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French insurer Axa to guide investors on plans for excess capital


(Reuters) — Investors will look for clues from Axa S.A. this week on how the French insurer will use excess capital it holds under new European risk rules and whether this gives it room for more ambitious profit targets.

European insurers are preparing for the new rules, known as Solvency II, which come into effect in January and are designed to protect the industry against financial shocks.

Insurers have already begun to publish so-called Solvency II ratios, which compare their capital on hand with the amount the rules say they should hold for the risks on their books.

Axa, Europe’s second-biggest insurer, which is holding an investor day on Thursday, is expected to meet those new risk rules by a big margin.

“New disclosure from Axa may include a formal Solvency II target, hence, a sense of at what level they believe they have excess capital and how it will manage leverage and dividends,” analysts at Goldman Sachs said in a note.

Axa is targeting a 40% to 50% dividend payout for 2015. It paid out 45% of net profit for 2014.

Axa’s economic solvency ratio, an important gauge of funds available to cover liabilities, would come under the Solvency II regime at “plus or minus 10 points” compared to its initially estimated ratio of 212%, the company said in a conference call with analysts earlier this year.

The model Axa has used to reach this figure is subject to approval by the French ACPR financial regulator as part of the transition to Solvency II. ACPR declined to comment on whether it had already approved the model.

Most insurers are targeting solvency levels well above 100% of the solvency capital requirement.

“At the point when Axa achieves an adequate level of solvency ... it will give the group an opportunity to be more aggressive in their profitability targets,” said Yohan Salleron, a fund manager at Mandarine Gestion, who has Axa shares in his portfolio.

Axa has largely achieved its 2015 goals, set in 2011, as stronger-than-expected insurance profits offset lower-than-targeted asset management returns, analysts at Goldman Sachs said.

Axa is targeting a 13% to 15% adjusted return on equity in 2015 versus 16.1% end-June and 10% reported in 2011, based on targets announced in 2011 and data published on the company’s website.

It is due to present its new targets for the years ahead in June next year.