S&P cuts AXA rating to A+ on economic concerns

Rating agency Standard & Poor’s (S&P) has downgraded French insurance group AXA’s insurance financial strength rating to A+ from AA-.

Financial strength ratings are a key measure used by brokers and clients to determine an insurer’s ability to pay claims.

S&P said it downgraded AXA’s ratings because it believes unfavourable investment market conditions and weak economic prospects are likely to dampen the insurer’s earnings growth prospects.

This is despite AXA’s actions to deemphasise capital-consuming products and business lines, the agency said.

According to S&P, AXA’s risk-adjusted capitalisation and its sensitivity to changing market conditions continue to be weaknesses for the company’s financial strength ratings. But the agency added that earnings retention and recently improving investment market conditions have provided capital adequacy support over the past year.

S&P said in a statement: “The sensitivity of the group’s risk-adjusted capital adequacy to market conditions is still high, in our view, and we believe that this sensitivity is likely to continue weighing on the ratings. We expect, however, the group’s capital adequacy to continue strengthening through retained earnings and controlled growth in capital requirements thanks to the effects of de-risking actions.”

On the positive side, S&P said its ratings are supported by AXA’s competitive position and operating performance, which the agency described as “very strong”. These qualities are helped by AXA’s business line and geographic diversification.

The agency also views AXA’s management and corporate strategy as supportive of its rating.

The outlook on the new rating level is stable. This reflects S&P’s opinion that AXA’s execution of its strategy is likely to lead to strengthened earnings retention and risk reduction.

The agency noted, however, that it could lower the ratings further if AXA didn’t meet earnings projections or, in particular, if the company’s risk-adjusted capital adequacy levels didn’t continue strengthening over the next year or two.

The rating could be upgraded if AXA exceeds S&P’s earnings projections or if the agency witnessed a “pronounced and sustainable improvement” in risk-adjusted capital adequacy.