AXA’s First-Half Profit Plunges on $1.8 Billion Covid Charge

(Bloomberg) -- AXA SA's profit sank in the first half as it booked a 1.5 billion-euro ($1.8 billion) charge for claims related to Covid-19 and warned of further shocks from the pandemic.

The French insurer saw net income fall 39% from the year-earlier period to 1.4 billion euros, driven lower by virus-related claims and writedowns of invested assets, according to a company statement on Thursday. In response, the firm scrapped two growth targets and canceled a payout to shareholders.

The Covid charge was in line with AXA's previous estimate of claims related to the pandemic this year. But the firm said the number could go higher.

The charge “represents our best risk estimate at this time,” Chief Financial Officer Etienne Bouas-Laurent said on a call with journalists. “That doesn't mean there won't be good or bad news in the second half. There could be new, unforeseen developments.”

The pandemic's impact is set to be three times greater than that of the last financial crisis, with premium income expected to drop by 3.8% this year, Allianz SE said in its global insurance report last month. Lloyd's of London estimated in May that the insurance industry will suffer about $203 billion in losses from the pandemic this year, with about $107 billion coming from claims and the rest from the hit to insurers' investment portfolios.

Legal Challenges

AXA shares have declined by about 30% this year, giving the Paris-based company a market value of 42.7 billion euros.

The French insurer is one of many in Europe to face legal challenges related to the pandemic. It agreed in June to cover losses sustained by several hundred restaurants during the lockdown after it lost a lawsuit brought by a policyholder. These so-called solidarity payments to small businesses contributed to the Covid-related charge, according to the statement.

Speaking to Bloomberg TV after the results came out, Axa Chief Executive Officer Thomas Buberl said he was very concerned about the economic impact from further waves of Covid-19. “The long and enduring effect of this crisis on the negative side will be low interest rates, which is obviously never a good message for customers that are saving for their retirement,” he said.

In response to the virus impact, AXA withdrew targets for earnings per share and return on equity, and dropped a special dividend planned for the fourth quarter, citing the French regulator's request for insurers to conserve cash.

The insurer got a boost from its asset-management unit, which recorded an influx of 16 billion euros, with its fixed-income funds attracting much of that cash.

While AXA remains open to dealmaking, Bouas-Laurent said it's not the firm's first priority.

AXA and Cinven Ltd. have agreed to terminate the sale agreement related to AXA Life Europe, because some conditions of the deal weren't fulfilled, according to the statement.

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