Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AXA SA (AXAHF, Financial) reported a strong organic growth of 7% in the first half of 2024, a rate not seen in many years.
- Underlying earnings per share increased by 4%, with a return on equity at 16.6%.
- The company maintains a robust balance sheet with a high Solvency II ratio of 227%.
- AXA SA (AXAHF) announced the strategic sale of AXA Investment Managers to BNP for EUR5.4 billion, which will simplify the business model and focus more on insurance.
- The acquisition of Nobis Group for EUR0.5 billion will expand AXA SA (AXAHF)'s P&C operations in Italy, demonstrating disciplined capital deployment.
Negative Points
- The sale of AXA Investment Managers may lead to a loss of diversification and potential earnings from asset management.
- The UK market required significant price increases (55% in retail and 13% in health) and volume reductions (30% in retail) to restore profitability.
- The tax rate has increased due to the OECD tax, affecting earnings, particularly in Bermuda.
- The combined ratio improvement is partly due to favorable market conditions, which may not last, requiring continued discipline.
- The sale of AXA Investment Managers will result in a EUR1 billion reduction in the positive contribution to the Solvency Capital Requirement (SCR).
Q & A Highlights
Q: My question might seem a bit unfair given the disposals you've made and I think you probably earned the right to make the small acquisition in Nobis, but I'm just interested in the P/E that you're paying for that, because there's 11 times -- again, I know it's a small acquisition, but I was always under the impression that you would measure acquisitions versus the hurdle rate versus buybacks. So clearly, this seems a small departure from that, but given the amount of solvency build that you have and the stock of solvency, one might expect more acquisitions further down the road. So just to clarify that you will continue to use that as a hurdle rate when it comes to slightly larger acquisitions, please? Thank you.
A: Thank you, James, for your question. I might take this directly. So with the publication of the new plan, we have established a very clear order of priorities, which is, first, the 60% payout ratio on dividends. Secondly, the share buyback, which should amount to 15%, and everything that remains is being ideally used for the investment in our own business, be it organic growth or be it M&A. And we want to obviously remain very disciplined on this M&A, but we have not anymore the link of this M&A to our own multiple. And nevertheless, if you look at the acquisition of Nobis of 11 times P/E, including synergies, and obviously, synergies are always calculated in a very conservative manner, this is certainly a deal that is absolutely defendable, because also it helps us to increase our market position in Italy. We are moving from player number five to player number four. And to the second half of your question, James, yeah, we have a clear target to increase our presence in the markets that we are in. If we find deals, and you have seen now the fourth one with Nobis, with Laya, with Groupama in Turkey, and with Crédit Mutuel in Spain, they are all exactly in the same logic. We will continue to look, and we will continue to act because scale matters and we want to make sure that we remain at sufficient scale in all our core markets. We are moving to the next question.
Q: So I wanted to ask about non-life reserving. I think it will have been a nice surprise that XL released some reserve overall in H1. But could you tell us about what you have seen specifically on casualty reserve developments? And when I look at slide 33 in your pack, it looks like the strength of reserves has softened a bit since we have moved to IFRS 17. Could you give us some color on that, please? And then secondly, on debt. So you have a target to keep your debt stack flat. Should we actually expect you to reduce the absolute amount of debt now, given your balance sheet will be smaller? So should we think about the cash and spends from the AXA IM deal to be potentially used for that, or do you have other plans for that cash? Thank you.
A: Thank you, David, for your two questions. The first one will be answered by Frédéric around the reserve casualties and -- the casualty reserve, sorry. And the second will be answered by Alban around the debt. And when it comes, I think, to what are we doing with potential cash resources that we have got, I would refer you back to the second half of my answer to James, which would be exactly the same. So Frédéric, on reserves and casualties. So casualty reserves. So, first, we have done, as we do every year, a reserve review at half year at AXA XL and there is absolutely no change in our reserve level. We need to do a bit of history on this, so you remember that when we have taken over AXA XL, we had reinforced the reserves by EUR1 billion. Then you remember also that we have protected the pre-19 years with NEDC. Having said that, we take into account the last trends on claims in our reserves and in our pricing. So this is what we are doing, and we are absolutely comfortable with this. And what you've seen is that the results at AXA XL are very good and we didn't need to release any PYD. So again, we are extremely comfortable with our reserve position at AXA XL, including on casualty, despite the fact that we've seen some peers and we've seen on the market some adjustment on reserves. But again, all of this for AXA, I think, is explained by the history and by the fact that we've been extremely disciplined. And I think your question on reserve was also on the ratio of reserve to premium. You mentioned IFRS 17 as the potential cause. You've seen in the appendix that when we moved to IFRS 17, that ratio did not go down. It slightly went down this semester, simply because we have higher premiums with a growth of 7% that you saw. And by definition, reserves do not increase at the same pace, because we carry on the reserves of the last 10 years and that's the only reason why you see a small decrease in our reserving ratio, as shown on the slide on the screen at first half. On the debt side, we were very clear indeed that we don't want to increase our stock of debt. But it's true that we will have EUR1.3 billion of cash more after we've sold AXA IM and we've done the share buyback. But we don't incur debt as a funding mechanism. We incur debt for our solvency. And so, yeah, instead of raising senior debt, we might simply use our cash. But we need Tier 1 and Tier 2. And you know that Tier 2 and Tier 1 debt are needed for our insurance business and not so much for our asset management business. That's why it doesn't have an impact.
Q: Firstly, just as a long-term question, I know, Thomas, you've been de-emphasizing financial risk for some time, sale of US Life and AB, all those closed book actions. Now, the sale of the asset management business. Is that largely done in terms of the structure of the business? Are you where you want to be in terms of structure? So that's the first question. Second question, can you give us a bit more detail on the Financial Lines business within XL? How big is it and what's its combined ratio relative to the 89%, which the whole of XL is doing? And then thirdly, a technical question around the buyback. I mean, obviously, you've got the normal regular buyback to do, and then from mid-year on, you kick off with this EUR3.8 billion buyback. Do you have any sense as to how long it will take in 2025 to get through all those buybacks? Will you have completed them by till the end of the year, do you expect?
A: So Andrews, thank you for your question. I suggest I'll take the first one. Scott Gunter is taking the second one, knowing that we are not giving details on how big the financial line
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
