Axa May Post Second-Half Loss, Cut Dividend on Market Slump

Feb. 18 (Bloomberg) -- Axa SA, Europe’s second-largest insurer, may post a second-half loss and cut its dividend for the first time in seven years as the biggest slump in stock markets since the Great Depression eroded the value of investments.

The Paris-based insurer will probably report a net loss of 1.76 billion euros ($2.25 billion), compared with a 2.49 billion- euro profit a year earlier, according to the median estimate of 13 analysts surveyed by Bloomberg. Axa may lower its 2008 payout to shareholders by half to 60 cents, 11 analysts estimated.

The largest decline in equity markets since the 1930s has cut the value of Axa’s investments and dented demand for life- insurance policies linked to stock. Chief Executive Officer Henri de Castries said in November that the assumptions backing the company’s 2012 profit goals “have dramatically changed.”

“Axa is not immune to the financial crisis,” said Lutz Roehmeyer, who helps manage $14 billion at Landesbank Berlin Investment, including Axa shares. “The most important thing for an insurer today is to preserve capital and increase liquidity.”

Paris-based spokesman Emmanuel Touzeau declined to comment on the estimates for Axa’s earnings or its dividend.

The Dow Jones Stoxx 600 Index sank 46 percent last year for the worst annual performance on record as credit-related losses at financial firms that topped $1 trillion pushed the U.S., Europe and Japan into the first simultaneous recessions since World War II.

Insurer Writedowns

North American insurers have posted about $130 billion in writedowns and unrealized losses tied to the housing slump. Prudential Financial Inc., the second-largest U.S. life insurer, posted a $1.57 billion fourth-quarter loss after investments in subprime securities and stocks declined in value.

Life insurers invest the premiums they receive on behalf of customers in assets including equity, government bonds and corporate debt. Since life insurance contracts run for years, life insurers typically have bigger investment portfolios than other insurers and are more exposed to market movements.

MetLife Inc., the biggest life insurer, sold $2.3 billion in shares in October to boost finances, while Hartford Financial Services Group Inc. cut its dividend and raised $2.5 billion by selling debt and equity to Allianz SE.

Axa publishes profit tomorrow, the first among Europe’s top three insurers to report 2008 earnings.

The company has fallen 30 percent this year in Paris trading, valuing the insurer at 23.2 billion euros. Allianz, Europe’s largest insurer, has dropped 21 percent, while Italy’s Assicurazioni Generali SpA, the continent’s third biggest, has declined 29 percent.

‘Small Buffer’

Axa’s solvency ratio, a measure of its ability to absorb losses, will probably fall to 131 percent from 135 percent on Oct. 31, according to the median of eight estimates.

“Solvency has priority over dividends at Axa, so we expect it to opt to maintain a small buffer by reducing” the payout, Emmanuelle Cales, an analyst at Societe Generale SA, wrote in a note to investors. “This is exactly what Axa did in 2001-02.”

The insurer can absorb further shocks and has “absolutely” no need to raise funds, de Castries, 54, said on Nov. 25. The company is under no pressure from the government or regulators to increase capital, Chief Financial Officer Denis Duverne said that same day at an investors meeting.

Axa’s solvency ratio fell to 135 percent by Oct. 31 from 148 percent at the end of June, partly because of acquisitions in Mexico and Turkey.

AIG Assets

“Axa has got little leeway for solvency,” said Benoit de Broissia, an equity analyst at KBL Richelieu in Paris that oversees $5.1 billion including Axa shares. “The environment is such that maybe Axa will have to make a capital increase,” especially if it plans an acquisition such as buying parts of American International Group Inc., the U.S. insurer rescued by the government, he said.

AIG is auctioning off its global life-insurance operations to help repay parts of a $150 billion U.S. government bailout. AIG said in October it would sell life operations in countries including the U.S., Japan, and the U.K. and a minority stake in a unit that sells life policies in China and other Asian nations.

Property, Casualty

De Castries said in October that the French insurer was interested in AIG’s assets in the U.S. and Asia. The company hasn’t made comments on AIG since then. Axa’s Touzeau declined to comment on any acquisition plans.

The company’s 2008 net income probably fell to 400 million euros from 5.67 billion euros, according to analysts’ estimates. Operating income, excluding one-time items and acquisition- related costs, probably declined 24 percent to 3.79 billion euros.

In the second half, Axa’s operating earnings from life and savings, the insurer’s biggest business, probably shrank to 53 million euros from 1.18 billion euros a year earlier, according to the estimates. Property and casualty’s profit probably rose 5.6 percent to 950 million euros, while asset-management earnings probably fell 47 percent to 161 million euros.

Bloomberg calculated 2007 second-half earnings by subtracting Axa’s first-half figures from annual data. Axa declined to confirm the figures.