The headquarters of the insurance giant AXA, one block from the Élysée Palace, reflect the company's character. The Catalan architect Ricardo Bofill's large glass atrium is decidedly modern. It is grafted onto the Hôtel de La Vaupalière, an 18th century mansion that was the scene of extravagant entertaining under Louis XVI. The combination creates an impression of fusion between tradition and the future, between France, Europe and a global outlook. It is intended to convey wealth, solidity and confidence.
With the acquisition of the international insurance company XL in 2018, AXA became the world's largest property and casualty commercial lines insurer.
Thomas Buberl, age 46, was appointed chief executive in 2016. He recently invited the Anglo-American Press Association to AXA's headquarters, for lunch in the opulent Napoleon III salon, under the stern gaze of oil portraits of past eminences, now nameless and forgotten.
Buberl holds a doctorate in economics and is a veteran of Boston Consulting Group and Zurich Financial Services. Despite his German and Swiss nationalities, AXA remains very French. It grew from a union of French regional mutual insurance companies in the 1980s.
Geopolitical instability
Two themes dominated the discussion: instability and climate change. “When I think about the environment, there is one word that comes to mind and that is instability,” Buberl says. “I have always seen instability as a source of great potential for AXA to serve their customers better. More instability means more necessity for awareness of risks, but also more and different solutions to reduce risks.”
The US-China trade war was emblematic of geopolitical instability, but it goes far beyond that, Buberl says. He is also preoccupied by political fragmentation and the rise of populism in developed countries, by Europe’s inconclusive efforts to define its role in the world, by soaring healthcare costs and threats to cybersecurity. There’s a sense that world commerce is approaching a turning point.
“We are coming from a phase that has been characterised by low interest rates and higher debt levels,” Buberl explains. “What will the new phase look like? What are the degrees of freedom and how will this also impact the markets? Because when we look at the markets, we are at an all-time high. One could assume that when a variable changes, it could go in the opposite direction.”
Low interest rates were a major factor in Buberl reducing the proportion of life insurance and savings in AXA’s portfolio from 80 per cent to 20 per cent.
Some predict that interest rates will eventually rise, around 2025. “My hypothesis is that interest rates will remain low,” Buberl says. The demographic decline in developed countries means people consume more than they accumulate. “That is what we are seeing now, and that is also the reason why interest rates will not go back to 4 or 5 per cent. Over 10 years, they will probably oscillate between 2 and 3 per cent.”
AXA has made the fight against climate change a top priority. Buberl is one of seven founding members of the Climate Finance Leadership Initiative that was created by US billionaire and presidential candidate Michael Bloomberg as a result of the 2016 Paris Agreement on climate change.
AXA was one of the first big companies to begin divesting from coal, and promises to complete its exit from all coal-related investments by 2030 in developed countries, and by 2040 worldwide.
Last November, AXA announced that it has met its pledge to raise green investments to €12 billion by 2020. It now promises to double that figure by 2023. Its XL division refuses to insure coal-fired plants and coal mines, or oil sands extraction.
AXA has also committed to lowering the "warming potential" of AXA's investments to below 1.5 degrees by 2050, as recommended by the Paris Agreement. With the help of a start-up called Carbon Delta, AXA uses a metric to measure the "warming potential" of its investments.
“You can quantify the warming potential of your own action,” Buberl explains. “I am quite certain this will become a market standard. It’s a simple measure that summarises all your action [against climate change] through one number.”
The Carbon Delta metric introduces a whole new sector of corporate responsibility, and a rating system for compliance with the imperative to kerb global warming. “We measure our own portfolio and actions by the degree of warming, Buberl explains.
“Our portfolio, as it stands today, is 3.1 degrees of warming,” he says, well below the widely used market indices of 3.7 degrees.
“The question for us is how we lower it further. For example, if your company operates a data centre, you can measure exactly how much energy you spend and how that translates into degrees of warming. If you’re an airline, you know how many flights you do, which planes you fly, how heavy they are, how much kerosene.”
We met Buberl during the crisis over President Donald Trump’s decision to assassinate the Iranian General Qassem Suleimani. How do global insurance companies cope with the geopolitical risk posed by such an erratic leader?
“I think it’s just a matter of our time that this happened, and it’s something that we have to live with, like it or not,” Buberl says. “As a business, you have no other option than to live with it and adapt yourself to it . . . if you say, ‘I am going to exit all geographies where there is instability’, you probably will remain nowhere.”
Buberl calls Brexit "a sad story that could have been prevented, had we looked out for each other and talked to each more and understood each other more".
“British politicians had demands and needs from Europe – and I mean Brussels – that were worth listening to, but which were not addressed.”
He cites immigration and the single digital market as examples.
Buberl believes the first stage of Brexit will occur at the end of this month, as planned. “I’m not so sure about the second stage, 11 months from now. As a business, we’ve prepared ourselves for a hard Brexit, meaning we’ve prepared ourselves to make sure that we use our European bases to absorb the pieces that could no longer stay in Britain.”
In particular, AXA has begun replacing non-UK employees in the UK with British employees.
AXA PPP is a major player in home and health insurance in the UK. Buberl is more concerned about commercial insurance “because it is very linked to trade relations with Europe, and that is very much linked to supply chain effects”.
Pension reform is a red-hot issue in France, where President Emmanuel Macron’s attempt to raise the retirement age and meld 42 regimes into one has led to six weeks of crippling strikes.
Interest rates
Buberl says low interest rates which translate into a poor return on savings, combined with longer life expectancy, should mean there is “not even a discussion” about working longer. “We’ll soon be in a situation where as one person enters school, two people are exiting the work system to retire. This is not sustainable.
“France is one of the last European countries to address it,” Buberl continues, noting that Germans retire at 67. Sixty-two remains the legal age in France, though Macron wants to dock pensions for those who leave work before a “pivotal age” of 64.
Buberl refutes the widespread belief in France that Macron wants to move from a system of generational solidarity, where young people pay for their elders, to a capitalisation system where you receive only what you have saved. “To change a generational system into a capitalisation system is extremely difficult, because you are basically missing the contribution of one generation that you always carry with you,” he says. “Some countries have started to do that, but the possibility of doing it on a large scale in a short time is extremely limited.”
French protestors accuse companies that provide private pension plans of encouraging Macron to make the reform. I ask Buberl whether private insurers stand to gain from French pension reform. "Yes, because there's a bigger space for the private market," he admits. "But let's not get into fantasies. The effect of that happening is very limited. In Germany, after more than 10 years, it represents only 6 to 8 per cent of total savings, so it's a storm in a teacup."
******
What is AXA?
The AXA Group is a worldwide leader in insurance and asset management. It operates in three main areas: property-casualty insurance, life and savings, and asset management.
Its expansion to global status began in 1992, with acquisition of The Equitable Companies in the US. It has since purchased more than a dozen companies on five continents. Its acquisition of the international insurance company XL in 2018 gave it a leading position in the global property and casualty markets, as well as in specialist lines of business including those underwritten at Lloyd's of London.
Total assets (2018 figures): €931 billion.
Global revenues: €102.9 billion, a 4 per cent increase over the previous year.
Net income: €2.1 billion.
AXA earns 60 per cent of its gross revenue in Europe, with 24 per cent in France and 36 per cent elsewhere in the EU. Some 9 per cent is generated in Asia, and 6 per cent is other countries.
Ireland accounts for 1.5 per cent of AXA's global business, mainly in motor, household and agricultural insurance.
Thomas Buberl says he particularly likes the Irish market, North and South, because AXA went rapidly from being a middIe-ranking company in Ireland to number one.
