Fitch Ratings has affirmed all AXA entities’ Insurer Financial Strength (IFS) ratings at ‘AA-‘. Fitch has also affirmed AXA SA’s Long-term Issuer Default Rating (IDR) at ‘A’ and Short-term IDR at ‘F1’. Fitch has also assigned Deutsche Arzteversicherung an IFS rating of ‘AA-‘ and AXA Global P&C an IFS rating of ‘A+’. The Outlooks on the Long-term IDR and IFS ratings are Negative. A full list of rating actions is at the end of this comment.
KEY RATING DRIVERS:
The Negative Outlook continues to reflect Fitch’s concerns about the group’s ability to improve profitability, notably in the context of low interest rates. Fitch recognises management action aimed at reducing the exposure to financial market movements but considers this will take some time to achieve results in the context of the group’s exposure to a sizeable amount of intangible assets. In addition, AXA’s 26% debt leverage is outside Fitch’s guidelines for the rating category.
The affirmation of the ratings reflects Fitch’s view of the group’s solid capital adequacy. As measured by both regulatory calculation and Fitch’s internal analysis, the group’s capital adequacy is in line with the current rating and is expected to show resilience in the near future despite the volatile financial environment.
Over the past five years, AXA’s operating profitability has recovered due to management action and a more favourable underwriting environment in the non-saving related businesses. Fitch expects further improvement in profitability will be a major challenge for AXA over the next one to two years due to the low interest rate environment. However, management continues to implement actions to increase tariffs, adjust the business and geographical mix and streamline risk selection. In addition, the substantial de-risking actions implemented over the past five years have reduced AXA’s sensitivity to significant financial market movements.
AXA group’s ratings continue to reflect Fitch’s view of the group’s position as one of the world’s largest providers of insurance and financial services, benefiting from its recognised brand, excellent risk management and geographical diversification, key competitive advantages in products and distribution capabilities, the quality of its management team and its consistent strategy.
AXA’s US operations’ ratings reflect Fitch’s view that AXA Financial Inc. (AXF) and its subsidiaries remain core operations and continue to benefit from support from the parent. The risk-based capital (RBC) ratio of AXF’s primary operating company, AXA-Equitable Life Ins. Co., was above Fitch’s expectations for end-2012 at 526% compared with 499% at end-2011. Fitch estimates that the combined RBC ratio for the US operations was strong at 502% and 461% at end-2012 and end-2011 respectively. The increase was driven to a large extent by improved statutory operating earnings due to lower expenses, particularly lower reserve increases. Net income declined due mainly to lower realised investment gains.
AXA US’s statutory operating earnings remain volatile due to the company’s variable annuity business, which has been negatively affected by low interest rates, equity market volatility, and lower-than-expected lapses and partial withdrawals. Fitch anticipates that management’s steps to reduce variable annuity risk and volatility will contribute to more stable statutory earnings in the longer term.
The IFS ratings assigned to Deutsche Arzteversicherung and AXA Global P&C both reflect Fitch’s view of their core status to AXA. AXA Global P&C being a reinsurance company located in France where there is no priority granted to reinsurer’s policyholders, its IFS rating is one notch below the IFS rating of primary insurance companies that are core to the AXA group.
Fitch has withdrawn MONY Life Insurance Company’s IDR as it is no longer considered by Fitch to be relevant to the agency’s coverage.
RATING SENSITIVITIES:
Factors that could lead to a rating downgrade for AXA include a weakening of the group’s capital position or deterioration in profitability. This would include a sustained drop in regulatory capital to below 170% of regulatory minimum or repeated earnings volatility in the next few years. In addition, the ratings could be downgraded if financial leverage increases above 30%, material investment losses develop or there is a weakening in the group’s reserve strength.
Further, AXA Financial and its subsidiaries could be downgraded if, in Fitch’s view, the strategic importance of the US operations were to diminish. In particular, potential adoption of new EU Solvency II capital rules might result in an increase in capital requirements associated with AXA’s ownership of AXF. However, AXA is already using capital management tools in line with Solvency II’s expected requirements.
The rating actions are as follows:
AXA
Long-term IDR affirmed at ‘A’; Outlook Negative
Short-term IDR affirmed at ‘F1’
Senior unsecured debt affirmed at ‘A-‘
Subordinated debt affirmed at ‘BBB’
Junior subordinated debt affirmed at ‘BBB’
Commercial paper affirmed at ‘F1’
AXA Financial, Inc.
Long-term IDR affirmed at ‘A’; Outlook Negative
Senior unsecured debt affirmed at ‘A-‘
Commercial paper affirmed at ‘F1’
AXA Equitable Life Insurance Company
Long-term IFS rating affirmed at ‘AA-‘; Outlook Negative
Long-term IDR affirmed at ‘A+’; Outlook Negative
Surplus notes affirmed at ‘A’
MONY Life Insurance Company
‘AA- Long-term IFS rating remains on Rating Watch Negative
‘A+’ Long-term IDR affirmed and withdrawn
AXA Versicherungen (Switzerland) AG
Long-term IFS rating affirmed at ‘AA-‘; Outlook Negative
Long-term IDR affirmed at ‘A+’; Outlook Negative
DBV Holding AG
Long-term IDR affirmed at ‘A’; Outlook Negative
These rating actions do not have any impact on the ratings of AXA Bank Europe SCF’s covered bonds.
The following AXA subsidiary companies’ Long-term IFS ratings have been affirmed at ‘AA-‘ and their Outlook remains Negative:
AXA France IARD
AXA France Vie
AXA Corporate Solutions Assurance
AXA Insurance Company (US)
AXA Leben (Switzerland) AG
AXA Belgium
AXA Versicherung (Germany) AG
AXA Lebensversicherung (Germany) AG
AXA Krankenversicherung AG
DBV Deutsche Beamtenversicherung AG
DBV Deutsche Beamtenversicherung Lebenversicherung AG
AXA Insurance UK Plc
AXA PPP Healthcare Ltd
AXA China Region Insurance Co. (Bermuda) Ltd
AXA Equitable Life and Annuity Company
MONY Life Insurance Company of America
US Financial Life Insurance Company
Fitch also assigned the following ratings:
Deutsche Arzteversicherung
Long-term IFS rating ‘AA-‘; Outlook Negative
AXA Global P&C
Long-term IFS rating ‘A+’; Outlook Negative
