Best Affirms AXA U.S. FSR; Upgrades ICR; Off Review; Negative Outlook

June 7, 2012

A.M. Best Co. has removed from under review with negative implications and upgraded the issuer credit rating (ICR) to “a+” from “a” and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) of New York-based AXA Insurance Company.

Best also removed from under review with negative implications and affirmed the FSR of ‘A’ (Excellent) and ICR of “a+” of AXA Art Insurance Corporation.

The outlook assigned to the ICRs is negative, while the outlook for the FSRs is stable.

In addition Best removed from under review with negative implications and affirmed the FSR of ‘B++’ (Good) and ICRs of “bbb” of Delaware-based Coliseum Reinsurance Company and AXA Corporate Solutions Life Reinsurance (ACSLRe), which are in runoff. The outlook assigned to these ratings is stable. All the above companies are U.S. subsidiaries of France’s AXA S.A.

The upgrading of the ICR of AXA Insurance Company “reflects its stand-alone attributes, specifically strong risk-adjusted capitalization, supported by an extensive reinsurance program, solid operating fundamentals that have led to improved net underwriting and operating results in recent years, favorable liquidity and the company’s strategic importance to AXA,” Best explained.

The company serves as AXA’s primary domestic insurer of” reverse flow business, representing the U.S. portion of multinational accounts generated primarily by the clients of AXA Corporate Solutions Assurance and AXA Versicherung AG,” Best noted. “AXA Insurance Company also provides 60 percent quota share reinsurance coverage for AXA Art to better utilize its capital. Acting essentially as the issuer of local U.S. policies in the context of international programs, most business is reinsured to AXA Insurance Company’s affiliates through quota share reinsurance agreements.”

Best also indicated that while “heavy reliance on affiliated reinsurance leads to high ceded underwriting leverage, the company’s outstanding reinsurance recoverables are predominantly collateralized. AXA Insurance Company also benefits from the financial flexibility of AXA.”

While the company’s net operating performance has exhibited volatility in the past, Best said it “expects recent, improved performance, to continue over the long term based on AXA Insurance Company’s clearer strategy, along with the benefit of continued reinsurance protection.

“Actions taken in recent years to cleanse the company’s balance sheet, including the write-offs of old reinsurance recoverables, should continue to lead to better results that are more reflective of AXA Insurance Company’s remaining core book of business, which has been performing favorably.”

Best’s ratings for AXA Art “recognize its strong risk-adjusted capitalization, historically superior operating results and its recognized insurance expertise within the fine arts industry,” said the report. “In addition, the ratings reflect the implicit and explicit support provided by AXA and its subsidiaries through the utilization of internally available insurance capacity in the form of significant reinsurance transactions. The reinsurance transactions include excess of loss agreements with its intermediate parent, AXA Art Versicherung AG, and the aforementioned 60 percent quota share with AXA Insurance Company.”

As partial offsetting factors Best cited “AXA Art’s product line/market concentration, slightly negative loss frequency trends, the increasingly competitive market conditions in the fine arts industry and AXA Art’s expense ratio disadvantage relative to industry peers.”

Best explained that the negative outlook assigned to the ICRs of both companies reflect its “concerns with AXA’s exposure to the ongoing uncertainty in the euro zone and the potential impact on its ability to support its U.S. operations.”

Best said it has assigned the stable outlook for Coliseum Re, which remains in runoff, as it “continues to maintain adequate capitalization and liquidity relative to its run-off activities.

“The ratings of ACSLRe are based upon its limited role within the AXA group as a U.S. life reinsurer and administrator of closed blocks of life, health and investment risks and the capital support provided by AXA. ACSLRe primarily reinsures a closed block of variable annuities.

For the near term, Best said “upward rating movement for the AXA organization is unlikely for the foreseeable future. Negative rating actions could occur if the balance sheet of AXA is impaired by its exposure to investments in euro zone economies, leading to a material weakening of its risk-adjusted capitalization. Also, any perceived lessening of the support provided by AXA for its U.S. insurance subsidiaries also could spark negative rating actions.”

Source: A.M. Best

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