Axa's Strategy Shift Starts to Bear Fruit With Higher Volumes

(Bloomberg) --

Axa SA’s shift away from life insurance yielded growing volumes and improved profitability as a restructuring move hit the bottom line.

The French financial giant’s first-half net income fell 19% to 2.33 billion euros ($2.5 billion) at constant currencies, missing analysts’ estimates of 2.86 billion euros. The partial spinoff of Axa’s U.S. unit knocked about 600 million euros off earnings. Still, underlying profit gained 7% to 3.62 billion euros, more than analysts had expected.

Axa climbed as much as 0.8% in Paris trading. The shares have risen 22% this year.

Axa's Strategy Shift Starts to Bear Fruit With Higher Volumes

Chief Executive Officer Thomas Buberl is trying to remake Axa by pivoting to property and casualty insurance -- a strategy that’s failed to convince some shareholders. The overhaul included last year’s initial public offering of U.S.-based Axa Equitable Holdings Inc., which fell almost $1 billion shy of the targeted share sale.

Buberl is shifting the focus of Europe’s second-largest insurer at a time when government-bond yields are falling, making it more expensive for life insurers to pay retirement income to their customers. While the CEO’s decision to partially sell off Axa Equitable reduced the company’s exposure to savings activities, it also hurt short-term earnings.

Axa currently owns about 39% of the U.S. business and plans to gradually reduce the stake to zero. “We’re in no rush,” spokesman Julien Parot said before the earnings were released.

The IPO helped Axa to finance its $15 billion acquisition of XL Group Ltd., a commercial-insurance company. The transaction made Axa the top provider of commercial casualty coverage, leaving it exposed to volatile natural-disaster claims.

While XL was Axa’s biggest ever takeover, the bulk of the company’s revenue still comes from its core European insurance divisions, primarily in France, Germany and Switzerland. What’s changed is the focus on parts of the industry that are less sensitive to financial markets, a key target for insurers after investment income was hurt by a decade of low interest rates.

Axa’s Solvency II ratio -- a measure of its ability to absorb losses -- dropped to 190%, from 193% at the end of last year. A ratio of 100 means a firm has sufficient capital to withstand the kind of shock that happens once in 200 years.

©2019 Bloomberg L.P.

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