Insurance Rivals Close Race to the Top

The second-largest player in Europe saw an increase in profit for 2016 and has Germany's Allianz looking over its shoulder.
Axa CEO Thomas Buberl is gunning for Allianz.

It is the latest chapter in an insurance rivalry that spans European borders. Just a few days ago in Munich, Allianz boss Oliver Bäte delighted investors with rising profits and plans for a share buyback. Then on Thursday, Axa upped the ante in Paris, showing that the French company can also handle the pace.

In the last fiscal year, Europe’s second-largest insurer behind Allianz saw its net profit grow by 4 percent to €5.83 billion ($6.16 billion). Axa’s German Chief Executive Thomas Buberl seemed satisfied as he spoke of an “extremely solid result.” While other industry giants like Swiss Re suffered a significant fall in profits, Axa achieved the same percentage increase as Allianz.

This is good news for investors of both companies. Like Allianz, Axa has also mooted the prospect of a dividend increase. Mr. Buberl wants to reward shareholders by raising the dividend by six cents to €1.16 per share.

When it comes to turnover, the French company is even outperforming its German rival. Axa’s revenues were up 2 percent in 2016, passing the €100 billion threshold for the first time. Meanwhile in Munich, Allianz saw its revenues decline by about 2 percent last year to a total of €122.4 billion.

Mr. Buberl has brushed off speculation that Axa could also be interested in Generali or larger portions of its business.

By many key measures, the top two players in the European insurance market are still on an equal footing. Both companies reported very respectable solvency ratios, which indicate a company’s financial resilience. Axa recorded a solvency ratio of 197 percent in 2016, while Allianz was slightly ahead with 218 percent. The two insurers are also struggling with the same problems. While their life insurance divisions are reporting high earnings, their asset management businesses are showing signs of weakness.

Based on these results, there has been little movement at the top of the European insurance hierarchy. However, change could soon be on the way. A possible merger between the Italian insurer Generali and the country’s top retail bank Intesa Sanpaolo would also have ramifications for the market leaders.

Mr. Buberl has brushed off speculation that Axa could also be interested in Generali or larger portions of its business, saying the topic is not on the agenda because it wouldn’t deliver any extra benefits to his company. He added that Axa doesn’t need mega deals now that it has reached what he calls a “critical mass” thanks to a number of large acquisitions in the past.

Intesa Sanpaolo is toying with the idea of acquiring Generali. However, insurance industry insiders are suggesting that the bank may yet withdraw its interest. Selling off parts of Generali is also a possibility. Any deal would require the approval of market regulators.

Mr. Buberl believes Axa stands a good chance of achieving its medium-term profit objectives without major acquisitions. He said that the company had made a “good start” to its 2020 plan, unveiled last year. Axa hopes to grow profits by 3 to 7 percent annually between now and 2020, partly through a combination of price increases and cost-cutting.

Most investors in the markets saw Allianz as the more attractive proposition.

As for the outlook at Allianz, Mr. Bäte has sounded a more cautious note for the current year. The objective is an unchanged operating result of €10.9 billion, give or take half a billion euros, he said. Most investors in the markets saw Allianz as the more attractive proposition. Following the release of the results, shares in the German company gained more than 3 percent.

In contrast, Axa’s shares fell by up to 1.1 percent on Thursday because the figures had lagged slightly behind analysts’ expectations. Axa is currently trading at just under €23 a share, which is 5 percent lower than at the beginning of the year, though still 12 percent higher than a year ago and 86 percent higher than five years ago.

But it’s not only about financials in Paris. Politics, too, has entered the mix. What will happen if right-wing firebrand Marine Le Pen of the National Front, who supports withdrawing from the European Union, is elected as France’s next president?

“Uncertainty over French politics has increased, and a Frexit scenario has become more likely,” Mr. Buberl admitted, but remains optimistic. According to him, the chances of this are still slim.

Mr. Buberl says he is counting on the “German-French axis” to strengthen Europe. “Risk is part of our job, and this isn’t the first crisis for us,” he pointed out.

Work carried out by Axa for another presidential candidate, the conservative François Fillon, has also come under the spotlight. The insurer has admitted hiring Mr. Fillon’s company to provide consulting services on the subject of “long-term investments.” But Mr. Buberl stressed that the work was entirely legal and that there were no conflicts of interest.

 

Carsten Herz leads Handelsblatt's asset management and insurance coverage and is based in Frankfurt. Tanja Kuchenbecker is a correspondent for Handelsblatt in Paris. To contact the authors: [email protected] and [email protected]