Axa earnings calls have been largely dominated by questions about XL since the French insurer acquired the global property casualty (re)insurer in 2018.

Axa XL was again cited as a drag on its parent company’s share price following last Thursday’s earnings announcement, which saw the property casualty division’s combined ratio miss forecasts following Eur1.2bn of Covid-19 claims.

Axa’s share price closed flat on Friday at Eur17.03, compared with a 52-week high of Eur25.62.

Thomas buberl – Axa

On 2 March 2018 – the day of trading immediately before the XL acquisition was announced – shares in Axa closed at Eur25.05, and some investors have been sceptical about the decision to buy since.

But underneath the headline figures, there are perhaps now signs that Axa XL could be ready to answer some of this investor scepticism.

Close to two years after the deal was completed, much has changed within what is now the Axa XL division.

Greg Hendrick, who took over as Axa XL chief executive on completion of the $15.3bn deal in September 2018, departed the role in February this year.

Hendrick, who had overseen both insurance and reinsurance underwriting operations at XL Catlin prior to its acquisition by Axa, was replaced by Scott Gunter.

Speaking about Hendrick’s departure at the time, Axa chief executive Thomas Buberl said the group was moving into an “acceleration phase” with Gunter picked as the man to lead the division through this phase.

Axa XL delivered earnings of Eur507mn last year, a long way off its target of Eur1.4bn.

That target has been reduced to Eur1.2bn for 2020.

Gunter’s first six months in the role have coincided with Covid-19, so it is difficult to judge the extent to which the “acceleration phase” is taking place.

Axa XL has absorbed significant losses from Covid-19 during the first half of the year – not surprising given its business mix – accounting for more than Eur1.2bn of the Eur1.5bn pandemic-related claims booked by Axa in the first half.

Axa H1 2020 Covid-19impacts by segment/region

The division’s earnings target was reduced to Eur1.2bn. In the group’s first quarter earnings call, Buberl was keen to point out that Axa XL’s underlying earnings were in line with this target.

Excluding Covid-19 impacts, the division had returned earnings of Eur500mn for the half year, he said, which included a Eur100mn impact from US civil unrest.

Given that Covid-19 and the US civil unrest were “unexpected” items, Buberl said the division’s underlying performance would have delivered a Eur600m half-year result, in line with Axa’s target for the business.

Investor scepticism

Investors have never appeared fully convinced by Axa’s decision to acquire XL or the price of the deal.

As recently as last month, Jefferies analyst Philip Kett noted the scepticism that continues to surround the deal, saying it was ‘no surprise’ investors remain concerned given the challenging margins across the industry for commercial and specialty (re)insurance lines in recent years.

Earnings calls during Hendrick’s tenure saw the majority of questions directed at the then Axa XL chief, and analysts have regularly questioned Buberl and his management colleagues at Axa around the rationale for the deal.

The group’s latest earnings announcement saw further scrutiny of the division, with Axa XL’s 115.2 percent combined ratio missing analyst forecasts.

Axa’s share price fell almost 10 percent from its previous close on the day the XL acquisition was announced, and many investors have seen the division as a drag on the wider business since.

But there are signs the companies messaging around the division’s future are starting to get through. Kett said performance of the unit will remain under scrutiny but said Jefferies believes Axa’s integration of XL is proceeding better than expected, with the division also set to benefit from the sharp upward shift in pricing currently taking place in P&C lines.

Axa YTD share price…

Michael Huttner, analyst at Berenberg, was also positive about the improved underlying earnings delivered by the division during the first-half of the year, though he did highlight potential challenges ahead should the FCA business interruption test case go against the insurance industry, as well as the thorny issue of reinsurance recoveries related to Covid-19.

Given the Eur1.5bn H1 impact from Covid-19 and the opportunities ahead in the property/casualty space, Huttner said the first half of 2020 could prove to be a ‘low point’ for Axa’s earnings.

The Future Axa XL?


Analysts have pointed to the rate rises achieved across Axa XL’s portfolio during H1 as a sign that better times lie ahead.

During the half year the division saw a 14 percent average price increase in its insurance business, within which US business saw rate increases of 23 percent. Some loss-affected classes, such as excess casualty, saw even steeper hikes of around 80 percent in the first six months of the year.

Buberl said the division had also been through its casualty portfolio and reduced maximum risk limits from Eur50 to Eur25mn per risk as part of the re-underwriting process.

Perhaps the biggest underwriting shift has been the reduction in the group’s property catastrophe exposures.

Property catastrophe revenue has dropped by 11 percent since the start of the year, following a 10 percent reduction in 2019.

Buberl said the reductions were made even though the division could achieve 10 percent price increases on some exited business.

There remains no desire at group level to backtrack on this stance. This was highlighted during the group’s H1 earnings call when Gunter mentioned catastrophe pricing as an opportunity, with Buberl quick to reaffirm that the business has no plans to increase its risk appetite for property cat.

Gunter didn’t drill down into too much detail in terms of where Axa XL will be looking for growth, but said pockets of opportunities exist in US professional lines as well as other P&C classes, where he said the division will “pick and choose” its spots to grow.

In Europe, he said the division is also eyeing opportunities in both P&C classes, while in its specialty portfolio he highlighted fine art and specie and crisis management as two growth areas.

Axa Underlying earningsby segment H1 2020

The Covid-19 claims burden overshadowed Axa XL’s performance in the first half of the year but Buberl said the division is now simpler, more accountable and “really focused on underwriting discipline.

“When you look at the dynamic between top line development and claims inflation, you clearly see that top line is growing more than claims inflation is growing, which is the ultimate test of a healthy insurance business,” he said.

“We are still in the hardening cycle, and Axa XL should, after Covid, really show the fruit of this transformation.”