AXA Reports Decline in Profit As It Restructures

Posted on Feb 24, 2011 by Sergio Ulloa (G+)

The major French insurance company AXA reported a decline in overall net profit of 24 percent in 2010 to €2.75 billion (US$3.7 billion) compared to €3.61 billion (US$4.9 billion) achieved in the previous year 2009. The company stressed that 2010 was a year of transition and strategic restructuring. The major factor contributing to the steep decline in AXA's profits in 2010 was the sale of its UK life operation to Resolution, which had a negative impact on results. AXA has been shifting focus away from mature markets, such as France, Japan and the USA - where growth has been stifled by difficult trading conditions linked to the imposition of austerity measures in order to cut national budget deficits - concentrating on activities in emerging markets in Asia - particularly China and India - where growth opportunities exist. AXA's group operating profit increased by 1 percent to generate €3.8 billion (US$5.2 billion) on a constant basis but overall fell by 3 percent due to unfavorable exchange rates, with operating profits from the property and casualty sector declining by 2 percent to generate €1.7 billion (US$2.3 billion) - although revenue increased by 1.3 percent to reach €27.4 billion (US$37.6 billion). Total turnover was almost static year-on-year, amounting to €390.9 billion (US$535 billion) - an increase of 0.9 percent. AXA results, like those of other global insurers, have been impacted by continuing low interest rates, leading to lower returns on investments. AXA's core life and savings business saw revenues decline by 3 percent to €56.9 billion (US$78 billion) primarily due to lower sales within developed markets partly offset by improvements in operations in the Asian region, especially China and Hong Kong. AXA's life and saving business is currently present in more than 30 countries, with a number of worldwide customers in excess of 40 million; this helped new business to jump by 2 percent in 2010 with the protection and health lines being the most profitable. The insurer has highlighted AXA's health insurance business as the major prospect for growth in 2011. The fast-growing Asian economy has become a pivotal market for global insurers and AXA is currently engaged in acquiring AXA Asia Pacific Holdings' (AAP) Asian arm in a joint bid with AMP, in a move to maximize their reach in the region - particularly China. The Asian powerhouse countries - China and India - along with neighbors such as Thailand, Indonesia and the Philippines are key markets for international insurers seeking business growth. This reflects the rapidly expanding economies and resultant improvements in individual wealth driving demand for protection and saving products. AXA's new business levels in 2010 amounted to 58 percent in the Asian region, while in Europe it was 16 percent. AXA has identified Hong Kong, Indonesia, Thailand and Poland as having been strongly performing markets for the insurer. Also, if AXA is successful in its proposed take-over of AXA PPH, it will vastly improve the French insurer's network and distribution power in the Asian region. AXA's, Chairman and CEO, Henri de Castries said: "2010 was also characterised by significant strategic moves and organizational changes. I would emphasize in particular our decisive developments in high growth markets, the partial sale of our life operations in the UK, the ramp up of our new organization by business line and the changes in our senior management teams." AXA is optimistic that improvements in profits can be achieved in 2011 by focusing on the growth markets in Southeast Asia and high earning sectors in the mature markets for healthcare and health protection. The prospects in the Middle East and Africa are still considered to be sound despite recent political upheavals in the region. AXA is also considering the scope for establishing activities in the fast growing markets in Latin American countries. Meanwhile, AXA's Chinese venture AXA-Minmetals secured an important deal with China's Industrial and Commercial Bank of China (ICBC), which saw the Chinese bank acquire a 60 percent stake in the Chinese insurance venture; the deal gave AXA a major boost in the Chinese insurance market by rapidly expanding its distribution network through the ICBC's established outlets. AXA has been criticized for not taking such an aggressive approach in emerging markets compared to rivals of similar size; the French insurer has now stated that it will take a more proactive approach in Asia - especially China - and focus on prospects which have been identified in Russia, Azerbaijan, Ukraine, Mexico and Colombia in a bid to exploit growth opportunities in these markets. It is evident that Asian markets will be the focus for multi-national insurers in 2011 with AXA's rivals - Allianz, Aviva, Generali and Prudential - all having expressed strategies to exploit opportunities in the Asia-Pacific region - so competition for new business in this region will be fierce. Insurance Companies Mentioned: AXA AXA Group is a worldwide leader in Financial Services. Headquartered in Paris, the AXA Group companies are engaged in life insurance, health insurance and asset management services among others. AXA's operations are diverse geographically, with major operations in Europe, North America and the Asia/Pacific area. AAP AXA Asia Pacific Holdings Ltd. (AAP) is responsible for the Global AXA Group's life insurance and wealth management businesses in the Asia-Pacific region. We have operations in Hong Kong SAR, China, Singapore, Indonesia, Philippines, Thailand, India, Malaysia, Australia and New Zealand. Established as National Mutual in Australia in 1869, AXA Asia Pacific has grown significantly over time. In 1995, the company demutualised and AXA SA acquired 51% of the company. National Mutual listed on the Australian and New Zealand stock exchanges in October 1996 and adopted the AXA brand in 1999.