Axa Group chief executive Henri de Castries has hit out at the UK Government for creating huge instability in the tax system which he believes is scaring off foreign investment in financial services.
Speaking at Axa’s international media seminar in Bordeaux last week, de Castries also rejected recent speculation from a French analyst that Axa is looking to sell off its UK life business.
De Castries, who is thought to have been offered the role of French finance minister last year by president Nicolas Sarkozy, said the taxation level in the UK is favourable compared with other European countries but this advantage has been lost due to Government interference.
He said: “There are two things that are important for long-term investors in markets – the absolute level of the taxes but also the stability of the system and there it is terrible. It changes perpetually which makes the system largely not understandable.”
He cited recent tax changes on the offshore bond market, saying: “It goes one way and then the other and it is tiring investors and operators. If you have capital to allocate, you are going to do so elsewhere.
“When I started in the business 19 years ago, the British companies were the dominant forces in the insurance sector. Today, you do not have a UK player among the top 10 worldwide. It is not because you do not have competent manage-ment teams, it is because regulation has changed so much, so many times, making the business less and less attractive. You have forced your own companies outside the UK.”
De Castries said this is borne out by Prudential developing its activities in Asia much more than in the UK.
He said the UK’s strict regulations separating manufacture and distribution of products was the logic behind Axa’s £100m acquisition of Thinc Group in October 2006. He said: “We wanted to have a better grip on distribution and have a platform which could enable us to have a better relationship and better access to IFAs. We think it is starting to work.”
Axa has also bought up distribution in the general insurance market, acquiring a number of brokers, including SBJ Group for £78m this year and online direct insurer Swiftcover in February 2007.
De Castries does not rule out further distribution acquisitions but said there is unlikely to be much more investment in the UK at present.
He believes the development of Axa’s wrap, which launched at the start of the year, will ensure the success of its UK wealth management arm despite its late market entry. He said: “The fact you are coming after the others is not necessarily a bad thing. If you come early with an incomplete and inflexible platform, you have easy early days and then you suffer because the cost is not insignificant. We are coming at the right time with a good and robust solution.”
He believes wrap is an accompaniment rather than a threat to the traditional life office model in an industry that has always had to reinvent itself. He said: “What you are going to see is progressively the traditional distribution adapting itself. The IFAs are not what they were 10 or 15 years ago and 10 years from now they will look very different. I think the direction where it goes is where there is more transparency, better advice and a more holistic view on what the savings of the customer are. That is why the wrap platform is important.”
He said the Winterthur brand will remain in the UK as long as local management want to keep it, although in the long term, perhaps five years, the intention is to move to Axa.
De Castries angrily dismissed recent speculation from French analyst Cheuvreux that the group is looking to offload its UK business which has poor returns relative to other regions. He said: “On the UK life business, it is true that returns are half what they are in the other markets. Having said that, do you really think we should give up in the third-biggest market in the world where we are the only AA-rated company among the five top players?”
But he said Axa is unlikely to invest much more in the UK at present as he needs to see the “fruits of the restructuring”.
De Castries made it clear that 2008 will be a difficult year due to the credit crunch combined with price pressure on oil, raw materials and food.
But he believes the insurance sector is in far better shape than the banking sector and the tough conditions could make a number of global acquisitions attractive for the provider.
He said: “In the turmoil, there will be lots of opportunities. This does not mean every opportunity is a good one. There are a lot of people who are looking for capital and you have few people who have the financial resources to do the acquisition, so it will be a buyer’s market.”
De Castries said events have vindicated his view that the traditional bancassurance model is no longer valid, with Royal Bank of Scotland looking to get rid of its insurance exposure and Allianz wanting to offload its banking arm.
He added: “We have been consistently repeating that and we see with some interest the last believers in bancassurance changing their minds.”