S&P Affirms AXA Group

Standard & Poor’s today affirmed its “AA” long-term counterparty credit and insurer financial strength ratings on the operating entities of Paris-based global insurance group AXA, as well as its “A+” long-term counterparty credit ratings on AXA and AXA Financial Inc., the French and U.S. holding companies of the group. However, the outlook for long-term ratings on the group was revised to negative from stable.

The outlook revision is based on the AXA group’s challenge of restoring its operating performance to a level consistent with the current ratings within the next two years.

The key rating factors are the AXA group’s extremely strong global business position in the world’s leading insurance markets, very strong—although increasingly pressurized—capitalization, and very strong management team and strategic track record.

The AXA group has an unrivaled global business position in insurance and asset management, with significant operations in the world’s leading markets, including France, the U.S., the U.K., Germany, and Japan. The group is now fully focused on its core businesses—life insurance (gross premium income of EUR45.6 billion in 2000), property-casualty insurance in Europe (EUR15.6 billion), and asset management (EUR531 billion in third-party managed assets at June 30, 2001). In addition, the AXA group provides reinsurance and large commercial-risk covers through its AXA Corporate Solutions division, which reported EUR3.6 million in gross premium income in 2000. The AXA group has achieved superior geographic diversification away from its historical French operations, which now represent only 22 percent of total premium income, with the U.S. accounting for 16 percent, the U.K. 16 percent, Germany 9 percent, Japan 8 percent, and Asia-Pacific 5 percent.

The group’s risk-based consolidated capitalization remains very strong, but has become more pressurized and dependent on retained earnings over the past few months. The group has had to cope with substantial reductions in the market value of its equity book due to a sharp deterioration of the capital markets and the consequences of the World Trade Center attack (EUR400 million after tax).

S&P views the AXA group’s management team as a positive factor for the ratings, following the completion of a successful changeover of chief executives—to Henri de Castries from Claude Bebear. A clear and appropriate strategy with realistic goals is now in place, but management faces the new and important challenge of successfully implementing this strategy, including in the major subsidiaries acquired outside France.

From 1997 to 2000, property-casualty and international insurance earnings deteriorated, reaching negative return on revenue levels both in 1999 and 2000, mainly driven by loss ratios in excess of 80 percent and a persistently high expense base (30 percent on average). As the result of an adverse capital market environment and a disappointing loss experience in 2001 (the group’s combined ratio was 112 percent), operating cash earnings are likely to have grown very moderately in 2001. Stronger recovery is expected both in 2002 and 2003.

Topics AXA XL