EuroBusinessMedia (EBM): AXA, a world leader in insurance and asset management, reports earnings for the first-half of 2010. Henri de Castries, welcome. You are the Chairman and CEO of AXA. What are your comments on the group's performance in the first-half of the year and what are your key takeaways?
Henri de Castries (HC): I think it’s a solid performance in an environment which has remained volatile. As you know, the world is emerging from a significant economic and financial crisis, and I think AXA’s earnings for the first-half are showing the resilience and the strength of our business model. And they are also reflecting the hard work and successful work done by all the teams we have throughout the world who have worked hard to deliver these results. The revenues are growing, even if they are growing slightly. We are gaining clients in our various businesses, which, I think, is a very important thing for the long-term. From an earnings standpoint, we are seeing improved margins on the Life and Savings side, and the beginning of the turnaround of the cycle and of the performance on the Property Casualty side, which was what we wanted to see happening. And this is happening on the back of a balance sheet, which is a very strong one, because we are back to pre-crisis levels in terms of solvency. So overall, I think it’s a solid performance, even if we need to keep making efforts to improve it further and come back to pre-crisis levels.
EBM: With equity markets and the economic environment still volatile, how is this affecting your new business sales in life insurance? Have you had to change the design of some of your products to make them more attractive in the current environment?
HC: Yes, we have changed the design of some of our products, for two reasons: to have them become more attractive for clients, because their needs are changing constantly, but also sometimes to make them more profitable, less volatile, or less risky for the company and its shareholders. So, it’s a sort of dual exercise. As an example, in the US, we have been redesigning our variable annuities - quite successfully - because the sales of the new products are gaining ground month after month, which means it’s a product attractive to the clients. It’s also a better product for the balance sheet of the group. So yes, we have been redesigning products all over the place, as we should do if we want to stay close to the clients and fulfill their needs. Life insurance sales in the world overall - it’s a contrasted picture. It’s growing fast in emerging countries. In developed countries, it’s more contrasted. There are countries where our sales are lower than last year, because we have been very selective and we’ve been fighting for margins rather than for volumes. And we are happy to do that, because we think that we have to deploy our capital in the places where we can have the returns the shareholders are expecting. So when we think a product range or country doesn’t deliver the appropriate earnings, we do not hesitate to redeploy capital to reduce the amount of business we write, as we have done in certain business segments in the UK.
EBM: What has been the outcome of your recent strategy to restore profitability in property and casualty?
HC: Well, Property Casualty is a cyclical business as you know. And it’s also affected by natural events. And, in 2009, we probably had the combination of the two. We had a significant amount of natural events on top of a cycle which was probably at its bottom. What did we say we would do to face that? We said we would improve the underwriting, contain expenses, and increase pricing where needed. What you see in the first-half of this year is the outcome of these three actions, and it’s starting to improve the current year combined ratio, which has improved by one and a half points, despite natural events which have not been insignificant. So, it’s work in progress, but we see the future positively, in particular because we are still gaining clients in terms of portfolios at a time where we’ve been increasing prices quite significantly.
EBM: How well have you been you able to quell outflows in your asset management business?
HC: As you know, we have suffered in 2008 and 2009 in our asset management businesses. At Alliance Bernstein, because we had a bad investment performance which generated outflows. There, the investment performance has improved significantly in most areas and therefore the outflows are improving: we have been positive recently on the retail side, we are breakeven on the private client side, and the institutional outflows are diminishing, and we think things are going in the right direction. At AXA Investment Managers, it’s a contrasted picture, because we’ve had very significant outflows at AXA Rosenberg, because the performance has not been good, and we have had a specific issue. In the other specialties, the investment performance has been improving significantly, sometimes very strong. And there the picture is also a more positive one in terms of flows. So overall, the flows are remaining negative. We think it’s going to take some time to bring them back into positive territories, but we are working very hard at that, and we think we remain very well positioned in the asset management world.
EBM: Over the last 6 months there have been renewed concerns over the strength of insurers' balance sheets, notably due to the exposure to certain Euro zone countries. Where do we stand today?
HC: Well, I think first, these fears were excessive. For two reasons; they were excessive as far as insurance companies are concerned, because if you look during the turmoil, insurance companies have resisted way better than banks. They did not need the support the banks have been getting. Second, the fears on the European sovereign debt were largely exaggerated. Now that the European stress tests at banks have taken place we have the feeling that this is progressively returning to normal. As far as we are concerned, I think what we need to say is that AXA has extremely strong cash flows and a very, very strong balance sheet. Our solvency ratios are back to pre-crisis levels, which makes us very confident in the fact that we could resist another turmoil if there was one. And if there is no new turmoil, I think we are very well positioned to gain ground further in our businesses.
EBM: Finally, You’ve made it clear that this year you would favor profitability. When do you plan on returning to a more aggressive growth strategy, and what shape will that take?
HC: It’s clear that we have been a very acquisitive company in the past. It does not mean that we do not have aggressive strategies in certain areas now. I think the world is different. You have a contrasted landscape. There are product lines and territories where we are aggressively growing. I would illustrate that by saying that, in Protection, as an example, which is a significant segment in the Life Business, we are growing aggressively even in developed countries. There are countries where we want to accelerate: Asia, Central and Eastern Europe, South America. On the other hand, there are places where we think the margins, the market prospects - either from a geographical standpoint or from a product line standpoint - are not that attractive. And in these places, I think you need to reduce the exposure, sometimes to extract capital, as we have done recently in some segments of the UK Life Business. So it may be a strategy which is not as simple as it was when the whole world was growing at a sort of undifferentiated pace, but it remains a very focused strategy, and in certain areas a quite aggressive one.
EBM: Henri de Castres, Chairman and CEO of AXA, thank you very much.
HC: Thank you.
