Axa Financial remains an opportunistic acquirer and could handle a big purchase like its Mony Group Inc. deal two years ago, but plans to generate much of its growth organically via a strategy of "starving the losers and feeding the winners," its top executive says.
That could be bad news for the New York company's bank annuity business, analysts said. Its sales dropped 17% last year - fixed annuities down 85%, variables up only 1% - and it was No. 8 in the market, according to Kenneth Kehrer Associates, a Princeton, N.J., consulting firm.
But a spokesman for Axa Equitable Life Insurance Co., which also sells through other channels, said those numbers do not tell the whole story.
And Christopher M. "Kip" Condron, the chief executive of Axa Financial and Axa Equitable, said the latter is investing in all its lines of business and has no plan to sell any.
Axa Equitable has seen "dramatic" growth in its relationships with large banking companies such as JPMorgan Chase & Co. and Wells Fargo & Co., he said. It began to distribute through Wells three years ago and has become its third-largest provider of variable annuities, with 22% of Wells sales of the product in the first two months of the year.
Last year Axa Equitable supplied 9.7% of bank-channel sales of variable annuities, according to Axa Distributors, the U.S. distribution arm of the Paris parent company, Axa Group.
"We have very good wholesaling in the bank channel," said Mr. Condron, who in addition to his CEO titles is the president of Axa Financial and the chairman of Axa Equitable. "We have strong relationships with banks like PNC and Bank of New York, and though I would consider their retail organizations smaller than Chase or Wells, they are important. We are working to establish ourselves and develop a presence with more regional banks."
Mr. Condron said Axa Equitable wants to double revenue and sales and triple profits in the next six years through organic growth and strategic acquisitions.
"Most companies plan one year at a time, and that tends to be very iterative and very tactical," he said. With the imperative to multiply revenues, sales, and profits by 2012, he said, "we are forcing people to think with quantum leaps and long-term strategies, and we are challenging them to find the short-term strategies in order to get there."
Mr. Condron said Axa Equitable plans to grow organically by increasing distribution, adding products, and pursuing the 77 million baby boomers who are nearing retirement.
It is "keeping its eyes open" for big deals like the $1.45 billion Mony acquisition but does not need one, he said.
"In a potential deal, we tend to look for the kinds of opportunities where we can gain leverage, like we did with the Mony deal," Mr. Condron said. "You have to be in the market all day, every day, looking for the right opportunity to crop up. We don't plan out our year saying that we'll make a deal in October.
"But I think that everyone recognizes that Axa is a buyer. … We have made a bunch of acquisitions, and we are always out there looking."
Mr. Condron said very few, if any, deals come to the market that Axa isn't shown, either by the seller or by the investment banking community.
"We are in a comfortable position where we have said no to things that others have said yes to," he said.
Michael White, a bank insurance consultant whose firm, Michael White Associates, is in Radnor, Pa., said plenty of room exists for further consolidation in the insurance industry. He said he expects more deals similar to the purchase by Philadelphia's Lincoln National Corp. last month of Jefferson-Pilot Corp. in Greensboro, N.C.
"We have seen some acquisitions in recent years, we have seen banks getting out of insurance underwriting, and I expect to see more," Mr. White said. "There are insurance companies out there and opportunities out there for more deals."
Mr. Condron said that to drive organic growth he initiated a compensation plan in 2002 that is funded as the company beats earnings targets, maintains expense levels, and develops new business.
"This program makes everyone in the company pay attention to earnings, manage expenses carefully, and care about new sales," he said. "This has been a tremendous motivator for people at Axa. Everyone gets paid on the same … metric. There is no confusion about where the money is coming from. If we beat projections we get more. If we don't, we get less."
He added, "It is a big challenge in a big company to get a diverse work force to think like owners. This gets every employee to think big."
Axa Equitable has expanded its share, he said, in each of its four distribution channels - its 6,000 agents, wire houses and broker-dealers, banks, and financial planners.
Data from Vards, a unit of Morningstar that tracks the annuity business, showed Axa Equitable expanding its overall share - from all channels - of new variable annuity sales to 8.01% in 2005, from 7.43% the year before. It was ranked fourth in the industry, behind TIAA-CREF, MetLife, and Hartford Life.
Mr. Condron said that in the three third-party channels Axa has added share by developing its wholesaling force. The company added 24 wholesalers to its financial planning channel last year and 12 more in that channel in the first four months of this year, he said.
"I believe in starving the losers and feeding the winners," he said. "We'll continue to invest in places that give us the most growth opportunities," he said.
Since he started at Axa in 2001, Mr. Condron said, it has disinvested in only one business line. "We had a life insurance distribution business through wire houses in 2002 that we were losing money on," he said. "I asked them to give me a plan as to when they would be making money, and they told me the 12th month of the fifth year. … We pulled the plug and reallocated those assets into other lines of business."
And Mr. Condron said he sees the demand, among customers nearing retirement, for products that guarantee an income stream as bullish for variable annuities.
"We are seeing in the first quarter significant increases in sales in the industry, and our sales are a little ahead of the industry," he said. "I think that that is because more people are looking at retirement and they are worried about running out of money in retirement. People are interested in learning how they can get income for life."
To continue its growth Axa Equitable is launching products and developing educational programs for both customers and advisers. Since November, it has been holding retirement seminars for clients and prospective clients to show them how to use annuities in retirement.
And it started a Variable Annuities Knowledge Center online late last year. The site, run by two outside advisers, had 20,000 hits in its first 30 days. This year the company also started Retirement Compass, a tool for advisers to help customers decide how to allocate their assets as they enter retirement.
Mr. Condron said it is important to educate advisers as well. In January Axa Equitable began a program in conjunction with the University of Pennsylvania's Wharton School to certify advisers on how to prepare clients to retire.
Fifty advisers took the course in January and 50 more in March. Mr. Condron said he expects 250 advisers will take the course this year and 800 to 1,000 of the company's 6,000 advisers will eventually take it.
The course has paid immediate dividends, he said. "We are still early in the process, but tracking the people that have taken the Wharton course indicates that their production has increased 35% from where it was last year," he said. "This is something that is creating momentum with clients. … Developing assets as people enter retirement is not all about rollovers. Our value proposition is more holistic. We want to help our clients make smart decisions as they approach retirement."
Mr. Condron said Axa Equitable is planning to introduce an accumulator annuity in July that will include a rider guaranteeing a withdrawal benefit for life. The accumulator annuity's menu of riders, including guaranteed income benefits and guaranteed death benefits, makes it unique, he said.
"This will make [it] easier for third-party partners to offer a single product with a variety of options," he said. "This is the only product in the industry where you can get it all in one place."
In late summer or early fall, Axa Equitable will introduce an extended, no-lapse guarantee rider. This will promise no premium increase for a customer who invests in a variable annuity, even if its underlying investments underperform.
"We are convinced that with these products we can turn the defined contribution plan into the equivalent of a defined benefit plan," he said. "We can convert your lump sum into a stream of income that will last for the rest of your life."
Analysts say that Mr. Condron is the right person to drive Axa Equitable's aggressive growth strategy. Before being hired by Axa Financial in 2001 to be its president and CEO, he was the president and chief operating officer of Mellon Financial. Earlier he had been the president and chief operating officer of Mellon's Dreyfus Funds, which he was credited with helping develop into one of the largest U.S. bank-owned asset management units.
