Insurance sector holds its prices but gets mired in lofty language

Friday 6th April 2001

By Peter V O'Brien

It is just as well listed insurance companies' share prices have held up in recent months, because shareholders would want to see the pumped-up language used in reports reflected in the shares' values.

AMP's preliminary report for the year ended December 2000 was headed: "AMP's successful execution of strategy drives continued growth and strong profit turnaround."

When Axa Asia Pacific Holdings reported in December on the year ended September 2000 the company's 16% increase in profit before abnormals to $A37401 million the outcome was described as a "solid set of results."

Tower referred to a "strong result" when reporting an adjusted profit of $NZ80.8 million for the year ended September 2000, 10.4% above the previous year's $NZ73.1 million.

The New Zealand-based company is the smallest of the three listed groups but seemed to steer clear of difficulties that affected AMP and Axa in recent years.

AMP was in trouble in the previous year when it wrote down the $A544 valuation of its GIO subsidiary by $A554 million to recognise the impact of significant losses in GIO's reinsurance unit.

Axa has had almost mysterious references for some time to improving the performance of its Australian and New Zealand businesses and the exercise was repeated in the latest result.

Chief executive Les Owen said the past 12 months had seen major change as "we seek to turn around the performance of the Australian and New Zealand businesses and, seen in this context, these are a solid set of results."

Mr Owen referred to a provision of $A37.9 million in respect of the "transformation programme" in Australia and New Zealand but there has been limited detail about what was wrong and how it was fixed.

Axa's reports can be irritating when the company uses lofty language to describe perceived problems and potential solutions without detailing what they were or are.

Here is an example. "Looking forward, we [Axa] have much to do if we are to deliver the performance that we aspire to.

"In Australia and New Zealand we need to build on the initial steps we have taken to instil a performance culture, to maximise the advantages that our partnership with Alliance Capital [an asset-management company and also part of the international Axa group] will bring, to the launch new mutual funds and enhance superannuation products next year, to continue the turnaround in
profitability of our income protection portfolio, to increase the productivity of our aligned advisers and to develop stronger relationships with independent adviser businesses and dealerships."

There was no need for such a carry-on. Axa earned $A374.1 million on shareholders' equity of $A3.16 billion at year end, a return of 11.8%.

AMP's return on equity was 14.3%, compared with a negative 5% in the previous year when the financial decks were cleared.

That company, too, went for upmarket language, quoting chief executive Paul Bachelor saying "the uncompromising execution of our strategy delivered sustained growth and momentum in our core business worldwide. This was further enhanced by a disciplined focus on cost reductions and capital efficiency across the group."

Share prices in the table were taken as at April 2 and compared with the position on October 2, the last time The National Business Review considered the companies' prices.

The decline in Axa's price in six months can be set against the 27.7% gain between October 1999 and 2000.

The organisations need to run tightly controlled operations because the financial services industry is very competitive, a point the three companies always make when reviewing their activities.

It is also an industry that has players much bigger than even AMP. Axa is part of such an international group but Tower is a small fish, although a good operational performer.

The players continue to merge, the latest being the announcement this week that German insurance giant Allianz had confirmed a 23.4 billion euro takeover for Dresdner Bank, Germany's third biggest.

Deals are being done regularly among large companies in the financial services industry as they seek worldwide coverage and a blanket range of financial products.

That situation is likely to continue.

We saw it some years ago in this part of the world in basic banking.

The developments have now moved "cross-sector." Earlier differentiations - where insurers were insurers, bankers were bankers and investment houses kept to their own field - have been blurred and then obliterated.

Insurance companies' share prices (NZc)
Company	2.4.01	2.10.00	% change	2000/01	2000/01

			2.10-2.4	high	low
AMP	2465	2200	+12.0	2562	1740
Axa	338	355	-4.8	405	260
Tower	560	510	+9.8	587	425

Australian all ords October 2000-April 2001	-3.2%
NZSE 40 capital October 2000-April 2001	+3.6%

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