AXA tops forecasts as insurers face profit squeeze

AXA, Europe's second biggest insurer by market value, shook off gloomy sector conditions on Wednesday with a smaller than expected drop in half-year earnings, sending its shares to a 7-month high.

AXA's results came as reinsurer Swiss Re posted a surprise second-quarter net loss and Anglo-South African Old Mutual reported a bigger than expected profit drop, while life insurer Standard Life Plc said half-year profits fell more than expected.

Insurers were hit by tumbling asset values earlier this year but their shares have recovered sharply in recent months, in line with a recovery in markets overall. Yet some insurers are still able to shock investors, with Legal & General Plc for instance this week saying it suffered a sharp drop in investment returns.

AXA shares rose as much as 5.4 percent to 16.14 euros in early trading, their highest since January.

The group's earnings were cushioned as the impact from a change in the value of assets and derivatives was 819 million euros lower, mainly due to credit spread tightening, and AXA said it was ready to face any further downturn in the market.

Net income fell 39 percent to 1.32 bn euros compared with an average of estimates from 10 analysts in a Reuters poll of 896 mln.

"These results testify to a more favourable financial environment than in Q4 2008 despite depreciations that are still significant," CM-CIC Securities analyst Pierre Chedeville wrote.

Chief Executive Henri de Castries said in a statement: "We are prepared to withstand a further possible market downturn and we are well positioned to benefit from a market upturn."

Swiss Re by contrast slumped to a second-quarter net loss as charges on corporate bond hedges, securitised products and its own credit spreads ate up healthy operating returns.

The Zurich-based group made a net loss of 381 mln Swiss francs ($359.1 mln), against an average forecast for a net profit of 139 mln in a Reuters poll of 12 analysts, after charges totalling 2.1 bn francs.

Earnings and capitals

"These results are only a warning shot, the start of the demonstration that earnings and capital are not what they seem," said Kepler Capital Markets analyst Fabrizio Croce.

But Chief Executive Stefan Lippe said the company was still confident of delivering on its targets. "During the second quarter of 2009, our core business, despite the reported loss, continued to deliver strong underwriting results and solid earnings power," he said.

Shares in Swiss Re traded down 2.8 percent at 0733 GMT after strong gains in the run-up to Wednesday's results.

Standard Life, the UK's fourth-biggest life insurer, reported a 35 percent drop in half-year profit, blaming weaker sales and falling asset values, and said market conditions remained challenging.

The group made a pretax operating profit of 348 mln pounds ($589.5 mln) on a European embedded value basis for the six months to June 30, down from 534 mln a year ago. Analysts had expected 338 mln, according to the average of 11 estimates collected by the company.

Sales fell 17 percent, reflecting a market-driven decline in the value of new customers' pension pots, as well as its decision to withdraw from less profitable product lines.

Old Mutual reported a bigger than expected profit drop and said it may need to pump more money into its troubled U.S. operations next year.

Adjusted operating profit fell 30 percent to 538 mln pounds ($911 mln) in the six months to the end of June. Analysts had expected 555 mln, according to a poll compiled by the company.

South Africa's largest insurer said that while there had been no defaults on its corporate bond portfolio in the period, it had suffered impairment losses of $199 mln on investments such as mortgage-backed and hybrid securities.

At its U.S. life business Old Mutual said it had largely completed a major overhaul expected to reduce sales by about two-thirds, but the division was likely to need another cash injection next year of between $200 million and $300 million.

Allianz SE and Zurich Financial Services AG are due to report later this week.