Fitch unveils positive outlook on AXA driven by AXA XL

Fitch Ratings has changed its outlook on AXA’s Insurer Financial Strength rating of AA- to Positive from Stable, citing improving results at AXA XL.

It said the move reflects Fitch's expectations that the group could achieve a property/casualty (P&C) combined ratio sustainably below 95 percent, mainly driven by 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 (FLR) to a pre-XL acquisition level of around 25 percent.

“We believe AXA is firmly positioned to rebuild its financial performance metrics by end-2021, driven by improved, less volatile earnings performance at AXA XL,” Fitch said. “Strong operating earnings, driven by technical profitability in P&C, health, and protection support our expectations for steadily growing underlying earnings over the next 12-24 months.”

It noted that AXA's operating performance weakened in 2020 due to €1.5 billion 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 percent in 2020 from 96.4 percent in 2019. Excluding Covid-19 and natural catastrophes, the combined ratio was 94.2 percent (2019: 94.7 percent). As a result, AXA's net income return on equity (ROE), as calculated by Fitch, fell to 4.5 percent at end-2020 from 5.8 percent at end-2019.

Fitch added: “The ratings continue to reflect the 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.”

Meanwhile, Fitch has also downgraded the IFS rating of AXA Insurance (Singapore) to A+ from AA- with a negative outlook. It said the downgrade of AXA Singapore 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.