LONDON--(BUSINESS WIRE)--AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of AXA Mansard Insurance Plc (AXA Mansard) (Nigeria). The outlook assigned to these Credit Ratings (ratings) is negative.
In March 2018, the ratings of AXA Mansard were placed under review with developing implications following AXA S.A.’s (AXA or the group) announcement that it had entered into an agreement to acquire 100% of XL Group Ltd (XL) for a cash consideration of USD 15.3 billion (EUR 12.4 billion). The latest rating actions follow the completion of this transaction on 12 September 2018, and the conclusion of AM Best’s assessment of its impact on the credit fundamentals of the group and its rated subsidiaries. In AM Best’s opinion, the execution risk associated with the acquisition has been partially alleviated, as completion of the transaction and integration to date has been in line with expectations. Furthermore, although the transaction has resulted in an increase in financial leverage for AXA, AM Best expects this situation to be temporary, as the group has presented a clear plan to reduce leverage over the coming years. AXA is expected to maintain a very strong balance sheet, strong operating performance, although the XL business has the potential to introduce some volatility, a very favourable business profile and very strong enterprise risk management (ERM).
The ratings reflect AXA Mansard’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also reflect rating enhancement from the AXA group.
The negative outlooks reflect AM Best’s concern regarding AXA Mansards’s prospective risk-adjusted capitalisation and operating performance. Risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), has deteriorated over recent years as the company’s capital generation has lagged behind its business growth. It is expected to deteriorate further by the end of 2018. An improvement in risk-adjusted capitalisation is expected in 2019; however, this is contingent on the company successfully de-risking its investment portfolio during the year. AXA Mansard’s underwriting performance has weakened over recent years, and its non-life business is currently unprofitable. Although there are indications that the company will return to underwriting profitability in the near-to-medium term, there is a risk that this will not be achieved. If the company is unable to maintain its risk-adjusted capitalisation at the strongest level or turn around the performance of its non-life business, there will be further negative pressure on the ratings.
AXA Mansard’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation at the strongest level, as measured by BCAR. Offsetting balance sheet strength factors include the company’s moderate reliance on reinsurance, unsophisticated assessment of catastrophe exposure and relatively high level of illiquid investments. The ratings also consider the company’s exposure to high levels of economic risk and very high levels of political and financial system risk associated with operating exclusively in Nigeria. Although AXA Mansard has remained profitable in recent years, its return on equity has been broadly in line with inflation. The company’s business remains concentrated in Nigeria.
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