S&P Rates AXA Securitization

June 8, 2007

Standard & Poor’s Ratings Services has assigned preliminary credit ratings to the €411.6 million ($551 million) asset-backed floating-rate notes to be issued by a French “fonds commun de créances (FCC), FCC SPARC Europe (Senior).”

The transaction involves the securitization of the payments related to four quota share reinsurance agreements between reinsurer Nexgen Re Ltd. and five subsidiaries of France’s AXA group, which cover the risk on a defined motor insurance policy book in Belgium, Germany, Italy, and Spain (See IJ web site June 5). The subsidiaries are AXA Versicherung AG, AXA Belgium, AXA Assicurazioni SpA, AXA Aurora Iberica S.A. and Hilo Direct Seguros y Reaseguros.

S&P also rated AXA’s first securitization covering its French insurance securitization.

The securitization through the capital markets “will assume the reinsured risk above the senior global loss ratio trigger level,” S&P explained. “This is derived from each insurer’s loss ratio and takes into account the mutualization of the portfolio by allowing performing portfolios to counterbalance the possible negative impact of under performing portfolios, as well as first loss protection for the senior issued notes.

‘The global loss ratio for each of the four cover periods (2007 to 2010) will be calculated annually and cover will continue for the following year unless the senior global ratio trigger level is breached. If a breach occurs, a two-year assessment of claims will begin and no further cover will be available. The global loss ratio is defined as the percentage ratio under the four reinsurance contracts of the sum of quota shares of covered losses, divided by the sum of quota shares of eligible earned premiums.”

S&P credit analyst Nicolas Malaterre noted: “Clearly this latest transaction illustrated that securitization and the access provided to the capital market can be an alternative to the traditional reinsurance markets, which also eliminates counterparty risks for AXA.

“Although interest in such transactions has certainly grown among market participants, the insurance-linked products market is still essentially dominated by offloading extreme or catastrophe risks to the capital market. FCC SPARC Europe (Senior) is a rare example that outlines the potential growth potential insurance could represent for the ABS market in the coming years.”

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