Fitch reaffirms AXA entities from negative to stable

Fitch Ratings has affirmed all AXA entities’ Insurer Financial Strength (IFS) ratings at ‘AA-’.

Fitch has also affirmed AXA SA’s Long-term Issuer Default Rating (IDR) at ‘A’ and Short-term IDR at ‘F1′. The Outlooks on the Long-term IDR and IFS ratings have been revised to Stable from Negative.

The ‘AA-’ IFS rating of National Mutual Life Association of Australasia Ltd (NMLA) remains on Rating Watch Negative (RWN). Fitch continues to closely monitor the development of the joint offer made by AMP and AXA and expects to resolve the RWN on NMLA once this is finalised.

A full list of rating actions is below.

The affirmation reflects Fitch’s view of the group’s solid capital adequacy and recovering profitability. As measured by both regulatory calculation and Fitch internal analysis, the group’s capital adequacy has materially recovered from the low levels seen at end-2008 and is expected to show resilience in the near future.

Fitch notes that AXA is increasingly focused on integrating capital management in all decision-making processes to use its existing capital base more efficiently.

Since 2008, AXA’s profitability has also recovered, with resilient underlying earnings and increased adjusted earnings due to more favourable trends in financial markets.

Fitch expects an improvement in profitability will remain a challenge for AXA in the near term due to difficult underwriting conditions in both the life and non-life business segments. However, management has taken action to increase tariffs, adjust product features and streamline risk selection.

The Stable Outlook reflects Fitch’s view that ongoing challenging conditions in global financial markets are likely to continue, which could make it difficult for AXA to materially improve its financial profile.

However, substantial de-risking actions implemented over the past two years have reduced AXA’s sensitivity to significant financial markets movements.

AXA group’s ratings continue to reflect Fitch’s view of the group’s position as one of the world’s largest providers of insurance and financial services, benefiting from its recognised brand, excellent risk management and geographic diversification, key competitive advantages in products and distribution capabilities, the quality of its management team and consistent strategy.

The ratings of AXA’s US operations reflect Fitch’s view that AXA Financial Inc. (AXF) and its subsidiaries are core operations of AXA and continue to benefit from support from the parent.

However, Fitch notes that the US operations were a drag on the group’s results in 2008 before the market recovery, including a change in the fair value of Alliance Bernstein, prompted a recovery in the capital position.

Fitch estimates that AXF’s consolidated risk-based capital (RBC) ratio was 380% as of end-September 2010.

Factors that could lead to a rating upgrade for AXA include a structural improvement in the level of the consolidated Solvency 1 regulatory capital position by approximately 50 percentage points (either through an increase in shareholders’ equity or through some other reduction within the company’s risk profile).

A change in capital would be most favourably viewed if it was achieved through retained earnings that were able offset the increase in capital needed to support further business growth. In addition, ratings could be upgraded if AXA generated improved profitability from strategic initiatives over time and was positioned to consistently maintain those earnings.

This improvement would be viewed a material positive development if ongoing returns on shareholders equity could be in the 12%-15% range while not sacrificing capital level.

Conversely, a weakening of the group’s capital position or deterioration in profitability could result in negative rating action. This would include a sustained drop in regulatory capital of approximately 50 percentage points or repeated earnings volatility, as witnessed during the 2008 period, within the next few years.

In addition, ratings could be downgraded if financial leverage increases above 30%, material investment losses develop or there is a weakening in the group’s reserve strength.

Further, AXA Financial and its subsidiaries could be downgraded if, in Fitch’s view, the strategic importance of the U.S. operations was to diminish.

In particular, potential adoption of new EU Solvency II capital rules might result in an increase in capital requirements associated with AXA’s ownership of AXF.

However, Fitch notes AXA is already using capital management tools in line with Solvency 2 expected requirements.

Rating actions on AXA entities:

AXA

Long-term IDR affirmed at ‘A’; Outlook revised to Stable from Negative
Senior unsecured debt affirmed at ‘A-’
Subordinated debt affirmed at ‘BBB’
Junior subordinated debt affirmed at ‘BBB’
Short term IDR affirmed at ‘F1′
Commercial paper affirmed at ‘F1′
AXA Financial, Inc.
Long-term IDR affirmed at ‘A’; Outlook revised to Stable from Negative
Senior unsecured debt affirmed at ‘A-’
Commercial paper affirmed at ‘F1′
AXA Equitable Life Insurance Company
Long-term IFS rating affirmed at ‘AA-’; Outlook revised to Stable from Negative
Long-term IDR affirmed at ‘A+’; Outlook revised to Stable from Negative
Surplus notes affirmed at ‘A’
MONY Life Insurance Company
Long-term IFS rating affirmed at ‘AA-’; Outlook revised to Stable from Negative
Long-term IDR affirmed at ‘A+’; Outlook revised to Stable from Negative
Surplus notes affirmed at ‘A’
AXA Versicherungen (Switzerland) AG
Long-term IFS rating affirmed at ‘AA-’; Outlook revised to Stable from Negative
Long-term IDR affirmed at ‘A+’; Outlook revised to Stable from Negative
DBV Holding AG
Long-term IDR affirmed at ‘A’; Outlook revised to Stable from Negative
National Mutual Life Association of Australasia Ltd
‘AA-’ Long-term IFS rating remains on Rating Watch Negative
AXA Bank Europe SCF
Long-term IDR affirmed at ‘A+’; Outlook revised to Stable from Negative
Support Rating affirmed at ’1′

The following AXA subsidiary companies’ Long-term IFS ratings have been affirmed at ‘AA-’and their Outlooks revised to Stable from Negative:

AXA France IARD
AXA France Vie
AXA Corporate Solutions Assurance
AXA Insurance Company (US)
AXA Leben (Switzerland) AG
AXA Belgium
AXA Versicherung (Germany) AG
AXA Lebensversicherung (Germany) AG
AXA Krankenversicherung AG
DBV Deutsche Beamtenversicherung AG
DBV Deutsche Beamtenversicherung Lebenversicherung AG
AXA General Insurance Ltd
AXA Insurance Plc
AXA Insurance UK Plc
AXA PPP Healthcare Ltd
AXA China Region Insurance Co. (Bermuda) Ltd
AXA Equitable Life and Annuity Company
MONY Life Insurance Company of America
US Financial Life Insurance Company

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