Axa SA's planned €5.4 billion sale of Axa Investment Managers SA to BNP Paribas SA underscores the challenges insurers face when running in-house asset managers.
Axa, which said Aug. 1 that it had entered exclusive talks with BNP Paribas to sell its asset manger, hopes to complete the offload in mid-2025. While owning asset management capabilities can be a boon for life insurers in particular, which need to source assets for their long-term liabilities, they can be expensive and expose their owners to the volatility of capital markets.
"It's difficult for an insurer to run an asset manager is the bottom line," Berenberg analyst Michael Huttner said in an interview.
Market reaction
Axa is at odds with some of its large pan-European peers in divesting its asset management business, but investors appeared to welcome the deal.
In addition to giving Axa access to a bigger asset manager, the deal will also be "one of the last steps" on the company's journey to reducing its exposure to financial risks, CEO Thomas Buberl said on an earnings call. Financial risks made up about 85% of Axa's portfolio in 2008 and would be 15% after the Axa Investment Managers (Axa IM) sale closes, the CEO said.
With the deal, Axa will be able to focus its capital and cash on its "pure insurance business," Rhea Shah, analyst at Deutsche Bank Research, said in an emailed statement.
Reducing exposure to asset risks will also be a positive for investors, Berenberg's Huttner said. Institutional investors are naturally assuming market risk "so an asset which offers you less correlation is always more attractive," he said.
A divided market
The European multiline insurance market is split on owning asset managers. Zurich Insurance Group AG sold its US asset manager Scudder in 2002 and offloaded its UK asset manager Threadneedle a year later. Allianz SE, Assicurazioni Generali SpA and Aviva PLC still own asset managers. In the Netherlands, NN Group NV sold its asset manager in 2022, but ASR Nederland NV is "very happy" with its own, Huttner said.
Axa said it was selling Axa IM because it wanted a larger, more diverse asset manager to support life insurance growth and believes that selling the unit to a company with existing asset management operation is the best option. The combination of Axa IM and BNP Paribas' existing capabilities will have about €1.5 trillion in assets under management. The combined entity will provide investment management services to Axa under a long-term partnership, and Axa will retain full control over asset allocation.
Owning an asset manager may provide greater insight into the performance of the assets, according to Huttner, but it is a different business model to insurance.
"It necessarily creates tensions inside a group when you have two such dissimilar activities which are joined at the hip," he said. For example, asset managers have high fixed-cost bases but lower capital requirement compared with insurance.
Given Axa's size, its peers could consider following suit and moving their own in-house asset managers, Huttner said. However, asset managers are not universally a poor fit for insurance companies.
"I can understand Axa's worry that they didn't have the scale and Allianz saying, 'Well, actually, we do have the scale,'" Huttner said.
The deal will also give Axa some extra cash to play with. Once the transaction closes, the insurer plans to buy back about €3.8 billion of shares to counteract the related earnings reduction. Axa will have an additional €1.3 billion at first, but that will dip to about €1.2 billion following the Nobis acquisition, Barclays analysts wrote in a research note. The additional cash, combined with Axa's solvency position "bode well for future payouts to shareholders," they said.
A more likely use of the additional cash will be further expansion in insurance, according to Deutsche Bank's Shah.
"We believe that much of the remainder will be used to fund organic and inorganic growth opportunities, where scale ultimately matters in the insurance space," Shah said. While some of the proceeds may be used for additional buybacks, the €3.8 billion repurchase and Axa's commitment to repurchase shares worth 15% of underlying earnings "will take up much of 2025 already," Shah said.
Standing pat
Other large European multiline insurers with in-house asset managers are showing no signs of exiting the space.
Since Axa announced its decision, a number of management teams at other large insurance groups have been asked about the future for their asset managers when announcing interim earnings. The consensus among those companies is that owning asset management capabilities is useful to support the life insurance business, Shah said.
"We agree with this view and think Axa could end up being an outlier, at least for this decade," Shah said.
Allianz is "very happy" with its asset management business, according to CEO Oliver Bäte, and it "continues to have great margin inflows and performance."
"That may not be the case in other places," Bäte said on an earnings call.
Likewise, Generali has "a long-term strategy to become a leading insurance asset manager," CEO Philippe Donnet said. "We want to continue building a global asset management firm."
In-house asset managers are particularly useful for insurers active in the pensions risk transfer market as they originate assets that insurers can use to back the pensions liabilities they assume and can also be a source of clients for the pensions risk transfer business.
Aviva's in-house asset manager, Aviva Investors, will "of course" still be part of the group in three to five years, Aviva CEO Amanda Blanc said during a recent earnings call. Aviva Investors generated £1.5 billion of assets to back Aviva's pensions risk transfer business in the first half of 2024, Blanc said. The CEO also said 70% of the flows from Aviva's workplace pensions business were going into Aviva Investors funds.