Fitch Affirms AXA Entities' IFS at 'AA-'; Revises Outlook to Negative

PARIS & LONDON--(BUSINESS WIRE)--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 agency has revised the Outlooks on the Long-term IDR and IFS ratings to Negative from Stable. A full list of rating actions is at the end of this comment.

The revision of the Outlook to Negative reflects Fitch's concerns about the group's ability to improve profitability, notably in the context of low interest rates. Fitch recognises management action aimed at reducing the exposure to financial market movements but considers this will take some time to achieve results in the context of the group's exposure to a sizeable amount of intangible assets. In addition, Fitch views AXA's 29% debt leverage as outside its criteria guidelines for the rating category.

The affirmation of the ratings reflects Fitch's view of the group's solid capital adequacy. As measured by both regulatory calculation and Fitch's internal analysis, the group's capital adequacy is in line with the current rating and is expected to show resilience in the near future despite the volatile financial environment.

Over the past four years, AXA's operating profitability has recovered due to management action and a more favourable underwriting environment in the non-saving related businesses despite volatile trends in financial markets. Fitch expects further improvement in profitability will be a major challenge for AXA over the next one to two years due to the low interest rate environment. However, management continues to implement actions to increase tariffs, adjust product features and streamline risk selection. In addition, Fitch notes that the substantial de-risking actions implemented over the past four 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 geographical diversification, key competitive advantages in products and distribution capabilities, the quality of its management team and consistent strategy.

AXA's US operations' ratings reflect Fitch's view that AXA Financial Inc. (AXF) and its subsidiaries remain core operations and continue to benefit from support from the parent. Fitch estimates that the risk-based capital (RBC) ratio of AXF's primary operating company, AXA-Equitable Life Ins. Co., was 470% at 30 June 2012 and is expected to remain well above 400% for FY12. Fitch estimates that the combined RBC ratio for the US operations was strong at 441% as of 30 June 2012 compared with 461% at year-end 2011. These ratios are in line with expectations for the rating.

Fitch notes that AXA US's statutory operating earnings remain volatile due to the company's variable annuity business, which has been impacted by low interest rates, equity market volatility, and lower-than-expected lapses and partial withdrawals. Fitch anticipates that management's steps to reduce variable annuity risk and volatility will contribute to more stable statutory earnings in the longer term.

Factors that could lead to a rating downgrade for AXA include a weakening of the group's capital position or deterioration in profitability. This would include a sustained drop in regulatory capital to below 130% of regulatory minimum or repeated earnings volatility within the next few years. In addition, the 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 US operations were 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 II's expected requirements.

Fitch has also revised the Outlook on AXA Bank Europe SCF's IDR to Negative from Stable and affirmed the IDR at 'A+'. AXA Bank Europe SCF's Long-term IDR reflects Fitch's view that it is core to AXA Belgium's operations. Fitch considers there is an extremely high probability that AXA Belgium would support AXA Bank Europe SCF if required given its strong integration with and strategic importance to AXA's activities in Belgium. The ratings of AXA Bank Europe SCF are sensitive to any rating action on AXA Belgium and to any rating action on other core subsidiaries of AXA group. In addition, the ratings are sensitive to any change in Fitch's assumption about the willingness and/or ability of AXA Belgium to provide support in case of need. There are no such expectations at present.

The rating actions are as follows:

AXA

Long-term IDR affirmed at 'A'; Outlook revised to Negative from Stable

Short-term IDR affirmed at 'F1'

Senior unsecured debt affirmed at 'A-'

Subordinated debt affirmed at 'BBB'

Junior subordinated debt affirmed at 'BBB'

Commercial paper affirmed at 'F1'

AXA Financial, Inc.

Long-term IDR affirmed at 'A'; Outlook revised to Negative from Stable

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 Negative from Stable

Long-term IDR affirmed at 'A+'; Outlook revised to Negative from Stable

Surplus notes affirmed at 'A'

MONY Life Insurance Company

Long-term IFS rating affirmed at 'AA-'; Outlook revised to Negative from Stable

Long-term IDR affirmed at 'A+'; Outlook revised to Negative from Stable

Surplus notes 'A' rating withdrawn

AXA Versicherungen (Switzerland) AG

Long-term IFS rating affirmed at 'AA-'; Outlook revised to Negative from Stable

Long-term IDR affirmed at 'A+'; Outlook revised to Negative from Stable

DBV Holding AG

Long-term IDR affirmed at 'A'; Outlook revised to Negative from Stable

AXA Bank Europe SCF

Long Term IDR affirmed at 'A+' Outlook revised to Negative from Stable

Support Rating affirmed at '1'

Today's rating actions do not have any impact on the ratings of AXA Bank Europe SCF's covered bonds.

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

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 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

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable criteria, "Insurance Rating Methodology", dated 19 September 2012, "Global Financial Institutions Rating Criteria" dated 15 August 2012, 'Rating FI Subsidiaries and Holding Companies' dated 10 August 2012 are available at www.fitchratings.com.

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688011

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

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