Financial Crisis Hits Axa Asia Pacific’s 2008 Earnings

Axa Asia Pacific Holdings Ltd. [86639] reported a net loss for 2008 as capital-market turmoil weakened investment results and certain wealth management lines of business.

The insurer posted a net loss of A$278.7 billion (US$177.5 million) in 2008, compared with an A$638.7 million profit in 2007. Losses included nonrecurring items totaling A$152.8 million in 2008 calendar year ending December. The Australia-based life insurance and wealth management group said current global financial crisis has hit the insurer's business performance, making for a challenging outlook for the industry.

The 41% and 40% drop in domestic and global equity markets, respectively, led to the French insurance group's negative investment earnings of A$537.7 million in 2008, compared with a positive earnings of A$234.8 million in 2007.

"We are living in extraordinary times with the sever dislocation and losses in investment markets over the last 20 months," said Andrew Penn, Axa Asia Pacific's chief executive, in a statement.

The insurer's operating earnings rose 2% to A$555.6 million, mainly driven by growth in Hong Kong and Southeast Asia markets. Hong Kong contributed HK$1.9 billion in operating earnings in 2008, up 12% from the previous year.

The growth in Hong Kong was mainly driven by the financial protection business and the inclusion of a full year for Winterthur, a wealth management subsidiary of Axa, according to the company. "Reflecting a continued shift towards higher margin traditional life business and improved persistency, the value of new business was up 6% to HK$1.2 billion (US$154.7 million)," said Penn.

Axa Asia Pacific's operating earnings in Southeast Asia including Singapore, Philippines, Thailand, Indonesia and Malaysia rose 56% to A$34.9 million. Value of new business totaled A$157.9 million in 2008, up 40% from 2007.

India and China posted negative operating earnings of A$34.5 million in 2008, widening from 2007's negative A$19.5 million. However, India and China experienced strong growth with new business, up 272% and 18% respectively. Last year, Axa Asia Pacific expanded its network to more than 200 branches in India. In China, it obtained operational licenses in 11 major cities, up from five cities in 2007.

In New Zealand, Axa Asia Pacific saw a 28% drop in operating earnings to NZ$42.8 million (US$21.8 million) and value of new business fell 40% to NZ$10 million. In Australia, the insurer's operating earnings increased 1% to A$235.3 million and value of new business fell 40% to A$106.8 million.

Overall, the insurer's capital position "has been well managed" and the group produced "a solid operating performance" in the past year in spite of the obvious effect of adverse market conditions, said Penn. "We end the year with assets of A$779 million in excess of our regulatory requirements," he added.

Axa Asia Pacific said it will focus on capital-protected products and financial protection business in the Asia-Pacific region as there is bigger customer demand for security and protection. "There is a significant reduction in demand for wealth management products and a bias towards more defensive asset classes, more traditional products and more insurance protection," said Penn.

Last year, Axa Asia Pacific's operating earnings for wealth management fell 27% and 44% to A$60.7 million and NZ$11.1 million, respectively, in Australia and New Zealand. In Hong Kong, its operating earnings for wealth management rose 60% to HK$267.6 million in the past year.

Last November, the insurer said it planned to double the size of its Asian operations in terms of new business and annual premium income by 2012. It also attempted to lower its cost-to-income ratio to less than 20% for its Hong Kong unit and less than 60% for all other Asia-based units and to improve employee engagement.

In last November's strategic plan, Axa Asia Pacific said Asia remained a "very attractive market" and the company would seek to extend its geographic and scale expansion. Overall, the fundamental factors driving the wealth management and financial markets across Asia have not undermined by the financial crisis, the insurer said.

In the longer term, Penn said "the fundamental characteristics that continue to make our markets attractive have not changed." This includes the superannuation savings business in a number of markets across Asia which are growing faster than global averages, given with "attractive demographics and high savings rates."

In the coming year, Penn said "it seems unlikely that the environment will improve in the short term such that 2009 will also be challenging for our industry."

(By Iris Lai, Hong Kong bureau manager: [email protected])