S&P Global Ratings has decided to upgrade the ratings of AXA SA, after it was granted regulatory approval to expand its business scope as an operating reinsurance company and internal reinsurer in addition to being a holding company.
Specifically, S&P raised its long- and short-term issuer credit ratings on AXA SA to ‘A+/A-1+’ from ‘A/A-1’ and removed them from CreditWatch, where they had been placed with positive implications since February, when AXA’s plans for the business were first announced.
The outlook on these ratings is stable, and S&P has also assigned an ‘A+’ financial strength rating to AXA SA.
Additionally, analysts raised their ratings on some of AXA SA’s junior subordinated notes to ‘BBB+’ from ‘BBB’, on subordinated bonds to ‘A-‘ from ‘BBB+’, its issue rating on the company’s senior unsecured notes to ‘A+’ from ‘A’, and its issue rating on AXA SA’s commercial paper to ‘A-1+’ from ‘A-1’.
AXA SA’s transformation into an internal reinsurer for AXA will be complete following the merger of the holding company with AXA’s captive reinsurer, AXA Global Re, currently expected at the end of June 2022.
Once finalised, AXA SA will become an internal reinsurer for part of AXA group’s property and casualty (P&C) retail and commercial insurance business written in Europe, with retroactive effect from Jan. 1, 2022, and will reinsure part of its European P&C entities through annually renewable quota share reinsurance treaties.
S&P says its stable outlook for the business reflects the expectation that it will generate a sizable profit contribution from AXA-XL, and capital adequacy will remain very strong.
It also believes that dividend streams from operating subsidiaries in France, Switzerland, and elsewhere in Europe, in Asia, and from AXA XL are diverse and independent enough that the suspension of cash flow from any one operating entity would not materially weaken AXA SA’s financial position.
“Expected reinsurance revenue will further diversify dividend streams from different regions and business lines but we don’t expect them to fully cover AXA SA’s financing and operating costs,” analysts added.