- Solvency II ratio declined to 197% from 205% over past year
- Sale of U.K. Life & Savings, Portuguese units bolsters result
Axa SA, France’s biggest insurer, said first-half profit rose 4 percent as increased earnings from life and health insurance helped offset higher claims from natural catastrophes.
Net income climbed to 3.2 billion euros ($3.6 billion) from 3.1 billion euros a year earlier, the Paris-based company said in a statement on Wednesday. That missed the 3.6 billion-euro average estimate of five analysts surveyed by Bloomberg.
Thomas Buberl was appointed to take over as Axa’s CEO after Henri de Castries unexpectedly said he would leave the company in September. Buberl, 43, plans to increase Axa’s profitability through 2020 by seeking 2.1 billion euros of cost cuts and growing digital investments. Growing earnings is increasingly difficult for insurers like Axa and Allianz SE as competition for premiums intensifies and quantitative easing hurts income from investments.
“Our balance sheet remains very strong with a Solvency II ratio at 197 percent, well within our target range,” Buberl said in the statement. The ratio, a measure of an insurer’s ability to absorb losses under regulatory rules introduced in Europe this year, stood at 205 percent a year ago. Axa’s target range is from 170 percent to 230 percent.
If the ratio exceeds its target range, Axa will consider returning excess capital to shareholders among other options, the company said in December. At that time, it raised the dividend payout to 45 percent to 55 percent of its adjusted earnings.
Axa rose as much as 3 percent in Paris trading and was down 1.1 percent at 17.19 euros as of 10:59 a.m. The stock has fallen 32 percent this year, giving the company a market value of about 42 billion euros. The Bloomberg Europe 500 Insurance Index declined 23 percent over the same period.
Axa is targeting an adjusted return on equity, a key measure of profitability, of 12 percent to 14 percent between this year and 2020. Underlying earnings per share are expected to rise 3 percent to 7 percent annually over the period. Oliver Baete, who took over last year as CEO of Allianz, Europe’s biggest insurer, has similar plans to boost profitability.
“Buberl is taking over a company with sound operations and a better-than-expected solvency level,” said Andreas Schaefer, an analyst at Bankhaus Lampe with a buy rating on the insurer. “The targets to grow earnings amid interest rates that continue falling are ambitious at both Allianz and Axa.”
Axa’s underlying earnings from the life and savings division rose to 1.9 billion euros while property and casualty insurance saw earnings decline 9 percent to 1.2 billion euros, mainly driven by higher natural catastrophe charges, Axa said in the statement.
The combined ratio in property and casualty insurance, or spending on claims and other costs as a percentage of premiums, worsened to 98.2 percent from 96.9 percent a year ago mainly because of claims from storms in Germany, floods in France and Belgium and the Brussels terrorist attacks in March.
Buberl, formerly CEO of Switzerland at Zurich Insurance Group AG, joined Axa four years ago to lead its German business and joined the insurer’s top-management committee last year. The German citizen will become the first non-French person to lead one of the country’s major financial institutions with a global presence.
Axa sold its SunLife unit in the U.K. to Phoenix Group Holdings in May. The insurer is also divesting its traditional investment and pension business in the U.K. as the company aims to grow there in property & casualty, health and asset management.
The positive impact from the sale of two real estate properties in New York City was partly offset by the net impact of the disposal of the U.K. Life & Savings and Portuguese operations among other factors, Axa said in the statement.
The French insurer eyes bolt-on acquisitions in emerging markets and commercial property and casualty insurance, Buberl said in a Bloomberg Television interview with Manus Cranny and Caroline Hyde. “The focus is not so much anymore on larger deals, prices are still very high and targets are difficult to get.”