Axa shares look cheap - are they worth buying?

After a decade of restructuring, the global insurer appears ready to grow, while its stock still seems undervalued.

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In 2016, French insurance giant Axa (Paris: CS) had a reputation for being complicated. Most of its earnings came from life insurance and long-term savings, businesses whose results depended heavily on interest rates. Thomas Buberl became CEO that year and started pushing the company in a different direction: he wanted Axa to become a leading global insurer in property and casualty insurance (P&C), a "short-tail" business that required relatively little capital.

Life insurance has a long tail: after an insurer issues a life policy or annuity, it may remain bound to that contract for decades, even if the business later becomes unprofitable. Regulators therefore require these companies to keep substantial capital reserves for future liabilities and unexpected changes.

How Axa freed up billions in capital

One of Buberl's earliest decisions was to separate Axa's US life-insurance business, Axa Equitable. The sale released billions of dollars that the group could put toward acquisitions. Soon after announcing the deal, Axa made an offer for XL Group, a major global P&C insurer. It paid £15.3 billion, immediately placing Axa among the world's largest P&C insurers. Under the Vision 2020 growth plan, management also sold non-core operations, reduced the group's exposure to volatile, loss-making parts of the global insurance and reinsurance market, and lowered costs.

Since 2016, the group's revenue mix has shifted sharply. Before the transformation began, it reported 100 billion in total revenue, half of it from life and health insurance, and net income of 5.8 billion. By 2022, revenue had dropped 34% to 66.6 billion, while net income fell only 13%, to 5 billion.

Around then, the group began benefiting from a sharp rise in insurance and reinsurance prices worldwide. Since about 2019, inflation and mounting losses have driven insurers to raise premiums to cover higher claims costs.

Higher interest rates have also increased the income insurers earn from the investment portfolios that support their underwriting. The result has been a powerful boost from both sides. Axa's combined ratio - a measure of underwriting profitability - dropped from 99.5% in 2020 to 90.6% in its 2025 financial year. Below 100% means underwriting generated a profit; above 100% means it produced a loss. Axa's net income climbed to 9.8 billion in 2025, while total revenue reached 75 billion, including 58 billion from P&C underwriting.

Axa's next step was to sell its asset-management arm, Axa Investment Managers (Axa IM), to BNP Paribas for 5.4 billion - 15 times earnings at the time. The deal brought Axa IM and BNP Paribas together into an asset manager overseeing 1.5 trillion in total assets, giving the combined business enough scale to compete in a tightening market. Axa then returned most of the proceeds to shareholders through a share buyback.

Axa's new plan for growth

Axa looks very different from the company it was in 2016. On 15 September, the group released its plan for 2027-2029, building on management's work over the past decade to reshape the business. The central aim is higher earnings: management is targeting compound annual growth of 7% to 9% over the next three years, up from the previous plan's 6% to 8% range.

Analysts say the company must expand its European customer base, especially among small and medium-sized businesses, while targeting annual savings of up to 7million. Berenberg analysts estimate that these cuts, driven largely by AI, could lift group earnings by 1% each year - a significant gain.

Management expects the group's subsidiaries to generate more cash as well. Across the three years, the target is 25 billion in cumulative cash generation, compared with 21 billion during 2024-2026. Much of that money should go back to investors: Berenberg forecasts returns of 5.4 billion in 2027 and 5.8 billion in 2028, while the stock offers a 5.8% dividend yield. Buybacks planned between 2024 and 2028 could reduce the share count by more than 10%. Including dividends, the projected shareholder yield is 7.8% for 2027 and 8.4% for 2028.

Axa share price chart (Paris: CS)

Using the bank's forecast for future earnings growth, Axa trades at eight times forward earnings and 1.59 times book value. Those valuations appear low given the group's earnings prospects and its plans to return cash.

Risk remains. If the soft insurance market drives prices down, growth could disappear across the business. Higher losses would put profits under pressure and might force the group to delay returning cash. These risks affect every insurer, helping explain why the sector typically trades at a lower rating than the wider market.

Axa's rating looks too low. Its short-tail insurance policies reset each year, allowing the group to adapt quickly if conditions change. As one of the world's largest property-and-casualty and health insurers, Axa deserves a closer look at its current share valuation.