Axa Makes Emerging Markets Bet as High-Saving Populations BeckonFabio Benedetti-Valentini
At a mall in Nakorn Sawan, the Thai “heavenly city” north of Bangkok, 1,300 people lined up in May for free health checkups arranged by a venture of Axa SA, whose salespeople were at hand to sign new insurance contracts.
The initiative called “Caravan Health Check,” set up almost every weekend in a different Thai town, is an attempt by France’s largest insurer to make its offers relevant in nascent markets like Thailand, where demand is being spurred by changes in family traditions as children live away from aging parents.
“People are becoming more westernized,” David Korunic, chief executive officer of Krungthai-Axa Life Insurance -- Axa’s joint venture with Krung Thai Bank Pcl -- said in an interview from Bangkok. “As children become more independent and less likely to look after their parents, people need to start thinking about providing for their own future needs.”
For Axa, tapping those trends is part of a 6 billion-euro ($8 billion) bet on fast-growing new markets -- mostly in Asia - - as a sluggish economy and an increasingly saturated turf weigh on revenue in Europe. The steps helped the Paris-based insurer draw about 13 percent of its first-half operating profit from emerging markets, up from 8 percent three years ago.
Axa’s expansion in such nations, speeded up by recent acquisitions in China, Hong Kong, Singapore and Mexico, is a key feature in Chief Executive Officer Henri de Castries’ post-financial-crisis strategy. Axa sees operating profit from such markets more than doubling in 2015 from 2010.
Europe’s second-largest insurer by market value last year got 7.1 percent of its operating profit from Hong Kong and emerging Asian markets, up from 3 percent in 2010, according to Nicolas Jacob, an analyst at Oddo & Cie. in Paris. For German insurer Allianz SE, Europe’s largest, such economies brought in 2.3 percent of 2012 operating income, Jacob estimated Sept. 2.
“Axa got a new start in Asia, and it’s a very good thing,” said Jerome Forneris, who helps manage $8.5 billion at Banque Martin Maurel in Marseille and owns Axa shares. “They can become the Mercedes or BMW of insurance, exporting the credibility of their products.”
Axa’s shares, which slid 40 percent in the four years following the global finance crisis triggered by the Lehman Brothers Holdings Inc. bankruptcy in 2008, have advanced 29 percent this year.
Signs of Axa’s inroads in emerging markets are evident in everything from billboards on skyscrapers in Singapore, Hong Kong and Jakarta to a distinctive Mexican headquarters in a tower dubbed “the blender.” Axa even has an Asian “university” in a Singapore mansion that once schooled children of British army officials.
Born three decades ago from a combination of French mutual insurers, Axa has shifted more than 10 percent of its shareholders’ equity since 2008 to grow in emerging markets.
In France, where the company gets about a fifth of its revenue, Axa last year had 1.1 billion euros of life-and-savings net inflows, outperforming the French life-insurance market, which had its first annual outflows ever. Almost 90 percent of Axa’s new retail property-and-casualty contracts in 2012 came from high-growth markets or its online business.
While Axa has expanded in emerging countries across the globe such as Mexico, Saudi Arabia and Turkey, Asia remains the main area of focus.
Lured by a region that’s home to about half the world’s population, savings rates above 30 percent and mounting demand from a burgeoning middle class for everything from auto insurance and healthcare coverage to life insurance, Axa has zeroed in on several markets in the region.
The Asian life-insurance’s new-business value, an indicator of profitability, represented a fifth of Axa’s total in the first half. Axa’s annual casualty-and-property premiums in Asia, excluding Japan and South Korea, will climb to 2 billion euros in 2015, double last year’s level, the company has said.
“Clearly, Asia is a very important part of the business,” Mike Bishop, head of Axa Asia, said in an interview in Paris. “We are in the markets where we want to be.”
Axa “would like to be larger” in the life insurance markets in Malaysia and Singapore and the property-and-casualty business in Thailand, he said.
In China, the world’s largest car market, Axa’s planned purchase of 50 percent of Shanghai-based Tian Ping will help it win about 4 million clients and allow it to sell auto insurance by phone or online nationwide. Its life insurance venture with Industrial & Commercial Bank of China Ltd., the world’s largest bank by market value, made it China’s biggest foreign life insurer, leapfrogging Hong Kong-based AIA Group Ltd.
In the first eight months of 2013, ICBC-Axa’s premiums more than tripled from a year earlier, representing 1 percent of total life-insurance premiums in the country, according to data published Sept. 23 by China Insurance Regulatory Commission.
ICBC-Axa’s premiums through August were 7.75 billion yuan ($1.27 billion), dwarfed by the 246.9 billion yuan at China Life Insurance Co., data from the regulatory commission shows.
Also, while Axa is outpacing Allianz in China and in some Southeast Asian property-and -casualty markets, the German rival is bigger in Central and Eastern Europe and has leading positions in Brazil and Colombia, where Axa is mostly absent.
Axa’s Asia push is not without risks. Moody’s Investors Service in June said life-insurance premium growth in China will probably keep trailing economic growth after a “weak” 2012. China, the world’s second-largest economy, is headed this year for the slowest growth in 23 years. Growth in developing nations is slowing, the International Monetary Fund said Sept. 4.
Axa also has to confront regulatory hurdles and rely on the performance of its bank alliances. It took Axa about 19 months to get clearance for its new Chinese life-insurance venture. The company is awaiting approval for its April agreement to buy a 50 percent stake in Tian Ping for 485 million euros.
In 2012, an Axa license application was rejected in Taiwan, a country where Allianz had 1 billion euros in first-half life-insurance premiums.
“It’s going to be very hard to win market share,” said Maurel’s Forneris. “If you go in a market it’s to have a dominant position. When you see western groups creating co-enterprises with Chinese partners, often they face tough limits in repatriating gains.”
Axa’s Chinese activities won’t generate profits before the end of 2015 as it invests in its two joint ventures, based on company presentations to journalists and analysts.
Still, across Asia, selling health-insurance coverage to the middle classes “almost cushions us against some of the volatility in the market,” Bishop said. “We’ve insulated ourselves to a degree.”
Axa this year started selling insurance policies for cancer in Thailand and Hong Kong. Eight Asian executives were trained by U.K. and German experts in Paris in 2012 and this year on pricing and underwriting new products, Bishop said.
Demand and access to insurance vary in the nine high-growth Asian countries Axa operates in. Hong Kong’s per-capita insurance premiums were $4,544 last year, more than in France or Germany, while average spending in mainland China was about $179, according to Swiss Re Economic Research & Consulting.
To cope with the differences, Axa runs “a common system, common process,” Bishop said. “If there’s a great product in Thailand, we can lift and drop and run it in Hong Kong or Indonesia, subject to regulatory approval. We’re very quick to market.”