Thomas Buberl was all smiles during the presentation of Axa’s annual results at the end of February: “The group has successfully transformed!” Since his arrival in 2016 at the head of the number two European insurance company, the Franco-German leader has undertaken to redirect the huge liner, hitherto focused on life insurance, savings and retirement, towards damage insurance.
An activity with less volatile returns. The acquisition of the American group XL, based in Bermuda, had become the symbol of this shift. This investment at a high price – 12.4 billion euros, i.e. 11 times its results – brought a group focused on damage insurance for large companies and specialized insurance (works of art, aviation, rockets, etc.) . But this coup – the first mark of the Buberl leg, barely a year and a half after Henri de Castries’ heir apparent took over the reins of the group – was then freshly welcomed by the markets, then long scrutinized by investors.
Restructured portfolios
Thomas Buberl can feel relieved: almost 60% of Axa’s operating profit is now driven by the “damage” line, ie more predictable and controllable activities than savings and life. With 1.16 billion euros in operating profit, XL has almost reached its target of 1.2 billion euros for 2021. “XL’s great turnaround is over,” said the manager.
How did Axa absorb this monster? First, the insurer restructured the portfolios. XL had been hit hard by the rise in Covid-related claims, which had cost it 1.4 billion in losses in 2020.
“We focused on the business lines that we prefer”, estimates Frédéric de Courtois, deputy general manager of Axa, such as “natural disasters, civil liability, cyber risk. We have increased prices where it was possible.” The group justifies this by the multiplication of climate risks and the resulting losses. The policy has caused corporate risk managers to scream: “Prices are rising and insurance coverage is being reduced,” squeals one of them, noting however that all insurers are moving in this direction.
Another strategic axis: reduce less profitable lines without getting rid of them. The reinsurance part of XL, Axa XL Re, represents a quarter of its activities, against a third in 2018. When it was purchased, the group had praised the merits of diversification. “In truth, Thomas Buberl bought XL en bloc , marks an analyst. Investors had to be convinced that the price was the right one. Under these conditions, it was difficult to part with XL Re without it going for an admission of error and cause the stock market to plummet for a long time. The insurer is also in no hurry to get rid of it. When competitor Covéa showed interest in this division last September, the price offered did not prompt Axa to follow up.
Biggest aviation accident
The development of XL will now go through investment in data collection and analysis tools, particularly meteorological. In the meantime, XL is preparing to experience the biggest aviation disaster in its history, linked to the war in Ukraine. It insures part of the 500 planes of the airlines in Russia. The Russian state is confiscating them. The addition could amount to nearly 500 million euros. “Less than a natural disaster”, reassures Frédéric de Courtois.