AXA UK earnings down 18% in 2009 to £235million

In the UK & Ireland, underlying earnings decreased by 18% from £288m in 2008 to £235m in 2009. The result was significantly impacted by the economic climate but also by large exceptional items including severe weather events and commercial losses in General Insurance of £157m offset by a favourable contribution from the internal restructuring of a portfolio of annuity liabilities in the Life business of £106m.

General and Healthcare Insurance (P&C)

Total P&C (General Insurance which is AXA Insurance and AXA Ireland, plus Healthcare, which is AXA PPP) - gross revenues remained flat at £3,543m in 2009 compared to £3,545m in 2008.

Overall revenues (GWP) in UK General Insurance (excluding AXA Ireland) were down 4% to £2,045m in 2009 from £2,140m in 2008 - this small decline is due to the strategic focus on profitability and the continuing soft market in Commercial.

There has however been a hardening of market conditions within Personal Lines (Direct and Intermediary) - which saw a robust performance in motor in AXA Insurance Direct (through internet sales), with revenues up 44% and customer policy numbers climbing 37% to 715,000 following recent advertising campaigns and improved customer retention. Personal Intermediary motor revenues were up 16% as a result of the successful launch of the new AXA Car product.

Household has also seen strong revenue growth - up 16% overall due to growth on existing panels in the Personal Intermediary business, and from new deals such as the Marks & Spencer product as well as from the launch of the Direct household product.

Revenues in travel down 19%, creditor down 21%, pet down 26% and warranty down 48% have all seen a decline due to the impact of the economic downturn as well as the decision to exit unprofitable deals.

Commercial Lines revenues overall were down 15% due to the strategy of moving away from MGA relationships and focusing on profitability rather than growth, and a highly competitive market environment for new business. Liability revenues were down 24%, Commercial motor down 11% and property down 12%.

The business continues to focus on profitable growth through exiting unprofitable business, renegotiating corporate partnership deals, reducing exposure on certain lines, improving the commission ratio as well as controlling costs overall. Improving service levels is a key priority and considerable work is being done to improve further broker service. The AXA brand is also being built in the direct to consumer market in the household and motor sectors - as evidenced by the recent entering of the direct car insurance market with the launch of a highly competitive AXA branded product.

Ireland (Republic of Ireland and Northern Ireland)

In Ireland, where 84% of the portfolio is personal motor and household, market conditions have hardened and this, combined with improved renewal retentions has led to an increase in revenues of 3% to €433m. This included a strong performance in Northern Ireland following the expansion of the broker channel and the development of an integrated direct channel (internet, telesales, branch). These actions along with a cost reduction programme have led to an improved underwriting margin and combined ratio.

Healthcare

Revenue growth in Healthcare has continued with revenues increasing 4% to £1,112m in 2009 from £1,070m in 2008. This has largely been fuelled by growth in International markets up £51m particularly in the Middle East and Asia Pacific capitalising on AXA Group's strong presence in these markets, in addition to modest increases in UK large corporate and SME revenues, up 2% overall. Offsetting this has been UK Personal business where revenues have declined 5% due to the difficult economic environment.

Total General Insurance and Health underlying earnings in the UK and Ireland declined by 63% from £244m in 2008 to £90m in 2009 mainly due to a series of large exceptional items in General Insurance totalling £157m. These, as well as lower investment income, were only partially offset by an upturn in underlying underwriting performance driven by improvements in both the loss and commission ratios. Together these factors increased the general insurance and healthcare combined ratio from 99% in 2008 to 102.2% in 2009.

Life and Savings

AXA UK's Life business includes AXA Wealth (AXA Winterthur Wealth Management, AXA Wealth International, Architas multi-manager and the Elevate wrap platform) Corporate Pensions, Protection and Sun Life Direct. Total new business revenues (APE) were down 18% from £1,026m in 2008 to £840m in 2009 largely attributable to the impact of the economic downturn on consumer sentiment towards long term savings and pensions. The move to a fee-based business model (from commission-based), in particular by stopping new initial commission in corporate pension sales, has also contributed to lower new business - however this has positioned the business well for the new post-RDR world and has improved the profitability of new business.

Revenues (APE) in Wealth were down 23% to £474m having been hit hard by the recession - there was a sharp drop in sales of off-shore bonds (down 40%), personal pensions (down 26%) and on-shore bonds (down 18%). However, products which were launched or further enhanced in 2009 such as the single pension ('The One from Winterthur') and family SIPP ('Family Sun Trust') are performing well, and in November the business won the Financial Adviser 5 star award for Investment Provider and for Life and Pensions Provider as well as an outstanding achievement award for consistent performance in recent years. Wealth has continued to perform well relative to its competitors and retains a dominant position in its target pensions and investment segments. It is well poised to take advantage of the changes proposed in the FSA's retail distribution review (RDR) as well as from its investment to transform the business through the Elevate wrap platform and Architas multi-manager businesses.

Considerable progress has been made with the Elevate wrap platform which has signed up 363 IFAs, well ahead of plan, and with the recent delivery of additional functionality, it is now leading the market with its unbundled pricing structure capability meeting the needs of financial advisers, and has now exceeded £695m funds administered on the platform. Architas provides whole of market investment funds and has tripled its funds under management to £3.19bn so that it is already a top 5 multi-manager business.

Sales from the bancassurance channel increased by 39% following a new deal with Yorkshire and Clydesdale Banks, completed in February 2009, and the resilience of the channel to recessionary factors seen elsewhere.

Despite securing a number of large pension schemes in 2009 revenues (APE) in Corporate Pensions were down 15% to £287m reflecting a combination of the repositioning of the business away from initial commission towards a fee based model as well as the impact of recession-driven recruitment, pay and contribution freezes on new member contributions.

The Protection business has performed strongly despite the contraction of the mortgage market - new business revenue (APE) was up 15% in the AXA Protection Account helped by the launch in July of the new on-line underwriting capability for advisers. Sun Life Direct also had a positive year with revenue growth of 17% driven in part by the strengthening of its bancassurance distribution ties.

The outsourcing of the administration of 3.2 million mature life and pension policies in the Traditional Business to Capita in June 2009 will enable a rationalisation of IT systems and significant cost reduction longer term and sustained improvement in customer service.

The margin on new business increased from 9.7% to 10.5% resulting from a change in business mix towards higher margin products and a successful programme of removing operational costs. New Business Value fell to £87m in 2009 compared to £100m in the previous year, following the fall in revenues.

Life underlying earnings were affected adversely by stock market levels which reduced the value of annual management charges levied on assets under management as well as reducing investment returns on shareholder assets and lower with-profit bonus rates. However this was offset by a one-off profit of £106m derived from the internal restructuring of a portfolio of annuity liabilities, lower amortisation of intangible assets compared to 2008 together with a reduction in operating expenses. This has resulted in an increase in underlying earnings for the Life and Savings business of 71% from £97m in 2008 to £166m in 2009. Also reflecting these favourable aspects together with the investment market recovery, European Embedded Value (EEV) has shown a return of 25%, increasing to £2,858m.

AXA Life is focusing its strategy in 2010 and beyond on continuing to transform its business into an RDR-ready, new model financial services company, with an emphasis on investment and platform innovation and service excellence. Its priorities are to grow the asset base of Elevate and Architas, manage its cost base through operational efficiencies and improve the management of capital to ensure optimal allocation across the business lines for improved overall returns.

Bluefin - distribution businesses

Bluefin Advisory Services (BAS) which provides financial advice as well as wealth management and corporate consulting services saw overall revenues decreasing by 25% to £70m in 2009, reflecting the strategic decision to dispose of the network businesses and to deliberately refocus towards fee based financial advice in readiness for RDR. Offsetting some of this decline was revenue growth in corporate consulting up 6% in difficult trading conditions.

Bluefin Insurance Group (BIG) which provides professional insurance broking and risk management services saw revenues down 9% to £116m in 2009 and while all business sectors have been adversely affected by the market those most impacted include the property and SME sectors. Despite the market conditions Bluefin Insurance has secured good overall levels of new business and customer retention rates - at 90%.