Axa Has Second-Half Loss on Decline in Investments (Update3)

By Fabio Benedetti-Valentini
Bloomberg News
February 18, 2009

Feb. 19 (Bloomberg) -- Axa SA, Europe's second-largest insurer, posted a second-half loss for the first time in seven years and cut its dividend as the biggest slump in stock markets since the Great Depression eroded the value of investments.

The net loss totaled 1.24 billion euros ($1.56 billion), compared with a net income of 2.49 billion euros a year earlier. Axa cut its dividend 67 percent to 40 cents a share, it said today in an e-mailed statement. The shares plunged to their lowest in almost six years.

The largest decline in equity markets since the 1930s has cut the value of Axa's investments, reduced fees from money management and dented demand for life-insurance policies linked to stock. Chief Executive Officer Henri de Castries, who said today the insurer will face "another challenging year" in 2009, is having to cut the payout to investors and may sell preferred shares to boost the company's declining capital level.

"It's pretty bad," said Benoit de Broissia, an equity analyst at KBL Richelieu Gestion in Paris, which oversees $5.1 billion including Axa shares. "The solvency ratio is lower than expected."

Axa fell 1.03 euros, or 9.2 percent, to 10.14 euros as of 12:54 p.m. in Paris, its lowest since March 2003. The stock has fallen 35 percent this year, valuing the insurer at 21.4 billion euros. Allianz SE, Europe's largest insurer, has dropped 23 percent, while Italy's Assicurazioni Generali SpA, the continent's third biggest, has declined 29 percent.

'Defense Lines'

The French insurer said today its solvency ratio, a measure of its ability to absorb losses, fell to 127 percent from 135 percent on Oct. 31. Analysts estimated the ratio to drop to 131 percent. Axa's capital reserves exceed regulators' requirements by 6 billion euros, the company said.

Axa has "defense lines" for preserving its capital levels should markets continue to deteriorate, de Castries said today.

Axa will ask shareholders at their April annual meeting to permit it to issue as much as 2 billion euros of preferred shares. The measure would increase the solvency ratio by about 10 percentage points, Chief Financial Officer Denis Duverne said after an investors meeting, adding that there is no pressure on Axa from regulators to increase its capital level.


"The possibility of issuing preferred shares is a sort of masked capital increase, it's not very well perceived," KBL Richelieu's de Broissia said.

Axa's operating profit, which excludes investment swings and merger-related costs, fell 19 percent to 4.04 billion euros last year. That beat analysts' estimates of 3.79 billion euros.

The insurer said in November that the market plunge makes the company's goal of doubling revenue and tripling earnings between 2004 and 2012 "increasingly obsolete." Axa said it expected a 2008 operating profit of between 3.6 billion euros and 4 billion euros. In August, the company still predicted earnings would match 2007's 4.96 billion euros unless markets deteriorated "materially."

Full-year net income declined 84 percent to 923 million euros, beating the 400 million-euro profit estimated by analysts.

Axa's life and savings division, its largest unit, reported a 44 percent decline in earnings last year to 1.51 billion euros. Property and casualty profit advanced 29 percent to 2.39 billion euros, while earnings from asset management were little changed at 589 million euros.


The company had 2.77 billion euros of markdowns on equity and fixed-income assets in 2008, mostly booked in the second half, the insurer said.

The Dow Jones Stoxx 600 Index sank 46 percent last year for the worst annual performance on record as credit-related losses at financial firms that topped $1 trillion pushed the U.S., Europe and Japan into the first simultaneous recessions since World War II.

North American insurers have posted at least $143 billion in writedowns and unrealized losses tied to the housing slump. Prudential Financial Inc., the second-largest U.S. life insurer, posted a $1.57 billion fourth-quarter loss after investments in subprime securities and stocks declined in value.

Life insurers invest the premiums they receive on behalf of customers in assets including equity, government bonds and corporate debt. Since life insurance contracts run for years, life insurers typically have bigger investment portfolios than other insurers and have more risks tied to market movements.

Bloomberg calculated second-half earnings by subtracting Axa's first-half results from annual data. The company declined to confirm the figures.

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