Where is the future for AXA Personal lines?

It started off as a whisper, but now there is growing speculation that AXA could pull the trigger and sell its personal lines business if commercial lines chief executive Amanda Blanc and the incoming new chief executive of direct and partnerships fail to sort out the situation.

Last year AXA recorded a combined ratio in private motor of 121%, around 15 points off the market average.

This was despite rates climbing 30% in 2010 and an escalation last year.

Revenue slump

The situation was such a cause for concern that the company’s Paris-based parent revealed in its first quarter results that it was “portfolio cleansing” its direct book, citing the UK as the main factor. The cleansing led to its global direct personal motor revenues slumping 6% in the first quarter.

de Castries is intent on making €1.5bn (£1.17bn) in cost savings in mature markets by 2015’

And these are merely the results for 2011: AXA’s private motor book does not show any profit as far back as 2008.

The significance of the failure of private motor, which makes up the bulk of AXA’s personal lines book, will not be lost on group chief executive Henri de Castries.

In an interview this week with the Financial Times, de Castries’ ambitions to expand in emerging markets were laid out clearly, while he aims for cost savings in mature markets.

He sold the bulk of the UK life assurance business two years ago, reducing the UK’s contribution to group sales to 5% from 10%.

Furthermore, de Castries is intent on making €1.5bn (£1.17bn) in cost savings in mature markets by 2015. He also wants mature units to hit a 95% combined ratio by 2015.

Offload UK personal lines

Asked about those savings, de Castries said: “It’s clear that the environment is not what was the best case, but we are within the sensitivities”, in reference to a target range of macroeconomic assumptions.

There is a feeling that de Castries, having already sold the UK life business, will not be afraid to offload UK personal lines unless it can prove it is making a healthy return.

Indeed, he is targeting a 97% combined ratio for global divisions by 2015, a target AXA personal lines looks a long way from delivering.

This is where Blanc comes in. She is rated highly in Paris and, with a proven track record of working with brokers at Towergate, will be expected to expand its footprint in the UK among regional brokers, in addition to strengthening ties with its established major partners, including Swinton and Budget.

Software upgrade

She will need to oversee the continuing updating of software systems to help compete with rivals such as Aviva, which has modernised with Open GI and SSP to offer brokers real-time pricing.

So confident was Aviva of its abilities, it launched Personal Best two years ago, giving brokers similar knockdown prices and deals to those that can be found direct.

However, AXA’s great hope is Sandpiper, a much-feted software system that provides speedy real-time quotes, and there’s hope that it will eventually provide instant ‘customer profiling’ on credit, claims history and criminal records.

Bringing in a big name

Blanc is also blessed in that AXA Personal lines broker is doing well. It was Swiftcover and the direct motor arm that gave Paris a headache.

Indeed, AXA is also intent on bringing in a big name to take over the direct and partnerships arm, a seasoned hand that can once and for all get to grips with the conundrum over how to make underwriting profits at Swiftcover, a business which piled on volume right in midst of the bodily injury and credit hire boom.

Whatever happens, Blanc and her broker personal lines team will be aware that Paris is watching developments closely and could lose patience, potentially even instigating a UK personal lines sale if there is not significant improvement within the next three years.

Slap in the face

The only thing that might stop AXA selling UK personal lines if it fails well short of the 2015 profitability targets is that the UK is seen as a test-bed for the rest of the world.

And of course, it would be a real slap in the face to reputation of the world’s largest insurer by premium to exit such a prestigious market as the UK.

But for Blanc and her soon-to-be announced partner in the direct and partnerships space, they’ll surely be hoping it won’t comes to that.