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Strategic Issues in Financial Services

AXA plc


Strategic Issues in Financial Services







AXA is a well-established insurance and asset management brand that provides customers globally with Life & Savings, Property & Casualty, Asset Management and Banking products. For the ninth consecutive year they were named by ‘Interbrand’ as the leading global insurance brand and the only international company to operate life & savings/property & casualty insurance. AXA has a range of joint ventures in well developed countries like the US, Canada and UK where they have further subsidiaries like AXA Equitable Life Insurance in the US and AXA Sun Life in the UK. On the other hand, they also have joint ventures in emerging markets like Krungthai Life Insurance and Bharati AXA Life which is a strategy they will be focusing on in the future to further their diversification.

AXA’s revenue summarised through geography and business line:  

2018 revenue summary:

Over the years AXA has shown good continuous growth in its revenue which is an overall positive sign for the future of the company. This is further reported in recent financial reports from AXA “We grew in all five of our geographies and across all business lines” the first three quarters of 2018 their health, protection, and P&C commercial lines businesses performed very well (T. Gangcuangco, 2018). Their nine-month revenue rose 4% to €75.8bn compared with 75.4bn in the same period last year due to “the pertinence of our simplified operating model”. However, AXA’s September acquisition of Bermudian insurer XL Group damaged their solvency II ratio (key measure of financial strength for insurance companies) as it fell to 195% from 233% in June (P. Lombardi, 2018).



Rest of Europe



International &


Fig 2. AXA half year 2018 earnings

To review AXA’s 2018 revenue through geography fig 2 shows how revenues are strong mainly due to strong growth in France’s Health and Life savings sectors. Europe saw good growth with Health, Property & Casualty while Asia saw development in Japan and Hong Kong. The US saw good increases in revenue because of a successful IPO and International divisions grew due to expansion in Mexico’s Health sector.

Furthermore, from looking at AXA’s 2018 business line revenue fig 3 you can see their preferred segments: Health increased well to 3.5bn Euro due to the market in France while P&C Commercial lines grew to €6.3bn due to demand from all countries in Europe as well as demand in AXA Assistance. Protection rose substantially at 10% because of boosted sales in semi-autonomous contracts in Switzerland as well as higher sales in the US and France.

6-year revenue comparison

To further summarise their revenues, we can compare business lines and geography from previous years which will give a greater analysis of the performance of their strategy. Revenue has increased over the years in a good trend line with the exception of 2017 where revenue was 1.64% below 2016 and the lowest performing year was 2014 with a poor half 2 performance. I have also gathered estimated figures for the rest of 2018 and 2019 where AXA will see positive growth over the next year.

Revenue in (EUR)billion 2014 2015 2016 2017 2018 2019
Full year 92.0 99.0 100.2 98.5 103.0 108.5
Half 1 49.7 54.5 62.5 54.4 53.6 53.7
Half 2 42.3 44.5 54.0 44.2 54.7 53.7
Total 184 198 216.7 197.1 211.3 215.9

Fig 4. Table showing reported revenue across 5 years and expected revenue for 1 year in EURO billions. Red: Estimated figures (Source Bloomberg Terminal)

Fig 5


Revenue comparison by geography:

Earlier years saw some growth as property/casualty lines in France/Switzerland and commercial lines grew however revenue has fallen in recent years e.g. 2017.

This comparison of the most important areas to AXA fig.6 shows how France is the sole country leader in both periods not too far behind the whole of Europe. It is also clear how there is not a huge emphasis on emerging markets however there has been an increase of 2.5% with revenue peaking at €7m in 2017.

2013               2014                2015

91,221 91,988 98,136
Revenue in (EUR) million 2016 2017
Europe (excluding France) 37,038.0 35,993.0
France 24,557.0 24,475.0
United Sates 16,872.0 16,911.0
Asia 9,542.0 8,985.0
International 6,981.0 7,034.0
Total 100,193.0 98,549.0

Fig 6

*Individual country figures were unavailable on Bloomberg terminal due to changes in geographical revenue reporting structure*



Revenue comparison by business line:

From a business line perspective, I have looked through a 3-year period and can clearly see that life and savings insurance has been the biggest focus for AXA. Property and casualty have seen the biggest increase in how much it accounts for which may be due to when they were planning to focus on M&A’s within the life and insurance sector. 2014 and 2015 saw the biggest decreases in Life and Savings and overall revenue from the business lines slipping €6,021 between the two years. However, 2016 then saw increases in all segments apart from Asset management.


Revenue in (EUR) million 2013 Accounts for % 2014 Accounts for % 2015 Accounts for % 2016 Accounts for %
Life & Savings Insurance 87,097.0 68.7% 82,741.0 67.1% 74,437.0 63.6% 83,918.0 65.3%
Property & Casualty Insurance 31,250.0 24.7% 31,894.0 25.9% 37,671.0 32.3% 38,519.0 30.0%
Asset Management 4,070.0 3.2% 3,775.0 3.1% 4,304.0 3.7% 4,283.0 3.3%
Holding Companies 392.0 0.3% 551.0 0.4% 109.0 0.1% 1,265.0 1.0%
Banking 513.0 0.4% 538.0 0.4% 509.0 0.4% 582.0 0.5%
Total 125,210.0   121,748.0   115,727.0   126,979.0  

FIG 8 Table showing revenue from business lines from 2013 to 2016

(Source: Bloomberg Terminal)



Summary of AXA’s strategy:

Overall you can see AXA’s strategy focus is on Europe and more specifically France as it accounts for 21% of AXA’s Geographies while emerging markets only holds 5%. This is so that they can continue to expand their preferred business lines and market leadership. However, for their ambition 2020 plan they will be focusing even more on Life & savings and more specifically health in emerging markets as the segment accounts for average of 60% revenues year on year. Focus on the US is also prominent as they are looking to expand further in markets where they have experience as this was recently done with an IPO and new products.

Their revenue is steady with growth in the future looking to continue to come from the European market as it remains to be the largest on a premium basis while offering good growth. Moreover, AXA is continuing to invest in new areas to expand their already diverse portfolio in order to reduce volatility and risk across its operations therefore emerging markets needs to be an important part of their 2019 strategy.

Main strategic issues:

To rank AXA’s issues, I have used parts of PESTEL analysis.

Their main strategic issues in order of importance are:



Macro environment factors like exchange rates and business cycles can bring about strategic issues. An example of this is how economic instability is currently high with low interest rates affecting returns which is in turn creating a risky market for AXA. In addition to this Brexit will play a huge part economically for not just AXA but the whole insurance industry if it does go forward, therefore AXA will need to overcome this challenge in order to stay a profitable market leader as the uncertainty of it is already negatively affecting the economy. Skilled labour is a big portion of the insurance industry and if restrictions are placed on recruitment of workforce then AXA must create a new strategy to employ high skilled employees while adapting to the volatile European market.

In emerging economies there is a growing trend of people needing insurance for basic risks

Like property, health and personal items. For example, in India they have a struggling economy and not everyone can access good healthcare therefore AXA can create new products by creating combination packs of insurance with value added service like health and financial education. AXA have also partnered with the IFC to help boost economic growth and insurance coverage in emerging markets however an issue with entering emerging markets is that they are struggling with tighter financial conditions and capital outflows.

Gerald Harlin CFO of AXA has said that a major challenge for the insurance sector as a whole is that it is suffering from the long-term impact of low interest rates which is partly because a high amount of capital has entered the sector and in turn has increased the capacity. This is affecting consumer confidence in AXA’s European segment regarding investment performance. However, it does provide AXA with an opportunity to sell more pension products as seen in Japan where they have seen very good profitability and growth even though Japan has a low growth economy (J.C. Pauly, 2017). Another reason is that there has been a low number of major financial catastrophes which usually increases prices therefore, to combat this AXA could enter into more emerging markets like it has done with Asia. They have also had to face another issue regarding the EU’s new Solvency II rules, these have pressed higher capital charges for some types of investment assets (O.Ralph, 2016). One asset that does not attract a charge but normally has low returns is sovereign bonds of which AXA held 20bn euros worth of risky Italian government bonds (BTP’s) equivalent to its holdings in 2017.

AXA recently completed the biggest IPO of the year for AXA Equitable even though funding fell $1bn short. This poor valuation may be due to investors still being sceptical about the effect of low interest rates on the Life and Pensions industry. As well as this another strategic move was the merger with Bermuda’s XL group for $15.3bn which was done in order to help expand more into property and casualty insurance just after US premiums increased. However, with the increase in US exposure it could negatively affect AXA because of the ongoing trade war with China. Also, once the deal was announced their share price decreased 10% and their market capitalization also fell to €6bn. James Shuck a Citi analyst said “the deal looks expensive, increases earnings volatility, raises financial risk and undermines management credibility” this in turn disappointed investors as they thought the capital from the IPO would be instead used for share buybacks or even much smaller acquisitions. There are however opportunities from this acquisition as AXA’s presence in the US reinsurance and commercial insurance will be increased (O. Ralph, D. Keohane, 2018). Another recent strategic economic decision AXA made was that they restructured Swiss Group Life so that it would carry less capital and focus on riskier investment strategies. This will in turn result in a €20m decrease in its earnings from 2019 which may not please investors and may affect revenue further.

Sold operations in Serbia, Romania and Hungary to VIG




Another strategic issue that AXA is facing is the advancement of technology as there is an increasing number of start-ups emerging like Telematics, robo-advisers and peer to peer insurers. These insurtech companies are succeeding as they are finding untouched markets and addressing unmet needs while operating on low costs due to being digital. AXA will therefore struggle to compete with these fast-growing companies as they can complete activities much quicker.

CEO of AXA Thomas Burbel said that he was worried tech companies will begin analysing, using and collecting health data, of which Google has already created smart contact lens for people with diabetes. AXA’s casualty and property sectors of insurance are now facing companies using data analysis to price products instead of using the more traditional methods like AXA use. If AXA decided to expand  into the latest tech for underwriting and pricing then they would be faced with ethical issues as AI is created by people and their ethical boundaries may not be the same as AXA’s.AI implementation would also mean that they would have to change their internal structure through retraining or hiring expensive data science teams and customers would ask the question of whether it is safe and reliable. Another issue from AI is that AXA’s car insurance business line is at risk as driverless cars will dramatically cut accident rates and change how cars are bought. However, with the ability to manage risk in real time using the internet it may not be a downside for AXA as Jon Hocking an analyst at Morgan Stanley says “There is an opportunity here for the bigger insurers, but there is an argument that the whole industry shrinks. Those who aren’t at the leading edge will face outsize losses”.

Cyber Risk is increasing with the advancement of technology and companies like AXA depend on IT systems to run efficiently and securely. Otherwise profitability and operations will be damaged as it did in 2017 when their health segment was breached affecting 5400 customers in Singapore. This compromised data could now be used in another attack on the affected customers meaning they will now have to further invest in data privacy research or risk customers leaving to go to a competitor. In addition to this 2017 also saw Phoenix Group integrate with AXA Wealth which led to an issue where an IT upgrade didn’t allow 44,000 clients to receive their pension payments.




To combat the long-term issue of global warming AXA in recent years have made strategic decisions to disinvest from coal intensive companies and stop insuring US oil pipelines as Burbel believes that they will be stranded assets in the future. AXA have also started investing a lot more into green assets which can bring good returns but overall not as high as assets like oil and therefore disinvestment from these industries could negatively affect revenue in the future as these markets can be very profitable.

about half of AXA’s global carbon emissions are related to its power consumption and with them operating in 60 countries it will be a challenge to completely turn environmentally friendly as some countries may have different regulations and attitudes towards climate change.

With the increasing effects of global warming leading to more natural disasters

Last year AXA was part of costs of $306bn in the US last year due to natural disasters and AXA’s XL Group reported losses of $1.33bn due to Hurricanes. Therefore, before AXA start investing more into emerging markets where natural disasters are quite common, they must evaluate environmental factors like the weather in order to sustain losses.



I have chosen and ranked these strategic issues in this order because with AXA being in the insurance industry they can only grow if the economic conditions are suitable for their strategy. The biggest concern is low interest rates as it is decreasing their returns as well as other current issues like Trumps protectionism strategy and China’s slowed economy which are affecting AXA’s current performance and where they decide to go in the future.

The threat from both direct cyberattacks and major cyber insurance losses is escalating.


References: in alphabetical order


AXA’s strategy focuses on corporate responsibility through creating value for shareholders and customers while also contributing to economic growth and social stability. AXA are involved in a range of themes and issue prevention like health risks, climate change and responsible data. Through this strategy they aim to have invested €200m into risk research by the end of 2018 and by 2020 aim to €350m into impact investing and €12bn in green investments. Furthermore, their 2020 strategic plan aims to enhance their completive advantage and reduce exposure to volatile financial markets

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