Company Reports

AXA is a large European multiline insurer that has been on a path of renewed focus and transformation. While its renewed focus may still be a little elusive and it will always be hard for such a large insurer to achieve, given the nature of this business, the company has clearly made strong inroads in transforming its business model to one that is less focused on life and savings. Historically, these lines of business have contributed over half of AXA’s revenue and earnings. Yet, as the company took some deliberate actions to sell its North American savings business, shift its products to more technical-based income in Switzerland, and purchase a more North American-focused commercial property and casualty insurer with the proceeds, this is by and large a technical income-based, albeit large and diversified, insurance business. Alongside the developed markets of France, the US, and Northern Europe, we think the company holds solid property and casualty insurance businesses and relationships in developed as well as emerging markets in Asia.

AXA is a large European multiline insurer that has been on a path of renewed focus and transformation. While its renewed focus may still be a little elusive and it will always be hard for such a large insurer to achieve, given the nature of this business, the company has clearly made strong inroads in transforming its business model to one that is less focused on life and savings. Historically, these lines of business have contributed over half of AXA’s revenue and earnings. Yet, as the company took some deliberate actions to sell its North American savings business, shift its products to more technical-based income in Switzerland, and purchase a more North American-focused commercial property and casualty insurer with the proceeds, this is by and large a technical income-based, albeit large and diversified, insurance business. Alongside the developed markets of France, the U.S., and Northern Europe, we think the company holds solid property and casualty insurance businesses and relationships in developed as well as emerging markets in Asia.

AXA is a large European multiline insurer that has been on a path of renewed focus and transformation. While its renewed focus may still be a little elusive and it will always be hard for such a large insurer to achieve, given the nature of this business, the company has clearly made strong inroads in transforming its business model to one that is less focused on life and savings. Historically, these lines of business have contributed over half of AXA’s revenue and earnings. Yet, as the company took some deliberate actions to sell its North American savings business, shift its products to more technical-based income in Switzerland, and purchase a more North American-focused commercial property and casualty insurer with the proceeds, this is by and large a technical income-based, albeit large and diversified, insurance business. Alongside the developed markets of France, the U.S., and Northern Europe, we think the company holds solid property and casualty insurance businesses and relationships in developed as well as emerging markets in Asia.

AXA has reported underlying earnings of EUR 7.604 billion for 2023, slightly below the EUR 7.628 billion that we forecast. That equates to underlying earnings of EUR 3.31 per share, slightly better than the EUR 3.24 that we forecast. The delivery of underlying earnings and EPS were both below company-compiled consensus, which estimated EUR 7.691 billion and EUR 3.38 per share respectively. The board has announced the proposal of a dividend at EUR 1.98 per share, above our and consensus estimates, and is also proposing the launch of a share buyback up to EUR 1.6 billion. This reflects the new distribution policy of a 75% payout ratio, comprising a 60% dividend and 15% share buyback.

AXA is a large European multiline insurer that has been on a path of renewed focus and transformation. While its renewed focus may still be a little elusive and it will always be hard for such a large insurer to achieve, given the nature of this business, the company has clearly made strong inroads in transforming its business model to one that is less focused on life and savings. Historically, these lines of business have contributed over half of AXA’s revenue and earnings. Yet, as the company took some deliberate actions to sell its North American savings business, shift its products to more technical-based income in Switzerland, and purchase a more North American-focused commercial property and casualty insurer with the proceeds, this is by and large a technical income-based, albeit large and diversified, insurance business. Alongside the developed markets of France, the U.S., and Northern Europe, we think the company holds solid property and casualty insurance businesses and relationships in developed as well as emerging markets in Asia.

AXA has reported robust key indicators for the first nine months of 2023 with a continuation of the group’s strategy to orient away from some savings lines such as unit-linked and focus on commercial and personal property and casualty insurance. AXA has decided to not refinance EUR 1 billion of debt that fell due, improving the company’s best-in-class leverage.

For the first half of 2023, AXA has reported robust results, with underlying earnings before tax, or pre-tax income, of EUR 5.1 billion. This is compared with the first half of last year when calculated under the same IFRS 17 accounting standards, the business reported pre-tax income of EUR 4.2 billion, an increase this year of around 20%. One-time full-year guidance is to deliver underlying earnings of EUR 7.5 billion or better. On a normalized basis, these earnings mean AXA is now generating returns for shareholders above its cost of capital, touching mid-teen rates. The improved results have been driven by better performance in AXA's property and casualty division. In addition, the company has continued to tilt away from natural catastrophe-exposed reinsurance, which has lessened its natural catastrophe impact.

AXA has reported activity indicators for the first quarter of 2023. The outlook for the earnings of the business under IFRS 17 is notably lower, though this still oscillates around our forecast. Because of the removal of the prior-year development within the property and casualty segment at transition because of the discounting impact, and the change in equity fair values that will no longer run through profit or loss, comparable net income for full-year 2022 came in at EUR 5.1 billion versus our EUR 5.3 billion full-year 2023 forecast. This means that under the new accounting standard AXA generated a return on equity of 11%. We maintain our fair value estimate of EUR 29.8 and our rating of no economic moat.

AXA’s takeover of XL changed the business from one fundamentally focused on life and savings, particularly in France and Europe, to a business with a much heavier exposure to nonlife insurance in United States and large-scale commercial and specialist lines of business. While nonlife insurance previously accounted for under half of new capital, this part of the business now takes over half of this metric. While protection and health maintain their current share of management focus and investment, there has been a small reduction in life and savings. AXA is being transformed into a business that relies more heavily on technical sources of profitability that are less dependent on the performance of financial markets.

When looking at the exposure of insurers to the unfolding banking crisis, we believe this is limited. The main impact of the crisis currently seems to be contagion, so investors are selling shares cheaply. However, exposure to United States bonds is either in government bond securities, or exposure to Credit Suisse, Silicon Valley Bank, and other U.S. regional banks is immaterial, which is 50 basis points or less of their investment portfolio. Some do hold larger bank debt holdings of up to 5.5% of shareholder investments, but nearly all that debt ranks as senior. AT1 debt tends to be very minimal or there is no exposure as a policy with board-level approval. The vast majority of corporate debt held is investment-grade. We maintain our fair value estimates and moat ratings across our European insurance coverage. Allianz remains our Best Idea. Admiral is one of our top picks.

We think the market has been hesitant on the ability of AXA to meet expectations because Feb. 23's EUR 3.08 in underlying earnings per share, while in line with FactSet consensus estimates, has resulted in a 4% pop in AXA shares. We maintain our EUR 29.8 fair value estimate and our no-moat rating.

AXA’s takeover of XL changed the business from one fundamentally focused on life and savings, particularly in France and Europe, to a business with a much heavier exposure to nonlife insurance in United States and large-scale commercial and specialist lines of business. While nonlife insurance previously accounted for under half of new capital, this part of the business now takes over half of this metric. While protection and health maintain their current share of management focus and investment, there has been a small reduction in life and savings. AXA is being transformed into a business that relies more heavily on technical sources of profitability that are less dependent on the performance of financial markets.

AXA continues to reduce its exposure to aviation cover with the ongoing war in Ukraine. This adds pressure to, and further tightens, the aviation market as commercial insurers have incurred heavy losses. We maintain our EUR 29.80 fair value estimate and no moat rating.

AXA reported broadly decent top-line nine-month indicators on Nov. 2. At group level, gross revenue has risen by 2% to EUR 78.4 billion. The growth of its divisions has been patchy. Within property and casualty revenue was up 3% to EUR 40.7 billion. Performance was strong within commercial insurance as the business continues with its strategy. The 6% increase in commercial revenue to EUR 24.4 billion has come as a result of price increases and higher sales in AXA Assistance from travel insurance. The other bright spot within property and casualty is personal lines with a 4% gross revenue rise to EUR 13.3 billion. That has come from a combination of better pricing in nonmotor and Europe. The drag has been AXA XL Reinsurance, where gross revenue is down 20% to EUR 2.9 billion with AXA’s preference to move away from natural disasters.

Many European insurance companies have fallen into 5-star territory year to date. However, we still like and support our preferred picks of two primary firms. In our personal lines subindustry, we still like Admiral. That is because we believe the business is adept at growing its customer numbers ahead of peers and the market. Though we do anticipate slower motor insurance growth over the immediate time frame, coupled with a fall in home insurance volumes due to lower U.K. completed home sales, we still believe in the prospects for Admiral’s long-term growth. Yet, while the business clearly outstrips the competition in terms of expansion, its development is not aggressive. Admiral has grown its U.K. motor market share by 5 percentage points over the last 10 years.

AXA has reported results for the first half of the year that show the business is ahead on EBIT, according to estimates collected by PitchBook. We raise our fair value estimate marginally to EUR 29.90 as we incorporate the buyback. We maintain our no moat rating. The results reported on Aug. 3 show it is a business that has strength. For example, management announced a EUR 1 billion buyback plan and there was double-digit underlying earnings growth. Solvency is robust at 227% and is positively correlated to interest rates. AXA continues to focus on its pillars for growth, reducing its exposure to natural catastrophes in property and casualty reinsurance, and lowering traditional savings business exposure. The preference is for pure protection, demonstrated by commercial property and casualty insurance, health insurance, and also asset management growth. These areas of expansion all point to lower earnings volatility, and technical and fee-based income with lower capital requirements.

AXA’s takeover of XL changed the business from one fundamentally focused on life and savings, particularly in France and Europe, to a business with a much heavier exposure to non-life insurance in United States and large-scale commercial and specialist lines of insurance. While non-life insurance previously accounted for under half of new capital, this part of the business now takes over half of this metric. While protection and health maintain their current share of management focus and investment, there has been a small reduction in life and savings. AXA is being transformed into a business that relies more heavily on technical sources of profitability that are less dependent on the performance of financial markets.

AXA’s takeover of XL changed the business from one fundamentally focused on life and savings, particularly in France and Europe, to a business with a much heavier exposure to non-life insurance in United States and large-scale commercial and specialist lines of insurance. While non-life insurance previously accounted for under half of new capital, this part of the business now takes over half of this metric. While protection and health maintain their current share of management focus and investment, there has been a small reduction in life and savings. AXA is being transformed into a business that relies more heavily on technical sources of profitability that are less dependent on the performance of financial markets.

AXA has reported indicators for the first quarter of 2022 showing a firm that continues to pursue preferred risks. Total revenue within property and casualty climbed 2% to EUR 18.0 billion with stronger growth coming from commercial lines and movement away from reinsurance. Growth in commercial predominantly came from Germany, Switzerland, and AXA Assistance as the company sees a recovery in travel insurance. Within the personal lines segment of property and casualty, investors have seen a 1% decline in motor insurance revenue. Nonmotor has shown a 5% increase.

We think AXA has reported strong full-year 2021 earnings and believe shares are undervalued. The results are good across the board. Revenue has climbed by 3% in property and casualty with commercial lines up 5% within this. According to AXA management most of this commercial development is from favourable prices, particularly within AXA XL that serves as a provider of reinsurance. Revenue within the health business has climbed by 5% and this is a line of business that management are focusing on. Profitability will be good here and the strong performance has particularly come from the home market of France. Within life and savings, the business continues to focus on unit-linked products and with strong growth at home, AXA continues to focus on building out that product in Asia with particular focus on Japan and Hong Kong. Asset management has delivered a stellar performance.