S&P Lowers AXA Group Ratings to ‘AA-‘

February 12, 2003

Standard & Poor’s Ratings Services announced that it has lowered all insurer financial strength and counterparty credit ratings on the core operating companies of France’s AXA group to ‘AA-‘ from ‘AA’ “reflecting an expected reduction in the group’s 2002 operating earnings growth, as well as its diminished financial flexibility and eroded capitalization.”

S&P also lowered to ‘A’ from ‘A+’ its counterparty credit and senior unsecured debt ratings on the group’s top holding company, AXA. “The outlook on all long-term counterparty credit ratings on AXA is stable,” said the announcement.

The announcement affirmed the fundamental financial strength of the AXA Group’s core insurance companies, noting their “extremely strong business position; very strong, albeit decreased, capitalization and financial flexibility; and strong operating performance.” S&P credit analyst Yann Le Pallec noted that the company’s efforts “to increase operating earnings by 20% in 2002 were undermined by the continuing decline in equity markets.” he believes, however that the group has “successfully managed to counterbalance to a large extent the effect of equity market weakness, mainly through an impressive and successful cost cutting plan and a significant reduction of its combined ratio in its retail property-casualty business.” He added that “This clearly illustrates management’s ability to leverage the entire organization so as to adapt to adverse operating conditions.”

S&P foresees “an increasing contribution from property-casualty lines to operating earnings,” which will act to offset the “tighter margins in life and savings during the next few months, owing to current low interest rates.” The rates are currently at historic lows and have slowed recovery in the sector, but S&P expects a gradual improvement in operating earnings, and a reduction in AXA’s P/C combined ratio reaching 104 percent this year.

It also expects the group’s capitalization to stay “in the low ‘AA’ range in the medium term.” Le Pallec forecast that, “Business growth is likely to remain stable, or even exceed 5% per annum, given the favorable pricing conditions in property-casualty. European life should experience continued erosion if equity markets remain at their currently depressed levels, but this is expected to be offset by strong new business growth in the U.S. and Japan.”

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