AXA: UK & Ireland. Investor day 21 June 2007

Transcription

1 AXA: UK & Ireland Investor day 21 June 2007

2 Cautionary statements concerning forward-looking statements Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives (including statements herein with respect to AXA's Ambition 2012 project and the objectives, financial and other, associated with that project, and to the integration of Winterthur). Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by numerous factors that could cause actual results and AXA s plans and objectives to differ materially from those expressed or implied in the forward looking statements (or from past results). These risks and uncertainties include, without limitation, the risk that the AXA and Winterthur businesses will not be integrated successfully, our inability to achieve anticipated synergies from the Winterthur acquisition, the risk of future catastrophic events (including possible future pandemic and/or weather-related catastrophic events and/or terrorist related incidents), economic and market developments, legislative developments, regulatory actions or investigations, as well as litigations and/or other proceedings. Please refer to AXA s Document de Référence for the year ended December 31, 2006 and Annual Report on Form 20-F for the year ended December 31, 2005, for a description of certain important factors, risks and uncertainties that may affect AXA s business. Given the inherently unpredictable and uncertain nature of these assumptions and factors, these estimates and projections should not be relied on as predictions of actual results, but should be viewed as estimates and projections based on assumptions which may or may not be correct or achieved. There can be no assurance that we will be able to meet our targets, including those with respect to AXA's Ambition 2012 project. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. 1

3 Definitions Unless specifically indicated, figures given do not include Winterthur which was acquired on 22 December Combined figures relating to AXA and Winterthur are unaudited. Adjusted earnings, underlying earnings, Life & Saving EEV, Group EV and NBV are non-gaap measures and as such are not audited, may not be comparable to similarly titled measures reported by other companies and should be read together with our GAAP measures. Management uses these non-gaap measures as key indicators of performance in assessing AXA s various businesses and believes that the presentation of these measures provides useful and important information to shareholders and investors as measures of AXA s financial performance. For a reconciliation of underlying and adjusted earnings to net income see AXA press release dated February 22, AXA Life & Savings EEV consists of the following elements: (i)life & Savings Adjusted Net Assets Value (ANAV) which represents the tangible net assets. It is derived by aggregating the local regulatory (statutory) balance sheets of the life companies and reconcile with the Life & Savings IFRS shareholders equity (ii) Life & Savings Value of Inforce (VIF) which represents the discounted value of the local regulatory (statutory) profits projected over the entire future duration of existing liabilities. Life & Savings New Business Value (NBV) is the value of the new business sold during the calendar year. The new business value includes both the initial cost (or strain) to sell new business and the future earnings and return of capital to the shareholder. 2

4 Today s agenda 1 Strategic overview 2 Financial review Nicolas Moreau Group Chief Executive Philippe Maso Group Finance Director 3 4 Life manufacturing and advisory strategy Non-life manufacturing and distribution strategy Paul Evans CEO, AXA Life Peter Hubbard CEO, AXA Insurance 5 Business efficiency 6 Conclusion Philippe Maso Group Finance Director Nicolas Moreau Group Chief Executive 3

5 Today s agenda 1 Strategic overview 2 Financial review Nicolas Moreau Group Chief Executive Philippe Maso Group Finance Director 3 4 Life manufacturing and advisory strategy Non-life manufacturing and distribution strategy Paul Evans CEO, AXA Life Peter Hubbard CEO, AXA Insurance 5 Business efficiency 6 Conclusion Philippe Maso Group Finance Director Nicolas Moreau Group Chief Executive 4

6 The UK insurance market is the third largest in the world and has further growth potential Worldwide Combined Insurance Premium Income ($bn) Growth drivers Growing stable economy Greying affluent population 0 US Japan UK France Italy Germany South Korea PR China Taiwan Canada Savings and protection gap Changing customer demands Source: Swiss Re Sigma No 5/2006 5

7 AXA UK and Ireland is a core part of the AXA Group 2006 Revenues 2006 Underlying Earnings Total AXA Group Life APE EUR 6.2bn Total AXA Group Life EUR 2.3bn 18% 7% 82% Total AXA Group P&C GWP EUR 19.8bn 24% 93% Total AXA Group P&C EUR 1.5bn 27% 76% 73% 6

8 with solid positions in different market segments Life Non-life UK P&C Healthcare Ireland 6th 4 th 3rd The 2 nd to 6 th ranking within 100m APE spread 2 nd SME` 2 nd Large risks are written by AXA Corporate Solutions outside of AXA UK entity 7

9 AXA UK has demonstrated growing momentum in Life Including Winterthur /05 growth 05/04 growth APE 1,036m +35% +21% NBV 83m +44% +43% Excluding Winterthur /05 growth 05/04 growth APE 785m +38% +16% NBV 68m +39% +38% although NBV margin at 8% still needs to be improved 1 Figures not audited 8

10 AXA UK has also demonstrated growing momentum in Non-life /05 growth 05/04 growth Revenues 3,231m +7% +1% 1 Combined ratio 96.5% +0.2 pts -1.0 pts with a stable combined ratio 1 Excludes AXA direct business sold to RAC in

11 AXA UK 2012 Ambition Financial Targets Strategic Objectives 1. To become the preferred company for our customers and employees 2. To become the top three in all the business segments in which we operate 3. To play an increasing role in distribution 1. To improve Life profitability 250m NBV (18% average growth p.a.) Return on EEV c.12% 2. To profitably grow Non-life 5 to 10% average revenue growth p.a. Stable combined ratio in range of 96-98% 10

12 Our strategy is aligned with market drivers Market Drivers AXA UK Strategic Agenda Fragmented distribution market Pressure on manufacturer margins Economic power is increasingly with those closer to the customer Changing customer preferences 1) Optimising distribution 2) Enriching customer and distribution proposition 3) Building an entrepreneurial organisation structure 4) Delivering an efficient operating model New business models emerging 11

13 1) Optimised distribution Actions Acquire and develop distribution capabilities: Thinc Group Smart & Cook, Layton Blackham, Stuart Alexander AXA Sun Life Direct SME Direct Swiftcover (Internet distribution) Benefits Bring AXA closer to the customer and ensure: client insight innovation access to distribution While capturing distribution margin 12

14 2) Enriched customer and distribution proposition Actions Invest in technology and services that support distribution: Wrap online underwriting tools Launch new At Retirement products Design new investment solution Expand the product offer in Non-life Strengthen brand values Benefits Add value to the customer with: more sophisticated solutions more powerful brand Capitalise on segment with strong footprint While improving manufacturing margin and positioning 13

15 Focus on brand values: positioning AXA as the trusted market leader Relevant expertise, offers and behaviours through understanding our customers Competence Reliability Consistently doing what we say we are going to do, on time and well Care Genuinely having the best interests of our customers at heart Trust 14

16 3) Entrepreneurial organisation structure Actions Deliver strategic business unit structure Embed cultural change programme Benefits Improve: entrepreneurial behaviours and agility market focus profit awareness While capturing economies of scale 15

17 Focus on strategic business unit structure: increase market focus Strategic Business Unit ( SBU ) structure Life Non-life SBU own proposition design, sales, marketing and service model Wealth management Corporate pension Protection Personal Commercial Owned distribution Mature book Wrap Ireland Health Central control over risk management, capital allocation, brand management and performance management 16

18 Focus on cultural change programme: Creating a strong leadership and customer-centric culture Align remuneration structure with new organisation Transform the leadership behaviours To increase market focus and improve employee engagement Improve employee advocacy Intensive communication with all employees 17

19 4) Efficient operating model Actions Build competitive cost structure Benefit from dedicated management team for closed book Simplify IT architecture Deliver best in class claims management Optimise capital efficiency and investment return Benefits Increased profitability while improving: quality of service operational efficiency 18

20 AXA UK has built the foundation to achieve its targets organically We believe that AXA UK can deliver its strategy without any major acquisitions We favour: widening our distribution reach, including bancassurance partnerships widening our product range and expertise with bolt on capability 19

21 Today s agenda 1 Strategic overview 2 Financial review Nicolas Moreau Group Chief Executive Philippe Maso Group Finance Director 3 4 Life manufacturing and advisory strategy Non-life manufacturing and distribution strategy Paul Evans CEO, AXA Life Peter Hubbard CEO, AXA Insurance 5 Business efficiency 6 Conclusion Philippe Maso Group Finance Director Nicolas Moreau Group Chief Executive 20

22 AXA 2006 UK Results Life APE 1,036m Non-life GWP 3,231m IFRS Earnings 308m Life NBV 83m Life NBV margin 8% Life EEV 3.3bn Group COR 96.5% AXA UK Underlying Earnings ( m) CAGR +20% % on % 1 + 7% + 16% + 44% pts % + 0.2% Non-life business well positioned with ROE of 17% Life business well positioned in terms of size and growth but key issue is profitability (8% NBV margin and 6% return on EEV) Owned distribution business is still in its infancy and will contribute positively to future earnings Life P&C 1 Winterthur APE included for 2005 to show proportionate return 21

23 AXA UK has a strong capital base and reserve position across all businesses Solvency Position Reserves Life ASL and SLAS among most capitalised companies Free Asset Ratios * of respectively 19% and 14% (market average at 5.6%) Medium cohort for annuity business Built in margin in reserves with lock-in mechanism allowing absorption of shocks P&C Coverage ratios on various solvency basis over 200% ICG excess assets well above Solvency I Good development, particularly on long tail business Reserves to premium ratios (net of reinsurance) high compared to competitors at 120% for UK and 250% for Ireland * Source: Ernst & Young 2006 Capital and Solvency Flash report 22

24 2012 Non-Life Ambition Financial Targets To profitably grow Non-life 5 to 10% average revenue growth p.a. Stable combined ratio in range of 96-98% Non-life Financial Levers 1. Selective growth, notably into direct 2. Channel mix 3. Claims management and expense control 4. Build on Health and Irish market positions 23

25 We are selectively pursuing profitable growth in our P&C business across UK and Ireland Financial Performance GWP ( m) 1 Combined Ratio (%) 2 CAGR +3% 3,231 2,990 3, % 99% 98% 97% 96% 95% 97.3% 96.3% 96.5% GWP excluding AXA Direct business sold to RAC in For combined Group Insurance businesses (P&C, Ireland, Healthcare) 24

26 2012 Private Motor ambition combines intermediary turnaround and Swiftcover expansion Private Motor Performance total Private Motor COR 99% AXA intermediary account declined sharply until 2004 due to portfolio cleansing and lack of scale GWP ( m) COR 122% COR 112% COR 108% Intermediary turnaround plan put in place in 2005 to grow to 300m GWP based on complete re-pricing, opening of underwriting window, rate optimisation, claims and process improvements Swiftcover to deliver 300m GWP Target AXA Intermediary Swiftcover 25

27 2012 Life Ambition Financial Targets Life Financial Levers To improve Life profitability 250m NBV (18% average growth p.a.), with a 12-15% NBV margin Return on EEV c.12% 1. Revenue growth 2. Product mix 3. Expense efficiency 4. Managing retention 5. Capital optimisation 26

28 Life business has grown significantly over the past three years but NBV margin needs to be improved APE ( m) 638 CAGR +27% , NBV ( m) 41 CAGR +43% NBV Margin 2 (%) 7% 9% 10% 4% 5% 6% AXA AXA Wholesale Cash products Winterthur 1 Excluding Winterthur Growth APE growth 20% and NBV 38% 2 NBV margin excludes wholesale cash products in

29 Moving beyond 12% NBV margin depends on our appetite for higher margin risk products 15% Core business improvement Increase appetite for risk participation 15% 12% Margin 10% 5% 8% Current profitability Target Financial levers to deliver core business improvement Expense efficiency Selected growth in risk products 28

30 Management actions will deliver a return on Life EEV of circa 12% in Drivers Expected 6% 8-9% Capital optimisation Increase investment return Financial reengineering New business 2% 4-5% Target 250m NBV Strategic discretionary investment (2%) (1%) Major re-development of Life propositions largely delivered 6% 11-13% 29

31 Today s agenda 1 Strategic overview 2 Financial review Nicolas Moreau Group Chief Executive Philippe Maso Group Finance Director 3 4 Life manufacturing and advisory strategy Non-life manufacturing and distribution strategy Paul Evans CEO, AXA Life Peter Hubbard CEO, AXA Insurance 5 Business efficiency 6 Conclusion Philippe Maso Group Finance Director Nicolas Moreau Group Chief Executive 30

32 We have built a scale business with a strong platform for profitable growth AXA and Winterthur New Business, Combined strength APE m 1,200 1, CAGR 27% Scale business with 7.9% market share Top 3 Wealth Management business Winterthur accelerates our strategies Open architecture focus and investment-led reputation Distribution to HNW clients through fee based advisers 5* service Well positioned to win in the emerging Wrap market AXA Winterthur 1 Figures not audited 31

33 The Winterthur integration will accelerate our strategies, diversify our distribution and increase productivity Run the AXA and Winterthur wealth management businesses in parallel, each maintaining its own brand and distribution segmentation proposition Corporate Pension businesses combined into Best of Breed proposition Legacy books combined and managed for value Key Decisions Made Our focus is on extracting strategic benefits cost synergies (15% annualised cost savings by 2009) are a secondary focus 32

34 Profitability will be improved by achieving higher margins in our core scale businesses and scale in higher margin segments AXA Business Mix, FY 2006 Increase scale 5% 3% 24% Increase margins 68% Increase margins Wealth Management Corporate Pensions Protection Annuity 33

35 Improving profitability in our UK Life business Financial Levers Operational Levers Enhancing core businesses Corporate Pensions Protection Wealth Management 1. Revenue growth 2. Product mix 3. Expense efficiency 4. Managing retention 5. Capital optimisation Moving along the value chain Broadening retirement income offer Wealth Management Wrap Advice Investment Guarantees Annuities 34

36 Improving core businesses Corporate Pensions Large and Growing Market Corporate Pensions Market APE % AXA s Position 7.9% market share 6.9bn funds under management 61% of new scheme APE written on a nil commission basis 2.5 APE bn Corporate Pensions FuM bn % AXA Winterthur Source: ABI 35

37 Improving core businesses Corporate Pensions AXA s Strategy Deliver Best of Breed Group Pension platform from integration with Winterthur Leverage refreshed individual SIPP platform to offer Group SIPP Target selected distributors Employee Benefit Consultants, Corporate IFA Improve margins through: Rationalising legacy platforms (four to one) Risk management pricing model based on scheme characteristics introduced in 2006 Leveraging leading workplace marketing team Investing in self service administration Increasing proportion of nil commission/ trail commission business 36

38 Improving core businesses Protection Mature and Competitive Market Which Offers Stronger Margins Protection Market APE 000 1,200 1, AXA s Position 4.6% market share Strong direct marketing offer Launched with IFA market in 2005 Leading Critical Illness provider growing fast Sub-scale, but applications for IFA channel grew +65% YTD May % 40% Single tie Rest of market Life or Earlier Critical Illness (Level and Decreasing) Best Life Insurance Provider Life or Earlier Critical Illness 37

39 Improving core businesses Protection AXA s Strategy Innovate to improve adviser efficiency: Point of sale solutions: Menu Product Tele-underwriting Increasing investment in e-trading Flexible underwriting approach: 80% of cases accepted at standard terms Only 1.6% of applications declined Piloting non-disclosure guarantees Further develop strength in business assurance 38

40 Improving core businesses Wealth Management Fast growing, highly intermediated market Wealth Management Market APE ( bn) % AXA s Position 8.8% market share Leading offshore bond manufacturer Strong Pensions and Distribution bond heritage Strong self-invested heritage Benefit from strong Personal Pension business following A-Day Winterthur a complementary fit with AXA s refreshed wealth management proposition Onshore and Offshore Bonds Source: ABI 39

41 Improving profitability in our UK Life business Financial Levers Operational Levers Enhancing core businesses Corporate Pensions Protection Wealth Management 1. Revenue growth 2. Product mix 3. Expense efficiency 4. Managing retention 5. Capital optimisation Moving along the value chain Broadening retirement income offer Wealth Management Wrap Advice Investment Guarantees Annuities 40

42 Management of the end to end value chain is key to enhancing profitability in Wealth Management Traditional Investment Management Product Design and Administration Distribution Management Services Advice and Sales Evolution Investment Management Product Design and Administration Distribution Management Services Advice and Sales Revolution Investment Management Platforms Advice and Sales Actions Build investment office proposition Target the AXA and Winterthur brands at separate distributor segments Leverage our platform experience to launch a full Wrap platform Build a scale advisory business which harnesses value through Wrap 41

43 The Investment Office will underpin Wrap, Advice and Wealth Management businesses Build investment office proposition Winterthur s expertise is an accelerator of AXA s guided open architecture strategy Current position Investment Office Open architecture expertise Fund supermarket Multi-manager offering 1 Bespoke solutions for distributors Investment analyst resource Distinct sales team c5 c30 Benefits Innovative investment solutions Improve margin More attractive to fund management partners Help distributors to manage the complexities of open architecture Launch date Q1 08 Scale 1 Multi-manager creation of a new fund through either blending existing retail funds or through new segregated mandates to fund managers 42

44 The wrap market is expected to develop rapidly Leverage our platform experience to launch a full Wrap platform Forecast growth over the next three years reaching 250bn assets under management AXA Wrap platform will give us the opportunity to: Wrapped Assets ( bn) Help IFAs transform their business models to become more efficient, customer focused and capture the value of their customer base Be a significant player as IFAs move towards a new Wrap model Respond to the growth of mutual funds market Maximise value from ownership of distribution Source: Datamonitor 43

45 Our combined SIPP and offshore platform experience provides a strong foundation for Wrap Leverage our platform experience to launch a full Wrap platform Self investment experience Over 27 years experience in the self invested pensions arena Funds under management: AXA self invested plans billion Winterthur SIPP 2.0 billion Refreshed AXA SIPP launched July 2006 Launch of wide range of retirement options under SIPP, including income drawdown enhancements, planned for Q Offshore platform experience Market leading provider (26% market share) 4.6 billion funds under management (31 Dec 2006) Full open architecture (over 10,000 funds) Full e-commerce capability. Not just a product, but a platform Awards 44

46 Building on this strong foundation will enable AXA UK to succeed in the emerging Wrap market Leverage our platform experience to launch a full Wrap platform AXA s building blocks The right Technology IFA relationships Why we will succeed Winterthur fee-based HNW advisors Thinc partnership AXA Offshore platform distributors Technology Partnerships with leading technology providers Open Architecture Leveraging Investment Office Business Support Services Recognised business consultancy practice supporting IFA transformation Building on experience learned from AXA s significant Australian wrap business 45

47 We are well advanced to launch our full Wrap proposition in 2008 Leverage our platform experience to launch a full Wrap platform Q Limited functionality pilot H Wrap functionality pilot 2008 Full market launch 2005 Enhance offshore platform Q Launch SIPP platform Q Wrap business unit formed Pilot phase Building Launching 46

48 AXA entered the independent advice segment of the value chain with the acquisition of Thinc Group in 2006 Build a scale advisory business which harnesses value through Wrap Thinc Group Top 15 IFA, corporate and private clients Choice of advice models Single tie, multi-tie, whole of market Employed or self employed Strategy To create a market leading trusted financial advice business Aggressive growth organic and acquisition Convert to fee-based and trail commission models Thinc national business owns the clients, not its advisers Commenced journey to a trail commission model Key metrics for Advice Integrate AXA s tied advice network into Thinc AXA and Thinc work in partnership to develop wrap-enabled investment model Common front and back office platforms where appropriate Today 2012 Advisers 600 c3,000 FuM Revenue 1.5bn 44m c 15bn c 300m 47

49 Improving profitability in our UK Life business Financial Levers Operational Levers Enhancing core businesses Corporate Pensions Protection Wealth Management 1. Revenue growth 2. Product mix 3. Expense efficiency 4. Managing retention 5. Capital optimisation Moving along the value chain Broadening retirement income offer Wealth Management Wrap Advice Investment Guarantees Annuities 48

50 Demographics will drive significant growth in the Retirement Income market SIPP Wealth Accumulation phase Core Strength IHT planning Drawdown Transition phase Core Strength Guaranteed Income Riders Impaired Annuity Enhanced Annuity Standard Annuity Retirement phase Opportunity 49

51 We are broadening our range of retirement solutions and taking increased investment and longevity risk IHT Planning SIPP Drawdown Impaired/Enhanced Annuity Core Strengths Market leading offshore IHT planning - 26% share Market leading drawdown 19% share Market leading heavily impaired annuity 25% share Expand investment guarantees Expand annuity range Opportunities Launched GMDB/GMWB guarantees - Q Launch refreshed SIPP Drawdown with GMIB guarantees - Q Enter impaired and enhanced annuity market Q Draw on our past Open Market Option experience to develop re-entry opportunities 2008/9 50

52 Today s agenda 1 Strategic overview 2 Financial review Nicolas Moreau Group Chief Executive Philippe Maso Group Finance Director 3 4 Life manufacturing and advisory strategy Non-life manufacturing and distribution strategy Paul Evans CEO, AXA Life Peter Hubbard CEO, AXA Insurance 5 Business efficiency 6 Conclusion Philippe Maso Group Finance Director Nicolas Moreau Group Chief Executive 51

53 To profitably grow our Non-life business Financial levers Operational Levers 1. Selective growth (notably into Direct) 2. Channel mix 3. Claims management and expense control 4. Build on Health and Irish market positions 1. Re-entry into direct motor 2. Electronic Trading 3. Advice 4. Claims and Service 52

54 The UK P&C market is steadily growing in an evolving distribution dynamic mix UK Market Growth : 6% CAGR Market Cycle bn UK GAAP GWP % 5% 38% 24% 37% 45bn 4bn 19bn 1bn 8bn 5bn 8bn Healthcare CAGR 3% Commercial Lines CAGR 6% Personal Lines CAGR 6% 63bn 4bn 22bn 5bn 12bn 5bn 14bn % 18% 18% 40% 45% Market rates (percent) 12% 10% 8% 6% 4% 2% 0% -2% -4% Personal Direct Personal affinity and banks Commercial intermediary Personal intermediary Commercial Direct Healthcare Private Motor Comm. Property Casualty Growth: Both Personal Lines and Commercial Lines markets to grow steadily to 2012, while Healthcare growth remains inflationary Distribution mix: Personal Lines and Healthcare to move further toward Direct and Affinities. Commercial Lines Direct to increase, while Commercial and Healthcare Brokers are still consolidating UK underwriting cycle: Private Motor rates hardening in Property and Liability rates still depressed and not expected to harden until 2008 Sources: Synthesys, Datamonitor and AXA 53

55 Commercial lines AXA has built a leadership position in the UK SME Market, which is being enhanced through further investment in Direct capabilities AXA 2006 Market Share 15% and ranking 2 nd in Commercial SME Market Intermediated business Best in class auto-rated capabilities, underwriting expertise and relationship management Commercial casualty 342m 31% Commercial motor 162m 15% Commercial property 598m 54% Market leading efficiency based on e-trading technology and connectivity with brokers AXA brokers to be leveraged through back office synergies and unique customer insight Direct business Market leading SME direct proposition, selling online, by telephone, through Corporate Partnerships and our field force Ambitious technology and marketing investment programme to deliver 20% p.a. growth Sources: Synthesys, Datamonitor and AXA. SME Market assumed to be 50% of total Commercial Market 54

56 Personal lines AXA is 7 th in the market for Personal Lines despite having no direct capability since 2004 AXA 2006 Market Share 3.9% and Position 7 th Share 2.9% Position 10 th Creditor and other 253m 28% Private Motor 212m 23% Share 2.4% Position 9 th Corporate partners: Leadership position in particular across financial services, retail and travel industries Non Motor products: AXA well positioned on Household, Travel, Creditor and Pet Private Motor: Plan in place to grow intermediary Motor book while addressing profitability Share 26.7% Position 1 st Travel 155m 17% Household 299m 33% Share 3.6% Position 6 th Process efficiency: Operating model predominantly based on full cycle electronic trading Swiftcover acquisition: Bridges gap to grow to leadership position Sources: Synthesys, Datamonitor and AXA 55

57 Swiftcover enables greater control over end customer and accelerated growth Personal lines AXA Personal Lines Motor Distribution A fast growing, profitable model: 100k policies in force in 2006, to grow to 300k in 2007 and up to 800k by Swiftcover Growth to deliver 20% CAGR Intermediated Channel CAGR 8.9% Delivering long term combined ratio below 100% A differentiated proposition: Innovative, online only customer proposition Low cost business model with flexible IT platform Intermediary Corporate Partner Direct Expert management team (ex Churchill) A partnership that will deliver synergies: IT platform and expertise Claims and underwriting Product proposition and business development Source: AXA Insurance 56

58 Healthcare Our strong Healthcare proposition and capabilities will be expanded to reinforce our leadership Annual growth rate in total subscriber numbers 20% 15% 10% 5% 0% -5% -10% Company BUPA AXA PPP Norwich Union AXA PPP API 2005 m 1, AXA PPP and Denplan Market share % 22.3% 1 9.3% Movement Number 2 UK PMI provider Largest dental capitation provider (c80% share) Individual segment: extension of customer proposition to lower cost products SME segment: leverage of acquired broker (SecureHealth) and infrastructure investment Large Corporate segment: expanding value chain to integrated health and wellbeing proposition International segment: strong growth supported by infrastructure investment SLH 1 WPA % 3.2% 1: Including Trust income AXA PPP market share is 24.5% Source: Laing & Buisson, Health & Care Cover Market Report

59 Ireland In a softening market, AXA Ireland has delivered continued strong performance Irish Motor Market GWP 1, Number three in Property and Casualty Market and Number two in Core Motor insurance market in Ireland m GWP 1,200 1, Percent Focus on pricing discipline and growing scale in direct business to offset decline in intermediated business Strong brand leveraged through extension of customer proposition Commercial nonmotor/ Creditor/ Other financial protection Total AXA Market share 0 Expansion of distribution reach through further development of branch network, affinities and online proposition Source: AXA 58

60 Across our non life businesses we continue to invest in claims and service We are investing in enhancing the proposition Rehabilitation linking to AXA PPP Partnerships with third party providers Streamlining processes to reduce cycle times We are improving service proposition Improving core processes across the business Building on the excellent customer feedback scores in Ireland and AXA PPP Web enabling the value chain We are building a strong underlying foundation One platform for P&C across personal business across UK and Ireland One Web architecture One telephony platform Whilst indemnity savings and fraud benefits have continued to grow 59

61 We are increasing our presence in Non life distribution We have built the 2nd largest SME brokerage in the UK Glasgow Edinburgh Background: Our acquired brokers control 400m of GWP and generate commission income of circa 80m from a comprehensive geographical footprint Stuart Alexander Offices Layton Blackham Offices Smart & Cook Offices 15 Newcastle Carlisle 31 Penrith Stockton-on-Tees 24 Scarborough Harrogate 14 Northallerton 19 Skipton Hull Leeds York Grimsby Horwich Lincoln Cleckheaton Welshpool 12 6 Norwich Ludlow 23 7 Coventry 22 Northampton Worcester 13 Milton Keynes 9 5 Farnham Chelmsford Swindon London 30 Bath 33 West Wickham 11 Tonbridge 2 Southampton Bournemouth 3 Acquisition platform: Our brokers give us an ideal platform for further broker consolidation Governance: Underwriting placement is independently managed but we will seek tactical single-tie opportunities Synergies: We will deliver operational synergies in back office processes, proposition development and customer insight 60

62 Today s agenda 1 Strategic overview 2 Financial review Nicolas Moreau Group Chief Executive Philippe Maso Group Finance Director 3 4 Life manufacturing and advisory strategy Non-life manufacturing and distribution strategy Paul Evans CEO, AXA Life Peter Hubbard CEO, AXA Insurance 5 Business efficiency 6 Conclusion Philippe Maso Group Finance Director Nicolas Moreau Group Chief Executive 61

63 Efficient operating model Financial Levers Operational Levers 1. Life expense ratio 1. Expense efficiency 2. Back book management 3. P&C expense ratio 4. Claims management 5. Offshoring 1. Risk management 2. Capital efficiency 2. Capital management 3. Investment management 62

64 Expense efficiency will drive improvement in NBV margin and EEV growth New Business Expense Ratio (APE) 25% 24% 22% 18% 15% 15-20% 1 room for improvement in distribution efficiencies: Proposition redeveloped Leveraging sales infrastructure Maintenance Expense Ratio (Reserves) 10-15% 1 improvement in operational efficiencies: Systems rationalisation 0.5% 0.5% 0.4% 0.4% 0.3% Improvement in operational processes Back book management focus Financial impact New business expense ratio including ASLD Maintenance expense ratio is costs excluding new business Winterthur included from % improvement in EEV ( 100m) 2pts improvement in NBV margin 1: McKinsey UK Life and Pensions Benchmarking

65 Life expenses: focus on back book management A new business unit to maximise value Action plan Back book consists of products not actively marketed anymore: 3m policies and 470 products Focus on value through retention, cost management, product lifecycle and effective use of capital Multiple platforms, mainly in-house administration Where we have been Where we are going 40bn FuM: Four With Profits funds ( 24bn) Limited strategic focus Retention, Cost Management Value creation Non Profit business ( 4bn) Unit Linked business ( 13bn) Renewed focus on retention through Customer Value Management (targeted activity) Further sustainable cost reduction (including a well established offshoring programme) Strategic options being reviewed 64

66 AXA Non-life expense ratio stabilising at right level Management expenses vs GWP (percent) 18% 16.3% 16.9% 16% 13.7% 15.0% 14% 12.7% 12% 13.2% 10% 11.9% 11.1% 8% 6% 13% 13% 11% 10% Efficiency savings of 2% pa will come from: Improving cost ratio trend for AXAI and AXA PPP through a combination of: more self service by customers and intermediaries leveraging the benefits of systems automation offshoring to our AXA Business Services operation in India AXA I AXA Ireland AXA PPP Non-life AXA Ireland increase due to 40% reduction in average premiums as a result of competitive pressure Source: AXA accounts 65

67 Market leading claims management improvements supported by concrete action plans AXA claims leakage rate Leakage rate Fraud rate 12% 10% 10.0% 8% 7.0% 6% 4.5% Market average = 5% 3.5% 4% 3.3% 2.0% 2% 0% AXA Fraud Management 10% Maximum = 8.5% 8% 6% 5.0% 3.3% 2.6% 4% 1.5% 2% 1.0% 0.5% 0% AXA Fraud Savings (Recovery and 1 Avoidance) Market leading leakage assessment processes and savings in UK Upper quartile fraud management in UK and Ireland 1 : Conversation management Systems flags Training AXA Ireland ranked 3 rd by consumers for claims handling Market leading claims handling and medical procurement capability in Healthcare 1 Source: ABI 66

68 Offshoring is an opportunity to optimise processes and create cost advantage Proportion of AXA UK Headcount Offshore 15% 15% of staff work offshore in mature state 10% 5% 0% Average savings of 15k per person have delivered 30m of annual value Operating model delivering strong service levels 67

69 Strong risk management capabilities Overview Implications AXA UK has well developed risk-management capabilities that allows enhanced risk capacity Historically innovative eg orphan estate attribution in 2001 AXA Group Risk Management capabilities rated Excellent by S&P Benefits from combining expertise in Life, P&C and Health insurance Profitability control Value creation/ risk adjusted profitability framework Product approval process Business Enabler E.g. investment guarantees Control profitability of growth Business enabler Optimise balance Optimise sheet balance sheet Capital management Asset liability management Financial restructuring 68

70 Capital Management AXA UK actively manages its strong capital base Economic capital Pillar II - ICA / ICG Pillar I Strong Capital Base Reinsurance arbitrage Self financing new business Dividends Self financing bolt on acquisitions or Group strategic assets Ability to create value Optimise capital efficiency Business diversification Financial engineering e.g. attributed estate Life companies restructuring 69

71 A less conservative stance regarding acceptable levels of investment risk will drive an additional bps investment return Increased risk appetite Actively targeting illiquidity premium for certain asset classes Better diversification of investment returns being sought through wider asset base exposure. Fixed income portfolios above single A presently will move to single A when credit spreads improved Target increase in Underlying Earnings of 15 to 20% from 2006 to 2012 and an impact of 1% on EEV growth p.a. 70

72 Today s agenda 1 Strategic overview 2 Financial review Nicolas Moreau Group Chief Executive Philippe Maso Group Finance Director 3 4 Life manufacturing and advisory strategy Non-life manufacturing and distribution strategy Paul Evans CEO, AXA Life Peter Hubbard CEO, AXA Insurance 5 Business efficiency 6 Conclusion Philippe Maso Group Finance Director Nicolas Moreau Group Chief Executive 71

73 Conclusion The UK market is an exciting opportunity for AXA We have set ourselves challenging targets We have a clear plan and a great team to achieve our ambition We believe that AXA UK can deliver its strategy without any major acquisitions We are fully engaged and confident! 72

74 Appendices

75 Appendices 1 AXA UK and Ireland organisational chart 2 Executive members Biographies 74

76 AXA UK and Ireland organisational chart 1: Executive committee member AXA UK & Ireland Nicolas Moreau 1 Finance - Philippe Maso 1 Marketing and Communication Olivier Mariee 1 Information Technology Ian Pinnock 1 Business Risk Ian Richardson 1 HR Sonia Wolsey-Cooper 1 Life Paul Evans 1 UK General Insurance Peter Hubbard 1 Healthcare Keith Gibbs 1 Ireland General Insurance John O Neill 1 Wealth Management Advice Protection Wrap Group Pension Mature Book Personal lines Commercial lines Distribution Senior moves Creation of the Marketing function with the appointment of Oliver Mariee 1 (internal to the AXA Group promotion) Appointment of Sonia Wolsey-Cooper 1 as Human Resources director (internal to AXA UK promotion) Appointment of Ian Pinnock 1 as IT director (internal to AXA UK promotion) Appointment of Mike Kellard 1 as Wealth Management director (CEO of Winterthur) Appointment of John Simmonds to Advice managing director Chris Blackam, Stuart Reid and Paul Meehan brought on board following the brokers acquisitions Andrew Blowers brought on board following the acquisition of Swiftcover 75

77 Executive members Biographies Nicolas Moreau Group Chief Executive, AXA UK Nicolas Moreau was appointed to the Board in July He is Group Chief Executive of AXA UK and Ireland, and a member of the AXA Executive Committee. Nicolas Moreau joined AXA in 1991 as Vice-President of the Finance Department and was appointed Senior Vice-President of the AXA Group Finance Department in In 1997 Nicolas Moreau joined AXA Investment Managers and in March 2000 he became Chief Operating Officer of AXA Investment Managers, and Vice-Chairman of AXA Rosenberg in January He also co-ordinated the private equity business as well as the relationship between AXA Investment Managers and the insurance companies of the AXA Group. In April 2002, he was promoted to Chief Executive of AXA Investment Managers and, following his appointment as Group Chief Executive of AXA UK, Nicolas Moreau became Non-Executive Chairman of the Board of AXA Investment Managers. Nicolas Moreau is an ABI Board member and the Chairman of the ABI Health Commission. Phillipe Maso y Guell Rivet Group Finance Director, AXA UK Philippe Maso was appointed Group Finance Director of AXA UK in May 2003, responsible for finance, strategy, risk management and asset management. A member of the Board since June 2003, he is also a member of the AXA Executive Committee. Previously, he was head of Group Corporate Finance and Risk Management for AXA in Paris. He joined the Group in 1997 following the merger with UAP. He is a member of the Financial Regulation and Taxation Committee for the Association of British Insurers. 76

78 Executive members Biographies Paul Evans Chief Executive Officer, AXA Life Paul Evans was appointed Chief Executive of AXA Life in May Previously he was the Group Finance Director of AXA UK, responsible for finance, strategy, treasury and taxation. Paul Evans joined AXA in January 2000 from PricewaterhouseCoopers and was appointed to the Board in November He is also a member of the AXA UK Executive Committee. Paul Evans is a member of the Association of British Insurers (ABI) Life Insurance Committee and Chairman of the West of England leadership team for Business in the Community. Peter Hubbard Chief Executive Officer, AXA Insurance Peter Hubbard was appointed to the Board in November 2001 and is Chief Executive of AXA Insurance. He was previously Director, Strategy and Planning, UK Retail Banking at Lloyds TSB. Peter Hubbard is a member of the Association of British Insurers (ABI) General Insurance Council and Chairman of the ABI Property Committee. 77

79 Executive members Biographies Keith Gibbs Chief Executive Officer, AXA PPP healthcare Keith Gibbs was appointed to the AXA UK Board in February He is Chief Executive of AXA PPP healthcare being appointed in November 2001 and also has responsibility for the direct life business (AXA Sun Life Direct). He is also a member of the AXA UK Executive Committee. He formerly held a wide range of senior positions at Sun Life of Canada, Sentinel Life, Citibank and Lloyds TSB. John O'Neill Chief Executive Officer, AXA Ireland John O Neill was appointed to the Board in February 2004 and is Chief Executive of AXA Ireland (previously Guardian PMPA Insurance) and a member of the AXA UK Executive Committee. He has worked for Guardian PMPA Insurance since His career also includes several years with Guardian Royal Exchange (GRE), Coyle Hamilton and AIB Insurance Services. 78

80 Executive members Biographies Mike Kellard Chief Executive Officer, Winterthur Life Mike Kellard joined Winterthur Life in 1999 before becoming CEO in June Mike Kellard was appointed to the Executive Committee of AXA UK on 22 December 2006 when AXA completed its acquisition of Winterthur Group. Mike Kellard is also responsible for implementing a new fund management proposition for AXA Life and Pensions. Ian Richardson Group Business Risk Director, AXA UK Ian Richardson was appointed to the AXA UK Board as Group Business Risk Director in August 2004, responsible for Legal, Internal Audit, Compliance, Operational Risk and Company Secretarial matters. Before then, he had been Group Company Secretary of AXA UK plc since its formation (as Sun Life and Provincial Holdings) in He remains a member of the AXA UK Executive Committee. Ian Richardson is a Fellow of the Institute of Chartered Secretaries and Administrators (FCIS) and an Adviser to that Institute. 79

81 Executive members Biographies Sonia Wolsey-Cooper Group HR Director, AXA UK Sonia Wolsey-Cooper was appointed Group HR Director in 2006, following a four year period where she headed up the customer service division at AXA PPP healthcare. Prior to joining AXA PPP healthcare in 2002, Sonia Wolsey-Cooper held various senior roles at Lloyds TSB Group including Executive Assistant to the Group Chief Executive, Head of Direct Insurance, Head of Direct Operations and Call Centre Manager. Ian Pinnock Group Chief Information Officer, AXA UK Ian Pinnock was appointed Group Chief Information Officer of AXA UK in 2006, after having managed the AXA UK IT Shared Services. Ian Pinnock started working in 1978 at Guardian Royal Exchange (GRE) in 1978, where he held a wide range of positions. He joined AXA when GRE was acquired in May

82 Executive members Biographies Olivier Mariee Group Marketing & Communication Director Olivier Mariee was appointed Group Marketing & Communication Director in 2006 from his role as Senior Vice President and Head of AXA Group customer care & distribution. Olivier Mariee joined the AXA Group in He has worked in various companies of the AXA Group including AXA Investment Managers, AXA Japan and AXA Headquarters. 81