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Despite Its Losses From Hurricane Ian, AXA XL Expected To Produce Underwriting Profit

Despite Its Losses From Hurricane Ian, AXA XL Expected To Produce Underwriting Profit

Despite Its Losses From Hurricane Ian, AXA XL Expected To Produce Underwriting Profit

Despite Its Losses From Hurricane Ian, AXA XL Expected To Produce Underwriting Profit

According to a recent estimate by analysts at JP Morgan, despite losses brought on by Hurricane Ian, AXA XL is anticipated to generate an underwriting profit.

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According to the article, JP Morgan is reducing its underlying earnings expectations for AXA by 2% to 6% over 2023E to 2024E and its price target from €31 to €30 in advance of the release of the third quarter Activity Indicators on November 2nd.

The firm noted: “A 6% reduction in underlying earnings estimate for 2022E is mainly due to the inclusion of a $500mn loss from Hurricane Ian. However, we still expect an underwriting profit at AXA XL and at the Group P&C level, supported by its reinsurance protection and actions to de-risk the business, in our view providing further evidence that AXA has successfully turned XL around on to a path of better underwriting stability.”

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Despite Its Losses From Hurricane Ian, AXA XL Expected To Produce Underwriting Profit

Additionally, JP Morgan believes that conditions for strong pricing improvements in commercial lines remain in place, given natural catastrophe losses, high inflation, and a continued positive inflection in reinsurance pricing.

It said: “With the stock trading at ~6.5x P/E, a strong Solvency II capital position and our forecast of a €500mn share buyback announced at FY22E results, we reiterate our Overweight rating. Our 2022E underlying earnings estimates are ~3% below consensus (we believe due to consensus not yet fully reflecting estimates for Hurricane Ian), but are 3% ahead of consensus from 2023E onwards.”

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The $500 million estimate for Hurricane Ian, according to the research, assumes a 2% market share of Hurricane Ian’s losses and a $67 billion global insured loss. According to JP Morgan, a $350 million retention in AXA XL’s primary insurance operations could prevent losses in this line of business, while gross losses are anticipated to be greater.

The paper indicated that the re/insurer also gains from a 25% quota share for North Atlantic Hurricane losses.

JP Morgan said: “Allowing for this, and the ~40% reduction in property-catastrophe risk exposure at AXA XL Re over 2022E, we estimate a further $150mn loss from Hurricane Ian in AXA XL’s reinsurance division.

Despite Its Losses From Hurricane Ian, AXA XL Expected To Produce Underwriting Profit

“We forecast a 2H22E combined ratio at AXA XL of ~99% and an FY22E combined ratio for AXA XL of ~97%. Hence, we expect AXA XL to generate an underwriting profit in spite of Hurricane Ian, which we believe demonstrates the extent of risk reduction and underwriting improvements at AXA XL.

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We forecast a Group P&C combined ratio for FY22E of ~95% and believe AXA is on track for a ~93% combined ratio from 2023E onwards.”


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