Axa Sa Ord

Good afternoon and welcome to AXA's presentation of its new strategy plan for 2024 through 2026. A special welcome to those who are here in person who have braved the bad weather outside. Thank you. And thank you also for those joining us on the webcast. Presenting today will be our Group CEO, Thomas Buble, Group Deputy CEO, Frederic de Courtois, and our Group CFO, Albon de Mainel. For Q&A, they'll be joined by other members of our management team. So they won't necessarily stand up now, but you'll see them later. So we have Patrick Cohen, who's CEO of Europe for AXA. Guillaume Bory, who's CEO of AXA France. Scott Gunter, who's CEO of AXA Excel. Hassan al-Sharbashi, who's CEO of our international markets. We also have George Stansfield, who's deputy CEO. As you know from last year, Hong Kong and Japan report to George. We also have Alexander Follett, who's our group COO. So with that, I turn to... Oh, and AXA, I am AXA investment manager. It's Marco Morelli. I'm so sorry, Marco. So with that, I turn over to Thomas.

Thank you, Anu, and good afternoon to all of you. Very happy to be with you in this room. And first, what I would like to do before we look forward and unlock the future, let's quickly look backward again what has happened over the last seven years. Because as you well know, because you have accompanied the journey of transformation, what is called AXA today is very different to what AXA was seven years ago. What is AXA today? AXA is a company that is much simpler with a much more focused footprint, a company that is focused towards technical risk coming very much from market risk and financial risk and certainly focused on cash generation. What we see over that period is that revenues have roughly been stable, plus 3%. However, underlying earnings have progressed by 34%, and organic cash has progressed by 75%. So the business today is a high-quality business that generates sustainable earnings, but in particular has a very high cash conversion. The business is a distinctive franchise and certainly very balanced. As a result of this transformation and the simplification, it's a business that relies 50% on commercial insurance, 50% on retail insurance, and within, we have focused ourselves on fewer positions, fewer geographies, but with leading positions. So if you look on the commercial insurance, which is 50%, we are today the largest global underwriter of corporate risks, both for physical risks, buildings, the production plants, but also for the human assets of companies. Or when we look into the 50% retail insurance, we see that we are almost everywhere top three in Europe with a very strong agent distribution and a multi-line approach. But we are also strong in Japan, Hong Kong and in 15 emerging markets where we are amongst the top five. As I said earlier, this business is very focused on high return on equity and high cash generation. But what is very distinctive and particular about it, that we are very close to our customers. Having predominantly agent distribution and having it very decentralized means being close to our customers. And that is also one of the reasons why our net promoter score has been increasing over the last year. So it's a very distinctive franchise if you look at what else is around in the market. When we look back for the last time into the existing plan that comes to the end, driving progress 2023, We can clearly say that it has happened in a challenging environment. Because I remember when we launched this plan three years ago, we were alone in the room. We had masks on because it was in the middle of COVID. And since then, we have seen plenty of crisis. And one can clearly say that our model that I described earlier, has been tested and validated because it has delivered a very strong and consistent performance in this very challenging environment. When we look at the four objectives we have set ourselves, we can clearly say that we have met one and exceeded three of them, which I think is a very good result and wasn't so obvious at the beginning of this plan. When we look in particular what we have achieved in terms of shareholder return, we have returned roughly $13 billion in dividend and share buyback, which, if you go back to the market cap at the beginning of this plan, represents roughly 30%. So this strong delivery is a consequence of the very deliberate strategic choice that we have made in order to shape the business as a business that has become far more reliable, far more consistent, but certainly a big generator of cash. Looking forward now, we come out of an uncertain environment and we believe that the macro environment going forward will remain very similar to what we have seen in the last plan. And this is why it's important to have a company that is well diversified and well balanced. And we've seen over the last plan that the group has proven to be solid in this difficult environment. And prudence and diversification were absolutely key for that. If you look at our asset allocation in terms of prudence, if you look at our very high solvency in terms of strength of the balance sheet, but also if you look at the limited sensitivity, for example, to interest rates, which is now roughly a third of what it used to be. We have also been very swiftly managing topics like inflation, topics like increase in interest rate through clear discipline around tariffification, but also through discipline around the cost side. When we look at this unstable environment, there is also a lot of upside because what we see is that in many areas, tectonic shifts are happening. So, for example, when you look at retirement, at healthcare, we see that there is a big opportunity for us where we can capitalize on what we have. Or if you think about the big new phenomenon about generative AI. We are a business that is working a lot with unstructured data. Up to now, we have had no chance to really use this data in a more scaled fashion. With GenAI, we are for the first time able to use both on the risk assessment side but also on the claim side this data. And then lastly, when you think about risks that become more difficult to ensure, for example, natural catastrophes or cyber, being able to offer prevention and risk consulting services will help us to keep these risks insurable. So the business has proven very resilient in a difficult environment and has shown that it can, despite this environment, deliver very predictable earnings. And I believe we are very well placed for this next phase, both in terms of continuing this very consistent and stable return delivery, but also capitalizing on these long-term trends that I just mentioned. This new plan is called Unlock the Future. Unlock the Future means that it is an evolution, not a revolution. We come probably out of a more revolutionary approach with the transformation over the last seven years. But as I mentioned earlier, we've got a platform now that works well. We want to continue the same strategy in scaling up what we have been doing well now. And this means that the focus in the next phase is very much on rigorous execution of the best practices. We want to address three different levers in this plan. Number one, driving higher organic growths. We believe that there are some areas where we can expand more, some white spots, but we also believe that growing our distribution will enhance organic growth further. Secondly, we want to scale our technical capabilities. I mentioned earlier that the use of data and certainly the use of Gen AI and AI in general will help us to become more sophisticated and more technically focused when it comes to pricing, claims and risk assessment. And then thirdly, we want to continue to enhance our operational excellence through shoring, automation, and data and AI, making sure that we are continuing our journey, which means that is an adapted strategy for an uncertain environment to scale up what we have proven to do well and not to go on a risky journey where we don't know what it means in this environment. All of this is happening on a base where our employees are extremely engaged. We have seen a significant improvement in our employee satisfaction, the employee net promoter score. To give you an idea, when we first measured it in 2017, we had a result that was minus 5%. The last result was plus 40, which we are really in the area of the top companies. But we are not only continuing to focus on delivering excellent results, we are also continuing to focus to play a very important and engaged role in society. You know that we have been very leading around climate transition, helping industries to transition. We want to continue this and make sure that we stay leading, but shift more towards climate adaptation, helping companies to do more prevention, and also to being more active on the underwriting side through more transition underwriting, i.e. focusing our underwriting capacity on those companies in more difficult sectors like energy, transportation and construction that have the heaviest charge of transition. Beyond climate, we would like to continue and scale up our engagement around inclusive insurance. We have been very strong in emerging markets and have managed to get to cover 14 million customers. We see, however, that in Europe a similar issue is there. So, for example, if you look into France, roughly 15 to 20 percent of people cannot afford insurance today because it's too expensive or are excluded. Rethinking insurance and making sure that we also offer something to these people is absolutely core for us. We want to start in France with a new range of products and then subsequently roll it out into Europe. When we look at this next financial plan, because we have a model that works well, because we have a model that is resilient in difficult times, we have decided to increase our financial targets, which reflects the confidence in the implementation of our model. The underlying earnings per share is moving from what used to be 3% to 7% to 6% to 8%, which is reflecting the stronger earnings base that we have. And the return on equity is moving from what used to be 13% to 15% to 14% to 16%. Thirdly, the cash remittance is moving from 14 billion to 21 billion, which is 50% higher than what it used to be in the last plan. If we manage to implement this three-year plan, it will certainly look very attractive for the shareholders because with the new payout ratio of 75% composed of 60% dividend and 15% share buybacks, it also means that we will be showing a very good return to our shareholders and that AXA should remain and will become even more a very attractive investment. When we look at how are we delivering value, this very high return that we would like to give to shareholders will roughly equal 17 billion. 17 billion, based on yesterday's market cap, is roughly 25% of the market cap that will be returned to shareholders. And 25% of the earnings will be retained in order to fund organic growth, as we've seen earlier, at a very decent and good return on equity. So, having built a very distinctive franchise, now focusing very much on on the continuation of our track record in execution, while keeping very disciplined in the capital management and being disciplined around a very strong balance sheet, our strategy will deliver a sustainable and attractive value to our shareholders. With this, I will hand over to Frédéric de Courtois, who will now go into detail on how we are going to achieve it. Thank you.

Thank you, Thomas. Good afternoon to you all. Thomas has told you about the what, what we want to achieve, the ambition. And I'll tell you about the how, the execution. Our plan is not a revolution because our starting point is very good. Our plan is an evolution based on discipline and ambitious portfolio of initiatives. And I would like to discuss now about these initiatives. First, let's look at our franchise. Our franchise is very good. and it is based on three principles. The first principle is that we are focused on geographies and businesses where we have scale, so usually top three, and technical edge. The second principle is that we are focused on capitalized businesses. And the third principle is that we are a multi-specialist. So very technical on a wide range of businesses. Wide range of businesses because this is driven by distribution. And I have to say, we like it because this wide range of businesses drives cross-selling, but it also leads to lower capital requirements and lower volatility. These principles will not change over the next plan. If I look more specifically at our three business lines, our first business line is commercial line PNC, so from top clients to SMEs, around 35 billion premiums. This is by definition a worldwide business. And we are probably, because there is no official ranking, we are probably the biggest player in the world on commercial lines. Our second business line is health and employee benefit. We are the number one in Europe on health. And we are probably the first player on employee benefit worldwide outside of the US. This is, again, a worldwide business by definition. And you see that we have around 20 billion premium on employee benefit and health. Our third business is retail. And this business is a local business. We have about 42 billion, so from PNC to life and savings. And we are doing it in a limited number of countries. about 20 to 25 geographies. And again, countries where we are usually top three, sometimes top five. Yeah. So as mentioned by Thomas, we have three transversal initiatives over the next plan. The first one is organic growth. The second one is technical excellence. And the third one is operational excellence. And I will discuss later about the three initiatives for our three business lines. But before doing this, I would like to give you a high-level message on growth and a high-level message on technical excellence. On growth, you may have seen that our growth over the past three years, growth of the top line, has been about 2% a year. And I'm sure you know that this growth has been negatively impacted by some disciplined decision that we've made over the past three years. So we've been extremely cautious on cattle insurance. We stopped the international health insurance business. We've been extremely disciplined on general account. So we've been extremely disciplined, which obviously impacted negatively the growth. In addition to this, you need to take into account the fact that we've worked in 23 and we've launched and we've started to finance a portfolio of organic growth initiatives. And this portfolio of organic growth initiatives will add an additional 1% per year to our growth over the coming years. So at the end, what we expect is a growth of about 5% per year of the top line over the coming three years. This is an indication. This is not a target. We don't have a top-line target, but I think it gives you a high-level indication about our ambition. My second comment on technical excellence. I'll start reminding you how we manage our business. We have a very important KPI at AXA, which we call the economic combined ratio. So the economic combined ratio takes into account our capital requirements, take into account our cost of equity, take into account the expected investment return, takes into account the normalized CAT, and at the end, you come out with the KPI, which says if you are under 100%, you earn more than your cost of equity. By the way, we price our products with the cost of equity of 14%, which is cautious, but we are happy to have some buffers to face change of assumptions, change of context, and so on. And if I look at this KPI, our starting point is good, but we can improve. How can we improve on technical excellence? We've identified three main areas. The first one is about governance. You may have seen in June that we've created this chief underwriting officer role. And our chief underwriting officer, so Nancy, is in charge of underwriting, pricing, and claims. with the role of challenging and supporting our business units. And in addition to this, making sure that we scale up the good practices that we have around the world. The second area is that we have to turn around some businesses. If I look at my economic combined ratio in 23, 89% of our business was making a higher return than our cost of equity, which means that 11% was making less than our cost of equity. So you can never be at 100% because you have ups and downs and so on. But our ambition is to be at more than 96% at the end of the plan. And what are the areas where we really have to work to turn around the business? UK Health, UK Retail, Germany Retail are the three main ones. So out of the 11%, the majority is made of these three businesses. What I can tell you is that the turnaround of the three businesses is very well engaged and will be quick. The third area to improve technical excellence is the portfolio of concrete projects, and you can see them on the slide. I will comment on some of them, but I'd like to mention now only one, which is surely of interest to you, which is what we are doing on CAT. So first, if you look at our market share of worldwide CAT, it has decreased over the past four years from around 3.4% to 2.7%. So we've done the job. We've done the job, but as you may have seen in 2023, we are again above budget on CAT. It is clear that cats are increasing and they are more difficult to model because there are a lot of secondary periods. This is a fact, this is the threat, and this is also an opportunity. This is an opportunity if you can underwrite and price cat in a very technical way. And we believe we have a technical edge on this. We have a technical edge because we've developed over the years our internal model on CAT, which we use in addition to the two market standards, and it gives us a lot of insights. We have a CAT underwriting platform, and we are now rolling out a new version, which makes sure that everybody around the world is underwriting CAT in the right way and in a consistent way. And we're investing a lot on satellite imaging and geolocalization. So at the end, we believe that the CAT business can be underwritten profitably. So summary of all of this. Our plan is about an accelerated growth of the top line. So we've said from about 2% to about 5%. And it's about increased margins. If I look at the undiscounted combined ratio, we expect to improve the undiscounted combined ratio for the PNC business by two points over the plan. and we expect to improve the undiscounted combined ratio for life protection and health by about three points over the plan. I will look now at our first business line, which is commercial lines. So commercial lines is a business in which we expect a growth at a rate above GDP over the cycle. And this is only partially cycle dependent because you may have seen that half of our premiums, a bit more than half of our premiums, come from mean market and small business, which are less cycle dependent. The main growth initiative for us is mid-market. Mid-market is a business we are doing well in four countries in Europe, so France, Belgium, Germany, and Switzerland, and that we are almost not doing in other countries. We believe that this is for us a significant opportunity. This is a significant opportunity, and we are going to extend this business to countries we know, so to other countries in Europe, and in a selective manner in the US. Again, this is a business we know technically. This is a business we are going to do only in countries we know well. This is a business in which we're able to build global programs, so we have a competitive edge for this business, and it will be a growth opportunity for us starting from the next plan. My second comment on technical excellence on commercial lines is about cycle management at AXA XL. You know that over the past years, we were very much focused on the turnaround of AXA XL, and it has worked well. Now we want to manage the cycle more than we did before. We want to manage the cycle on underwriting, and we want to manage the cycle on seeded reinsurance. So on underwriting, it means that we will underwrite the business when we like the prices. We will not underwrite the business when we don't like the prices. On seeded reinsurance, Of course, our CWD Insurance program is built based on our risk appetite and volatility expectation, but it's also based on the return on equity of the cover. And depending on the price, we may be also opportunistic and we started to be opportunistic at the end of 23. So more cycle management at AXA XL and more cycle management for CWD Insurance. By the way, you can see on the slide on the right part that the cycle for these various business lines is not the same, which is an opportunity, and which means that you have to underwrite in a granular basis. For example, on some lines, like property, now the cycle is very good. On some other lines, like cyber and DNO, the cycle is less good. And this is about portfolio management, and this is what we are going to implement in a more ambitious manner. Moving to our second business line, which is employee benefit and individual health, this is also a business line in which we expect a growth which is above GDP. So this is clearly a growth opportunities. Our main growth initiatives on this is about employee benefit for SMEs. Usually big corporates are insured. SMEs are not, or the employees of the SMEs are not. And we believe that there is a significant opportunity for us. We have unique capabilities. We have scale. We have data. We have innovative services. And we especially have... an internal tech company called EB Partners, which develops for all our employee benefit business around the world, tools and services, underwriting tools, services for the HR departments of our clients, services for the employers of our clients. So we believe that we have everything we need to develop this SME business for employee benefit. On technical excellence for health and employee benefit, I'll start saying that we should recognize that we had three profitability accident over the past three years. And I think that's important to recognize it. First, we had COVID. Then we had the health international reinsurance. And now in 23, we have the Health UK business. So three years in a row, we had an accident on the health business. It should not hide that we have a very good, sound, and big business on health. But we've learned from this. And our main conclusion is that the best players are specialists. And this is why we decided to create in June these dedicated business units inside the EXA Group to have a business unit dedicated to employee benefit and health, to have people thinking 100% of their time on health. And we believe that it is the secret for a successful health business. Concretely, what does it mean? It means that we will accelerate what we've already done, and what we've already done is having global pricing models. What we've already done is that we have global data sets, so we are pooling health data around the world to have better data to underwrite, but this is something we've already done that we are going to grow and to develop, and again, to think as a specialized company. The third and last business lines is retail. On retail, we expect to growth at about the same pace of the GDP. We have a very good retail business and we have a very good retail business driven by excellent proprietary distribution. Where will the growth come from? Basically the growth will come from three areas. The first one is we've decided to grow our proprietary distribution channels. This is pretty new because we were very much focused over the past years on growing the productivity. and I'll come back to productivity. Now we've decided to grow also the size of our distribution channels in France, in Europe, in Japan, and we've concluded that this is probably the best investments we can make. We have very good distribution channels, so adding resources to these distribution channels is a very good investment. The second area is about productivity. We are again going to grow productivity over the next plan. The plan that we have is to grow the productivity by 10% over the next three years, and we will be very much helped by AI. The last cycle was very much helped by the fact that we learned to sell without meeting physically the client. Now AI will help us a lot on managing leads and so on and so on. The third growth opportunity for us is the live business. Life business is important for us. Life business is about protection and savings. And we believe that we have extremely good opportunity as, for instance, we are going to relaunch our savings business in Belgium that we had stopped some years ago. We are going to relaunch our individual health business in Switzerland. We believe that we have significant opportunity in Asia. We believe we have significant opportunity in Germany. We are determined to accelerate our CSM growth above 3% a year while remaining disciplined. On technical excellence, a word on P&C retail. First, it's a lot about data, tech, everywhere. So this is a lot about industrialization. And I do not resist the temptation to make a teaser on what we call our computable contract initiative. i'm not sure you've heard about this we've worked over the past six years with some universities to build computable contracts you know that insurance is about contracts at the end it's about contracts and they are all different computable contract is a contract that can be read by a computer to make it simple it has huge benefits for the clients because the contract is much more clear and has huge benefit for the company on the productivity, on the leakage and so on. We started over the past two years to implement computable contract for retail business. It's a 10 years work and we are going to do it also for commercial lines. The last initiative I would like to mention is Operational Excellence, which is a transversal initiative for three business lines. The first objective of this initiative is to decrease our non-commission expense ratio by 0.5 points to 9.3%. So quite significant decrease of this expense ratio. And for this reason, we are going to be extremely focused on efficiency and productivity over the next plan. We have four ongoing initiatives. The first one is continue and complete the basics. What are the basics? The basics is about our common infrastructure, and we have already a common infrastructure, and we are going to complete our move to the cloud by 2026, so huge work. The second one is that we are progressively moving to a common architecture for all our systems. The third one, again, on the basics is that we are moving to a common data taxonomy for all our systems. And the last I would like to mention is that we have moved over the past years and we continue to do it to common systems for support and control functions. But we've decided to keep local systems for insurance applications. So this is the first initiative. This is about building the basics. The second initiative is to automate all simple tasks. So this is about industrialization of what we've been doing over the past years. The experience that we have is that for operations, which represent 40% of our headcount, we're able to improve productivity by 3% a year. So automate all simple tasks. The third initiative that we have is to offshore more. We have about 10% of our headcount in offshoring, so about 11,000 people in three offshoring centers, so in India, in Morocco, and in Poland. We will grow it to 12% by the end of the plan. And why do we do it? We still do it obviously for cost reasons. Less than before, but we still do it for cost reasons. But we also do it because we don't find anymore the right competencies in our mature markets. Especially we don't find enough engineers. So for us, this is an opportunity also to find the right people. So we don't offshore anymore low added value task. We offshore high added value task. The last initiative that we have is to scale up our data and AI projects. It's easy to build pilots. It's easy to build use cases. It's difficult to make scale up and to do it everywhere. Together with Alex, we are extremely focused on this. We have 400 use cases around the world, but we have identified 17 that we will implement everywhere. Conclusion. I've said that our plan is about execution, but what makes us confident that we are going to be able to execute well? First, I think we have a good internal governance. A good governance is a governance in which people work together, but you know exactly who is deciding what. Second, And I am obviously totally biased on this. I believe we have a good management team. What I can tell you is that we have a very good team spirit. And as mentioned by Thomas, we have also high morale because our employee net promoter score is at the highest score ever and can be probably improved again. Last but not least, we have strong capabilities and a good track record because we've achieved all targets of the last plan. So this is where we are. We have a good plan. And what is new about this plan is that we really want to share more and to scale up. How do we do it? We do it because we've built centers of excellence. So our centers of excellence, to give you some examples, we have one on AI, we have one on cyber insurance, we have one on EB, and we also have communities and expert networks to make sure that what we do is really scaled up. So we have a clear plan. We have the right team. It's all about execution. Count on us. Thank you.