continuing operations before income taxes and Net earnings by approximately $92 million and $60 million, respectively.

In 2015, based upon management’s then current expectations of interest rates and future fund growth, the Company updated its reversion to the mean (“RTM”) assumption used to calculate GMDB/GMIB and VISL reserves and amortization DAC from 9.0% to 7.0%. The impact of this assumption update in 2015 was an increase in GMIB/GMDB reserves of $723 million, an increase in VISL reserves of $29 million and decrease in amortization of DAC of $67 million. In 2015, this assumption update decreased Earnings from continuing operations before income taxes and Net earnings by approximately $685 million and $445 million, respectively.

In 2015, expectations of long-term lapse rates for certain Accumulator® products at certain durations and moneyness levels were lowered based on emerging experience.  This update increased expected future claim costs and the fair value of the GMIB reinsurance contract asset.  The impact of this assumption update in 2015 was an increase in the fair value of the GMIB reinsurance contract asset of $216 million, an increase in the GMIB reserves of $65 million and a decrease in the amortization of DAC of $13 million.  In 2015, this assumption update increased Earnings from continuing operations before income taxes and Net earnings by approximately $164 million and $107 million, respectively.

In 2015, the Company launched a lump sum payment option to certain contract holders with GMIB and GWBL benefits at the time their AAV falls to zero. As a result, the Company updated its future reserve assumptions to incorporate the expectation that some policyholders will utilize this option. The impact of this assumption update in 2015 resulted in a decrease in the fair value of the GMIB reinsurance contract asset of $263 million and a decrease in the GMIB reserves of

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$55 million. In 2015, this assumption update decreased Earnings from continuing operations before income taxes and Net earnings by approximately $208 million and $135 million, respectively.

In 2014, the Company updated its assumptions of future GMIB costs as a result of lower expected short term lapses for those policyholders who did not accept the GMIB buyout offer that expired in third quarter 2014. The impacts of this refinement in 2014 resulted in an increase in the fair value of the GMIB reinsurance asset of $62 million and an increase in the GMIB reserves of $16 million. In 2014, this assumption update increased Earnings from continuing operations before income taxes and Net earnings by approximately $46 million and $30 million, respectively.

In addition, in 2014, the Company made a change in the fair value calculation of the GMIB reinsurance contract asset and GWBL, GIB and guaranteed minimum accumulation benefit (“GMAB”) liabilities, utilizing scenarios that explicitly reflect risk free bond and equity components separately (previously aggregated and including counterparty risk premium embedded in swap rates) and stochastic interest rates for projecting and discounting cash flows (previously a single yield curve). The net impacts of these changes in 2014 were a $510 million increase to the GMIB reinsurance contract asset and a $37 million increase in the GWBL, GIB and GMAB liability which are reported in the Company’s consolidated statements of Earnings (Loss) as Increase (decrease) in the fair value of the reinsurance contract asset and Policyholders’ benefits, respectively. In 2014, these changes increased Earnings from continuing operations before income taxes and Net earnings by approximately $473 million and $307 million, respectively.

Out of Period Adjustments

In 2016, the Company recorded several out-of-period adjustments (“OOPA’s”) in its financial statements, primarily related to errors in the models used to calculate policyholders’ benefit reserves for certain VISL products . These OOPA’s resulted in a decrease of $4 million in total revenues and increased total benefits and other deductions by $40 million in 2016.

Additionally, in 2016, the Company recorded an income tax expense as an OOPA, related to the settlement of inter-company balances between AB and its foreign subsidiaries, which created deemed dividends under Section 956 of the U.S. Internal Revenue Code of 1986, as amended. As a result, the Company has been understating its income tax provision and income tax liability since 2010. As a result of the deemed dividend adjustment discussed above, the accumulated undistributed earnings permanently invested outside the U.S. will decrease significantly as of December 31, 2016. This OOPA resulted in an increase of $38 million in income tax expense and decreased Earnings attributable to noncontrolling interest by $27 million in 2016, respectively.

In 2016, total OOPA’s including those discussed above, decreased Earnings from operations, before income tax by $44 million and Net earnings by $67 million, respectively.

In 2016, the Company identified an error in the presentation of Universal life and investment-type product policy fee income and Premiums on the consolidated statements of earnings for the years ended December 31, 2015 and 2014.  The Company has revised the previously reported balances by decreasing Universal life and investment-type product policy fee income and increasing Premiums by $366 million and $360 million in 2015 and 2014, respectively, to improve the consistency and comparability with the current period presentation. The errors did not impact Total Revenues or Earnings (loss) from operations, before income taxes, or Net earnings (loss) and were not considered material to previously issued financial statements.

In 2015, the Company recorded several OOPAs in its financial statements, primarily related to errors in the models used to calculate the initial fee liability amortization, affiliated ceded reserves and deferred cost of reinsurance for certain of its VISL products. In addition, the Company recorded an OOPA in 2015 related to an error in the model used to calculate the deferred cost of reinsurance with an un-affiliated reinsurer related to the reinsurance of the Company’s business. These OOPAs resulted in a decrease of $112 in total revenues, a $51 million decrease in total benefits and other deductions, a $61 million decrease in earnings (loss) from operations, before income taxes and a $40 million decrease in net earnings.

In 2014, the Company recorded several OOPAs in its financial statements primarily related to updates in the models used to calculate the fair value of the GMIB reinsurance asset and the GMIB and GMDB liabilities. In addition, the Company recorded an OOPA related to an understatement of the dividend of AB Units by AXA Equitable to AXA Financial during the year ended December 31, 2013 and the related deferred tax liability for the excess of the fair value of the AB Unit dividend over the recorded value. The net impact of the corrections to AXA Equitable’s shareholders’ equity and Net earnings was a decrease of $1 million and an increase of $73 million, respectively.


125

Management has evaluated the impact of all OOPAs both individually and in the aggregate and concluded they are not material to any previously reported quarterly or annual financial statements, or to the periods in which they were corrected.

126

3)
INVESTMENTS
Fixed Maturities and Equity Securities
The following table provides information relating to fixed maturities and equity securities classified as AFS:
Available-for-Sale Securities by Classification
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value    
 
OTTI
in AOCI(3)
 
 
 
 
 
(In Millions)
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
Public corporate
$
12,418

 
$
675

 
$
81

 
$
13,012

 
$
—

Private corporate
6,880

 
215

 
55

 
7,040

 
—

U.S. Treasury, government and agency
10,739

 
221

 
624

 
10,336

 
—

States and political subdivisions
432

 
63

 
2

 
493

 
—

Foreign governments
375

 
29

 
14

 
390

 
—

Commercial mortgage-backed
415

 
28

 
72

 
371

 
7

Residential mortgage-backed(1)
294

 
20

 
—

 
314

 
—

Asset-backed(2)
51

 
10

 
1

 
60

 
3

Redeemable preferred stock
519

 
45

 
10

 
554

 
—

Total Fixed Maturities
32,123

 
1,306

 
859

 
32,570

 
10

Equity securities
113

 
—

 
—

 
113

 
—

Total at December 31, 2016
$
32,236

 
$
1,306

 
$
859

 
$
32,683

 
$
10

December 31, 2015:
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
Public corporate
$
12,890

 
$
688

 
$
202

 
$
13,376

 
$
—

Private corporate
6,818

 
232

 
124

 
6,926

 
—

U.S. Treasury, government and agency
8,800

 
280

 
305

 
8,775

 
—

States and political subdivisions
437

 
68

 
1

 
504

 
—

Foreign governments
397

 
36

 
18

 
415

 
—

Commercial mortgage-backed
591

 
29

 
87

 
533

 
9

Residential mortgage-backed(1)
608

 
32

 
—

 
640

 
—

Asset-backed(2)
68

 
10

 
1

 
77

 
3

Redeemable preferred stock
592

 
57

 
2

 
647

 
—

Total Fixed Maturities
31,201

 
1,432

 
740

 
31,893

 
12

Equity securities
34

 
—

 
2

 
32

 
—

Total at December 31, 2015
$
31,235

 
$
1,432

 
$
742

 
$
31,925

 
$
12

(1)
Includes publicly traded agency pass-through securities and collateralized mortgage obligations.
(2)
Includes credit-tranched securities collateralized by sub-prime mortgages and other asset types and credit tenant loans.
(3)
Amounts represent OTTI losses in AOCI, which were not included in earnings (loss) in accordance with current accounting guidance.

127

The contractual maturities of AFS fixed maturities at December 31, 2016 are shown in the table below. Bonds not due at a single maturity date have been included in the table in the final year of maturity. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available-for-Sale Fixed Maturities
Contractual Maturities at December 31, 2016
 
Amortized Cost
 
Fair Value
 
 
(In Millions)
Due in one year or less
$
1,537

 
$
1,549

Due in years two through five
7,736

 
8,128

Due in years six through ten
8,898

 
9,005

Due after ten years
12,673

 
12,589

Subtotal
30,844

 
31,271

Commercial mortgage-backed securities
415

 
371

Residential mortgage-backed securities
294

 
314

Asset-backed securities
51

 
60

Redeemable preferred stocks
519

 
554

Total
$
32,123

 
$
32,570

The following table shows proceeds from sales, gross gains (losses) from sales and OTTI for AFS fixed maturities during 2016, 2015 and 2014:
 
December 31,
 
2016
 
2015
 
2014
 
 
(In Millions)
Proceeds from sales
$
4,324

 
$
979

 
$
716

Gross gains on sales
$
111

 
$
33

 
$
21

Gross losses on sales
$
(58
)
 
$
(8
)
 
$
(9
)
Total OTTI
$
(65
)
 
$
(41
)
 
$
(72
)
Non-credit losses recognized in OCI
—

 
—

 
—

Credit losses recognized in earnings (loss)
$
(65
)
 
$
(41
)
 
$
(72
)

128

The following table sets forth the amount of credit loss impairments on fixed maturity securities held by the Company at the dates indicated and the corresponding changes in such amounts.
Fixed Maturities - Credit Loss Impairments
 
2016
 
2015
 
(In Millions)
Balances at January 1,
$
(198
)
 
$
(254
)
Previously recognized impairments on securities that matured, paid, prepaid or sold
73

 
97

Recognized impairments on securities impaired to fair value this period(1)
(17
)
 
(11
)
Impairments recognized this period on securities not previously impaired
(46
)
 
(22
)
Additional impairments this period on securities previously impaired
(2
)
 
(8
)
Increases due to passage of time on previously recorded credit losses
—

 
—

Accretion of previously recognized impairments due to increases in expected cash flows
—

 
—

Balances at December 31,
$
(190
)
 
$
(198
)
(1)
Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security’s amortized cost.
Net unrealized investment gains (losses) on fixed maturities and equity securities classified as AFS are included in the consolidated balance sheets as a component of AOCI. The table below presents these amounts as of the dates indicated:

 
December 31,
 
2016
 
2015
 
(In Millions)
AFS Securities:
 
 
 
Fixed maturities:
 
 
 
With OTTI loss
$
19

 
$
16

All other
428

 
676

Equity securities
—

 
(2
)
Net Unrealized Gains (Losses)
$
447

 
$
690


129

Changes in net unrealized investment gains (losses) recognized in AOCI include reclassification adjustments to reflect amounts realized in Net earnings (loss) for the current period that had been part of OCI in earlier periods. The tables that follow below present a rollforward of net unrealized investment gains (losses) recognized in AOCI, split between amounts related to fixed maturity securities on which an OTTI loss has been recognized, and all other:
Net Unrealized Gains (Losses) on Fixed Maturities with OTTI Losses
 
Net
Unrealized
Gain
(Losses) on
Investments
 
DAC
 
Policyholders
Liabilities
 
Deferred
Income
Tax Asset
(Liability)
 
AOCI Gain
(Loss) Related
to Net
Unrealized
Investment
Gains (Losses)  
 
(In Millions)
Balance, January 1, 2016
$
16

 
$
—

 
$
(4
)
 
$
(5
)
 
$
7

Net investment gains (losses) arising
    during the period
(6
)
 
—

 
—

 
—

 
(6
)
Reclassification adjustment for OTTI losses:
 
 
 
 
 
 
 
 
 
Included in Net earnings (loss)
9

 
—

 
—

 
—

 
9

Excluded from Net earnings (loss)(1)
—

 
—

 
—

 
—

 
—

Impact of net unrealized investment gains (losses) on:
 
 
 
 
 
 
 
 
 
DAC
—

 
(1
)
 
—

 
—

 
(1
)
Deferred income taxes
—

 
—

 
—

 
2

 
2

Policyholders liabilities
—

 
—

 
(6
)
 
—

 
(6
)
Balance, December 31, 2016
$
19

 
$
(1
)
 
$
(10
)
 
$
(3
)
 
$
5

Balance, January 1, 2015
$
10

 
$
—

 
$
—

 
$
(4
)
 
$
6

Net investment gains (losses) arising during the period
(7
)
 
—

 
—

 
—

 
(7
)
Reclassification adjustment for OTTI losses:
 
 
 
 
 
 
 
 
 
Included in Net earnings (loss)
13

 
—

 
—

 
—

 
13

Excluded from Net earnings (loss)(1)
—

 
—

 
—

 
—

 
—

Impact of net unrealized investment gains (losses) on:
 
 
 
 
 
 
 
 
 
DAC
—

 
—

 
—

 
—

 
—

Deferred income taxes
—

 
—

 
—

 
(1
)
 
(1
)
Policyholders liabilities
—

 
—

 
(4
)
 
—

 
(4
)
Balance, December 31, 2015
$
16

 
$
—

 
$
(4
)
 
$
(5
)
 
$
7


(1)
Represents “transfers in” related to the portion of OTTI losses recognized during the period that were not recognized in earnings (loss) for securities with no prior OTTI loss.

130

All Other Net Unrealized Investment Gains (Losses) in AOCI
 
Net
Unrealized
Gains
(Losses) on
Investments
 
DAC  
 
Policyholders  
Liabilities
 
Deferred
Income
Tax Asset
(Liability)
 
AOCI Gain
(Loss) Related
to Net
Unrealized
Investment
  Gains (Losses)  
 
(In Millions)
Balance, January 1, 2016
$
674

 
$
(82
)
 
$
(213
)
 
$
(133
)
 
$
246

Net investment gains (losses) arising during the period
(240
)
 
—

 
—

 
—

 
(240
)
Reclassification adjustment for OTTI losses:
 
 
 
 
 
 
 
 
 
Included in Net earnings (loss)
(6
)
 
—

 
—

 
—

 
(6
)
Excluded from Net earnings (loss)(1)
—

 
—

 
—

 
—

 
—

Impact of net unrealized investment gains (losses) on:
 
 
 
 
 
 
 
 
 
DAC
—

 
(5
)
 
—

 
—

 
(5
)
Deferred income taxes
—

 
—

 
—

 
80

 
80

Policyholders liabilities
—

 
—

 
24

 
—

 
24

Balance, December 31, 2016
$
428

 
$
(87
)
 
$
(189
)
 
$
(53
)
 
$
99

Balance, January 1, 2015
$
2,231

 
$
(122
)
 
$
(368
)
 
$
(610
)
 
$
1,131

Net investment gains (losses) arising during the period
(1,562
)
 
—

 
—

 
—

 
(1,562
)
Reclassification adjustment for OTTI losses:
 
 
 
 
 
 
 
 
 
Included in Net earnings (loss)
5

 
—

 
—

 
—

 
5

Excluded from Net earnings (loss)(1)
—

 
—

 
—

 
—

 
—

Impact of net unrealized investment gains (losses) on:
 
 
 
 
 
 
 
 
 
DAC
—

 
40

 
—

 
—

 
40

Deferred income taxes
—

 
—

 
—

 
477

 
477

Policyholders liabilities
—

 
—

 
155

 
—

 
155

Balance, December 31, 2015
$
674

 
$
(82
)
 
$
(213
)
 
$
(133
)
 
$
246

(1)
Represents “transfers out” related to the portion of OTTI losses during the period that were not recognized in earnings (loss) for securities with no prior OTTI loss.

131

The following tables disclose the fair values and gross unrealized losses of the 794 issues at December 31, 2016 and the 810 issues at December 31, 2015 of fixed maturities that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position for the specified periods at the dates indicated:
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair Value 
 
Gross
Unrealized 
Losses
 
Fair Value 
 
Gross
Unrealized 
Losses
 
Fair Value 
 
Gross
Unrealized
Losses
 
(In Millions)
December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
Public corporate
$
2,455

 
$
75

 
$
113

 
$
6

 
$
2,568

 
$
81

Private corporate
1,483

 
38

 
277

 
17

 
1,760

 
55

U.S. Treasury, government and agency
5,356

 
624

 
—

 
—

 
5,356

 
624

States and political subdivisions
—

 
—

 
18

 
2

 
18

 
2

Foreign governments
73

 
3

 
49

 
11

 
122

 
14

Commercial mortgage-backed
66

 
5

 
171

 
67

 
237

 
72

Residential mortgage-backed
47

 
—

 
4

 
—

 
51

 
—

Asset-backed
4

 
—

 
8

 
1

 
12

 
1

Redeemable preferred stock
218

 
9

 
12

 
1

 
230

 
10

Total
$
9,702

 
$
754

 
$
652

 
$
105

 
$
10,354

 
$
859

December 31, 2015:
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
Public corporate
$
3,091

 
$
129

 
$
359

 
$
73

 
$
3,450

 
$
202

Private corporate
1,926

 
102

 
184

 
22

 
2,110

 
124

U.S. Treasury, government and agency
3,538

 
305

 
—

 
—

 
3,538

 
305

States and political subdivisions
19

 
1

 
—

 
—

 
19

 
1

Foreign governments
73

 
7

 
39

 
11

 
112

 
18

Commercial mortgage-backed
67

 
2

 
261

 
85

 
328

 
87

Residential mortgage-backed
11

 
—

 
29

 
—

 
40

 
—

Asset-backed
11

 
—

 
17

 
1

 
28

 
1

Redeemable preferred stock
43

 
—

 
40

 
2

 
83

 
2

Total
$
8,779

 
$
546

 
$
929

 
$
194

 
$
9,708

 
$
740

The Company’s investments in fixed maturity securities do not include concentrations of credit risk of any single issuer greater than 10% of the consolidated equity of AXA Equitable, other than securities of the U.S. government, U.S. government agencies, and certain securities guaranteed by the U.S. government. The Company maintains a diversified portfolio of corporate securities across industries and issuers and does not have exposure to any single issuer in excess of 0.3% of total investments. The largest exposures to a single issuer of corporate securities held at December 31, 2016 and 2015 were $169 million and $157 million, respectively. Corporate high yield securities, consisting primarily of public high yield bonds, are classified as other than investment grade by the various rating agencies, i.e., a rating below Baa3/BBB- or the National Association of Insurance Commissioners (“NAIC”) designation of 3 (medium grade), 4 or 5 (below investment grade) or 6 (in or near default). At December 31, 2016 and 2015, respectively, approximately $1,574 million and $1,310 million, or 4.9% and 4.2%, of the $32,123 million and $31,201 million aggregate amortized cost of fixed maturities held by the Company were considered to be other than investment grade. These securities had net unrealized losses of $28 million and $97 million at December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, respectively, the $105 million and $194 million of gross unrealized losses of twelve months or more were concentrated in corporate and commercial mortgage-backed securities. In accordance with the policy described in Note 2, the Company concluded that an adjustment to earnings for OTTI for these securities was not warranted at either December 31, 2016 or 2015. As of December 31, 2016, the Company did not intend to sell the securities nor will it likely be required to dispose of the securities before the anticipated recovery of their remaining amortized cost basis.

132

The Company does not originate, purchase or warehouse residential mortgages and is not in the mortgage servicing business. The Company’s fixed maturity investment portfolio includes residential mortgage backed securities (“RMBS”) backed by subprime and Alt-A residential mortgages, comprised of loans made by banks or mortgage lenders to residential borrowers with lower credit ratings. The criteria used to categorize such subprime borrowers include Fair Isaac Credit Organization (“FICO”) scores, interest rates charged, debt-to-income ratios and loan-to-value ratios. Alt-A residential mortgages are mortgage loans where the risk profile falls between prime and subprime; borrowers typically have clean credit histories but the mortgage loan has an increased risk profile due to higher loan-to-value and debt-to-income ratios and/or inadequate documentation of the borrowers’ income. At December 31, 2016 and 2015, respectively, the Company owned $6 million and $7 million in RMBS backed by subprime residential mortgage loans, and $5 million and $6 million in RMBS backed by Alt-A residential mortgage loans. RMBS backed by subprime and Alt-A residential mortgages are fixed income investments supporting General Account liabilities.
At December 31, 2016, the carrying value of fixed maturities that were non-income producing for the twelve months preceding that date was $5 million.
At December 31, 2016 and 2015, respectively, the amortized cost of the Company’s trading account securities was $9,177 million and $6,866 million with respective fair values of $9,134 million and $6,805 million. Also at December 31, 2016 and 2015, respectively, Trading securities included the General Account’s investment in Separate Accounts which had carrying values of $63 million and $82 million and costs of $46 million and $72 million.
Mortgage Loans
The payment terms of mortgage loans may from time to time be restructured or modified.
Troubled Debt Restructurings
The investment in troubled debt restructured mortgage loans, based on amortized cost, amounted to $15 million and $16 million at December 31, 2016 and 2015, respectively. Gross interest income on these loans included in net investment income (loss) totaled $0 million, $1 million and $1 million in 2016, 2015 and 2014, respectively. Gross interest income on restructured mortgage loans that would have been recorded in accordance with the original terms of such loans amounted to $0 million, $0 million and $4 million in 2016, 2015 and 2014, respectively. The TDR mortgage loan shown in the table below has been modified five times since 2011. The modifications extended the maturity from its original maturity of November 5, 2014 to March 5, 2017 and extended interest only payments through maturity. In November 2015, the recorded investment was reduced by $45 million in conjunction with the sale of majority of the underlying collateral and $32 million from a charge-off. The remaining $15 million mortgage loan balance reflects the value of the remaining underlying collateral and cash held in escrow, supporting the mortgage loan. Since the fair market value of the underlying real estate and cash held in escrow collateral is the primary factor in determining the allowance for credit losses, modifications of loan terms typically have no direct impact on the allowance for credit losses, and therefore, no impact on the financial statements.
Troubled Debt Restructuring - Modifications
December 31, 2016
 
Number
 
Outstanding Recorded Investment
 
of Loans  
 
Pre-Modification    
 
Post - Modification    
 
 
 
(Dollars In Millions)
Commercial mortgage loans
1

 
$
15

 
$
15

There were no default payments on the above loan during 2016. There were no agricultural troubled debt restructuring mortgage loans in 2016.

133

Valuation Allowances for Mortgage Loans:
Allowance for credit losses for mortgage loans for 2016, 2015 and 2014 are as follows:
 
Commercial Mortgage Loans
 
2016
 
2015
 
2014
Allowance for credit losses:
(In Millions)
Beginning Balance, January 1,
$
6

 
$
37

 
$
42

Charge-offs
—

 
(32
)
 
(14
)
Recoveries
(2
)
 
(1
)
 
—

Provision
4

 
2

 
9

Ending Balance, December 31,
$
8

 
$
6

 
$
37

Ending Balance, December 31,:
 
 
 
 
 
Individually Evaluated for Impairment
$
8

 
$
6

 
$
37

There were no allowances for credit losses for agricultural mortgage loans in 2016, 2015 and 2014.

134

The following tables provide information relating to the loan-to-value and debt service coverage ratios for commercial and agricultural mortgage loans at December 31, 2016 and 2015, respectively. The values used in these ratio calculations were developed as part of the periodic review of the commercial and agricultural mortgage loan portfolio, which includes an evaluation of the underlying collateral value.
Mortgage Loans by Loan-to-Value and Debt Service Coverage Ratios
December 31, 2016
 
Debt Service Coverage Ratio
 
 
Loan-to-Value Ratio:(2)
Greater
than 
2.0x
 
1.8x to
2.0x
 
1.5x to
1.8x
 
1.2x to
1.5x
 
1.0x to
1.2x
 
Less than
1.0x
 
Total
Mortgage
Loans
 
(In Millions)
Commercial Mortgage Loans(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
0% - 50%
$
738

 
$
95

 
$
59

 
$
56

 
$
—

 
$
—

 
$
948

50% - 70%
3,217

 
430

 
673

 
1,100

 
76

 
—

 
5,496

70% - 90%
282

 
65

 
229

 
127

 
28

 
46

 
777

90% plus
—

 
—

 
28

 
15

 
—

 
—

 
43

Total Commercial Mortgage Loans
$
4,237

 
$
590

 
$
989

 
$
1,298

 
$
104

 
$
46

 
$
7,264

Agricultural Mortgage Loans(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
0% - 50%
$
254

 
$
138

 
$
296

 
$
468

 
$
286

 
$
49

 
$
1,491

50% - 70%
141

 
57

 
209

 
333

 
219

 
45

 
1,004

70% - 90%
—

 
—

 
2

 
4

 
—

 
—

 
6

90% plus
—

 
—

 
—

 
—

 
—

 
—

 
—

Total Agricultural Mortgage Loans
$
395

 
$
195

 
$
507

 
$
805

 
$
505

 
$
94

 
$
2,501

Total Mortgage Loans(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
0% - 50%
$
992

 
$
233

 
$
355

 
$
524

 
$
286

 
$
49

 
$
2,439

50% - 70%
3,358

 
487

 
882

 
1,433

 
295

 
45

 
6,500

70% - 90%
282

 
65

 
231

 
131

 
28

 
46

 
783

90% plus
—

 
—

 
28

 
15

 
—

 
—

 
43

Total Mortgage Loans
$
4,632

 
$
785

 
$
1,496

 
$
2,103

 
$
609

 
$
140

 
$
9,765

(1)
The debt service coverage ratio is calculated using the most recently reported net operating income results from property operations divided by annual debt service.
(2)
The loan-to-value ratio is derived from current loan balance divided by the fair market value of the property. The fair market value of the underlying commercial properties is updated annually.

135

Mortgage Loans by Loan-to-Value and Debt Service Coverage Ratios
December 31, 2015
 
Debt Service Coverage Ratio
 
 
Loan-to-Value Ratio:(2)
Greater
than
2.0x
 
1.8x to
2.0x
 
1.5x to
1.8x
 
1.2x to
1.5x
 
1.0x to
1.2x
 
Less than
1.0x
 
Total
Mortgage
Loans
 
(In Millions)
Commercial Mortgage Loans(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
0% - 50%
$
533

 
$
—

 
$
102

 
$
12

 
$
24

 
$
—

 
$
671

50% - 70%
1,392

 
353

 
741

 
853

 
77

 
—

 
3,416

70% - 90%
141

 
—

 
206

 
134

 
124

 
46

 
651

90% plus
63

 
—

 
—

 
46

 
—

 
—

 
109

Total Commercial Mortgage Loans
$
2,129

 
$
353

 
$
1,049

 
$
1,045

 
$
225

 
$
46

 
$
4,847

Agricultural Mortgage Loans(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
0% - 50%
$
204

 
$
116

 
$
277

 
$
432

 
$
256

 
$
51

 
$
1,336

50% - 70%
146

 
80

 
192

 
298

 
225

 
47

 
988

70% - 90%
—

 
—

 
2

 
4

 
—

 
—

 
6

90% plus
—

 
—

 
—

 
—

 
—

 
—

 
—

Total Agricultural Mortgage Loans
$
350

 
$
196

 
$
471

 
$
734

 
$
481

 
$
98

 
$
2,330

Total Mortgage Loans(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
0% - 50%
$
737

 
$
116

 
$
379

 
$
444

 
$
280

 
$
51

 
$
2,007

50% - 70%
1,538

 
433

 
933

 
1,151

 
302

 
47

 
4,404

70% - 90%
141

 
—

 
208

 
138

 
124

 
46

 
657

90% plus
63

 
—

 
—

 
46

 
—

 
—

 
109

Total Mortgage Loans
$
2,479

 
$
549

 
$
1,520

 
$
1,779

 
$
706

 
$
144

 
$
7,177

(1)
The debt service coverage ratio is calculated using the most recently reported net operating income results from property operations divided by annual debt service.
(2)
The loan-to-value ratio is derived from current loan balance divided by the fair market value of the property. The fair market value of the underlying commercial properties is updated annually.
The following table provides information relating to the aging analysis of past due mortgage loans at December 31, 2016 and 2015, respectively.
Age Analysis of Past Due Mortgage Loan
 
30-59 Days
 
60-89
Days
 
90
Days
Or >
 
Total
 
Current
 
Total
Financing
Receivables
 
Recorded
Investment
Or > 90 Days
and
Accruing
 
(In Millions)
December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
—

 
$
—

 
$
—

 
$
—

 
$
7,264

 
$
7,264

 
$
—

Agricultural
9

 
2

 
6

 
17

 
2,484

 
2,501

 
6

Total Mortgage Loans
$
9

 
$
2

 
$
6

 
$
17

 
$
9,748

 
$
9,765

 
$
6

December 31, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
—

 
$
—

 
$
30

 
$
30

 
$
4,817

 
$
4,847

 
$
—

Agricultural
12

 
7

 
4

 
23

 
2,307

 
2,330

 
4

Total Mortgage Loans
$
12

 
$
7

 
$
34

 
$
53

 
$
7,124

 
$
7,177

 
$
4


136

The following table provides information relating to impaired mortgage loans at December 31, 2016 and 2015, respectively.
 
 
 
Impaired Mortgage Loans
 
 
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment(1)
 
Interest
Income
Recognized
 
(In Millions)
December 31, 2016:
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Commercial mortgage loans - other
$
15

 
$
15

 
$
—

 
$
22

 
$
—

Agricultural mortgage loans
—

 
—

 
—

 
—

 
—

Total
$
15

 
$
15

 
$
—

 
$
22

 
$
—

With related allowance recorded:
 
 
 
 
 
 
 
 
 
Commercial mortgage loans - other
$
27

 
$
27

 
$
(8
)
 
$
48

 
$
2

Agricultural mortgage loans
—

 
—

 
—

 
—

 
—

Total
$
27

 
$
27

 
$
(8
)
 
$
48

 
$
2

December 31, 2015:
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Commercial mortgage loans - other
$
46

 
$
46

 
$
—

 
$
15

 
$
—

Agricultural mortgage loans
—

 
—

 
—

 
—

 
—

Total
$
46

 
$
46

 
$
—

 
$
15

 
$
—

With related allowance recorded:
 
 
 
 
 
 
 
 
 
Commercial mortgage loans - other
$
63

 
$
63

 
$
(6
)
 
$
137

 
$
4

Agricultural mortgage loans
—

 
—

 
—

 
—

 
—

Total
$
63

 
$
63

 
$
(6
)
 
$
137

 
$
4

(1)
Represents a five-quarter average of recorded amortized cost.
Equity Method Investments
Included in other equity investments are limited partnership interests, real estate joint ventures and investment companies accounted for under the equity method with a total carrying value of $1,295 million and $1,363 million, respectively, at December 31, 2016 and 2015. The Company’s total equity in net earnings (losses) for these limited partnership interests was $60 million, $71 million and $206 million, respectively, for 2016, 2015 and 2014.
Derivatives and Offsetting Assets and Liabilities

The Company uses derivatives as part of its overall asset/liability risk management primarily to reduce exposures to equity market and interest rate risks. Derivative hedging strategies are designed to reduce these risks from an economic perspective and are all executed within the framework of a Derivative Use Plan approved by the NYDFS. Operation of these hedging programs is based on models involving numerous estimates and assumptions, including, among others, mortality, lapse, surrender and withdrawal rates, election rates, fund performance, market volatility and interest rates. A wide range of derivative contracts are used in these hedging programs, including exchange traded equity, currency and interest rate futures contracts, total return and/or other equity swaps, interest rate swap and floor contracts, bond and bond-index total return swaps, swaptions, variance swaps and equity options as well as bond and repo transactions to support the hedging. The derivative contracts are collectively managed in an effort to reduce the economic impact of unfavorable changes in guaranteed benefits’ exposures attributable to movements in capital markets.

Derivatives utilized to hedge exposure to Variable Annuities with Guarantee Features

The Company has issued and continues to offer certain variable annuity products with GMDB, GMIB and GIB features. The Company had previously issued certain variable annuity products with GWBL, guaranteed minimum withdrawal benefit (“GMWB”) and GMAB features (collectively, “GWBL and Other Features”). The risk associated with the GMDB feature is that under-performance of the financial markets could result in GMDB benefits, in the event of death, being higher than what accumulated policyholders’ account balances would support. The risk associated with the GMIB feature is that

137

under-performance of the financial markets could result in the present value of GMIB benefits, in the event of annuitization, being higher than what accumulated policyholders’ account balances would support, taking into account the relationship between current annuity purchase rates and the GMIB guaranteed annuity purchase rates. The risk associated with the GIB and GWBL and Other Features is that under-performance of the financial markets could result in the GIB and GWBL and Other Features’ benefits being higher than what accumulated policyholders’ account balances would support.
 
For GMDB, GMIB, GIB and GWBL and Other Features, the Company retains certain risks including basis, credit spread and some volatility risk and risk associated with actual versus expected assumptions for mortality, lapse and surrender, withdrawal and contractholder election rates, among other things. The derivative contracts are managed to correlate with changes in the value of the GMDB, GMIB, GIB and GWBL and Other Features that result from financial markets movements. A portion of exposure to realized equity volatility is hedged using equity options and variance swaps and a portion of exposure to credit risk is hedged using total return swaps on fixed income indices. Additionally, the Company is party to total return swaps for which the reference U.S. Treasury securities are contemporaneously purchased from the market and sold to the swap counterparty. As these transactions result in a transfer of control of the U.S. Treasury securities to the swap counterparty, the Company derecognizes these securities with consequent gain or loss from the sale. The Company has also purchased reinsurance contracts to mitigate the risks associated with GMDB features and the impact of potential market fluctuations on future policyholder elections of GMIB features contained in certain annuity contracts issued by the Company.

The Company has in place a hedge program utilizing interest rate swaps to partially protect the overall profitability of future variable annuity sales against declining interest rates.
Derivatives utilized to hedge crediting rate exposure on SCS, SIO, MSO and IUL products/investment options

The Company hedges crediting rates in the Structured Capital Strategies® (“SCS”) variable annuity, Structured Investment Option in the EQUI-VEST® variable annuity series (“SIO”), Market Stabilizer Option® (“MSO”) in the variable life insurance products and Indexed Universal Life (“IUL”) insurance products. These products permit the contract owner to participate in the performance of an index, ETF or commodity price movement up to a cap for a set period of time. They also contain a protection feature, in which the Company will absorb, up to a certain percentage, the loss of value in an index, ETF or commodity price, which varies by product segment.

In order to support the returns associated with these features, the Company enters into derivative contracts whose payouts, in combination with fixed income investments, emulate those of the index, ETF or commodity price, subject to caps and buffers.
Derivatives utilized to hedge risks associated with interest-rate risk arising from issuance of funding agreements
The Company issues fixed and floating rate funding agreements, to fund originated non-recourse commercial real estate mortgage loans, the terms of which may result in short term economic interest rate risk between mortgage loan commitment and mortgage loan funding. The company uses forward interest-rate swaps to protect against interest rate fluctuations during this period.  Realized gains and losses from the forward interest rate swaps are amortized over the life of the loan in interest credited to policyholder’s account balances.
Derivatives utilized to hedge equity market risks associated with the General Account’s seed money investments in Separate Accounts, retail mutual funds and Separate Account fee revenue fluctuations

The Company’s General Account seed money investments in Separate Account equity funds and retail mutual funds exposes the Company to market risk, including equity market risk, which is partially hedged through equity-index futures contracts to minimize such risk.

Periodically, the Company enters into futures on equity indices to mitigate the impact on net earnings from Separate Account fee revenue fluctuations due to movements in the equity markets. These positions partially cover fees expected to be earned from the Company’s Separate Account products.

138

Derivatives utilized for General Account Investment Portfolio
Beginning in the second quarter of 2013, the Company implemented a strategy in its General Account investment portfolio to replicate the credit exposure of fixed maturity securities otherwise permissible for investment under its investment guidelines through the sale of credit default swaps (“CDSs”). Under the terms of these swaps, the Company receives quarterly fixed premiums that, together with any initial amount paid or received at trade inception, replicate the credit spread otherwise currently obtainable by purchasing the referenced entity’s bonds of similar maturity. These credit derivatives generally have remaining terms of five years or less and are recorded at fair value with changes in fair value, including the yield component that emerges from initial amounts paid or received, reported in Net investment income (loss). The Company manages its credit exposure taking into consideration both cash and derivatives based positions and selects the reference entities in its replicated credit exposures in a manner consistent with its selection of fixed maturities. In addition, the Company has transacted the sale of CDSs exclusively in single name reference entities of investment grade credit quality and with counterparties subject to collateral posting requirements. If there is an event of default by the reference entity or other such credit event as defined under the terms of the swap contract, the Company is obligated to perform under the credit derivative and, at the counterparty’s option, either pay the referenced amount of the contract less an auction-determined recovery amount or pay the referenced amount of the contract and receive in return the defaulted or similar security of the reference entity for recovery by sale at the contract settlement auction. To date, there have been no events of default or circumstances indicative of a deterioration in the credit quality of the named referenced entities to require or suggest that the Company will have to perform under these CDSs. The maximum potential amount of future payments the Company could be required to make under these credit derivatives is limited to the par value of the referenced securities which is the dollar-equivalent of the derivative notional amount. The Standard North American CDS Contract (“SNAC”) under which the Company executes these CDS sales transactions does not contain recourse provisions for recovery of amounts paid under the credit derivative.

Periodically, the Company purchases 30-year, Treasury Inflation Protected Securities (“TIPS”) and other sovereign bonds, both inflation linked and non-inflation linked, as General Account investments and enters into asset or cross-currency basis swaps, to result in payment of the given bond’s coupons and principal at maturity in the bond’s specified currency to the swap counterparty, in return for fixed dollar amounts. These swaps, when considered in combination with the bonds, together result in a net position that is intended to replicate a dollar-denominated fixed-coupon cash bond with a yield higher than a term-equivalent U.S. Treasury bond. At December 31, 2016  and 2015, respectively, the Company’s unrealized gains (losses) related to this program were $(97) million and $(4) million and reported in AOCI.
 
The Company implemented a strategy to hedge a portion of the credit exposure in its General Account investment portfolio by buying protection through a swap. These are swaps on the super senior tranche of the investment grade credit default swap index (“CDX index”). Under the terms of these swaps, the Company pays quarterly fixed premiums that, together with any initial amount paid or received at trade inception, serve as premiums paid to hedge the risk arising from multiple defaults of bonds referenced in the CDX index. These credit derivatives have terms of five years or less and are recorded at fair value with changes in fair value, including the yield component that emerges from initial amounts paid or received, reported in Net investment income (loss) from derivative instruments.

During third quarter 2016, the Company implemented a program to mitigate its duration gap using total return swaps for which the reference U.S. Treasury securities are sold to the swap counterparty under arrangements economically similar to repurchase agreements. As these transactions result in a transfer of control of the U.S. Treasury securities to the swap counterparty, the Company derecognizes these securities with consequent gain or loss from the sale. In 2016, the Company derecognized approximately $995 million U.S. Treasury securities for which the Company received proceeds of approximately $1,007 million at inception of the total return swap contract. Under the terms of these swaps, the Company retains ongoing exposure to the total returns of the underlying U.S. Treasury securities in exchange for a financing cost. At December 31, 2016, the aggregate fair value of  U.S. Treasury securities derecognized under this program was approximately $888 million. Reported in Other invested assets in the Company's balance sheet at December 31, 2016 is approximately $(154) million, representing the fair value of the total return swap contracts.
 

139

The tables below present quantitative disclosures about the Company’s derivative instruments, including those embedded in other contracts required to be accounted for as derivative instruments.
Derivative Instruments by Category
At or For the Year Ended December 31, 2016
 
 
 
Fair Value
 
 
 
Notional
Amount
 
Asset
Derivatives
 
Liability
Derivatives
 
Gains (Losses)
Reported In
Earnings (Loss)
 
(In Millions)
Freestanding derivatives:
 
 
 
 
 
 
 
Equity contracts:(1)
 
 
 
 
 
 
 
Futures
$
5,086

 
$
1

 
$
1

 
$
(826
)
Swaps
3,529

 
13

 
67

 
(290
)
Options
11,465

 
2,114

 
1,154

 
727

Interest rate contracts:(1)
 
 
 
 
 
 
 
Floors
1,500

 
11

 
—

 
4

Swaps
18,933

 
246

 
1,163

 
(224
)
Futures
6,926

 
—

 
—

 
—

Swaptions
—

 
—

 
—

 
87

Credit contracts:(1)
 
 
 
 
 
 
 
Credit default swaps
2,757

 
20

 
15

 
15

Other freestanding contracts:(1)
 
 
 
 
 
 
 
Foreign currency Contracts
730

 
52

 
6

 
45

Margin
—

 
107

 
6

 
—

Collateral
—

 
712

 
748

 
—

Net investment income (loss)
 
 
 
 
 
 
(462
)
Embedded derivatives:
 
 
 
 
 
 
 
GMIB reinsurance contracts
—

 
10,309

 
—

 
(261
)
GIB and GWBL and other features(2)
—

 
—

 
164

 
(20
)
SCS, SIO, MSO and IUL indexed features(3)
—

 
—

 
887

 
(754
)
Balances, December 31, 2016
$
50,926

 
$
13,585

 
$
4,211

 
$
(1,497
)
(1)
Reported in Other invested assets in the consolidated balance sheets.
(2)
Reported in Future policy benefits and other policyholders’ liabilities in the consolidated balance sheets.
(3)
SCS and SIO indexed features are reported in Policyholders’ account balances; MSO and IUL indexed features are reported in Future policyholders’ benefits and other policyholders’ liabilities in the consolidated balance sheets.

140

Derivative Instruments by Category
At or For the Year Ended December 31, 2015
 
 
 
Fair Value
 
 
 
Notional
Amount
 
Asset
Derivatives
 
Liability
Derivatives
 
Gains (Losses)
Reported In
Earnings (Loss)
 
(In Millions)
Freestanding derivatives:
 
 
 
 
 
 
 
Equity contracts:(1)
 
 
 
 
 
 
 
Futures
$
7,089

 
$
2

 
$
3

 
$
(84
)
Swaps
1,359

 
8

 
21

 
(45
)
Options
7,358

 
1,042

 
652

 
14

Interest rate contracts:(1)
 
 
 
 
 
 
 
Floors
1,800

 
61

 
—

 
12

Swaps
13,718

 
351

 
108

 
(8
)
Futures
8,685

 
—

 
—

 
(81
)
Swaptions
—

 
—

 
—

 
118

Credit contracts:(1)
 
 
 
 
 
 
 
Credit default swaps
2,442

 
16

 
38

 
(14
)
Other freestanding contracts:(1)
 
 
 
 
 
 
 
Foreign currency Contracts
263

 
5

 
4

 
7

Net investment income (loss)
 
 
 
 
 
 
(81
)
Embedded derivatives:
 
 
 
 
 
 
 
GMIB reinsurance contracts
—

 
10,570

 
—

 
(141
)
GIB and GWBL and other features(2)
—

 
—

 
184

 
(56
)
SCS, SIO, MSO and IUL indexed features(3)
—

 
—

 
310

 
(38
)
Balances, December 31, 2015
$
42,714

 
$
12,055

 
$
1,320

 
$
(316
)

(1)
Reported in Other invested assets in the consolidated balance sheets.
(2)
Reported in Future policy benefits and other policyholders’ liabilities in the consolidated balance sheets.
(3)
SCS and SIO indexed features are reported in Policyholders’ account balances; MSO and IUL indexed features are reported in Future policyholders’ benefits and other policyholders’ liabilities in the consolidated balance sheets.
Equity-Based and Treasury Futures Contracts
All outstanding equity-based and treasury futures contracts at December 31, 2016 are exchange-traded and net settled daily in cash. At December 31, 2016, the Company had open exchange-traded futures positions on: (i) the S&P 500, Russell 2000 and Emerging Market indices, having initial margin requirements of $209 million, (ii) the 2-year, 5-year and 10-year U.S. Treasury Notes on U.S. Treasury bonds and ultra-long bonds, having initial margin requirements of $28 million and (iii) the Euro Stoxx, FTSE 100, Topix, ASX 200 and European, Australasia, and Far East (“EAFE”) indices as well as corresponding currency futures on the Euro/U.S. dollar, Pound/U.S. dollar, Australian dollar/U.S. dollar, and Yen/U.S. dollar, having initial margin requirements of $15 million.
Credit Risk
Although notional amount is the most commonly used measure of volume in the derivatives market, it is not used as a measure of credit risk. A derivative with positive fair value (a derivative asset) indicates existence of credit risk because the counterparty would owe money to the Company if the contract were closed at the reporting date. Alternatively, a derivative contract with negative fair value (a derivative liability) indicates the Company would owe money to the counterparty if the contract were closed at the reporting date. To reduce credit exposures in OTC derivative transactions the Company generally enters into master agreements that provide for a netting of financial exposures with the counterparty and allow for collateral arrangements as further described below under “ISDA Master Agreements.” The Company further controls and minimizes its counterparty exposure through a credit appraisal and approval process.

141

ISDA Master Agreements
Netting Provisions. The standardized “ISDA Master Agreement” under which the Company conducts its OTC derivative transactions includes provisions for payment netting. In the normal course of business activities, if there is more than one derivative transaction with a single counterparty, the Company will set-off the cash flows of those derivatives into a single amount to be exchanged in settlement of the resulting net payable or receivable with that counterparty. In the event of default, insolvency, or other similar event pre-defined under the ISDA Master Agreement that would result in termination of OTC derivatives transactions before their maturity, netting procedures would be applied to calculate a single net payable or receivable with the counterparty.
Collateral Arrangements. The Company generally has executed a CSA under the ISDA Master Agreement it maintains with each of its OTC derivative counterparties that requires both posting and accepting collateral either in the form of cash or high-quality securities, such as U.S. Treasury securities, U.S. government and government agency securities and investment grade corporate bonds. These CSAs are bilateral agreements that require collateral postings by the party “out-of-the-money” or in a net derivative liability position. Various thresholds for the amount and timing of collateralization of net liability positions are applicable. Consequently, the credit exposure of the Company’s OTC derivative contracts is limited to the net positive estimated fair value of those contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received pursuant to CSAs. Derivatives are recognized at fair value in the consolidated balance sheets and are reported either as assets in Other invested assets or as liabilities in Other liabilities, except for embedded insurance-related derivatives as described above and derivatives transacted with a related counterparty. The Company nets the fair value of all derivative financial instruments with counterparties for which an ISDA Master Agreement and related CSA have been executed.
At December 31, 2016 and 2015, respectively, the Company held $755 million and $655 million in cash and securities collateral delivered by trade counterparties, representing the fair value of the related derivative agreements. This unrestricted cash collateral is reported in Cash and cash equivalents. The aggregate fair value of all collateralized derivative transactions that were in a liability position with trade counterparties December 31, 2016 and 2015, respectively, were $700 million and $5 million, for which the Company posted collateral of $820 million and $5 million at December 31, 2016 and 2015, respectively, in the normal operation of its collateral arrangements. Certain of the Company’s ISDA Master Agreements contain contingent provisions that permit the counterparty to terminate the ISDA Master Agreement if the Company’s credit rating falls below a specified threshold, however, the occurrence of such credit event would not impose additional collateral requirements.
Securities Repurchase and Reverse Repurchase Transactions
Securities repurchase and reverse repurchase transactions are conducted by the Company under a standardized securities industry master agreement, amended to suit the specificities of each respective counterparty. These agreements generally provide detail as to the nature of the transaction, including provisions for payment netting, establish parameters concerning the ownership and custody of the collateral securities, including the right to substitute collateral during the term of the agreement, and provide for remedies in the event of default by either party. Amounts due to/from the same counterparty under these arrangements generally would be netted in the event of default and subject to rights of set-off in bankruptcy. The Company’s securities repurchase and reverse repurchase agreements are accounted for as secured borrowing or lending arrangements respectively, and are reported in the consolidated balance sheets on a gross basis. The Company obtains or posts collateral generally in the form of cash, U.S. Treasury, corporate and government agency securities. The fair value of the securities to be repurchased or resold are monitored on a daily basis with additional collateral posted or obtained as necessary. Securities to be repurchased or resold are the same, or substantially the same, as those initially transacted under the arrangement. At December 31, 2016 and 2015, the balance outstanding under reverse repurchase transactions was $0 million and $79 million, respectively. At December 31, 2016 and 2015, the balance outstanding under securities repurchase transactions was $1,996 million and $1,890 million, respectively. The Company utilized these repurchase and reverse repurchase agreements for asset liability and cash management purposes. For other instruments used for asset liability management purposes, see “Policyholders’ Account Balances and Future Policy Benefits” included in Note 2.


142

The following table presents information about the Insurance Segment’s offsetting of financial assets and liabilities and derivative instruments at December 31, 2016.
Offsetting of Financial Assets and Liabilities and Derivative Instruments
At December 31, 2016
 
Gross
Amounts
Recognized
 
Gross
Amounts
Offset in the
Balance Sheets
 
Net Amounts
Presented in the
Balance Sheets
 
(In Millions)
ASSETS(1)
 
 
 
 
 
Description
 
 
 
 
 
Derivatives:
 
 
 
 
 
Equity contracts
$
2,128

 
$
1,219

 
$
909

Interest rate contracts
253

 
1,162

 
(909
)
Credit contracts
20

 
14

 
6

Currency
48

 
1

 
47

Margin
107

 
6

 
101

Collateral
712

 
747

 
(35
)
Total Derivatives, subject to an ISDA Master Agreement
3,268

 
3,149

 
119

Total Derivatives, not subject to an ISDA Master Agreement
4

 
—

 
4

Total Derivatives
3,272

 
3,149

 
123

Other financial instruments
2,063

 
—

 
2,063

Other invested assets
$
5,335

 
$
3,149

 
$
2,186

 
 
 
 
 
 
Securities purchased under agreement to resell
$
—

 
—

 
$
—

 
Gross
Amounts
Recognized
 
Gross
Amounts
Offset in the
Balance Sheets
 
Net Amounts
Presented in the
Balance Sheets
 
(In Millions)
LIABILITIES(2)
 
 
 
 
 
Description
 
 
 
 
 
Derivatives:
 
 
 
 
 
Equity contracts
$
1,219

 
$
1,219

 
$
—

Interest rate contracts
1,162

 
1,162

 
—

Credit contracts
14

 
14

 
—

Currency
1

 
1

 
—

Margin
6

 
6

 
—

Collateral
747

 
747

 
—

Total Derivatives, subject to an ISDA Master Agreement
3,149

 
3,149

 
—

Total Derivatives, not subject to an ISDA Master Agreement
—

 
—

 
—

Total Derivatives
3,149

 
3,149

 
—

Other non-financial liabilities
2,108

 
—

 
2,108

Other liabilities
$
5,257

 
$
3,149

 
$
2,108

 
 
 
 
 
 
Securities sold under agreement to repurchase(3)
$
1,992

 
$
—

 
$
1,992


(1)
Excludes Investment Management segment’s $13 million net derivative assets (including derivative assets of consolidated VIEs), $3 million long exchange traded options and $83 million of securities borrowed.
(2)
Excludes Investment Management segment’s $11 million net derivative liabilities (including derivative liabilities of consolidated VIEs), $1 million short exchange traded options.
(3)
Excludes expense of $4 million in securities sold under agreement to repurchase.

143


The following table presents information about the Insurance segment’s gross collateral amounts that are not offset in the consolidated balance sheets at December 31, 2016.
Collateral Amounts Offset in the Consolidated Balance Sheets
At December 31, 2016
 
Fair Value of Assets
 
Collateral (Received)/Held
 
 
 
Financial
Instruments
 
Cash
 
Net  
Amounts  
 
(In Millions)
ASSETS(1)
 
 
 
 
 
 
 
Counterparty A
$
46

 
$
—

 
$
(48
)
 
$
(2
)
Counterparty B
(128
)
 
—

 
132

 
4

Counterparty C
(116
)
 
—

 
138

 
22

Counterparty D
182

 
—

 
(176
)
 
6

Counterparty E
(65
)
 
—

 
83

 
18

Counterparty F
(3
)
 
—

 
16

 
13

Counterparty G
219

 
—

 
(214
)
 
5

Counterparty H
104

 
—

 
(110
)
 
(6
)
Counterparty I
(188
)
 
—

 
203

 
15

Counterparty J
(93
)
 
—

 
115

 
22

Counterparty K
92

 
—

 
(96
)
 
(4
)
Counterparty L
(3
)
 
—

 
3

 
—

Counterparty M
(105
)
 
—

 
120

 
15

Counterparty N
4

 
—

 
—

 
4

Counterparty Q
10

 
—

 
(11
)
 
(1
)
Counterparty T
—

 
—

 
2

 
2

Counterparty U
1

 
—

 
10

 
11

Counterparty V
96

 
—

 
(101
)
 
(5
)
Total Derivatives
$
53

 
$
—

 
$
66

 
$
119

Other financial instruments
2,067

 
—

 
—

 
2,067

Other invested assets
$
2,120

 
$
—

 
$
66

 
$
2,186

 
Net Amounts
Presented in the
Balance Sheets
 
Collateral (Received)/Held
 
 
 
Financial
Instruments
 
Cash
 
Net  
Amounts  
 
(In Millions)
LIABILITIES(2)
 
 
 
 
 
 
 
Counterparty D
$
767

 
$
(767
)
 
$
—

 
—

Counterparty M
410

 
(410
)
 
—

 
—

Counterparty C
302

 
(296
)
 
(2
)
 
4

Counterparty W
513

 
(513
)
 
—

 
—

Securities sold under agreement to repurchase(3)
$
1,992

 
$
(1,986
)
 
$
(2
)
 
$
4


(1)
Excludes Investment Management segment’s cash collateral received of $1 million related to derivative assets (including those related to derivative assets of consolidated VIEs) and $83 million related to securities borrowed.
(2)
Excludes Investment Management segment’s cash collateral pledged of $8 million related to derivative liabilities (including those related to derivative liabilities of consolidated VIEs).
(3)
Excludes expense of $4 million in securities sold under agreement to repurchase.


144

The following table presents information about repurchase agreements accounted for as secured borrowings in the consolidated balance sheets at December 31, 2016.

Repurchase Agreement Accounted for as Secured Borrowings(1) 
 
At December 31, 2016
 
Remaining Contractual Maturity of the Agreements
 
Overnight and
Continuous
 
Up to 30 days
 
30-90
days
 
Greater Than
90 days
 
Total
 
 
(In Millions)
Securities sold under agreement to repurchase(2)
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
—

 
$
1,992

 
$
—

 
$
—

 
$
1,992

Total
$
—

 
$
1,992

 
$
—

 
$
—

 
$
1,992


(1)
Excludes Investment Management segment’s $83 million of securities borrowed.
(2)
Excludes expense of $4 million in securities sold under agreement to repurchase.
The following table presents information about the Insurance segment’s offsetting of financial assets and liabilities and derivative instruments at December 31, 2015.
Offsetting of Financial Assets and Liabilities and Derivative Instruments
At December 31, 2015
 
Gross
Amounts
Recognized
 
Gross
Amounts
Offset in the
Balance Sheets
 
Net Amounts
Presented in the
Balance Sheets
 
(In Millions)
ASSETS(1)
 
 
 
 
 
Description
 
 
 
 
 
Derivatives:
 
 
 
 
 
Equity contracts
$
1,049

 
$
673

 
$
376

Interest rate contracts
389

 
104

 
285

Credit contracts
14

 
37

 
(23
)
Total Derivatives, subject to an ISDA Master Agreement
1,452

 
814

 
638

Total Derivatives, not subject to an ISDA Master Agreement
20

 
—

 
20

Total Derivatives
1,472

 
814

 
658

Other financial instruments(2) (4)
1,271

 
—

 
1,271

Other invested assets(2)
$
2,743

 
$
814

 
$
1,929

 
 
 
 
 
 
Securities purchased under agreement to resell
$
79

 
$
—

 
$
79


145

 
Gross
Amounts
Recognized
 
Gross
Amounts
Offset in the
Balance Sheets
 
Net Amounts
Presented in the
Balance Sheets
 
(In Millions)
LIABILITIES(3)
 
 
 
 
 
Description
 
 
 
 
 
Derivatives:
 
 
 
 
 
Equity contracts
$
673

 
$
673

 
$
—

Interest rate contracts
104

 
104

 
—

Credit contracts
37

 
37

 
—

Total Derivatives, subject to an ISDA Master Agreement
814

 
814

 
—

Total Derivatives, not subject to an ISDA Master Agreement
—

 
—

 
—

Total Derivatives
814

 
814

 
—

Other non-financial liabilities
2,586

 
—

 
2,586

Other liabilities
$
3,400

 
$
814

 
$
2,586

 
 
 
 
 
 
Securities sold under agreement to repurchase
$
1,890

 
$
—

 
$
1,890


(1)
Excludes Investment Management segment’s $13 million net derivative assets, $6 million long exchange traded options and $75 million of securities borrowed.
(2)
Includes $141 million related to accrued interest related to derivative instruments reported in other assets on the consolidated balance sheets.
(3)
Excludes Investment Management segment’s $12 million net derivative liabilities, $1 million short exchange traded options and $10 million of securities loaned.
(4)
Includes margin of $(2) million related to derivative instruments.

146

The following table presents information about the Insurance segment’s gross collateral amounts that are not offset in the consolidated balance sheets at December 31, 2015.
Gross Collateral Amounts Not Offset in the Consolidated Balance Sheets
At December 31, 2015
 
Net Amounts
Presented in the
Balance Sheets
 
Collateral (Received)/Held
 
 
 
Financial
Instruments
 
Cash
 
Net
   Amounts  
 
(In Millions)
ASSETS(1)
 
 
 
 
 
 
 
Counterparty A
$
52

 
$
—

 
$
(52
)
 
$
—

Counterparty B
9

 
—

 
(7
)
 
2

Counterparty C
61

 
—

 
(58
)
 
3

Counterparty D
222

 
—

 
(218
)
 
4

Counterparty E
53

 
—

 
(53
)
 
—

Counterparty F
(2
)
 
—

 
2

 
—

Counterparty G
129

 
—

 
(129
)
 
—

Counterparty H
16

 
(11
)
 
(5
)
 
—

Counterparty I
44

 
—

 
(39
)
 
5

Counterparty J
19

 
—

 
(13
)
 
6

Counterparty K
17

 
—

 
(17
)
 
—

Counterparty L
7

 
—

 
(7
)
 
—

Counterparty M
11

 
—

 
(10
)
 
1

Counterparty N
20

 
—

 
—

 
20

Counterparty Q
—

 
—

 
—

 
—

Counterparty T
(3
)
 
—

 
3

 
—

Counterparty U
—

 
—

 
1

 
1

Counterparty V
3

 
—

 
(3
)
 
—

Total Derivatives
$
658

 
$
(11
)
 
$
(605
)
 
$
42

Other financial instruments(2) (4)
1,271

 
—

 
—

 
1,271

Other invested assets(2)
$
1,929

 
$
(11
)
 
$
(605
)
 
$
1,313

 
 
 
 
 
 
 
 
Counterparty M
$
28

 
$
(28
)
 
$
—

 
$
—

Counterparty V
$
51

 
$
(51
)
 
$
—

 
$
—

Securities purchased under agreement to resell
$
79

 
$
(79
)
 
$
—

 
$
—

LIABILITIES(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Counterparty D
$
234

 
$
(234
)
 
$
—

 
—

Counterparty C
1,033

 
(1,016
)
 
(17
)
 
—

Counterparty M
623

 
(611
)
 
(12
)
 
—

Securities sold under agreement to repurchase
$
1,890

 
$
(1,861
)
 
$
(29
)
 
$
—


(1)
Excludes Investment Management segment’s cash collateral received of $2 million related to derivative assets and $75 million related to securities borrowed.
(2)
Includes $141 million of accrued interest related to derivative instruments reported in other assets on the consolidated balance sheets.
(3)
Excludes Investment Management segment’s cash collateral pledged of $12 million related to derivative liabilities and $10 million related to securities loaned.
(4)
Includes margin of $(2) million related to derivative instruments.

147

The following table presents information about repurchase agreements accounted for as secured borrowings in the consolidated balance sheets at December 31, 2015.

Repurchase Agreement Accounted for as Secured Borrowings(1) 

 
At December 31, 2015
 
Remaining Contractual Maturity of the Agreements
 
Overnight and
Continuous
 
Up to 30 days
 
30-90
days
 
Greater Than
90 days
 
Total
 
 
(In Millions)
Securities sold under agreement to repurchase
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
—

 
$
1,865

 
$
25

 
$
—

 
$
1,890

Total
$
—

 
$
1,865

 
$
25

 
$
—

 
$
1,890

Securities purchased under agreement to resell
 
 
 
 
 
 
 
 
 
Corporate securities
$
—

 
$
79

 
$
—

 
$
—

 
$
79

Total
$
—

 
$
79

 
$
—

 
$
—

 
$
79


(1)
Excludes Investment Management segment’s $75 million of securities borrowed and $10 million of securities loaned.
Net Investment Income (Loss)
The following table breaks out Net investment income (loss) by asset category:
 
2016
 
2015
 
2014
 
(In Millions)
Fixed maturities
$
1,418

 
$
1,420

 
$
1,431

Mortgage loans on real estate
461

 
338

 
306

Repurchase agreement
1

 
1

 
—

Other equity investments
170

 
84

 
200

Policy loans
210

 
213

 
216

Derivative investments
(462
)
 
(81
)
 
1,605

Trading securities
80

 
17

 
63

Other investment income
44

 
40

 
49

Gross investment income (loss)
1,922

 
2,032

 
3,870

Investment expenses
(66
)
 
(56
)
 
(55
)
Net Investment Income (Loss)
$
1,856

 
$
1,976

 
$
3,815

For 2016, 2015 and 2014, respectively, Net investment income (loss) from derivatives included $(4) million, $474 million and $899 million of realized gains (losses) on contracts closed during those periods and $(458) million, $(555) million and $706 million of unrealized gains (losses) on derivative positions at each respective year end.

148

Net unrealized and realized gains (losses) on trading account equity securities are included in Net investment income (loss) in the consolidated statements of earnings (loss). The table below shows a breakdown of Net investment income from trading account securities during the year ended 2016 and 2015:

Net Investment Income (Loss) from Trading Securities

 
Twelve Months Ended
 
 
 
December 31,
2016
 
December 31,
2015
 
December 31,
2014
 
(In Millions)
 
 
Net investment gains (losses) recognized during the period on securities held at the end of the period
$
(19
)
 
$
(63
)
 
$
—

Net investment gains (losses) recognized on securities sold during the period
(22
)
 
20

 
22

Unrealized and realized gains (losses) on trading securities
(41
)
 
(43
)
 
22

Interest and dividend income from trading securities
121

 
60

 
41

Net investment income (loss) from trading securities
$
80

 
$
17

 
$
63

Investment Gains (Losses), Net
Investment gains (losses), net including changes in the valuation allowances and OTTI are as follows:
 
2016
 
2015
 
2014
 
(In Millions)
Fixed maturities
$
(3
)
 
$
(17
)
 
$
(54
)
Mortgage loans on real estate
(2
)
 
(1
)
 
(3
)
Other equity investments
(2
)
 
(5
)
 
(2
)
Other
23

 
3

 
1

Investment Gains (Losses), Net
$
16

 
$
(20
)
 
$
(58
)
For 2016, 2015 and 2014, respectively, investment results passed through to certain participating group annuity contracts as interest credited to policyholders’ account balances totaled $4 million, $4 million and $5 million.


149

4)
GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying value of goodwill related to AB totaled $3,584 million and $3,562 million at December 31, 2016 and 2015, respectively. The Company annually tests goodwill for recoverability at December 31. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of its investment in AB, the reporting unit, to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered to be impaired and the second step of the impairment test is not performed. However, if the carrying value of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed by measuring the amount of impairment loss only if the result indicates a potential impairment. The second step compares the implied fair value of the reporting unit to the aggregated fair values of its individual assets and liabilities to determine the amount of impairment, if any. The Company also assesses this goodwill for recoverability at each interim reporting period in consideration of facts and circumstances that may indicate a shortfall of the fair value of its investment in AB as compared to its carrying value and thereby require re-performance of its annual impairment testing.
The Company primarily uses a discounted cash flow valuation technique to measure the fair value of its investment in AB for purpose of goodwill impairment testing. The cash flows used in this technique are sourced from AB’s current business plan and projected thereafter over the estimated life of the goodwill asset by applying an annual growth rate assumption. The present value amount that results from discounting these expected cash flows is then adjusted to reflect the noncontrolling interest in AB as well as taxes incurred at the Company level in order to determine the fair value of its investment in AB. At December 31, 2016 and 2015, the Company determined that goodwill was not impaired as the fair value of its investment in AB exceeded its carrying value at each respective date. Similarly, no impairments resulted from the Company’s interim assessments of goodwill recoverability during the periods then ended.
The gross carrying amount of AB related intangible assets was $625 million and $610 million at December 31, 2016 and 2015, respectively and the accumulated amortization of these intangible assets was $468 million and $439 million at December 31, 2016 and 2015, respectively. Amortization expense related to the AB intangible assets totaled $29 million, $28 million and $27 million for 2016, 2015 and 2014, respectively, and estimated amortization expense for each of the next five years is expected to be approximately $29 million.
At December 31, 2016 and 2015, respectively, net deferred sales commissions totaled $64 million and $99 million and are included within Other assets. The estimated amortization expense of deferred sales commissions, based on the December 31, 2016 net asset balance for each of the next five years is $32 million, $21 million, $8 million, $3 million and $0 million. The Company tests the deferred sales commission asset for impairment quarterly by comparing undiscounted future cash flows to the recorded value, net of accumulated amortization. Each quarter, significant assumptions used to estimate the future cash flows are updated to reflect management’s consideration of current market conditions on expectations made with respect to future market levels and redemption rates. As of December 31, 2016, the Company determined that the deferred sales commission asset was not impaired.

On September 23, 2016, AB acquired a 100% ownership interest in Ramius Alternative Solutions LLC (“RASL”), a global alternative investment management business that, as of the acquisition date, had approximately $2.5 billion in AUM. RASL offers a range of customized alternative investment and advisory solutions to a global institutional client base. On the acquisition date, AB made a cash payment of $21 million and recorded a contingent consideration payable of $12 million based on projected fee revenues over a five-year measurement period. The excess of the purchase price over the current fair value of identifiable net assets acquired resulted in the recognition of $22 million of goodwill. AB recorded $10 million of definite-lived intangible assets relating to investment management contracts.
On June 20, 2014, AB acquired an approximate 82.0% ownership interest in CPH Capital Fondsmaeglerselskab A/S (“CPH”), a Danish asset management firm that managed approximately $3,000 million in global core equity assets for institutional investors, for a cash payment of $64 million and a contingent consideration payable of $9 million based on projected assets under management levels over a three-year measurement period. The excess of the purchase price over the fair value of identifiable assets acquired resulted in the recognition of $58 million of goodwill. AB recorded $24 million of finite-lived intangible assets relating to separately-managed account relationships and $4 million of indefinite-lived intangible assets relating to an acquired fund’s investment contract. AB also recorded redeemable non-controlling interest of $17 million relating to the fair value of the portion of CPH AB does not own. During 2015 and 2016, AB purchased additional shares of CPH, bringing AB’s ownership interest to 90.0% as of December 31, 2016.

150

Capitalized Software
Capitalized software, net of accumulated amortization, amounted to $170 million and $157 million at December 31, 2016 and 2015, respectively. Amortization of capitalized software in 2016, 2015 and 2014 were $52 million, $55 million and $50 million, respectively.

151

5)
CLOSED BLOCK
Summarized financial information for the AXA Equitable Closed Block is as follows:
 
December 31,
 
2016
 
2015
 
(In Millions)
CLOSED BLOCK LIABILITIES:
 
 
 
Future policy benefits, policyholders’ account balances and other
$
7,179

 
$
7,363

Policyholder dividend obligation
52

 
81

Other liabilities
43

 
100

Total Closed Block liabilities
7,274

 
7,544

ASSETS DESIGNATED TO THE CLOSED BLOCK:
 
 
 
Fixed maturities, available for sale, at fair value (amortized cost of $3,884 and $4,426)
4,025

 
4,599

Mortgage loans on real estate
1,623

 
1,575

Policy loans
839

 
881

Cash and other invested assets
444

 
49

Other assets
181

 
258

Total assets designated to the Closed Block
7,112

 
7,362

Excess of Closed Block liabilities over assets designated to the Closed Block
162

 
182

Amounts included in accumulated other comprehensive income (loss):
 
 
 
Net unrealized investment gains (losses), net of policyholder dividend obligation of $(52) and $(81)
100

 
103

Maximum Future Earnings To Be Recognized From Closed Block Assets and Liabilities
$
262

 
$
285

AXA Equitable’s Closed Block revenues and expenses follow:
 
2016
 
2015
 
2014
 
(In Millions)
REVENUES:
 
 
 
 
 
Premiums and other income
$
238

 
$
262

 
$
273

Investment income (loss)
349

 
368

 
378

Net investment gains (losses)
(1
)
 
2

 
(4
)
Total revenues
586

 
632

 
647

BENEFITS AND OTHER DEDUCTIONS:
 
 
 
 
 
Policyholders’ benefits and dividends
548

 
576

 
597

Other operating costs and expenses
4

 
4

 
4

Total benefits and other deductions
552

 
580

 
601

Net revenues, before income taxes
34

 
52

 
46

Income tax (expense) benefit
(12
)
 
(18
)
 
(16
)
Net Revenues (Losses)
$
22

 
$
34

 
$
30

A reconciliation of AXA Equitable’s policyholder dividend obligation follows:
 
December 31,
 
2016
 
2015
 
(In Millions)
Balances, beginning of year
$
81

 
$
201

Unrealized investment gains (losses)
(29
)
 
(120
)
Balances, End of year
$
52

 
$
81



152

6)
CONTRACTHOLDER BONUS INTEREST CREDITS AND DEFERRED ACQUISITION COST
Changes in the deferred asset for contractholder bonus interest credits are as follows:
 
December 31,
 
2016
 
2015
 
(In Millions)
Balance, beginning of year
$
534

 
$
383

Contractholder bonus interest credits deferred
13

 
17

Other
—

 
174

Amortization charged to income
(43
)
 
(40
)
Balance, End of Year
$
504

 
$
534


Changes in deferred acquisition costs at December 31, 2016 and 2015 were as follows:

 
December 31,
 
2016
 
2015
 
(In Millions)
Balance, beginning of year
$
4,469

 
$
4,271

Capitalization of commissions, sales and issue expenses
594

 
615

Amortization
(756
)
 
(284
)
Change in unrealized investment gains and losses
(6
)
 
41

Other
—

 
(174
)
Balance, End of Year
$
4,301

 
$
4,469


153

7)
FAIR VALUE DISCLOSURES
Assets and liabilities measured at fair value on a recurring basis are summarized below. At December 31, 2016 and 2015, no assets were required to be measured at fair value on a non-recurring basis. Fair value measurements are required on a non-recurring basis for certain assets, including goodwill and mortgage loans on real estate, only when an OTTI or other event occurs. When such fair value measurements are recorded, they must be classified and disclosed within the fair value hierarchy.

154

Fair Value Measurements at December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
Public Corporate
$
—

 
$
12,984

 
$
28

 
$
13,012

Private Corporate
—

 
6,223

 
817

 
7,040

U.S. Treasury, government and agency
—

 
10,336

 
—

 
10,336

States and political subdivisions
—

 
451

 
42

 
493

Foreign governments
—

 
390

 
—

 
390

Commercial mortgage-backed
—

 
22

 
349

 
371

Residential mortgage-backed(1)
—

 
314

 
—

 
314

Asset-backed(2)
—

 
36

 
24

 
60

Redeemable preferred stock
218

 
335

 
1

 
554

Subtotal
218

 
31,091

 
1,261

 
32,570

Other equity investments
3

 
—

 
5

 
8

Trading securities
478

 
8,656

 
—

 
9,134

Other invested assets:
 
 
 
 
 
 
 
Short-term investments
—

 
574

 
—

 
574

Assets of consolidated VIEs
342

 
205

 
6

 
553

Swaps
—

 
(925
)
 
—

 
(925
)
Credit Default Swaps
—

 
5

 
—

 
5

Futures
—

 
—

 
—

 
—

Options
—

 
960

 
—

 
960

Floors
—

 
11

 
—

 
11

Subtotal
342

 
830

 
6

 
1,178

Cash equivalents
1,529

 
—

 
—

 
1,529

Segregated securities
—

 
946

 
—

 
946

GMIB reinsurance contracts asset
—

 
—

 
10,309

 
10,309

Separate Accounts’ assets
108,085

 
2,818

 
313

 
111,216

Total Assets
$
110,655

 
$
44,341

 
$
11,894

 
$
166,890

Liabilities
 
 
 
 
 
 
 
GWBL and other features’ liability
$
—

 
$
—

 
$
164

 
$
164

SCS, SIO, MSO and IUL indexed features’ liability
—

 
887

 
—

 
887

Liabilities of consolidated VIEs
248

 
2

 
—

 
250

Contingent payment arrangements
—

 
—

 
18

 
18

Total Liabilities
$
248

 
$
889

 
$
182

 
$
1,319

(1)
Includes publicly traded agency pass-through securities and collateralized obligations.
(2)
Includes credit-tranched securities collateralized by sub-prime mortgages and other asset types and credit tenant loans.

155

Fair Value Measurements at December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In Millions)
Assets
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
Public Corporate
$
—

 
$
13,345

 
$
31

 
$
13,376

Private Corporate
—

 
6,537

 
389

 
6,926

U.S. Treasury, government and agency
—

 
8,775

 
—

 
8,775

States and political subdivisions
—

 
459

 
45

 
504

Foreign governments
—

 
414

 
1

 
415

Commercial mortgage-backed
—

 
30

 
503

 
533

Residential mortgage-backed(1)
—

 
640

 
—

 
640

Asset-backed(2)
—

 
37

 
40

 
77

Redeemable preferred stock
258

 
389

 
—

 
647

Subtotal
258

 
30,626

 
1,009

 
31,893

Other equity investments
97

 
—

 
49

 
146

Trading securities
654

 
6,151

 
—

 
6,805

Other invested assets:
 
 
 
 
 
 
 
Short-term investments
—

 
369

 
—

 
369

Swaps
—

 
230

 
—

 
230

Credit Default Swaps
—

 
(22
)
 
—

 
(22
)
Futures
(1
)
 
—

 
—

 
(1
)
Options
—

 
390

 
—

 
390

Floors
—

 
61

 
—

 
61

Currency Contracts
—

 
1

 
—

 
1

Subtotal
(1
)
 
1,029

 
—

 
1,028

Cash equivalents
2,150

 
—

 
—

 
2,150

Segregated securities
—

 
565

 
—

 
565

GMIB reinsurance contracts asset
—

 
—

 
10,570

 
10,570

Separate Accounts’ assets
104,058

 
2,964

 
313

 
107,335

Total Assets
$
107,216

 
$
41,335

 
$
11,941

 
$
160,492

Liabilities
 
 
 
 
 
 
 
GWBL and other features’ liability
$
—

 
$
—

 
$
184

 
$
184

SCS, SIO, MSO and IUL indexed features’ liability
—

 
310

 
—

 
310

Contingent payment arrangements
—

 
—

 
31

 
31

Total Liabilities
$
—

 
$
310

 
$
215

 
$
525

(1)
Includes publicly traded agency pass-through securities and collateralized obligations.
(2)
Includes credit-tranched securities collateralized by sub-prime mortgages and other asset types and credit tenant loans.
At December 31, 2016 and 2015, respectively, the fair value of public fixed maturities is approximately $24,918 million and $24,216 million or approximately 16.0% and 16.2% of the Company’s total assets measured at fair value on a recurring basis (excluding GMIB reinsurance contracts and segregated securities measured at fair value on a recurring basis). The fair values of the Company’s public fixed maturity securities are generally based on prices obtained from independent valuation service providers and for which the Company maintains a vendor hierarchy by asset type based on historical pricing experience and vendor expertise. Although each security generally is priced by multiple independent valuation service providers, the Company ultimately uses the price received from the independent valuation service provider highest in the vendor hierarchy based on the respective asset type, with limited exception. To validate reasonableness, prices also

156

are internally reviewed by those with relevant expertise through comparison with directly observed recent market trades. Consistent with the fair value hierarchy, public fixed maturity securities validated in this manner generally are reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. If the pricing information received from independent valuation service providers is not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process in accordance with the terms of the respective independent valuation service provider agreement. If, as a result, it is determined that the independent valuation service provider is able to reprice the security in a manner agreed as more consistent with current market observations, the security remains within Level 2. Alternatively, a Level 3 classification may result if the pricing information then is sourced from another vendor, non-binding broker quotes, or internally-developed valuations for which the Company’s own assumptions about market-participant inputs would be used in pricing the security.
At December 31, 2016 and 2015, respectively, the fair value of private fixed maturities is approximately $7,652 million and $7,677 million or approximately 4.9% and 5.1% of the Company’s total assets measured at fair value on a recurring basis. The fair values of some of the Company’s private fixed maturities are determined from prices obtained from independent valuation service providers. Prices not obtained from an independent valuation service provider are determined by using a discounted cash flow model or a market comparable company valuation technique. In certain cases, these models use observable inputs with a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Generally, these securities have been reflected within Level 2. For certain private fixed maturities, the discounted cash flow model or a market comparable company valuation technique may also incorporate unobservable inputs, which reflect the Company’s own assumptions about the inputs market participants would use in pricing the asset. To the extent management determines that such unobservable inputs are significant to the fair value measurement of a security, a Level 3 classification generally is made.
As disclosed in Note 3, at December 31, 2016 and 2015, respectively, the net fair value of freestanding derivative positions is approximately $51 million and $659 million or approximately 8.2% and 64.1% of Other invested assets measured at fair value on a recurring basis. The fair values of the Company’s derivative positions are generally based on prices obtained either from independent valuation service providers or derived by applying market inputs from recognized vendors into industry standard pricing models. The majority of these derivative contracts are traded in the Over-The-Counter (“OTC”) derivative market and are classified in Level 2. The fair values of derivative assets and liabilities traded in the OTC market are determined using quantitative models that require use of the contractual terms of the derivative instruments and multiple market inputs, including interest rates, prices, and indices to generate continuous yield or pricing curves, including overnight index swap (“OIS”) curves, and volatility factors, which then are applied to value the positions. The predominance of market inputs is actively quoted and can be validated through external sources or reliably interpolated if less observable. If the pricing information received from independent valuation service providers is not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process in accordance with the terms of the respective independent valuation service provider agreement. If as a result it is determined that the independent valuation service provider is able to reprice the derivative instrument in a manner agreed as more consistent with current market observations, the position remains within Level 2. Alternatively, a Level 3 classification may result if the pricing information then is sourced from another vendor, non-binding broker quotes, or internally-developed valuations for which the Company’s own assumptions about market-participant inputs would be used in pricing the security.
At December 31, 2016 and 2015, respectively, investments classified as Level 1 comprise approximately 71.1% and 71.8% of assets measured at fair value on a recurring basis and primarily include redeemable preferred stock, trading securities, cash equivalents and Separate Accounts assets. Fair value measurements classified as Level 1 include exchange-traded prices of fixed maturities, equity securities and derivative contracts, and net asset values for transacting subscriptions and redemptions of mutual fund shares held by Separate Accounts. Cash equivalents classified as Level 1 include money market accounts, overnight commercial paper and highly liquid debt instruments purchased with an original maturity of three months or less, and are carried at cost as a proxy for fair value measurement due to their short-term nature.
At December 31, 2016 and 2015, respectively, investments classified as Level 2 comprise approximately 27.9% and 27.3% of assets measured at fair value on a recurring basis and primarily include U.S. government and agency securities and certain corporate debt securities, such as public and private fixed maturities. As market quotes generally are not readily available or accessible for these securities, their fair value measures are determined utilizing relevant information generated by market transactions involving comparable securities and often are based on model pricing techniques that effectively discount prospective cash flows to present value using appropriate sector-adjusted credit spreads commensurate with the security’s duration, also taking into consideration issuer-specific credit quality and liquidity. Segregated securities classified as Level 2 are U.S. Treasury Bills segregated by AB in a special reserve bank custody account for the exclusive benefit

157

of brokerage customers, as required by Rule 15c3-3 of the Exchange Act and for which fair values are based on quoted yields in secondary markets.
Observable inputs generally used to measure the fair value of securities classified as Level 2 include benchmark yields, reported secondary trades, issuer spreads, benchmark securities and other reference data. Additional observable inputs are used when available, and as may be appropriate, for certain security types, such as prepayment, default, and collateral information for the purpose of measuring the fair value of mortgage- and asset-backed securities. At December 31, 2016 and 2015, respectively, approximately $340 million and $673 million of AAA-rated mortgage- and asset-backed securities are classified as Level 2 for which the observability of market inputs to their pricing models is supported by sufficient, albeit more recently contracted, market activity in these sectors.
The Company’s SCS and EQUI-VEST variable annuity products, the IUL product, and in the MSO fund available in some life contracts offer investment options which permit the contract owner to participate in the performance of an index, ETF or commodity price. These investment options, which depending on the product and on the index selected can currently have 1, 3, or 5 year terms, provide for participation in the performance of specified indices, ETF or commodity price movement up to a segment-specific declared maximum rate. Under certain conditions that vary by product, e.g. holding these segments for the full term, these segments also shield policyholders from some or all negative investment performance associated with these indices, ETF or commodity prices. These investment options have defined formulaic liability amounts, and the current values of the option component of these segment reserves are accounted for as Level 2 embedded derivatives. The fair values of these embedded derivatives are based on prices obtained from independent valuation service providers.
At December 31, 2016 and 2015, respectively, investments classified as Level 3 comprise approximately 1.0% and 0.9% of assets measured at fair value on a recurring basis and primarily include commercial mortgage-backed securities (“CMBS”) and corporate debt securities, such as private fixed maturities. Determinations to classify fair value measures within Level 3 of the valuation hierarchy generally are based upon the significance of the unobservable factors to the overall fair value measurement. Included in the Level 3 classification at December 31, 2016 and 2015, respectively, were approximately $111 million and $119 million of fixed maturities with indicative pricing obtained from brokers that otherwise could not be corroborated to market observable data. The Company applies various due-diligence procedures, as considered appropriate, to validate these non-binding broker quotes for reasonableness, based on its understanding of the markets, including use of internally-developed assumptions about inputs a market participant would use to price the security. In addition, approximately $373 million and $543 million of mortgage- and asset-backed securities, including CMBS, are classified as Level 3 at December 31, 2016 and 2015, respectively. The Company utilizes prices obtained from an independent valuation service vendor to measure fair value of CMBS securities.
The Company also issues certain benefits on its variable annuity products that are accounted for as derivatives and are also considered Level 3. The GMWB feature allows the policyholder to withdraw at minimum, over the life of the contract, an amount based on the contract’s benefit base. The GWBL feature allows the policyholder to withdraw, each year for the life of the contract, a specified annual percentage of an amount based on the contract’s benefit base. The GMAB feature increases the contract account value at the end of a specified period to a GMAB base. The GIB feature provides a lifetime annuity based on predetermined annuity purchase rates if and when the contract account value is depleted. This lifetime annuity is based on predetermined annuity purchase rates applied to a GIB base.
Level 3 also includes the GMIB reinsurance contract asset which is accounted for as derivative contracts. The GMIB reinsurance contract asset’s fair value reflects the present value of reinsurance premiums and recoveries and risk margins over a range of market consistent economic scenarios while the GIB and GWBL and other features related liability reflects the present value of expected future payments (benefits) less fees, adjusted for risk margins, attributable to the GIB and GWBL and other features over a range of market-consistent economic scenarios. The valuations of both the GMIB reinsurance contract asset and GIB and GWBL and other features’ liability incorporate significant non-observable assumptions related to policyholder behavior, risk margins and projections of equity Separate Account funds. The credit risks of the counterparty and of the Company are considered in determining the fair values of its GMIB reinsurance contract asset and GIB and GWBL and other features’ liability positions, respectively, after taking into account the effects of collateral arrangements. Incremental adjustment to the swap curve, adjusted for non-performance risk, is made to the resulting fair values of the GMIB reinsurance contract asset to reflect change in the claims-paying ratings of counterparties to the reinsurance treaties. After giving consideration to collateral arrangements, the Company reduced the fair value of its GMIB reinsurance contract asset by $139 million and $123 million at December 31, 2016 and 2015, respectively, to recognize incremental counterparty non-performance risk. The unadjusted swap curve was determined to reflect a level of general swap market counterparty risk; therefore, no adjustment was made for purpose of determining the fair value of the GIB and GWBL and other features’ liability embedded derivative at December 31, 2016. Equity and fixed income volatilities were modeled to reflect the current market volatility.

158

In second quarter 2014, the Company refined the fair value calculation of the GMIB reinsurance contract asset and GWBL, GIB and GMAB liabilities, utilizing scenarios that explicitly reflect risk free bond and equity components separately (previously aggregated and including counterparty risk premium embedded in swap rates) and stochastic interest rates for projecting and discounting cash flows (previously a single yield curve). The net impacts of these refinements were a $510 million increase to the GMIB reinsurance contract asset and a $37 million increase in the GWBL, GIB and GMAB liability which are reported in the Company’s consolidated statements of Earnings (Loss) as Increase (decrease) in the fair value of the reinsurance contract asset and Policyholders’ benefits, respectively.
The Company’s Level 3 liabilities include contingent payment arrangements associated with acquisitions in 2010, 2013 and 2014 by AB. At each reporting date, AB estimates the fair values of the contingent consideration expected to be paid based upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy.
As of December 31, 2016, five of the Company’s consolidated VIEs that are open-end Luxembourg funds hold $6 million of investments that are classified as Level 3. They primarily consist of corporate bonds that are vendor priced with no ratings available, bank loans, non-agency collateralized mortgage obligations and asset-backed securities.
In 2016, AFS fixed maturities with fair values of $62 million were transferred out of Level 3 and into Level 2 principally due to the availability of trading activity and/or market observable inputs to measure and validate their fair values. In addition, AFS fixed maturities with fair value of $25 million were transferred from Level 2 into the Level 3 classification. During the third quarter of 2016, one of AB’s private securities went public and, due to a trading restriction period, $56 million was transferred from a Level 3 to a Level 2 classification. These transfers in the aggregate represent approximately 0.9% of total equity at December 31, 2016.
In 2015, AFS fixed maturities with fair values of $125 million were transferred out of Level 3 and into Level 2 principally due to the availability of trading activity and/or market observable inputs to measure and validate their fair values. In addition, AFS fixed maturities with fair value of $99 million were transferred from Level 2 into the Level 3 classification. These transfers in the aggregate represent approximately 1.3% of total equity at December 31, 2015.

159

The table below presents a reconciliation for all Level 3 assets and liabilities at December 31, 2016, 2015 and 2014 respectively.
Level 3 Instruments
Fair Value Measurements
 
Corporate
 
State and
Political
Sub-divisions
 
Foreign
Govts
 
Commercial
Mortgage-
backed
 
Residential
Mortgage-
backed
 
Asset-
backed
 
(In Millions)
Balance, January 1, 2016
$
420

 
$
45

 
$
1

 
$
503

 
$
—

 
$
40

Total gains (losses), realized and unrealized, included in:
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) as:
 
 
 
 
 
 
 
 
 
 
 
Net investment income (loss)
—

 
—

 
—

 
—

 
—

 
—

Investment gains (losses), net
1

 
—

 
—

 
(67
)
 
—

 
—

Subtotal
1

 
—

 
—

 
(67
)
 
—

 
—

Other comprehensive income (loss)
7

 
(2
)
 
—

 
14

 
—

 
1

Purchases
572

 
—

 
—

 
—

 
—

 
—

Sales
(142
)
 
(1
)
 
—

 
(87
)
 
—

 
(8
)
Transfers into Level 3(1)
25

 
—

 
—

 
—

 
—

 
—

Transfers out of Level 3(1)
(38
)
 
—

 
(1
)
 
(14
)
 
—

 
(9
)
Balance, December 31, 2016
$
845

 
$
42

 
$
—

 
$
349

 
$
—

 
$
24

Balance, January 1, 2015
$
380

 
$
47

 
$
—

 
$
715

 
$
2

 
$
53

Total gains (losses), realized and unrealized, included in:
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) as:
 
 
 
 
 
 
 
 
 
 
 
Net investment income (loss)
3

 
—

 
—

 
1

 
—

 
—

Investment gains (losses), net
2

 
—

 
—

 
(38
)
 
—

 
—

Subtotal
5

 
—

 
—

 
(37
)
 
—

 
—

Other comprehensive income (loss)
(25
)
 
(1
)
 
—

 
64

 
—

 
(4
)
Purchases
60

 
—

 
1

 
—

 
—

 
—

Sales
(38
)
 
(1
)
 
—

 
(175
)
 
(2
)
 
(9
)
Transfers into Level 3(1)
99

 
—

 
—

 
—

 
—

 
—

Transfers out of Level 3(1)
(61
)
 
—

 
—

 
(64
)
 
—

 
—

Balance, December 31, 2015
$
420

 
$
45

 
$
1

 
$
503

 
$
—

 
$
40


160

Level 3 Instruments
Fair Value Measurements
 
Corporate
 
State and
Political
Sub-divisions
 
Foreign
Govts
 
Commercial
Mortgage-
backed
 
Residential
Mortgage-
backed
 
Asset-
backed
 
(In Millions)
Balance, January 1, 2014
$
291

 
$
46

 
$
—

 
$
700

 
$
4

 
$
83

Total gains (losses), realized and unrealized, included in:
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) as:
 
 
 
 
 
 
 
 
 
 
 
Net investment income (loss)
2

 
—

 
—

 
2

 
—

 
—

Investment gains (losses), net
3

 
—

 
—

 
(89
)
 
—

 
—

Subtotal
5

 
—

 
—

 
(87
)
 
—

 
—

Other comprehensive income (loss)
6

 
2

 
—

 
135

 
—

 
7

Purchases
162

 
—

 
—

 
—

 
—

 
—

Sales
(30
)
 
(1
)
 
—

 
(20
)
 
(2
)
 
(37
)
Transfers into Level 3(1)
15

 
—

 
—

 
—

 
—

 
—

Transfers out of Level 3(1)
(69
)
 
—

 
—

 
(13
)
 
—

 
—

Balance, December 31, 2014
$
380

 
$
47

 
$
—

 
$
715

 
$
2

 
$
53


161

 
Redeem
able
Preferred
Stock
 
Other
Equity
Investments(2)
 
GMIB
Reinsurance
Asset
 
Separate
Accounts
Assets
 
GWBL
and Other
Features
Liability
 
Contingent
Payment
Arrangement
 
(In Millions)
 
 
Balance, January 1, 2016
$
—

 
$
49

 
$
10,570

 
$
313

 
$
184

 
31

Total gains (losses), realized and unrealized, included in:
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) as:
 
 
 
 
 
 
 
 
 
 
 
Net investment income (loss)
—

 
—

 
—

 
—

 
—

 
—

Investment gains (losses), net
—

 
—

 
—

 
19

 
—

 
—

Increase (decrease) in the fair value of reinsurance contracts
—

 
—

 
(419
)
 
—

 
—

 
—

Policyholders’ benefits
—

 
—

 
—

 
—

 
(245
)
 
—

Subtotal
—

 
—

 
(419
)
 
19

 
(245
)
 
—

Other comprehensive
income (loss)
—

 
(2
)
 
—

 
—

 
—

 
—

Purchases (3)
1

 
—

 
223

 
10

 
225

 
11

Sales (4)
—

 
—

 
(65
)
 
—

 
—

 
—

Settlements (5)
—

 
—

 
—

 
(7
)
 
—

 
(24
)
Activities related to VIEs
—

 
20

 
—

 
—

 
—

 
—

Transfers into Level 3(1)
—

 
—

 
—

 
1

 
—

 
—

Transfers out of Level 3(1)
—

 
(56
)
 
—

 
(23
)
 
—

 
—

Balance, December 31, 2016
$
1

 
$
11

 
$
10,309

 
$
313

 
$
164

 
$
18

Balance, January 1, 2015
$
—

 
$
61

 
$
10,711

 
$
260

 
$
128

 
42

Total gains (losses), realized and unrealized, included in:
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) as:
 
 
 
 
 
 
 
 
 
 
 
Net investment income (loss)
—

 
—

 
—

 
—

 
—

 
—

Investment gains (losses), net
—

 
5

 
—

 
36

 
—

 
—

Increase (decrease) in the fair value of reinsurance contracts
—

 
—

 
(327
)
 
—

 
—

 
—

Policyholders’ benefits
—

 
—

 
—

 
—

 
(130
)
 
—

Subtotal
—

 
5

 
(327
)
 
36

 
(130
)
 
—

Other comprehensive
income(loss)
—

 
2

 
—

 
—

 
—

 
 
Purchases (3)
—

 
1

 
228

 
26

 
186

 
—

Sales (4)
—

 
(20
)
 
(42
)
 
(2
)
 
—

 
(11
)
Settlements (5)
—

 
—

 
—

 
(5
)
 
—

 
—

Transfers into Level 3(1)
—

 
—

 
—

 
—

 
—

 
—

Transfers out of Level 3(1)
—

 
—

 
—

 
(2
)
 
—

 
—

Balance, December 31, 2015
$
—

 
$
49

 
$
10,570

 
$
313

 
$
184

 
$
31


162

 
Redeem
able
Preferred
Stock
 
Other
Equity
Investments(2)
 
GMIB
Reinsurance
Asset
 
Separate
Accounts
Assets
 
GWBL
and Other
Features
Liability
 
Contingent
Payment
Arrangement
 
(In Millions)
Balance, January 1, 2014
$
15

 
$
52

 
$
6,747

 
$
237

 
$
—

 
$
38

Total gains (losses), realized and unrealized, included in:
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) as:
 
 
 
 
 
 
 
 
 
 
 
Net investment income (loss)
—

 
3

 
—

 
—

 
—

 
—

Investment gains (losses), net
—

 
1

 
—

 
15

 
—

 
—

Increase (decrease) in the fair value of reinsurance contracts
—

 
—

 
3,774

 
—

 
—

 
—

Policyholders’ benefits
—

 
—

 
—

 
—

 
(8
)
 
—

Subtotal
—

 
4

 
3,774

 
15

 
(8
)
 
—

Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

 


Purchases (3)
—

 
8

 
225

 
16

 
136

 
9

Sales (4)
(15
)
 
(1
)
 
(35
)
 
(3
)
 
—

 
(5
)
Settlements (5)
—

 
—

 
—

 
(5
)
 
—

 
—

Transfers into Level 3 (1)
—

 
—

 
—

 
—

 
—

 
—

Transfers out of Level 3 (1)
—

 
(2
)
 
—

 
—

 
—

 
—

Balance, December 31, 2014
$
—

 
$
61

 
$
10,711

 
$
260

 
$
128

 
$
42

(1)
Transfers into/out of Level 3 classification are reflected at beginning-of-period fair values.
(2)
Includes Level 3 amounts for Trading securities and consolidated VIE investments.
(3)
For the GMIB reinsurance contract asset and GWBL and other features reserves, represents premiums.
(4)
For the GMIB reinsurance contract asset, represents recoveries from reinsurers and for GWBL and other features reserves represents benefits paid.
(5)
For contingent payment arrangements, it represents payments under the arrangement.

163

The table below details changes in unrealized gains (losses) for 2016 and 2015 by category for Level 3 assets and liabilities still held at December 31, 2016 and 2015, respectively:
 
Earnings (Loss)
 
 
 
Net
Investment
Income
(Loss)
 
Investment
Gains
(Losses),
Net
 
Increase
(Decrease) in the
Fair Value of
Reinsurance
Contracts
 
Policy-
holders’
Benefits
 
OCI
 
(In Millions)
Level 3 Instruments
 
 
 
 
 
 
 
 
 
Full Year 2016
 
 
 
 
 
 
 
 
 
Still Held at December 31, 2016
 
 
 
 
 
 
 
 
 
Change in unrealized gains (losses):
 
 
 
 
 
 
 
 
 
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
 
 
Corporate
$
—

 
$
—

 
$
—

 
$
—

 
$
11

State and political subdivisions
—

 
—

 
—

 
—

 
(1
)
Commercial mortgage-backed
—

 
—

 
—

 
—

 
9

Asset-backed
—

 
—

 
—

 
—

 
1

Other fixed maturities, available-for-sale
—

 
—

 
—

 
—

 
—

Subtotal
$
—

 
$
—

 
$
—

 
$
—

 
$
20

GMIB reinsurance contracts
—

 
—

 
(261
)
 
—

 
—

Separate Accounts’ assets(1)
—

 
20

 
—

 
—

 
—

GWBL and other features’ liability
—

 
—

 
—

 
(20
)
 
—

Total
$
—

 
$
20

 
$
(261
)
 
$
(20
)
 
$
20

Level 3 Instruments
 
 
 
 
 
 
 
 
 
Full Year 2015
 
 
 
 
 
 
 
 
 
Still Held at December 31, 2015
 
 
 
 
 
 
 
 
 
Change in unrealized gains (losses):
 
 
 
 
 
 
 
 
 
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
 
 
Corporate
$
—

 
$
—

 
$
—

 
$
—

 
$
(25
)
State and political subdivisions
—

 
—

 
—

 
—

 
(2
)
Commercial mortgage-backed
—

 
—

 
—

 
—

 
61

Asset-backed
—

 
—

 
—

 
—

 
(4
)
Other fixed maturities, available-for-sale
—

 
—

 
—

 
—

 
—

Subtotal
$
—

 
$
—

 
$
—

 
$
—

 
$
30

GMIB reinsurance contracts
—

 
—

 
(141
)
 
—

 
—

Separate Accounts’ assets(1)
—

 
36

 
—

 
—

 
—

GWBL and other features’ liability
—

 
—

 
—

 
184

 
—

Total
$
—

 
$
36

 
$
(141
)
 
$
184

 
$
30


(1) there is an investment expense that offsets this investment gain (loss)

164

The following table discloses quantitative information about Level 3 fair value measurements by category for assets and liabilities as of December 31, 2016 and 2015, respectively.
Quantitative Information about Level 3 Fair Value Measurements
December 31, 2016
 
Fair
Value
 
Valuation Technique
 
Significant
Unobservable Input
 
Range
Assets:
(In Millions)
Investments:
 
 
 
 
 
 
 
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
Corporate
$
55

 
Matrix pricing model
 
Spread over the 
industry-specific
benchmark yield curve
 
0 bps - 565 bps
 
636

 
Market comparable 
companies
 
EBITDA multiples
Discount rate
Cash flow Multiples
 
4.3x - 25.6x
7.0% - 17.8%
14.0x - 16.5x
Asset-backed
2

 
Matrix pricing model
 
Spread over U.S. Treasury curve
 
25 bps - 687 bps
Separate Accounts’ assets
295

 
Third party appraisal
 
Capitalization rate
Exit capitalization rate
Discount rate
 
4.8%
5.7%
6.6%
 
3

 
Discounted cash flow
 
Spread over U.S. Treasury curve
Discount factor
 
273 bps - 512 bps
1.1% -  7.0%
GMIB reinsurance contract asset
10,309

 
Discounted cash flow
 
Lapse Rates
Withdrawal rates
GMIB Utilization Rates
Non-performance risk
Volatility rates—Equity
 
1.5% - 5.7%
0.0% - 8.0%
0.0% - 16.0%
5 bps - 17 bps
11.0% - 38.0%
Liabilities:
 
 
 
 
 
 
 
GWBL and other features liability
164

 
Discounted cash flow
 
Lapse Rates
Withdrawal rates
Volatility rates—Equity
 
1.0% - 11.0%
0.0% - 8.0%
11.0% - 38.0%


165

Quantitative Information about Level 3 Fair Value Measurements
December 31, 2015
 
Fair
Value
 
Valuation Technique
 
Significant
Unobservable Input
 
Range
Assets:
(In Millions)
Investments:
 
 
 
 
 
 
 
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
Corporate
$
61

 
Matrix pricing model
 
Spread over the industry-specific benchmark yield curve
 
50 bps - 565 bps
 
154

 
Market comparable companies
 
EBITDA multiples
Discount rate
Cash flow Multiples
 
7.8x - 19.1x
7.0% - 12.6%
14.0x - 16.5x
Asset-backed
3

 
Matrix pricing model
 
Spread over U.S. Treasury curve
 
30 bps - 687 bps
Other equity investments
10

 
Market comparable companies
 
Revenue multiple
Marketable Discount
 
2.5x - 4.8x
30.0%
Separate Accounts’ assets
271

 
Third party appraisal
 
Capitalization rate
Exit capitalization rate
Discount rate
 
4.9%
5.9%
6.7%
 
7

 
Discounted cash flow
 
Spread over U.S. Treasury curve
Gross domestic product rate
Discount factor
 
280 bps - 411 bps
0.0% - 1.09%
2.3% -  5.9%
GMIB reinsurance contract asset
10,570

 
Discounted cash flow
 
Lapse Rates
Withdrawal rates
GMIB Utilization Rates
Non-performance risk
Volatility rates - Equity
 
0.6% - 5.7%
0.2% - 8.0%
0.0% - 15%
5 bps - 18 bps
9% - 35%
Liabilities:
 
 
 
 
 
 
 
GWBL and other features liability
120

 
Discounted cash flow
 
Lapse Rates
Withdrawal rates
Volatility rates - Equity
 
1.0% - 5.7%
0.0% - 7.0%
9% - 35%

Excluded from the tables above at December 31, 2016 and 2015, respectively, are approximately $594 million and $865 million Level 3 fair value measurements of investments for which the underlying quantitative inputs are not developed by the Company and are not readily available. The fair value measurements of these Level 3 investments comprise approximately 37.5% and 63.1% of total assets classified as Level 3 and represent only 0.4% and 0.6% of total assets measured at fair value on a recurring basis at December 31, 2016 and 2015 respectively. These investments primarily consist of certain privately placed debt securities with limited trading activity, including commercial mortgage-, residential mortgage- and asset-backed instruments, and their fair values generally reflect unadjusted prices obtained from independent valuation service providers and indicative, non-binding quotes obtained from third-party broker-dealers recognized as market participants. Significant increases or decreases in the fair value amounts received from these pricing sources may result in the Company’s reporting significantly higher or lower fair value measurements for these Level 3 investments.
Included in the tables above at December 31, 2016 and 2015, respectively, are approximately $691 million and $215 million fair value of privately placed, available-for-sale corporate debt securities classified as Level 3. The fair value of private placement securities is determined by application of a matrix pricing model or a market comparable company value technique, representing approximately 81.8% and 51.2% of the total fair value of Level 3 securities in the corporate fixed maturities asset class. The significant unobservable input to the matrix pricing model valuation technique is the spread over the industry-specific benchmark yield curve. Generally, an increase or decrease in spreads would lead to directionally inverse movement in the fair value measurements of these securities. The significant unobservable input to the market comparable company valuation technique is the discount rate. Generally, a significant increase (decrease) in the discount rate would result in significantly lower (higher) fair value measurements of these securities.
Residential mortgage-backed securities classified as Level 3 primarily consist of non-agency paper with low trading activity. Included in the tables above at December 31, 2016 and 2015, there were no Level 3 securities that were determined by

166

application of a matrix pricing model and for which the spread over the U.S. Treasury curve is the most significant unobservable input to the pricing result. Generally, a change in spreads would lead to directionally inverse movement in the fair value measurements of these securities.
Asset-backed securities classified as Level 3 primarily consist of non-agency mortgage loan trust certificates, including subprime and Alt-A paper, credit tenant loans, and equipment financings. Included in the tables above at December 31, 2016 and 2015, are approximately 8.3% and 7.5%, respectively, of the total fair value of these Level 3 securities that is determined by application of a matrix pricing model and for which the spread over the U.S. Treasury curve is the most significant unobservable input to the pricing result. Significant increases (decreases) in spreads would result in significantly lower (higher) fair value measurements.
Included in other equity investments classified as Level 3 are reporting entities’ venture capital securities in the Technology, Media and Telecommunications industries. The fair value measurements of these securities include significant unobservable inputs including an enterprise value to revenue multiples and a discount rate to account for liquidity and various risk factors. Significant increases (decreases) in the enterprise value to revenue multiple inputs in isolation would result in a significantly higher (lower) fair value measurement. Significant increases (decreases) in the discount rate would result in a significantly lower (higher) fair value measurement.
Separate Accounts’ assets classified as Level 3 in the table at December 31, 2016 and 2015, primarily consist of a private real estate fund with a fair value of approximately $295 million and $271 million, a private equity investment with a fair value of approximately $1 million and $2 million and mortgage loans with fair value of approximately $2 million and $5 million, respectively. A third party appraisal valuation technique is used to measure the fair value of the private real estate investment fund, including consideration of observable replacement cost and sales comparisons for the underlying commercial properties, as well as the results from applying a discounted cash flow approach. Significant increase (decrease) in isolation in the capitalization rate and exit capitalization rate assumptions used in the discounted cash flow approach to the appraisal value would result in a higher (lower) measure of fair value. A discounted cash flow approach is applied to determine the private equity investment for which the significant unobservable assumptions are the gross domestic product rate formula and a discount factor that takes into account various risks, including the illiquid nature of the investment. A significant increase (decrease) in the gross domestic product rate would have a directionally inverse effect on the fair value of the security. With respect to the fair value measurement of mortgage loans a discounted cash flow approach is applied, a significant increase (decrease) in the assumed spread over U.S. Treasuries would produce a lower (higher) fair value measurement. Changes in the discount rate or factor used in the valuation techniques to determine the fair values of these private equity investments and mortgage loans generally are not correlated to changes in the other significant unobservable inputs. Significant increase (decrease) in isolation in the discount rate or factor would result in significantly lower (higher) fair value measurements. The remaining Separate Accounts’ investments classified as Level 3 excluded from the table consist of mortgage- and asset-backed securities with fair values of approximately $12 million and $3 million at December 31, 2016 and $28 million and $7 million at December 31, 2015, respectively. These fair value measurements are determined using substantially the same valuation techniques as earlier described above for the Company’s General Account investments in these securities.
Significant unobservable inputs with respect to the fair value measurement of the Level 3 GMIB reinsurance contract asset and the Level 3 liabilities identified in the table above are developed using Company data. Validations of unobservable inputs are performed to the extent the Company has experience. When an input is changed the model is updated and the results of each step of the model are analyzed for reasonableness.
The significant unobservable inputs used in the fair value measurement of the Company’s GMIB reinsurance contract asset are lapse rates, withdrawal rates and GMIB utilization rates. Significant increases in GMIB utilization rates or decreases in lapse or withdrawal rates in isolation would tend to increase the GMIB reinsurance contract asset.
Fair value measurement of the GMIB reinsurance contract asset includes dynamic lapse and GMIB utilization assumptions whereby projected contractual lapses and GMIB utilization reflect the projected net amount of risks of the contract. As the net amount of risk of a contract increases, the assumed lapse rate decreases and the GMIB utilization increases. Increases in volatility would increase the asset.
The significant unobservable inputs used in the fair value measurement of the Company’s GMWB and GWBL liability are lapse rates and withdrawal rates. Significant increases in withdrawal rates or decreases in lapse rates in isolation would tend to increase these liabilities. Increases in volatility would increase these liabilities.

167

The three AB acquisition-related contingent consideration liabilities (with a combined fair value of $18 million and $31 million as of December 31, 2016 and 2015, respectively) are currently valued using projected AUM growth rates with a weighted average of 18.0% and 46.0%, revenue growth rates (with a range of 4.0% to 31.0%) and 43.0%, and a discount rate (with a range of 1.4% to 6.4%) and 3.0% as of December 31, 2016 and December 31, 2015, respectively.
The carrying values and fair values at December 31, 2016 and 2015 for financial instruments not otherwise disclosed in Notes 3 and 12 are presented in the table below. Certain financial instruments are exempt from the requirements for fair value disclosure, such as insurance liabilities other than financial guarantees and investment contracts, limited partnerships accounted for under the equity method and pension and other postretirement obligations.
 
Carrying
Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In Millions)
December 31, 2016:
 
 
 
 
 
 
 
 
 
Mortgage loans on real estate
$
9,757

 
$
—

 
$
—

 
$
9,608

 
$
9,608

Loans to affiliates
703

 
—

 
775

 
—

 
775

Policyholders liabilities: Investment contracts
2,226

 
—

 
—

 
2,337

 
2,337

Funding Agreements
2,255

 
—

 
2,202

 
—

 
2,202

Policy loans
3,361

 
—

 
—

 
4,257

 
4,257

Short-term debt
513

 
—

 
513

 
—

 
513

Separate Account Liabilities
6,194

 
—

 
—

 
6,194

 
6,194

December 31, 2015:
 
 
 
 
 
 
 
 
 
Mortgage loans on real estate
$
7,171

 
$
—

 
$
—

 
$
7,257

 
7,257

Loans to affiliates
1,087

 
—

 
795

 
390

 
1,185

Policyholders liabilities: Investment contracts
7,325

 
—

 
—

 
7,430

 
7,430

Funding Agreements
500

 
—

 
500

 
—

 
500

Policy loans
3,393

 
—

 
—

 
4,343

 
4,343

Short-term debt
584

 
—

 
584

 
—

 
584

Separate Account Liabilities
5,124

 
—

 
—

 
5,124

 
5,124

Fair values for commercial and agricultural mortgage loans on real estate are measured by discounting future contractual cash flows to be received on the mortgage loan using interest rates at which loans with similar characteristics and credit quality would be made. The discount rate is derived from taking the appropriate U.S. Treasury rate with a like term to the remaining term of the loan and adding a spread reflective of the risk premium associated with the specific loan. Fair values for mortgage loans anticipated to be foreclosed and problem mortgage loans are limited to the fair value of the underlying collateral, if lower.
The Company’s short-term debt primarily includes commercial paper issued by AB with short-term maturities and book value approximates fair value. The fair values of the Company’s borrowing and lending arrangements with AXA affiliated entities are determined from quotations provided by brokers knowledgeable about these securities and internally assessed for reasonableness, including matrix pricing models for debt securities and discounted cash flow analysis for mortgage loans.
The fair value of policy loans is calculated by discounting expected cash flows based upon the U.S. treasury yield curve and historical loan repayment patterns.
Fair values for FHLBNY funding agreements are determined from a matrix pricing model and are internally assessed for reasonableness. The matrix pricing model for FHLBNY funding agreements utilizes an independently sourced Treasury curve which is separately sourced from the Barclays’ suite of curves.
The fair values for the Company’s association plans contracts, supplementary contracts not involving life contingencies (“SCNILC”), deferred annuities and certain annuities, which are included in Policyholder’s account balances and liabilities for investment contracts with fund investments in Separate Accounts are estimated using projected cash flows discounted at rates reflecting current market rates. Significant unobservable inputs reflected in the cash flows include lapse rates and

168

withdrawal rates. Incremental adjustments may be made to the fair value to reflect non-performance risk. Certain other products such as Access Accounts and Escrow Shield Plus product reserves are held at book value.

169

8)
GMDB, GMIB, GIB, GWBL AND OTHER FEATURES AND NO LAPSE GUARANTEE FEATURES
A)     Variable Annuity Contracts – GMDB, GMIB, GIB and GWBL and Other Features
The Company has certain variable annuity contracts with GMDB, GMIB, GIB and GWBL and other features in-force that guarantee one of the following:
•
Return of Premium: the benefit is the greater of current account value or premiums paid (adjusted for withdrawals);
•
Ratchet: the benefit is the greatest of current account value, premiums paid (adjusted for withdrawals), or the highest account value on any anniversary up to contractually specified ages (adjusted for withdrawals);
•
Roll-Up: the benefit is the greater of current account value or premiums paid (adjusted for withdrawals) accumulated at contractually specified interest rates up to specified ages;
•
Combo: the benefit is the greater of the ratchet benefit or the roll-up benefit, which may include either a five year or an annual reset; or
•
Withdrawal: the withdrawal is guaranteed up to a maximum amount per year for life.
The following table summarizes the GMDB and GMIB liabilities, before reinsurance ceded, reflected in the Balance Sheet in future policy benefits and other policyholders’ liabilities:
 
GMDB
 
GMIB
 
Total
 
(In Millions)
Balance at January 1, 2014
$
1,626

 
4,203

 
$
5,829

Paid guarantee benefits
(231
)
 
(220
)
 
(451
)
Other changes in reserve
334

 
1,661

 
1,995

Balance at December 31, 2014
1,729

 
5,644

 
7,373

Paid guarantee benefits
(313
)
 
(89
)
 
(402
)
Other changes in reserve
1,570

 
(258
)
 
1,312

Balance at December 31, 2015
2,986

 
5,297

 
8,283

Paid guarantee benefits
(357
)
 
(280
)
 
(637
)
Other changes in reserve
583

 
560

 
1,143

Balance at December 31, 2016
$
3,212

 
$
5,577

 
$
8,789

Related GMDB reinsurance ceded amounts were:
 
GMDB
 
(In Millions)
Balance at January 1, 2014
$
791

Paid guarantee benefits
(114
)
Other changes in reserve
155

Balance at December 31, 2014
832

Paid guarantee benefits
(148
)
Other changes in reserve
746

Balance at December 31, 2015
1,430

Paid guarantee benefits
(174
)
Other changes in reserve
302

Balance at December 31, 2016
$
1,558

The GMIB reinsurance contracts are considered derivatives and are reported at fair value.

170

The December 31, 2016 values for variable annuity contracts in force on such date with GMDB and GMIB features are presented in the following table. For contracts with the GMDB feature, the net amount at risk in the event of death is the amount by which the GMDB benefits exceed related account values. For contracts with the GMIB feature, the net amount at risk in the event of annuitization is the amount by which the present value of the GMIB benefits exceeds related account values, taking into account the relationship between current annuity purchase rates and the GMIB guaranteed annuity purchase rates. Since variable annuity contracts with GMDB guarantees may also offer GMIB guarantees in the same contract, the GMDB and GMIB amounts listed are not mutually exclusive:
 
Return of Premium
 
Ratchet
 
Roll-Up
 
Combo
 
Total
 
(Dollars In Millions)
GMDB:
 
 
 
 
 
 
 
 
 
Account values invested in:
 
 
 
 
 
 
 
 
 
General Account
$
13,642

 
$
121

 
$
72

 
$
220

 
$
14,055

Separate Accounts
$
40,736

 
$
8,905

 
$
3,392

 
$
33,857

 
$
86,890

Net amount at risk, gross
$
237

 
$
154

 
$
2,285

 
$
16,620

 
$
19,296

Net amount at risk, net of amounts reinsured
$
237

 
$
108

 
$
1,556

 
$
7,152

 
$
9,053

Average attained age of contractholders
51.2

 
65.8

 
72.3

 
67.1

 
55.1

Percentage of contractholders over age 70
9.2
%
 
37.1
%
 
60.4
%
 
40.6
%
 
17.1
%
Range of contractually specified interest rates
N/A

 
N/A

 
3%-6%

 
3%-6.5%

 
3%-6.5%

GMIB:
 
 
 
 
 
 
 
 
 
Account values invested in:
 
 
 
 
 
 
 
 
 
General Account
N/A

 
N/A

 
$
33

 
$
321

 
$
354

Separate Accounts
N/A

 
N/A

 
$
18,170

 
$
39,678

 
$
57,848

Net amount at risk, gross
N/A

 
N/A

 
$
1,084

 
$
6,664

 
$
7,748

Net amount at risk, net of amounts reinsured
N/A

 
N/A

 
$
334

 
$
1,675

 
$
2,009

Weighted average years remaining until annuitization
N/A

 
N/A

 
1.6

 
1.3

 
1.3

Range of contractually specified interest rates
N/A

 
N/A

 
3%-6%

 
3%-6.5%

 
3%-6.5%

For more information about the reinsurance programs of the Company’s GMDB and GMIB exposure, see “Reinsurance” in Note 9.

The liability for SCS, SIO, MSO and IUL indexed features and the GIB and GWBL and other features, not included above, was $1,051 million and $494 million at December 31, 2016 and 2015, respectively, which are accounted for as embedded derivatives. The liability for GIB, GWBL and other features reflects the present value of expected future payments (benefits) less the fees attributable to these features over a range of market consistent economic scenarios.

•
Variable Annuity Inforce management. The Company continues to proactively manage its variable annuity in-force business. Since 2012, the Company has initiated several programs to purchase from certain contractholders the GMDB and GMIB riders contained in their Accumulator® contracts. In March 2016, a program to give contractholders an option to elect a full buyout of their rider or a new partial (50%) buyout of their rider expired.  The Company believes that buyout programs are mutually beneficial to both the Company and contractholders who no longer need or want all or part of the GMDB or GMIB rider.  To reflect the actual payments and reinsurance credit received from the buyout program that expired in March 2016 the Company recognized a $4 million increase to Net earnings in 2016. For additional information, see “Accounting for VA Guarantee Features” in Note 2.

171


B) Separate Account Investments by Investment Category Underlying GMDB and GMIB Features
The total account values of variable annuity contracts with GMDB and GMIB features include amounts allocated to the guaranteed interest option, which is part of the General Account and variable investment options that invest through Separate Accounts in variable insurance trusts. The following table presents the aggregate fair value of assets, by major investment category, held by Separate Accounts that support variable annuity contracts with GMDB and GMIB benefits and guarantees. The investment performance of the assets impacts the related account values and, consequently, the net amount of risk associated with the GMDB and GMIB benefits and guarantees. Since variable annuity contracts with GMDB benefits and guarantees may also offer GMIB benefits and guarantees in each contract, the GMDB and GMIB amounts listed are not mutually exclusive:
Investment in Variable Insurance Trust Mutual Funds
 
December 31,
 
2016
 
2015
 
(In Millions)
GMDB:
 
 
 
Equity
$
69,625

 
$
66,230

Fixed income
2,483

 
2,686

Balanced
14,434

 
15,350

Other
348

 
374

Total
$
86,890

 
$
84,640

GMIB:
 
 
 
Equity
$
45,931

 
$
43,874

Fixed income
1,671

 
1,819

Balanced
10,097

 
10,696

Other
149

 
170

Total
$
57,848

 
$
56,559

C)   Hedging Programs for GMDB, GMIB, GIB and GWBL and Other Features
Beginning in 2003, AXA Equitable established a program intended to hedge certain risks associated first with the GMDB feature and, beginning in 2004, with the GMIB feature of the Accumulator® series of variable annuity products. The program has also been extended to cover other guaranteed benefits as they have been made available. This program utilizes derivative contracts, such as exchange-traded equity, currency and interest rate futures contracts, total return and/or equity swaps, interest rate swap and floor contracts, swaptions, variance swaps as well as equity options, that collectively are managed in an effort to reduce the economic impact of unfavorable changes in guaranteed benefits’ exposures attributable to movements in the capital markets. At the present time, this program hedges certain economic risks on products sold from 2001 forward, to the extent such risks are not reinsured. At December 31, 2016, the total account value and net amount at risk of the hedged variable annuity contracts were $51,961 million and $7,954 million, respectively, with the GMDB feature and $38,559 million and $3,285 million, respectively, with the GMIB and GIB feature.
These programs do not qualify for hedge accounting treatment. Therefore, gains (losses) on the derivatives contracts used in these programs, including current period changes in fair value, are recognized in net investment income (loss) in the period in which they occur, and may contribute to earnings (loss) volatility.
D)   Variable and Interest-Sensitive Life Insurance Policies – No Lapse Guarantee
The no lapse guarantee feature contained in variable and interest-sensitive life insurance policies keeps them in force in situations where the policy value is not sufficient to cover monthly charges then due. The no lapse guarantee remains in effect so long as the policy meets a contractually specified premium funding test and certain other requirements.

172

The following table summarizes the no lapse guarantee liabilities, reflected in the General Account in Future policy benefits and other policyholders’ liabilities, the related reinsurance reserve ceded, reflected in Amounts due from reinsurers and deferred cost of reinsurance, reflected in Other assets in the Consolidated balance sheets.
 
Direct Liability
 
Reinsurance Ceded
 
Net
 
(In Millions)
Balance at January 1, 2014
$
829

 
$
(441
)
 
$
388

Other changes in reserves
135

 
(114
)
 
21

Balance at December 31, 2014
964

 
(555
)
 
409

Other changes in reserves
120

 
16

 
136

Balance at December 31, 2015
1,084

 
(539
)
 
545

Other changes in reserves
118

 
(84
)
 
34

Balance at December 31, 2016
$
1,202

 
$
(623
)
 
$
579





173

9)
REINSURANCE AGREEMENTS
The Company assumes and cedes reinsurance with other insurance companies. The Company evaluates the financial condition of its reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. Ceded reinsurance does not relieve the originating insurer of liability.
The Company reinsures most of its new variable life, UL and term life policies on an excess of retention basis. The Company generally retains up to $25 million on each single-life policy and $30 million on each second-to-die policy, with the excess 100% reinsured. The Company also reinsures the entire risk on certain substandard underwriting risks and in certain other cases.
At December 31, 2016, the Company had reinsured with non-affiliates and affiliates in the aggregate approximately 3.8% and 49.3%, respectively, of its current exposure to the GMDB obligation on annuity contracts in-force and, subject to certain maximum amounts or caps in any one period, approximately 18.0% and 56.0%, respectively, of its current liability exposure resulting from the GMIB feature. For additional information, see Note 8.
Based on management’s estimates of future contract cash flows and experience, the fair values of the GMIB reinsurance contracts, considered derivatives at December 31, 2016 and 2015 were $10,309 million and $10,570 million, respectively. The increases (decreases) in fair value were $(261) million, $(141) million and $3,964 million for 2016, 2015 and 2014, respectively.
At December 31, 2016 and 2015, respectively, third-party reinsurance recoverables related to insurance contracts amounted to $2,458 million and $2,458 million, of which $2,381 million and $2,005 million related to three specific reinsurers, which were Zurich Insurance Company Ltd. (AA - rating), Chubb Tempest Reinsurance Ltd. (AA rating) and Connecticut General Life Insurance Company (AA- rating). At December 31, 2016 and 2015, affiliated reinsurance recoverables related to insurance contracts amounted to $2,177 million and $2,009 million, respectively. A contingent liability exists with respect to reinsurance should the reinsurers be unable to meet their obligations.
Reinsurance payables related to insurance contracts were $125 million and $131 million, at December 31, 2016 and 2015, respectively.
The Company cedes substantially all of its group life and health business to a third party insurer. Insurance liabilities ceded totaled $82 million and $92 million at December 31, 2016 and 2015, respectively.
The Company also cedes a portion of its extended term insurance and paid-up life insurance and substantially all of its individual disability income business through various coinsurance agreements.
The Company has also assumed accident, health, annuity, aviation and space risks by participating in or reinsuring various reinsurance pools and arrangements. In addition to the sale of insurance products, AXA Equitable currently acts as a professional retrocessionaire by assuming life reinsurance from professional reinsurers. Reinsurance assumed reserves at December 31, 2016 and 2015 were $734 million and $744 million, respectively.
For affiliated reinsurance agreements see “Related Party Transactions” in Note 11.
The following table summarizes the effect of reinsurance:
 
2016
 
2015
 
2014
 
 
 
(In Millions)
 
 
Direct premiums
$
850

 
$
820

 
$
844

Reinsurance assumed
206

 
207

 
211

Reinsurance ceded
(176
)
 
(173
)
 
(181
)
Premiums
$
880

 
$
854

 
$
874

Universal Life and Investment-type Product Policy Fee Income Ceded
$
640

 
$
645

 
$
630

Policyholders’ Benefits Ceded
$
942

 
$
527

 
$
726


174

Individual Disability Income and Major Medical
Claim reserves and associated liabilities for individual DI and major medical policies were $1,918 million and $1,789 million before ceded reserves of $1,849 million and $1,709 million at December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, respectively, $1,676 million and $1,652 million of DI reserves and associated liabilities were ceded through indemnity reinsurance agreements with a singular reinsurance group, rated AA-. Net incurred benefits (benefits paid plus changes in claim reserves) and benefits paid for individual DI and major medical policies are summarized below:

 
2016
 
2015
 
2014
 
(In Millions)
Incurred benefits related to current year
$
7

 
$
11

 
$
14

Incurred benefits related to prior years
15

 
22

 
16

Total Incurred Benefits
$
22

 
$
33

 
$
30

Benefits paid related to current year
$
17

 
$
18

 
$
20

Benefits paid related to prior years
15

 
13

 
11

Total Benefits Paid
$
32

 
$
31

 
$
31


175

10)
SHORT-TERM DEBT

As of December 31, 2016 and 2015, the Company had $513 million and $584 million, respectively, in commercial paper outstanding with weighted average interest rates of approximately 0.9% and 0.5%, respectively, all of which is related to AB.
AB has a $1,000 million committed, unsecured senior revolving credit facility (“AB Credit Facility”) with a group of commercial banks and other lenders. The AB Credit Facility provides for possible increases in the principal amount by up to an aggregate incremental amount of $250 million, any such increase being subject to the consent of the affected lenders. The AB Credit Facility is available for AB and SCB LLC’s business purposes, including the support of AB’s $1,000 million commercial paper program. Both AB and SCB LLC can draw directly under the AB Credit Facility and management may draw on the AB Credit Facility from time to time. AB has agreed to guarantee the obligations of SCB LLC under the AB Credit Facility.
The AB Credit Facility contains affirmative, negative and financial covenants, which are customary for facilities of this type, including, among other things, restrictions on dispositions of assets, restrictions on liens, a minimum interest coverage ratio and a maximum leverage ratio. As of December 31, 2016, AB and SCB LLC were in compliance with these covenants. The AB Credit Facility also includes customary events of default (with customary grace periods, as applicable), including provisions under which, upon the occurrence of an event of default, all outstanding loans may be accelerated and/or lender’s commitments may be terminated. Also, under such provisions, upon the occurrence of certain insolvency- or bankruptcy-related events of default, all amounts payable under the AB Credit Facility automatically would become immediately due and payable, and the lender’s commitments automatically would terminate.
On October 22, 2014, as part of an amendment and restatement, the maturity date of the AB Credit Facility was extended from January 17, 2017 to October 22, 2019. There were no other significant changes included in the amendment.
On December 1, 2016, AB entered into a $200 million, unsecured 364-day senior revolving credit facility (the “AB Revolver”) with a leading international bank and the other lending institutions that may be party thereto. The AB Revolver is available for AB's and SCB LLC's business purposes, including the provision of additional liquidity to meet funding requirements primarily related to SCB LLC's operations. Both AB and SCB LLC can draw directly under the AB Revolver and management expects to draw on the AB Revolver from time to time. AB has agreed to guarantee the obligations of SCB LLC under the AB Revolver. The AB Revolver contains affirmative, negative and financial covenants which are identical to those of the AB Credit Facility. As of December 31, 2016, AB had no amounts outstanding under the AB Revolver.
As of December 31, 2016 and 2015, AB and SCB LLC had no amounts outstanding under the AB Credit Facility. During 2016 and 2015, AB and SCB LLC did not draw upon the AB Credit Facility.
In addition, SCB LLC has four uncommitted lines of credit with three financial institutions. Three of these lines of credit permit SCB LLC to borrow up to an aggregate of approximately $225 million, with AB named as an additional borrower, while one line has no stated limit. As of December 31, 2016 and 2015, SCB LLC had no bank loans outstanding.


176

11)
RELATED PARTY TRANSACTIONS
Loans to Affiliates. In September 2007, AXA issued a $650 million 5.4% Senior Unsecured Note to AXA Equitable. The note pays interest semi-annually and was scheduled to mature on September 30, 2012. In March 2011, the maturity date of the note was extended to December 30, 2020 and the interest rate was increased to 5.7%.
In June 2009, AXA Equitable sold real estate property valued at $1,100 million to a non-insurance subsidiary of AXA Financial in exchange for $700 million in cash and $400 million in 8.0% ten year term mortgage notes on the property reported in Loans to affiliates in the consolidated balance sheets. In November 2014, this loan was refinanced and a new $382 million, seven year term loan with an interest rate of 4.0% was issued. In January 2016, the property was sold and a portion of the proceeds was used to repay the $382 million term loan outstanding and a $65 million prepayment penalty.
In third quarter 2013, AXA Equitable purchased, at fair value, AXARE Arizona Company’s (“AXA Arizona”) $50 million note receivable from AXA for $54 million. AXA Arizona is a wholly-owned subsidiary of AXA Financial. This note pays interest semi-annually at an interest rate of 5.4% and matures on December 15, 2020.
Loans from Affiliates. In 2005, AXA Equitable issued a surplus note to AXA Financial in the amount of $325 million with an interest rate of 6.0% which was scheduled to mature on December 1, 2035. In December 2014, AXA Equitable repaid this note at par value plus interest accrued of $1 million to AXA Financial.
In December 2008, AXA Equitable issued a $500 million callable 7.1% surplus note to AXA Financial. The note paid interest semi-annually and was scheduled to mature on December 1, 2018. In June 2014, AXA Equitable repaid this note at par value plus interest accrued of $3 million to AXA Financial.

Expense reimbursements and cost sharing agreements. The Company provides personnel services, employee benefits, facilities, supplies and equipment under service agreements with AXA Financial, certain AXA Financial subsidiaries and affiliates to conduct their business. In addition, the Company, along with other AXA affiliates, participates in certain intercompany cost sharing and service agreements including technology and professional development arrangements. The associated costs related to the service and cost sharing agreements are allocated based on methods that management believes are reasonable, including a review of the nature of such costs and activities performed to support each company.

Affiliated distribution expense. AXA Equitable pays commissions and fees to AXA Distribution Holding and its subsidiaries (“AXA Distribution”) for sales of insurance products. The commissions and fees paid to AXA Distribution are based on various selling agreements.

Affiliated distribution revenue. AXA Distributors, a subsidiary of AXA Equitable, receives commissions and fee revenue from MONY America for sales of its insurance products. The commissions and fees earned from MONY America are based on the various selling agreements.

Affiliated investment advisory and administrative fees. FMG, a subsidiary of AXA Equitable, provides investments advisory and administrative services to EQAT, VIP Trust, 1290 Funds and other AXA affiliated trusts. Investment advisory and administrative fees earned are calculated as a percentage of assets under management and are recorded as revenue as the related services are performed.

Affiliated investment advisory and administrative expenses. AXA Investment Managers (“AXA IM”), AXA Real Estate Investment Managers (“AXA REIM”) and AXA Rosenberg provide sub-advisory services to the Company’s retail mutual funds and certain investments of the Company’s General Account. Fees paid to these affiliates are based on investment advisory service agreements with each affiliate.


177

The table below summarizes the expenses reimbursed to/from the Company and Commission and fees received/paid by the Company for 2016, 2015 and 2014:

 
2016
 
2015
 
2014
 
(In Millions)
Expenses paid or accrued for by the Company:
 
 
 
 
 
Paid or accrued expenses for services provided by AXA, AXA Financial and Affiliates
$
188

 
$
164

 
$
173

Paid or accrued commission and fee expenses for sale of insurance products by AXA Distribution
587

 
603

 
616

Paid or accrued expenses for investment management services provided by AXA IM, AXA REIM and AXA Rosenberg
2

 
1

 
1

Total affiliated expenses paid or accrued for
777

 
768

 
790

Revenue received or accrued for by the Company:
 
 
 
 
 
Amounts received or accrued for cost sharing services provided to AXA, AXA Financial and affiliates
531

 
491

 
482

Amounts received or accrued for commissions and fees earned for sale of MONY America's insurance products
11

 
13

 
2

Amounts received or accrued for investment management and administrative services provided to EQAT, VIP Trust, 1290 Funds and Other AXA Trusts
674

 
707

 
711

Total affiliated revenue received or accrued for
$
1,216

 
$
1,211

 
$
1,195

Insurance Related Transactions. The Company has implemented capital management actions to mitigate statutory reserve strain for certain level term and UL policies with secondary guarantees and GMDB and GMIB riders on the Accumulator® products through reinsurance transactions with AXA RE Arizona.
The Company currently reinsures to AXA Arizona, a 100% quota share of all liabilities for variable annuities with enhanced GMDB and GMIB riders issued on or after January 1, 2006 and in-force on September 30, 2008. AXA Arizona also reinsures a 90% quota share of level premium term insurance issued by AXA Equitable on or after March 1, 2003 through December 31, 2008 and lapse protection riders under UL insurance policies issued by AXA Equitable on or after June 1, 2003 through June 30, 2007. The reinsurance arrangements with AXA Arizona provide important capital management benefits to AXA Equitable. At December 31, 2016 and 2015, the Company’s GMIB reinsurance asset with AXA Arizona had carrying values of $8,574 million and $8,741 million, respectively, and is reported in Guaranteed minimum income benefit reinsurance asset, at fair value in the consolidated balance sheets. Ceded premiums and universal life and policy fee income in 2016, 2015 and 2014 related to the UL and no lapse guarantee riders totaled approximately $447 million, $453 million and $453 million, respectively. Ceded claims paid in 2016, 2015 and 2014 were $65 million, $54 million and $83 million, respectively.
AXA Equitable receives statutory reserve credits for reinsurance treaties with AXA Arizona to the extent that AXA Arizona holds assets in an irrevocable trust (the “Trust”) ($9,376 million at December 31, 2016) and/or letters of credit ($3,660 million at December 31, 2016). These letters of credit are guaranteed by AXA. Under the reinsurance transactions, AXA Arizona is permitted to transfer assets from the Trust under certain circumstances. The level of statutory reserves held by AXA Arizona fluctuate based on market movements, mortality experience and policyholder behavior. Increasing reserve requirements may necessitate that additional assets be placed in trust and/or securing additional letters of credit, which could adversely impact AXA Arizona’s liquidity.
Various AXA affiliates, including AXA Equitable, cede a portion of their life, health and catastrophe insurance business through reinsurance agreements to AXA Global Life, an affiliate. AXA Global Life, in turn, retrocedes a quota share portion of these risks prior to 2008 to AXA Equitable on a one-year term basis.
AXA Life Insurance Company Ltd (Japan), an AXA subsidiary, cedes a portion of their annuity business to AXA Equitable.
Various AXA Financial affiliates cede a portion of their life business through excess of retention treaties to AXA Equitable on a yearly renewal term basis.

178

Premiums earned from the above mentioned affiliated reinsurance transactions in 2016, 2015 and 2014 totaled approximately $20 million, $21 million and $22 million, respectively. Claims and expenses paid in 2016, 2015 and 2014 were $6 million, $5 million and $10 million, respectively.
In April 2015, AXA entered into a mortality catastrophe bond based on general population mortality in each of France, Japan and the U.S. The purpose of the bond is to protect AXA against a severe worldwide pandemic. AXA Equitable entered into a stop loss reinsurance agreement with AXA Global Life to protect AXA Equitable with respect to a deterioration in its claim experience following the occurrence of an extreme mortality event. Premiums and expenses associated with the reinsurance agreement were $4 million in both 2016 and 2015.
Commissions, fees and other income includes certain revenues for services provided to mutual funds managed by AB. These revenues are described below:
 
2016
 
2015
 
2014
 
(In Millions)
Investment advisory and services fees
$
999

 
$
1,056

 
$
1,062

Distribution revenues
372

 
415

 
433

Other revenues - shareholder servicing fees
76

 
85

 
91

Other revenues - other
6

 
5

 
6


Other Transactions. Effective December 31, 2015, primary liability for the obligations of AXA Equitable under the AXA Equitable Qualified Pension Plan (“AXA Equitable QP”) was transferred from AXA Equitable to AXA Financial under terms of an Assumption Agreement. For additional information regarding this transaction see “Employee Benefit Plans” in Note 12.

In 2016, AXA Equitable sold artwork to AXA Financial and recognized a $20 million gain on the sale. AXA Equitable used the proceeds received from this sale to make a $21 million donation to AXA Foundation, Inc. (the “Foundation”). The Foundation was organized for the purpose of distributing grants to various tax-exempt charitable organizations and administering various matching gift programs for AXA Equitable, its subsidiaries and affiliates.

In 2016, AXA Equitable and Saum Sing LLC (“Saum Sing”), an affiliate, formed Broad Vista Partners LLC (“Broad Vista”), AXA Equitable owns 70% and Saum Sing owns 30% of Broad Vista. On June 30, 2016, Broad Vista entered into a real estate joint venture with a third party and AXA Equitable invested approximately $25 million, reported in Other equity investments in the consolidated balance sheets.



179

12)
EMPLOYEE BENEFIT PLANS

AXA Equitable Retirement Plans

AXA Equitable sponsors the AXA Equitable 401(k) Plan, a qualified defined contribution plan for eligible employees and financial professionals. The plan provides for both a company contribution and a discretionary profit-sharing contribution. Expenses associated with this 401(k) Plan were $16 million, $18 million and $18 million in 2016, 2015 and 2014, respectively.

AXA Equitable also sponsors the AXA Equitable Retirement Plan (the “AXA Equitable QP”), a frozen qualified defined benefit pension plan covering its eligible employees and financial professionals. This pension plan is non-contributory and its benefits are generally based on a cash balance formula and/or, for certain participants, years of service and average earnings over a specified period in the plan.

Effective December 31, 2015, primary liability for the obligations of AXA Equitable under the AXA Equitable QP was transferred from AXA Equitable to AXA Financial under the terms of an Assumption Agreement (the “Assumption Transaction”). Immediately preceding the Assumption Transaction, the AXA Equitable QP had plan assets (held in a trust for the exclusive benefit of plan participants) with market value of approximately $2,236 million and liabilities of approximately $2,447 million. The assumption by AXA Financial and resulting extinguishment of AXA Equitable’s primary liability for its obligations under the AXA Equitable QP was recognized by AXA Equitable as a capital contribution in the amount of $211 million ($137 million, net of tax), reflecting the non-cash settlement of its net unfunded liability for the AXA Equitable QP at December 31, 2015. In addition, approximately $1,193 million ($772 million, net of tax) unrecognized net actuarial losses related to the AXA Equitable QP and accumulated in AOCI were also transferred to AXA Financial due to the Assumption Transaction. AXA Equitable remains secondarily liable for its obligations under the AXA Equitable QP and would recognize such liability in the event AXA Financial does not perform under the terms of the Assumption Agreement.

AB Retirement Plans

AB maintains the Profit Sharing Plan for Employees of AB, a tax-qualified retirement plan for U.S. employees. Employer contributions under this plan are discretionary and generally are limited to the amount deductible for Federal income tax purposes.

AB also maintains a qualified, non-contributory, defined benefit retirement plan covering current and former employees who were employed by AB in the United States prior to October 2, 2000. AB’s benefits are based on years of credited service and average final base salary.

AB uses a December 31 measurement date for its pension plans.

The funding policy of AB for its qualified pension plan is to satisfy its funding obligations each year in an amount not less than the minimum required by the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by the Pension Protection Act of 2006 (the “Pension Act”), and not greater than the maximum it can deduct for Federal income tax purposes. AB did not make a contribution to the AB Retirement Plan during 2016. AB currently estimates that it will contribute $4 million to the AB Retirement Plan during 2017. Contribution estimates, which are subject to change, are based on regulatory requirements, future market conditions and assumptions used for actuarial computations of the AB Retirement Plan’s obligations and assets. AB Management, at the present time, has not determined the amount, if any, of additional future contributions that may be required.


180

Net Periodic Pension Expense

Components of net periodic pension expense for the Company’s qualified plans were as follows:

 
2016
 
2015
 
2014
 
 
(In Millions)
Service cost
$
—

 
$
8

 
$
9

Interest cost
6

 
93

 
107

Expected return on assets
(5
)
 
(159
)
 
(155
)
Actuarial (gain) loss
1

 
1

 
1

Net amortization
—

 
110

 
111

Net Periodic Pension Expense
$
2

 
$
53

 
$
73


Changes in PBO

Changes in the PBO of the Company’s qualified plans were comprised of:

 
December 31,
 
2016
 
2015
 
 
(In Millions)
Projected benefit obligation, beginning of year
$
129

 
$
2,657

Service cost
—

 
—

Interest cost
6

 
93

Actuarial (gains) losses
2

 
(6
)
Benefits paid
(5
)
 
(169
)
Plan amendments and curtailments
—

 
1

Projected Benefit Obligation
132

 
2,576

Transfer to AXA Financial
—

 
(2,447
)
Projected Benefit Obligation, End of Year
$
132

 
$
129


Changes in Plan Assets/Funded Status

The following table discloses the changes in plan assets and the funded status of the Company’s qualified pension plans. The fair value of plan assets supporting the AXA Equitable QP liability was not impacted by the Assumption Transaction and the payment of plan benefits will continue to be made from the plan assets held in trust for the exclusive benefit of plan participants.

 
December 31,
 
2016
 
2015
 
 
(In Millions)
Pension plan assets at fair value, beginning of year
$
86

 
$
2,473

Actual return on plan assets
4

 
24

Contributions
—

 
—

Benefits paid and fees
(3
)
 
(175
)
Pension plan assets at fair value, end of year
87

 
2,322

PBO (immediately preceding the Transfer to AXA Financial in 2015)
132

 
2,576

Excess of PBO Over Pension Plan Assets (immediately preceding the Transfer
to AXA Financial in 2015)
(45
)
 
(254
)
Transfer to AXA Financial
$
—

 
$
211

Excess of PBO Over Pension Plan Assets, end of year
$
(45
)
 
$
(43
)

181


Amounts recognized in the accompanying consolidated balance sheets to reflect the funded status of these plans were accrued pension costs of $45 million and $43 million at December 31, 2016 and 2015, respectively. The aggregate PBO/accumulated benefit obligation (“ABO”) and fair value of pension plan assets for plans with PBOs/ABOs in excess of those assets were $132 million and $87 million, respectively, at December 31, 2016 and $2,576 million and $2,322 million, respectively, at December 31, 2015.
Unrecognized Net Actuarial (Gain) Loss

The following table discloses the amounts included in AOCI at December 31, 2016 and 2015 that have not yet been recognized by AXA Equitable as components of net periodic pension cost.

 
December 31,
 
2016
 
2015
 
 
(In Millions)
Unrecognized net actuarial gain (loss)
$
(51
)
 
$
(49
)
Unrecognized prior service (cost) credit
(1
)
 
(1
)
Total
$
(52
)
 
$
(50
)
The estimated net actuarial gain (loss) and prior service (cost) credit expected to be reclassified from AOCI and recognized as components of net periodic pension cost over the next year are approximately $(1.4) million and $(23,000), respectively.
Pension Plan Assets
The fair values of qualified pension plan assets are measured and ascribed to levels within the fair value hierarchy in a manner consistent with the invested assets of the Company that are measured at fair value on a recurring basis. See Note 2 for a description of the fair value hierarchy.
At December 31, 2016 and 2015, the total fair value of plan assets for the qualified pension plans was approximately $87 million and $86 million, respectively, all supporting the AB qualified retirement plan.
 
December 31,
 
2016
 
2015
Fixed Maturities
18.0
%
 
24.0
%
Equity Securities
61.0

 
56.0

Other
21.0

 
20.0

Total
100.0
%
 
100.0
%


182

December 31, 2016:
Level 1        
 
Level 2        
 
Level 3        
 
Total    
Asset Categories
(In Millions)
Common and preferred equity
$
21

 
$
—

 
$
—

 
$
21

Mutual funds
47

 
—

 
—

 
47

Total assets in the fair value hierarchy
68

 
—

 
—

 
68

Investments measured at net assets value
—

 
—

 
—

 
19

Investments at fair value
$
68

 
$
—

 
$
—

 
$
87

 
 
 
 
 
 
 
 
December 31, 2015:
 
 
 
 
 
 
 
Asset Categories
 
 
 
 
 
 
 
Common and preferred equity
$
22

 
$
—

 
$
—

 
$
22

Mutual funds
45

 
—

 
—

 
45

Total assets in the fair value hierarchy
67

 
—

 
—

 
67

Investments measured at net assets value
—

 
—

 
—

 
19

Investments at fair value
$
67

 
$
—

 
$
—

 
$
86


Plan asset guidelines for the AB qualified retirement plan specify an allocation weighting of 30% to 60% for return seeking investments (target of 40%), 10% to 30% for risk mitigating investments (target of 15%), 0% to 25% for diversifying investments (target of 17%) and 18% to 38% for dynamic asset allocation (target of 28%). Investments in mutual funds, hedge funds (and other alternative investments), and other commingled investment vehicles are permitted under the guidelines. Investments are permitted in overlay portfolios (regulated mutual funds) to complement the long-term strategic asset allocation. This portfolio overlay strategy is designed to manage short-term portfolio risk and mitigate the effect of extreme outcomes.

Discount Rate and Other Assumptions
In 2015 and 2014 the discount rate assumptions used by AXA Equitable to measure the benefits obligations and related net periodic cost of the AXA Equitable QP reflect the rates at which those benefits could be effectively settled. Projected nominal cash outflows to fund expected annual benefits payments under the AXA Equitable QP were discounted using a published high-quality bond yield curve for which AXA Equitable replaced its reference to the Citigroup-AA curve with the Citigroup Above-Median-AA curve beginning in 2014, thereby reducing the PBO of AXA Equitable’s qualified pension plan and the related charge to equity to adjust the funded status of the plan by $25 million in 2014. At December 31, 2015, AXA Equitable refined its calculation of the discount rate to use the discrete single equivalent discount rate for each plan as compared to its previous use of an aggregate, weighted average practical expedient. Use of the discrete approach at December 31, 2015 produced a discount rate for the AXA Equitable QP of 3.98% as compared to a 4.00% aggregate rate, thereby increasing the net unfunded PBO of the AXA Equitable QP immediately preceding the Assumption Transaction by approximately $4 million in 2015.
In fourth quarter 2015, the Society of Actuaries (SOA) released MP-2015, an update to the mortality projection scale issued last year by the SOA, indicating that while mortality data continued to show longer lives, longevity was increasing at a slower rate and lagging behind that previously suggested. For the year ended December 31, 2015 valuations of its defined benefits plans, AXA Equitable considered this new data as well as observations made from current practice regarding how best to estimate improved trends in life expectancies. As a result, AXA Equitable concluded to change the mortality projection scale used to measure and report its defined benefit obligations from 125% Scale AA to Scale BB, representing a reasonable “fit” to the results of the AXA Equitable QP mortality experience study and more aligned to current thinking in practice with respect to projections of mortality improvements. Adoption of that change increased the net unfunded PBO of the AXA Equitable QP immediately preceding the Assumption Transaction by approximately $83 million. At December 31, 2014, AXA Equitable modified its then-current use of Scale AA by adopting 125% Scale AA and introduced additional refinements to its projection of assumed mortality, including use of a full generational approach, thereby increasing the year-end 2014 valuation of the AXA Equitable QP PBO by approximately $54 million.

The following table discloses assumptions used to measure the Company’s pension benefit obligations and net periodic pension cost at and for the years ended December 31, 2016 and 2015. As described above, AXA Equitable refined its calculation of the discount rate for the year ended December 31, 2015 valuation of its defined benefits plans to use the discrete single equivalent discount rate for each plan as compared to its previous use of an aggregate, weighted average practical expedient.

183

 
December 31,
 
2016
 
2015
Discount rates:
 
 
 
AXA Equitable QP, immediately preceding Transfer to AXA Financial
N/A

 
3.98
%
Other AXA Equitable defined benefit plans
3.48
%
 
3.66
%
AB Qualified Retirement Plan
4.75
%
 
4.3
%
Periodic cost
3.7
%
 
3.6
%
Rates of compensation increase:
 
 
 
Benefit obligation
N/A

 
6.00
%
Periodic cost
N/A

 
6.46
%
Expected long-term rates of return on pension plan assets (periodic cost)
6.5
%
 
6.75
%
The expected long-term rate of return assumption on plan assets is based upon the target asset allocation of the plan portfolio and is determined using forward-looking assumptions in the context of historical returns and volatilities for each asset class.
Prior to 1987, participants’ benefits under the AXA Equitable QP were funded through the purchase of non-participating annuity contracts from AXA Equitable. Benefit payments under these contracts were approximately $6 million and $10 million for 2015 and 2014, respectively.
Future Benefits
The following table provides an estimate of future benefits expected to be paid in each of the next five years, beginning January 1, 2017, and in the aggregate for the five years thereafter, all of which are subsequent to the Assumption Transaction. These estimates are based on the same assumptions used to measure the respective benefit obligations at December 31, 2016 and include benefits attributable to estimated future employee service.
 
Pension
Benefits
 
(In Millions)
2017
$
4

2018
6

2019
6

2020
5

2021
6

Years 2022-2026
38

AXA Financial Assumptions
In addition to the Assumption Transaction, since December 31, 1999, AXA Financial has legally assumed primary liability from AXA Equitable for all current and future liabilities of AXA Equitable under certain employee benefit plans that provide participants with medical, life insurance, and deferred compensation benefits; AXA Equitable remains secondarily liable. AXA Equitable reimburses AXA Financial, Inc. for costs associated with all of these plans, as described in Note 11.

184

    
13)
SHARE-BASED AND OTHER COMPENSATION PROGRAMS
AXA and AXA Financial sponsor various share-based compensation plans for eligible employees, financial professionals and non-officer directors of AXA Financial and its subsidiaries, including the Company. AB also sponsors its own unit option plans for certain of its employees.
Compensations costs for 2016, 2015 and 2014 for share-based payment arrangements as further described herein are as follows:
 
2016
 
2015
 
2014
 
(In Millions)
Performance Units/Shares
$
17

 
$
18

 
$
10

Stock Options
1

 
1

 
1

AXA Shareplan
14

 
16

 
10

Restricted Units
154

 
174

 
171

Other Compensation plans(1)
1

 
2

 
—

Total Compensation Expenses
$
187

 
$
211

 
$
192


(1)
Other compensation plans include Stock Appreciation Rights, Restricted Stock and AXA Miles.
U.S. employees are granted AXA ordinary share options under the Stock Option Plan for AXA Financial Employees and Associates (the “Stock Option Plan”) and are granted AXA performance shares under the AXA International Performance Shares Plan (the “Performance Share Plan”). Prior to 2013 they were granted performance units under the AXA Performance Unit Plan.
Non-officer directors of AXA Financial and certain subsidiaries (including AXA Equitable) are granted restricted AXA ordinary shares (prior to 2011, AXA ADRs) and unrestricted AXA ordinary shares (prior to March 15, 2010, AXA ADRs) annually under The Equity Plan for Directors. They also were granted ADR stock options in years prior to 2014.
Performance Units and Performance Shares
2016 Grant. On June 6, 2016, under the terms of the Performance Share Plan, AXA awarded approximately 1.9 million unearned performance shares to employees of AXA Equitable. The extent to which 2016-2018 cumulative performance targets measuring the performance of AXA and the insurance related businesses of AXA Financial Group are achieved will determine the number of performance shares earned, which may vary between 0% and 130% of the number of performance shares at stake. The performance shares earned during this performance period will vest and be settled on the fourth anniversary of the award date. The plan will settle in AXA ordinary shares to all participants. In 2016, the expense associated with the June 6, 2016 grant of performance shares was approximately $10 million.
Settlement of 2013 Grant in 2016. On March 22, 2016, share distributions totaling approximately $55 million were made to active and former AXA Equitable employees in settlement of approximately 2.3 million performance shares earned under the terms of the 2013 Performance Share Plan.
2015 Grant. On June 19, 2015, under the terms of the 2015 Performance Share Plan, AXA awarded approximately 1.7 million unearned performance shares to employees of AXA Equitable. The extent to which 2015-2017 cumulative performance targets measuring the performance of AXA and the insurance related businesses of AXA Financial Group are achieved will determine the number of performance shares earned, which may vary in linear formula between 0% and 130% of the number of performance shares at stake. The performance shares earned during this performance period will vest and be settled on the fourth anniversary of the award date. The plan will settle in shares to all participants. In 2016 and 2015 the expense associated with the June 19, 2015 grant of performance shares were $4 million and $8 million, respectively.
Settlement of 2012 Grant in 2015. On April 2, 2015, cash distributions of approximately $53 million were made to active and former AXA Equitable employees in settlement of approximately 2.3 million performance units earned under the terms of the AXA Performance Unit Plan 2012.

185

2014 Grant.  On March 24, 2014, under the terms of the 2014 Performance Share Plan, AXA awarded approximately 1.5 million unearned performance shares to employees of AXA Equitable. The extent to which 2014-2016 cumulative performance targets measuring the performance of AXA and the insurance-related businesses of AXA Financial Group are achieved will determine the number of performance shares earned, which may vary in linear formula between 0% and 130% of the number of performance shares at stake. The first tranche of the performance shares will vest and be settled on the third anniversary of the award date; the second tranche of these performance shares will vest and be settled on the fourth anniversary of the award date. The plan will settle in shares to all participants. In 2016, 2015 and 2014 the expense associated with the March 24, 2014 grant of performance shares was approximately $4 million, $4 million, and $9 million respectively.
Settlement of 2011 Grant in 2014.   On April 3, 2014, cash distributions of approximately $26 million were made to active and former AXA Equitable employees in settlement of 1.0 million performance units earned under the terms of the AXA Performance Unit Plan 2011.
The fair values of awards made under these programs are measured at the grant date by reference to the closing price of the AXA ordinary share, and the result, as adjusted for achievement of performance targets and pre-vesting forfeitures, generally is attributed over the shorter of the requisite service period, the performance period, if any, or to the date at which retirement eligibility is achieved and subsequent service no longer is required for continued vesting of the award. Remeasurements of fair value for subsequent price changes until settlement are made only for performance unit awards as they are settled in cash. Approximately 2 million outstanding performance shares are at risk to achievement of 2017 performance criteria, primarily representing all of the performance shares granted June 19, 2015 and the second tranche of performance shares granted March 24, 2014, for which cumulative average 2015-2017 and 2014-2016 performance targets will determine the number of performance shares earned under those awards, respectively.
Stock Options
2016 Grant. On June 6, 2016, 0.6 million options to purchase AXA ordinary shares were granted to employees of AXA Equitable under the terms of the Stock Option Plan at an exercise price of 21.52 euros. All of those options have a five-year graded vesting schedule, with one-third vesting on each of the third, fourth, and fifth anniversaries of the grant date. Of the total options awarded on June 6, 2016, 0.3 million are further subject to conditional vesting terms that require the AXA ordinary share price to outperform the Euro Stoxx Insurance Index over a specified period. All of the options granted on June 6, 2016 have a ten-year term. The weighted average grant date fair value per option award was estimated at 1.85 euros using a Black-Scholes options pricing model with modification to measure the value of the conditional vesting feature. Key assumptions used in the valuation included expected volatility of 26.6%, a weighted average expected term of 8.1 years, an expected dividend yield of 6.49% and a risk-free interest rate of 0.33%. The total fair value of these options (net of expected forfeitures) of approximately $1 million is charged to expense over the shorter of the vesting term or the period up to the date at which the participant becomes retirement eligible. In 2016, the Company recognized expenses associated with the June 6, 2015 grant of options of approximately $0.6 million.
2015 Grant. On June 19, 2015, approximately 0.4 million options to purchase AXA ordinary shares were granted to employees of AXA Equitable under the terms of the Stock Option Plan at an exercise price of 22.90 euros. All of those options have a five-year graded vesting schedule, with one-third vesting on each of the third, fourth, and fifth anniversaries of the grant date. Of the total options awarded on June 19, 2015, 0.2 million are further subject to conditional vesting terms that require the AXA ordinary share price to outperform the Euro Stoxx Insurance Index over a specified period. All of the options granted on June 19, 2015 have a ten-year term. The weighted average grant date fair value per option award was estimated at 1.58 euros using a Black-Scholes options pricing model with modification to measure the value of the conditional vesting feature. Key assumptions used in the valuation included expected volatility of 23.68%, a weighted average expected term of 8.2 years, an expected dividend yield of 6.29% and a risk-free interest rate of 0.92%. The total fair value of these options (net of expected forfeitures) of approximately $1 million is charged to expense over the shorter of the vesting term or the period up to the date at which the participant becomes retirement eligible. In 2016 and 2015, the Company recognized expenses associated with the June 19, 2015 grant of options of approximately $0.1 million and $0.3 million, respectively.
2014 Grant.    On March 24, 2014, 0.4 million options to purchase AXA ordinary shares were granted to employees of AXA Equitable under the terms of the Stock Option Plan at an exercise price of 18.68 euros All of those options have a five-year graded vesting schedule, with one-third vesting on each of the third, fourth, and fifth anniversaries of the grant date. Of the total options awarded on March 24, 2014, 0.2 million are further subject to conditional vesting terms that require the AXA ordinary share price to outperform the Euro Stoxx Insurance Index over a specified period. All of the options granted on March 24, 2014 have a ten-year term. The weighted average grant date fair value per option award was

186

estimated at $2.89 using a Black-Scholes options pricing model with modification to measure the value of the conditional vesting feature. Key assumptions used in the valuation included expected volatility of 29.24%, a weighted average expected term of 8.2 years, an expected dividend yield of 6.38% and a risk-free interest rate of 1.54%. The total fair value of these options (net of expected forfeitures) of approximately $1 million is charged to expense over the shorter of the vesting term or the period up to the date at which the participant becomes retirement eligible. In 2016, 2015 and 2014 the Company recognized expenses associated with the March 24, 2014 grant of options of approximately $0.2 million, $0.2 million and $0.3 million, respectively.
Shares Authorized
There is no limitation in the Stock Option Plan or the Equity Plan for Directors on the number of shares that may be issued pursuant to option or other grants.

A summary of the activity in the AXA, AXA Financial and AB option plans during 2016 follows:

 
Options Outstanding
 
AXA Ordinary Shares
 
AXA ADRs(3)
 
AB Holding Units
 
Number
Outstanding  
(In 000’s)
 
Weighted
Average
Exercise
Price
 
Number
Outstanding
(In 000’s)
 
Weighted
Average
Exercise
Price
 
Number
Outstanding
(In 000’s)
 
Weighted
Average
Exercise
Price
Options Outstanding at January 1, 2016
12,602.1

 
€
21.39

 
41.0

 
$
27.28

 
5,398.5

 
$
47.59

Options granted
594.3

 
€
21.52

 
—

 
$
—

 
54.5

 
$
22.6

Options exercised
(568.2
)
 
€
14.93

 
—

 
$
—

 
(358.3
)
 
$
17.1

Options forfeited, net


 
€
—

 
—

 
$
—

 
—

 
$
—

Options expired/reinstated
(3,092.0
)
 
27.8

 
3.9

 
26.06

 
(9.7
)
 
$
65.0

Options Outstanding at December 31, 2016
9,536.2

 
€
21.02

 
44.9

 
$
24.90

 
5,085.0

 
$
49.5

Aggregate Intrinsic
Value(1)
 
 
€
30,077.2

(2) 
 
 
$
252.9

 
 
 
—

Weighted Average Remaining Contractual Term (in years)
3.1

 
 
 
1.89

 
 
 
2.00

 
 
Options Exercisable at December 31, 2016
7,169.4

 
€
20.43

 
44.8

 
$
24.90

 
4,700.9

 
$
47.6

Aggregate Intrinsic
Value(1)
 
 
€
26,793.5

 
 
 
$
252.9

 
 
 
—

Weighted Average Remaining Contractual Term (in years)
3.74

 
 
 
1.89

 
 
 
2.00

 
 

(1)
Aggregate intrinsic value, presented in millions, is calculated as the excess of the closing market price on December 31, 2016 of the respective underlying shares over the strike prices of the option awards.
(2)
The aggregate intrinsic value on options outstanding, exercisable and expected to vest is negative and is therefore presented as zero.
(3)
AXA ordinary shares will be delivered to participants in lieu of AXA ADRs at exercise or maturity.
No stock options were exercised in 2016. The intrinsic value related to exercises of stock options during 2015 and 2014 were approximately $0.2 million and $3 million respectively, resulting in amounts currently deductible for tax purposes of approximately $0.1 million, and $1 million, respectively, for the periods then ended. In 2015 and 2014, windfall tax benefits of approximately $0.1 million and $1 million, respectively, resulted from exercises of stock option awards.
At December 31, 2016, AXA Financial held 22,974 AXA ordinary shares in treasury at a weighted average cost of $23.95 per share, which were designated to fund future exercises of outstanding stock options.

187

For the purpose of estimating the fair value of stock option awards, the Company applies the Black-Scholes model and attributes the result over the requisite service period using the graded-vesting method. A Monte-Carlo simulation approach was used to model the fair value of the conditional vesting feature of the awards of options to purchase AXA ordinary shares. Shown below are the relevant input assumptions used to derive the fair values of options awarded in 2016, 2015 and 2014, respectively.
 
AXA Ordinary Shares
 
AB Holding Units
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Dividend yield
6.49
%
 
6.29
%
 
6.38
%
 
7.1
%
 
7.1
%
 
8.4
%
Expected volatility
26.6
%
 
23.68
%
 
29.24
%
 
31.0
%
 
32.1
%
 
48.9
%
Risk-free interest rates
0.33
%
 
0.92
%
 
1.54
%
 
1.3
%
 
1.5
%
 
1.5
%
Expected life in years
8.1

 
8.2

 
8.2

 
6.0

 
6.0

 
6.0

Weighted average fair value per option at grant date
$
2.06

 
$
1.73

 
$
2.89

 
$
2.75

 
$
4.13

 
$
4.78

As of December 31, 2016, approximately $1 million of unrecognized compensation cost related to unvested stock option awards, net of estimated pre-vesting forfeitures, is expected to be recognized by the Company over a weighted average period of 3.22 years.
Restricted Awards
Under The Equity Plan for Directors, AXA Financial grants non-officer directors of AXA Financial and certain subsidiaries (including AXA Equitable) restricted AXA ordinary shares. Likewise, AB awards restricted AB Holding units to independent members of its General Partner. In addition, under its Century Club Plan, awards of restricted AB Holding units that vest ratably over three years are made to eligible AB employees whose primary responsibilities are to assist in the distribution of company-sponsored mutual funds.
AXA Equitable has also granted restricted AXA ordinary share units (“RSUs”) to certain executives. The RSUs are phantom AXA ordinary shares that, once vested, entitle the recipient to a cash payment based on the average closing price of the AXA ordinary share over the twenty trading days immediately preceding the vesting date.
For 2016, 2015 and 2014, respectively, the Company recognized compensation costs of $154 million, $174 million and $171 million for outstanding restricted stock and RSUs. The fair values of awards made under these programs are measured at the grant date by reference to the closing price of the unrestricted shares, and the result generally is attributed over the shorter of the requisite service period, the performance period, if any, or to the date at which retirement eligibility is achieved and subsequent service no longer is required for continued vesting of the award. Remeasurements of fair value for subsequent price changes until settlement are made only for RSUs. At December 31, 2016, approximately 19.2 million restricted AXA ordinary shares and AB Holding unit awards remain unvested. At December 31, 2016, approximately $39 million of unrecognized compensation cost related to these unvested awards, net of estimated pre-vesting forfeitures, is expected to be recognized over a weighted average period of 2.6 years.
The following table summarizes restricted AXA ordinary share activity for 2016. In addition, approximately 84,611 RSUs were granted during 2016 with graded vesting over a 4-year service period.
 
Shares of
Restricted      
Stock
 
Weighted
Average
Grant Date    
Fair Value
Unvested as of January 1, 2016
34,010

 
$
18.43

Granted
13,909

 
$
22.63

Vested
11,613

 
$
23.81

Unvested as of December 31, 2016
36,306

 
$
24.46

Unrestricted Awards
Under the Equity Plan for Directors, AXA Financial provides a stock retainer to non-officer directors of AXA Financial and certain subsidiaries (including AXA Equitable).  Pursuant to the terms of the retainer, the non-officer directors receive

188

AXA ordinary shares valued at $55,000 each year, paid on a semi-annual basis. These shares are not subject to any vesting requirement or other restriction. 
AXA Shareplan
2016 AXA Shareplan. In 2016, eligible employees of participating AXA Financial subsidiaries were offered the opportunity to purchase newly issued AXA ordinary shares, subject to plan limits, under the terms of AXA Shareplan 2016. Eligible employees could have reserved a share purchase during the reservation period from August 29, 2016 through September 9, 2016 and could have canceled their reservation or elected to make a purchase for the first time during the retraction/subscription period from October 17, 2016 through October 19, 2016. The U.S. dollar purchase price was determined by applying the U.S. dollar/Euro forward exchange rate on October 13, 2016 to the discounted formula subscription price in Euros. Investment Option A permitted participants to purchase AXA ordinary shares at a 20% formula discounted price of 15.53 euros/per share. Investment Option B permitted participants to purchase AXA ordinary shares at an 8.63% formula discounted price of 17.73 euros/per share on a leveraged basis with a guaranteed return of initial investment plus a portion of any appreciation in the undiscounted value of the total shares purchased. For purposes of determining the amount of any appreciation, the AXA ordinary share price will be measured over a fifty-two week period preceding the scheduled end date of AXA Shareplan 2016, which is July 1, 2021. All subscriptions became binding and irrevocable on October 19, 2016.
The Company recognized compensation expense of $14 million, $16 million and $10 million in 2016, 2015 and 2014 in connection with each respective year’s offering of AXA stock under the AXA Shareplan, representing the aggregate discount provided to AXA Equitable participants for their purchase of AXA stock under each of those plans, as adjusted for the post-vesting, five-year holding period. AXA Equitable participants in AXA Shareplan 2016, 2015 and 2014 primarily invested under Investment Option B for the purchase of approximately $6 million, $5 million and $5 million AXA ordinary shares, respectively.
AXA Miles Program 2012
On March 16, 2012, under the terms of the AXA Miles Program 2012, AXA granted 50 AXA Miles to every employee and eligible financial professional of AXA Group for the purpose of enhancing long-term employee-shareholder engagement. Each AXA Mile represents a phantom share of AXA stock that will convert to an actual AXA ordinary share at the end of a four-year vesting period provided the employee or financial professional remains in the employ of the company or has retired from service. Half of each AXA Miles grant, or 25 AXA Miles, were subject to an additional vesting condition that required improvement in at least one of two AXA performance metrics in 2012 as compared to 2011. This vesting condition has been satisfied. On March 16, 2016, AXA ordinary share distributions totaling approximately $4 million were made to active and former AXA Equitable employees in settlement of approximately 0.2 million AXA Miles earned under the terms of the AXA Miles Program 2012.
AB Long-term Incentive Compensation Plans
AB maintains several unfunded long-term incentive compensation plans for the benefit of certain eligible employees and executives. The AB Capital Accumulation Plan was frozen on December 31, 1987 and no additional awards have been made, however, ACMC, LLC (“ACMC”), an indirect, wholly-owned subsidiary of AXA Equitable, is obligated to make capital contributions to AB in amounts equal to benefits paid under this plan as well as other assumed contractual unfunded deferred compensation arrangements covering certain executives. Prior to changes implemented by AB in fourth quarter 2011, as further described below, compensation expense for the remaining active plans was recognized on a straight-line basis over the applicable vesting period. Prior to 2009, participants in these plans designated the percentages of their awards to be allocated among notional investments in Holding units or certain investment products (primarily mutual funds) sponsored by AB. Beginning in 2009, annual awards granted under the Amended and Restated AB Incentive Compensation Award Program were in the form of restricted Holding units.
In fourth quarter 2011, AB implemented changes to AB’s employee long-term incentive compensation award. AB amended all outstanding year-end deferred incentive compensation awards of active employees (i.e., those employees employed as of December 31, 2011), so that employees who terminate their employment or are terminated without cause may continue to vest, so long as the employees do not violate the agreements and covenants set forth in the applicable award agreement, including restrictions on competition, employee and client solicitation, and a claw-back for failing to follow existing risk management policies. This amendment resulted in the immediate recognition in the fourth quarter of the cost of all unamortized deferred incentive compensation on outstanding awards from prior years that would otherwise have been expensed in future periods.

189

In addition, awards granted in 2012 contain the same vesting provisions and, accordingly, the Company’s annual incentive compensation expense reflect 100% of the expense associated with the deferred incentive compensation awarded in each year. This approach to expense recognition closely matches the economic cost of awarding deferred incentive compensation to the period in which the related service is performed.
AB engages in open-market purchases of AB Holding L.P. (“AB Holding”) units (“Holding units”) to help fund anticipated obligations under its incentive compensation award program, for purchases of Holding units from employees and other corporate purposes. During 2016 and 2015, AB purchased 10.5 million and 8.5 million Holding units for $237 million and $218 million respectively. These amounts reflect open-market purchases of 7.9 million and 5.8 million Holding units for $176 million and $151 million, respectively, with the remainder relating to purchases of Holding units from employees to allow them to fulfill statutory tax withholding requirements at the time of distribution of long-term incentive compensation awards, offset by Holding units purchased by employees as part of a distribution reinvestment election.
During 2016, AB granted to employees and eligible directors 7.0 million restricted AB Holding unit awards (including 6.1 million granted in December for 2016 year-end awards). During 2015, AB granted to employees and eligible directors 7.4 million restricted AB Holding awards (including 7.0 million granted in December 2015 for year-end awards).
During 2016 and 2015, AB Holding issued 0.4 million and 0.5 million Holding units, respectively, upon exercise of options to buy AB Holding units. AB Holding used the proceeds of $6 million and $9 million, respectively, received from employees as payment in cash for the exercise price to purchase the equivalent number of newly-issued Holding units.
Effective July 1, 2013, management of AB and AB Holding retired all unallocated Holding units in AB’s consolidated rabbi trust. To retire such units, AB delivered the unallocated Holding units held in its consolidated rabbi trust to AB Holding in exchange for the same amount of AB units. Each entity then retired its respective units. As a result, on July 1, 2013, each of AB’s and AB Holding’s units outstanding decreased by approximately 13.1 million units. AB and AB Holding intend to retire additional units as AB purchases Holding units on the open market or from employees to allow them to fulfill statutory tax withholding requirements at the time of distribution of long-term incentive compensation awards, if such units are not required to fund new employee awards in the near future. If a sufficient number of Holding units is not available in the rabbi trust to fund new awards, AB Holding will issue new Holding units in exchange for newly-issued AB units, as was done in December 2013.
The cost of the 2016 awards made in the form of restricted Holding units was measured, recognized, and disclosed as a share-based compensation program.
On July 1, 2010, the AB 2010 Long Term Incentive Plan (“2010 Plan”), as amended, was established, under which various types of Holding unit-based awards have been available for grant to its employees and eligible directors, including restricted or phantom restricted Holding unit awards, Holding unit appreciation rights and performance awards, and options to buy Holding units. The 2010 Plan will expire on June 30, 2020 and no awards under the 2010 Plan will be made after that date. Under the 2010 Plan, the aggregate number of Holding units with respect to which awards may be granted is 60 million, including no more than 30 million newly-issued Holding units. As of December 31, 2016, 0.4 million options to buy Holding units had been granted and 51.9 million Holding units net of forfeitures, were subject to other Holding unit awards made under the 2010 Plan. Holding unit-based awards (including options) in respect of 7.7 million Holding units were available for grant as of December 31, 2016.

190

14)
INCOME TAXES
A summary of the income tax (expense) benefit in the consolidated statements of earnings (loss) follows:
 
2016
 
2015
 
2014
 
(In Millions)
Income tax (expense) benefit:
 
 
 
 
 
Current (expense) benefit
$
(274
)
 
$
(19
)
 
$
(552
)
Deferred (expense) benefit
387

 
(167
)
 
(1,143
)
Total
$
113

 
$
(186
)
 
$
(1,695
)
The Federal income taxes attributable to consolidated operations are different from the amounts determined by multiplying the earnings before income taxes and noncontrolling interest by the expected Federal income tax rate of 35.0%. The sources of the difference and their tax effects are as follows:
 
2016
 
2015
 
2014
 
(In Millions)
Expected income tax (expense) benefit
$
(152
)
 
$
(578
)
 
$
(2,140
)
Noncontrolling interest
135

 
124

 
119

Separate Accounts investment activity
160

 
181

 
116

Non-taxable investment income (loss)
15

 
8

 
12

Tax audit interest
(22
)
 
1

 
(6
)
State income taxes
(8
)
 
1

 
(4
)
AB Federal and foreign taxes
(15
)
 
2

 
4

Tax settlement
—

 
77

 
212

Other
—

 
(2
)
 
(8
)
Income tax (expense) benefit
$
113

 
$
(186
)
 
$
(1,695
)

In second quarter 2015, the Company recognized a tax benefit of $77 million related to settlement with the IRS on the appeal of proposed adjustments to the Company’s 2004 and 2005 Federal corporate income tax returns.

In second quarter 2014, the Company recognized a tax benefit of $212 million related to settlement of the IRS audit for tax years 2006 and 2007.

In February 2014, the IRS released Revenue Ruling 2014-7, eliminating the IRS’ previous guidance related to the methodology to be followed in calculating the Separate Account dividends received deduction (“DRD”). However, there remains the possibility that the IRS and the U.S. Treasury will address, through subsequent guidance, the issues previously raised related to the calculation of the DRD. The ultimate timing and substance of any such guidance is unknown. It is also possible that the calculation of the Separate Account DRD will be addressed in future legislation. Any such guidance or legislation could result in the elimination or reduction on either a retroactive or prospective basis of the Separate Account DRD tax benefit that the Company receives.
As of December 31, 2016 and 2015, the Company had a current tax liability of $218 million and $592 million respectively.


191

The components of the net deferred income taxes are as follows:
 
December 31, 2016
 
December 31, 2015
 
Assets      
 
Liabilities      
 
Assets      
 
Liabilities      
 
(In Millions)
Compensation and related benefits
$
88

 
$
—

 
$
93

 
$
—

Reserves and reinsurance
—

 
1,786

 
—

 
1,740

DAC
—

 
1,197

 
—

 
1,253

Unrealized investment gains or losses
—

 
23

 
—

 
134

Investments
—

 
1,062

 
—

 
1,437

Net operating losses and credits
394

 
—

 
424

 
—

Other
5

 
—

 
—

 
25

Total
$
487

 
$
4,068

 
$
517

 
$
4,589

As of December 31, 2016, the Company had $394 million of AMT credits which do not expire.
The Company does not provide income taxes on the undistributed earnings of non-U.S. corporate subsidiaries except to the extent that such earnings are not permanently invested outside the United States. As of December 31, 2016, $195 million of accumulated undistributed earnings of non-U.S. corporate subsidiaries were permanently invested outside the United States. At existing applicable income tax rates, additional taxes of approximately $79 million would need to be provided if such earnings were remitted.
At December 31, 2016 and 2015, of the total amount of unrecognized tax benefits $394 million and $344 million, respectively, would affect the effective rate.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in tax expense. Interest and penalties included in the amounts of unrecognized tax benefits at December 31, 2016 and 2015 were $67 million and $52 million, respectively. For 2016, 2015 and 2014, respectively, there were $15 million, $(25) million and $(43) million in interest expense related to unrecognized tax benefits.
A reconciliation of unrecognized tax benefits (excluding interest and penalties) follows:
 
2016
 
2015
 
2014
 
(In Millions)
Balance at January 1,
$
418

 
$
475

 
$
592

Additions for tax positions of prior years
39

 
44

 
56

Reductions for tax positions of prior years
—

 
(101
)
 
(181
)
Additions for tax positions of current year
—

 
—

 
8

Balance at December 31,
$
457

 
$
418

 
$
475

During the second quarter of 2015, the Company reached a settlement with the IRS on the appeal of proposed adjustments to the Company’s 2004 and 2005 Federal corporate income tax returns. In 2015, the IRS commenced their examination of the 2008 and 2009 tax years, with prior years no longer subject to examination. It is reasonably possible that the total amounts of unrecognized tax benefit will change within the next 12 months due to the conclusion of IRS proceedings and the addition of new issues for open tax years. The possible change in the amount of unrecognized tax benefits cannot be estimated at this time.


192

15)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
AOCI represents cumulative gains (losses) on items that are not reflected in earnings (loss). The balances for the past three years follow:
 
December 31,
 
2016
 
2015
 
2014
 
(In Millions)
Unrealized gains (losses) on investments
$
44

 
$
261

 
$
1,142

Foreign currency translation adjustments
(77
)
 
(59
)
 
(34
)
Defined benefit pension plans
(46
)
 
(43
)
 
(811
)
Total accumulated other comprehensive income (loss)
(79
)
 
159

 
297

Less: Accumulated other comprehensive (income) loss attributable to noncontrolling interest
86

 
69

 
54

Accumulated Other Comprehensive Income (Loss) Attributable to AXA Equitable
$
7

 
$
228

 
$
351


Immediately preceding the Assumption Transaction, the AXA Equitable QP had approximately $1,193 million unrecognized net actuarial losses in AOCI that were transferred to AXA Financial, resulting in an increase in AOCI and a decrease in additional paid in capital of $1,193 million ($772 million net of tax), the net impact to AXA Equitable’s consolidated Shareholder’s Equity was $0 million.
The components of OCI for the past three years, net of tax, follow:

 
2016
 
2015
 
2014
 
(In Millions)
Foreign currency translation adjustments:
 
 
 
 
 
Foreign currency translation gains (losses) arising during the period
$
(18
)
 
$
(25
)
 
$
(21
)
(Gains) losses reclassified into net earnings (loss) during the period
—

 
—

 
—

Foreign currency translation adjustment
(18
)
 
(25
)
 
(21
)
Change in net unrealized gains (losses) on investments:
 
 
 
 
 
Net unrealized gains (losses) arising during the year
(160
)
 
(1,020
)
 
1,043

(Gains) losses reclassified into net earnings (loss) during the year(1)
2

 
12

 
37

Net unrealized gains (losses) on investments
(158
)
 
(1,008
)
 
1,080

Adjustments for policyholders liabilities, DAC, insurance liability loss recognition and other
(59
)
 
127

 
(111
)
Change in unrealized gains (losses), net of adjustments and (net of deferred income tax expense (benefit) of $(96), $(480) and $529)
(217
)
 
(881
)
 
969

Change in defined benefit plans:
 
 
 
 
 
Net gain (loss) arising during the year
—

 
—

 
(95
)
Prior service cost arising during the year
—

 
—

 
—

Less: reclassification adjustments to net earnings (loss) for:(2)
 
 
 
 
 
Amortization of net (gains) losses included in net periodic cost
(3
)
 
(4
)
 
72

Amortization of net prior service credit included in net periodic cost
—

 
—

 
—

Change in defined benefit plans (net of deferred income tax expense (benefit) of $0, $(2) and $(15))
(3
)
 
(4
)
 
(23
)
Total other comprehensive income (loss), net of income taxes
(238
)
 
(910
)
 
925

Less: Other comprehensive (income) loss attributable to noncontrolling interest
17

 
15

 
29

Other Comprehensive Income (Loss) Attributable to AXA Equitable
$
(221
)
 
$
(895
)
 
$
954


193

(1)
See “Reclassification adjustments” in Note 3. Reclassification amounts presented net of income tax expense (benefit) of $(1) million, $(6) million and $(19) million for 2016, 2015 and 2014, respectively.
(2)
These AOCI components are included in the computation of net periodic costs (see “Employee Benefit Plans” in Note 12). Reclassification amounts presented net of income tax expense (benefit) of $0 million, $2 million and $(39) million for 2016, 2015 and 2014, respectively.

Investment gains and losses reclassified from AOCI to net earnings (loss) primarily consist of realized gains (losses) on sales and OTTI of AFS securities and are included in Total investment gains (losses), net on the consolidated statements of earnings (loss). Amounts reclassified from AOCI to net earnings (loss) as related to defined benefit plans primarily consist of amortizations of net (gains) losses and net prior service cost (credit) recognized as a component of net periodic cost and reported in Compensation and benefit expenses in the consolidated statements of earnings (loss). Amounts presented in the table above are net of tax.

194

16)
COMMITMENTS AND CONTINGENT LIABILITIES
Leases
The Company has entered into operating leases for office space and certain other assets, principally information technology equipment and office furniture and equipment. Future minimum payments under non-cancelable operating leases for 2017 and the four successive years are $218 million, $207 million, $194 million, $168 million, $159 million and $446 million thereafter. Minimum future sublease rental income on these non-cancelable operating leases for 2017 and the four successive years is $32 million, $33 million, $32 million, $16 million, $14 million and $44 million thereafter.

Obligations under Funding Agreements

Entering into FHLBNY membership, borrowings and funding agreements requires the ownership of FHLBNY stock and the pledge of assets as collateral, AXA Equitable has purchased FHLBNY stock of $109 million and pledged collateral with a carrying value of $3,885 million, as of December 31, 2016.  AXA Equitable issues short-term funding agreements to the FHLBNY and uses the funds for asset liability and cash management purposes. AXA Equitable issues long term funding agreements to the FHLBNY and uses the funds for spread lending purposes. Funding agreements are reported in Policyholders' account balances in the consolidated balance sheets. For other instruments used for asset/liability and cash management purposes, see “Derivative and offsetting assets and liabilities” included in Note 3. The table below summarizes AXA Equitable's activity of funding agreements with the FHLBNY.

 
Outstanding balance at end of year
 
Maturity of Outstanding balance
 
Issued during the Year
 
Repaid during the year
December 31, 2016:
(In Millions)
Short-term FHLBNY funding agreements
$
500

 
less than one month
 
$
6,000

 
$
6,000

 
 
 
 
 
 
 
 
Long-term FHLBNY funding agreements
$
58

 
less than 4 years
 
$
58

 
$
—

 
$
862

 
Less than 5 years
 
$
862

 
$
—

 
$
818

 
great than five years
 
$
818

 
$
—

Total long term funding agreements
$
1,738

 
 
 
$
1,738

 
$
—

Total FHLBNY funding agreements at December 31, 2016
$
2,238

 
 
 
$
7,738

 
$
6,000

 
 
 
 
 
 
 
 
December 31, 2015:
 
 
 
 
 
 
 
Short-term FHLBNY funding agreements
$
500

 
less than one month
 
$
6,000

 
$
6,000


Restructuring

As part of the Company’s on-going efforts to reduce costs and operate more efficiently, from time to time, management has approved and initiated plans to reduce headcount and relocate certain operations. In 2016, 2015 and 2014, respectively, AXA Equitable recorded $21 million, $3 million and $42 million pre-tax charges related to severance and lease costs. The amounts recorded in 2014 included pre-tax charges of $25 million, respectively, related to the reduction in office space in the Company’s 1290 Avenue of the Americas, New York, NY headquarters. The restructuring costs and liabilities associated with the Company’s initiatives were as follows:


195

 
December 31,
 
2016
 
2015
 
2014
 
(In Millions)
Balance, beginning of year
$
89

 
$
113

 
$
122

Additions
35

 
10

 
21

Cash payments
(18
)
 
(32
)
 
(24
)
Other reductions
—

 
(2
)
 
(6
)
Balance, End of Year
$
106

 
$
89

 
$
113

In an effort to further reduce its global real estate footprint, AB completed a comprehensive review of its worldwide office locations and began implementing a global space consolidation plan in 2012. This resulted in the sublease of office space primarily in New York as well as offices in England, Australia and various U.S. locations. In 2016, AB recorded new real estate charges of $18 million, resulting from new charges of $23 million relating to the further consolidation of office space at AB's New York offices, offset by changes in estimates related to previously recorded real estate charges of $5 million, which reflects the shortening of the lease term of AB's corporate headquarters from 2029 to 2024. Real estate charges are recorded in Other operating costs and expenses in the Company’s consolidated Statements of earnings (loss).
Guarantees and Other Commitments
The Company provides certain guarantees or commitments to affiliates and others. At December 31, 2016, these arrangements include commitments by the Company to provide equity financing of $697 million (including $249 million with affiliates) to certain limited partnerships and real estate joint ventures under certain conditions. Management believes the Company will not incur material losses as a result of these commitments.
AXA Equitable is the obligor under certain structured settlement agreements it had entered into with unaffiliated insurance companies and beneficiaries. To satisfy its obligations under these agreements, AXA Equitable owns single premium annuities issued by previously wholly owned life insurance subsidiaries. AXA Equitable has directed payment under these annuities to be made directly to the beneficiaries under the structured settlement agreements. A contingent liability exists with respect to these agreements should the previously wholly owned subsidiaries be unable to meet their obligations. Management believes the need for AXA Equitable to satisfy those obligations is remote.
The Company had $18 million of undrawn letters of credit related to reinsurance at December 31, 2016. The Company had $883 million of commitments under existing mortgage loan agreements at December 31, 2016.
AB maintains a guarantee in connection with the AB Credit Facility. If SCB LLC is unable to meet its obligations, AB will pay the obligations when due or on demand. In addition, AB maintains guarantees totaling $425 million for the four of SCB LLC’s four uncommitted lines of credit.
AB maintains a guarantee with a commercial bank, under which it guarantees the obligations in the ordinary course of business of SCB LLC, Sanford C. Bernstein Limited (“SCBL”) and AllianceBernstein Holdings (Cayman) Ltd. (“AB Cayman”). AB also maintains three additional guarantees with other commercial banks under which it guarantees approximately $366 million of obligations for SCBL. In the event that SCB LLC, SCBL or AB Cayman is unable to meet its obligations, AB will pay the obligations when due or on demand.
During 2009, AB entered into a subscription agreement under which it committed to invest up to $35 million, as amended in 2011, in a venture capital fund over a six-year period. As of December 31, 2016 AB had funded $34 million of this commitment.
During 2010, as general partner of the AB U.S. Real Estate L.P. (the “Real Estate Fund”), AB committed to invest $25 million in the Real Estate Fund. As of December 31, 2016, AB had funded $21 million of this commitment.
During 2012, AB entered into an investment agreement under which it committed to invest up to $8 million in an oil and gas fund over a three-year period. As of December 31, 2016, AB had funded $6 million of this commitment.

AB has not been required to perform under any of the above agreements and currently have no liability in connection with these agreements.

196

17)
LITIGATION
Insurance Litigation

In July 2011, a derivative action was filed in the United States District Court of the District of New Jersey entitled Mary Ann Sivolella v. AXA Equitable Life Insurance Company and AXA Equitable Funds Management Group, LLC (“Sivolella Litigation”) and a substantially similar action was filed in January 2013 entitled Sanford et al. v. AX Equitable FMG (“Sanford Litigation”). These lawsuits were filed on behalf of a total of twelve mutual funds and, among other things, seek recovery under (i) Section 36(b) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), for alleged excessive fees paid to AXA Equitable and AXA Equitable Funds Management Group, LLC (“AXA Equitable FMG”) for investment management services and administrative services and (ii) a variety of other theories including unjust enrichment. The Sivolella Litigation and the Sanford Litigation were consolidated and a 25-day trial commenced in January 2016 and concluded in February 2016. In August 2016, the Court issued its decision in favor of AXA Equitable and AXA Equitable FMG, finding that the Plaintiffs had failed to meet their burden to demonstrate that AXA Equitable and AXA Equitable FMG breached their fiduciary duty in violation of Section 36(b) of the Investment Company Act or show any actual damages. In September 2016, the Plaintiffs filed a motion to amend the District Court’s trial opinion and to amend or make new findings of fact and/or conclusions of law. In December 2016, the Court issued an order denying the motion to amend and Plaintiffs filed a notice to appeal the District Court’s decision to the U.S. Court of Appeals for the Third Circuit.

In April 2014, a lawsuit was filed in the United States District Court for the Southern District of New York, now entitled Ross v. AXA Equitable Life Insurance Company. The lawsuit is a putative class action on behalf of all persons and entities that, between 2011 and March 11, 2014, directly or indirectly, purchased, renewed or paid premiums on life insurance policies issued by AXA Equitable (the “Policies”). The complaint alleges that AXA Equitable did not disclose in its New York statutory annual statements or elsewhere that the collateral for certain reinsurance transactions with affiliated reinsurance companies was supported by parental guarantees, an omission that allegedly caused AXA Equitable to misrepresent its “financial condition” and “legal reserve system.” The lawsuit seeks recovery under Section 4226 of the New York Insurance Law of all premiums paid by the class for the Policies during the relevant period. In July 2015, the Court granted AXA Equitable’s motion to dismiss for lack of subject matter jurisdiction. In April 2015, a second action in the United States District Court for the Southern District of New York was filed on behalf of a putative class of variable annuity holders with “Guaranteed Benefits Insurance Riders,” entitled Calvin W. Yarbrough, on behalf of himself and all others similarly situated v. AXA Equitable Life Insurance Company. The new action covers the same class period, makes substantially the same allegations, and seeks the same relief as the Ross action. In October 2015, the Court, on its own, dismissed the Yarbrough litigation on similar grounds as the Ross litigation. In December 2015, the Second Circuit denied the plaintiffs motion to consolidate their appeals but ordered that the appeals be heard together before a single panel of judges. In February 2017, the Second Circuit affirmed the decisions of the district court in favor of AXA Equitable.

In November 2014, a lawsuit was filed in the Superior Court of New Jersey, Camden County entitled Arlene Shuster, on behalf of herself and all others similarly situated v. AXA Equitable Life Insurance Company. This lawsuit is a putative class action on behalf of all AXA Equitable variable life insurance policyholders who allocated funds from their policy accounts to investments in AXA Equitable’s separate accounts, which were subsequently subjected to volatility-management strategy, and who suffered injury as a result thereof. The action asserts that AXA Equitable breached its variable life insurance contracts by implementing the volatility management strategy. In February 2016, the Court dismissed the complaint. In March 2016, the Plaintiff filed a notice of appeal. In August 2015, another lawsuit was filed in Connecticut Superior Court, Judicial Division of New Haven entitled Richard T. O’Donnell, on behalf of himself and all other similarly situated v. AXA Equitable Life Insurance Company. This lawsuit is a putative class action on behalf of all persons who purchased variable annuities from AXA Equitable which subsequently became subject to the volatility management strategy and who suffered injury as a result thereof. Plaintiff asserts a claim for breach of contract alleging that AXA Equitable implemented the volatility management strategy in violation of applicable law. In November 2015, the Connecticut Federal District Court transferred this action to the United States District Court for the Southern District of New York.

In February 2016, a lawsuit was filed in the United States District Court for the Southern District of New York entitled Brach Family Foundation, Inc. v. AXA Equitable Life Insurance Company. This lawsuit is a putative class action brought on behalf of all owners of UL policies subject to AXA Equitable’s cost of insurance (“COI”) increase. In early 2016, AXA Equitable raised COI rates for certain UL policies issued between 2004 and 2007, which had both issue ages 70 and above and a current face value amount of $1 million and above. The current complaint alleges a claim for breach of contract and a claim that the AXA Equitable made misrepresentations in violation of Section 4226 of the New York Insurance Law (“Section 4226”). Plaintiff seeks (a) with respect to its breach of contract claim, compensatory damages, costs, and, pre- and post-judgment interest, and (b) with respect to its claim concerning Section 4226, a penalty in the amount of premiums

197

paid by the Plaintiff and the putative class. AXA Equitable’s response to the complaint was filed in February 2017. Additionally, a separate putative class action and five individual actions challenging the COI increase have been filed against AXA Equitable.
AllianceBernstein Litigation
During the first quarter of 2012, AB received a legal letter of claim (the “Letter of Claim”) sent on behalf of Philips Pension Trustees Limited and Philips Electronics UK Limited (“Philips”), a former pension fund client, alleging that AB Limited (one of AB’s subsidiaries organized in the United Kingdom) was negligent and failed to meet certain applicable standards of care with respect to the initial investment in, and management of, a £500 million portfolio of U.S. mortgage-backed securities. Philips has alleged damages ranging between $177 million and $234 million, plus compound interest on an alleged $125 million of realized losses in the portfolio. On January 2, 2014, Philips filed a claim form (“Claim”) in the High Court of Justice in London, England, which formally commenced litigation with respect to the allegations in the Letter of Claim. By agreement dated November 26, 2016, the terms of which are confidential, this matter was settled. AB’s contribution to the settlement amount was paid by AB’s relevant insurance carriers.
_______________________________________________________________________________


Although the outcome of litigation and regulatory matters generally cannot be predicted with certainty, management intends to vigorously defend against the allegations made by the plaintiffs in the actions described above and believes that the ultimate resolution of the matters described therein involving AXA Equitable and/or its subsidiaries should not have a material adverse effect on the consolidated financial position of AXA Equitable. Management cannot make an estimate of loss, if any, or predict whether or not any of the matters described above will have a material adverse effect on AXA Equitable’s consolidated results of operations in any particular period.

In addition to the matters described above, a number of lawsuits, claims, assessments and regulatory inquiries have been filed or commenced against life and health insurers and asset managers in the jurisdictions in which AXA Equitable and its respective subsidiaries do business. These actions and proceedings involve, among other things, insurers’ sales practices, alleged agent misconduct, alleged failure to properly supervise agents, contract administration, product design, features and accompanying disclosure, cost of insurance increases, the use of captive reinsurers, payments of death benefits and the reporting and escheatment of unclaimed property, alleged breach of fiduciary duties, alleged mismanagement of client funds and other matters. In addition, a number of lawsuits, claims, assessments and regulatory inquiries have been filed or commenced against businesses in the jurisdictions in which AXA Equitable and its subsidiaries do business, including actions and proceedings related to alleged discrimination, alleged breaches of fiduciary duties in connection with qualified pension plans and other general business-related matters.  Some of the matters have resulted in the award of substantial fines and judgments, including material amounts of punitive damages, or in substantial settlements. Courts, juries and regulators often have substantial discretion in awarding damage awards and fines, including punitive damages. AXA Equitable and its subsidiaries from time to time are involved in such actions and proceedings. While the ultimate outcome of such matters cannot be predicted with certainty, in the opinion of management no such matter is likely to have a material adverse effect on AXA Equitable’s consolidated financial position or results of operations. However, it should be noted that the frequency of large damage awards, including large punitive damage awards and regulatory fines that bear little or no relation to actual economic damages incurred, continues to create the potential for an unpredictable judgment in any given matter.



198


18)
INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
AXA Equitable is restricted as to the amounts it may pay as dividends to AXA Financial. Under New York Insurance law, a domestic life insurer may not, without prior approval of the NYDFS, pay a dividend to its shareholders exceeding an amount calculated based on a statutory formula. This formula would permit AXA Equitable to pay shareholder dividends not greater than approximately $1,185 million during 2017. Payment of dividends exceeding this amount requires the insurer to file a notice of its intent to declare such dividends with the NYDFS who then has 30 days to disapprove the distribution. For 2016, 2015 and 2014, respectively, AXA Equitable’s statutory net income (loss) totaled $679 million, $2,038 million and $1,664 million. Statutory surplus, capital stock and Asset Valuation Reserve (“AVR”) totaled $5,278 million and $5,895 million at December 31, 2016 and 2015, respectively. In 2016, AXA Equitable paid $1,050 million in shareholder dividends. In 2015, AXA Equitable paid $767 million in shareholder dividends and transferred approximately 10.0 million in Units of AB (fair value of $245 million) in the form of a dividend to AEFS. In 2014, AXA Equitable paid $382 million in shareholder dividends.
At December 31, 2016, AXA Equitable, in accordance with various government and state regulations, had $57 million of securities on deposit with such government or state agencies.
In 2015, AXA Equitable repaid $200 million of third party surplus notes at maturity. In 2014, AXA Equitable, with the approval of the NYDFS, repaid at par value plus accrued interest of $825 million of outstanding surplus notes to AXA Financial.
At December 31, 2016 and for the year then ended, there were no differences in net income (loss) and capital and surplus resulting from practices prescribed and permitted by NYDFS and those prescribed by NAIC Accounting Practices and Procedures effective at December 31, 2016. The NYDFS is completing its periodic statutory examinations of the books, records and accounts of AXA Equitable for the years 2011 through 2015, but has not yet issued its final report.
Accounting practices used to prepare statutory financial statements for regulatory filings of stock life insurance companies differ in certain instances from U.S. GAAP. The differences between statutory surplus and capital stock determined in accordance with Statutory Accounting Principles (“SAP”) and total equity under U.S. GAAP are primarily: (a) the inclusion in SAP of an AVR intended to stabilize surplus from fluctuations in the value of the investment portfolio; (b) future policy benefits and policyholders’ account balances under SAP differ from U.S. GAAP due to differences between actuarial assumptions and reserving methodologies; (c) certain policy acquisition costs are expensed under SAP but deferred under U.S. GAAP and amortized over future periods to achieve a matching of revenues and expenses; (d) under SAP, Federal income taxes are provided on the basis of amounts currently payable with limited recognition of deferred tax assets while under U.S. GAAP, deferred taxes are recorded for temporary differences between the financial statements and tax basis of assets and liabilities where the probability of realization is reasonably assured; (e) the valuation of assets under SAP and U.S. GAAP differ due to different investment valuation and depreciation methodologies, as well as the deferral of interest-related realized capital gains and losses on fixed income investments; (f) the valuation of the investment in AB and AB Holding under SAP reflects a portion of the market value appreciation rather than the equity in the underlying net assets as required under U.S. GAAP; (g) reporting the surplus notes as a component of surplus in SAP but as a liability in U.S. GAAP; (h) computer software development costs are capitalized under U.S. GAAP but expensed under SAP; (i) certain assets, primarily prepaid assets, are not admissible under SAP but are admissible under U.S. GAAP, (j) the fair valuing of all acquired assets and liabilities including intangible assets are required for U.S. GAAP purchase accounting and (k) cost of reinsurance which is recognized as expense under SAP and amortized over the life of the underlying reinsured policies under U.S. GAAP.

199


19)
BUSINESS SEGMENT INFORMATION
The following tables reconcile segment revenues and earnings (loss) from operations before income taxes to total revenues and earnings (loss) as reported on the consolidated statements of earnings (loss) and segment assets to total assets on the consolidated balance sheets, respectively.
 
2016
 
2015
 
2014
 
(In Millions)
Segment revenues:
 
 
 
 
 
Insurance(1)
$
6,703

 
$
6,822

 
$
12,656

Investment Management(2)
3,029

 
3,025

 
3,011

Consolidation/elimination
(27
)
 
(28
)
 
(27
)
Total Revenues
$
9,705

 
$
9,819

 
$
15,640


(1)
Includes investment expenses charged by AB of approximately $50 million, $45 million and $40 million for 2016, 2015 and 2014, respectively, for services provided to the Company.

(2)
Intersegment investment advisory and other fees of approximately $77 million, $73 million and $67 million for 2016, 2015 and 2014, respectively, are included in total revenues of the Investment Management segment.
 
2016
 
2015
 
2014
 
(In Millions)
Segment earnings (loss) from operations, before income taxes:
 
 
 
 
 
Insurance
$
(274
)
 
$
1,033

 
$
5,512

Investment Management(1)
706

 
618

 
603

Consolidation/elimination
(1
)
 
(1
)
 
—

Total Earnings (Loss) from Operations, before Income Taxes
$
431

 
$
1,650

 
$
6,115

(1)
Net of interest expenses incurred on securities borrowed.
 
December 31,
 
2016
 
2015
 
(In Millions)
Segment assets:
 
 
 
Insurance
$
190,628

 
$
182,738

Investment Management(1)
13,139

 
11,895

Consolidation/elimination
(3
)
 
(7
)
Total Assets
$
203,764

 
$
194,626

(1)
In accordance with SEC regulations, the Investment Management segment includes securities with a fair value of $893 million and $460 million which have been segregated in a special reserve bank custody account at December 31, 2016 and 2015, respectively, for the exclusive benefit of securities broker-dealer or brokerage customers under the Exchange Act. They also include cash held in several special bank accounts for the exclusive benefit of customers. As of December 31, 2016 and December 31, 2015, $53 million and $55 million, respectively, of cash were segregated in these bank accounts.

200


20)
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 2016 and 2015 are summarized below:
 
Three Months Ended
 
March 31    
 
June 30    
 
September 30
 
December 31
 
(In Millions)
2016
 
 
 
 
 
 
 
Total Revenues
$
5,034

 
$
4,297

 
$
2,216

 
$
(1,842
)
Total benefits and other deductions
$
2,580

 
$
2,721

 
$
2,246

 
$
1,727

Net earnings (loss)
$
1,720

 
$
1,061

 
$
22

 
$
(2,259
)
2015
 
 
 
 
 
 
 
Total Revenues
$
3,567

 
$
220

 
$
5,714

 
$
318

Total benefits and other deductions
$
2,437

 
$
1,973

 
$
2,375

 
$
1,384

Net earnings (loss)
$
854

 
$
(1,025
)
 
$
2,275

 
$
(640
)

201

Report of Independent Registered Public Accounting Firm on
Financial Statement Schedules
To the Board of Directors and Shareholder of
AXA Equitable Life Insurance Company:
Our audits of the consolidated financial statements referred to in our report dated March 24, 2017 appearing in this Annual Report on Form 10-K of AXA Equitable Life Insurance Company also included an audit of the financial statement schedules listed in the Index to Consolidated Financial Statements and Schedules of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 24, 2017

202

AXA EQUITABLE LIFE INSURANCE COMPANY
SCHEDULE I
SUMMARY OF INVESTMENTS—OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2016
Type of Investment
Cost(A)
 
Fair Value
 
Carrying
Value
 
(In Millions)
Fixed Maturities:
 
 
 
 
 
U.S. government, agencies and authorities
$
10,739

 
$
10,336

 
$
10,336

State, municipalities and political subdivisions
432

 
493

 
493

Foreign governments
365

 
378

 
378

Public utilities
3,437

 
3,617

 
3,617

All other corporate bonds
16,663

 
17,224

 
17,224

Redeemable preferred stocks
487

 
522

 
522

Total fixed maturities
32,123

 
32,570

 
32,570

Equity securities:
 
 
 
 
 
Common stocks:
 
 
 
 
 
Industrial, miscellaneous and all other(B)
113

 
113

 
113

Mortgage loans on real estate
9,765

 
9,608

 
9,757

Policy loans
3,361

 
4,257

 
3,361

Other limited partnership interests and equity investments(B)
1,295

 
1,295

 
1,295

Trading securities
9,177

 
9,134

 
9,134

Other invested assets
2,186

 
2,186

 
2,186

Total Investments
$
58,020

 
$
59,163

 
$
58,416


(A)
Cost for fixed maturities represents original cost, reduced by repayments and writedowns and adjusted for amortization of premiums or accretion of discount; cost for equity securities represents original cost reduced by writedowns; cost for other limited partnership interests represents original cost adjusted for equity in earnings and reduced by distributions.

(B)
Included in Other Equity Investments.

203

AXA EQUITABLE LIFE INSURANCE COMPANY
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2016

Segment
 
Deferred
Policy
Acquisition
Costs
 
Policyholders’
Account
Balances
 
Future Policy
Benefits
and other
Policyholders’
Funds
 
Policy
Charges
And
Premium
Revenue
 
Net
Investment
Income
(Loss)(1)
 
Policyholders’
Benefits and
Interest
Credited
 
Amortization
of Deferred
Policy
Acquisition
Costs
 
Other
Operating
Expense(2)
 
 
(In Millions)
Insurance
 
$
4,301

 
$
38,782

 
$
25,358

 
$
4,303

 
$
1,671

 
$
4,448

 
$
162

 
$
2,367

Investment Management
 
—

 
—

 
—

 
—

 
135

 
—

 
—

 
2,323

Consolidation/ Elimination
 
—

 
—

 
—

 
—

 
50

 
—

 
—

 
(26
)
Total
 
$
4,301

 
$
38,782

 
$
25,358

 
$
4,303

 
$
1,856

 
$
4,448

 
$
162

 
$
4,664


(1)
Net investment income (loss) is based upon specific identification of portfolios within segments.

(2)
Operating expenses are principally incurred directly by a segment.


204

AXA EQUITABLE LIFE INSURANCE COMPANY
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2015

Segment
 
Deferred
Policy
Acquisition
Costs
 
Policyholders’
Account
Balances
 
Future Policy
Benefits
and other
Policyholders’
Funds
 
Policy
Charges
And
Premium
Revenue
 
Net
Investment
Income
(Loss)(1)
 
Policyholders’
Benefits and
Interest
Credited
 
Amortization
of Deferred
Policy
Acquisition
Costs
 
Other
Operating
Expense(2)
 
 
(In Millions)
Insurance
 
$
4,469

 
$
33,033

 
$
24,531

 
$
4,062

 
$
1,898

 
$
3,777

 
$
(331
)
 
$
2,343

Investment Management
 
—

 
—

 
—

 
—

 
33

 
—

 
—

 
2,407

Consolidation/ Elimination
 
—

 
—

 
—

 
—

 
45

 
—

 
—

 
(27
)
Total
 
$
4,469

 
$
33,033

 
$
24,531

 
$
4,062

 
$
1,976

 
$
3,777

 
$
(331
)
 
$
4,723


(1)
Net investment income (loss) is based upon specific identification of portfolios within segments.

(2)
Operating expenses are principally incurred directly by a segment.


205

AXA EQUITABLE LIFE INSURANCE COMPANY
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2014


Segment
 
Deferred
Policy
Acquisition
Costs
 
Policyholders’
Account
Balances
 
Future Policy
Benefits
and other
Policyholders’
Funds
 
Policy
Charges
And
Premium
Revenue
 
Net
Investment
Income
(Loss)(1)
 
Policyholders’
Benefits and
Interest
Credited
 
Amortization
of Deferred
Policy
Acquisition
Costs
 
Other
Operating
Expense(2)
 
 
(In Millions)
Insurance
 
$
4,271

 
$
31,848

 
$
23,484

 
$
3,989

 
$
3,760

 
$
4,894

 
$
(413
)
 
$
2,663

Investment Management
 
—

 
—

 
—

 
—

 
15

 
—

 
—

 
2,408

Consolidation/ Elimination
 
—

 
—

 
—

 
—

 
40

 
—

 
—

 
(27
)
Total
 
$
4,271

 
$
31,848

 
$
23,484

 
$
3,989

 
$
3,815

 
$
4,894

 
$
(413
)
 
$
5,044


(1)
Net investment income (loss) is based upon specific identification of portfolios within segments.

(2)
Operating expenses are principally incurred directly by a segment.


206

AXA EQUITABLE LIFE INSURANCE COMPANY
SCHEDULE IV
REINSURANCE(A) 
AT OR FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
 
Gross
Amount
 
Ceded to
Other
Companies
 
Assumed
from
Other
Companies
 
Net
Amount
 
Percentage
of Amount
Assumed
to Net
 
(Dollars In Millions)
2016
 
 
 
 
 
 
 
 
 
Life Insurance In-Force
$
399,230

 
$
78,760

 
$
31,722

 
$
352,192

 
9.0
%
Premiums:
 
 
 
 
 
 
 
 
 
Life insurance and annuities
$
790

 
$
135

 
$
197

 
$
852

 
23.1
%
Accident and health
60

 
41

 
9

 
28

 
32.1
%
Total Premiums
$
850

 
$
176

 
$
206

 
$
880

 
23.4
%
2015
 
 
 
 
 
 
 
 
 
Life Insurance In-Force
$
406,240

 
$
82,927

 
$
31,427

 
$
354,740

 
8.9
%
Premiums:
 
 
 
 
 
 
 
 
 
Life insurance and annuities
$
753

 
$
128

 
$
197

 
$
822

 
24.0
%
Accident and health
67

 
45

 
10

 
32

 
31.3
%
Total Premiums
$
820

 
$
173

 
$
207

 
$
854

 
24.2
%
2014
 
 
 
 
 
 
 
 
 
Life Insurance In-Force
$
412,215

 
$
87,177

 
$
31,767

 
$
356,805

 
8.9
%
Premiums:
 
 
 
 
 
 
 
 
 
Life insurance and annuities
$
775

 
$
132

 
$
199

 
$
842

 
23.6
%
Accident and health
69

 
49

 
12

 
32

 
37.5
%
Total Premiums
$
844

 
$
181

 
$
211

 
$
874

 
24.1
%
(A)
Includes amounts related to the discontinued group life and health business.

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Part II, Item 9.
AXA EQUITABLE LIFE INSURANCE COMPANY
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.


208

Part II, Item 9A
CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
An evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of AXA Equitable Life Insurance Company (“AXA Equitable”) and its subsidiaries’ (together, the “Company”) disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2016. Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that the AXA Equitable’s disclosure controls and procedures are effective.
Management’s annual report on internal control over financial reporting
Management, including the Chief Executive Officer and Chief Financial Officer of AXA Equitable, is responsible for establishing and maintaining adequate internal control over AXA Equitable’s financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
AXA Equitable’s management assessed the effectiveness of its internal control over financial reporting as of December 31, 2016 in relation to the criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment under those criteria, management concluded that AXA Equitable’s internal control over financial reporting was effective as of December 31, 2016.
This annual report does not include an attestation report of AXA Equitable’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by AXA Equitable’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit AXA Equitable to provide only management’s report in this annual report.
Changes in internal control over financial reporting
There were no changes to AXA Equitable’s internal control over financial reporting that occurred during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect AXA Equitable’s internal control over financial reporting.


209

Part II, Item 9B.
OTHER INFORMATION
None.


210

Part III, Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
BOARD OF DIRECTORS
The Board currently consists of ten members, including our Chairman of the Board, President and Chief Executive Officer, two senior executives of AXA and seven independent members.

The Board holds regular quarterly meetings, generally in February, May, September, and November of each year, and holds special meetings or takes action by unanimous written consent as circumstances warrant. The Board has standing Executive, Audit, Organization and Compensation, and Investment Committees, each of which is described in further detail below. Each of the Directors attended at least 75% of the Board and committee meetings to which he or she was assigned during 2016, except Mr. Buberl.
The current members of our Board are as follows:
Mark Pearson
Mr. Pearson, age 58, has been a Director of AXA Equitable since January 2011 and currently serves as our Chairman of the Board, President and Chief Executive Officer. From February 2011 through September 2013, he served as Chairman of the Board and Chief Executive Officer. Mr. Pearson also serves as President and Chief Executive Officer of AXA Financial since February 2011. Mr. Pearson is also a member of the AXA Group Management Committee. Mr. Pearson joined AXA in 1995 with the acquisition of National Mutual Holdings and was appointed Regional Chief Executive of AXA Asia Life in 2001. In 2008, he became President and Chief Executive Officer of AXA Japan Holding Co. Ltd. (“AXA Japan”) and was appointed a member of the Executive Committee of AXA. Before joining AXA, Mr. Pearson spent approximately 20 years in the insurance sector, assuming several senior manager positions at Hill Samuel, Schroders National Mutual Holdings and Friends Provident. Mr. Pearson is a Fellow of the Chartered Association of Certified Accountants and is a member of the Board of Directors of the American Council of Life Insurers and the Financial Services Roundtable. Mr. Pearson is also a director of AXA Financial (since January 2011), MONY America (since January 2011) and AllianceBernstein Corporation (since February 2011).

Mr. Pearson brings to the Board diverse financial services experience developed though his service as an executive, including as a Chief Executive Officer, to AXA Financial, AXA Japan and other AXA affiliates.

Thomas Buberl
Mr. Buberl, age 43, has been a director of AXA Equitable since May 2016. Mr. Buberl has served as Chief Executive Officer of AXA since September 2016. From March 2016 to August 2016, Mr. Buberl served as Deputy Chief Executive Officer of AXA. Prior thereto, Mr. Buberl served as Chief Executive Officer of AXA Konzern AG (May 2012 to March 2016), Chief Executive Officer for the global business line for the Health Business (March 2015 to March 2016) and Chief Executive Officer for the global business line for the Life and Savings Business (January 2016 to March 2016). From November 2008 to April 2012, Mr. Buberl served as Chief Executive Officer for Switzerland of Zurich Financial Services (“Zurich”). Prior to joining Zurich, Mr. Buberl held various management positions with Boston Consulting Group (February 2000 to October 2005) and Winterthur Group (November 2005 to October 2008). Mr. Buberl is also a director of AXA Financial and MONY America since May 2016 and various other subsidiaries and affiliates of the AXA Group.

Mr. Buberl brings to the Board his extensive experience and key leadership skills developed through his service as an executive, including invaluable perspective as the Chief Executive Officer of AXA. The Board also benefits from his perspective as a member of the AXA Group Management Committee.

Ramon de Oliveira
Mr. de Oliveira, age 62, has been a Director of AXA Equitable since May 2011. Mr. de Oliveira has been a member of AXA’s Board of Directors since April 2010, where he serves on the Finance Committee (Chair) and Audit Committee, and from April 2009 to May 2010, he was a member of AXA’s Supervisory Board. He is currently the Managing Director of the consulting firm Investment Audit Practice, LLC, based in New York, NY. From 2002 to 2006, Mr. de Oliveira was an adjunct professor of Finance at Columbia University. Prior thereto, starting in 1977, he spent 24 years at JP Morgan & Co. where he was Chairman and Chief Executive Officer of JP Morgan Investment Management and was also a member of the firm’s Management Committee since its inception in 1995. Upon the merger with Chase Manhattan Bank in 2001, Mr. de Oliveira was the only executive from JP Morgan & Co. asked to join the Executive Committee of the new firm with operating responsibilities. Mr. de Oliveira is currently a member of the Board of Directors of Investment Audit Practice, LLC, Fonds de Dotation du Louvre and JACCAR Holdings. Previously

211

he was a Director of JP Morgan Suisse, American Century Company, Inc., SunGard Data Systems and The Hartford Insurance Company. Mr. de Oliveira is also a director of AXA Financial and MONY America since May 2011.

Mr. de Oliveira brings to the Board extensive financial services experience, and key leadership and analytical skills developed through his roles within the financial services industry and academia. The Board also benefits from his perspective as a director of AXA and as a former director of other companies.

Paul Evans
Mr. Evans, age 51, has been a director of AXA Equitable since November 2016. Mr. Evans has served as Group Chief Executive Officer of AXA Global Life, Savings and Health and has been a member of the AXA Group Management Committee since July 2016. Prior thereto, Mr. Evans served as Group Chief Executive Officer of AXA UK and Ireland (from 2010 to June 2016) and Chairman of AXA Corporate Solutions (from 2015 to June 2016). From 2003 to 2010, Mr. Evans served as Chief Executive Officer of AXA Life in the UK and between 2001 and May 2003, Mr. Evans served as Group Finance Director of AXA UK and Ireland. Prior to joining AXA in 2000, Mr. Evans spent thirteen years with PricewaterhouseCoopers. From 2014 to June 2016, Mr. Evans served as Chairman of the Association of British Insurers. Mr. Evans is also a director of AXA Financial and MONY America since November 2016 and various other subsidiaries and affiliates of the AXA Group.

Mr. Evans brings to the Board his extensive experience and key leadership skills developed through his service as an executive with AXA, including as Group Chief Executive Officer of AXA Global Life, Savings and Health. The Board also benefits from his perspective as a member of the AXA Group Management Committee.

Barbara Fallon-Walsh
Ms. Fallon-Walsh, age 64, has been a Director of AXA Equitable since May 2012.  Ms. Fallon-Walsh was with The Vanguard Group, Inc. (“Vanguard”) from 1995 until her retirement in 2012, where she held several executive positions, including Head of Institutional Retirement Plan Services from 2006 through 2011. Ms. Fallon-Walsh started her career at Security Pacific Corporation in 1979 and held a number of senior and executive positions with the company, which merged with Bank of America in 1992. From 1992 until joining Vanguard in 1995, Ms. Fallon-Walsh served as Executive Vice President, Bay Area Region and Los Angeles Gold Coast Region for Bank of America. Ms. Fallon-Walsh is currently a member of the Boards of Directors of AXA Investment Managers S.A. (“AXA IM”), where she serves on the Audit and Risk Committee and the Remuneration Committee, and of AXA IM Inc. and AXA Rosenberg Group LLC (“AXA Rosenberg”). Ms. Fallon-Walsh is also a director of AXA Financial and MONY America since May 2012.

Ms. Fallon-Walsh brings to the Board extensive financial services and general management expertise through her executive positions at Vanguard, Bank of America and Security Pacific National Bank and through her perspective as a director of AXA IM, AXA IM Inc. and AXA Rosenberg. The Board also benefits from her extensive knowledge of the retirement business.

Daniel G. Kaye
Mr. Kaye, age 62, has been a Director of AXA Equitable since September 2015. From January 2013 to May 2014, Mr. Kaye served as Interim Chief Financial Officer and Treasurer of HealthEast Care System (“HealthEast”). Prior to joining HealthEast, Mr. Kaye spent 35 years with Ernst & Young LLP (“Ernst & Young”) from which he retired in 2012. Throughout his time at Ernst & Young, where he was an audit partner for 25 years, Mr. Kaye enjoyed a track record of increasing leadership and responsibilities, including serving as the New England Managing Partner and the Midwest Managing Partner of Assurance. Mr. Kaye was a member of the Board of Directors of Ferrellgas Partners L.P. (“Ferrellgas”) from August 2012 to November 2015 where he served on the Audit Committee and Corporate Governance and Nominating Committee (Chair). Mr. Kaye is a Certified Public Accountant and National Association of Corporate Directors (NACD) Board Leadership Fellow. Mr. Kaye is also a director of AXA Financial and MONY America since September 2015.

Mr. Kaye brings to the Board invaluable expertise as an audit committee financial expert, and extensive financial services and insurance industry experience and his general knowledge and experience in financial matters developed through his roles at Ernst & Young and HealthEast. The Board also benefits from his experience as a director of Ferrellgas.

Kristi A. Matus
Ms. Matus, age 48, has been a Director of AXA Equitable since September 2015. From July 2014 to May 2016, Ms. Matus served as Executive Vice President and Chief Financial & Administrative Officer of athenahealth, Inc. (“athenahealth”). Prior to joining athenahealth, Ms. Matus served as Executive Vice President and Head of Government Services of Aetna, Inc. (“Aetna”) from February 2012 to July 2013. Prior to Aetna, she held several senior leadership roles at United Services Automobile Association (“USAA”), including Executive Vice President and Chief Financial Officer from 2008 to 2012. She began her career at the Aid Association for Lutherans, where she held various financial and operational roles for over a decade. Ms. Matus is currently a

212

member of the Board of Directors of Tru Optik Data Corp. (“Tru Optik”) and Jordan Health Services, Inc. (“Jordan Health”). Ms. Matus is also a director of AXA Financial and MONY America since September 2015.

Ms. Matus brings to the Board extensive management expertise, finance, corporate governance and key leadership skills developed through her roles at athenahealth, Aetna and USAA. The Board also benefits from her experience as a director of Tru Optik and Jordan Health.

Bertram L. Scott
Mr. Scott, age 65, has been a Director of AXA Equitable since May 2012. Mr. Scott has served as Senior Vice President of population health of Novant Health, Inc. since February 2015. From November 2012 through December 2014, Mr. Scott served as President and Chief Executive Officer of Affinity Health Plans. From June 2010 to December 2011, Mr. Scott served as President, U.S. Commercial of CIGNA Corporation. Prior thereto, he served as Executive Vice President of TIAA-CREF from 2000 to June 2010 and as President and Chief Executive Officer of TIAA-CREF Life Insurance Company from 2000 to 2007. Mr. Scott is currently a member of the Board of Directors of Becton, Dickinson and Company, where he serves on the Audit Committee (Chair) and Compensation and Benefits Committee, and Lowe’s Companies, Inc., where he serves on the Audit Committee and Governance Committee. Mr. Scott is also a director of AXA Financial and MONY America since May 2012.

Mr. Scott brings to the Board invaluable expertise as an audit committee financial expert, and strong strategic and operational expertise acquired through the variety of executive roles in which he has served during his career. The Board also benefits from his perspective as a director of Becton, Dickinson and Company and Lowe’s Companies, Inc.

Lorie A. Slutsky
Ms. Slutsky, age 64, has been a Director of AXA Equitable since September 2006. Ms. Slutsky has served as President and Chief Executive Officer of The New York Community Trust, a community foundation that manages a $2.5 billion endowment and annually grants more than $150 million to non-profit organizations, since January 1990. Ms. Slutsky was a board member of the Independent Sector and co-chaired its National Panel on the Non-Profit Sector, which focused on reducing abuse and improving governance practices at non-profits. She also served on the Board of Directors of BoardSource from 1999 to 2008 and served as its Chair from 2005 to 2007. She also served on the Board of Directors of the Council on Foundations from 1989 to 1995 and as its Chair from 1992 to 1994. Ms. Slutsky served as Trustee and Chair of the Budget Committee of Colgate University from 1989 to 1997. Ms. Slutsky is also a director of AXA Financial and MONY America (since September 2006) and AllianceBernstein Corporation (since July 2002).

Ms. Slutsky brings to the Board extensive corporate governance experience through her executive and managerial roles at The New York Community Trust, BoardSource and various other non-profit organizations.
 
Richard C. Vaughan
Mr. Vaughan, age 67, has been a Director of AXA Equitable since May 2010. From 1995 to May 2005, Mr. Vaughan served as Executive Vice President and Chief Financial Officer of Lincoln Financial Group (“Lincoln”). Mr. Vaughan joined Lincoln in July 1990 as Senior Vice President and Chief Financial Officer of Lincoln’s Employee Benefits Division. In June 1992, Mr. Vaughan was appointed Chief Financial Officer of Lincoln and was promoted to Executive Vice President of Lincoln in January 1995. Mr. Vaughan is a member of the Board of Directors of MBIA Inc., where he serves on the Finance and Risk Committee (Chair), Audit Committee and Executive Committee. Previously, Mr. Vaughan was also a Director of The Bank of New York and Davita, Inc. Mr. Vaughan is also a director of AXA Financial and MONY America since May 2010.

Mr. Vaughan brings to the Board invaluable expertise as an audit committee financial expert, and extensive financial services and insurance industry experience and his general knowledge and experience in financial matters, including as a Chief Financial Officer. The Board also benefits from his perspective as a director of MBIA, Inc. and as a former director to other public companies.

EXECUTIVE OFFICERS
The current executive officers (other than Mr. Pearson, whose biography is included above in the Board of Directors information) are as follows:

Josh Braverman, Senior Executive Director
Mr. Braverman, age 50, joined AXA Equitable in 2009 and currently serves as Senior Executive Director. Mr. Braverman is responsible for the management of the Company’s legacy book of annuities and life insurance products. Prior to this role, Mr. Braverman most recently served as Senior Executive Director, Chief Investment Officer and Treasurer. In this role, Mr. Braverman was responsible for, among other things, the overall investment strategy of our general account investment portfolio, managing our financing and liquidity requirements, and developing and implementing our derivatives and hedging strategy. Prior to joining

213

AXA Equitable, Mr. Braverman was the Global Head of Derivatives at Aegon N.V. from 2003 to 2009. Previously, Mr. Braverman worked for the U.S. Department of Treasury as a sovereign debt advisor, Deutsche Bank as Director of mortgage derivatives trading and Goldman Sachs as Vice President, Fixed Income Proprietary Trading.

Marine de Boucaud, Senior Executive Director and Chief Human Resources Officer
Ms. de Boucaud, age 48, joined AXA Equitable in July 2016 and currently serves as Senior Executive Director and Chief Human Resources Officer. Ms. de Boucaud is responsible for developing and executing a business-aligned human capital management strategy focused on leadership development, talent management and total rewards. Ms. de Boucaud also oversees internal communications and the AXA Foundation. Prior to joining AXA Equitable, Ms. de Boucaud served as the Head of Human Resources of AXA France from October 2012 to June 2016. Ms. de Boucaud began her career with AXA in 2010 as the Head of Talent Management. Prior to joining AXA, Ms. de Boucaud was a senior consultant at Spencer Stuart from March 2008 to September 2010. Prior to joining Spencer Stuart, Ms. de Boucaud held various roles on increasing responsibility at Korn Ferry Whitehead Mann, Jouve & Associés and BNP Paribas.

Dave S. Hattem, Senior Executive Director and General Counsel
Mr. Hattem, age 60, joined AXA Equitable in 1994 and currently serves as Senior Executive Director and General Counsel. Mr. Hattem is responsible for oversight of the Law Department, including the National Compliance Office, setting the strategic direction of the Department and ensuring the business areas are advised as to choices and opportunities available under existing law to enable company goals. Prior to his election as general counsel in 2010, Mr. Hattem served as senior vice president and deputy general counsel, taking on this role in 2004. Prior to joining AXA Equitable, Mr. Hattem served in several senior management positions in the Office of the United States Attorney for the Eastern District of New York. Mr. Hattem began his professional legal career as an Associate in the Litigation Department of Barrett Smith Schapiro Simon & Armstrong. Mr. Hattem is a member of the Board of Directors of The Life Insurance Council of New York.

Michael B. Healy, Senior Executive Director and Chief Information Officer
Mr. Healy, age 49, joined AXA Equitable in 2006 and currently serves as Senior Executive Director and Chief Information Officer. Mr. Healy is responsible for the information technology function, directing all systems strategy and delivery, including infrastructure, application development, corporate architecture and electronic commerce. Mr. Healy is also responsible for the overall management of AXA Equitable’s relationship with AXA Technology Services, the AXA company that provides global technology infrastructure service and support. Prior to this role, Mr. Healy served as chief operations officer of our information technology organization, responsible for overseeing the day-to-day operations of that organization. Prior to joining AXA Equitable, Mr. Healy served as a senior vice president at Marsh & McLennan and in managerial roles at PricewaterhouseCoopers

Adrienne Johnson, Senior Executive Director and Chief Transformation Officer
Ms. Johnson, age 47, joined AXA Equitable in February 1999 and currently serves as Senior Executive Director and Chief Transformation Officer. Ms. Johnson is responsible for operations, corporate sourcing and procurement, corporate real estate, data and strategic taskforces. Ms. Johnson leads the transformation team in supporting the businesses growth of priority segments and distribution transformation, and works closely with AXA’s customer team to shape the customer experience. Prior to this role, Ms. Johnson most recently served as Managing Director and Chief Auditor from April 2012 to September 2016 and led the Strategic Initiatives Group from 2007 to April 2012. Prior to joining AXA Equitable, Ms. Johnson held positions with Enterprise IG, a part of the WPP Group, AIG Trading Group, Morgan Stanley and Shearson Lehman Brothers.

Anders Malmstrom, Senior Executive Director and Chief Financial Officer
Mr. Malmstrom, age 49, joined AXA Equitable in June 2012 and currently serves as Senior Executive Director and Chief Financial Officer. Mr. Malmstrom is responsible for all actuarial and investment functions, with oversight of the controller, tax, expense management and distribution finance areas. Prior to joining AXA Equitable, Mr. Malmstrom was a member of the Executive Board and served as the Head of the Life Business at AXA Winterthur. Prior to joining AXA Winterthur in January 2009, Mr. Malmstrom was a Senior Vice President at Swiss Life, where he was also a member of the Management Committee. Mr. Malmstrom joined Swiss Life in 1997, and held several positions of increasing responsibility during his tenure.

Brian Winikoff, Senior Executive Director and Head of U.S. Life, Retirement and Wealth Management
Mr. Winikoff, age 44, joined AXA Equitable in July 2016 and currently serves as Senior Executive Director and Head of U.S. Life, Retirement and Wealth Management. Mr. Winikoff is responsible for all aspects of the U.S. life, retirement and wealth management business, which includes financial protection, wealth management, employee benefits, employee sponsored and individual annuity. Mr. Winikoff also leads AXA Equitable Funds Management Group. Prior to joining AXA Equitable, Mr. Winikoff served as President and Chief Executive Officer of Crump Life Insurance Services, Inc. (“Crump”). Prior thereto, Mr. Winikoff served in multiple roles at Crump from 2002 to 2008, including as Chief Financial Officer and Vice President, Investor Relations and Corporate Finance. From 2000 to 2002, Mr. Winikoff served as Vice President of Finance, Corporate Treasurer and Head of Investor Relations for LoudCloud Inc., an IT outsource provider.

214


CORPORATE GOVERNANCE
Committees of the Board
The Executive Committee of the Board (“Executive Committee”) is currently comprised of Mr. Pearson (Chair), Mr. Buberl, Ms. Fallon-Walsh, Ms. Slutsky and Mr. Vaughan. The function of the Executive Committee is to exercise the authority of the Board in the management of AXA Equitable between meetings of the Board with the exceptions set forth in AXA Equitable's By-Laws. The Executive Committee held no meetings in 2016.

The Audit Committee of the Board (“Audit Committee”) is currently comprised of Mr. Vaughan (Chair), Ms. Fallon-Walsh, Mr. Kaye and Mr. Scott. The primary purposes of the Audit Committee are to: (i) assist the Board of Directors in its oversight of the (1) adequacy and effectiveness of the internal control and risk management frameworks, (2) financial reporting process and the integrity of the publicly reported results and disclosures made in the financial statements and (3) effectiveness and performance of the internal and external auditors and the independence of the external auditor; (ii) approve (1) the appointment, compensation and retention of the external auditor in connection with the annual audit and (2) the audit and non-audit services to be performed by the external auditor and (iii) resolve any disagreements between management and the external auditor regarding financial reporting. The Board has determined that each of Messrs. Vaughan, Kaye and Scott is an “audit committee financial expert” within the meaning of Item 407(d) of Regulation S-K. The Board has also determined that each member of the Audit Committee is financially literate. The Audit Committee met eight times in 2016.

The Organization and Compensation Committee of the Board (“OCC”) is currently comprised of Ms. Slutsky (Chair), Ms. Fallon-Walsh, Ms. Matus and Mr. Scott. The primary purpose of the OCC is to: (i) recommend to the Board individuals to become Board members and the composition of the Board and its Committees; (ii) recommend to the Board the selection of executive management and to receive reports on succession planning for executive management; and (iii) be responsible for general oversight of compensation and compensation related matters. The OCC held four meetings in 2016.

The Investment Committee of the Board (“Investment Committee”) is currently comprised of Ms. Fallon-Walsh (Chair), Mr. Buberl, Mr. de Oliveira, Mr. Kaye, Mr. Pearson and Mr. Vaughan. The primary purpose of the Investment Committee is to oversee the investments of AXA Equitable by (i) taking actions with respect to the acquisition, management and disposition of investments and (ii) reviewing investment risk, exposure and performance, as well as the investment performance of products and accounts managed on behalf of third parties. The Investment Committee met four times in 2016.
Independence of Certain Directors
Although not subject to the independence standards of the New York Stock Exchange, as a best practice we have applied the independence standards required for listed companies of the New York Stock Exchange to the current members of the Board of Directors. At the February 2017 meeting, applying these standards, the Board of Directors determined that each of Mr. de Oliveira, Ms. Fallon-Walsh, Mr. Kaye, Ms. Matus, Mr. Scott, Ms. Slutsky and Mr. Vaughan is independent.
Code of Ethics
All of our officers and employees, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, are subject to the AXA Financial Policy Statement on Ethics (the “Code of Ethics”), a code of ethics as defined under Regulation S-K.

The Code of Ethics complies with Section 406 of the Sarbanes-Oxley Act of 2002 and is available on our website at www.axa.com. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding certain amendments to or waivers from provisions of the Code of Ethics that apply to our chief executive officer, chief financial officer and chief accounting officer by posting such information on our website at the above address. To date, there have been no such amendments or waivers.
Section 16(a) Beneficial Ownership Reporting Compliance
Not applicable.

215

Part III, Item 11.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS

This section provides an overview of the goals and principal components of AXA Equitable’s executive compensation program and describes how the compensation of the “Named Executive Officers” is determined. For 2016, the Named Executive Officers were:

•
Mark Pearson, Chairman of the Board, President and Chief Executive Officer

•
Anders Malmstrom, Senior Executive Director and Chief Financial Officer

•
Brian Winikoff, Senior Executive Director and Head of U.S. Life, Retirement and Wealth Management
 
•
Dave Hattem, Senior Executive Director and General Counsel

•
Michael Healy, Senior Executive Director and Chief Information Officer

•
Sharon Ritchey, Senior Executive Director and Chief Customer Officer through December 30, 2016

•
Priscilla Brown, Senior Executive Director and Chief Marketing Officer through August 31, 2016

The details of each Named Executive Officer’s compensation may be found in the Summary Compensation Table and other compensation tables included in this Item 11.

Compensation Program Overview

Goal

The overriding goal of AXA Equitable’s executive compensation program is to attract, retain and motivate top-performing executive officers who will dedicate themselves to the long-term financial and operational success of AXA Equitable, AXA Financial and AXA Financial Group’s insurance-related businesses (“AXA Financial Life and Savings Operations”) as well as our ultimate parent and shareholder, AXA. Accordingly, as further described below, the program incorporates metrics which measure that success.

Since the executive officers of AB are principally responsible for the success of the Investment Management Segment, they do not participate in AXA Equitable’s executive compensation program. AB maintains separate compensation plans and programs, the details of which may be found in the AB 10-K.

Philosophy and Strategy

To achieve its goal, AXA Equitable’s executive compensation program is structured to foster a pay-for-performance management culture by:

•
providing total compensation opportunities that are competitive with the levels of total compensation available at the large diversified financial services companies with which the AXA Financial Group most directly competes in the marketplace;

•
making performance-based variable compensation the principal component of executive pay to drive superior performance by basing a significant portion of the executive officers’ financial success on the financial and operational success of AXA Financial Life and Savings Operations and AXA;

•
setting performance objectives and targets for variable compensation arrangements that provide individual executives with the opportunity to earn above-median compensation by achieving above-target results;

•
establishing equity-based arrangements that align the executives’ financial interests with those of AXA by ensuring the executives have a material financial stake in the rising equity value of AXA and the business success of its affiliates; and


216

•
structuring compensation packages and outcomes to foster internal equity.

Compensation Components

To support this pay-for-performance strategy, the Total Compensation Program provides a mix of fixed and variable compensation components that bases the majority of each executive’s compensation on the success of AXA Financial Life and Savings Operations and AXA as well as an assessment of each executive’s overall contribution to that success.

Fixed Component

The fixed compensation component of the Total Compensation Program, base salary, falls within the market median of the large diversified financial services companies that are the AXA Financial Group’s major competitors and is meant to fairly and competitively compensate executives for their positions and the scope of their responsibilities.

Variable Components

The variable compensation components of the Total Compensation Program, the short-term incentive compensation program and equity-based awards, give executives the opportunity to receive compensation at the median of the market if they meet various corporate and individual financial and operational goals and to receive compensation above the median if they exceed their goals. The variable compensation components measure and reward performance with short-term and long-term focuses.

The short-term incentive compensation program focuses executives on annual corporate and business unit goals that, when attained, drive AXA’s global success. It also serves as the primary means for differentiating, recognizing and most directly rewarding individual executives for their personal achievements and leadership based on both qualitative and quantitative results.

Equity-based awards are structured to reward long-term value creation. Performance share awards granted in 2014 will vest partially after three years and partially after four years. Performance shares granted in 2015 and 2016 will vest after four years. Stock options are intended to focus executives on a longer time horizon. Stock options are typically granted with vesting schedules of four or five years and terms of 10 years so that they effectively merge a portion of each executive’s compensation with the long-term financial success of AXA. AXA Equitable is confident that the direct alignment of the long-term interests of the executives with those of AXA, combined with the multi-year vesting and performance periods of its equity-based awards, promotes executive retention, focuses executives on gearing their performances to long-term value-creation strategies and discourages excessive risk-taking.
How Compensation Decisions Are Made
Role of the AXA Board of Directors

The global framework governing the executive compensation policies for AXA Group and its U.S. subsidiaries, including AXA Equitable, is set and administered at the AXA level through the operations of AXA’s Board of Directors. The AXA Board of Directors (i) reviews the compensation policies that apply to executives of AXA Group worldwide, which are then adapted to local law, conditions and practices by the boards of directors and compensation committees of AXA’s subsidiaries, (ii) sets annual caps on equity-based awards, (iii) reviews and approves all AXA equity-based compensation programs prior to their implementation and (iv) approves individual grants of equity-based awards.

The Compensation and Governance Committee of the AXA Board of Directors is responsible for reviewing the compensation of key executives of the AXA Group, including Mr. Pearson. The Compensation and Governance Committee also recommends to the AXA Board of Directors the amount of equity-based awards to be granted to the members of the Management Committee, an internal committee established to assist the Chief Executive Officer of AXA with the operational management of the AXA Group. Mr. Pearson is a member of the Management Committee. The Compensation and Governance Committee is exclusively composed of directors determined to be independent by the AXA Board of Directors in accordance with the criteria set forth in the Corporate Governance Code for French listed companies (a code of corporate governance principles issued by the French Association of Private Companies (Association Française des Entreprises Privées - AFEP) and the French Confederation of Business Enterprises (Mouvement des Entreprises de France - MEDEF). The Senior Independent Director is the Chairman of the Committee. The Chairman of the Board of Directors of AXA and the Chief Executive Officer of AXA, although not members of the Committee, also take part in its work and attend its meetings unless their personal performance or compensation is being discussed.


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Role of the Organization and Compensation Committee of the Board of Directors of AXA Equitable

Within the global framework of executive compensation policies that AXA has established, direct responsibility for overseeing the development and administration of the executive compensation program for AXA Equitable falls to the Organization and Compensation Committee (the “OCC”) of the Board of Directors of AXA Equitable (the “Board of Directors”). The OCC consists of four members, all of whom were determined to be independent directors by the Board of Directors under New York Stock Exchange standards as of February 16, 2017. In implementing AXA’s global compensation program at the entity level, the OCC is aided by the Chief Executive Officer of AXA who, while not a formal member of the OCC, is a member of the Board of Directors and participates in the OCC’s deliberations related to compensation issues and assists in ensuring coordination with AXA’s global compensation policies.

The OCC is primarily responsible for general oversight of compensation and compensation related matters, including reviewing new benefit plans, equity-based plans and the compensation practices of AXA Equitable to ensure they support AXA Equitable’s business strategy and meet the objectives set by AXA for its global compensation policy. Also, in accordance with New York Insurance Law, the OCC is responsible for evaluating the performance of AXA Equitable’s principal officers and comparably paid employees (as determined under New York Insurance Law) and recommending their compensation, including their salaries and variable compensation, to the Board of Directors for its discussion and approval. As of February 16, 2017, Mr. Pearson, Mr. Malmstrom and Mr. Winikoff were principal officers and Mr. Hattem was a comparably paid employee (the “Approval Named Executive Officers”).

The OCC is also responsible for:

•
reviewing all other senior executive compensation arrangements;
•
supervising the policies relating to compensation of officers and employees; and
•
reviewing and approving corporate goals and objectives included in variable compensation arrangements and evaluating executive management performance in light of those goals and objectives.

Role of the Chief Executive Officer

As Chief Executive Officer of AXA Equitable, Mr. Pearson assists the OCC in its review of the total compensation of all the Named Executive Officers except himself. Mr. Pearson provides the OCC with his assessment of the performance of each Named Executive Officer relative to the corporate and individual goals and other expectations set for the Named Executive Officer for the preceding year. Based on these assessments, he then provides his recommendations for each Named Executive Officer’s total compensation and the appropriate goals for each in the year to come. However, the OCC is not bound by his recommendations.

Other than the Chief Executive Officer, no Named Executive Officer plays a decision-making role in determining the compensation of any other Named Executive Officer.

Role of AXA Equitable Human Resources

AXA Equitable Human Resources supports the OCC’s work on executive compensation matters and is responsible for many of the organizational and administrative tasks that underlie the compensation review and determination process and making presentations on various topics. Human Resources’ efforts include, among other things:

•
evaluating the compensation data from peer groups, national executive pay surveys and other sources for the Named Executive Officers and other officers as appropriate;

•
gathering and correlating performance ratings and reviews for individual executive officers, including the Named Executive Officers;

•
reviewing executive compensation recommendations against appropriate market data and for internal consistency and equity; and

•
reporting to, and answering requests for information from, the OCC.

Human Resources officers also coordinate and share information with their counterparts at our ultimate parent company, AXA, and take part in its annual comprehensive review of the total compensation of executive officers, as described below in the section entitled “Executive Compensation Review.”


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Role of Compensation Consultant

Towers Watson continues to be retained by AXA Equitable to serve as an executive compensation consultant. Towers Watson provides various services including advising AXA Equitable management on issues relating to AXA Equitable’s executive compensation practices and providing market information and analysis regarding the competitiveness of the Total Compensation Program.

During 2016, Towers Watson performed the following specific services for AXA Equitable management:

•
prepared a comparative review of the total compensation of Mr. Pearson against that received by chief executive officers at peer companies;

•
provided periodic updates on legal, accounting and other developments and trends affecting compensation and benefits generally and executive compensation specifically;

•
offered a competitive review of total compensation (including base salary, targeted and actual annual incentives, annualized value of long-term incentives, welfare and retirement benefits) against selected peer companies, covering specific groups of executive positions;

•
conducted a comprehensive review of the risk profile of AXA Equitable’s short-term and long-term incentive compensation plans, as well as certain wholesale distribution sales plans maintained by an AXA Equitable subsidiary;

•
prepared an independent director compensation study; and

•
assisted in analyzing general reports published by third party national compensation consultants on corporate compensation and benefits.

Although AXA Equitable management has full authority to approve all fees paid to Towers Watson, determine the nature and scope of its services, evaluate its performance and terminate its engagement, the OCC reviewed the services to be provided by Towers Watson in 2016 as well as the related fees. The total amount of fees paid to Towers Watson by AXA Equitable in 2016 for executive compensation services was approximately $95,000. The AXA Financial Group may also pay fees to Towers Watson from time to time for actuarial or other services unrelated to its compensation programs. AXA and other AXA affiliates may also pay fees to Towers Watson for various services. Specifically, AXA pays fees for services in connection with its Executive Compensation Review described below.

Executive Compensation Review

In addition to the foregoing processes, each year, AXA Human Resources conducts a comprehensive review of the total compensation paid to the top approximately 200 executives of AXA Group worldwide, including all the Named Executive Officers except Mr. Pearson since compensation of the members of AXA’s Management Committee is reviewed separately by the Compensation and Governance Committee of the AXA Board of Directors. The Management Committee participates in this review which focuses on each executive’s performance over the last year and the decisions made about the executive’s compensation in light of that performance. AXA Equitable Human Resources provides detailed information to AXA Human Resources in preparation for the review.

Use Of Competitive Compensation Data

Because AXA Equitable competes most directly for executive talent with large diversified financial services companies, AXA Equitable regards it as essential to regularly review the competitiveness of the Total Compensation Program for its executives to ensure that they are provided compensation opportunities that compare favorably with the levels of total compensation offered to similarly situated executives by peer companies. A variety of sources of compensation information are used to benchmark the competitive market for AXA Equitable executives, including the Named Executive Officers.


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Primary Compensation Data Source

For all Named Executive Officers, AXA Equitable currently relies primarily on the Towers Watson U.S. Diversified Insurance Study of Executive Compensation for information to compare their total compensation to the total compensation reported for equivalent executive officer positions at peer companies. For the 2015 study (which was used in determining 2016 target compensation), the companies included:
 
AFLAC
 
Lincoln Financial
 
Principal Financial Group
AIG
 
Massachusetts Mutual
 
Prudential Financial
Allstate
 
MetLife
 
Securian Financial Group
CIGNA
 
Nationwide
 
Sun Life Financial
CNO Financial
 
New York Life
 
Thrivent Financial for Lutherans
Genworth Financial
 
Northwestern Mutual
 
TIAA-CREF
Guardian Life
 
OneAmerica Financial Partners
 
Transamerica
Hartford Financial Services
 
Pacific Life
 
Unum Group
John Hancock
 
Phoenix Companies
 
USAA
 
 
 
 
Voya Financial Services

Other Compensation Data Sources

The above U.S. compensation data source is supplemented with additional information from general surveys of corporate compensation and benefits published by various national compensation consulting firms. AXA Equitable also participates in surveys conducted by Mercer, McLagan Partners, Towers Watson and LOMA Executive Survey to benchmark both the executive and non-executive compensation programs.

All these information sources are employed to measure and compare actual pay levels not only on a total compensation basis but also by breaking down the Total Compensation Program component by component to review and compare specific compensation elements as well as the particular mixes of fixed versus variable, short-term versus long-term and cash versus equity-based compensation at peer companies. This information, as collected and reviewed by Human Resources, is submitted to the OCC for review and discussion.

Pricing Philosophy

AXA Equitable’s compensation practices are designed with the aid of the market data to set the total target compensation of each Named Executive Officer at the median for total compensation with respect to the pay for comparable positions at peer companies. The analysis takes into account certain individual factors such as the specific characteristics and responsibilities of a particular Named Executive Officer’s position as compared to similarly situated executives at peer companies. Differences in the amounts of total compensation for the Named Executive Officers in 2016 resulted chiefly from differences in each executive’s level of responsibilities, tenure, performance and appropriate benchmark data as well as general considerations of internal consistency and equity.

Components Of The Total Rewards Program

The Total Rewards Program for the Named Executive Officers consists of six components. These components include the three components of the Total Compensation Program (i.e., base salary, short-term incentive compensation and equity-based awards) as well as: (i) retirement, financial protection and other compensation and benefit programs, (ii) severance and change-in-control benefits and (iii) perquisites.

Base Salary

The primary purpose of base salary is to compensate each Named Executive Officer fairly based on the position held, the Named Executive Officer’s career experience, the scope of the position’s responsibilities and the Named Executive Officer’s own performance, all of which are reviewed with the aid of market survey data. Using this data, a 50th percentile pricing philosophy is maintained, comparing base salaries against the median for comparable salaries at peer companies, unless exceptional conditions require otherwise (for example, a base salary may include an additional amount in lieu of a housing or education allowance) or a

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Named Executive Officer’s experience and tenure warrant a lower initial salary with an adjustment to market over time. Once set, base salaries for the Named Executive Officers are typically not increased, except to reflect a change in job responsibility, a sustained change in the market compensation for the position or a market adjustment for a Named Executive Officer whose initial base salary was set below the 50th percentile.

Mr. Pearson is the only Named Executive Officer with an employment agreement. Under this agreement, Mr. Pearson’s employment will continue until he is age 65 unless the employment agreement is terminated earlier by either party on 30 days’ prior written notice. Mr. Pearson is entitled to a minimum rate of base salary of $1,225,000 per year, except that his rate of base salary may be decreased in the case of across-the-board salary reductions similarly affecting all AXA Equitable officers with the title of Executive Director or higher.

Mr. Hattem’s annual rate of base salary was increased in 2016 by $50,000 to reflect a sustained change in market compensation and by an additional $9,000 (for a total base salary increase of $59,000) to offset the elimination of a fringe benefit. Mr. Healy’s annual rate of base salary was increased in 2016 by $25,000 to reflect a sustained change in market compensation. None of the Named Executive Officers other than Mr. Hattem or Mr. Healy received an increase in their annual rate of base salary in 2016.

The amount of base salary earned by each Named Executive Officer in 2016 was:

Named Executive Officer
Base Salary

Mr. Pearson
$
1,250,744

Mr. Malmstrom
$
658,228

Mr. Winikoff
$
332,950

Mr. Hattem
$
599,893

Mr. Healy
$
395,090

Ms. Ritchey
$
600,495

Ms. Brown
$
382,749


The base salaries earned by the Named Executive Officers in 2016, 2015 and 2014 are reported in the Summary Compensation Table included in this Item 11.

Short-Term Incentive Compensation Program

Annual variable cash awards for the Named Executive Officers are available under The AXA Equitable Short-Term Incentive Compensation Program (the “STIC Program”).

The purpose of the STIC Program is to:

•
align incentive awards with corporate strategic objectives and reward participants based on both company and individual performance;
•
enhance the performance assessment process with a focus on accountability;
•
establish greater compensation differentiation based on performance;
•
provide competitive total compensation opportunities; and
•
attract, motivate and retain top performers.

The STIC Program awards are typically paid in March of each year, following review of each participant’s performance and achievements over the course of the preceding fiscal year. Awards can vary from year to year, and differ by participant, depending primarily on the business and operational results of AXA Financial Life and Savings Operations, as measured by the performance objectives under the STIC Program with a discretionary adjustment as described below under “Discretionary Adjustment by Management Committee,” as well as the participant’s individual contributions to those results. No individual is guaranteed any award under the STIC Program, except for certain limited guarantees for new hires. For example, Mr. Winikoff, who joined the company in 2016, was guaranteed a minimum STIC Program award of $900,000 for 2016.

Individual Targets

Initially, individual award targets are assigned to each STIC Program participant based on evaluations of competitive market data for his or her position. These individual award targets are reviewed each year and may be increased or decreased, but generally remain constant from year to year unless there has been a significant change in the level of the participant’s responsibilities or a

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proven and sustained change in the market compensation for the position. For example, Mr. Hattem’s STIC Program award target increased by $50,000 in 2016 due to a sustained change in the market compensation for the position.

STIC Program Pool

All the money available to pay STIC Program awards to Senior Executive Directors of AXA Equitable comes from, and is limited by, a cash pool (the “Executive STIC Pool”) from which the awards are paid. The size of this pool is determined each year by a formula under which the sum of all the individual award targets established for all the Executive STIC Pool participants for the year is multiplied by a funding percentage (the “Funding Percentage”). The Funding Percentage is determined by combining the individual performance percentages for AXA Financial Life and Savings Operations (weighted 90%) and AXA Group (weighted 10%) which measure their performance against certain financial and other targets.

After the performance percentage for AXA Financial Life and Savings Operations is determined, it may be adjusted positively or negatively by the Management Committee, as described below, before being combined with the AXA Group performance percentage to arrive at the Funding Percentage.

Mr. Pearson’s STIC Program award is determined independently of the Executive STIC Pool and is based 20% on AXA Group’s performance (which reflects his broader range of performance responsibilities within AXA Group worldwide as a member of the Management Committee), 30% on the performance of AXA Financial Life and Savings Operations (measured in the same manner as for the Executive STIC Pool) and 50% on his individual performance.

The 2016 STIC Program awards for Mr. Malmstrom, Mr. Winikoff and Mr. Hattem were paid from the Executive STIC Pool for 2016. Since Mr. Healy was not a Senior Executive Director during 2016, his 2016 STIC Program award was paid from a cash pool from which the awards of all Executive and Managing Directors of AXA Equitable were paid (the “Director STIC Pool”). The size of this pool was determined by a formula under which the sum of all the individual award targets established for all the Director STIC Pool participants for the year was multiplied by the performance percentage for AXA Financial Life and Savings Operations, measured in the same manner as for the Executive STIC Pool.
 
Ms. Ritchey and Ms. Brown did not receive 2016 STIC Program awards since they terminated employment with AXA Equitable during 2016.

Performance Percentages
 
To determine the performance percentage for AXA Financial Life and Savings Operations, various performance objectives are established for AXA Financial Life and Savings Operations, and a target is set for each one. Each performance objective is separately subject to a 150% cap and a 50% cliff. For example, if a particular performance objective is weighted 15% for AXA Financial Life and Savings Operations, 15% will be added to the overall performance percentage for AXA Financial Life and Savings Operations if that target is met, regardless of AXA Financial Life and Savings Operations’ performance on its other objectives. If the target for that performance objective is exceeded, the amount added to the overall performance percentage for AXA Financial Life and Savings Operations will be increased up to a maximum of 22.5% (150% x 15%). If the target for the performance objective is not met, the amount added to the performance percentage will be decreased down to a threshold of 7.5% (50% x 15%). If performance is below the threshold for a performance objective, 0% will be added to AXA Financial Life and Savings Operations’ overall performance percentage.

AXA Financial Life and Savings Operations - The following grid presents the targets for each of the performance objectives used to measure the performance of AXA Financial Life and Savings Operations in 2016, along with their relative weightings. The performance objectives for AXA Financial Life and Savings Operations and their relative weightings are standardized for AXA Group life and savings companies in mature markets worldwide and, accordingly, are not measures calculated and presented in accordance with U.S. GAAP.

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AXA Financial Life and Savings Operations Performance Objectives
Weighting      
 
Target (1)
Underlying earnings(2)
45.0
%
 
879

Gross Written Premiums(3)
20.0
%
 
3,300

Return on Equity (Cash)(4)
10.0
%
 
17.1
%
Customer Centricity(5)
 
 
 
Customer Experience Tracking
20.0
%
 
76.7
%
Brand Preference Tracking
5.0
%
 
46.0
%

(1)
All numbers other than those stated in percentages are in millions of U.S. dollars.

(2)
“Underlying earnings” means adjusted earnings excluding net capital gains or losses attributable to shareholders. “Adjusted earnings” means net income before the impact of exceptional and discontinued operations, certain integration and restructuring costs, goodwill and other related intangibles and profit or loss on financial assets accounted for under the fair value option and derivatives. Underlying earnings and adjusted earnings are measured using International Financial Reporting Standards (“IFRS”) since AXA uses IFRS as its principal method of accounting. Note that, in addition to the underlying earnings of AXA Financial Life and Savings Operations, this performance objective also includes the underlying earnings of AXA Corporation Solutions Life Reinsurance Company (an AXA Group affiliate that is managed by AXA Equitable personnel) and AXA Financial.

(3)
“Gross Written Premiums” means total premiums (first year premiums plus renewal premiums) for pure life insurance protection business.

(4)
“Return on Equity (Cash)” means the expected dividends to be paid to AXA divided by the average short-term economic capital. Short-term economic capital measures the portion of the available financial resources that could be lost in a year if a 1 in 200 year “shock” were to occur.

(5)
“Customer Centricity” is comprised of two components - Customer Experience Tracking and Brand Preference Tracking. Generally, Customer Experience Tracking measures customers’ level of satisfaction based on the responses received for a certain customer survey question. Negative responses are subtracted from positive responses to obtain a net satisfaction index. Brand Preference Tracking measures "intent to purchase" among clients who currently own a life insurance or annuity product based on the percentage of favorable responses received for certain customer survey questions.

Since the performance objectives are meant to cover only the key performance indicators for a year, there are generally no more than five objectives. The performance objectives and their relative weightings are determined based on AXA’s strategy and focus and they may change from year to year as different metrics may become more relevant. Underlying earnings is generally the most highly weighted performance objective, however, reflecting AXA’s belief that it is the strongest indicator of performance for a year and should be the dominant metric to determine a STIC Program participant’s STIC Program award.

The 2016 STIC Program eliminated the Economic Expenses performance objective that was included in the 2015 STIC Program and weighted at 10%. Accordingly, an additional 5% weighting was added to each of the Underlying Earnings and Gross Written Premiums performance objectives. Also, Return on Capital was replaced by Return on Equity (Cash) since Return on Equity (Cash) is less market-driven and a better measurement of management performance.

For 2016, actual Underlying Earnings and Return on Equity (Cash) slightly exceeded target while actual Gross Written Premiums were slightly below target. The actual results for Brand Preference Tracking and Customer Experience Tracking exceeded target, with Brand Preference Tracking’s contribution to the overall performance percentage for AXA Financial Life and Savings Operations hitting its cap of 7.5%.

AXA Group -- AXA Group’s performance percentage is primarily based on underlying earnings per share (65%). Adjusted return on equity (15%) and customer experience tracking (20%) are also considered. For this purpose, “adjusted return on equity” means adjusted earnings (as defined above) divided by average shareholder’s equity excluding undated subordinated debt and other comprehensive income.
 
Discretionary Adjustment by the Management Committee

As stated above, the performance percentage for AXA Financial Life and Savings Operations may be adjusted by the Management Committee before being combined with AXA’s performance percentage to arrive at the Funding Percentage for the Executive STIC Pool. When making this adjustment, the Management Committee generally considers whether any uncontrollable factors such as market fluctuations may have unduly influenced AXA Financial Life and Savings Operations’ results with respect to the performance objectives listed above and may increase or decrease the performance percentage by 15%, subject to an overall cap

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of 150% for the performance percentage. With respect to 2016, the Management Committee made a negative adjustment to the performance percentage to reflect its belief that market fluctuations unduly impacted the results for Customer Experience Tracking in a positive manner.

Individual Determinations

Once the Executive STIC Pool and Director STIC Pool are determined, they are allocated to the participants in the pool based on their individual performance and demonstrated leadership behaviors. As stated above, no participant is guaranteed his or her target award or any award under the STIC Program except for certain limited guarantees for new hires, such as Mr. Winikoff’s guarantee of a minimum STIC Program award of $900,000 for 2016.

The OCC reviewed the performance of each Named Executive Officer during 2016 as well as Management’s recommendations for each Named Executive Officer’s STIC Program award, except for Ms. Brown and Ms. Ritchey since they terminated employment with AXA Equitable in 2016. Based on its subjective determination of each Named Executive Officer’s performance, the OCC made its recommendations as to the maximum STIC Program award for each Approval Named Executive Officer to the AXA Equitable Board of Directors and recommended the amount of the STIC Program award to be paid to Mr. Healy to Mr. Pearson. The AXA Equitable Board of Directors approved the final maximum award amounts for the Approval Named Executive Officers and delegated authority to the Chief Executive Officer of AXA to determine the final award amount for Mr. Pearson and to Mr. Pearson to determine the final award amount for the other Approval Named Executive Officers.

In making its recommendation for Mr. Winikoff, the OCC took into account that his guaranteed minimum STIC Program award of $900,000 for 2016 was based on his annual STIC Program award target without any pro-ration to reflect his half year of service. For the other Named Executive Officers, the OCC took into account the factors that it deemed relevant, including the following accomplishments achieved in 2016 by the Named Executive Officers and the Funding Percentage. Since the Named Executive Officers are responsible for the success of each of AXA Equitable, AXA Financial and AXA Financial Life and Savings Operations, the OCC considered all related 2016 accomplishments. The OCC also consider the Named Executive Officers’ contribution to the AXA Group worldwide. The accomplishments and contributions considered included:






























 

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Executive
Accomplishments
Mr. Pearson
•
Drove strong 2016 performance of AXA Financial Group, meeting or exceeding all goals for earnings, productivity, cash return on equity, capital management, customer satisfaction and risk management.
•
Drove the company’s strategy, including overseeing the successful development of plans to meet AXA’s Ambition 2020 goals and the company’s role in influencing legal and regulatory developments such as the Department of Labor fiduciary rule and the NAIC reserve and capital framework.
•
Implemented executive management changes and restructured the AXA Equitable Executive Committee, including adding a Chief Transformation Officer and Head of In-Force Business to better position the company for the execution of its strategic plan.
•
Continued to set a strong tone at the top with respect to workplace and diversity issues, resulting in AXA Equitable receiving certification as a “Great Place to Work” for the first time by an independent workplace authority and a 100% rating by the Human Rights Campaign Foundation’s Corporate Equality Index for the fourth year in a row.
•
Broadened personal visibility with employees and field force by instituting a program of leadership roundtables, CEO dialogues and branch visits. Also raised the profile of AXA in the industry through activities in industry groups.
•
Served as an influential member of AXA’s Management Committee and implemented and chaired a new executive committee for AXA companies in the US, identifying synergies and cost-saving opportunities and sharing best practices.
Mr. Malmstrom
•
Actively managed capital including reducing debt to AXA Group and delivering AXA Equitable dividends of over $1 billion while ensuring capital and solvency levels remained in excess of risk tolerance levels.
•
Actively managed assets, including implementing a number of yield enhancement initiatives for the General Account and the hedging of separate account fee exposure to domestic equity.
•
Successfully led the company’s efficiency efforts, including sponsoring an efficiency task force which exceeded 2016 savings targets and identifying action plans to meet AXA’s Ambition 2020 savings targets.
•
Successfully led the strategic planning process, providing insight on margin and revenue streams for each business area and identifying mitigating actions to close the gap to targets.
•
Led local efforts to shape positive investor and rating agency perceptions for AXA Group which were well-received.
•
Played key role in the company’s and the industry’s efforts related to the NAIC reserve and capital framework.
Mr. Hattem
•
Provided strong leadership, oversight and team support in connection with a decisive victory in the Sivollela case, a high-profile excessive fee litigation case closely watched by the mutual fund industry.
•
Successfully led company efforts with respect to several significant regulatory developments that required analysis, initiatives to influence rule-making and compliance program development, including the Department of Labor fiduciary rule.
•
Developed effective controls in response to dynamic legal and regulatory environment and managed relationship with key regulators such as the SEC, FINRA and the New York State Department of Financial Services.
•
Effectively oversaw all legal work related to key corporate initiatives such as the increased level of investment and hedging programs and the continued expansion of the proprietary fund complex while containing related outside counsel costs.
•
Acted as key advisor to Mr. Pearson throughout Board and executive management changes and restructure of the AXA Equitable Executive Committee.
•
Actively developed leaders in the Law Department, enabling internal promotions, and recruited high quality talent to fill open positions while furthering our diversity goals.
•
Sponsored the law department’s well-received Cyber Security Conference which brought together leading cyber security talent from a variety of companies.
Mr. Healy
•
Delivered the IT Agile Transformation Program resulting in significant productivity savings.
•
Successfully implemented new employee benefits platform using cloud services and innovative technology to differentiate the company in the marketplace
•
Continued strengthening the company’s IT security practices, including alignment with industry frameworks.
•
Actively led the fraud response technology team and delivered the long-term strategy for an organizational fraud hub.
•
Achieved highest employee engagement survey scores for AXA IT organizations worldwide and top scores in the AXA Financial Group.
•
Recognized as a leader in the implementation of the AXA group IT strategy across all projects and programs.

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No specific weight was assigned to any particular factor and all were evaluated in the aggregate to arrive at the recommended STIC Program award for each of the Named Executive Officers. Mr. Malmstrom and Mr. Hattem, who were paid their STIC Program awards from the Executive STIC Pool, received a percentage of their STIC Program award target that was approximately equal and greater than the Funding Percentage for the Executive STIC Pool, respectively. Mr. Pearson received a STIC Program award equal to approximately 102% of his STIC Program award target. Mr. Healy, who was paid his STIC Program award from the Director STIC Pool, received a percentage of his STIC Program award target that was greater than the performance percentage for AXA Financial Life and Savings Operations. Mr. Winikoff received his guaranteed minimum STIC Program award.

The 2016 STIC Program award targets and actual STIC Program awards for the Named Executive Officers (other than Mr. Ritchey and Ms. Brown who terminated employment in 2016) were:

Named Executive Officer
Target Award
Actual Award
Mr. Pearson
$
2,128,400

$
2,164,000

Mr. Malmstrom
$
800,000

$
850,000

Mr. Winikoff
$
900,000

$
900,000

Mr. Hattem
$
650,000

$
750,000

Mr. Healy
$
350,000

$
402,000


The STIC Program awards and bonuses earned by the Named Executive Officers in 2016, 2015 and 2014 are reported in the Summary Compensation Table included in this Item 11.

Equity-Based Awards

The value of the equity-based awards is linked to the performance of AXA’s stock. The purpose of the equity-based awards is to:
•
align strategic interests of award recipients with those of our ultimate parent and shareholder, AXA;
•
provide competitive total compensation opportunities;
•
focus on achievement of medium-range and long-term strategic business objectives; and
•
attract, motivate and retain top performers.

Annual equity-based awards for eligible employees, including the Named Executive Officers, are available under the umbrella of AXA’s global equity program. Equity-based awards may also be granted from time to time to executive officers outside of AXA’s global equity program as part of a sign-on package or as a retention vehicle.

Annual Awards Process

Annual equity-based awards under AXA’s global equity program are subject to the oversight of the AXA Board of Directors, which is authorized to approve all annual equity programs prior to their implementation and to approve all individual grants. The AXA Board of Directors also sets the size of the equity pool each year, after considering the amounts authorized by shareholders for equity-based awards (AXA’s shareholders authorize a global cap for equity-based awards every three to four years) and the recommendations of chief executive officers or boards of directors of affiliates worldwide on the number of stock option and other grants for the year. The pools are allocated annually among AXA Group affiliates based on each affiliate’s contribution to AXA Group’s financial results during the preceding year and with consideration for specific local needs (e.g., market competitiveness, consistency with local practices, group development).

The AXA Board of Directors sets the mix of equity-based awards for individual grants, which is standardized through AXA Group worldwide. Since 2004, there has been a decreasing reliance on stock options in equity-based awards. For example, in 2016, equity grants were awarded entirely in performance shares at the senior and junior employee levels. Executive officers have continued to receive a portion of their grant in stock options, however, since stock options are a long-term award and AXA believes that executive officers are required to have a more significant long-term focus than senior or junior employees.

Each Named Executive Officer is eligible to receive an annual equity-based award. Individual equity-based award targets are assigned to each of the Named Executive Officers other than Mr. Pearson based on evaluations of competitive market data for his or her position. These individual award targets are reviewed each year and may be increased or decreased, but generally remain constant from year to year unless there has been a significant change in the level of the Named Executive Officer’s responsibilities or a proven and sustained change in the market compensation for the position. For example, Mr. Hattem’s equity-based award target increased in 2016. This increase will apply to Mr. Hattem’s annual equity-based award granted in 2017. For Mr. Pearson, his equity-based award target is based on his actual award for the prior year.

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Each year, the OCC submits recommendations to the AXA Board of Directors with respect to annual equity-based awards for the Named Executive Officers, taking into account the available equity pool allocation and based on a review of each officer’s potential future contributions, consideration of the importance of retaining the officer in his or her current position and a review of competitive market data relating to equity-based awards for similar positions at peer companies, as described above in the section entitled, “Use of Competitive Compensation Data.” The AXA Board of Directors approves the individual grants as it deems appropriate.

2016 Annual Award Grants
 
Each Named Executive Officer other than Mr. Winikoff received an equity-based award grant on June 6, 2016. For the Named Executive Officers other than Mr. Healy, these grants involved a mix of two components: (1) AXA ordinary share options granted under the AXA Stock Option Plan and (2) performance shares granted under the 2016 Performance Share Plan. Mr. Healy’s equity-based award grant consisted solely of performance shares.

The awards to the Named Executive Officers were granted using U.S. dollar values. The U.S. dollar values for the Named Executive Officers other than Mr. Healy were allocated between stock options and performance shares in accordance with the mix determined by the AXA Board of Directors. For this purpose, the value of the stock options and performance shares granted were determined using a Black-Scholes pricing methodology which was based on assumptions which differ from the assumptions used in determining an option’s or performance share’s grant date fair value reflected in the Summary Compensation Table which is based on FASB ASC Topic 718.

The amounts granted to the Named Executive Officers were as follows:

Named Executive Officer
Stock Options

Performance Shares

Mr. Pearson
186,069

106,326

Mr. Malmstrom
56,484

32,277

Mr. Hattem
60,016

34,294

Mr. Healy
—

16,782

Ms. Ritchey
42,362

24,208

Ms. Brown
21,181

12,104


Since he began his employment with AXA Equitable after the annual equity-based award grant date for 2016, Mr. Winikoff received a sign-on equity-based award grant of restricted stock units in lieu of a grant of stock options and performance shares as described below in “2016 One-Time Awards.”

Ms. Ritchey and Ms. Brown each forfeited their 2016 performance shares grant due to their termination of employment in 2016.

2016 Stock Option Award Grants

The stock option awards granted to the Named Executive Officers on June 6, 2016 have a 10-year term and a vesting schedule of five years, with one-third of the grant vesting on each of the third, fourth and fifth anniversaries of the grant, provided that the last third will vest on June 6, 2021 only if the AXA ordinary share performs at least as well as the Stoxx Insurance Index ("SXIP Index") over a specified period of at least three years. This performance condition applies to all of Mr. Pearson’s options. The exercise price for the options is 21.52 euro, which was the average of the closing prices for the AXA ordinary share on Euronext Paris SA over the 20 trading days immediately preceding June 6, 2016.

In the event of a Named Executive Officer’s retirement, the stock options continue to vest and may be exercised until the end of the term, except in the case of misconduct. Accordingly, since Mr. Hattem and Mr. Pearson are currently eligible to retire, these stock options will not be forfeited due to any service condition.

2016 Performance Share Award Grants

A performance share is a “phantom” share of AXA stock that, once earned and vested, provides the right to receive an AXA ordinary share at the time of payment. Performance shares are granted unearned. Under the 2016 Performance Shares Plan, the number of shares that is earned is determined at the end of a three-year performance period, starting on January 1, 2016 and ending on December 31, 2018, by multiplying the number of shares granted by a performance percentage that is determined as described below. If no dividend is proposed for payment by the AXA Board of Directors to AXA’s shareholders for 2016 or 2017 or 2018,

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the performance percentage for the grant will be divided in half. The performance shares granted to the Named Executive Officers on June 6, 2016 have a cliff vesting schedule of four years.

The performance percentage for the 2016 Performance Share Plan initially will be determined based: (a) 40% on AXA Group’s performance with respect to adjusted earnings per share, (b) 50% on AXA Financial Life and Savings Operations’ performance with respect to adjusted earnings and underlying earnings (each weighted 50%) and (c) 10% on AXA Group’s score on the DJSI World, a Dow Jones sustainability index which tracks the performance of the world’s sustainability leaders. A positive or negative adjustment of 5% will then be made to the performance percentage based on AXA Group’s relative performance against a selection of its peers with respect to total shareholder return. The components of the performance percentage and their targets are determined by the AXA Board of Directors based on their review of AXA's strategic objectives, market practices and regulatory changes.

Generally, if performance targets are met, 100% of the performance shares initially granted is earned. Performance that exceeds the targets results in increases in the number of shares earned, subject to a cap of 130% of the initial number of shares. Performance that falls short of targets results in a decrease in the number of shares earned with a possible forfeiture of all shares. Since AXA uses IFRS as its principal method of accounting, AXA Group’s adjusted earnings per share and AXA Financial Life and Savings Operations’ adjusted earnings and underlying earnings are calculated using IFRS. Accordingly, they are not measures calculated and presented in accordance with U.S. GAAP.

The settlement of 2016 performance shares will be made in AXA ordinary shares on June 6, 2020. The 2016 plan provides that, in the case of retirement, a participant is treated as if he or she continued employment until the settlement date. Accordingly, Mr. Hattem and Mr. Pearson will still receive a payout under this plan if they choose to retire prior to the end of the vesting period.

2016 One-Time Awards

On July 5, 2016, Mr. Winikoff received a sign-on equity-based grant of 84,611 restricted stock units (“RSUs”). These RSUs will vest ratably over a four-year period and be paid out in cash within 30 days after the vesting date. This grant was approved by the OCC and the Board of Directors.

Detailed information on the RSU, stock option and performance share grants for each of the Named Executive Officers in 2016 is reported in the 2016 Grants of Plan-Based Awards Table included in this Item 11.

2016 Payouts from Prior Year Awards

In 2016, certain Named Executive Officers received the payout of their performance shares under the 2013 Performance Share Plan. The 2013 Performance Share Plan was similar to the 2016 Performance Share Plan except that 100% of the shares earned were vested after three years, on March 22, 2016. Also, AXA Financial Life and Savings Operations’ performance over a two-year performance period (i.e., January 1, 2013 through December 31, 2015) counted for two-thirds and AXA Group’s performance over the same period counted for one-third toward the performance percentage for that plan. AXA Group’s performance was based on net income per share while AXA Financial Life and Savings Operations’ performance was based on net income (weighted 50%) and underlying earnings (weighted 50%). The performance percentage that was ultimately achieved under the plan was 119.58%, based on AXA Financial Life and Savings Operations’ performance of 130% and AXA Group’s performance of 98.74%.
On March 16, 2012, eligible AXA Group employees worldwide, including certain of the Named Executive Officers, were each granted 50 AXA miles. AXA miles were “phantom” shares of AXA stock that were eligible to be converted to actual AXA ordinary shares at the end of a four-year vesting period. 25 of the AXA miles granted in 2012 were subject to a performance condition requiring that at least one of the following two metrics must have improved in 2012 in order for them to convert to actual shares: AXA’s underlying earnings per share (1.57 euro in 2011) or AXA’s customer scope index (79.3 in 2011). Since this performance condition was met, all 50 AXA miles vested on March 16, 2016.

Detailed information on the payouts of 2013 performance shares and 2012 AXA miles in 2016 is reported in the 2016 Option Exercises and Stock Vested Table included in this Item 11.

Other Compensation and Benefit Programs

AXA Equitable believes that a comprehensive benefits program which offers long-term financial support and security for all employees plays a critical role in attracting and retaining high caliber executives. Accordingly, all employees, including the Named Executive Officers, are offered a benefits program that includes group health and disability coverage, group life insurance and various deferred compensation and retirement benefits. In addition, as discussed below, AXA Equitable offers certain benefit programs for executives that are not available to non-executive employees. The overall program is periodically reviewed to ensure

228

that the benefits it provide continue to serve business objectives and remain cost-effective and competitive with the programs offered by large diversified financial services companies.

Qualified Retirement Plans

AXA Equitable believes that qualified retirement plans encourage long-term service. Accordingly, the following qualified retirement plans are offered to eligible employees, including the Named Executive Officers:

AXA Equitable 401(k) Plan (the “401(k) Plan”)

AXA Equitable sponsors the 401(k) Plan, a tax-qualified defined contribution plan, for its eligible employees, including the Named Executive Officers. Eligible employees may contribute to the 401(k) Plan on a before tax, after-tax, or Roth 401(k) basis (or any combination of the foregoing), up to plan and tax law limits. The 401(k) Plan also provides participants with the opportunity to earn a discretionary profit sharing contribution and a company contribution. The discretionary profit sharing contribution for a calendar year is based on company performance for that year and ranges from 0% to 4% of annual eligible compensation (subject to tax law limits). Any contribution for a calendar year is expected to be made in the first quarter of the following year. A profit sharing contribution of 1% of annual eligible compensation is expected to be made for the 2016 plan year. The company contribution for a calendar year is based on the following formula and is subject to tax law limits: (i) 2.5% of eligible compensation up to the Social Security Wage Base ($118,500 in 2016) plus, (ii) 5.0% of eligible compensation in excess of the Social Security Wage Base, up to the qualified plan compensation limit ($265,000 in 2016).

AXA Equitable Retirement Plan (the “Retirement Plan”)

AXA Equitable sponsors the Retirement Plan, a tax-qualified defined benefit plan for eligible employees which was frozen effective December 31, 2013. The Retirement Plan provides for retirement benefits upon reaching age sixty-five and has provisions for early retirement, death benefits and benefits upon termination of employment for vested participants. It has a three-year cliff-vesting schedule. Mr. Pearson, Mr. Hattem and Mr. Healy participated in the plan prior to its freeze.

Prior to its freeze, the Retirement Plan provided a cash balance benefit whereby AXA Equitable established a notional account in the name of each Retirement Plan participant. The notional account was credited with deemed pay credits equal to 5% of eligible compensation up to the Social Security Wage Base plus 10% of eligible compensation above the Social Security Wage Base up to the qualified plan compensation limit. These notional accounts continue to be credited with deemed interest credits.

For certain grandfathered participants, the Retirement Plan provides benefits under a traditional defined benefit formula based on final average pay, estimated Social Security benefits and years of service. None of the Named Executive Officers are grandfathered participants.

Excess Plans

AXA Equitable believes that excess plans are an important component of competitive market-based compensation in both its peer group and generally. Accordingly, the following excess plan benefits are offered to eligible employees, including the Named Executive Officers:

Excess 401(k) Contributions

AXA Equitable provides excess 401(k) contributions for participants in the 401(k) Plan with eligible compensation in excess of the qualified plan compensation limit. These contributions are equal to 10% of the participant’s (i) eligible compensation in excess of the qualified plan compensation limit and (ii) voluntary deferrals to the AXA Equitable Post-2004 Variable Deferred Compensation Plan for Executives for the applicable year, and are made to accounts established for participants under the AXA Equitable Post-2004 Variable Deferred Compensation Plan for Executives. All the Named Executive Officers were eligible to receive excess 401(k) contributions in 2016.

AXA Equitable Excess Retirement Plan (the “Excess Plan”)

AXA Equitable sponsors the Excess Plan, a nonqualified defined benefit plan for eligible employees which was frozen effective December 31, 2013. Prior to its freeze, the Excess Plan allowed eligible employees, including Mr. Pearson, Mr. Hattem and Mr. Healy, to earn retirement benefits in excess of what was permitted under the Code with respect to the Retirement Plan. Specifically, the Excess Plan permitted participants to accrue and be paid benefits that they would have earned and been paid under the Retirement Plan but for certain Code limits.

229


Voluntary Non-Qualified Deferred Compensation Plan

AXA Equitable believes that compensation deferral is a cost-effective method of enhancing the savings of executives. Accordingly, AXA Equitable sponsors the following plans:

The AXA Equitable Post-2004 Variable Deferred Compensation Plan for Executives (the “Post-2004 Plan”)

AXA Equitable sponsors the Post-2004 Plan which allows eligible employees to defer the receipt of certain compensation, including base salary and STIC Program awards. The amount deferred is credited to a bookkeeping account established in the participant’s name and participants may choose from a range of nominal investments according to which their accounts rise or decline. Participants annually elect the amount they want to defer, the date on which payment of their deferrals will begin and the form of payment. In addition, as mentioned above, excess 401(k) contributions are made to accounts established for eligible employees under the Post-2004 Plan.

The AXA Equitable Variable Deferred Compensation Plan for Executives (the “VDCP”)

The VDCP is the predecessor plan to the Post-2004 Plan. Like the Post-2004 Plan, it allowed eligible employees to defer the receipt of compensation. To preserve its grandfathering from the provisions of Internal Revenue Code Section 409A (“Section 409A”), the VDCP was frozen in 2004 so that no amounts earned or vested after 2004 may be deferred under the VDCP. Section 409A imposes stringent requirements which covered nonqualified deferred compensation arrangements must meet to avoid the imposition of additional taxes, including a 20% additional income tax, on the amounts deferred under the arrangements.

Financial Protection

The AXA Equitable Executive Survivor Benefits Plan (the “ESB Plan”)

AXA Equitable sponsors the ESB Plan which offers financial protection to a participant’s family in the case of his or her death. Eligible employees may choose up to four levels of coverage and the form of benefit to be paid at each level. Each level provides a benefit equal to one times the participant’s eligible compensation and offers different coverage choices. Generally, the participant can choose between a life insurance death benefit and a deferred compensation benefit payable upon death at each level.

For additional information on 401(k) Plan benefits and excess 401(k) contributions for the Named Executive Officers as well as amounts voluntarily deferred by Mr. Hattem under the Post-2004 Plan and the VDCP, see the Summary Compensation Table and Nonqualified Deferred Compensation Table included in this Item 11. For additional information on Retirement Plan, Excess Plan and ESB Plan benefits for the Named Executive Officers, see the Pension Benefits Table included in this item 11.

Severance and Change in Control Benefits

AXA Equitable maintains severance pay arrangements to provide temporary income to all employees following an involuntary termination of employment. The Named Executive Officers are also eligible for additional severance benefits as described below. In addition, AXA Equitable offers certain limited change in control benefits to provide a moderate level of protection to employees to help reduce anxiety that may accompany a change in control.

The AXA Equitable Severance Benefit Plan (the “Severance Plan”)

AXA Equitable sponsors the Severance Plan to provide severance benefits to eligible employees whose jobs are eliminated for specific defined reasons. The Severance Plan generally bases severance payments to eligible employees on length of service or base salary. Payments are capped at 52 weeks of base salary or, in some cases, $300,000. To obtain benefits under the Severance Plan, participants must execute a general release and waiver of claims against AXA Equitable and affiliates. For Named Executive Officers, the general release and waiver of claims typically includes non-competition and non-solicitation provisions.

The AXA Equitable Supplemental Severance Plan for Executives (the “Supplemental Severance Plan”)

AXA Equitable sponsors the Supplemental Severance Plan for officers at the level of Executive Director or above. The Supplemental Severance Plan is intended solely to supplement, and is not duplicative of, any severance benefits for which an executive may be eligible under the Severance Plan. The Supplemental Severance Plan provides that eligible executives will receive, among other benefits:


230

•
Severance payments equal to 52 weeks’ of base salary, reduced by any severance payments for which the executive may be eligible under the Severance Plan;
•
Additional severance payments equal to the greater of:
◦
The most recent short-term incentive compensation award paid to the executive;
◦
The average of the three most recent short-term incentive compensation awards paid to the executive; and
◦
The annual target short-term incentive compensation award for the executive for the year in which he or she receives notice of job elimination;
•
An additional year of participation in the ESB Plan; and
•
A lump sum payment equal to the sum of: (a) the executive’s short-term incentive compensation for the year in which the executive receives notice of job elimination, pro-rated based on the number of the executive’s full calendar months of service in that year and (b) $40,000.

Mr. Pearson’s Employment Agreement.

Mr. Pearson waived the right to receive any benefits under the Severance Plan or the Supplemental Severance Plan. Rather, his employment agreement provides that, if his employment is terminated by AXA Equitable prior to his attaining age 65 other than for cause, excessive absenteeism or death, or Mr. Pearson resigns for “good reason,” Mr. Pearson will be entitled to certain severance benefits, including (i) severance pay equal to the sum of two years of salary and two times the greatest of: (a) Mr. Pearson’s most recent bonus, (b) the average of Mr. Pearson’s last three bonuses and (c) Mr. Pearson’s target bonus for the year in which termination occurred, (ii) a pro-rated bonus at target for the year of termination and (iii) a cash payment equal to the additional employer contributions that Mr. Pearson would have received under the 401(k) Plan and its related excess plan for the year of his termination if those plans provided employer contributions on his severance pay and all of his severance pay was paid in that year.

For this purpose, “good reason” includes a material reduction in Mr. Pearson’s duties or authority, the removal of Mr. Pearson from his positions, AXA Equitable requiring Mr. Pearson to be based at an office more than 75 miles from New York City, a diminution of Mr. Pearson’s titles, a material failure by the company to comply with the agreement’s compensation provisions, a failure of the company to secure a written assumption of the agreement by any successor company and a change in control of AXA Financial (provided that Mr. Pearson delivers notice of termination within 180 days after the change in control). The severance benefits are contingent upon Mr. Pearson releasing all claims against AXA Equitable and its affiliates and his entitlement to severance pay will be discontinued if he provides services for a competitor. Also, in the event of a termination of Mr. Pearson’s employment by AXA Equitable without cause or Mr. Pearson’s resignation due to a change in control, Mr. Pearson’s severance benefits will cease after one year if certain performance conditions are not met for each of the two consecutive fiscal years immediately preceding the year of termination.

Mr. Winikoff’s Severance Arrangement.

Mr. Winikoff’s severance arrangement with the company provides that, if Mr. Winikoff’s employment is terminated by the company without cause or by Mr. Winikoff for “good reason:”
•
any outstanding RSUs granted to Mr. Winikoff would immediately vest and be paid out in cash on their otherwise applicable payment dates and
•
he would be eligible to receive a payment equal to (i) two times his annual base salary plus his STIC Program award target for the year in which his employment is terminated, reduced by (ii) any severance pay for which he may be otherwise eligible under the Severance Plan or the Supplemental Severance Plan. This payment would be contingent on all other terms and conditions of the Severance Plan and Supplemental Severance Plan, including the execution of a general release and waiver of claims against AXA Equitable and affiliates.

For this purpose, “good reason” includes: (a) relocation of his position to a work site that is more than 35 miles away from 1290 Avenue of the Americas, New York City, (b) a material reduction in his compensation (other than in connection with, and substantially proportionate to, reductions by the company of the compensation of other similarly situated senior executives), (c) a material diminution in his duties, authority or responsibilities and (d) a material change in the lines of reporting such that he no longer reports to the company’s President and Chief Executive Officer.

Ms. Ritchey’s Separation Agreement    

Ms. Ritchey entered into a separation agreement and general release with AXA Equitable pursuant to which she terminated employment on December 30, 2016. She will receive severance benefits in accordance with the Severance Plan and Supplemental Severance Plan as well as a lump sum payment of $1,285,877. Ms. Ritchey’s separation agreement and general release contains standard provisions related to confidentiality, non-disparagement and non-solicitation.


231

Ms. Brown’s Separation Agreement

Ms. Brown entered into a separation agreement and general release with AXA Equitable pursuant to which she terminated employment on August 31, 2016. She received severance benefits in accordance with the Severance Plan and Supplemental Severance Plan as well as a lump sum payment of $1,180,821. Ms. Brown’s separation agreement and general release contains standard provisions related to confidentiality, non-disparagement and non-solicitation.

Change in Control Benefits

Change in control benefits are provided for stock options granted under the Stock Option Plan. Under that plan, if there is a change in control of AXA Financial, all stock options will become immediately exercisable for their term regardless of the otherwise applicable exercise schedule.

Mr. Pearson’s employment agreement also provides for change in control benefits as described above in “Mr. Pearson’s Employment Agreement.”

For additional information on severance and change in control benefits for the Named Executive Officers, see “Potential Payments Upon Termination of Change in Control” in this Item 11.
  
Perquisites

The Named Executive Officers receive limited perquisites. Specifically, each of the Named Executive Officers may use a car and driver for personal purposes from time to time and may occasionally bring spouses and guests on private aircraft flights otherwise being taken for business reasons. Also, financial planning and tax preparation services are provided for the Named Executive Officers to help ensure their peace of mind so that they are not unnecessarily distracted from focusing on the company’s business.

Pursuant to his employment agreement, Mr. Pearson is entitled to unlimited personal use of a car and driver, two business class trips to the United Kingdom per year with his spouse, expatriate tax services, a company car for his personal use, excess liability insurance coverage, and repatriation costs.

The incremental costs of perquisites for the Named Executive Officers during 2016 are included in the column entitled “All Other Compensation” in the Summary Compensation Table included in this Item 11.

Other Compensation Policies

Clawbacks

In the event an individual’s employment is terminated for cause, all stock options granted under the Stock Option Plan held by the individual are forfeited as of the date of termination. In addition, if an individual retires and induces others to leave the employment of an AXA affiliate, misuses confidential information learned while in the employ of AXA affiliate or otherwise acts in a manner that is substantially detrimental to the business or reputation of any AXA affiliate, all outstanding stock options held by the individual will be forfeited.

Share Ownership Policy

AXA Equitable does not have stock ownership guidelines. However, any executives who are subject to AXA’s stock ownership policy as members of AXA’s Management Committee are required to meet AXA’s requirements for holding AXA Stock. Those requirements are expressed as a multiple of base salary, with members of AXA’s Management Committee (such as Mr. Pearson) required to hold the equivalent of their base salary multiplied by two.

Derivatives Trading and Hedging Policies

The AXA Financial Group’s reputation for integrity and high ethical standards in the conduct of its affairs is of paramount importance to it. To preserve this reputation, all employees of the AXA Financial Group, including the Named Executive Officers, are subject to the AXA Financial Insider Trading Policy. This policy prohibits, among other items, all short sales of securities of AXA and its publicly-traded subsidiaries and any hedging of equity compensation awards (including stock option, performance unit, performance share or similar awards) or the securities underlying those awards. Members of AXA’s Management Committee must pre-clear with the AXA Group General Counsel any derivatives transactions with respect to AXA securities and/or the securities of other AXA Group publicly-traded subsidiaries (including AllianceBernstein).

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Impact of Accounting and Tax Rules

Code Section 162(m) limits tax deductions relating to executive compensation of certain executives of publicly held companies. Because neither AXA Financial nor any of its subsidiaries within the Insurance Segment, including AXA Equitable, is deemed to be publicly held for purposes of Code Section 162(m), these limitations are not applicable to the executive compensation program described above.

AXA Equitable’s nonqualified deferred compensation arrangements that are subject to Section 409A are designed to comply with the requirements of Section 409A to avoid additional income taxes.

Accounting and tax impacts are also considered in the design of equity-based award programs.

COMPENSATION COMMITTEE REPORT

The members of the AXA Equitable Organization and Compensation Committee reviewed and discussed with management the Compensation Discussion and Analysis above and, based on such review and discussion, recommended its inclusion in this Form 10-K.
Lorie A. Slutsky (Chair)        
 
Barbara Fallon-Walsh
Bertram L. Scott
 
Kristi A. Matus

CONSIDERATION OF RISK MATTERS IN DETERMINING COMPENSATION

AXA Equitable has considered whether its compensation practices are reasonably likely to have a material adverse effect on AXA Equitable and determined that they do not. When conducting the analysis, AXA Equitable considered that its programs have a number of features that contribute to prudent decision-making and avoid an incentive to take excessive risk. The overall design and metrics of AXA Equitable’s incentive compensation program effectively balance performance over time, considering both company earnings and individual results with multi-year vesting and performance periods. AXA Equitable’s short-term incentive program further mitigates risk by permitting discretionary adjustments for both funding and granting purposes. AXA Equitable also considered that its general risk management controls, oversight of programs, award review and governance processes preclude decision-makers from taking excessive risk to achieve targets under the compensation plans.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the OCC during 2016 included: Ms. Slutsky, Ms. Fallon-Walsh, Ms. Matus and Mr. Scott. No member of the OCC has served as an officer or employee of AXA Equitable or its subsidiaries. During 2016, (a) none of our executive officers served as a member of the compensation committee of any entity for which a member of our Board served as an executive officer and (b) none of our executive officers served as a director of another entity, any of whose executive officers served on the OCC.

For additional information about the Organization and Compensation Committee, see “Directors, Executive Officers and Corporate Governance”.
SUMMARY COMPENSATION TABLE
The following table presents the total compensation of our Named Executive Officers for services performed for the AXA Financial Group for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, except that no information is provided for years prior to 2016 for Mr. Winikoff, Mr. Healy, Ms. Ritchey and Ms. Brown since they were not Named Executive Officers in those years.

The amounts listed in this table as well as all other executive compensation tables reflect all payments made to the Named Executive Officers by AXA Equitable even though a portion of these costs may have been reimbursed by certain affiliates pursuant to various service agreements. The total compensation reported in the following table includes items such as salary and non-equity incentive compensation as well as the grant date fair value of performance shares, RSUs and stock options. The performance shares, RSUs and stock options may never become payable or may end up with a value that is substantially different from the value reported here. The amounts in the Total column do not represent “Total Compensation” as described in the Compensation Discussion and Analysis.

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Name
 
Fiscal
Year
 
Salary(1)
 
Bonus(2)
 
Stock
Awards(3)
 
Option
Awards(4)
 
Non-Equity
Incentive
Compensation(5)
 
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(6)
 
All Other
Compensation(7)
 
Total
Pearson, Mark
 
2016
 
$1,250,744
 
 
 
$2,010,449
 
$382,419
 
$2,164,000
 
$393,441
 
$389,201
 
$6,590,254
Chairman, President and
 
2015
 
$1,250,744
 
 
 
$1,681,267
 
$261,309
 
$2,341,000
 
 
 
$573,100
 
$6,107,420
Chief Executive Officer
 
2014
 
$1,247,637
 
 
 
$1,543,806
 
$357,095
 
$2,439,000
 
$1,514,357
 
$695,232
 
$7,797,127
Malmstrom, Anders
 
2016
 
$658,228
 
 
 
$496,993
 
$116,089
 
$850,000
 
$280,596
 
$172,895
 
$2,574,801
Senior Executive
 
2015
 
$658,228
 
 
 
$350,014
 
$61,295
 
$940,000
 
$22,125
 
$165,337
 
$2,196,999
Director and Chief
 
2014
 
$658,228
 
 
 
$380,912
 
$96,383
 
$700,000
 
$22,498
 
$368,629
 
$2,226,650
Financial Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Winikoff, Brian
 
2016
 
$332,950
 
 
 
$1,599,925
 
 
 
$900,000
 
 
 
$20,054
 
$2,852,929
Senior Executive Director
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and Head of US Life,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retirement and Wealth Management
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hattem, Dave
 
2016
 
$599,893
 
 
 
$648,443
 
$123,348
 
$750,000
 
$238,250
 
$134,224
 
$2,494,158
Senior Executive
 
2015
 
$551,331
 
47,596

 
$429,728
 
$66,791
 
$720,000
 
$16,467
 
$159,859
 
$1,991,772
Director and
 
2014
 
$545,578
 
 
 
$421,988
 
$98,216
 
$720,000
 
$916,770
 
$152,943
 
$2,855,495
General Counsel
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healy, Michael
 
2016
 
$395,090
 
 
 
$258,405
 
 
 
$402,000
 
$162,425
 
$66,568
 
$1,284,488
Senior Executive Director
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and Chief Information Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ritchey, Sharon
 
2016
 
$600,495
 
 
 
$372,749
 
$87,065
 
 
 
$182,141
 
$3,475,308
 
$4,717,758
Senior Executive Director
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and Chief Customer Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brown, Priscilla
 
2016
 
$382,749
 
 
 
$186,374
 
$43,532
 
 
 
$269,361
 
$2,911,908
 
$3,793,924
Senior Executive Director
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and Chief Marketing Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
The amounts in this column reflect actual salary paid in each year.

(2)
No bonuses were paid to the Named Executive Officers in 2016, 2015 or 2014 except that Mr. Hattem was paid a bonus in May 2015 to compensate him for the loss of stock options due to regulatory and other constraints prohibiting his exercise.

(3)
For Mr. Winikoff, this column reflects the grant date fair value of his sign-on RSU grant. For all other Named Executive Officers, the amounts reported in this column represent the aggregate grant date fair value of performance shares awarded in each year in accordance with FASB ASC Topic 718, and the assumptions made in calculating them can be found in Note 13 of the Notes to the Consolidated Financial Statements. The performance share grants were valued at target which represents the probable outcome at grant date. A maximum payout for the performance share grants, valued at the grant date fair value, would result in values of:

 
2016
2015
2014
Mr. Pearson
$
2,613,584

$
2,185,653

$
2,006,948

Mr. Malmstrom
$
646,091

$
455,027

$
495,186

Mr. Hattem
$
842,976

$
558,656

$
548,584

Mr. Healy
$
335,927

 
 
Ms. Ritchey
$
484,574

 
 
Ms. Brown
$
242,286

 
 


234

The 2016 performance share grants as well as Mr. Winikoff’s sign-on RSU grant are described in more detail below in “Supplemental Information for Summary Compensation and Grants of Plan-Based Awards Tables.”

(4)
The amounts reported in this column represent the aggregate grant date fair value of stock options awarded in each year in accordance with FASB ASC Topic 718, and the assumptions made in calculating them can be found in Note 13 of the Notes to the Consolidated Financial Statements. The 2016 stock option grants are described in more detail below in “Supplemental Information for Summary Compensation and Grants of Plan-Based Awards Tables.”

(5)
The amounts reported for 2016 are the awards paid in February 2017 to each of the Named Executive Officers based on their 2016 performance. The amounts reported for 2015 are the awards paid in February 2016 to each of the Named Executive Officers based on their 2015 performance. The amounts reported for 2014 are the awards paid in February 2015 to each of the Named Executive Officers based on their 2014 performance.

(6)
The amounts reported represent the increase in the actuarial present value of accumulated pension benefits for the Named Executive Officer. The Named Executive Officers did not have any above-market earnings on non-qualified deferred compensation in 2016, 2015 or 2014. For more information regarding the pension benefits for each Named Executive Officer, see the Pension Benefits as of December 31, 2016 Table below.

(7)
The following table provides additional details for the compensation information found in the All Other Compensation column.

Name
 
Auto(a)
 
Excess
Liability
Insurance(b)
 
Financial
Advice(c)
 
401k Plan Contributions(d)
 
Excess 401(k) Contributions(e)
Other
Perquisites/
Benefits(f)
 
Total
Pearson, Mark
2016
 
$
11,469

 
$
8,110

 
$
24,220

 
$
12,938

 
$
332,464

 
 
$
389,201

 
2015
 
$
17,874

 
$
8,110

 
$
34,610

 
$
16,913

 
$
342,264

$
153,329

 
$
573,100

 
2014
 
$
21,124

 
$
4,820

 
$
26,630

 
$
16,575

 
$
342,253

$
283,830

 
$
695,232

Malmstrom, Anders
2016
 
$
333

 
 
 
$
25,980

 
$
12,938

 
$
133,323

$
321

 
$
172,895

 
2015
 
$
839

 
 
 
$
29,190

 
$
16,913

 
$
109,323

$
9,072

 
$
165,337

 
2014
 
$
399

 
 
 
$
22,375

 
 
 
 
$
345,855

 
$
368,629

Winikoff, Brian
2016
 
 
 
 
 
 
 
$
12,938

 
$
6,795

$
321

 
$
20,054

Hattem, Dave
2016
 
$
51

 
 
 
 
 
$
12,938

 
$
114,487

$
6,748

 
$
134,224

 
2015
 
$
6,157

 
 
 
$
17,524

 
$
16,913

 
$
109,558

$
9,707

 
$
159,859

 
2014
 
 
 
 
 
$
15,000

 
$
16,575

 
$
115,820

$
5,548

 
$
152,943

Healy, Michael
2016
 
 
 
 
 
 
 
$
12,938

 
$
53,309

$
321

 
$
66,568

Ritchey, Sharon
2016
 
 
 
 
 
$
18,925

 
$
12,938

 
$
98,339

$
3,345,106

 
$
3,475,308

Brown, Priscilla
2016
 
 
 
 
 
$
18,825

 
$
12,938

 
$
77,529

$
2,802,616

 
$
2,911,908


a.
Pursuant to his employment agreement, Mr. Pearson is entitled to the business and personal use of a dedicated car and driver. The personal use of this vehicle for 2016 was valued based on a formula considering the annual lease value of the vehicle, the compensation of the driver and the cost of fuel. The other Named Executive Officers may use cars and drivers for personal matters from time to time. The value for each executive’s car use is based on a similar formula taking into account the annual lease value of the vehicle and the compensation of the driver.

b.
AXA Equitable pays the premiums for excess liability insurance coverage for Mr. Pearson pursuant to his employment agreement. The amounts in this column reflect the actual amount of the premiums paid for each year.

c.
AXA Equitable pays for financial planning and tax preparation services for each of the Named Executive Officers. The amounts in this column reflect the actual amounts paid to the service provider for each year.

d.
This column includes the amount of any employer profit sharing contributions and company contributions received by each Named Executive Officer under the 401(k) Plan for 2016 ($2,650 for each applicable Named Executive Officer for the profit sharing contributions and $10,288 for each applicable Named Executive Officer for the company contributions).

e.
This column includes the amount of any excess 401(k) contributions made by the company to the Post-2004 Plan for each Named Executive Officer.

f.
This column includes:

235

Mr. Malmstrom
$321 - cost related to having a guest accompany him to a company event
Mr. Winikoff
$321 - cost related to having a guest accompany him to a company event
Mr. Hattem
$503 - one month of parking
$6,245 - cost related to having a cost accompany him to company events
Mr. Healy
$321 - cost related to having a guest accompany him to a company event
Ms. Ritchey
$22,719 - payment for temporary housing related to relocation and tax gross-up related to that payment
$1,296,509 - severance pay under the Supplemental Severance Plan
$2,025,877 - lump sum payment under the Supplemental Severance Plan plus an additional lump sum paid upon separation
Ms. Brown
$34,308 - payout of unused paid time off
$1,180,821 - severance pay under the Supplemental Severance Plan
$1,587,487 - lump sum payment under the Supplemental Severance Plan plus an additional lump sum paid upon separation


236

2016 GRANTS OF PLAN-BASED AWARDS
The following table provides additional information about plan-based compensation disclosed in the Summary Compensation Table. This table includes both equity and non-equity awards granted during 2016.
 
 
 
OCC
Approval
Date (1)
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(2)
Estimated Future Payouts
Under Equity Incentive
Plan Awards(3)
All Other
Stock
Awards:
Number
of
Shares
of
Stocks
or Units (#)
All Other
Option
Awards:
Number
of
Securities
Underlying
Options (#)
Exercise
or Base
Price 
of
Option
Awards(4)
($/Sh)
Closing
Market
Price on
Date of
Grant
Grant Date 
Fair
Value 
of Stock 
and Option
Awards(5)
($)
Name
Grant
Date
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Pearson,
Mark
 
 
$—
$2,128,400
N/A
 
 
 
 
 
 
 
 
 
6/6/2016
2/18/2016
 
 
 
—
186,069
186,069
 
 
$24.00
$24.76
$382,419
 
6/6/2016
2/18/2016
 
 
 
—
106,326
138,224
 
 
 
 
$2,010,449
Malmstrom, Anders
 
 
$—
$800,000
N/A
 
 
 
 
 
 
 
 
 
6/6/2016
2/18/2016
 
 
 
—
18,828
18,828
 
37,656
$24.00
$24.76
$116,089
 
6/6/2016
2/18/2016
 
 
 
—
32,277
41,960
 
 
 
 
$496,993
Winikoff, Brian
 
 
$900,000
$900,000
N/A
 
 
 
 
 
 
 
 
 
6/6/2016
2/18/2016
 
 
 
—
 
 
 
 
N/A
N/A
 
 
6/6/2016
2/18/2016
 
 
 
—
 
 
 
 
 
 
 
 
7/5/2016
 
 
 
 
 
 
 
84,611
 
 
 
$1,599,925
Hattem,
Dave
 
 
$—
$650,000
N/A
 
 
 
 
 
 
 
 
 
6/6/2016
2/18/2016
 
 
 
—
20,004
20,004
 
40,012
$24.00
$24.76
$123,348
 
6/6/2016
2/18/2016
 
 
 
—
34,294
44,582
 
 
 
 
$648,443
Healy, Michael
 
 
$—
$350,000
N/A
 
 
 
 
 
 
 
 
 
6/6/2016
2/18/2016
 
 
 
—
 
 
 
 
N/A
N/A
 
 
6/6/2016
2/18/2016
 
 
 
—
16,782
21,817
 
 
 
 
$258,405
Ritchey, Sharon
 
 
$—
$700,000
N/A
 
 
 
 
 
 
 
 
 
6/6/2016
2/18/2016
 
 
 
—
14,120
14,120
 
28,242
$24.00
$24.76
$87,065
 
6/6/2016
2/18/2016
 
 
 
—
24,208
31,470
 
 
 
 
$372,749
Brown, Priscilla
 
 
$—
$550,000
N/A
 
 
 
 
 
 
 
 
 
6/6/2016
2/18/2016
 
 
 
—
7,059
7,059
 
14,122
$24.00
$24.76
$43,532
 
6/6/2016
2/18/2016
 
 
 
—
12,104
15,735
 
 
 
 
$186,374

(1)
This column shows the date on which the OCC approved the recommendation of the grants to the AXA Board of Directors.

(2)
The target column shows the target award for 2016 for each Named Executive Officer under the STIC Program assuming the plan was 100% funded. There is no minimum or maximum award for any participant in this plan. The actual 2016 awards granted to the Named Executive Officers are listed in the Non-Equity Incentive Compensation column of the Summary Compensation Table.

(3)
The second row for each Named Executive Officer shows the stock options granted under the Stock Option Plan on June 6, 2016. The third row for each Named Executive Officer shows the performance shares granted under the 2016 Performance Share Plan on June 6, 2016. The fourth row for Mr. Winikoff reflects his sign-on RSU grant.

(4)
The exercise price for the stock options granted on June 6, 2016 is equal to the average of the closing prices for the AXA ordinary share on Euronext Paris SA over the 20 trading days immediately preceding June 6, 2016. For purposes of this table, the exercise price was converted to U.S. dollars using the euro to U.S. dollar exchange rate on June 5, 2016.

(5)
The amounts in this column represent the aggregate grant date fair value of stock options and performance shares granted in 2016 in accordance with FASB ASC Topic 718. The performance share grants were valued at target which represents the probable outcome at grant date.


237

SUPPLEMENTAL INFORMATION FOR SUMMARY COMPENSATION AND GRANTS OF PLAN-BASED AWARDS TABLES

2016 Stock Option Award Grants

The stock option awards granted to the Named Executive Officers on June 6, 2016 have a 10-year term and a vesting schedule of five years, with one-third of the grant vesting on each of the third, fourth and fifth anniversaries of the grant, provided that the last third will vest on June 6, 2021 only if the AXA ordinary share performs at least as well as the SXIP Index over a specified period of at least three years. This performance condition applies to all of Mr. Pearson’s options. The exercise price for the options is 21.52 euro, which was the average of the closing prices for the AXA ordinary share on Euronext Paris SA over the 20 trading days immediately preceding June 6, 2016.

In the event of a Named Executive Officer’s retirement, the stock options continue to vest and may be exercised until the end of the term, except in the case of misconduct. Accordingly, since Mr. Hattem and Mr. Pearson are currently eligible to retire, these stock options will not be forfeited due to any service condition.

2016 Performance Share Award Grants

A performance share is a “phantom” share of AXA stock that, once earned and vested, provides the right to receive an AXA ordinary share at the time of payment. Performance shares are granted unearned. Under the 2016 Performance Shares Plan, the number of shares that is earned is determined at the end of a three-year performance period, starting on January 1, 2016 and ending on December 31, 2018, by multiplying the number of shares granted by a performance percentage that is determined as described below. If no dividend is proposed for payment by the AXA Board of Directors to AXA’s shareholders for 2016 or 2017 or 2018, the performance percentage for the grant will be divided in half. The performance shares granted to the Named Executive Officers on June 6, 2016 have a cliff vesting schedule of four years.

The performance percentage for the 2016 Performance Share Plan initially will be determined based: (a) 40% on AXA Group’s performance with respect to adjusted earnings per share, (b) 50% on AXA Financial Life and Savings Operations’ performance with respect to adjusted earnings and underlying earnings (each weighted 50%) and (c) 10% on AXA Group’s score on the DJSI World, a Dow Jones sustainability index which tracks the performance of the world’s sustainability leaders. A positive or negative adjustment of 5% will then be made to the performance percentage based on AXA Group’s relative performance against a selection of its peers with respect to total shareholder return. The components of the performance percentage and their targets are determined by the AXA Board of Directors based on their review of AXA's strategic objectives, market practices and regulatory changes.

Generally, if performance targets are met, 100% of the performance shares initially granted is earned. Performance that exceeds the targets results in increases in the number of shares earned, subject to a cap of 130% of the initial number of shares. Performance that falls short of targets results in a decrease in the number of shares earned with a possible forfeiture of all shares. Since AXA uses IFRS as its principal method of accounting, AXA Group’s adjusted earnings per share and AXA Financial Life and Savings Operations’ adjusted earnings and underlying earnings are calculated using IFRS. Accordingly, they are not measures calculated and presented in accordance with U.S. GAAP.

The settlement of 2016 performance shares will be made in AXA ordinary shares on June 6, 2020. The 2016 plan provides that, in the case of retirement, a participant is treated as if he or she continued employment until the settlement date. Accordingly, Mr. Hattem and Mr. Pearson will still receive a payout under this plan if they choose to retire prior to the end of the vesting period.

Due to their termination of employment with AXA Equitable during 2016, both Ms. Ritchey and Ms. Brown have forfeited all of their performance shares, including the 2016 grant.

Mr. Winikoff’s RSUs Grant

On July 5, 2016, Mr. Winikoff received a sign-on equity-based grant of 84,611 RSUs. These RSUs will vest ratably over a four-year period and be paid out in cash within 30 days after the vesting date.


238

OUTSTANDING EQUITY AWARDS AS OF DECEMBER 31, 2016

The following table lists outstanding equity grants for each Named Executive Officer as of December 31, 2016. The table includes outstanding equity grants from past years as well as the current year.
 
 
OPTION AWARDS
 
STOCK AWARDS
Name
 
Number of
Securities
Underlying
Unexercised
Options(#)
Exercisable(1)
 
Number  of
Securities
Underlying
Unexercised
Options(#)
Unexercisable(1)
 
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options(1)
(#)
 
Option
Exercise
Price(2)
($)
 
Option
Expiration
Date
 
Number
of Shares
or Units
of Stock
That
Have Not
Vested(3)
(#)
 
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
 
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have  Not
Vested(4)
(#)
 
Equity
Incentive
Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or  Other
Rights That
Have Not
Vested
($)
Pearson, Mark
 
5,874

 
 
 
2,936

 
$
44.60

 
05/10/17
 
45,734

 
$
1,156,274

 
226,395

 
$
5,723,852

 
 
5,874

 
 
 
2,936

 
$
33.21

 
04/01/18
 
 
 
 
 
 
 
 
 
 
34,574

 
 
 
 
 
$
21.59

 
06/10/19
 
 
 
 
 
 
 
 
 
 
60,500

 
 
 
 
 
$
21.08

 
03/19/20
 
 
 
 
 
 
 
 
 
 
137,500

 
 
 
 
 
$
20.63

 
03/18/21
 
 
 
 
 
 
 
 
 
 
116,000

 
 
 
 
 
$
15.96

 
03/16/22
 
 
 
 
 
 
 
 
 
 
93,334

 
 
 
46,666

 
$
17.83

 
03/22/23
 
 
 
 
 
 
 
 
 
 
 
 
 
 
123,400

 
$
25.74

 
03/24/24
 
 
 
 
 
 
 
 
 
 
 
 
 
 
145,458

 
$
26.12

 
06/19/25
 
 
 
 
 
 
 
 
 
 
 
 
 
 
186,069

 
$
24.00

 
06/06/26
 
 
 
 
 
 
 
 
Malmstrom, Anders
 
 
 
 
 
11,644

 
$
17.83

 
03/22/23
 
13,491

 
$
341,087

 
64,422

 
$
1,628,755

 
 
 
 
24,414

 
12,206

 
$
25.74

 
03/24/24
 
 
 
 
 
 
 
 
 
 
 
 
24,786

 
12,393

 
$
26.12

 
06/19/25
 
 
 
 
 
 
 
 
 
 
 
 
37,656

 
18,828

 
$
24.00

 
06/06/26
 
 
 
 
 
 
 
 
Winikoff, Brian
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
84,611

 
$
2,139,185

Hattem, Dave
 
4,674

 
 
 
2,335

 
$
45.72

 
05/10/17
 
12,501

 
$
316,058

 
65,639

 
$
1,659,524

 
 
4,506

 
 
 
2,251

 
$
33.21

 
04/01/18
 
 
 
 
 
 
 
 
 
 
20,882

 
 
 
 
 
$
20.63

 
03/18/21
 
 
 
 
 
 
 
 
 
 
21,953

 
 
 
 
 
$
15.96

 
03/16/22
 
 
 
 
 
 
 
 
 
 
21,350

 
 
 
10,673

 
$
17.83

 
03/22/23
 
 
 
 
 
 
 
 
 
 
 
 
22,626

 
11,314

 
$
25.74

 
03/24/24
 
 
 
 
 
 
 
 
 
 
 
 
24,786

 
12,393

 
$
26.12

 
06/19/25
 
 
 
 
 
 
 
 
 
 
 
 
40,012

 
20,004

 
$
24.00

 
06/06/26
 
 
 
 
 
 
 
 
Healy, Michael
 
354

 
 
 
 
 
$
45.72

 
05/10/17
 
9,593

 
$
242,536

 
39,811

 
$
1,006,525

 
 
1,635

 
 
 
 
 
$
33.21

 
04/01/18
 
 
 
 
 
 
 
 
 
 
1,703

 
 
 
 
 
$
21.08

 
03/19/20
 
 
 
 
 
 
 
 
 
 
4,349

 
 
 
 
 
$
20.63

 
03/18/21
 
 
 
 
 
 
 
 
 
 
10,976

 
 
 
 
 
$
15.96

 
03/16/22
 
 
 
 
 
 
 
 
Ritchey, Sharon
 
 
 
24,414

 
12,206

 
$
25.74

 
03/24/24
 
 
 
 
 
 
 
 
 
 
 
 
24,786

 
12,393

 
$
26.12

 
06/19/25
 
 
 
 
 
 
 
 
 
 
 
 
28,242

 
14,120

 
$
24.00

 
06/06/26
 
 
 
 
 
 
 
 
Brown, Priscilla
 
 
 
12,394

 
6,196

 
$
26.12

 
06/19/25
 
 
 
 
 
 
 
 
 
 
 
 
14,122

 
7,059

 
$
24.00

 
06/06/26
 
 
 
 
 
 
 
 

(1)
All stock options have ten-year terms. All stock options granted after 2013 have a vesting schedule of five years, with one-third of the grant vesting on each of the third, fourth and fifth anniversaries of the grant, and all stock options granted in 2008 through 2013 have a vesting schedule of four years, with one-third of the grant vesting on each of the second, third and fourth anniversaries of the grant

239

date; provided that for all these grants the last third will vest only if the AXA ordinary share performs at least as well as the SXIP Index during a specified period (this condition applies to all options granted to Mr. Pearson after 2011). All stock options granted in 2007 are vested with the exception of the last third of the grants made to Mr. Pearson and Mr. Hattem. These stock options will vest only if the AXA ordinary share performs at least as well as the SXIP Index during a specified period.

(2)
All stock options have euro exercise prices. All euro exercise prices have been converted to U.S. dollars based on the euro to U.S. dollar exchange rate on the day prior to the grant date. The actual U.S. dollar equivalent of the exercise price will depend on the exchange rate at the date of exercise.

(3)
This column reflects earned but unvested performance shares granted in 2014 with a vesting date of March 24, 2017.

(4)
For Mr. Winikoff, this column reflects his sign-on RSU grant. His RSUs will vest ratably over a four-year period and be paid out in cash within 30 days after the vesting date. For the other Named Executive Officers, this column reflects unearned and unvested performance shares granted in 2014, 2015 and 2016 as follows:

 
2014 Performance Shares vesting 3/24/18
2015 Performance Shares vesting 6/19/19
2016 Performance
Shares vesting 6/6/20
Mr. Pearson
36,950
83,119
106,326
Mr. Malmstrom
10,900
21,245
32,277
Mr. Hattem
10,100
21,245
34,294
Mr. Healy
7,750
15,279
16,782

OPTION EXERCISES AND STOCK VESTED IN 2016

The following table summarizes the value received from stock option exercises and stock awards vested during 2016.
 
 
OPTION AWARDS
 
STOCK AWARDS
Name
 
Number of
Shares
Acquired  
on Exercise(1) (#)
 
Value
Realized  
on
Exercise(2) ($)  
 
Number of
Shares
Acquired on  
Vesting(3) #
 
Value
Realized  
on
Vesting(4) ($)
Pearson, Mark
 
 
 
 
 
100,449
 
$
2,401,712

Malmstrom, Anders
 
26,890

 
$
291,909

 
25,108
 
$
600,314

Winikoff, Brian
 
 
 
 
 
 
 
 
Hattem, Dave
 
 
 
 
 
23,020
 
$
550,390

Healy, Michael
 
 
 
 
 
24,412
 
$
583,672

Ritchey, Sharon
 
 
 
 
 
 
 
 
Brown, Priscilla
 
 
 
 
 
 
 
 
(1)
This column reflects the number of options that Mr. Malmstrom exercised in 2016.

(2)
Mr. Malmstrom immediately sold all shares acquired upon option exercise. This column reflects the actual sale price received less the exercise price.

(3)
For Mr. Pearson, this column reflects the number of performance shares he earned under the 2013 AXA International Performance Shares Plan that vested on March 22, 2016. For the other Named Executive Officers, this column reflects 50 AXA miles that vested on March 16, 2016 in addition to their performance shares earned under the 2013 AXA International Performance Shares Plan. For a description of the 2013 AXA Performance Shares Plan and AXA Miles, please see “Compensation Discussion and Analysis” included in this item 11.
   
(4)
The value of the performance shares that vested in 2016 was determined based on the average of the high and low AXA ordinary share price on the vesting date, converted to US dollars using the European Central Bank reference rate on the vesting date. The value of the AXA miles that vested in 2016 was determined based on the actual sale price obtained by AXA Miles recipients who elected to have the plan administrator sell their AXA ordinary shares on the date of vesting.



240

PENSION BENEFITS AS OF DECEMBER 31, 2016

The following table lists the pension program participation and actuarial present value of each Named Executive Officer’s defined benefit pension at December 31, 2016. Note that Mr. Malmstrom, Mr. Winikoff, Ms. Ritchey and Ms. Brown did not participate in the Retirement Plan or the Excess Plan since they were not eligible to participate in these plans prior to their freeze.
Name
 
Plan Name(1)
 
Number of
Years
Credited
Service
(#)
 
Present Value of
Accumulated
Benefit
($)
 
Payments during
the last fiscal year
($)
Pearson, Mark
 
AXA Equitable Retirement Plan
 
3
 
$
67,096

 
—
 
 
AXA Equitable Excess Retirement Plan
 
3
 
$
672,728

 
—
 
 
AXA Equitable Executive Survivor
Benefit Plan
 
22
 
$
3,313,530

 
—
Malmstrom, Anders
 
AXA Equitable Retirement Plan
 
—
 
$
—

 
—
 
 
AXA Equitable Excess Retirement Plan
 
—
 
$
—

 
—
 
 
AXA Equitable Executive Survivor
Benefit Plan
 
5
 
$
331,396

 
—
Winikoff, Brian
 
AXA Equitable Retirement Plan
 
—
 
$
—

 
—
 
 
AXA Equitable Excess Retirement Plan
 
—
 
$
—

 
—
 
 
AXA Equitable Executive Survivor
Benefit Plan
 
—
 
$
—

 
—
Hattem, Dave
 
AXA Equitable Retirement Plan
 
19
 
$
492,310

 
—
 
 
AXA Equitable Excess Retirement Plan
 
19
 
$
1,026,271

 
—
 
 
AXA Equitable Executive Survivor
Benefit Plan
 
23
 
$
1,943,732

 
—
Healy, Michael
 
AXA Equitable Retirement Plan
 
6
 
$
147,849

 
—
 
 
AXA Equitable Excess Retirement Plan
 
6
 
$
159,410

 
—
 
 
AXA Equitable Executive Survivor
Benefit Plan
 
10
 
$
145,355

 
—
Ritchey, Sharon
 
AXA Equitable Retirement Plan
 
—
 
$
—

 
—
 
 
AXA Equitable Excess Retirement Plan
 
—
 
$
—

 
—
 
 
AXA Equitable Executive Survivor
Benefit Plan
 
3
 
$
321,178

 
—
Brown, Priscilla
 
AXA Equitable Retirement Plan
 
—
 
$
—

 
—
 
 
AXA Equitable Excess Retirement Plan
 
—
 
$
—

 
—
 
 
AXA Equitable Executive Survivor
Benefit Plan
 
2
 
$
269,361

 
—

(1)
The December 31, 2016 liabilities for the Retirement Plan, the Excess Plan, and the ESB Plan were calculated using the same participant data, plan provisions and actuarial methods and assumptions used for financial reporting purposes, except that a retirement age of 65 is assumed for all calculations. The assumptions used include:
•
a discount rate of 3.81% for the Retirement Plan;
•
a discount rate of 3.69% for the Excess Plan;
•
a discount rate of 3.92% for the ESB Plan and
•
the RP-2000 mortality table projected on a full generational basis using Scale BB.
 
(2)
Credited service for purposes of the Retirement Plan and the Excess Plan does not include an executive’s first year of service and does not include any service after the freeze of the plans on December 31, 2013. Pursuant to his employment agreement, Mr. Pearson’s credited service for purposes of the ESB Plan includes approximately 16 years of service with AXA Equitable affiliates. However, this additional credited service does not result in any benefit augmentation for Mr. Pearson.

241

The Retirement Plan
The Retirement Plan is a tax-qualified defined benefit plan for eligible employees. The Retirement Plan was frozen effective December 31, 2013.

Participants became vested in their benefits under the Retirement Plan after three years of service. Participants are eligible to retire and begin receiving benefits under the Retirement Plan: (a) at age 65 (the “normal retirement date”) or (b) if they are at least age 55 with at least 5 full years of service (an “early retirement date”).

Prior to the freeze, the Retirement Plan provided a cash balance benefit whereby AXA Equitable established a notional account for each Retirement Plan participant. This notional account was credited with deemed pay credits equal to 5% of eligible compensation up to the Social Security wage base plus 10% of eligible compensation above the Social Security wage base. Eligible compensation included base salary and short-term incentive compensation and was subject to limits imposed by the Internal Revenue Code. These notional accounts continue to be credited with deemed interest credits. For pay credits earned on or after April 1, 2012 up to December 31, 2013, the interest rate is determined annually based on the average discount rates for one-year Treasury Constant Maturities. For pay credits earned prior to April 1, 2012, the annual interest rate is the greater of 4% and a rate derived from the average discount rates for one-year Treasury Constant Maturities. For 2016, pay credits earned prior to April 1, 2012 received an interest crediting rate of 4% while pay credits earned on or after April 1, 2012 received an interest crediting rate of .5%.

Participants elect the time and form of payment of their cash balance account after they separate from service. The normal form of payment depends on a participant’s marital status as of the payment commencement date. If the participant is unmarried, the normal form will be a single life annuity. If the participant is married, the normal form will be a 50% joint and survivor annuity. Subject to spousal consent requirements, participants may elect the following optional forms of payment for their cash balance account:
•
Single life annuity;
•
Optional joint and survivor annuity of any whole percentage between 1% and 100%; and
•
Lump sum.

Mr. Pearson, Mr. Hattem and Mr. Healy are each entitled to a frozen cash balance benefit under the Retirement Plan. Mr. Pearson and Mr. Hattem are currently eligible for early retirement under the plan.

Note that, for certain grandfathered participants, the Retirement Plan provides benefits under a traditional defined benefit formula based on final average pay, estimated Social Security benefits and years of service. None of the Named Executive Officers are grandfathered participants.
The Excess Plan
The purpose of the Excess Plan, which was frozen as of December 31, 2013 was to allow eligible employees to earn retirement benefits in excess of those permitted under the Retirement Plan. Specifically, the Retirement Plan is subject to rules under the Internal Revenue Code that cap both the amount of eligible earnings that may be taken into account for determining benefits under the Retirement Plan and the amount of benefits that the Retirement Plan may pay annually. Prior to the freeze of the Retirement Plan, the Excess Plan permitted participants to accrue and be paid benefits that they would have earned and been paid under the Retirement Plan but for these limits. The Excess Plan is an unfunded plan and no assets are actually set aside in participants’ names.

The Excess Plan was amended effective September 1, 2008 to comply with the provisions of Code Section 409A. Pursuant to the amendment, a participant’s Excess Plan benefits vested after 2005 will generally be paid in a lump sum on the first day of the month following the month in which separation from service occurs, provided that payment will be delayed six months for “specified employees” (generally, the fifty most highly-compensated officers of AXA Group), unless the participant made a special one-time election with respect to the time and form of payment of those benefits by November 14, 2008. None of Mr. Pearson, Mr. Hattem and Mr. Healy made a special election. The time and form of payment of Excess Plan benefits that vested prior to 2005 is the same as the time and form of payment of the participant’s Retirement Plan benefits.


242

The ESB Plan
The ESB Plan offers financial protection to a participant’s family in the case of his or her death. Eligible employees may choose up to four levels of coverage and the form of benefit to be paid at each level. Each level provides a benefit equal to one times the participant’s eligible compensation (generally, base salary plus the higher of: (a) most recent short-term incentive compensation award and (b) the average of the three highest short-term incentive compensation awards), subject to an overall $25 million cap. Each level offers different coverage choices. Generally, the participant can choose between a life insurance death benefit and a deferred compensation benefit payable upon death at each level. Participants are not required to contribute to the cost of Level 1 or Level 2 coverage but are required to contribute annually to the cost of any options elected under Levels 3 and 4 until age 65.

Level 1 coverage continues after retirement until the participant attains age 65. Level 2, Level 3 and Level 4 coverage continue after retirement until the participant’s death, provided that, for Level 3 and Level 4 coverage, all required participant contributions are made.

Level 1

A participant can choose between the following two options at Level 1:

Lump Sum Option - Under the Lump Sum Option, a life insurance policy is purchased on the participant’s life. At the death of the participant, the participant’s beneficiary receives a tax-free lump sum death benefit from the policy. The participant is taxed annually on the value of the life insurance coverage provided.

Survivor Income Option - Upon the participant’s death, the Survivor Income Option provides the participant’s beneficiary with 15 annual payments approximating the value of the Lump Sum Option or a payment equal to the amount of the lump sum. The payments will be taxable but the participant is not subject to annual taxation.

Level 2

At Level 2, a participant can choose among the Lump Sum Option and Survivor Income Option, described above, and the following option:

Surviving Spouse Benefit Option - The Surviving Spouse Benefit Option provides the participant’s spouse with monthly income equal to about 25% of the participant’s monthly compensation (with an offset for social security). The payments are taxable but there is no annual taxation to the participant. The duration of the monthly income depends on the participant’s years of service (with a minimum duration of 5 years).

Levels 3 and 4

At Levels 3 and 4, a participant can choose among the Lump Sum Option and Survivor Income Option, described above and the following option:

Surviving Spouse Income Addition Option - The Surviving Spouse Income Addition Option provides monthly income to the participant’s spouse for life equal to 10% of the participant’s monthly compensation. The payments are taxable but there is no annual taxation to the participant.








243

NON-QUALIFIED DEFERRED COMPENSATION TABLE AS OF DECEMBER 31, 2016
The following table provides information on (i) compensation Mr. Hattem has elected to defer and (ii) the excess 401(k) contributions received by the Named Executive Officers.
Name
 
 
 
Executive
Contributions
in Last FY($)
 
Registrant
Contributions
in Last FY(1)($)
 
Aggregate
Earnings in
Last FY(2)($)
 
Aggregate
Withdrawals/
Distributions($)
 
Aggregate
Balance at 
Last FYE(3)($)
Pearson, Mark
 
The Post-2004 Variable Deferred Compensation Plan
 
 
 
$
332,464

 
$
51,280

 
 
 
$
1,061,076

Malmstrom, Anders
 
The Post-2004 Variable Deferred Compensation Plan
 
 
 
$
133,323

 
$
25,925

 
 
 
$
265,892

Winikoff, Brian
 
The Post-2004 Variable Deferred Compensation Plan
 
 
 
$
6,795

 
 
 
 
 
$
6,795

Hattem, Dave
 
The Post-2004 Variable Deferred Compensation Plan
 
 
 
$
114,487

 
$
45,152

 
$
92,784

 
$
655,600

 
 
The Variable Deferred Compensation Plan
 
 
 
 
 
$
98,658

 
 
 
$
1,185,622

Healy, Michael
 
The Post-2004 Variable Deferred Compensation Plan
 
 
 
$
53,309

 
$
13,690

 
 
 
$
169,945

Ritchey, Sharon
 
The Post-2004 Variable Deferred Compensation Plan
 
 
 
$
98,339

 
$
10,530

 
 
 
$
233,550

Brown, Priscilla
 
The Post-2004 Variable Deferred Compensation Plan
 
 
 
$
77,529

 
$
7,979

 
 
 
$
166,851


(1)
The amounts reported in this column are also reported in the “All Other Compensation” column of the 2016 Summary Compensation Table above.

(2)
The amounts reported in this column are not reported in the 2016 Summary Compensation Table.

(3)
The amounts in this column that were previously reported as compensation in the Summary Compensation Table for previous years are:
Mr. Pearson
$684,517
Mr. Malmstrom
$109,323
Mr. Hattem
$225,378

244

The Post-2004 Plan
The above table reflects the excess 401(k) contributions made by AXA Equitable to the eligible Named Executive Officers under the Post-2004 Plan as well as amounts deferred by Mr. Hattem under the plan.

The Post-2004 Plan allows eligible employees to defer the receipt of up to 25% of their base salary and short-term incentive compensation. Deferrals are credited to a bookkeeping account in the participant’s name on the first day of the month following the month in which the compensation otherwise would have been paid to him or her. The account is used solely for record keeping purposes and no assets are actually placed into any account in the participant’s name.

Account balances in the Post-2004 Plan are credited with gains and losses as if invested in the available earnings crediting options chosen by the participant. The Post-2004 Plan currently offers a variety of earnings crediting options which are among those offered by the AXA Premier VIP Trust and EQ Advisors Trust.

Each year, participants in the Post-2004 Plan can elect to make deferrals into an account they have already established under the plan or they may open a new account, provided that they may not allocate any new deferrals into an account if they are scheduled to receive payments from the account in the next calendar year. When participants establish an account, they must elect the form and timing of payments for that account. They may receive payments of their account balance in a lump sum or in any combination of lump sum and/or annual installments paid over consecutive years. They may elect to commence payments from an account in July or December of any year after the year following the deferral election provided that payments must commence by the first July or December following age 71.

In addition, AXA Equitable provides excess 401(k) contributions in the Post-2004 Plan for participants in the 401(k) Plan with eligible compensation in excess of the qualified plan compensation limit. These contributions are equal to 10% of the participant’s (i) eligible compensation in excess of the qualified plan compensation limit ($265,000 in 2016 and 2016) and (ii) voluntary deferrals to the Post-2004 Plan for the applicable year.
The Variable Deferred Compensation Plan for Executives (the “VDCP”)
The above table also reflects amounts deferred by Mr. Hattem under the VDCP. Under the VDCP, eligible employees were permitted to defer the receipt of up to 25% of their base salary and short-term incentive compensation. Deferrals were credited to a bookkeeping account in the participant’s name on the first day of the month following the month in which the compensation otherwise would have been paid to him or her. The account is used solely for record keeping purposes and no assets are actually placed into any account in the participant’s name. The VDCP was frozen as of December 31, 2004 so that no amounts earned or vested after 2004 can be deferred under the VDCP.

Account balances in the VDCP that are attributable to deferrals of base salary and short-term incentive compensation are credited with gains and losses as if invested in the available earnings crediting options chosen by the participant. The VDCP currently offers a variety of earnings crediting options which are among those offered by the AXA Premier VIP Trust and EQ Advisors Trust.

Participants in the VDCP could elect to credit their deferrals to in-service or retirement distribution accounts. For retirement accounts, payments may be received in any combination of a lump sum and/or annual installments paid in consecutive years. Payments may begin in any January or July following the participant’s termination date, but they must begin by either the first January or the first July following the later of: (a) the participant’s attainment of age 65 and (b) the date that is thirteen months following the participant’s termination date. For in-service accounts, payments are made to the participant in December of the year elected by the participant in a lump sum or in up to five annual installments over consecutive years.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The table below and the accompanying text present the hypothetical payments and benefits that would have been payable if the Named Executive Officers other than Ms. Ritchey and Ms. Brown terminated employment, or a change-in-control of AXA Financial occurred, on December 31, 2016 (the “Trigger Date”) and uses the closing price of the AXA ordinary share on December 30, 2016, converted to U.S. dollars where applicable. Since Ms. Ritchey and Ms. Brown actually terminated employment with AXA Equitable in 2016, only the terms of their actual separation agreements are discussed.

Except for Ms. Ritchey and Ms. Brown, the payments and benefits described below are hypothetical only, as no such payments or benefits have been paid or made available. Hypothetical payments or benefits that would be due under arrangements that are generally available on the same terms to all salaried employees are not described.

245

The Named Executive Officers (other than Ms. Ritchey and Ms. Brown) would have been entitled to the following payments and benefits if they retired on the Trigger Date. For this purpose, “retirement” means termination of service on or after the normal retirement date or any early retirement date under the Retirement Plan. Note that the only Named Executive Officers eligible to retire on the Trigger Date were Mr. Pearson and Mr. Hattem.

Short-Term Incentive Compensation: The executives would have received short-term incentive compensation awards for 2016 under the Retiree Short-Term Incentive Compensation Program in the following amounts:

Mr. Pearson
$2,128,400
Mr. Hattem
$650,000

Stock Options: All stock options granted to the executives would have continued to vest and be exercisable until their expiration date, except in the case of misconduct (for which the options would be forfeited). The value of the stock options that would have vested after 2016 for each of Mr. Pearson and Mr. Hattem are:

Mr. Pearson
$1,849,639
Mr. Hattem
$509,813

Performance Shares: The executives would have been treated as if they continued in the employ of the company until the end of the vesting period for purposes of their performance share awards. Accordingly, they would have received performance share plan payouts at the same time and in the same amounts as they would have received such payouts if they had not retired. The estimated values of those payouts assuming target performance are:

Mr. Pearson
$6,880,126
Mr. Hattem
$1,975,581

Retirement Benefits: The executives would have been entitled to the benefits described in the pension and nonqualified deferred compensation tables above.

Medical Benefits: The executives would have been entitled to access to retiree medical coverage without any company subsidy.

ESB Plan: The executives would have been entitled to continuation of their participation in the ESB Plan described above.

Voluntary Termination Other Than Retirement

Mr. Healy and Mr. Malmstrom

If Mr. Healy and Mr. Malmstrom had voluntarily terminated employment on the Trigger Date:

Short-Term Incentive Compensation:     The executives would not have been entitled to any STIC Program awards for 2016.

Stock Options:     All stock options granted to the executives would have been forfeited on the termination date.

Performance Shares:     The executives would have forfeited all performance shares on the termination date.

Retirement Benefits: The executives would have been entitled to the benefits described in the pension and nonqualified deferred compensation tables above, except that they would no longer be entitled to any benefits under the ESB Plan.

Mr. Winikoff

If Mr. Winikoff had voluntarily terminated on the Trigger Date for “good reason:”
•
any outstanding RSUs granted to Mr. Winikoff would have immediately vested and been paid out in cash on their otherwise applicable payment dates (estimated value of $2,139,185) and

246

•
he would have been eligible to receive a payment of $3,200,000 (equal to two times his annual base salary plus his STIC Program award target for 2016). This payment would have been contingent on the execution of a general release and waiver of claims against AXA Equitable and affiliates.

For this purpose, “good reason” includes: (a) relocation of his position to a work site that is more than 35 miles away from 1290 Avenue of the Americas, New York City, (b) a material reduction in his compensation (other than in connection with, and substantially proportionate to, reductions by the company of the compensation of other similarly situated senior executives), (c) a material diminution in his duties, authority or responsibilities and (d) a material change in the lines of reporting such that he no longer reports to the company’s President and Chief Executive Officer.

Regardless of whether the voluntary termination was for “good reason,” Mr. Winikoff would have been entitled to the benefits described in the pension and nonqualified deferred compensation tables above, except that they would no longer be entitled to any benefits under the ESB Plan.
Mr. Pearson
If Mr. Pearson had voluntarily terminated on the Trigger Date for “Good Reason” as described below, he would have been entitled to: (i) severance pay equal to the sum of two years of salary and two times the greatest of: (a) Mr. Pearson’s most recent STIC Program award, (b) the average of Mr. Pearson’s last three STIC Program awards and (c) Mr. Pearson’s target STIC Program award for the year in which termination occurred, (ii) a pro-rated STIC Program award at target for the year of termination and (iii) a cash payment equal to the additional employer contributions that Mr. Pearson would have received under the 401(k) Plan and its related excess plan for the year of his termination if those plans provided employer contributions on his severance pay and all of his severance pay was paid in that year.

For this purpose, “Good Reason” includes a material reduction in Mr. Pearson’s duties or authority, the removal of Mr. Pearson from his positions, AXA Equitable requiring Mr. Pearson to be based at an office more than 75 miles from New York City, a diminution of Mr. Pearson’s titles, a material failure by the company to comply with the agreement’s compensation provisions, a failure of the company to secure a written assumption of the agreement by any successor company and a change in control of AXA Financial (provided that Mr. Pearson delivers notice of termination within 180 days after the change in control). The severance benefits are contingent upon Mr. Pearson releasing all claims against AXA Equitable and its affiliates and his entitlement to severance pay will be discontinued if he provides services for a competitor. Also, in the event of a termination of Mr. Pearson’s employment by AXA Equitable without cause or Mr. Pearson’s resignation due to a change in control, Mr. Pearson’s severance benefits will cease after one year if certain performance conditions are not met for each of the two consecutive fiscal years immediately preceding the year of termination.

Mr. Pearson would have received the following amounts if he had voluntarily terminated for Good Reason on the Trigger Date and released all claims against AXA Equitable and its affiliates:

Severance Pay
$
7,315,333

Pro-Rated Bonus
$
2,128,400

Cash Payment
$
731,533


In addition, because Mr. Pearson was eligible to retire on the Trigger Date, he would have been eligible for the retirement benefits described above, regardless of whether he terminated for Good Reason.

Mr. Hattem

Because Mr. Hattem was eligible to retire on the Trigger Date, he would have been eligible for the retirement benefits described above.

Death

If the Named Executive Officers had terminated employment due to death on the Trigger Date:

Short-Term Incentive Compensation:     The executives’ estates would not have been entitled to any STIC Program awards for 2016.


247

Stock Options:     All stock options would have immediately vested and would have continued to be exercisable until the earlier of their expiration date and the six-month anniversary of the date of death. The estimated values of the stock options with accelerated vesting are:
    
Mr. Pearson
$1,849,639
Mr. Malmstrom
$518,954
Mr. Winikoff
—
Mr. Hattem
$509,813
Mr. Healy
—

Performance Shares:     The total number of performance shares granted in 2015 and 2016 and the second half of the performance shares granted in 2014 would have been multiplied by an assumed performance factor of 1.3 and the first half of the performance shares granted in 2014 would have been multiplied by the actual performance factor for that tranche. The performance shares would have been paid in AXA ordinary shares to the executive’s heirs within 90 days following death. The estimated values of those payouts are:
    
Mr. Pearson
$8,597,281
Mr. Malmstrom
$2,458,469
Mr. Winikoff
—
Mr. Hattem
$2,473,439
Mr. Healy
$1,551,019

Restricted Stock Units: Mr. Winikoff’s RSUs would have immediately vested in full for an estimated value of $2,139,185.

Retirement Benefits:     The executives’ heirs would have been entitled to the benefits described in the pension and nonqualified deferred compensation tables above.
Involuntary Termination Without Cause
Named Executive Officers Other than Mr. Pearson

The Named Executive Officers, excluding Mr. Pearson, would have been eligible for severance benefits under the Severance Benefit Plan, as supplemented by the Supplemental Severance Plan (collectively, the “Severance Plan”), if an involuntary termination of employment had occurred on the Trigger Date that satisfied the conditions in the Severance Plan. To receive benefits, the executives would have been required to sign a separation agreement including a release of all claims against AXA Equitable and its affiliates and non-solicitation provisions.
The severance benefits would have included:
•
severance pay equal to 52 weeks’ of base salary;
•
additional severance pay equal to the greater of: (i) the most recent STIC Program award paid to the executive, (ii) the average of the three most recent STIC Program awards paid to the executive or (iii) the executive’s target STIC Program award for 2016;
•
a lump sum payment equal to the sum of: (i) the executive’s target STIC Program award for 2016 and (ii) $40,000; and
•
one year’s continued participation in the ESB Plan.

The Named Executive Officers would have had a one-year severance period.  If a Named Executive Officer would have been eligible to retire prior to the end of the severance period, all stock options granted to the Named Executive Officer would have continued to vest and be exercisable until their expiration date, except in the case of misconduct (for which the options would be forfeited).  Also, the Named Executive Officer would have been treated as if he continued in the employ of AXA Equitable until the end of the vesting period for his performance shares.

In addition to the above, Mr. Winikoff would have received the following:
•
the immediately vesting of his outstanding RSUs for an estimated value of $2,139,185 and
•
a payment equal to (i) two times his annual base salary plus his STIC Program award target for 2016, reduced by (ii) any severance pay for which he would otherwise eligible under the Severance Plan or the Supplemental Severance Plan. This

248

payment would be contingent on all other terms and conditions of the Severance Plan and Supplemental Severance Plan, including the execution of a general release and waiver of claims against AXA Equitable and affiliates.

The following table lists the payments that the executives would have received if they were involuntarily terminated under the Severance Plan on the Trigger Date as well as the implications for their stock option and performance shares awards:

 
 
Severance Benefits
 
Equity Grants
Name
 
Severance 
 
Lump Sum
 Payment 
 
Stock Options    
 
Performance
Shares
Malmstrom, Anders
 
$1,595,704
 
$840,000
 
Options would continue to vest and be exercisable until the earlier of their expiration date and 30 days after the end of the one-year severance period.
 
 Forfeited
Winikoff, Brian
 
$3,200,000
 
$415,000
 
Options would continue to vest and be exercisable until the earlier of their expiration date and 30 days after the end of the one-year severance period.
 
 Forfeited
Hattem, Dave
 
$1,347,040
 
$690,000
 
Continued vesting in all options and ability to exercise the options through expiration date.
 
Would receive payouts in the same time and in the same amounts as if he had continued to be employed.
Healy, Michael
 
$803,836
 
$390,000
 
Options would continue to vest and be exercisable until the earlier of their expiration date and 30 days after the end of the one-year severance period.
 
 Forfeited

Mr. Pearson

Under Mr. Pearson’s employment agreement, he waived any right to participate in the Severance Plan. Rather, if Mr. Pearson’s employment had been terminated without “Cause” on the Trigger Date, he would have been entitled to the same benefits as termination for Good Reason as described above, subject to the same conditions. “Cause” is defined in Mr. Pearson’s employment agreement as: (i) willful failure to perform substantially his duties after reasonable notice of his failure, (ii) willful misconduct that is materially injurious to the company, (iii) conviction of, or plea of nolo contedere to, a felony or (iv) willful breach of any written covenant or agreement with the company to not disclose information pertaining to them or to not compete or interfere with the company.

Ms. Ritchey’s Separation Agreement    

Ms. Ritchey entered into a separation agreement and general release with AXA Equitable pursuant to which she terminated employment on December 30, 2016. Payments related to her separation include:
•
$1,296,509 severance pay under the terms of the Severance Plan
•
$740,000 lump sum payment under the terms of the Severance Plan
•
Additional lump sum payment of $1,285,877.

Ms. Brown’s Separation Agreement

Ms. Brown entered into a separation agreement and general release with AXA Equitable pursuant to which she terminated employment on August 31, 2016. Payments related to her separation include:
•
$1,180,821 severance pay under the terms of the Severance Plan
•
$406,666 lump sum payment under the terms of the Severance Plan
•
Additional lump sum payment of $1,180,821.

Change-in-Control

With the exception of Mr. Pearson, none of the Named Executive Officers are entitled to any special benefits upon a change-in-control of AXA Financial other than the benefits provided for all stock options granted under the Stock Option Plan. For those options, if there is a change in control of AXA Financial, all unvested options will become immediately exercisable for their term regardless of the otherwise applicable exercise schedule. The value of the stock options that would have immediately vested for each Named Executive Officer is:


249

Mr. Pearson
$1,849,639
Mr. Malmstrom
$518,954
Mr. Winikoff
—
Mr. Hattem
$509,813
Mr. Healy
—

As mentioned above, Mr. Pearson’s employment agreement provides that “good reason” includes Mr. Pearson’s termination of employment in the event of a change in control (provided that Mr. Pearson delivers notice of termination within 180 days after the change in control). Accordingly, Mr. Pearson would have been entitled to the benefits described above for a voluntary termination for “good reason,” subject to the same conditions. For this purpose, a change in control includes: (a) any person becoming the beneficial owner of more than 50% of the voting stock of AXA Financial, (b) AXA and its affiliates ceasing to control the election of a majority of the AXA Financial Board of directors and (c) approval by AXA Financial’s stock holders of a reorganization, merger or consolidation or sale of all or substantially all of the assets of AXA Financial unless AXA and its affiliates owned directly or indirectly more than 50% of voting power of the company resulting from such transaction.

2016 DIRECTOR COMPENSATION TABLE

The following table provides information on compensation that was paid to our directors for 2016 services. Each of our directors serves on the boards of AXA Financial, AXA Equitable and MONY Life Insurance Company of America. The amounts below include amounts paid for the directors’ services for all three boards.

Name
 
Fees
Earned
or Paid
in Cash(1)
($) 
 
Stock
 Awards(2)
($)    
 
Option Awards(3)
($)
 
Non-Equity
Incentive Plan
Compensation
($)
 
Change in
Pension Value
and Non-qualified
Deferred
Compensation
Earnings
($)
 
All Other
Compensation(4)
($)
 
Total
($)
Buberl, Thomas
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

De Castries, Henri (5)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
271,700

 
$
271,700

Duverne, Denis
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
181,454

 
$
181,454

De Oliveira, Ramon
 
$
82,200

 
$
99,983

 
$
—

 
$
—

 
$
—

 
$
995

 
$
183,178

Evans, Paul
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Fallon-Walsh, Barbara
 
$
122,600

 
$
99,983

 
$
—

 
$
—

 
$
—

 
$
1,702

 
$
224,285

Kaye, Daniel
 
$
97,800

 
$
99,983

 
$
—

 
$
—

 
$
—

 
$
1,720

 
$
199,503

Kraus, Peter S. (6)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Matus, Kristi
 
$
79,800

 
$
99,983

 
$
—

 
$
—

 
$
—

 
$
568

 
$
180,351

Scott, Bertram
 
$
93,000

 
$
99,983

 
$
—

 
$
—

 
$
—

 
$
1,488

 
$
194,471

Slutsky, Lorie A.
 
$
91,000

 
$
99,983

 
$
—

 
$
—

 
$
—

 
$
1,135

 
$
192,118

Vaughan, Richard C.
 
$
117,800

 
$
99,983

 
$
—

 
$
—

 
$
—

 
$
1,900

 
$
219,683


(1)
For 2016, each of the non-officer directors received the following cash compensation:
•$75,000 cash retainer (pro-rated for partial years of service);
•$1,200 for each special board meeting attended;
•$1,500 for each Audit Committee meeting attended; and
•$1,200 for all other Committee meetings attended.

In addition, the Chairpersons of the Organization and Compensation Committee, the Investment Committee and the Investment and Finance Committee each received a $10,000 retainer and the Chairman of the Audit Committee received a $20,000 retainer.

(2)
The amounts reported in this column represent the aggregate grant date fair value of restricted and unrestricted stock awarded in 2016 in accordance with FASB ASC Topic 718, and the assumptions made in calculating them can be found in Note 13 of the Notes to the

250

Consolidated Financial Statements. As of December 31, 2016, our directors had outstanding restricted stock awards in the following amounts:
Mr. De Oliveira
5,514
Ms. Fallon-Walsh
5,514
Mr. Kaye
1,987
Ms. Matus
1,987
Ms. Scott
5,514
Ms. Slutsky
5,514
Mr. Vaughan
5,514

(3)
As of December 31, 2016, our directors had outstanding stock options in the following amounts:
Mr. De Oliveira
4,361
Ms. Fallon-Walsh
2,127
Ms. Scott
2,127
Ms. Slutsky
10,102
Mr. Vaughan
6,303

(4)
For Mr. De Castries, this column lists amounts received for services performed for AXA Financial. For Mr. Duverne, this column lists amounts received for services performed for AXA Financial and amounts paid by the company for his spouse to accompany him to a business event. For all other directors, this column lists premiums paid by the company for $125,000 of group life insurance coverage and any amounts paid by the company for a director’s spouse to accompany the director on a business trip or to a business event.
(5)
Mr. De Castries resigned as a director, effective September 1, 2016.
(6)
Mr. Kraus resigned as a director, effective November 18, 2016.
The Equity Plan for Directors
Under the current terms of The Equity Plan for Directors (the “Equity Plan”), non-officer directors are granted the following each year:
•
a restricted stock award of $45,000 (granted in the first quarter); and
•
a stock retainer of $55,000, payable in two installments in June and December.

For calendar years prior to 2014, non-officer directors were also granted option awards each year.

Stock Options

The value of the stock option grants were determined using the Black-Scholes methodology or other methodology used with respect to option awards contemporaneously made to employees. The options are subject to a four-year vesting schedule whereby one-third of each grant vests on the second, third and fourth anniversaries of the grant date.

Restricted Stock

The number of shares of restricted stock to be granted to each non-officer director is determined by dividing $45,000 by the fair market value of the stock on the applicable grant date (rounded down to the nearest whole number). During the restricted period, the directors are entitled to exercise full voting rights on the restricted stock and receive all dividends and distributions. The restricted stock has a three-year cliff vesting schedule.

Termination of Service

In the event a non-officer director dies or, after completing one year of service, is removed without cause, is not reelected, retires or resigns: (a) his or her options will become fully vested and exercisable at any time prior to the earlier of the expiration of the grant or five years from termination of service and (b) his or her restricted stock will immediately become non-forfeitable; provided that if the director performs an act of misconduct, all of his or her options and restricted stock then outstanding will become forfeited. Upon any other type of termination, all outstanding options and restricted stock are forfeited.


251

Deferrals of Restricted Stock and Stock Retainer

Non-officer directors may elect to defer receipt of at least ten percent of their stock retainer and/or restricted stock awards. Upon deferral, the director receives deferred stock units in the same number and with the same vesting restrictions, if any, as the underlying awards. The director is entitled to receive dividend equivalents on such deferred stock units, if applicable. The deferred stock units will be distributed in stock on an elected distribution date or upon the occurrence of certain events.

Change in Control
Upon a change in control of AXA Financial, unless the awards will be assumed or substituted following the change in control: (a) the options will either become fully exercisable or cancelled in exchange for a payment in cash equal to the excess, if any, of the change in control price over the exercise price, and (b) the restricted stock will become immediately non-forfeitable.

Charitable Award Program for Directors

Under the Charitable Award Program for Directors, a non-officer director may designate up to five charitable organizations and/or education institutions to receive an aggregate donation of $500,000 after his or her death. Although the company may purchase life insurance policies insuring the lives of the participants to financially support the program, it has not elected to do so.

Matching Gifts

Non-officer directors may participate in AXA Foundation’s Matching Gifts program. Under this program, the AXA Foundation matches donations made by participants to public charities of $50 or more, up to $2,000 per year.

Business Travel Accident

All directors are covered for accidental loss of life while traveling to, or returning from:

•
board or committee meetings;
•
trips taken at our request; and
•
trips for which the director is compensated.

Each director is covered up to four times their annual compensation, subject to certain maximums.

Director Education

All directors are encouraged to attend director education programs as they deem appropriate to stay abreast of developments in corporate governance and best practices relevant to their contribution to the board generally, as well as to their responsibilities in their specific committee assignments and other roles. We generally reimburse non-officer directors for the cost to attend director education programs offered by third parties, including related reasonable travel and lodging expenses, up to a maximum amount of $5,000 per director each calendar year.

The Post-2004 Variable Deferred Compensation Plan for Directors

Non-officer directors may defer up to 100% of their annual cash retainer and meetings fees under The Post-2004 Variable Deferred Compensation Plan for Directors (the “Deferral Plan”). Deferrals are credited to a bookkeeping account in the director’s name in the month that the compensation otherwise would have been paid to him or her. The account is used solely for record keeping purposes and no assets are actually placed into any account in the director’s name. The minimum deferral is 10%.

Account balances in the Deferral Plan are credited with gains and losses as if invested in the available earnings crediting options chosen by the participant. The Deferral Plan currently offers a variety of earnings crediting options which are among those offered by the AXA Premier VIP Trust and EQ Advisors Trust.

Participants in the Deferral Plan elect the form and timing of payments from their accounts. Payments may be received in any combination of a lump sum and/or annual installments paid in consecutive years. Payments may begin in any July or December after the year of deferral, but they must begin by the first July or the first December following age 70 (72 in the case of certain grandfathered directors). Participants make alternate elections in the event of separation from service prior to the specified payment date and death prior to both the specified payment date and separation from service.


252

The Deferral Plan was designed, and is intended to be administered, in accordance with the requirements of Code Section 409A.


253

Part III, Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
We are an indirect, wholly-owned subsidiary of AXA Financial. AXA Financial’s common stock is 100% owned by AXA and its subsidiaries.

For insurance regulatory purposes, the shares of common stock of AXA Financial beneficially owned by AXA and its subsidiaries have been deposited into a voting trust (“Voting Trust”), the term of which has been extended until April 29, 2021. The current trustees of the Voting Trust (the “Voting Trustees”) are Denis Duverne and Mark Pearson.

AXA and any other holder of voting trust certificates remain the beneficial owner of the shares deposited by it, except that the Trustees are entitled to exercise all voting rights attached to the deposited shares so long as such shares remain subject to the Voting Trust. In voting the deposited shares, the Trustees must act to protect the legitimate economic interests of AXA and any other holders of voting trust certificates (but with a view to ensuring that certain indirect minority shareholders of AXA do not exercise control over AXA Financial or AXA Equitable). All dividends and distributions (other than those that are paid in the form of shares required to be deposited in the Voting Trust) in respect of deposited shares are paid directly to the holders of voting trust certificates. If a holder of voting trust certificates sells or transfers deposited shares to a person who is not an AXA Party and is not (and does not, in connection with such sale or transfer, become) a holder of voting trust certificates, the shares sold or transferred will be released from the Voting Trust. The initial term of the Voting Trust ended in 2002 and the term of the Voting Trust has been extended, with the prior approval of the NYDFS, until April 29, 2021. Future extensions of the term of the Voting Trust remain subject to the prior approval of the NYDFS.

254

SECURITY OWNERSHIP BY MANAGEMENT
The following tables set forth, as of December 31, 2016, certain information regarding the beneficial ownership of common stock of AXA and of AB Holding Units and AB Units by each of our directors and executive officers and by all of our directors and executive officers as a group.
AXA Common Stock(1) 
Name of Beneficial Owner
 
Number of Shares and Nature of Beneficial Ownership    
 
Percent of Class    
Mark Pearson(2)
 
855,687
 
*
Thomas Buberl(3)
 
220,672
 
*
Ramon de Oliveria(4)
 
29,686
 
*
Paul Evans(5)
 
239,269
 
*
Barbara Fallon-Walsh(6)
 
20,965
 
*
Daniel G. Kaye
 
5,038
 
*
Kristi A. Matus
 
5,038
 
*
Bertram L. Scott(7)
 
20,970
 
*
Lorie A. Slutsky(8)
 
49,363
 
*
Richard C. Vaughan(9)
 
35,978
 
*
Josh Braverman(10)
 
106,063
 
*
Marine de Boucaud(11)
 
25,081
 
*
Dave S. Hattem(12)
 
151,582
 
*
Michael Healy(13)
 
83,096
 
*
Adrienne Johnson(14)
 
81,130
 
*
Anders Malmstrom(15)
 
78,995
 
*
Brian Winikoff
 
—
 
*
All directors, director nominees and executive officers as a group (17 persons)(16)
 
2,008,613
 
*
*
Number of shares listed represents less than 1% of the outstanding AXA common stock.
(1)
Holdings of AXA American Depositary Shares (“ADS”) are expressed as their equivalent in AXA ordinary shares. Each AXA ADS represents the right to receive one AXA ordinary share.
(2)
Includes 453,656 shares Mr. Pearson can acquire within 60 days under option plans. Also includes 272,129 unvested AXA performance shares
(3)
Includes 102,716 unvested AXA performance shares.
(4)
Includes 3,652 shares Mr. de Oliveira can acquire within 60 days under option plans.
(5)
Includes 113,402 shares Mr. Evans can acquire within 60 days under option plans. Also includes 106,094 unvested AXA performance shares.
(6)
Includes (i) 1,418 shares Ms. Fallon-Walsh can acquire within 60 days under option plans and (ii) 18,964 deferred stock units under The Equity Plan for Directors.
(7)
Includes (i) 1,418 shares Mr. Scott can acquire within 60 days under option plans and (ii) 17,288 deferred stock units under The Equity Plan for Directors.
(8)
Includes (i) 9,393 shares Ms. Slutsky can acquire within 60 days under options plans and (ii) 39,970 deferred stock units under The Equity Plan for Directors.
(9)
Includes 5,594 shares Mr. Vaughan can acquire within 60 days under option plans.

255

(10)
Includes 53,176 shares Mr. Braverman can acquire within 60 days under option plans. Also includes 52,887 unvested AXA performance shares.
(11)
Includes 25,081 unvested AXA performance shares.
(12)
Includes 73,365 shares Mr. Hattem can acquire within 60 days under option plans. Also includes 78,140 unvested AXA performance shares.
(13)
Includes 19,017 shares Mr. Healy can acquire within 60 days under option plans. Also includes 49,404 unvested AXA performance shares.
(14)
Includes 35,049 shares Ms. Johnson can acquire within 60 days under option plans. Also includes 33,980 unvested AXA performance shares.
(15)
Includes 77,913 unvested AXA performance shares.
(16)
Includes 769,140 shares the directors and executive officers as a group can acquire within 60 days under option plans.

AB Holding Units and AB Units
 
 
AllianceBernstein Holding L.P.
 
AllianceBernstein L.P.    
Name of Beneficial Owner
 
Number of Units  
 
Percent of Class  
 
Number of Units        
Mark Pearson(1)
 
—
 
*
 
—
Thomas Buberl(1)
 
—
 
*
 
—
Ramon de Oliveira(1)
 
—
 
*
 
—
Paul Evans(1)
 
—
 
*
 
—
Barbara Fallon-Walsh(1)
 
—
 
*
 
—
Daniel G. Kaye(1)
 
—
 
*
 
—
Kristi A. Matus(1)
 
—
 
*
 
—
Bertram L. Scott(1)
 
—
 
*
 
—
Lorie A. Slutsky(1) (2)
 
72,227
 
*
 
—
Richard C. Vaughan(1)
 
—
 
*
 
—
Marine de Boucaud(1)
 
—
 
*
 
—
Josh Braverman(1)
 
—
 
*
 
—
Dave S. Hattem(1)
 
—
 
*
 
—
Michael Healy
 
—
 
*
 
—
Adrienne Johnson(1)
 
—
 
*
 
—
Anders Malmstrom(1)
 
—
 
*
 
—
Brian Winikoff(1)
 
—
 
*
 
—
All directors, director nominees and
executive officer of as a group (17 persons)(3)
 
72,227
 
*
 
—
*
Number of Holding Units listed represents less than 1% of the Units outstanding.
(1)
Excludes units beneficially owned by AXA and its subsidiaries.
(2)
Includes 39,398 Holding Units Ms. Slutsky can acquire within 60 days under an AB option plan.
(3)
Includes 39,410 Holding Units the directors and executive officers as a group can acquire within 60 days under an AB option plan.


256

Part III, Item 13.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
POLICIES AND PROCEDURES REGARDING TRANSACTIONS WITH RELATED PERSONS
Insurance
AXA Financial, our indirect parent company, has formal policies covering its employees and directors and the employees and directors of its subsidiaries that are designed to avoid conflicts of interests that may arise in certain related party transactions. For example, employees of AXA Financial and its subsidiaries are subject to the Code of Ethics. The Code of Ethics includes provisions designed to avoid conflicts of interests that may lead to divided loyalties by requiring that employees, among other things, not exercise any responsibility in a transaction in which they have an interest, receive certain approvals before awarding any contract to a relative or close personal friend and not take for their own benefit business opportunities developed or learned of during the course of employment. Similarly, AXA Equitable’s non-officer directors are subject to the AXA Financial Policy Statement on Interests of Directors and Contracts With Directors And Their Relatives for Non-Officer Directors (the “Policy Statement”). The Policy Statement includes provisions designed to maintain the directors’ independent judgment by requiring, among other things, disclosure of interests in any proposed transaction and abstention from voting if a director has a significant financial interest in the transaction or the transaction is with a business organization in which the director has an official affiliation. It further prohibits certain credit related transactions and requires disclosure of potential contracts with and employment of close relatives. Each director must submit a report annually regarding his or her compliance with the Policy Statement.
Other than as set forth above, AXA Equitable does not have written policies regarding the employment of immediate family members of any of its related persons. Compensation and benefits for all of AXA Equitable’s employees are established in accordance with AXA Equitable’s employment and compensation practices applicable to employees with equivalent qualifications and responsibilities who hold similar positions.
As a wholly-owned subsidiary of AXA Financial, and ultimately of AXA, AXA Equitable (and its subsidiaries) enter into various transactions with both AXA Financial and AXA and their subsidiaries in the normal course of business including, among others, service agreements, reinsurance transactions, and lending and other financing arrangements. While there is no formal written policy for the review and approval of transactions between AXA Equitable and AXA and/or AXA Financial, such transactions are routinely subject to a review and/or approval process. For example, payments made by AXA Equitable to AXA and its subsidiaries or received by AXA Equitable from AXA and its subsidiaries pursuant to certain intercompany service or other agreements (“Intercompany Agreements”) are reviewed with the Audit Committee on an annual basis. The amount paid or received by AXA Equitable for any personnel, property and services provided under such Intercompany Agreements must be reasonable. Additionally, Intercompany Agreements to which AXA Equitable is a party are subject to the approval of the NYDFS pursuant to New York’s insurance holding company systems act.
In practice, any proposed related party transaction which management deems to be significant or outside of the ordinary course of business would be submitted to the Board of Directors for its approval.
Investment Management
The partnership agreements for each of AB Holding and AB expressly permits AXA and its affiliates, which includes AXA Equitable and its affiliates (collectively, “AXA Affiliates”), to provide services to AB Holding and AB if the terms of the transaction are approved by AllianceBernstein Corporation (the “General Partner”) in good faith as being comparable to (or more favorable to each such partnership than) those that would prevail in a transaction with an unaffiliated party. This requirement is conclusively presumed to be satisfied as to any transaction or arrangement that (i) in the reasonable and good faith judgment of the General Partner, meets that unaffiliated party standard, or (ii) has been approved by a majority of those directors of the General Partner who are not also directors, officers or employees of an affiliate of the General Partner.
In practice, AB’s management pricing committees review investment advisory agreements with AXA Affiliates, which is the manner in which the General Partner reaches a judgment regarding the appropriateness of the fees. Other transactions with AXA Affiliates are submitted to AB’s audit committee for review and approval. AB is not aware of any transaction during 2016 between it and any related person with respect to which these procedures were not followed.
AB’s relationships with affiliates of AXA are also subject to the applicable provisions of the insurance laws and regulations of New York and other states. Under such laws and regulations, the terms of certain investment advisory and other agreements AB

257

enters into with affiliates of AXA are required to be fair and equitable and charges or fees for services performed must be reasonable. Also, in some cases, the agreements are subject to regulatory approval.
AB has written policies regarding the employment of immediate family members of any of its related persons. Compensation and benefits for all of its employees are established in accordance with AB’s human resources practices, taking into consideration the defined guidelines, responsibilities and nature of the role.
For additional information about AB’s related party transactions, see the AB 10-K.
TRANSACTIONS BETWEEN THE COMPANY AND AFFILIATES
The following tables summarize transactions between the Company and related persons during 2016. The first set of tables summarize services that related persons provided to the Company, and the second set of tables summarize services that The Company provided to related persons:
INSURANCE(1)
Parties(3)
 
General Description of Relationship
 
Amount Paid or
Accrued in 2016
AXA Distribution and its subsidiaries(2)
 
We pay commissions and fees to AXA Distribution and its subsidiaries for the sale of our insurance products.
 
$586,980,259
AXA Technology Services America, Inc. (“AXA Tech”)
 
AXA Tech provides certain technology related services, including data processing services and functions.
 
$95,700,000
AXA Financial
 
We reimburse AXA Financial for expenses related to certain employee compensation and benefits.
 
$52,930,629
AXA Group Solutions Pvt. Ltd. (“AXA Group Solutions”)
 
AXA Group Solutions provides maintenance and development support for applications.
 
$26,802,339
GIE Informatique AXA
(“GIE Informatique”)
 
GIE Informatique provides certain services, including but not limited to marketing and branding, finance and control, strategy, business support and development and audit, and legal.
 
$15,675,000
AXA Business Service Private Ltd. (“ABS”)
 
ABS provides certain policy administration services, including policy records updates, account maintenance, certain claim review and approval services and employee records updates and reporting services.
 
$14,401,225
AXA Global Life
 
AXA Global Life provides certain services to our life business and advice on our strategic initiative.
 
$1,200,000
AXA Investment Managers Inc. (“AXA IM”) and AXA Rosenberg Investment Management LLC (“AXA Rosenberg”)
 
AXA IM and AXA Rosenberg provide sub-advisory services to our retail mutual funds.
 
$197,868
GIE AXA Universite
(“GIE Universite”)
 
GIE Universite provides management training seminars to our management employees.
 
$56,428

258

INVESTMENT MANAGEMENT(4)
Parties(3)
 
General Description of Relationship
 
Amount Paid or
Accrued in 2016
AXA Advisors(5)
 
AXA Advisors distributes certain of AB’s retail products and provides private wealth management referrals.
 
$16,077,000
ABS
 
ABS provides data processing services and support for certain investment operations functions.
 
$5,475,000
AXA Technology Services India Pvt. Ltd. (“AXA Tech India”)
 
AXA Tech India provides certain data processing services and functions.
 
$5,327,000
AXA Advisors(5)
 
AXA Advisors sells shares of ABs mutual funds under distribution services and educational support agreements.
 
$1,653,000
AXA Group Solutions
 
AXA Group Solutions provides maintenance and development support for applications.
 
$1,110,000
AXA Wealth
 
AXA Wealth provides portfolio-related services for assets AB manages under the AXA Corporate Trustee Investment Plan.
 
$908,000
GIE
 
GIE provides cooperative technology development and procurement services to AB.
 
$416,000
(1)
AXA Equitable or one of its subsidiaries is a party to each transaction.
(2)
AXA Distribution is an indirect wholly-owned subsidiary of AXA Financial. Its subsidiaries include AXA Advisors, AXA Network, and PlanConnect LLC.
(3)
Each entity is an indirect wholly-owned subsidiary of AXA.
(4)
AB or one of its subsidiaries is a party to each transaction.
(5)
AXA Advisors is an indirect wholly-owned subsidiary of AXA Financial.
INSURANCE(1)
Parties(5)
 
General Description of Relationship
 
Amount Received or
Accrued in 2016
AXA Distribution and its subsidiaries(4)
 
We provide certain services, including personnel, employee benefits, facilities, supplies and equipment, to AXA Distribution and its subsidiaries.
 
$379,140,810
MONY America(2)
 
We provide certain services, including personnel, employee benefits, facilities, supplies and equipment, to MONY America
 
$129,215,429
MONY America(2)
 
We receive commissions and fees from MONY America for the sale of insurance products.
 
$10,598,867
AXA Tech, AXA IM, AXA LM, AXA REIM, AXA Rosenberg and AXA Strategic Venture
 
Employees of these entities and/or their subsidiaries are enrolled in certain of our employee benefit plans and we provide certain facilities to AXA Tech.
 
$9,500,000
GIE
 
We administer the AXA Group Intranet site.
 
$4,400,000
U.S. Financial Life Insurance Company (“USFL”)(3)
 
We provide certain services, including personnel, employee benefits, facilities, supplies, and equipment to USFL
 
$3,944,740
AXA Corporate Solutions Life Reinsurance Company (“ACS”)
 
We provide certain administrative services to ACS including, but not limited to marketing, branding, finance, strategy and legal.
 
$3,500,000
AXA Equitable Life and Annuity Company (“AXA L&A”)(7)
 
We provide certain services, including personnel, employee benefits, facilities, supplies and equipment, to AXA L&A.
 
$742,607
MONY Life Insurance Company of the Americas, Ltd (“MLICA”)(10)
 
We provide certain services, including personnel, employee benefits, facilities, supplies, and equipment to MLICA
 
$253,602
AXA Arizona(6)
 
We provide certain services, including personnel, employee benefits, facilities, supplies and equipment to AXA Arizona.
 
$137,948

259

INVESTMENT MANAGEMENT(8)
Parties(5)
 
General Description of Relationship(9)
 
Amount Paid or
Accrued in 2016
AXA AB Funds
 
AB provides investment management distribution and shareholder servicing related services
 
$16,070,000
AXA Life Japan Limited
 
 
 
$14,771,000
AXA Switzerland Life
 
 
 
$9,600,000
AXA Arizona(6)
 
 
 
$8,735,000
AXA U.K. Pensions Scheme
 
 
 
$7,615,000
AXA France
 
 
 
$6,947,000
AXA Hong Kong Life
 
 
 
$6,677,000
AXA Germany
 
 
 
$3,004,000
AXA Belgium
 
 
 
$2,240,000
AXA Switzerland Property & Casualty
 
 
 
$1,280,000
MONY America(2)
 
 
 
$1,279,000
AXA Mediterranean
 
 
 
$766,000
AXA Corporate Solutions
 
 
 
$521,000
AIM Deutschland GmbH
 
 
 
$469,000
AXA Investment Managers, Ltd. Paris
 
 
 
$395,000
USFL(3)
 
 
 
$392,000
AXA General Insurance Hong Kong Ltd.
 
 
 
$250,000
AXA Investment Managers Ltd.
 
 
 
$188,000
AXA Insurance Company
 
 
 
$143,000
AXA Life Singapore
 
 
 
$142,000
Coliseum Reinsurance
 
 
 
$127,000
AXA MPS
 
 
 
$107,000
(1)
AXA Equitable or one of its subsidiaries is a party to each transaction.
(2)
MONY America is an indirect wholly-owned subsidiary of AXA Financial.
(3)
USFL is an indirect wholly-owned subsidiary of AXA Financial.
(4)
AXA Distribution is an indirect wholly-owned subsidiary of AXA Financial. Its subsidiaries include AXA Advisors, AXA Network, and PlanConnect LLC.
(5)
Each entity is an indirect wholly owned subsidiary of AXA.
(6)
AXA Arizona is an indirect wholly owned subsidiary of AXA Financial.
(7)
AXA L&A is an indirect wholly-owned subsidiary of AXA Financial.
(8)
AB or one of its subsidiaries is a party to each transaction.
(9)
AB provides investment management services unless otherwise indicated.
(10)
MLICA is an indirect wholly-owned subsidiary of AXA Financial.
ADDITIONAL TRANSACTIONS WITH RELATED PERSONS
Reinsurance

AXA Equitable ceded to AXA Arizona a 100% quota share of all liabilities for variable annuity with enhanced GMDB and GMIB riders issued on or after January 1, 2006 and in-force on September 30, 2008. AXA Arizona also reinsures a 90% quota share of level premium term insurance issued by AXA Equitable on or after March 1, 2003 through December 31, 2008 and lapse protection riders under universal life insurance policies issued by AXA Equitable on or after June 1, 2003 through June 30, 2007. Ceded premiums in 2016 to AXA Arizona totaled $446,647,478. Ceded claims paid in 2016 were $64,724,232.

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Various AXA affiliates, including AXA Equitable, cede a portion of their life, health and catastrophe insurance business through reinsurance agreements to AXA Global Life. AXA Global Life, in turn, retrocedes a quota share portion of these risks prior to 2008 to AXA Equitable on a one-year term basis.
AXA Life Insurance Company Ltd (Japan), an AXA subsidiary, cedes a portion of its annuity business to AXA Equitable.
Various AXA Financial affiliates cede a portion of their life business through excess of retention treaties to AXA Equitable on a yearly renewal term basis.
Premiums earned from the above mentioned affiliated reinsurance transactions in 2016 totaled $20,334,308. Claims and expenses paid in 2016 were $6,136,477.
In April 2015, AXA entered into a mortality catastrophe bond based on general population mortality in each of France, Japan and the U.S. The purpose of the bond is to protect AXA against a severe worldwide pandemic. AXA Equitable entered into a stop loss reinsurance agreement with AXA Global Life to protect AXA Equitable with respect to a deterioration in its claim experience following the occurrence of an extreme mortality event. Premiums and expenses associated with the reinsurance agreement were $3,655,000 in 2016.
Loans to Affiliates
In September 2007, AXA issued a $650 million 5.4% Senior Unsecured Note to AXA Equitable. The note pays interest semi-annually and was scheduled to mature on September 30, 2012. In March 2011, the maturity date of the note was extended to December 30, 2020 and the interest rate was increased to 5.7%.
In June 2009, AXA Equitable sold real estate property valued at $1,100 million to a non-insurance subsidiary of AXA Financial in exchange for $700 million in cash and $400 million in 8.0% ten year term mortgage notes on the property reported in Loans to affiliates in the consolidated balance sheets. In November 2014, this loan was refinanced and a new $382 million, seven year term loan with an interest rate of 4.0% was issued. In January 2016, the property was sold and a portion of the proceeds was used to repay the $382 million term loan outstanding and a $65 million prepayment penalty.
In third quarter 2013, AXA Equitable purchased at fair value, AXA Arizona’s $50 million note receivable from AXA for $56 million. This note pays interest semi-annually at an interest rate of 5.4% and matures on December 15, 2020.
Other Transactions

In 2016, AXA Equitable sold artwork to AXA Financial and recognized a $20,000,000 gain on the sale. AXA Equitable used the proceeds received from this sale to make a $21,000,000 donation to AXA Foundation, Inc. (the “Foundation”). The Foundation was organized for the purpose of distributing grants to various tax-exempt charitable organizations and administering various matching gift programs for AXA Equitable, its subsidiaries and affiliates.

In 2016, AXA Equitable and Saum Sing LLC (“Saum Sing”), an affiliate, formed Broad Vista Partners LLC (“Broad Vista”), AXA Equitable owns 70% and Saum Sing owns 30% of Broad Vista. On June 30, 2016, Broad Vista entered into a real estate joint venture with a third party and AXA Equitable invested approximately $24,575,000, reported in Other equity investments in the consolidated balance sheets.
DIRECTOR INDEPENDENCE
See “Corporate Governance – Independence of Certain Directors” in Part III, Item 10 of this Report.


261

Part III, Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents fees for professional audit services rendered by PricewaterhouseCoopers LLP (“PwC”) for the audit of the Company’s annual financial statements for 2016 and 2015, and fees for other services rendered by PwC:
 
2016
 
2015
 
 
(In Thousands)
Principal Accounting Fees and Services:
 
 
 
Audit fees
$
10,536

 
$
11,437

Audit related fees
3,842

 
3,485

Tax fees
1,995

 
2,155

All other fees
628

 
23

Total
$
17,001

 
$
17,100


Audit fees for AXA Financial and AXA Equitable are paid pursuant to a single engagement letter with PwC.

Audit related fees in both years principally consist of fees for audits of financial statements of certain employee benefit plans, internal control related reviews and services and accounting consultation.

Tax fees consist of fees for tax preparation, consultation and compliance services.

All other fees consist of miscellaneous non-audit services.

AXA Equitable’s audit committee has determined that all services to be provided by its independent registered public accounting firm must be reviewed and approved by the audit committee on a case-by-case basis provided, however, that the audit committee has delegated to its chairperson the ability to pre-approve any non-audit engagement where the fees are expected to be less than or equal to $200,000 per engagement. Any exercise of this delegated authority by the audit committee chairperson is required to be reported at the next audit committee meeting.

AB’s audit committee has a policy to pre-approve audit and non-audit service engagements with the independent registered public accounting firm. The independent registered public accounting firm must provide annually a comprehensive and detailed schedule of each proposed audit and non-audit service to be performed. The audit committee then affirmatively indicates its approval of the listed engagements. Engagements that are not listed, but that are of similar scope and size to those listed and approved, may be deemed to be approved, if the fee for such service is less than $100,000. In addition, each audit committee has delegated to its chairman the ability to approve any permissible non-audit engagement where the fees are expected to be less than $100,000.

All services provided by PwC in 2016 were pre-approved in accordance with the procedures described above.


262

Part IV, Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(A)
The following documents are filed as part of this report:

1.
Financial Statements
The financial statements are listed in the Index to Consolidated Financial Statements and Schedules on page 99.

2.
Consolidated Financial Statement Schedules
The consolidated financial statement schedules are listed in the Index to Consolidated Financial Statements and Schedules on page 99.

3.
Exhibits
The exhibits are listed in the Index to Exhibits that begins on page E1.

263

Part IV, Item 16.

FORM 10-K SUMMARY

None.

264

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, AXA Equitable Life Insurance Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: March 24, 2017
AXA EQUITABLE LIFE INSURANCE COMPANY
 
By:
/s/ Mark Pearson
 
Name:
Mark Pearson
 
 
Chairman of the Board, President and Chief Executive Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Mark Pearson
 
Chairman of the Board, President and
Chief Executive Officer, Director
 
March 24, 2017
Mark Pearson
 
 
 
 
 
 
 
 
/s/ Anders Malmstrom
 
Senior Executive Director and
Chief Financial Officer
 
March 24, 2017
Anders B. Malmstrom
 
 
 
 
 
 
 
 
/s/ Andrea Nitzan
 
Executive Director, Chief Accounting
Officer and Controller
 
March 24, 2017
Andrea M. Nitzan
 
 
 
 
 
 
 
 
/s/ Thomas Buberl
 
Director
 
March 24, 2017
Thomas Buberl
 
 
 
 
 
 
 
 
/s/ Ramon de Oliveira
 
Director
 
March 24, 2017
Ramon E de Oliveira
 
 
 
 
 
 
 
 
/s/ Paul J. Evans
 
Director
 
March 24, 2017
Paul J. Evans
 
 
 
 
 
 
 
 
/s/ Barbara Fallon-Walsh
 
Director
 
March 24, 2017
Barbara A. Fallon-Walsh
 
 
 
 
 
 
 
 
/s/ Daniel G. Kaye
 
Director
 
March 24, 2017
Daniel G. Kaye
 
 
 
 
 
 
 
 
/s/ Kristi A. Matus
 
Director
 
March 24, 2017
Kristi A. Matus
 
 
 
 
 
 
 
 
/s/ Bertram L. Scott
 
Director
 
March 24, 2017
Bertram L. Scott
 
 
 
 
 
 
 
 
/s/ Lorie A. Slutsky
 
Director
 
March 24, 2017
Lorie A. Slutsky
 
 
 
 
 
 
 
 
/s/ Richard C. Vaughan
 
Director
 
March 24, 2017
Richard C. Vaughan
 
 
 

265

INDEX TO EXHIBITS
Number    
 
Description
  
Method of Filing
  
Tag Value    
2.1
 
Stock Purchase Agreement dated as of August 30, 2000 among CSG, AXA, Equitable Life, AXA Participations Belgium and AXA Financial
  
Filed as Exhibit 2.1 to AXA Financial’s Current Report on Form 8-K dated November 14, 2000 and incorporated herein by reference
  
 
2.2
 
Letter Agreement dated as of October 6, 2000 to the Stock Purchase Agreement among CSG, AXA, Equitable Life, AXA Paticipations Belgium and AXA Financial
  
Filed as Exhibit 2.2 to AXA Financial’s Current Report on Form 8-K dated November 14, 2000 and incorporated herein by reference
  
 
3.1
 
Restated Charter of AXA Equitable, as amended September 16, 2010
  
Filed as Exhibit 3.1 to registrant’s Form 10-Q for the quarter ended September 30, 2010 and incorporated herein by reference
  
 
3.2
 
Restated By-laws of Equitable Life, as amended November 21, 1996
  
Filed as Exhibit 3.2(a) to registrant’s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference
  
 
10.1
 
Cooperation Agreement, dated as of July 18, 1991, as amended among Equitable Life, AXA Financial and AXA
  
Filed as Exhibit 10(d) to AXA Financial’s Form S-1 Registration Statement (No. 33- 48115), dated May 26, 1992 and incorporated herein by reference
  
 
10.2
 
Letter Agreement, dated May 12, 1992, among AXA Financial, Equitable Life and AXA
  
Filed as Exhibit 10(e) to AXA Financial’s Form S-1 Registration Statement (No. 33- 48115), dated May 26, 1992 and incorporated herein by reference
  
 
10.3
 
Distribution and Servicing Agreement between AXA Advisors (as Successor to Equico Securities, Inc.) and Equitable Life dated as of May 1, 1994
  
Filed as Exhibit 10.7 to registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference
  
 
10.4
 
Agreement for Cooperative and Joint Use of Personnel, Property and Services between Equitable Life and AXA Advisors dated as of September 21, 1999
  
Filed as Exhibit 10.8 to registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference
  
 
10.5
 
General Agent Sales Agreement between Equitable Life and AXA Network, dated as of January 1, 2000
  
Filed as Exhibit 10.9 to registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference
  
 
10.6
 
Agreement for Services by Equitable Life to AXA Network dated as of January 1, 2000
  
Filed as Exhibit 10.10 to registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference
  
 
13.1
 
AB Risk Factors
 
Filed herewith
 
EX-13.1
21
 
Subsidiaries of the registrant
 
Filed herewith
 
EX-21
31.1
 
Section 302 Certification made by the registrant’s Chief Executive Officer
 
Filed herewith
 
EX-31.1
31.2
 
Section 302 Certification made by the registrant’s Chief Financial Officer
 
Filed herewith
 
EX-31.2
32.1
 
Section 906 Certification made by the registrant’s Chief Executive Officer
 
Filed herewith
 
EX-32.1
32.2
 
Section 906 Certification made by the registrant’s Chief Financial Officer
 
Filed herewith
 
EX-32.2
101.INS
 
XBRL Instance Document
 
Filed herewith
 
EX-101.INS
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
Filed herewith
 
EX-101.SCH
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
Filed herewith
 
EX-101.CAL
101.LAB
 
XBRL Taxonomy Label Linkbase Document
 
Filed herewith
 
EX-101.LAB

E-1

101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
Filed herewith
 
EX-101.PRE
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
Filed herewith
 
EX-101.DEF

E-2