Axa Posts 16% Rise in First-Half Underlying Earnings
August 5, 2013 by Robert O'Conner
PARIS – Pointing to growth across all its businesses, multiline French-based insurer Axa SA reported a 16% increase in first half underlying earnings to 2.6 billion euros (US$3.45 billion).
Total revenue rose 4% to 50 billion euros. Adjusted earnings increased 26% to 3 billion euros. Net income fell 1% to 2.5 billion euros.
“It’s a very solid first half in an environment which has not been particularly easy,” Henri de Castries, chairman and chief executive officer, said in a webcast interview. “Revenues are up. They’re crossing the 50 billion euros line. Profits are up significantly.”
De Castries said the first half performance meshes with Ambition Axa, the group’s five-year strategic plan. He said the three business lines – property/casualty, health and protection and savings and asset management – are all contributing to the initiative.
“It’s a good sign, because it shows that the transformation of the group is going on and we are succeeding on the fronts we have defined,” de Castries said.
Axa said gains came in both mature and fast-growing markets. Property/casualty revenues rose by 2%. Asset management revenues increased by 12%. Both fees and assets under management were up, Axa said.
The life and savings new business value margin rose by 4 points to 33%. The group pointed to a better mix of business and a drop in costs. Life and savings new business value was up 26% to 1.1 billion euros from 900 million euros in the first half of 2012.
The current year property/casualty combined ratio was 97.5, for an improvement of 1.1 points. Shareholders’ equity fell by 2.1 billion euros to 51.5 billion euros.
Deutsche Bank Markets Research in London said Axa had turned in good earnings and an improved underwriting performance. “We think the shares should continue to move higher,” Oliver Steel, a Deutsche Bank equity analyst, wrote in a research note.
“The numbers look pretty good, actually,” said Peter Eliot, an equity analyst at Berenberg Bank in London. “Pretty strong across the board.” Eliot said Axa’s two main divisions, life and savings and property/casualty, exceeded expectations. The nonlife combined ratio was also encouraging, he said.
Axa’s disciplined underwriting approach, Eliot said, has slowed top-line growth. “But the profitability has been improving,” he said.
Axa has been a big beneficiary of rising rates, especially in the United States, Eliot said. And while Axa might be trading more cheaply than some of its close peers, he said, its efforts to reinvent itself is likely to bring further improvement.
A “really, really picky” criticism of Axa, Eliot said, citing the effects of the rise in interest rates, might be that shareholders’ equity was slightly lower than expected. “But that ultimately is a positive for the business,” he said of the interest rate movement.
New life business came in at good volumes and attractive rates, Eliot. “The mix of business is increasingly moving away from traditional guaranteed products,” he said. Axa, Eliot said, is facing a drop in demand for its products, and pressure on both its revenues and cost base.
Axa is also taking a greater interest in emerging markets, particularly in Asia, Eliot said. The company, he said, would describe this strategy as a thrust for growth. Axa’s Asian strategy has been supported by disposals in mature markets, Eliot said, recalling a shift away from private equity and the 2010 sale of its U.K. life business to Channel Islands-based life insurance consolidator Resolution Ltd (Best’s News Service, Feb. 24, 2011).
“Some of the deals they’ve done have been a bit more about distribution,” Eliot said. “The focus is definitely away from guaranteed products.”
In addition to Asia and other growth markets, Eliot said, Axa is interested in developing P&C and life business that is more unit linked.
Units of Axa have current A.M. Best’s Financial Strength Ratings of B++ (Good), A (Excellent) and A+ (Superior).
(By Robert O’Connor, London editor: Robert.OConnor@ambest.com)
