AXA Pulls Plug On Some U.S. Re Units

Managements message is that a recent injection of capital in the reinsurance operations will not be repeated, says Marc-Philippe Juilliard, a director with Fitch in Paris.

Scale is important in the life reinsurance business, which could be a reason AXA decided to withdraw from that line, he says, adding that insufficient profitability is the key reason for not underwriting new business.

Moodys Investors Service, New York, downgraded AXA Re Finance to A3 from Aa1, reflecting “the dramatic change in credit profile of AXA Re Finance given managements sudden shift in business direction from a strongly capitalized ongoing business to a runoff entity.”

It continues, “The review for possible downgrade reflects the need to evaluate the evolving fortunes of AXA Re Finance as it enters runoff and as its parent redeploys its capital.”

Speaking of the financial guaranty portion of AXA Res business, Jack Dorer, a Moodys senior vice president, says it was not providing the returns management wanted. Generally, he explains, returns in the financial guaranty business are a couple of percentage points lower than for a primary guarantor.

Moodys says it believes the financial guaranty companies that have relied on AXA Re Finance for reinsurance will not be affected by the changes because the unit reinsured less than 3% of any financial guarantors insurance in force and represented no more than 20% of the guarantors reinsurance usage.

Additionally, Moodys noted the possibility that financial guarantors could take back business ceded to AXA Re Finance.

Standard & Poors Corp., New York, lowered the units financial strength rating to BBB from AAA and removed the ratings from CreditWatch. It also said the outlook is now stable. The ratings were then withdrawn at managements request.

The ratings, according to S&P, are consistent with a runoff company in which once-diversified portfolios can become more concentrated and have higher risk. S&P also said it believes capital will be sufficient to support operations, and AXA Group would not allow its global franchise to wind down in a disorderly fashion.

“AXA Re has always been an opportunistic underwriter” and has pretty strong incentive to refocus on Europe and Asia, says Yann LePallec, director of financial services with S&P in Paris.

The decision on how to deploy resources could go beyond just a capital issue and involve wider reorganization goals such as how to deploy field force resources, says Jose Sanchez-Crispo, manager of A.M. Best-Europe, based in London.

Among action Best took on AXA companies was a downgrade of the financial strength ratings of AXA Corporate Solutions Re and AXA Corporate Solutions Life Re to B (Fair) from A (Excellent.) The ratings were assigned a negative outlook.

A.M. Best said it believes financial support for AXA Corporate Solutions Re and AXA Corporate Solutions Life Re is diminished by the decision to run them off.

Last year, Best says, AXA Corporate Solutions Life Re business was impacted by the underlying equity market deterioration, given its exposure to guaranteed minimum death and income benefit products.

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 20, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.