Best Downgrades Some AXA Canada P/C Subsidiaries

June 27, 2005

A.M. Best Co. announced that it has downgraded the financial strength ratings of several of AXA Canada Inc.’s wholly owned property and casualty insurance subsidiaries.

The rating action affects the following companies: AXA Assurances Inc. (Montreal, Quebec) and its wholly owned subsidiary, AXA Assurances Agricoles Inc., downgraded to “A ” (Excellent) from “A+”; AXA Pacific Insurance Company (British Columbia) downgraded to “A-” (Excellent) from “A” (Excellent), and Insurance Corporation of Newfoundland, Limited to “B++” (Very Good) from “A-” (Excellent).

Best also said it had affirmed the “A-” (Excellent) ratings of AXA Insurance (Canada) (Ontario) and Anglo Canada General Insurance Company (Ontario). The outlook on all of the ratings is negative.

“The rating downgrade of AXA Assurances Inc. is based upon A.M. Best’s opinion that the overall financial strength of the company, which includes its wholly owned property and casualty subsidiaries, does not support a superior rating,” said the bulletin. Best also indicated that it “believes that future surplus growth could be challenged by dividend requirements due to excess regulatory capital, emerging soft market pricing particularly in commercial lines, the potential increase in claims frequency and the uncertainty that regulatory changes to automobile insurance will have upon the long-term underwriting performance of its subsidiary insurance companies.”

However, the rating agency noted: “Partially offsetting these concerns is AXA Assurances strong stand-alone capitalization and profitability, low leverage, historically excellent operating and underwriting performance, good product diversification, sound overall liquidity and its market position among the leaders in Quebec. The downgrade of AXA Assurances Agricoles Inc. is based upon its group rating status with its parent.”

Concerning AXA Pacific Insurance Company, Best said the downgrade is “based upon the company’s below average underwriting and operating performance, persistent adverse development on prior calendar and accident year claims and uncertainty in its Alberta automobile product due to regulatory changes in that province. These rating concerns are partially offset by AXA Pacific’s still excellent level of capitalization, reduced exposure in the Alberta automobile market, improvement since 2002 in overall operating and underwriting results and the explicit financial support shown by its parent, AXA Assurances Inc.”

Insurance Corporation of Newfoundland’s downgrade “is based upon the company’s risk adjusted capitalization,” which Best said it “believes does not support an excellent rating. Investment yields continue to trend downward and interest rates remain low, presenting challenges to surplus growth.

“Somewhat offsetting factors are ICON’s strong profitability, leading market position as one of the top five property/casualty insurance companies in Newfoundland and the explicit financial support of its parent. In 2004, AXA Assurances Inc. completed the purchase of the minority shares of the company to become sole owner. As a member of the AXA Canada group, ICON benefits from the synergies it receives by participating in the corporate reinsurance program which includes external and internal reinsurance treaties providing surplus protection and capacity.”

The rating affirmations of AXA Insurance Canada and Anglo Canada General Insurance Company “are based upon their excellent level of capitalization, favorable underwriting leverage, improvement over the last two years in underwriting and operating performance, strong broker relations and the explicit financial support of AXA Assurances Inc,” the bulletin continued.

“The ratings are under pressure due to the ongoing challenges these companies face in producing underwriting profits, weakened investment markets, regulated rate freezes and roll backs on Ontario auto, and a downward turn in the underwriting cycle towards soft market conditions,” Best concluded.

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