AXA Group has torn up the “Ambition 2012” financial targets it set in 2004 and issued a profit warning.
The insurer’s ambition to triple operating earnings and double income by 2012 was based on the assumption that equity markets would grow each year by 8%.
But it said this week that it was no longer realistic to rely on growth from equity markets. The targets will now be reviewed.
The group announced it would achieve underlying earnings of between €3.6bn (£3bn) and €4bn for 2008. In August it insisted that it would match last year’s €4.9bn – unless stock markets plunged.
AXA said it still expected to perform strongly and would retain its position as the world’s top insurer in terms of capitalisation.
It said underlying profitability was strong; it had a solid balance sheet and positive cash flows.
“The current turmoil is an unprecedented challenge for financial institutions, but AXA has a clear business model, a solid balance sheet and highly engaged teams, attentive to the needs of its customers around the world,” said Henri de Castries, chairman of AXA’s management board.
He added: “In the UK, our strategy is more valid than ever and we are still fully committed to achieve our ambition to become the industry’s preferred company by 2012.”
Analysts are concerned about AXA’s bond portfolio and asset-backed security (ABS) investments.
The group has about €13bn of ABS investments out of €400bn of assets backing insurance contracts, which excludes UK with-profits policies and unit-linked policies. AXA insisted its ABS investments were not toxic and that overall its investment portfolio was high quality.
It said the assets represented a well diversified book and that most had “excellent” credit ratings, with 65% rated AAA and 85% rated A or above.
“AXA Group does not envisage any major risk of default on interest payments or principal payback on these ABS securities – the decrease in value (from a year-end 2007 valuation of €16bn) reflects the illiquidity of the market rather than concern about defaults,” it said.
AXA added that it was under no pressure to raise funds and that neither regulators or the government would require it to do so.