AXA SA (CS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the AXA conference call on the AXA Group financial results for the half year 2026. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker, Anu Venkataraman. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining AXA's First half 2026 Results Call. Presenting the results today are our Group CEO, Thomas Buberl; and our Group CFO, Alban de Mailly Nesle. Joining us for Q&A will be Guillaume Borie and Scott Gunter. With that, I turn it over to Thomas.

Thank you, Anu. Good morning to all of you, and thank you very much for joining our first half 2026 earnings call. As we approach the end of our strategic plan. I'm very pleased to report another period of strong and broad-based performance. The numbers we published this morning demonstrate again the strength of our franchise and the consistency of our [indiscernible]. When you look in the details, you see that we have delivered a strong organic top line growth of plus 5%. We have also delivered plus 8% underlying earnings per share growth, which is at the top end of our target range, 6% to 8%, while continuing to enhance reserve proven. All of this leads to the fact that we are generating a very attractive return on equity of 18% and what is particularly important in times of uncertainty and instability is that our capital position is extremely strong with a Solvency II ratio of 218%. As you see, we are delivering profitable growth while maintaining a very robust balance sheet and further reinforcing the resilience of our business. With these strong results, I will reiterate again our confidence that for full year 2026, we can deliver underlying earnings per share growth at the upper end of our 6% to 8% target range of this plan. When we go to the next page, we can see that these results underscore the quality of our franchise with underlying earnings up 9%, excluding AXA IM again achieved while further enhancing reserve prudence. This performance demonstrates disciplined execution across growth, margin and efficiency fully in line with the commitments of our plan. In detail, in Life & Health, we delivered strong earnings growth increasingly balancing the contribution from P&C, where the business remains in excellent shape and continues to operate at best-in-class margins. We've also made very good progress on efficiency, leveraging technology and automation, while continuing to invest in our business. This balance between cost discipline and strategic investment is absolutely essential to sustain our competitiveness and the creation of long-term value. You see all operating businesses are performing well with strong results in line with our plan, and these results confirm AXA's positioning as an all-weather company able to navigate changing market conditions and to deliver consistent performance over time. If we go to the next page, when you look at the earnings growth across our 4 main geographies, the picture is very good. Every region is contributing positively and the delivery is both strong and consistent. This gives us confidence in the durability of our performance. I am particularly pleased with the performance of AXA XL where pricing has held up better than the market. AXA XL technical margin, excluding the impact of the Middle East was stable in the first half. And I want to particularly thank Scott and his team, they are doing an excellent job managing the difficult cycle. Our franchise today is well diversified and of high quality across all geographies, all lines of business and all client segments. We benefit from leading positions in our key markets, and our teams are executing rigorously and consistently against the plan. What also makes me very happy is that our strong capital position, the prudent reserving and the disciplined risk management give us the flexibility to navigate volatility while remaining focused on the creation of long-term value. So this combination of profitable growth across all major geographies, a well-diversified and high-quality franchise as well as a strong balance sheet allows us to absorb shocks, invest confidently in the future growth but also continue to remain -- to deliver attractive, sustainable returns for our shareholders as we reach now the final phase of our current strategic plan. From this solid foundation, we are confident in our ability to sustain performance or time. Let me now hand over to Alban, who will take you through the financials in more detail. and provide additional color on our results for the first half of 2026. Alban.

Thank you, Thomas, and good morning to you all. So let me now go through the key numbers of the first half, and I will start with P&C. So we delivered excellent P&C results with earnings up 6% and as Thomas said, we achieved these results while enhancing our reserve prudence. And performance is strong on all fronts, growth, best-in-class margins, lower non-commission expenses and higher investment income. Our P&C combined ratio remained at a strong level, 90.1% and up 10 basis points versus half year '25 and 30 basis points if you exclude Prima. This 30 basis point increase fully reflects the EUR 0.1 billion losses incurred by AXA XL in the Middle East. But if I exclude those Middle East losses, AXA XL Insurance undiscounted loss ratio was stable, while it improved by 50 bps in Commercial Lines ex-XL and by 20 bps in retail. So excluding Middle East losses we were able to improve the loss ratio across all our insurance businesses. Nat Cat was stable at 3.5% and that's below our 4.5% normalized Nat Cat load. Expense ratio was also stable with a 40 bps improvement in non-commission expenses, offset by higher commissions and those higher commissions reflect a change in business mix. Reliance on PYD was low at minus 1 point. Investment income was also a strong contributor, more than offsetting the EUR 0.1 billion mechanical increase in unwind. This was driven by the growth in the asset base, reflecting business growth and higher yield supported by reinvestment rates above the average yield of the portfolio. And also disciplined asset reallocation from private equity and real estate into private debt. And so we expect investment income to remain a tailwind going forward. All our businesses are performing well. In Personal and Commercial Lines, excluding XL, we are growing volumes in a conducive pricing environment with revenues up 8% and 3%, respectively. In Personal Lines, we had 2 million net new contracts in this first half versus EUR 1.7 million in the whole year in 2025. So this excellent momentum comes with strong margins. Current year combined ratio was down 50 bps in retail, excluding Prima, and 10 bps in commercial, excluding XL. Going forward, we intend to leverage this best-in-class profitability to grow further. At AXA XL, we grew earnings by 4% while maintaining AXA XL Insurance combined ratio stable, excluding Middle East losses and with no PYDs. This reflects effective cycle management. By allocating more capital to lines where profitability meets our return figures we contained price decrease to minus 1%. We also achieved lower reinsurance costs, strict expense management and better investment income. Going forward, we will continue to deploy capital in lines that are profitable, structurally growing and less cyclical such as U.S. mid-market, defense and infrastructure energy transition, autonomous vehicles and data centers. So overall, deals are high-quality results with strong top line growth, best-in-class margins and higher investment income. And this provides an excellent foundation for future growth. Let me now move on to Life & Health. Premiums were up 8% and earnings up 11%. Both our short-term and long-term businesses delivered strong performance. In short-term Life & Health, Insurance revenues were up 5%. Technical margins grew by 53% with 130 bps improvement in the combined ratio, which reached 96%. These results reflect the impact of pricing, underwriting, claim management and efficiency initiatives we implemented over the past years. We are very pleased with this performance, which provides a strong base for future growth. In long-term Life & Health, our efforts to rejuvenate the savings business are also paying off. We see solid momentum with strong top line growth and further improvement in net flows from EUR 2.2 billion to EUR 3 billion. CSM release grew by 6%. This reflects reserve growth from positive net flows, but also from the interest credited to policyholders in general account and the favorable impact of equity market returns in Unit-Linked. It also includes the CSM release rebasing that we had in the second half of 2025 and that we mentioned at full year. This rebasing boosts the growth versus half year '25, as it did when we compare full year '25 to full year '24. We expect continued growth in reserves with the CSM release growth for full year '26, more in line with our guidance of greater than 3% since full year '25 release was already rebased. Overall, very good performance in both short-term and long-term businesses. And we are confident in our ability to sustain this momentum. So if we move to this slide, which summarizes our earnings. We delivered 4% underlying earnings growth, but 9% excluding AXA IM. And you see that it's a very strong performance on all fronts. Net income was up 9% and at half year '26, financial flows were minus EUR 0.2 billion. As you know, since the transition to IFRS 17 or IFRS 9, realized capital gains only include real estate and fixed income. Real estate realized gains are naturally lumpy, and they are managed on an annual basis. So we had no realized gain in real estate at half year, but we plan to realize our full year target in the second half and that creates some seasonality in the net income. Last, UEPS was up 8% at the top end of our target range. We achieved the strong performance while increasing reserve prudence and absorbing a minus 2% headwind from the decrease of average foreign exchange rate mainly U.S. dollar, Hong Kong dollar and Japanese yen. A word on our solvency, Solvency II ratio was at 218% at half year '26. As you know, on January 1, our Solvency II ratio was 215% following the end of the grandfathering period, representing a minus 10 points impact versus December 31, 2025. On top of this impact, our ratio was up 3 points in the first half of the year, driven by the following: first, plus 17 points of normalized capital generation, reflecting strong earnings and limited capital needs to fund our growth. And in particular, we benefited from the acceleration of growth in Life & Savings. Because growth in Life & Savings enhances the benefits of group diversification on capital requirements. You know also that there is some small seasonality in the normalized capital generation as there is a bit of seasonality in our underlying earnings. Minus 12 points from dividends and annual share buybacks, as expected, and minus 3 points from economic variance, mainly driven by higher inflation expectations and the widening of government and corporate bond spreads. So overall, strong balance sheet and a very capital-efficient model. To conclude on financial performance, I would like to highlight the solid operational improvements of our franchise over the plan. What you see on the screen are the main operational KPIs that we presented to you at the inception of this plan. We are delivering on all of them. Since full year '23, we have achieved strong organic growth at 7% CAGR. Our P&C margins improved by 160 bps, including a 40 bps impact from losses in the Middle East. In P&C retail and in P&C Commercial lines, ex-XL, with profitability at excellent level, we do not see the need to improve margins further. Instead, we intend to capitalize on the favorable pricing environment to grow. At AXA XL, we have room to grow earnings, reflecting attractive growth opportunities, but also lower reinsurance costs, disciplined expense management and higher investment results. In short-term Life & Health, we did more than fixing the U.K. business by scaling pricing and underwriting capabilities, investing in care deliveries -- delivery and pathways and managing our costs. We achieved strong profitability improvement across entities and increased the reliance of our businesses. Going forward, we expect to further expand our margins and capture the opportunities of this structurally growing market. In long-term savings, the rejuvenation of our business is bearing fruit. We repaved the CSM release in the second half of 2025, but we also significantly improved our net flows over the past 3 years. We expect to sustain this momentum that will fuel our reserves and drive earnings growth over time. Lastly, we enhanced our competitiveness through efficiency gains. Our investments ensuring and automation as well as the first benefits of AI are paying off. So this track record of execution lays the foundation for sustaining a strong momentum in the next plan.

Thank you, Alban. Let me now wrap up with a brief conclusion before we move to Q&A. We are on track to close this plan with very strong results. Two of our main financial targets are tracking at the top end of their ranges, and the third is well on track as well. Our execution has been strong and the transformation initiatives we set out at the beginning of the plan have largely been completed or are firmly embedded in how we operate. We are starting the next chapter from a position of your strengths. Earnings are growing at the high end of our ambition. Capital and reserves are very robust, and our margins are best in class. This also means the next plan will not be about catching up from a weak base. It will be about building further on already excellent levels of performance and resilience. We are confident that even from the strong starting point, we can continue to deliver attractive growth in profits by driving organic growth, deepening our technical excellence and accelerating efficiency through technology and data, while further enhancing the value we deliver to our customers. As you know, we will present the new strategic plan in detail in September. On the 15th of September in Paris and then followed by an event on the -- so on September 21 in London. Given that, I would ask that today's Q&A really focuses on the first half 2026 results and the execution of the current plan rather than on the specifics of the new plan that we will unveil on the 15th of September. With this said, let's open for Q&A. And as the operator said, it would be great if all of you who ask a question limit yourself to 2 questions so that we have an opportunity in the remaining 40 minutes for everybody to ask their questions.

This is the conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Andrew Baker with Goldman Sachs.

First one, just on AXA XL insurance pricing and loss cost trends. Are you able to just give an update on what you're currently seeing in your major product lines. And I guess if possible for the deterioration that we saw in the second quarter versus the first quarter, are you able to just give us a sense of how much of this was related to the seasonal mix effects that you previously flagged versus true sort of aligned pricing deterioration? And then secondly, apologies if this goes against the rules, but -- and it could be more of a CMD topic. But if I look at your solvency ratio obviously, including the Solvency II review benefits, it looks to be around sort of 240% or so, which feels very high, both on a stand-alone basis or versus history. So I guess, is the preference to bring this down over time? And if so, what are your preferred levers to do so?

Thank you very much, Andrew, for your 2 questions. Let's handle the second one straight away. Again, we are in the middle of 2026 now, and we don't know yet for sure the benefits of the Solvency II revision. But assuming that you are right, which you most likely will be, yes, I mean, 240%, if that was the number, is a very high level. And as we said, we have no target for the solvency. My personal view is always everything that is above 200% is very satisfactory. And you should be very pleased that the solvency is very high. It shows the high robustness and high quality of our franchise. And as we said, we want to build the next plan on a position of strength. When it comes to the first question, and I'll let Scott go into more detail. I think, as I said to you, I'm very pleased with the performance of XL because Scott and his team have achieved stable margins in an environment that is not easy. And we have to compare ourselves always against the market, and XL has managed to have a better pricing than the market. And when I personally look at how to evaluate the performance of XL, I don't look at the price increases or decreases. I look at the underlying earnings. And what I'm very pleased to see that in this difficult environment, XL has managed to progress the underlying earnings in a great way. Scott, maybe if you can talk about this question of seasonal mix effects and the delta between Q2 and Q1.

Sure. [indiscernible] an important area for us. Pricing was less than minus 1%. It's -- there's a lot of products in there, a lot of mix which is slightly below trend, but not much trends only a couple of points there. So we're very happy with the performance of the specialty business. And then sort of the topic around property. We were minus 7% for the first half. North America property, to give you a little idea on mix, was minus 10% and give you a sense out property business write very little of the sort of the coastal cat-exposed property business that has been the topic of conversation over the last couple of weeks. You may remember when we sort of took a lot of our cat exposure out of the portfolio a few years back, we're not -- we have a little bit of that, but very little of that business along the coast. So we're more of a large account primary writer of that business. And so while rates are down, it continues to perform very, very well and still is an excellent line for us because the price had gone up quite a bit in the last few years.

Thank you, Scott. We will move on to the next question.

The next question comes from Fahad Changazi with Kepler Cheuvreux.

Could I ask what was the benefit to AXA XL's H1 '26 earnings from lower reinsurance costs? And at Q1 '26, I believe we were expecting AXA XL's pricing to be stable to slightly negative. And I appreciate it's not about the asset level pricing. But is that still the expectation for further '26.

Sorry, could you repeat your second question on the pricing because there was a little cut in the line. just to be sure that we are answering the right question.

So at Q1 '26, I believe the expectation for AXA XL's pricing outlook was stable to slightly negative. Is that sort of still the expectation for full year '26?

Very good. So I would suggest, Scott is answering both questions. One on the benefit of lower reinsurance costs and the second one, on the pricing. I mean Scott has commented line by line on the pricing experience and maybe he can do the same when it comes to outlook. Scott?

Yes. Thank you, Thomas. The benefit for reinsurance in the first half was about 30 bps. We still -- obviously, a lot of those treaties are 1/1. So it takes a while to work its way through the insurance portfolio. But it's approximately about 30 points. In terms of outlook, I think we're going to -- we have a very diverse product mix. For AXA XL we sell 400 different insurance products across 26 different countries. So there is no one market here. So each -- we look at each product and each geography. But we do -- generally speaking, we do expect sort of the professional cyber, that kind of business to see improving pricing. We expect specialty -- it's got a big mix in there. Anything related to geopolitical is obviously going to -- you're going to see higher pricing on. Casualty, we expect to sort of maintain where we're at. And then the property business, we expect to be selective on opportunity there. So we think that the market is, in total, you might say it's softening, but it's -- there's still plenty of opportunity for us in most of our lines of business.

The next question comes from Farooq Hanif with JPMorgan.

I'd like to ask Alban actually about Slide 35 on Prima and just some of the mechanics around modeling it. So thank you for the slide, by the way. But as we move forward, is the way to do it to bring down the MGA. So for example, if your premium recapture was 45%, we assume 55% MGA. And then slowly bring in the insurance earnings. If you could explain or maybe help us a little bit in guiding to 2H and going forward about the mechanics of modeling that, that would be very helpful. That's question one. And question 2 is, in the P&C business, I note you talked about the higher investment income trend versus II. But I was expecting a little bit more. It doesn't seem that material. Are you still expecting that to widen in terms of investment income versus the [ IFI ]? And could you explain again some of the drivers behind this?

Thank you, Farooq. So I'd suggest Alban is answering both questions on Prima and on the investment income.

So in the stabilized moment, which will be in 2027. You will see that we will have recaptured probably 90% of the premiums generated by Prima. And so you have on screen, the current pro forma P&L of Prima from a technical basis. And to give you a bit more about this, Prima grew by 30% -- its premiums in the first half. So obviously, can't say that it's going to be 30% for each period, but that gives you the pace at which it grew for the first half. There is around EUR 2 billion of reserves currently at Prima -- have been unearned premium reserve have being claims reserves. So as we recapture the premiums will progressively build the reserves and have the assets and therefore, the investment income on those assets. And you see the combined ratio at 87.5%, which reflects the technical profitability of Prima. So that's in a stable state in '27. For the time being, as you know, Prima is for us still an MGA only. And that's why it had the impact on the loss ratio and the expense ratio because obviously, there's no loss, and there is expenses for fund revenues. This year, probably we will have recaptured EUR 900 million of premiums at the end of the year. I hope with that, you are able to model it properly. And then on investment income. So, we reinvested overall in P&C at a rate of 4.6% over the first half. And so going forward, we will keep on reinvesting at a higher rate. And so we are still very confident that we can grow our investment income in P&C, and clearly above the increasing cost of [indiscernible].

Quickly, one follow-up. Do we continue with the MGA earnings? So in 2027, for example, if you had 90%, you still have 10% of MGA. Is that the right way to think about it?

So we have 53% of the MGA. And we will have 100% of -- or 90% because in '27, there is still a bit of leakage of the premiums and reserves. So you can assume 53% of the technical earnings and the investment income will be for us entirely.

Let's go to the next question.

Comes from Andrew Crean with Autonomous Research.

A couple of questions. Firstly, you talked quite a lot about reserve prudence currently. Is there anything more figuratively -- can you quantify that -- in any respect for us? And then secondly, I noticed that the retail pricing in retail hardened a bit in the second quarter. both in terms of, I think, Germany and the U.K. Could you talk a bit about the outlook for retail pricing and whether you see that as being ahead of severity and frequency.

Thank you, Andrew, for your questions. I suggest Alban will talk about the reserve prudence and some quantifications and then Guillaume Borie, who is with us will talk about the retail pricing in particular with focus on Germany and the U.K. Alban?

Thanks, Andrew, for the question. I mean, as usual, I see I'll disappoint you a bit because we can't put a number exactly on the prudence. But you saw that the Nat Cat stood at 3.5% versus a normal cat load of 4.5%. And as you know, we manage discount, Nat Cats and PYD altogether. And therefore, the 1% PYD is in the low end of our usual release, which means that the difference, so to speak, is additional reserve prudent.

Andrew. So on retail pricing, it has indeed slightly improved further out of already a very strong base in the second quarter. And it does reflect the fact that we have been extremely disciplined with inflation management in the context of the aftermath of the Middle East crisis across the board. So in all geographies, that's particularly true in France and in our European markets. The important element there also is that while being extremely disciplined and again anticipating any kind of deterioration of the inflation that at this stage, we still don't see. We have been able to increase volume quite significantly also. And therefore, we see the retail P&C business as being stronghold for us and on the verge of a very strong performance for this year.

And just one additional figure. We gained 2 million net new contracts in the half year which was more than all of 2025. So that underpins that is not only a good pricing, but also a good volume trend. Let's move to the next question.