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The company’s 9M23 update was generally in line with expectations, featuring top-line growth in the P&C sector, encompassing both the commercial and personal lines. However, challenges remain on the horizon, particularly concerning lapses in Italy and the high frequency of health claims. Although in our first take we had indicated a lack of insight into Nat Cat losses, the management has since discussed the issue during the conference call, leading us to anticipate a more substantial impact from Nat Cat losses in FY23.
Axa AXA SA
AXA’s reported results were in line with the market’s expectations, featuring strong growth in the P&C segment. This growth was primarily fuelled by the sustained strength in pricing, particularly in commercial lines (on a comparable basis), where pricing adjustments occur more swiftly compared to personal lines. Nevertheless, the L&H continued to face challenges. Specifically, the Health segment experienced adverse impacts due to the termination of two major contracts, alongside a rise in the frequency of health insurance claims in the UK.
Ambitious for growth - a likely focus for the strategy update in the New Year AXA''s footprint means that it''s easy to assume this is a GDP-like growth business. But management have been hinting for a few months that the 2024+ plan will place an emphasis on growth. They gave a few more details at HY23 results, pointing to the potential to boost the savings proposition outside of France, improve PandC underwriting while growing topline, and benefiting from positive structural trends in Health and the Emerging Markets businesses. Reading between the lines, we think management''s aspirations point to an earnings growth aspiration of at least 5% / year (and we could even imagine a higher stretch target). Swimming in Solvency: what does this mean? AXA''s 235% Solvency Ratio is already well above the 190% target. Given the upgrade in capital generation guidance to 25-30ppts for FY23, combined with business growth, we think the group should be building something like 10ppts of cover each year, even after a substantial rolling buyback. This excess may include ''soft'' capital that can''t be immediately remitted - but in the long-run, cash and capital align, implying a positive outlook for capital returns. And there may be options to monetise this excess earlier through further backbook transactions. Revising estimates upwards: reiterate Outperform Having previously assumed c.3% forward looking CAGR in underlying earnings, we have upgraded our earnings estimates by a high-single digits percentage amount, now reflecting 5% growth over 2023-2028. We also revise our rolling buyback expectations upwards, with growth towards EUR2bn in 2026 (from our previous estimate of EUR1.5bn). With a shareholder cash yield of 9.7% in 2024, we reiterate our Outperform rating on AXA, reflecting an unjustified valuation discount to peers and above-consensus capital return expectations.
Axa’s 2Q 23 delivered mixed results, with the consensus still in the process of fully understanding the impacts of the new IFRS 17. A solid performance for P&C, maintaining the positive momentum observed in previous quarters driven by strong pricing and high discounting benefit. Difficult results for the Life & Health businesses. Finally, Axa boasts a robust balance sheet, enabling the potential for increased investor returns and the future pursuit of bolt-on acquisitions.
In What did we learn about cash at AXA, we explained why we expected a big upgrade in capital generation for 2023+. AXA management have now delivered a 35% upgrade in guidance. The next question is whether this increase in cap gen will turn into cash. Upgrading capital generation guidance We had expected an improvement in capital generation from the 18-22ppt normalised solvency ratio build guidance to 25% / year. At 1Q23, AXA management provided guidance that cap gen would indeed be 25-30ppts in 2023 - a 35% increase, following an end to the reserve transfers made ahead of IFRS 17. It''s not every day a large-cap insurer upgrades one of its key financial metrics by such a magnitude, and our conversations with investors suggest this had not been widely anticipated. Does capital = cash? While the improvement in Own Funds generation is positive, the translation of this into value for investors will come from the deployment of that capital - in particular through shareholder returns (e.g. buybacks). But this needs cash. Will the excess capital convert into better remittances? As we explain in Cash Nexus, this isn''t always straightforward. But we are cautiously optimistic. Positive for the next strategic plan 2023 is the final year of the current strategic plan. We expect a new plan to be presented in the New Year 2024 - and this will presumably provide an update on the outlook for remittances. We upgrade our ''run-rate'' buyback expectation to EUR1.5bn / year, and see risk to the upside on cash conversion guidance. Publishing an IFRS 17/9 model Today we publish a new IFRS model with new forecasts, based on the recently disclosed IFRS 17/9 accounts.
Axa’s 1Q 23 trading update was in line with expectations although the moving parts were slightly different. The firm also provided clarification on its underlying earnings’ targets for FY 23 under IFRS 17. The figures were reassuring although we buy less and less the neutral speech with regard to rates pressure on Life commercial momentum. Nevertheless, while we see little momentum for insurers over the next few quarters, Axa remains an exception, mainly underpinned by the very resilient P&C segment.
In January, we relaunched our approach to the insurance sector with a focus on cash distribution capacity (Cash Nexus). This note reviews what we learned on cash generation from AXA''s FY22 results. ''Discretionary'' buybacks are now a recurring feature of the equity story At FY22, AXA declared a EUR1.1bn ''discretionary'' buyback, funded by ordinary cash generation, rather than by disposals. This followed a similar ''discretionary'' EUR1bn buyback at HY22. Such buybacks will now be evaluated once per year - implying this is a recurring feature of the equity story, as we argued in Cash Nexus. Remittances better, but not yet fulfilling potential: we now forecast EUR1.25bn of SBBs / year AXA delivered EUR5.1bn of remittances excluding HoldCo reinsurance benefits (0.1bn) and Belgian Backbook release (EUR0.3bn). This was shy of our own expectations, but the group expects remittance growth ahead of earnings in FY23 (we expect remittances +16%). We upgrade our forecast of ''discretionary'' buybacks to EUR1.25bn / year from 2023+. Cap gen could increase from c.20ppts to 25ppts on the S2 ratio per year; positive for cash conversion Management flagged a EUR2.1bn pre-tax drag on capital generation vs. IFRS earnings due to reserve movements in FY22, similar to the last couple of years - but these should now be at an end. Adjusting normalised capital generation would imply 25ppts of normalised accretion per year before uses, up from the existing 18-22ppt guidance (23ppts delivered in FY22). This improvement could also be positive for cash conversion. We are optimistic for the next strategic plan; reiterate Outperform We expect a new strategic plan to be presented at the end of the year - and we think the new targets will likely reflect the strength of the capital and cash generation potential of this business. We reiterate our Outperform rating, with AXA as one of our top picks in the sector.
Although this was only an “indicators” release, AXA’s results presentation and management call underpinned significant optimism about the outlook, we believe. Pricing was attractive while the reduction in NatCat exposure appeared to be effective. Solvency saw only a modest decrease and, in line with our comment back in May 2022, additional capital distributions to shareholders could well be on the cards.
Axa released strong H1 22 results, with most of the lines beating expectations. The strong solvency position coupled with the outlook enabled the company to announce a €1bn share buy-back program. Signs of confidence.
Axa’s Q1 22 release yielded mixed feelings. While revenues beat consensus’ estimates, Axa is too big to dance between the raindrops of the global macro-economic context. The group’s refocusing could impact growth in premiums and, in times when inflation is striking, the group’s profitability could be hurt even more.
Axa’s full year release yields mixed feelings. On the one hand, the announced distributions via an unexpected share buy-back (although quite small), coupled with a higher dividend than expected, is satisfying. Furthermore, the group has shown a strong, stable, and sustainable growth. On the other hand, XL, which was according to us the source of all attentions, disappointed us.
Activity continuing as planned, still supported by positive price pressure. Strong capital position resulting, in part, from the partial dividend distribution last year expanded by a €750m share buy-back programme.
Axa has delivered a very strong set of H1 21 results. It looks to us as if the French insurer has fully recovered from the COVID-19 crisis, with small risk of a relapse, with Axa XL delivering what the market was expecting and (finally) propelling the P&C business as it should. The overall dynamics in the insurance industry looks favourable to believe in a bright outlook for the biggest French insurer.
Axa’s Q1 2021 results and earnings’ call confirm our previous comments: 2021 is about restructuring towards its core markets while recovering from the COVID-19 crisis. Hence, as sharply and thoroughly led as the French insurer is, its results do not come as a surprise and are fully in line with what we all expect.
AXA posted FY 2020 total revenues of €96,723m, down 1% on a comparable basis (down 7% on a reported basis). Underlying earnings dropped by 34% to €4,264m. Net income stood at €3,164m, down 18% yoy. The Solvency II ratio was 200%. A dividend of €1.43 per share will be proposed at the shareholders’ AGM. The bill for COVID-19 remained stable at €1.5bn with no significant impact from new Coronavirus outbreaks. Our model will be adjusted up.
Since his arrival, Thomas Buberl has been injecting new blood into Axa’s management. The possible arrival of Ramon Fernandez, as a member of the Board of Directors, would be good news. The quest for a new Chairman is a more complicated task.
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