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Fitch Affirms AXA Non-US Entities at IFS 'AA-'; Outlooks Stable
May 31, 2017 / 3:44 PM / 6 months ago

Fitch Affirms AXA Non-US Entities at IFS 'AA-'; Outlooks Stable

(The following statement was released by the rating agency) LONDON, May 31 (Fitch) Fitch Ratings has affirmed AXA non-US entities' Insurer Financial Strength (IFS) ratings at 'AA-' (Very Strong). Fitch has also affirmed AXA SA's (AXA) Long-Term Issuer Default Rating (IDR) at 'A' and Short-Term IDR at 'F1'. The Outlooks on the Long-Term IDR and IFS ratings are Stable. The rating of AXA Financial, Inc.'s (AXF) and AXF's insurance operating subsidiaries remain on Rating Watch Negative. A full list of rating actions is available at the end of this commentary. KEY RATING DRIVERS The ratings reflect AXA's very strong business profile and consolidated group capital position, moderate financial leverage, and strong financial performance. AXA is the largest insurer in Europe by gross written premiums and has a strong presence in major insurance markets worldwide. Its management is pursuing a consistent strategy, diversifying by geography and business lines and expanding operations in high-growth emerging markets. In May 2017, AXA announced its intention to divest to quoted markets a minority stake in AXA America Holdings Inc., which is expected to consist of its US life & savings business, carried out by AXF and AXA's interest in AllianceBernstein. The AXF initial public offering (IPO) is expected to occur in 2018. Fitch believes that this intended partial IPO will not have a material impact on AXA's overall global business profile in the near term. Fitch will view a more complete exit of the U.S. market as a material change in AXA's global strategy. Capitalisation is 'very strong' under Fitch's Prism factor-based capital model (Prism FBM) based on end-2016 data, which supports the ratings. In its calculations, Fitch excludes AXA's significant volume of goodwill and considers its subordinated debt a weaker form of capital. The group's Solvency II ratio, under AXA's internal model approved by the ACPR (the French insurance regulator) in November 2015, was 196% at end-March 2017. The ratio is in line with highly rated peers and has limited sensitivity to changes in interest rates or equity markets, although this is in part due to the equivalent US regulatory capital regime (RBC capital ratio). AXA does not make use of transitional arrangements to cover its solvency capital requirements (SCR). AXA targets a group Solvency II ratio between 170% and 230%, which gives a strong capital buffer to absorb the volatility inherent in the ratio. The ratings also reflect the group's moderate financial leverage and strong fixed-charge coverage. According to Fitch's calculations, financial leverage improved to 25% at end-2016 from 26% at end-2015, despite the increase of financial debt, in part due to pre-refinancing of outstanding debt. In addition, the fixed-charge coverage, as calculated by Fitch, has averaged 10x over the past five years and which we expect to marginally improve, commensurate with the cost of borrowing. Partially offsetting these positive rating factors is AXA's high level of intangibles. At end-2016, the group had EUR17 billion (unchanged on 2015) of goodwill and other intangibles on its consolidated balance sheet. Most of the goodwill relates to insurance and asset management operations acquired in the US, Switzerland and Japan. Despite an increase in shareholders' equity in 2016, goodwill still represented 22% of consolidated shareholders' funds (2015: 24%). AXA's operating profitability has improved in recent years, with a steady rise in underlying earnings to EUR5.7 billion at end-2016 from EUR4.2 billion at end-2012. Return on equity as calculated by Fitch was stable at 8.4% in 2016. The ratio is in line with an 'A' category rating. We expect AXA to continue improving its earnings profile through cost efficiencies, tariff adjustments and optimisation of its business and geographical mix, despite headwinds from persistently low interest rates. AXA's credit profile is strengthened by a disciplined asset-liability management (ALM) policy. AXA typically carries some ALM mismatch as the average duration of fixed-income invested assets is shorter than the expected duration of liabilities. Fitch views management of the group's ALM mismatch as cautious and the capacity to cover minimum guaranteed returns as strong. The IDR and IFS Ratings of AXF and its insurance operating subsidiaries have been maintained on Rating Watch Negative following the recent announcement that AXA plans to pursue a partial IPO of its ownership in AXF. AXF's ratings were placed on Rating Watch Negative on 10 May 2017 pending Fitch's review of the company's financial profile and further developments ahead of the IPO. RATING SENSITIVITIES Factors that could lead to a downgrade of AXA include a sustained deterioration in AXA's Prism FBM score to 'Strong', or a decline in the return on equity to below 8%. In addition, the ratings could be downgraded if financial leverage increases above 30%. Factors that could lead to an upgrade of AXA include a sustained improvement in profitability with a return on equity above 12%, the Prism FBM score remaining at least 'Very Strong' and the financial leverage ratio below 25%. FULL LIST OF RATING ACTIONS AXA S.A. Long-Term IDR affirmed at 'A'; Outlook Stable Short-Term IDR affirmed at 'F1' Senior unsecured debt affirmed at 'A-' Subordinated debt affirmed at 'BBB' Junior subordinated debt affirmed at 'BBB' US-registered subordinated debt debentures affirmed at 'BBB+' Commercial paper affirmed at 'F1' AXA Financial, Inc. Commercial paper affirmed at 'F1' AXA Insurance Ltd IFS Rating affirmed at 'AA-'; Outlook Stable Long-Term IDR affirmed at 'A+'; Outlook Stable The following entities' IFS 'A+' Ratings have been maintained on Rating Watch Negative: AXA Equitable Life Insurance Company AXA Equitable Life and Annuity Company MONY Life Insurance Company of America U.S. Financial Life Insurance Company The following entities' Long-Term 'A' IDRs have been maintained on Rating Watch Negative: AXA Financial, Inc. AXA Equitable Life Insurance Company The following entity's 'BBB+' senior unsecured debt rating has been maintained on Rating Watch Negative AXA Financial, Inc. The following core subsidiary companies' IFS ratings have been affirmed at 'AA-' with Stable Outlook: AXA Art Versicherung AG AXA Art Insurance Limited AXA France IARD AXA France Vie AXA Corporate Solutions Assurance AXA Insurance Company (US) AXA Life Ltd AXA Belgium AXA Global P&C AXA Versicherung (Germany) AG AXA Lebensversicherung AG AXA Krankenversicherung AG DBV Deutsche Beamtenversicherung AG Deutsche Arzteversicherung Aktiengesellschaft (DAV) AXA Insurance UK Plc AXA PPP Healthcare Ltd AXA Insurance Singapore Pte Ltd AXA General Insurance Hong Kong Ltd AXA China Region Insurance Co. (Bermuda) Ltd These rating actions do not have any impact on the ratings of AXA Bank Europe SCF's covered bonds. Contact: Primary Analysts Federico Faccio (Non-US insurance entities) Senior Director +44 20 3530 1394 Fitch Ratings Limited 30 North Colonnade London E14 5GN Nelson Ma, CFA (US insurance entities) Director +1 212 908 0273 Fitch Ratings, Inc. 33 Whitehall Street New York, New York 10004 Secondary Analysts Dr Stephan Kalb (Non-US insurance entities) Senior Director +49 69 768 076 118 Doug Meyer, CFA (US insurance entities) Managing Director +1 312 368 2061 Committee Chairperson Julie A. Burke, CPA, CFA Managing Director +1 312 368 3158 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. 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