AXA’s Tilt to Commercial Insurance and Technical Income Shows Nascent Positive Signs

Equity Analyst

Henry Heathfield

AXA is a large European multiline insurer that has been on a path of renewed focus and transformation. While its renewed focus may still be a little elusive and it will always be hard for such a large insurer to achieve, given the nature of this business, the company has clearly made strong inroads in transforming its business model to one that is less focused on life and savings. Historically, these lines of business have contributed over half of AXA’s revenue and earnings. Yet, as the company took some deliberate actions to sell its North American savings business, shift its products to more technical-based income in Switzerland, and purchase a more North American-focused commercial property and casualty insurer with the proceeds, this is by and large a technical income-based, albeit large and diversified, insurance business. Alongside the developed markets of France, the U.S., and Northern Europe, we think the company holds solid property and casualty insurance businesses and relationships in developed as well as emerging markets in Asia.

Alongside this shift toward more technical sources of earnings where there is limited or no reliance on profit on investment income, we think AXA has invested in technology. While we cannot attribute the exact root cause of this, we know that AXA has invested in utilizing geographical data to better assess risks and decline or reprice business. Further, data and technology have been used to access driver safety and improve claims automation. While frequently overlooked, the latter is increasingly important in insurance to get ahead of all forms of inflation. We think AXA’s historical commercial insurance sweet spot lies in insuring micro-, small, and midsize businesses across Europe. With the acquisition of XL, the company is going up against some stiff competition. History has shown AXA can utilize its investment to improve its commercial insurance loss ratio. Only time will tell whether AXA can continue to do so to match market-leading peers in the midmarket and broader commercial segments.

Business Strategy & Outlook

We do not award AXA an economic moat.

AXA has returned an average 7.5% return on equity over the last 15 years. The business has earned an average return on equity of 8.9%, excluding unrealized gains and losses, over the same time. Both are below the 11% cost of equity we apply. We forecast AXA will earn a 7.8% and 11.5% return on equity midcycle forecasts.

With the sale of AXA Equitable Holdings along with AllianceBernstein, and the purchase of XL Group, AXA has shifted its business model from one that was more focused on life and savings, to one that is more focused on property and casualty. This was a good move, but the change hasn't been all sunshine. 

Around 20 years ago AXA was looking to grow its insurance portfolio further by leveraging its position in group life insurance in its home market of France to grow market share in SMB insurance. At this time AXA’s European property and casualty client mix was around 60% personal and 40% commercial lines. AXA’s largest commercial markets were France, the U.K. and Ireland, and Germany.

However, we think AXA’s economic profits began to go a bit wayward after it moved up the ladder with AXA Corporate Solutions and began to insure larger commercial clients. While AXA Corporate Solutions offered specialty marine, aviation and space, building, infrastructure and construction materials, environmental risks, and energy and transport insurance for larger companies in 90 countries across the globe, and these relationships likely meant returning clients, AXA’s commercial insurance loss ratios have been worse than the broader company’s property and casualty loss ratios, overall. By AXA’s own admission, large accounts were more competitive and less profitable at the higher end.

By around 2013 AXA had become the fourth-largest commercial insurer in the world, listed behind Allianz, Zurich, and American Insurance Group yet AXA’s commercial insurance book was still largely focused on smaller accounts. Micro businesses accounted for a quarter of property and casualty commercial sales. Another 40% was sold to SMBs and so the lower end of the commercial market still accounted for less than half. Large businesses accounted for 20% of property and casualty commercial insurance sales and corporates accounted for 15%. So, while AXA has ventured into larger and corporate accounts, we think the company was still focused on micro, SMBs and in Europe at least this is where the company’s historical expertise lies. AXA has historically liked this part of the market because of the lower penetration and lower levels of competition involved.

We think AXA has improved the profitability of its commercial insurance book by investing in technology and improving its process. For example, the company embarks on a yearly portfolio review where it defines growth and profit objectives by segment, and at renewals closely monitors conditions and lines it agrees to write. The company has used a geographical data tool called AEGIS to rule out unprofitable risks and price profitable risks better as well as assist with concentration and accumulation. At least some of these investments have helped contribute to a 3.4-percentage-point improvement in the commercial insurance loss ratio. Benefits might also have been a result of investments in technology that helped improve claims mitigation through claims leakage containment, body shop and supply network management, and fraud detection as part of a technical excellence drive. Nonetheless, AXA’s commercial insurance loss ratio has still, at least historically, been 2 percentage points worse than the rest of its property and casualty sales. And more recently AXA’s property and casualty combined ratios have worsened.

With the acquisition of XL Group in 2018 AXA has done two things: increased its exposure to commercial insurance in North America and increased its exposure to larger commercial insurance accounts. Up until the point of the acquisition AXA generated around EUR 15.8 billion in commercial insurance premiums. The acquisition of XL added EUR 15.9 billion purely commercial insurance premiums, including EUR 4.3 billion of reinsurance and EUR 9.5 billion of specialty premiums. These specialty lines have been predominantly dedicated to marine, aerospace, energy, fine art, London=n wholesale, and political risk. AXA’s European midmarket commercial insurance business has historically concentrated on the wholesale and manufacturing sectors. Commercial insurance gross written premiums now account for 30% of gross written premiums across AXA as a whole.

AXA’s SMB commercial insurance segment has focused on selling insurance to businesses with less than 50 employees. Here it provided basic insurance needs and so, standardization of policy design and wording helped significantly. With the acquisition of XL, it has proportionately increased the amount of commercial insurance it sells to the midmarket where businesses have between 50 and 5,000 employees. We generally like commercial insurance because we think it has a stickier nature than personal lines. Albeit, at least in the case of AXA, commercial insurance is not as profitable as personal lines. We think there are two conflicting elements here and they are that as AXA has moved up the corporate spectrum, it has moved toward writing less profitable accounts. They may become long-term partners, but we think there is also more competition for these accounts. Nonetheless, if written well North American midmarket commercial insurance can be written profitably, with sub-90% combined. But AXA faces a tough time trying to create a maintainable and defendable competitive position here when competing with incumbents.

None

Economic Moat

AXA SA

Earnings data Q1 2024

AXA SA operates as a holding company, which engages in the provision of insurance and asset management services. It operates through the following segments: France, Europe, Asia, AXA XL, International, and Transversal and Central Holdings. The France segment consists of Life & Savings and Property & Casualty activities, AXA Banque France and France holdings. The Europe segment consists of Life & Savings and Property & Casualty activities in Switzerland, Germany, Belgium, United Kingdom & Ireland, Spain and Italy. The Asian segment consists of Life & Savings activities in Japan, Hong Kong and Asia High Potentials as well as Property & Casualty activities in Hong Kong and Asia High Potentials. The AXA XL segment consists of Property & Casualty activities at XL Group, as well as AXA Corporate Solutions Assurance and AXA Art. The International segment consists of Life & Savings and Property & Casualty activities in 14 countries within Europe, Middle East, and Africa & Latin America as well as in Singapore, in Malaysia and in India. The Transversal & Central Holdings segment includes transversal entities namely AXA Investment Managers, AXA Assistance, AXA Liabilities Managers, AXA Global Re, AXA Life Europe, as well as AXA SA and other Central Holdings. The company was founded in 1985 and is headquartered in Paris, France.

Siemens AG

SSE PLC

Valero Energy

Market volatility is set to continue whether we have a recession or not. But there seems to be opportunity in stocks like VLO, AXAHY, SIEGY and SSEZY.

Listen to the Experts When Preparing to Buy Stocks

SVB Financial Group

French insurer AXA has a relatively small corporate bond exposure to Silicon Valley Bank , group Deputy CEO Frederic de Courtois told a Morgan Stanley investor conference this week.

French insurer AXA outlines bond exposure to SVB and US regional banks

Here is how Axa Sa (AXAHY) and BB Seguridade Participacoes SA (BBSEY) have performed compared to their sector so far this year.

Is Axa (AXAHY) Outperforming Other Finance Stocks This Year?

Axa Sa (AXAHY) could be a solid choice for shorter-term investors looking to capitalize on the recent price trend in fundamentally sound stocks. It is one of the many stocks that passed through our shorter-term trading strategy-based screen.

Here's Why Momentum in Axa Sa (AXAHY) Should Keep going

AXA SA (OTCQX:AXAHY) Q4 2022 Earnings Conference Call February 23, 2023 9:30 AM ET Company Participants Thomas Buberl - Group Chief Executive Officer Frederic de Courtois - Group Deputy Chief Executive Officer Alban de Mailly Nesle - Group Chief Financial Officer Patrick Cohen - Chief Executive Officer of AXA France Antimo Perretta - Chief Executive Officer of Europe & LATAM Scott Gunter - Chief Executive Officer of AXA XL Conference Call Participants Andrew Sinclair - Bank of America Operator Good afternoon, and welcome to AXA's 2022 Full Year Results Presentation. Thanks to those who are here in person, and welcome also to those following us on the webcast.

AXA SA (AXAHY) Q4 2022 Earnings Call Transcript

Allianz SE

BHP Billiton

British American Tobacco

Corteva Inc

iShares Core Dividend Growth ETF

iShares Select Dividend ETF

Hartford Financial Services Group

Altria

Realty Income Corp

Philip Morris

Rio Tinto plc Sponsored

Schwab US Dividend Equity ETF

SPDR S&P Dividend ETF

Simon Property Group

SPDR S&P 500 ETF Trust

Sociedad Quimica Y Minera De Chile

AT&T

T-Mobile US

Vanguard S&P 500 ETF

Vanguard High Dividend Yield ETF

Verizon

Zurich Insurance Group AG

In this article, I will show you how you could build an investment portfolio that aims to reach a relatively high Dividend Yield. I will demonstrate how you could allocate $50,000 among 10 high yield dividend income companies and ETFs while achieving a broad risk diversification.

How To Allocate $50,000 Among 10 High Yield Dividend Income Stocks And ETFs

Apple

iShares Core High Dividend ETF

Itau Unibanco Holding S.A.

Coca-Cola

Mastercard

McDonald's

PepsiCo

PayPal

Restaurant Brands

Starbucks

Visa

YUM! Brands

The investment portfolio I have built for you in this article consists of 2 ETFs and 8 companies which I consider to be attractive in terms of risk and reward. I have built this investment portfolio in a way that gives you a Weighted Average Dividend Yield [TTM] of 3.04%.

How To Allocate $20,000 Among 10 Dividend Income And Growth Stocks And ETFs

Does Axa Sa (AXAHY) have what it takes to be a top stock pick for momentum investors? Let's find out.

Here's Why Axa Sa (AXAHY) is a Great Momentum Stock to Buy

Axa Sa (AXAHY) made it through our "Recent Price Strength" screen and could be a great choice for investors looking to make a profit from stocks that are currently on the move.

What Makes Axa Sa (AXAHY) a Good Fit for 'Trend Investing'

I've been bullish on French Insurance giant AXA for a number of years, buying during COVID-19, and buying again when the company's EPS once again troughed. AXA is a relatively simple insurance play, to my mind. It has great fundamentals and a great yield, with good RoR available at the right price.

AXA: Slowly Becoming More Expensive

Grupo Aeroportuario del Sureste SAB de CV

Tencent Music Entertainment Group 

TME, AXAHY and ASR made it to the Zacks Rank #1 (Strong Buy) momentum stocks list on January 19, 2022.

Best Momentum Stocks to Buy for January 19th

Campbell Soup

ASR, AXAHY and CPB made it to the Zacks Rank #1 (Strong Buy) income stocks list on January 19, 2022.

Best Income Stocks to Buy for January 19th

Mitsui & Co Ltd

MITSY, AXAHY and AGESY made it to the Zacks Rank #1 (Strong Buy) value stocks list on January 17, 2022.

Best Value Stocks to Buy for January 17th

Patria Investments

Safe Bulkers

SB, PAX and AXAHY made it to the Zacks Rank #1 (Strong Buy) income stocks list on January 10, 2023.

Best Income Stocks to Buy for January 10th

Sanmina-SCI

WPP Plc Sponsored

SANM, WPP and AXAHY made it to the Zacks Rank #1 (Strong Buy) momentum stocks list on December 14, 2022.

Best Momentum Stock to Buy for December 14th

BCB Bancorp

First Busey

AXAHY, BUSE and BCBP made it to the Zacks Rank #1 (Strong Buy) income stocks list on December 14, 2022.

Best Income Stocks to Buy for December 14th

Chubb

Travelers

In Part II, I argue that AXA is ahead of the three of the top ten American insurers who put out a detailed climate report (Chubb, Liberty and Travelers) in internalizing climate risk as a strategic priority while underwriting risks and assuming liabilities on its balance sheet.

A Comparative Analysis Of Incorporating Climate Risk In Underwriting Insurance For AXA Vs. Chubb, Liberty Mutual, And Travelers

Insurers who engage in activities which help mitigate climate change and promote SDGs in 2023 have a competitive advantage with investors who are increasingly willing themselves to be active players in combatting climate change. A growing number of European insurers are opting to finance their green projects by issuing green, social, and sustainability bonds.

Sustainability Will Be Key For Insurers In 2023 As Global Concerns Mount

Airbus SE

L'Oreal SA

LVMH Moet Hennessy Louis Vuitton

Nestle SA

Schneider Electric SE

Valuation is core to everything that I do - second to nothing. The current valuation trends on a high level, for the overall stock markets, show very clear indications. Those indications are that several markets are currently significantly undervalued - on a very broad basis.

My 2 Current Favorite Markets - Paris And Zurich

France's AXA and Credit Agricole are set to submit by the end of the week binding bids for an insurance deal with Italy's Banco BPM after emerging as the lead contenders in the race, two people close to the matter said.

Credit Agricole, AXA to bid this week for Banco BPM's insurance deal-sources

French insurer Axa is considering investing at least 100 million euros ($97.99 million) in a new share sale by Monte dei Paschi di Siena (MPS) without any changes to its joint venture with the Tuscan bank, two people close to the matter said.

Axa might invest at least $98 million in Italy's MPS

Belden

James River Group Holdings

Lattice Semiconductor

Taboola

LSCC, AXAHY, BDC, JRVR and TBLA have been added to the Zacks Rank #1 (Strong Buy) List on September 30, 2022.

New Strong Buy Stocks for September 30th

AXAHY, JRVR and BDC made it to the Zacks Rank #1 (Strong Buy) value stocks list on September 30, 2022.

Best Value Stocks to Buy for September 30th

Bank of N.T. Butterfield & Son

NTB and AXAHY made it to the Zacks Rank #1 (Strong Buy) income stocks list on September 30, 2022.

Best Income Stocks to Buy for September 30th

Axa Sa (AXAHY) has been upgraded to a Zacks Rank #1 (Strong Buy), reflecting growing optimism about the company's earnings prospects. This might drive the stock higher in the near term.

News for AXA SA Stock (AXAHY)