French insurer Axa sees lower earnings growth

(Reuters) — French insurer Axa S.A. on Tuesday set lower earnings growth expectations for the coming years in a strategic plan that incoming CEO Thomas Buberl has drawn up to cope with historically low interest rates.

In the face of falling yields on its investments, Axa said it aimed to increase earnings per share by 3% to 7% a year in 2016-2020, down from a target of 5% to 10% in its plan for the last five years.

Faced with tighter regulation and declining investment returns, Europe's second-biggest insurer said it aimed to grow operations in areas such as property/casualty insurance for businesses, savings products tying up little capital and operations in Asia.

"A couple of years ago we have been thinking this (low interest rates) is a temporary phenomenon. We now know this is the new norm," Mr. Buberl told investors in a speech broadcast on the group's website.

Axa shares opened down one percent but had recovered their losses to be flat by 0730 GMT, in line with the broader CAC 40 index of leading French stocks.

"Headline financial targets are solid, yet a little underwhelming which highlights the difficult macro backdrop ... With little to move consensus on here, we expect slight disappointment," UBS analysts said.

Axa said it was ready to spend around €1 billion ($1.13 billion) on mergers and acquisitions per year, balanced across mature and emerging markets.

"The old equation ‘emerging markets means growth, mature markets means no growth’ is not true anymore... We need to be selective," Mr. Buberl said.

Axa plans to outpace market growth in Asia, aiming to have more than 35 million middle-class customers by 2020, targeting in particular Indonesia, India, Thailand and Philippines.

Underlying earnings are expected to rise sharply in Asia to €900 million ($1.02 billion) in 2020 from the €551 million ($621.4 million) it made in 2015.

Axa forecast a 12% to 14% return on equity in the 2016-2020 period, compared with a 13% to 15% target in the previous plan.

The new plan also includes a target for €2.1 billion ($2.37 billion) in cost savings by 2020.