S&P Revises AXA U.K. P/C Units Outlook to Stable; Affirms ‘A+’ Ratings

Standard & Poor’s Ratings Services announced that it has revised its outlook on U.K.-based non-life insurers AXA Insurance U.K. PLC and AXA General Insurance Ltd.–collectively known as AXAI–to stable from negative, “reflecting improving operating performance and capitalization.” S&P also affirmed its “A+” long-term counterparty credit and insurer financial strength ratings on both entities.

“The ratings reflect the strategic importance of AXAI to the AXA group (AXA; core entities are rated ‘AA-‘ /Stable), as well as its good competitive position,” said the announcement. ” These positive factors are offset by AXAI’s operating performance and capitalization, both of which are improving, but are still not in line with the rating category.”

S&P noted the following “Major rating factors:
— Strategic importance to the AXA group. AXAI operates in lines of business and in a geographical region that are integral to the overall group strategy. In addition, AXAI has benefited from capital support from within the group as recently as 2003.
— Good competitive position. AXAI is a leading player in the U.K., with its very good distribution, strong credit rating, and well-known brand enabling it to achieve very good market positions in property, motor, and liability lines of business overall, and a strong share of the small and midsize enterprise commercial lines market in particular. This leading position is not yet fully reflected in the net combined ratio, however, and it remains to be seen whether AXAI can maintain its market share while improving its underwriting performance further.
— Improving operating performance, although still not in line with the rating category. AXAI’s underwriting performance has improved in each of the past four years, but it remains unsatisfactory for a group of this scale and at this stage of the cycle. The net combined ratio may improve slightly in 2005, but that is likely to be the trough as price competition intensifies. Nevertheless, the underwriting performance should exhibit less volatility than in the past–due to AXAI’s improved strategy since 2002–as should the investment return and the overall operating performance.
— Improving capitalization, although still not in line with the rating category. This is mainly based on a consolidated view of AXA’s U.K. non-life insurance companies’ consolidated capital adequacy, although capital adequacy remains below the level appropriate to the ratings on AXAI, largely because of the reasonably heavy reliance on soft capital.

S&P said the stable outlook reflects its “expectation of no significant change in the major positive rating factors over the rating horizon. Standard & Poor’s expects AXAI’s underwriting performance to improve slightly in 2005, with the net combined ratio moving into the AXA group target range of 98 to 102 percent. Capital adequacy is also expected to improve slightly in 2005. Reserves are expected to show no prior-year deterioration.”