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Axa to use proceeds from US IPO to boost position in health, P&C

French insurer Axa will use the proceeds from its upcoming U.S. IPO to strengthen its position in health, property and casualty and protection in a specific group of countries, its CEO said Feb. 22.

The IPO of much of Axa's U.S. business is expected to take place in the second quarter of 2018, having been announced in May 2017. CEO Thomas Buberl said the listing would "free up capital to invest in our targeted markets, health, P&C and protection."

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Axa CEO Thomas Buberl presents full-year 2017 results at a Feb. 22 press conference in Paris.
Source: Associated Press

Speaking at a news conference after Axa released full-year 2017 results, Buberl added that it would continue to target growth in 10 core countries, including the U.S., France, and Germany, where it generates 80% of earnings, along with a further six where it would like to increase its presence — Brazil, Mexico, China, the Philippines, Thailand and Indonesia.

Axa has been seeking to simplify its geographical presence as it reduces its dependence on financial markets and focuses on its core insurance business. On Feb. 21, the group agreed to sell its insurance operations in Azerbaijan.

"There are some markets in this portfolio where we need to ask ourselves if we are well-positioned or not. Azerbaijan is an example of this," Buberl said.

Axa reported full-year 2017 net income of €6.21 billion, up 7% from €5.83 billion in the year-ago period. Revenues declined on a yearly basis to €98.55 billion from €100.19 billion, with total new business volume steady at €6.5 billion.

Earnings rise

In France, earnings rose on a yearly basis to €1.43 billion from €1.39 billion, while the rest of Europe contributed €2.33 billion, up from the year-ago €2.31 billion. The U.S. business posted earnings of €1.14 billion, compared to the year-ago €998 million.

Buberl said Axa did not intend to invest in the U.S. primary care health market, but it did envisage investing in population health management, which is a fee-for-service business for medical providers. The company agreed in January to acquire U.S.-based Maestro Health, a health benefit administration company, with a view to boosting its population health management offering.

Population health management is, broadly speaking, the principle of gathering together data about a given individual's health history, with potential attendant benefits for the individual and for healthcare and insurance providers.

Axa has separated out its health division in its financial reporting, and it said underlying earnings from the business grew 11% year over year in 2017 to €552 million. RBC Capital Markets insurance analyst Paul De'Ath wrote in a note to clients after the results were released that investors will want to know whether the Maestro acquisition "is set to be used to drive health administration services in the rest of the group or if it is an initial push into the competitive U.S. health market."

"We expect that investors would be happier with the former option if this can help to drive further growth in health earnings around the group," he added.

African expansion

In Africa, where Axa is present in several countries including Nigeria and Morocco, Buberl said the company was interested in expanding in the health business, potentially looking at a completely different way of offering health insurance from Europe. Axa acquired a 7% stake in African Reinsurance Corp, or Africa Re, in 2015, and Buberl said Axa's Africa Specialty Risks division was considering the creation of a company with Africa Re that would look at P&C risk in several different countries in Africa.

CFO Gérald Harlin said, meanwhile, that the costs to Axa of a string of natural disasters in 2017 were manageable at €231 million and added 0.7 percentage point to the group's combined ratio in 2017, compared to 0.5 percentage point from natural disasters in 2016. The overall P&C combined ratio — which measures claims and costs as a share of premiums — dropped to 96.3% in 2017 from 96.4% in 2016.

RBC's De'Ath also highlighted that Axa's Solvency II ratio, a measure of capital adequacy, rose to 205% at year-end 2017 from 201% at the end of the third quarter and 197% a year earlier. He said that although this remains within the company's target range of 170% to 230%, the "unexpected increase ... in the fourth quarter should allow Axa to have greater flexibility over deploying capital into either bolt-on M&A or, potentially, share buybacks."

The company raised its dividend to €1.26 per share, or 49% of earnings, from €1.16 per share, or 48%, in 2016.

Axa shares were up around 0.5% as of just before 2 p.m. Paris time Feb. 22. The French benchmark CAC 40 index was down just under 0.3% at the same time, while the STOXX 600 Europe Insurance index was off a little less than 0.5%.