If low investment yields persist for the next five years, it will cut the earnings in Axa's life and savings (L&S) division by €200m, according to a scenario sketched out by Jacques de Vaucleroy, Axa's global head of L&S.
The L&S unit has €400bn of assets in its general account and has always had a strong emphasis on asset-liability management, Vaucleroy said at Axa's 2014 investor day. Fixed income asset duration is more than seven years on average, with a duration gap maintained at around one year.
Maintaining returns in the current low-interest rate environment is challenging, however. The L&S general account is currently yielding around 3.7% but last year's reinvestment yield was 2.9%.
The insurer studied a scenario where reinvestment yields stayed at 2.4% for the next five years, no growth in reserves, a stable proportion of fixed income in the portfolio and maintaining a 70-80 basis-point investment margin.
All other things being equal, the L&S earnings in 2019 would be around €200m lower compared with 2014, or a cumulative impact of about €40m a year.
"While the current level of interest rate is not a positive for our business, this is something that we can sustain during a certain period," Vaucleroy said.
The investor day also saw presentations from the insurer's asset management arms, Axa Investment Managers and AllianceBernstein.
The leaders of both divisions noted the trend towards liability-driven investments and alternative assets.
Andrea Rossi, CEO of Axa IM, said the firm's smart beta strategy, launched in 2012, has attracted €4.3bn, while short-duration high-yield investments have reached €16.4bn and commercial real estate loans are at €6.9bn.
Axa IM currently manages €609bn, two-thirds of which comes from its parent insurer.
AllianceBernstein's CEO Peter Kraus said his firm was steadily building its illiquid credit business, focusing on US residential mortgages, global commercial mortgages, middle market corporate debt and infrastructure.
AllianceBerstein manages $473bn of which $110bn is from Axa.