Earnings growth maintained at AXA UK¹ - underlying earnings up 14%* from £160 million for H1 2007 to £183 million for H1 2008

Globally, AXA reported underlying earnings up 7% (on a comparable basis) to €2,766 million for H1 2008 thanks to strong operational performance in all its main business lines and despite a very challenging environment.

7 August 2008

Posted in Financial results

by Daniel O’Byrne (see media contact)

  • Robust result despite tough markets
  • Resilient Life and Savings Revenues. Strong growth in Protection and Group Pensions balanced by reduction in Investment Bond business
  • UK Property and Casualty markets remain difficult and show little signs of early improvement
  • Continued strong growth in Healthcare Revenues - 9% ahead of H1 2007
  • Good progress made in acquiring and integrating Distribution capability

In the UK & Ireland, underlying earnings increased by 14%* from £160 million for H1 2007 to £183 million for H1 2008.

(*13% excluding the holding company result and with AXA Ireland's underlying earnings on a constant exchange rate basis)

General and Health Insurance

Total General and Health insurance revenues, including Distribution, remained flat at £1,872 million in H1 2008 compared to £1,861 million in H1 2007. Conditions remain tough in many sectors, exacerbated by strong competition and a delay to a satisfactory hardening of premium rates in many mainstream channels.

UK Health revenues continued the strong growth witnessed in recent years (up 9% from £537 million in H1 2007 to £585 million in H1 2008), with growth arising across all major business lines.

Strong premium growth has also continued at Swiftcover, AXA UK's internet-only motor insurer, with revenue up £30 million on a comparable basis compared to H1 2007, continuing AXA UK's strategy to expand its direct portfolio and be closer to the end customer. Elsewhere in the Personal sector of AXA's UK general insurance business, Household revenue increased by £13 million in H1 2008, while a reduction in premiums of £10 million for the first six months of 2008 in the Travel sector was brought about by an increased focus on profitability. UK Commercial revenues were down £44 million in H1 2008 compared with H1 2007 against a backdrop of competitive market conditions.

In Ireland, continued growth in policy numbers was helped by a series of branch openings in Northern Ireland. In the Republic of Ireland personal motor revenue declined by 5% reflecting a continued reduction in average premiums, which have now reduced by 40% over the last 5 years. To ensure we maintain our competitive position going forward, AXA Ireland will be reducing its cost base which will result in the loss of approximately 120 jobs as already announced.

Total General and Health insurance underlying earnings in the UK and Ireland, including Distribution, improved by 55% from £87 million for H1 2007 to £135 million for H1 2008. This result was influenced by the absence of any significant weather related incidents (£115 million before tax in H1 2007) which brought about an improvement in the general and health combined ratio from 102.4% in H1 2007 to 98.2% for H1 2008.

Life and Savings

AXA UK's Life and Savings business includes protection, wealth management and corporate business units. The AXA Protection Account APE² increased by 82% on H1 2007 levels, despite a slowdown in the UK mortgage market, helped by the success of AXA's award-winning tele-underwriting proposition. Group Pensions increased by 23%, reflecting the success of our new product offering. Investment Bond business, including onshore and offshore bonds, reduced by 18% following the recent changes to the tax treatment of bonds resulting in total APE decreasing by 3% from £553 million for H1 2007 to £536 million for H1 2008.

Following the reduction in APE, the margin on New Business reduced by 1.3% with New Business Value falling £11 million to £58³ million. Life earnings were adversely affected by the falling stock market which had a direct impact on annual management charges levied on assets under management. This, along with non-recurring one-off benefits in H1 2007 and increased investment in strategic projects, led to a reduction in underlying earnings for the Life and Savings business, including Distribution, from £92 million in H1 2007 to £72 million in H1 2008.

Distribution

In the distribution side of AXA UK's general insurance business, Venture Preference's placed annualised GWP increased by 40% to £0.7 billion compared to 2007, while at Thinc, AXA UK's Life and Savings distribution business, Funds under Management increased by 75% to over £0.5 billion since 2007 year-end.

Company realigns its support functions in next phase of transformation

To help drive future growth and improve customer service AXA UK is moving to the next phase of its new operating model. This will continue the transformation of the company which began 18 months ago with the creation of 11 strategic business units.

The support functions and related activities in the operating companies will be restructured along three main lines.

The corporate centre will retain governance, strategic oversight, corporate planning and financial monitoring; shared services will provide support activities where economies of scale can be achieved and where there is a common need across the business; and the operating companies will have dedicated resources for the functions that are particular to specific strategic business units such as customer or distributor activity.

As a result up to 500 redundancies are expected to be made within the support services and related functions subject to consultation. The company will manage the process with sensitivity to limit the number of compulsory redundancies where possible by focusing on reducing headcount through natural attrition, redeployment and more efficient use of contractors.

Overall, the company will make a combined annual saving of £80 million in three years which includes the operating model and support functions review announced today, the cost saving plan in Ireland announced in June and the reorganisation of customer facing functions to further improve service in AXA Winterthur Wealth Management announced in July.

Nicolas Moreau, group chief executive of AXA UK, commented, "The developments we have outlined signal our intent to improve continually our effectiveness and efficiency to ensure that the business model is well prepared to withstand changing market conditions - as well as our determination to provide customers with tangible service excellence.

"Conditions in many property and casualty sectors remain challenging and show little sign of improvement in the short term. Despite these tough markets we have delivered a robust result for the first six months of the year because we have been resolute in following our UK strategy.

"We have successfully launched our mutual fund proposition and I am confident that the launch of Architas, our new multi-manager investment company, the refresh to our single premium pension proposition and the full launch of our Wrap platform later on this year will provide added impetus. With the solid foundations we have in place across all our businesses in the UK and Ireland, I am confident that we will continue to thrive in the demanding months ahead."