AXA Receives ‘Binding Offer’ from Stone Point for Re business; Best, S&P Comment

April 10, 2006

France’s AXA Group acknowledged that it has received a binding offer for its reinsurance operation – AXA Re and its subsidiaries – from Paris Re Holdings Limited. As previously reported (See IJ Website April 6), AXA had been in talks with the new capital venture. AXA indicated the deal would be worth around €120 million ($145 million).

France’s largest insurer said the decision to consider the binding offer had been made “in the context of a strategic review regarding the future of its reinsurance activity.” Its bulletin added that it “intends to respond to this binding offer following consultation with the relevant workers’ councils.”

As the announcement points out, “Paris Re Holdings Limited is a newly-created company sponsored by a consortium of international investors led by Trident III, L.P., a fund managed by Stone Point Capital LLC.” Trident III was originally established an as an investment vehicle by MMC Capital – a unit of Marsh, Inc. AXA also said it would take a participatory interest of between 5 and 10 percent in the new venture. Other lead investors include Hellman & Friedman, Vestar Capital Partners, Crestview Capital Partners, ABN Amro and New Mountain Capital.

The agreement, if accepted, would see AXA’s reinsurance business ceded to Paris Re in 2007, but the “risks attached to the 2006 claims experience of ceded business would also be accrued to Paris Re Holdings. Underwriting and claims for 2006 and prior years would continue to be managed by AXA. AXA would guarantee the reserves pertaining to losses incurred on or before December 31, 2005.”

In comments on the prospective transaction, both A.M. Best and Standard & Poor’s indicated that they contemplated no immediate changes in AXA’s ratings.

Best said the financial strength rating (FSR) of “A” (Excellent) and the issuer credit rating (ICR) of “a” of the AXA Re Group and its subsidiaries remain unchanged following the announcement that Paris Re Holdings Limited, Bermuda, would “assume AXA Re’s portfolio through a 100 percent quota share agreement. AXA Re will continue to front the business for an unspecified period.” Best also indicated that it expects Paris Re to have a capitalization equivalent to AXA Re’s, and noted that it would also benefit from AXA’s guarantees.

S&P also affirmed its ‘AA-‘ long-term insurer financial strength rating on AXA Re, and its subsidiaries – Compagnie Générale de Réassurance de Monte-Carlo, AXA Re Asia-Pacific Pte Ltd., and AXA Corporate Solutions Insurance Co., which are currently guaranteed by AXA Re. The outlook on all these entities is positive.

“On successful completion of the transaction, the guarantee from AXA France IARD would continue to be effective for policies issued by AXA Re that are in force on the termination date, but would not be effective for policies issued by Paris Re, a subsidiary of Paris Re Holdings,” noted S&P credit analyst Simon Marshall.

S&P said: “The current AXA Re legal entity will remain within the AXA group. The positive outlook on AXA Re reflects the positive outlook on its ultimate guarantor, AXA France IARD. The outlook on AXA France IARD is in turn supported by its core status in the AXA group (main French operating entities are rated AA-/Positive).”

Marshall indicated that S&P has “not yet been requested to establish an opinion on the financial strength of Paris Re.” The bulletin said, however: “In the event that Paris Re is assigned a rating by Standard & Poor’s, it is, however, likely to be at a significantly lower level than the ratings on AXA France IARD. After completion of the transaction, AXA Re would provide policy issuance services for the business written by Paris Re, possibly until March 31, 2008.”

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