Best Upgrades AXA Re, Subs Ratings

July 7, 2005

A.M. Best Co. announced that it has upgraded the financial strength rating to “A” (Excellent) from “A-” (Excellent) and the issuer credit rating to “a” from “a-” of AXA Re (France), AXA Re Asia Pacific Pte. Ltd. (Singapore) and CGRM (Compagnie Generale de Reassurance de Monte Carlo, Monaco). The outlook for all ratings is stable.

“The ratings reflect AXA Re’s excellent consolidated risk-adjusted capitalisation, which was recently enhanced by a 150 million euros ($179 million) subordinated 20-year loan from its parent, AXA S.A., very good operating performance and an excellent, albeit reduced, business profile,” said Best. The ratings of AXA Re Asia Pacific Pte. Ltd. benefit from a full rating enhancement due to its integral role within AXA Re.”

Commenting on the Group’s risk-adjusted capitalization, Best said it considers it to be excellent “and in line with its parent’s ‘A’ (Excellent) rating.” Best also noted that “the successful transfer of AXA Re’s U.S. operations to AXA S.A. and the overall planned premium reduction has contributed to reducing volatility and lowering AXA Re’s risk profile. The 150 million euro ($179 million) subordinated loan from AXA S.A. has enhanced the company’s capital base to comfortably support business growth. AXA Re’s absolute level of capital is likely to be maintained over and above immediate needs with net profits fully distributed as dividends to the parent company.”

Best indicated that the group’s earnings improved in 2004 to 106 million euros ($126 million) “as a result of stricter underwriting discipline and the successful implementation of a cost reduction plan, which will deliver its full results by the end of 2005 (when A.M. Best anticipates a total net income in the range of 130 million euros [$155 million]).” Best also expects AXA Re’s loss ratio to stabilize at approximately 63 percent in 2005 (compared to 64 percent in 2004 and 76.7 percent in 2003), “reflecting the improving underwriting and the positive effect of the transfer of run-off business to the parent.

“The expense ratio will be reduced (45.9 percent in 2004) as the fixed cost base is gradually adjusted to the new lower business volume, but it will remain high at 37 percent in 2005. The consolidated combined ratio will most likely fall to approximately 99 percent from 109.9 percent in 2004 (approximately 106 percent excluding the effect of the U.S. subsidiaries that were transferred) due to an exceptional number of natural catastrophes.”

Discussing the Group’s reduced business profile, Best indicated: “AXA Re has historically enjoyed an excellent business profile, which is now considerably reduced after a sharp 80 percent premium reduction over the last three years.” Best said it “believes that AXA Re’s business profile will remain excellent in its core lines of business, property and motor (65 percent of consolidated premiums), mainly in Europe and the United States. Total gross written premium is likely to stabilise at 1.25 billion euros ($1.49 billion) as the decrease in property and motor rates will be offset by opportunistic increases in market share in some casualty and credit lines of business.”

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