Moody’s Revises AXA Group’s Debt Rating Outlook from Stable to Negative

January 31, 2003

Moody’s Investors Service announced that it has changed its outlook to negative from stable on the A1 senior debt and A2 subordinated and junior subordinated debt ratings of France’s AXA group.

Moody’s said the outlook change “reflected the group’s diminished financial flexibility as seen in the decline in unrealized capital gains, driven by depressed equity markets, which is affecting the group’s solvency, as well as its financial revenues.” Debt holders could have “a weaker level of protection if these negative trends continue.”

The life and asset management sectors are the main sources of the problem according to Moody’s. It doesn’t see any significant changes in the near future, and therefore expects these sectors will “continue to weigh on AXA’s earnings and internal capital formation, in spite of the positive steps being implemented to enhance its efficiency and earnings stability.”

Moody’s indicated it “was maintaining a stable rating outlook on the insurance financials strength ratings of the group’s core operating units (AXA France, AXA Financial in the U.S., AXA UK, AXA Germany and AXA Belgium) reflecting their leading positions in their respective markets and good average regulatory solvency levels.”

It also noted the group’s “strong management, superior diversification and distribution, focus on wealth accumulation and the prospect of a recovery of the earnings of property and casualty insurance,” as factors that continue to support the present ratings.

The rating agency warned, however that “if the environmental pressures persist, the effect of the group’s diminished earnings and capital formation will first heighten the credit risk for creditors of the holding company more than policyholders of the operating company, thus implying that the notching between the group’s insurance financial strength ratings and its holding company debt ratings may widen.”

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