S&P Affirms AXA ‘AA’ Ratings, Outlook Negative

January 10, 2002

Standard & Poor’s has affirmed its double-‘A’ long-term counterparty credit and insurer financial strength ratings on the operating entities of Paris-based global insurance group AXA, as well as its single-‘A’-plus long-term counterparty credit ratings on AXA and AXA Financial Inc., the French and U.S. holding companies of the group.

It lowered its outlook on all long-term ratings on the group to negative from stable, stating that the “revision is based on the new and important challenge that the AXA group is facing of restoring its operating performance to a level consistent with the current ratings within the next two years.”

S&P acknowledged that, as one of the world’s largest insurers, AXA held an “extremely strong global business position in the world’s leading insurance markets,” and that has “very strong–although increasingly pressurized–capitalization,” and a very strong management team and strategic track record.”

The announcement noted that the “AXA group has already achieved superior geographic diversification away from its historical French operations, which now represent only 22% of total premium income, with the U.S. accounting for 16%, the U.K. 16%, Germany 9%, Japan 8%, and Asia-Pacific 5%.”

Although AXA’s life operations are doing well, its p/c operations are struggling, as are those of many other companies. S&P based its negative outlook primarily on this situation, indicating that p/c earnings had continued to deteriorate, “reaching negative return on revenue levels both in 1999 and 2000–of negative 0.7% and negative 3.4%, respectively, excluding realized capital gains–mainly driven by loss ratios in excess of 80% and a persistently high expense base (30% 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%), operating cash earnings are likely to have grown very moderately in 2001–to EUR1.3 billion [$1.16 billion] from EUR1.2 billion [$1.07 billion] in 2000,” S&P continued.

It added that it expected a “stronger recovery” in 2002 and 2003, but that this would be dependent upon “the progress made by the group in achieving its targets, including a 104% nonlife combined ratio by 2003, substantial cost savings in 2002, and the maintaining of ROA for the life business above 80bp.”

The announcement concluded with the warning that “any indications over the next few months that the above-mentioned operating targets do not appear achievable could cause the ratings to be lowered.”|”snp, affirms, axa, ‘aa’, ratings,, outlook, negative

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