Fitch Ratings has revised its outlook on AXA and its core insurance subsidiaries’ Insurer Financial Strength (IFS) Ratings, changing AXA’s Long-Term Issuer Default Rating (IDR) to Positive from Stable.
Fitch’s revision is driven primarily by an expectation for the AXA group to secure a property and casualty combined ratio sustainably below 95% thanks to improving technical results at AXA XL.
The rating action also considers the achievement of its business transformation targets, strengthened capitalisation and reduced Fitch-calculated financial leverage ratio to a pre-XL acquisition level of around 25%.
Fitch is of the opinion that AXA’s firmly positioned to rebuild its financial performance metrics by the end of 2021, driven by improved, less volatile earnings performance at AXA XL.
Strong operating earnings, driven by technical profitability in P&C, health, and protection support Fitch’s expectations for steadily growing underlying earnings over the next 12-24 months.
Fitch notes that AXA’s operating performance weakened in 2020 due to €1.5 billion in Covid-19 related loss affecting mainly its commercial P&C businesses (AXA XL).
This caused the reported all-year P&C combined ratio to deteriorate to 99.5% in 2020 from 96.4% in 2019.
Excluding Covid-19 and natural catastrophes, the combined ratio was 94.2%, up only a few percentage points from 2019.
As a result, AXA’s net income return on equity (ROE), as calculated by Fitch, fell to 4.5% at end-2020 from 5.8% at end-2019.
The positing ratings movement also reflects what Fitch considers a very strong business profile of AXA, due to its market-leading positions and its considerable geographical and business diversification, which mitigated the effects of the pandemic.
AXA has also been successfully shifting its business mix towards P&C, health, and protection. Fitch ranks AXA’s business profile as ‘Most Favourable’ compared with that of Europe-based multinational insurers.
Concurrently, Fitch has downgraded AXA Singapore’s IFS Rating to ‘A+’ from ‘AA-‘. The Outlook is Negative.
The downgrade reflects Fitch’s assessment of its Standalone Credit Profile (SCP), along with a revision of the agency’s assessment of its strategic importance to the AXA group to ‘Very Important’ from ‘Core’.
The Negative Outlook on AXA Singapore’s IFS Rating reflects Fitch’s view that the strategic importance of AXA Singapore could further diminish over the next 12 to 24 months.