Axa

Summary

" ■■ Axa, headquartered in Paris, France, is the holding company for an international group of financial services companies and it is one of the world's largest insurance companies. Insurance operations include activities in life insurance, property, casualty insurance and international insurance, including reinsurance.

-  ■■ For the fiscal year ended December 2003, the company generated revenues of Ђ71,628 million, down from Ђ74,727 in 2002.

-  ■■ In May 2004, a merger between MONY and Axa Financial was approved. Under the terms of the merger agreement, Axa Financial acquired 100% of MONY, the U.S. financial services group, headquartered in New York City.

-  ■■ Axa has over 50 million clients worldwide, a global brand and unique product skills in areas such as insurance underwriting, long-term investments, financial advice and strong asset management centre.

-  ■■ Previously, Axa's three businesses - Axa Insurance, Axa Life and Axa PPP

Healthcare, were operated and marketed separately. Now, however, Axa started promoting its products under one line, enabling it to cross-sell more effectively.

Overview

Axa, headquartered in Paris, France, is the holding company for an international group of financial services companies and it is one of the world's largest insurance companies. Insurance operations include activities in life insurance, property, casualty insurance and international insurance, including reinsurance. Axa operates mainly in Western Europe, North America and the Asia/Pacific region and to a lesser extent, in Africa and South America. For the fiscal year ended December 2003, the company generated revenues of Ђ71,628 million, down from Ђ74,727 in 2002.

The Axa Group offers financial protection and wealth management to its customers through insurance and asset management. Axa is the holding company for a number of international companies with insurance operations that include life insurance, property and casualty insurance and international insurance, including reinsurance. The group has about 50 million clients, both individuals and businesses.

Axa's insurance operations are geographically diverse, with activities in Europe, North America, and the Asia/Pacific region. Axa has five operating business segments; Life & Savings, Property & Casualty Insurance, International Insurance, Asset Management, and Other Financial Services. Each segment has subsidiaries, which operate in each of the principle markets.

Axa's Life & Savings segment offers a broad range of life insurance products, including retirement and health insurance products for both individuals and corporate clients, with an emphasis on savings related products.

Axa's Property & Casualty segment offers a range of personal and commercial insurance products, including automobile, homeowners, household, property and general liability insurance for both personal and medium sized companies.

Axa's International Insurance segment business is primarily conducted by Axa Corporate Solutions, which includes both reinsurance activities (Axa Corporate Solutions Reinsurance) and large risks insurance (Axa Corporate Solutions Insurance).

Axa's principal Asset Management companies are Alliance Capital Management and Axa Investment Managers. The Asset Management companies manage assets on behalf of retail investors, private clients and institutional clients as well as on behalf of companies affiliated with Axa.

The Other Financial Services segment engages in financial activities in Belgium and in France. Axa Bank Belgium is a subsidiary of Axa Belgium that offers a spectrum of financial services to individuals and small businesses. Axa Banque, based in Paris provides banking services dedicated to Axa. Its main activities include cash and securities flows management and bank account services to high net worth individual policyholders and to general agents of Axa France Assurance.

History

In 1816, Mutuelle de l'Assurance contre l'Incendie а Paris (MACL) was established as a mutual company offering fire insurance coverage. This was the first insurance company set up in France, and became part of the Axa Group when MACL was aligned with the Compagnie du Midi. A year later, Compagnie d'Assurances Mutuelles contre l'Incendie, was created, forging the origins of what later became the Axa Group.

In 1991, the group acquired a controlling interest in The Equitable Companies, subsequently renamed to Axa Financial. In 1992, Axa AURORA was set up in Spain in partnership with BBV, Spain's second largest bank, while UAP acquired the European operations of the Groupe Victoire in 1993, before being privatised the next year. 1994 brought the acquisition by Axa of Borйal in Canada and Victoire in Belgium, increasing the group's stake in Equitable to 60%, and the foundation of Axa Asset Management Europe.

In 1996, Axa was listed on the New York Stock Exchange. A year later, Axa announced its intention to establish a presence in the People's Republic of China when that country opens its market to foreign insurers. Restructuring of Axa-UAP's insurance and assistance operations in France took place in 1998, resulting in the creation of three companies: Axa Assurances, Axa Courtage, Axa Conseil.

During 2001 and 2002, Axa strengthened its core business positioning by acquiring two financial advisory networks in Australia, Sterling Grace and ipac Securities, and Banque Directe in France.

In May 2004, a merger between MONY and Axa Financial was approved. Under the terms of the merger agreement, Axa Financial acquired 100% of MONY, the U.S. financial services group, headquartered in New York City, which, through its various subsidiaries, manufactures and distributes life insurance, asset accumulation and retail brokerage products and services to individuals, corporations and institutions through advisory and wholesale distribution channels.

SWOT analysis

Strengths

Strong presence worldwide: Axa has over 50 million clients worldwide, a global brand, unique product skills in areas such as insurance underwriting, long-term investments, and financial advice, and strong asset management centre. All of these enable Axa to compete on a global basis and offer a wide range of products to its existing customers and acquire steady numbers of new customers.

 

Weaknesses

Decrease in revenues in life insurance business: within Axa, total revenues decreased from Ђ74,832 million in 2001 down to Ђ71,628 million in 2003. This decline is mainly due to the problems within the life insurance part of the business, where the revenues dropped from Ђ48,399 million in 2001 to Ђ46,812 million in 2003. Non life insurance experienced steady growth over 2001 to 2003.

Opportunities

Wider product offering in life insurance: in the past, Axa's life & savings operations have experienced significant growth in savings-related unit-linked products. This growth took place mainly in Europe and Asia Pacific, however after 2001 performance in the life insurance division has been declining, and now the company is experiencing negative growth in this sector.

Strengthen the brand: previously, Axa's three businesses - Axa Insurance, Axa Life and Axa PPP Healthcare - were operated and marketed separately. Now, however, Axa has started promoting its products under one line, enabling it to cross-sell more effectively. Axa claims the branding reflects its strategy of becoming more open with customers.

Increase its exposure in Asia: the company is now trying to achieve this aim, aware that as a global insurer it must take advantage of the strong growth in the region. There are four key locations Axa is looking at: China, Hong Kong, Thailand and Singapore.

Threats

Market fluctuations: fluctuations in the markets and other economic factors have a direct impact on sales of all Axa's products. Any declines in the stock or bond markets often reduce the popularity of these products, while declines in equity markets have a direct impact on the performance of the company as a whole, as well as products linked to equities, for example unit linked insurance. When interest rates decrease, life insurance and annuity products are more attractive to consumers, resulting in increased premium payments on products with flexible premium features, and a higher percentage of insurance policies remaining in force from year to year. Investment earnings at Axa are therefore lower in this period because its interest earnings have declined. When interest rates rise, there is also a risk for Axa in that profitability may suffer due to a reduction in the spread between interest rates credited to policyholders and returns on the investment portfolio.

Competition: there has been significant consolidation in the financial services industry on a global scale. While this has reduced the number of competitors, especially in the U.S. market, there is still fierce competition Axa needs to continue to be aware of, especially when it comes to offering cheaper products.

Company activity snapshot

" ■■ Axa announced in August 2004 that it is looking for further acquisitions, further to an announcement of a proposed expansion in Asia Pacific and the completion of a takeover in the United States (MONY). Axa launched a $2.2 billion offer to buy out the minority shareholders who own 48.44% of Axa Asia Pacific Holdings, the group's Australian-based subsidiary. Henri de Castries, Axa's chief executive, said: "From a shareholder point of view it makes sense to increase your exposure to a region with high growth and good value in terms of currency. We want to accelerate our efforts in Asia, and the first way to increase our exposure is to buy out the minorities in Australia. This will double our exposure to the non-Japanese portion of Asia." Axa also said that China, Hong Kong, Thailand, Singapore are the key places the company wants to increase its exposure into;

- ■■ in May 2004 National Australia Bank decided to sell Axa insurance products in the UK after having formed new strategic alliance with Axa to offer commercial insurance products and services through its three UK banks. From July 2004, business customers of the National's Clydesdale, Yorkshire and Northern Banks are offered Axa commercial insurance products. It is anticipated that employees currently working within the National's commercial insurance division will transfer across to Axa;

" ■■ after an eight-month struggle Axa has finally won approval in May 2004 to complete its takeover of MONY Group, the American life insurance company, for $1.5 billion. Although Axa had faced significant opposition from a few of MONY's largest investors, the company's stockholders have now narrowly voted to approve the proposed merger with Axa Financia', the French insurer's U.S. division. Although the transaction remains subject to certain required regulatory approvals and other conditions, it is expected to close at the end of the second quarter or the beginning of the third quarter of 2004. Under the merger agreement, MONY stockholders will receive $31 in cash from Axa Financial, plus dividends of approximately $0.33 to $0.35 from MONY, for each share of MONY common stock. Axa Financial meanwhile, will now be able to increase its insurance and annuity sales distribution by about 25%. Through this purchase, expected to close in the first quarter, Axa will become the leading variable life insurance provider in the US, by sales, and the number four provider of variable annuities;

- ■■ Axa is expected to announce proposals to acquire a number of companies in Europe, with a focus on Italy and Spain. Analysts have said that by increasing its acquisitions in southern Europe, the company would gain a larger market share in a high growth area where it is currently relatively weak. Also, by increasing its presence in Continental Europe, Axa could increase its customer base by targeting high growth areas, which are underserved and have familiar market conditions. Expansion into other countries, such as Australia, has also been predicted by some analysts. However, they have doubted whether the company would wish to increase its presence in such European nations as Germany and Britain, as these nations are believed to have weak growth prospects;

- ■■ Axa Insurance has said it will cut its motor insurance premiums in Ireland in 2005 in response to lower claims awards, the company told the Joint Oireachtas Committee on Enterprise and Small Business that premiums would fall by between 1% and 20%. Axa follows the lead given by another of Ireland's largest insurers, Allianz AG, who announced it would cut its rates by 7.5% in the New Year.