Analysts at JP Morgan have released a report suggesting there is more to come from the turnaround at AXA XL, as it expects stronger-than-consensus underlying earnings in 2023 due to a studier performance in P&C.
The analysts state that the relatively flat top-line at AXA XL relative to double-digit commercial P&C pricing suggests a very substantial de-risking exercise.
In addition, with a still buoyant pricing environment, the analysts expect more significant margin improvements at AXA XL in 2023, with the potential for earnings to remain close to the 2021 level despite high nat cat losses.
JP Morgan also notes that AXA’s actions to reduce volatility in underwriting margins will continue to yield results.
On capital return, the analysts write, “We believe AXA could generate additional cash resources of up to another €1bn in the next 2-3 years from further closed book disposals and in-force management actions in the next 2-3 years.
“Together with other management actions (e.g. widening the use of internal reinsurance), we believe AXA could generate surplus cash at its HoldCo to support additional capital return with management committing to use buybacks to avoid dilution from disposals.
“We currently forecast a €0.5bn buyback in 2023, but there remains significant further capital return potential, in our view, supported by a stronger capital position than peers such as Allianz.”
JP Morgan suggests that AXA’s historical reputation as a ‘high beta’ stock and XL’s large loss risk and poor historical underwriting results are less relevant now, given AXA’s business mix pivot to P&C and health insurance over life, stronger capital position and improved risk-profile.
AXA’s P&C and Health contribute ~65% of its operating profit mix in 2023E, higher than Allianz, Zurich and Generali.
Further, JP Morgan states that AXA’s focus on commercial P&C lines also makes claims inflation less an issue for it against personal lines, while life insurance revenues are directed to products that are less sensitive to investment markets.
