EUR 850.00 For Business Accounts Only

Morningstar | AXA is dramatically shifting its business model to a Zurich insurance-based P&C.

The two pillars that support AXA’s 2020 strategy are focus and transform. Of the two, we believe only focus has real relevance. It targets nonlife small to medium enterprises and midmarket, as well as unit-linked and in-force management. Transform speaks of customer centricity, which is in vogue among insurers but will not provide meaningful profit improvement. The low-interest-rate environment is leading insurers to search for alternative sources of earnings and ways to offset low yields with operational improvements or new target business.For AXA, these focus targets can be broken down to two prominent areas: SME and midmarket within commercial lines property and casualty, and in-force management and capital-light savings in mature markets. The business is also planning cost reductions of EUR 2.1 billion. We believe AXA's SME segment will drive improvements in the combined ratio because of its direct offering. AXA’s SME and midmarket offering has two channels. SME strategy is predominantly digital and targets businesses of up to 50 employees. These enterprises search for insurance in much the same way as retail customers, which is cheaper in terms of expense. This is in contrast to midmarket commercial, which is focused on unique and tailored propositions. In midmarket, 75% of distribution occurs through third-party intermediaries and agents who have local characteristics. We anticipate the SME element will be a force of improvement for the combined ratio due to its higher similarities to direct. Though the midmarket business is likely to cost AXA more in expenses, this is a higher-premium, more idiosyncratic market, and we anticipate improving loss rates.In life, the business has been disciplined in not propping up guarantees via harvesting unrealised gains into crediting rates. AXA has expanded its unit-linked offering by 10% over the prior five years with a corresponding shrinkage in general account guarantees. Now only 5% of mature market sales are coming from traditional G/A (capital-intensive) products. AXA has been reducing its crediting rate through in-force action. So far, this has been achieved through a combination of actions.