Briefing: How the AXA revolution has set the insurer up for long-term success

AXA has undergone a bit of a revolution over the last couple years.

Faced with low bond yields and troubled financial markets, the French insurer realised that it was too reliant on the performance of markets that it couldn’t control and took drastic action.

The insurer exited a number of lines exposed to large amounts of risk from global investment markets, putting its US life business, Equitable, up for IPO and disposing of the business, and at the same time AXA expanded its non-life business, most notably with the acquisition of XL in March 2018.

This has shifted AXA’s risk mix away from the life and pensions business, a market in which many insurers are struggling to find growth, and back towards an underwriting-led business in the property and casualty (P&C) market, which now accounts for more than half of AXA’s revenues and earnings.

In fact, investment bank Jefferies has estimated that around two-thirds of AXA’s revenue and earnings will come from the P&C and health markets in 2021.

And this shift in strategy makes even more sense given the unexpected impact Covid-19 has had on global markets, with increased volatility and seemingly persistently low bond yields hitting life and pensions businesses particularly hard.

The non-life insurance market has, of course, not been exempt from this downturn, but by moving out of the investment-heavy life and savings business towards the non-life insurance sector, AXA can now focus on its underwriting returns, and there is much more scope for improvement here. 

But that does not mean the AXA Group won’t face its fair share of challenges.

Business interruptions and travel insurance claims arising in the wake of Covid-19 will hit insurers across the non-life sector, and the recessionary effects on the wider business community could dampen demand for commercial lines insurance going forward.

But an anticipated increase in rates is likely to provide some comfort here.

Integrating AXA XL into the wider business is another challenge facing the French insurer.

The XL acquisition was completed in the aftermath of a surge of natural catastrophe claims, yet the insurer did not benefit from the rapid increase in rates that was expected at the time.

In fact, rates did not really start to rise until the second half of 2019, meaning that AXA is yet to fully benefit from the acquisition, despite Jefferies describing the integration as “proceeding better than the market expects”.

All-in-all, this means that AXA is well-placed to ride the wave as businesses emerge from the Covid-19 pandemic.

And by focusing more closely on its underwriting performance, the insurer will be hoping it is setting itself up for long-term, sustainable success, unburdened by the drag from the low-growth life and pensions business.