Our downgrades of the core operating entities of AXA Group, including AXA Life Insurance, are based on our view that unfavorable investment market conditions and weak economic prospects are likely to dampen the group’s earnings growth prospects, despite its actions to deemphasize capital-consuming products and business lines. The group’s risk-adjusted capital adequacy level, according to our criteria, and its sensitivity to changing market conditions continue to be weaknesses for the financial strength ratings, although we believe earnings retention and recently improving investment market conditions have provided capital adequacy support over the past year. On Dec. 18, 2012, we lowered the long- and short-term counterparty ratings on parent AXA and holding entity AXA Financial Inc. to ‘A-/A-2’ from ‘A/A-1’, and downgraded AXA Group’s core subsidiaries--except for AXA Life Insurance--to ‘A+’ from ‘AA-’ (for more details, please see “Research Update: Global Multiline Insurer AXA Group Ratings Lowered To ‘A+’ On Pressure On Capital Adequacy; Outlook Stable,” published Dec.18, 2012).
The stable outlook on our ratings on AXA Life Insurance is equivalent to that on the other core subsidiaries within AXA Group. The stable outlook reflects our opinion that the group’s ongoing execution of its strategy is likely to lead to strengthened earnings retention and risk reduction. This should, in our opinion, reduce the sensitivity of its risk-adjusted capital adequacy over 2013 and 2014, and ultimately reinforce its position to a level that would sustainably support the current ratings.
We may lower the ratings on AXA Life Insurance if we downgrade the core subsidiaries within AXA Group. We may downgrade the core subsidiaries if the group does not meet our base-case earnings projections or if its risk-adjusted capital adequacy level, based on our criteria, fails to continue to strengthen over the next year or two.
Conversely, we may upgrade AXA Life Insurance if we raise the ratings on the core subsidiaries within AXA Group. We could upgrade the core subsidiaries if the group exceeded our base-case earnings projections and if we were to witness a pronounced and sustainable improvement in its risk-adjusted capital adequacy, particularly if that improvement is achieved through earnings retention or controlled capital requirements. However, the ratings on AXA Life Insurance are also constrained by our sovereign ratings on Japan (AA-/Negative/A-1+) because the insurer’s asset management portfolio is weighted relatively heavily in domestic assets, and its business is highly dependent on the domestic market.
Research Update: Global Multiline Insurer AXA Group Ratings Lowered To ‘A+’ On Pressure On Capital Adequacy; Outlook Stable, Dec. 18, 2012
General: Interactive Ratings Methodology, April 22, 2009.
General: Group Methodology, April 22, 2009