S&P to Assign Rating to AXA’s Auto ART – A “Landmark Transaction”

November 10, 2005

Standard & Poor’s Ratings Services announced that it has assigned its preliminary credit ratings to the €200 million asset-backed floating-rate notes to be issued by FCC SPARC, an SPE, involving the securitization of certain risks on a defined motor insurance policy book by France’s AXA Group (See IJ Website Nov. 8). The actual ratings will be announced soon.

“The transaction is structured using a quota-share reinsurance treaty between Nexgen Re Ltd. and AXA France IARD, the principal insurance operating company of the AXA group in France,” said S&P. “The risk transferred to investors is linked to the deviation of covered losses and premiums arising on a predefined portfolio of certain eligible motor insurance policies in four cover periods (2005-2008). Through the securitization, the capital markets will assume the reinsured risk above the loss ratio trigger level. The first cover period will be 2005.”

S&P said its “assessment of the recent civil unrest in France, as of today’s date, is that it is likely to have only a limited impact in terms of erosion of the junior tranche and should not affect noteholders.” The rating agency cautioned, however, that it will “closely monitor the events to assess the need for any adjustment to the junior cover range or tranching that might be required prior to closing.”

According to S&P analyst Jonathan Spry: “This landmark transaction paves for the way for further non-life insurance securitizations in Europe. It is the first motor insurance securitization to be rated by Standard & Poor’s and, excluding catastrophe bonds, the first insurance securitization in France.”

While many analysts and experts have long called for greater use of securitizations by insurance companies, they have been slow in appearing, ostensibly because the capital markets are leery of the risks involved. As S&P points out, however: “This transaction enables AXA to diversify its risk transfer to the capital markets from the traditional reinsurance market.”

S&P analyst Nicolas Malaterre commented: “AXA is willing to put in place a capital and risk management strategy that would allow the group to benefit from instruments such as securitization that are already widely used by banks to meet funding and risk management objectives.”

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