AXA has demonstrated some bold moves in pursuing its distribution strategy, but it's not finished yet. Michael Faulkner reports

Last week's acquisition of Swiftcover saw the French-owned insurer AXA propelled back into the direct personal lines market.

Coming a matter of weeks after the acquisition of regional brokers Stuart Alexander and Layton Blackham, the purchase gives AXA a strong online insurance brand and 150,000 new motor and travel policyholders.

It also marks the next stage in the company's unfolding distribution strategy, which appears to have gone into overdrive in recent weeks.

In the space of a few weeks, AXA has added, in Swiftcover, a direct motor, pet and travel business to its current intermediated personal and commercial lines business and its direct commercial operation AXA Direct. The recent broker acquisitions sow the seeds for the company to grow an independent broking network.

"AXA doesn't do things by halves," comments Andy Homer chief executive of the Towergate Partnership and a former AXA Insurance chief executive.

The acquisition of a direct personal lines insurer comes as no surprise. Last July, the moratorium on the company selling motor and household insurance direct expired. AXA had been blocked from direct personal lines sales as part of the deal that saw 270,000 AXA Direct policyholders transfer to RAC's insurance arm in October 2004.

With the moratorium ended, the way was once again open for AXA to return to the direct sector.

Newly-appointed AXA UK group chief executive Nicolas Moreau, seen as a future successor to AXA Group chief executive Henri de Castries, had indicated that the insurer was looking at direct sales options.

Ambitious growth targets
Analysts point to the Swiftcover acquisition being a "milestone" in AXA's journey towards achieving the ambitious growth targets laid down by the French parent.

AXA UK, as with the rest of the global business is expected to double revenues and triple earnings by 2012, from its position in 2004.

With the direct sector estimated to be worth around £7bn in annual premium, developing a direct presence is vital to Moreau in achieving the group's tough 2012 targets, particularly in motor where 40% of sales are direct.

Catherine Barton, insurance partner at Deloitte, says: "The purchase gives AXA a new foothold to grow its market share, which has declined over the last several years. For a large insurer in the current market direct sales need to be a core component of its distribution strategy."

An acquisition rather than the creation of a direct operation from scratch was the logical step. Timour Boudkeev, an analyst at Moody's Investors Services, says: "AXA had the challenge of having no expertise in-house and its experience of running a direct operation led to [the unit's] disposal.

AXA stopped promoting its personal direct brand in January 2004, claiming the business was not a "strength" before transferring the policyholders to RAC later that year.

The cost of building a direct brand from scratch is also considerable, adds Homer.

Swiftcover was a prime target for AXA. AXA underwrote 75% of Swiftcover's business, so it knew the make-up of the book well. Swiftcover's internet distribution was also important for AXA.

It is not clear how much AXA paid for Swiftcover, but analysts have indicated that the price was high compared to its market value.

Swiftcover has not made a profit in its 18-month lifespan – not unexpected given that motor insurers generally take three years to do so – as such, a valuation would have to be based on future rather than current earnings.

The scarcity of other suitable acquisitions will have pushed the price up.

Boudkeev says: "It is a strategic acquisition. The valuation would be based on expectation of profit. Other assets are scarce and purchase price reflects that."

But questions remain as to what AXA's next steps will be. AXA has not ruled out further acquisitions in the personal lines sector, both of direct insurers and brokers. Indeed, AXA is understood to have been considering a bid for AA Insurance.

It is also not clear whether AXA will want to maintain a number of direct brands or whether Swiftcover will be the only one, becoming effectively AXA's direct personal lines brand, just as More Th>n is with Royal & SunAlliance.

An AXA spokesman refused to comment.

Analysts favour a single-brand strategy. Chris Hitchings, of Keefe, Bruyette & Woods says owning more than one direct personal lines brand makes "no sense at all".

While, Moody's Boudkeev says: "It is difficult to see what advantage having another direct brand would be unless it is something bigger."

As for the bigger target, some have suggested motor giant Admiral as a possible buy, but the asking price would be considerable. It is also not clear whether the company is for sale.

What is clear is AXA has shown the market that it is prepared to take bold steps. At present many feel anything could happen next. IT