AXA SA (CS.PA) Earnings Call Transcript & Summary

Next up, we have Thomas Buberl, the CEO of AXA. When we met here a year ago, most of the conversations were centered around the achievability of the targets that AXA presented at the start of last year and how the group [would] navigate the French-political issues. Some things, unfortunately, haven't changed. So when it comes to AXA, all the signals are flashing green. And despite a volatile backdrop, the shares have reached an all-time high this summer, and I'm really happy to have Thomas with us here today to discuss what's next for the group. So before we jump into Q&A, I believe you'd like to say a few words, Thomas?

Thank you very much, David. Good morning to all of you. Just a few brief comments before we get into the discussion. So in the middle of 2025, we are exactly halfway through our current plan, Unlock the Future. And when you see where we stand at half year, we have managed to produce both a very high organic growth, 7%, in an environment, as David pointed out, that is not always the easiest. That has also translated into a strong result, 8% underlying earnings per share. All of this happening on a very strong balance sheet with 220% solvency. But what is important is that when you are in volatile times, it's important to obviously have a strong balance sheet, but it's even more important to have a very diversified business to be able to absorb whatever shock there is. And obviously, when you look at it from a shareholder perspective, not only from a share price perspective, but when you look at the return on equity, we are also well positioned. So this should give you good confidence that halfway through the plan, we should be able to also achieve the targets that we have put forward for this plan that runs until the end of next year. When you look at what has been driving this momentum, as I said, it's, on one hand, a strong top-line growth. And when you look under the bonnet, you will see that it is all lines of business and all countries that have contributed to this strong top-line growth. When you look into what we set out in terms of margin improvements, there were -- there was a first phase where we improved very much margins in P&C, in particular, 2 focus areas: the U.K. and Germany. This has been achieved. In the second part, we have now focused on Health, but we will also focus on higher net flows in the Life & Savings business. You've seen that at half-year 2025 for the first time in a long time, the net flows changed into positive territory again in our move [from moving] from very high general account business and highly guaranteed general account business to protection business and retirement business. And obviously, this is accompanied by significant investments both in the growth initiatives, but also expanding our distribution, in particular, physical distribution, but also direct distribution. You saw the acquisition announcement around Prima at the half year and obviously, also Data & AI in order to make sure that we benefit from the customer insight as much as we can. And I want to highlight the data investment because it is important to have a very clean and well-ordered database. Otherwise, your AI efforts remain useless. When you look at the business, and I mentioned it earlier, for us, it's absolutely important to be diversified. So we have a very balanced business, when it comes to geographies, when it comes to line of business, but also when it comes to B2B and B2C. And this mix for us has proven to be very good. And we believe that going forward, in a more volatile world where you don't know where the next spike will come from, it's good to stay on this, making sure that we also move on all engines. And as I said earlier, in the first phase of the plan, the focus was very much around how can we get the P&C business to a very good performance. We are, at this point, yet -- at this point, now, both in terms of growth, but also in terms of margins and in terms of the investment capacity that we have put in there. We have secondly, as I said earlier, focused on getting our Health business better, both in terms of more growth and margin improvement also into investments in the services and the vertical integration, so small clinics, general practitioners and doctors and making sure that we are now in the next phase of the plan and also probably in the subsequent plan, making sure that the Life & Savings business in this transition from traditional capital-heavy general account to more insurance-related Life business protection, so biometric risk and longevity risk is producing even more momentum on the growth side. All of this on a very strong basis in terms of balance sheet, but also customer base, we put a lot of efforts on our agency distribution that is traditionally very close to our customers and obviously has produced a very high result in terms of customer retention. All of this, combined with a very disciplined capital management framework, dividend, share buyback and whatever is left to invest in the business. And you've seen that the sale of AXA IM, which has been closed by the middle of this year as well, will lead to a EUR 3.8 billion share buyback. Conclusion, we are traveling well on the plan that we have launched 1.5 years ago. All the levers we said we would pull have been pulled. We feel comfortable with our setup in the business, being highly diversified in a moving environment. And going forward, we want to continue our journey and make sure that we both deliver what we said we would deliver in the plan, but also that we continue strong value creation for our shareholders. Thank you.

I'd like to start on Commercial, non-Life, where which is the area where most of the concerns are today given the acceleration of the softening of some lines of business. I get the sense that the market perceives AXA's Commercial business as very U.S. blue chip. So can we start by talking about the diversification of your Commercial business and cycle management in general?

So maybe just our P&C business is roughly EUR 60 billion premium. 1/3 is retail business. So that's what we're not talking about. And 2/3 is Commercial. Of these 2/3, half of it is European Commercial business. And when we talk about Commercial business, it is the butcher, the local shop, the hairdresser and so on. So business that is very retail-like, very close to the agents, and that is extremely stable. So if you were to again look under the bonnet of the growth in Commercial lines, you would see that both growth and margin improvements are extremely good on this business. And then you have the last 1/3, which is AXA XL. And AXA XL is in part large Commercial business. But when you look at AXA XL, it's a franchise of EUR 20 billion of revenue, but extremely diversified. So you have a multitude of lines of business. And so when we talk about the question of cycle management, we come now out of a cycle that was only going in one direction, which was prices up. So -- and you could change terms and conditions. And obviously, we have benefited from that massively because you've seen that the result of XL has also improved massively. We are now coming into a market in which in some lines of business -- when I say some lines of business, we're talking about U.S. professional. We're talking about cyber. We might, going forward, talk about property, where you see some signs where the price increase is not the same anymore as it used to be. But a price increase means nothing. What you need to look at is what is the delta between your claims inflation and the price increase. And if you don't get the sufficient price anymore that you need to cover your claims inflation, then there is an issue. When you look at it today overall, you see that the large majority of XL's business are not affected by any weakening signs of price. And in the areas where we are confronted with lower price, we are extremely disciplined. So the rule is pretty simple. If your delta between claims cost and price increase is still positive, you continue growing even though the margin is a little bit lower. If you see that the delta is not positive anymore, and I can give you a concrete example, U.S. professional, where we have actually pulled back significantly in volume. Have you seen anything of that pullback in the larger franchise of XL? No, you haven't. And I think we've been working towards this model of a different cycle for a long time. XL, as I said, is a diversified franchise and is a franchise that puts the responsibility on the underwriters. And the underwriters are incentivized to write the right business. So if they write a bad business, they will feel in their pocket very quickly.

Would you say there is a finish off?

Yes, there is a cycle, but I am not worried that we will not be able to manage the cycle. And that's why we have said that the result of XL, which is the area where some of this could appear, in dollar terms, we will deliver.

Would you say that on the European part of the business, there is such a thing as a cycle?

No. I mean, there might be, but I don't see it. Again, you don't -- I mean, this business in Europe is very difficult to get into. If you want to ensure the hairdresser and the butcher are around the corner, you need distribution. You can't just get a bit of capital and place it. And so the barriers of entry in those markets are very difficult. And it's the same, by the way, in XL. If you want to ensure a complex marine risk, there is not 25 companies that can do it. And this cycle -- the previous cycle of reducing capacity and price increase have washed out a lot of companies out of the market. So this complex marine risk, maybe 10 years ago, you had 20 parties lining up. Today, you might have 6 or 4. So it's a very different market.

You mentioned some of the lines where the pricing isn't higher than claims inflation right now. On the contrary, where is the gap positive? And so where are you growing at the moment?

Certainly. On marine, it's positive. On casualty, it's positive. I mean there's plenty of lines of business. Again, XL is like -- it's a EUR 20 billion business, but the average line size -- the average size of a line is maybe between EUR 500 million and EUR 1.2 billion. So it's very small pieces and all in specialties. So it's also difficult for other people to get in.

On the -- that's the Commercial part of XL and the group, there's a little -- a smaller reinsurance business at XL. I found it interesting that in the first half of the year, top line grew a lot at XL Re, but the risk, I think, was carried by third parties. Can you talk about the dynamic there? Are you seeing a lot of appetite to take that sort of...

So look, we have a small reinsurance business that we have restructured over the years because the business used to make a loss, and we've restructured it in several ways. Number one, we have reduced its dependence on property risk. So we have significantly scaled down the property risk, which also means now that if there was to be pressure on pricing in property, we would be less affected than others. Secondly, we simplified the business. It's a global franchise, but we made it simpler. And thirdly, we said, look, we want a certain risk profile. If the risk profile should increase, then we should rather attract third-party capital, which we did. Because a lot of investment funds and private equity funds and so on, they are looking for risks that are diversifying to market risks. And so that's the reason.

In a way that puts a little bit more competition or pressure on reinsurance pricing is -- what's better for you because you underwrite -- you do reinsurance and you're a big purchaser of reinsurance covers?

We purchase much more than we accept. So the net-net is always positive.

Great. I'd like to move to Personal lines. But before I do that, are there any questions in the room? You can raise your hand if you have a question. All right. I'll continue on Personal lines then. So you're targeting a 2.5-points improvement in your underlying loss ratio. That's already been achieved in the first half of this year. And if I look at the average pricing across retail lines, it's still a few percentage points above claims inflation. So is that one area where the cycle is doing quite a bit better than you expected 1.5 years ago?

No, look, I mean, we started, as I said earlier, this plan with, I would say, 2 problem zones in the retail business, which was the U.K. and Germany. All the other businesses were actually doing quite well. And when you [looked] all the other business ex-Germany and ex-U.K., we're actually gaining in net new contracts, which is always a sign that you get profitability and growth right. We have gone on a journey in quickly turning around the German business and the U.K. business. And we are at a place today, and you've seen in the half year results, where all of the countries, including Germany, are delivering net new contracts again. So we are at a point where the portfolio is sorted out. I mean you are never done. You always have to continue and see where you can get better. But the big lift is done.

There's been a lot of consolidation in European Personal lines and maybe lower interest rates will put even more discipline to keep prices higher. The cost of natural catastrophes is still high. Do you think we could have a harder market for longer in Personal lines? And it seems like a lot of players are already earning ROEs a lot higher than they were in the past. Do you think that the industry could be earning too high of an ROE for some time?

Look, what is interesting is that the traditional cycles don't really appear anymore. And they were appearing in the past mostly when third-party capital came quickly in and went out again. What you see today is that the market is disciplined and will probably remain disciplined because there is one area that we should never forget; the complexity for each business has increased. So we had a significant accounting change to IFRS 17. In order to implement this, you need to invest a lot. We have the upcoming revision of Solvency II, which might mean very different -- might have very different consequences per company. And you also have, I mentioned it earlier, significant investments into Data & AI to make. And so for all of this, you need a means to invest. Many of the insurance companies that have in the past, caused a more volatile and cyclical markets, were mostly in the camp of mutual companies. But those mutual companies have, by definition, no or very limited access to get third-party capital. And so I think that is one of the reasons why we have seen a much higher discipline in the market because there are big hurdles that need to be financed and invested in to keep going as a company.

You announced the acquisition of Prima in Italy at half-year results, and I have 2 questions on this. One is on Prima and one is on what it means for the rest of the group. But first on the company itself, how do you explain the success story of Prima because it's been -- Italian direct motor has been very difficult for everyone, but Prima has been growing a lot at excellent combined ratios, which is always a bit puzzling in insurance. How do you achieve that? So can you give us a bit of color on this, please?

There's 2 simple answers to it. Number one is, they have chosen a model that is extremely low-cost. So they have looked at every component of cost, including the question, should they be an insurer or not, and they have decided not to be an insurer. They're an MGA. So that's the one part. And the second part is, they have basically priced their business in a different way to additional insurer. So when you look at a traditional insurer, traditional insurers have what I would call smooth tariffs. So the 20 -- and I'm not trying to be discriminating anybody, the 25-year-old wild-male driver today does not pay his or her proper premium because we smooth it down to also be able to get these customers. And so the more -- the better drivers, so more, I would say, between 40 and 50 pay partially for that. So you have a smooth tariff. Prima has done the opposite. In Prima's tariff, the wild 25-year-old driver will pay his or her exact price, whereas the driver between 40 and 50 who is driving much -- in a much more gentle way will also pay the proper, his or her, price, which is lower. And what I think is the real beauty of Prima is, yes, it is a direct insurer that can differentiate to that model. But they have also made inroad into serving the agents because a traditional agent of an insurance company can handle, I would say, 80% of their customers with those smooth tariffs. But the last 15% to 20%, they have an issue to serve because they are not competitive. And so what they have done now is instead of going to a competitor or to a broker, they have used Prima to keep that business on the 15% to 20% that they were not able to do with a smooth tariffs. And I think, for me, those are the 3 elements: low-cost model, real-risk pricing and giving agents a ventilation solution for those part of the -- this part of the business where they are not competitive.

Interesting. And one of my takeaways from the presentations you did yesterday on Spain, on Germany and Ireland was that Prima seems to be an enabler to accelerate your direct franchise.

So -- because you only asked about Italy, I said on Italy, but yes, I mean, when you look at Prima, for us, why -- I mean, beyond the question of the interest of the business model is something else. We see that, number one, the direct business is really picking up now. So customers do want to engage more in direct, which hasn't been the case for a long time. Secondly, we actually have got quite a big franchise within AXA already on direct business, but we have not treated really as a growth opportunity. We want to do this now. And thirdly, the Prima model is strong in Italy, but for them, it's difficult to start in a new country because why? If you want to succeed, as Prima in a new country, insurance is a scale game. You need access to a repair network, which they don't have, but which we have. And you need access to an agency network, which they don't have, which we have. So if they start in a new country, so let's take Spain, for example, as though an actual case, we can give them access to our repair network, so they immediately have scale. We can give them access to our agency base. So they immediately have a potential that they would otherwise not have.

And how are you putting together your current direct business with Prima's? Will that be the idea over time?

So we are not putting them together because, as I said, Prima is a very distinct model, and the traditional direct model of insurers is just basically the direct arm of a traditional insurer. If we were to merge Prima into AXA, the same would happen. We will keep it apart, but we will obviously make sure that the subscale direct insurance companies that we've got are being moved on to Prima. When I say moved on to Prima, so let's take Italy. We have a subscale business direct in Italy. We will re-underwrite the contracts into Prima without merging all the old-cost structure into a very low-cost model.

Okay. Going to move to Life & Savings. Again, if there are any questions, please raise your hand. On Life & Savings, so we had elevated lapse in the past. That's over. Flows are pretty good now and really picking up in savings markets. A normalized yield curve in Europe should help. And my takeaway from one of your competitors' presentation just before was that European insurers are much more bullish on life insurance than they were a few years back. Is this your point of view as well?

I mean, if you look at the general trends that we have in our society, we have an aging society, and we have a society that needs to protect itself and needs to most likely protect beyond what we have today because the social systems that were traditionally provided by the states are not working anymore in the way they were working, both in terms of their way of delivering, but also in the way of them being financed. So this is a general trend that is an opportunity for us. Then as I said earlier, I think the insurance companies have rediscovered this market in moving from a pure savings market, which is very much in competition today with banks and asset managers to the insurance like element of this market, which is around protection, so how to protect you against disability, against death and other biometric dangers. And secondly, longevity risk. How do you help a customer to not only accumulate but also to decumulate later and to live a good life in the last phase of your life. And I think in these areas, there is a significant increase in demand and the space for us to be because most of these products that we offer there are quite sophisticated products. And when you look at the in-force market shares versus the new business market shares, you see that there is much less companies acting and being able to act in a new business than you see in in-force. So it's a good opportunity, and we want to obviously capture this market.

So savings are still a growth area for you, but it's mostly employee benefits, health, retirement...

Yes. Yes. And look, when you look at AXA, we have started sorting out the P&C business. I would say it is now at an optimal balance of growth and profitability. We are getting there on the Health business. And the next chapter is getting the Life business back on a growth track again. And you've seen that the net flows at half year for the first time were positive. You mentioned it, David. And when you project yourself a little further beyond the existing plan, this is where also the journey, and the travel will go on. It's not -- the story of AXA is not over at the end of next year because we have pulled all levers. We have optimized certain businesses, but there is a runway beyond 2027 to go on, in particular on the Life & Savings side.

Understood. On the Health in particular, if I look at markets where health are already big products, like the U.K., like the Nordics, like the Netherlands, we've seen in the last few years, a trend of increased claims frequency usually on sickness leave. Is this something -- and you've talked about it, I think, at the H1 for France as well. Is this something that could become a bigger risk for your Health portfolio? Or are you taking that into account for these other markets where this is a growing...

So I think, to make it simple, in a business that has yearly contracts, we can handle any kind of claims inflation because every year, you can adapt your pricing. The only thing you have to do is you have to keep a very close eye on your claims inflation and react fast enough. But there is obviously a societal question behind it. This cannot continue forever because the affordability question is also there. And so, one, we need to make sure that we are always adequately priced. But secondly, we also need to make sure, and this will be also part of the next 5 to 10 years, to become even more important as an actor in prevention to make sure that affordability going -- looking more long term, is, [in short].

And when you talk about growth in Health, I struggle to differentiate the AXA model versus the market. You talk about growing top line 6%. What makes AXA different in the Health segment? Is 6% of the market growth? Or what are you doing differently?

I mean, look, the market as such is relatively small because they are very small players of our size. You have a couple of specialized one, but there's not so many. And I think when you look, most of them are either in one or the other segment and are health specialists. So our ability is we can grow across all the markets in individual, in employee benefits and also in iPMI, which is the expat market. And most of the specialists are very focused on their monoline business. And so our model is very much to say, look, we have the full spectrum and can grow across the full spectrum.

Moving on from the business side of things to capital management. You still have EUR 500 million more or less left from the AXA IM disposal. How should we think about your priorities for the use of that cash?

You should be happy that in a volatile time, we have a good cash cushion. No, I mean, look, we have a clear hierarchy in terms of capital management. First hierarchy, dividend. We said 60%. Second hierarchy level, share buyback, 15%. And then we keep a little bit. The little bit is pretty simple. So EUR 100 or GBP 100 profit that emerges in an entity turns into EUR 80 or GBP 80 of cash at the holding. And of this EUR 80, we give EUR 75 to the shareholders. So there is a little bit left. And obviously, through the AXA IM because we sold at a higher multiple, there is a bit more left now. So this money will be invested in areas where we believe we need more market share. And I think Prima is a good example where you've seen one of these markets. We have clearly identified markets where we believe we need to be a bit stronger. And in those markets, we will use the money. But it's not that we think 24 hours of the day around where to acquire. Our main focus is organic development, organic growth, organic profit improvement. And if there's an opportunity, we look at it, but we don't bank on it.

Can I ask you to share [what] those markets are, you mentioned?

Yes. The U.S. Commercial, mostly in the areas where we are not so present, so in excess and surplus and mid-markets, but in a very selected approach. In Europe, it is Germany, Italy and Spain, Ireland is done and then Japan. But again, this is as we speak, these things might always change in a volatile times. But as we speak now, this is the list.

And linked to that, you used to put a bit more focus on the cash balance at the holding. You're probably around EUR 6 billion today, and we're talking about this EUR 500 million maybe extra. How should we think about a reasonable holding cash level for you? If I think about dividend costs and recurring expenses were maybe around EUR 4 billion, EUR 5 billion. Is that the -- do you want to hold just enough basically to cover these recurring expenses? Or do you aim to build a buffer at the holding?

No. I mean we always said the buffer at the holding needs to be between EUR 1 billion and EUR 3 billion. And that's also what you follow. I mean you'll see in February next year what the actual limit is. We don't publish at half year, but that's how I think about it. And again, in volatile times, if you are rather at the upper end than at the lower end, it's not so bad.

Very well. Now a slightly different topic. I wanted to ask you about your investment portfolio. So AXA is one of the few companies with still a big upside between your back book yield and the rates at which you reinvest. So if I look at the changes in asset allocation in H1, real estate came up a little bit. Are there any significant, probably not, but changes in your asset allocation you're aiming to do at the moment?

Not significant. I think these are always changes that evolve over time. But when you look at our portfolio relative to others, I think there's 2 areas that probably would be striking. One is we have more government debt than others do. So there could be a question, should you shift more into corporate debt. And the other thing is we have less private debt than others have, should you be moving more into that. But again, this would, if we were to do so, be gradual movements, never radical movements.

If we take a step back and look at your -- how you've been performing compared to your targets, one of the fears I have is the market might be extrapolating some of the growth numbers we're seeing in the sector currently into the long term, which might not be sustainable. And it sounds from the comments you made, I think, at H1 results that you might be sharing that a little bit and holding back a little bit for the next plan. Is that how you're thinking of it? You have a target of 6% to 8% earnings growth, a little bit below where your peers are. Is your idea to deliver that 6% to 8% regardless of the macro environment?

Look, I mean, we try before we launch a plan to think carefully of what a realistic delivery could be. And I would never be there to communicate a target that was not achievable. Second, we give a range, but our ambition is to be rather in the upper area of the range than in the lower area of the range. And so I guess if you look at this current plan, this is the perfect illustration of it. And we're not here today to discuss what the next plan looks like, and we still have 1.5 years, but we'll do the same thing again. As I said earlier, we have clear levers for the next phase. The story will continue, but we are now taking the next year to think about how do we construct it and what is a realistic target that can be achieved in an environment that hasn't become easier.

Clear. My last question, I have to ask about the French-political situation. Is there -- if we put the taxation aside, with the corporate tax rate aside, is there anything else that worries you in the political debate currently?

I mean as a citizen of France, I'm obviously worried about the country and its future and how do we find back to stability. From a business perspective, we have done the maximum to ensure against this instability. I mean, when you think about -- you mentioned taxation, I mean, when you look at our business, we have a strong French business, but this business and the profit of this business is confronted with 100% of the debt cost of the AXA Group. So there's not that much that is left to be taxed, first topic. Second topic, when you look at how we are exposed to France as a country in terms of our investment versus business, you will quickly notice that we have roughly 25% of our profit coming from France. But this is very much linked to business that is not very reactive to political uncertainty. I mean, I have seen no -- none of our customers who has canceled their health policy or their household policy after the resignation of the confidence vote of Francois Bayrou. So -- and when the economy is going down, they will not react either. You have to note that the savings rate in France is currently at 18%. It has never been as high. And then thirdly, one should never forget a very strong government sometimes has a tendency to display a very high influence on sectors or companies. A government that is weaker rather leaves the companies doing what they need to do.

Makes me want to buy more insurance actually, not less. We're running out of time. So thank you very much, Thomas. Thank you, everyone.

Thank you.