AXA Restructuring Asia Operation

Axa may be moving forward with the sale of its operations in Singapore, India and Malaysia as it continues to simplify its footprint and integrate the XL business.

The cash could also come in handy after the company revealed €1.5 billion (US$1.78 billion) of Covid-related claims, cancelled a special dividend it had planned and withdrew some of its financial targets for 2020.

Singapore is the latest to be rumoured for sale. It could be a challenging sale. The business generated revenues of €615 million (US$731.1 million) in 2019, primarily from life and savings, but new business was down 46% during the first half of 2020.

Axa says that this is a consequence of the Covid-19 crisis, which is certainly true — premiums in Hong Kong fell by an even bigger amount — but it will nevertheless complicate the valuation of the business and make it difficult to reach a price that satisfies both sides.

Any Singapore sale wouldn’t include the Axa XL business, which is a separate unit within the overall Axa group.

In Asia, Axa says it is concentrating on its stronghold markets in Hong Kong and Japan, and what it sees as growth markets in China, Indonesia, the Philippines and Thailand.

While the motivation behind Axa’s potential disposals is ostensibly about a long-term strategic vision, it will also be about improving the group’s solvency position and reducing debt. An expected €1.6 billion (US$1.9 billion) from disposals this year would offer a welcome upside after the company paid US$15.3 billion for XL in 2018.

Small Entities - operation in Singapore, India and Malaysia have all been classed as “smaller entities” since a strategic review in 2016, which placed them alongside disparate parts of the company’s international footprint, including operations such as Lebanon, Nigeria and Azerbaijan.

While this grouping isn’t officially a clearing house for unwanted businesses, many of them are expected to be sold. Indeed, several have already been offloaded this year. Operations in Poland, the Czech Republic and Slovakia were all bought by Vienna-headquartered insurer Uniqa in February.

In Asia, Axa says it is concentrating on its stronghold markets in Hong Kong and Japan, and what it sees as growth markets in China, Indonesia, the Philippines and Thailand.

The strategy is “to focus on countries where Axa has strong positions and where market potential is aligned with our high ambitions”, adding that close to 90% of its earnings are generated in these markets.

In China, for example, it completed the acquisition of the remaining 50% stake in Axa Tianping at the end of last year.

Attractive Sales - The joint ventures in Malaysia and India are both mid-size players with big enough businesses to be attractive to strategic buyers with the willingness to invest, but clearly lacking the potential of Axa’s favoured businesses.

The Paris-headquartered insurer has a 50% interest in Axa Affin in Malaysia and a 49% stake in Bharti Axa in India, which both comprise life and P&C units.

While unconfirmed, both businesses are already reportedly being offered to potential buyers. ICICI LOmbard has recently been rumoured to be interested in the P&C arm of the Indian joint venture, with some analysts reckoning that the business could be valued at around US$360 million.

In Malaysia, Great Eastern and Generali have both been rumoured as possible bidders for the Axa Affin business in a deal worth around US$650 million. Axa’s direct business in South Korea is also within the group of unfavoured units, but this doesn’t necessarily mean that it is on the chopping block.

Buying XL was also part of Axa’s strategic transformation, but 2020 was looking like a tough year even before Covid-19. The company issued a profit guidance in February, alerting investors that earnings at Axa XL would be €200 million (US$238 million).