Moody’s upgrades XL Bermuda to align it with AXA

Moody's Investors Service has upgraded XL Bermuda’s insurance financial strength rating to Aa3, from A1 and changed its outlook to stable, from positive.

Moody's said the action brings its ratings in line with those of its parent company AXA. The XL companies form the core of AXA's large commercial lines property and casualty (P&C) insurance business, operating under the AXA XL brand. During 2019, AXA XL reported gross premiums written of nearly €19 billion.

AXA has demonstrated significant support for XL Bermuda since it acquired XL Group in September 2018, including a commitment to contribute around €1 billion to support growth and offset losses arising from coronavirus-related claims.

AXA XL's management team has restructured the firm's operating model to better align underwriting and risk management processes, improve underwriting results, reduce expenses and control volatility, Moody’s said. These developments demonstrate the strategic importance of AXA XL to the larger AXA group and provide clear evidence of strong implicit support, it added.

The rating also reflects AXA XL's strong market positions within P&C re/insurance, its diversified earnings streams by geography and product, its high quality investment portfolio and good capital adequacy, Moody’s said. However, the rating agency cautioned these strengths are tempered by weak profitability, the intrinsic volatility of AXA XL's reinsurance businesses and certain insurance lines, and exposure to natural and man-made catastrophes.

Moody's said it expects AXA XL's core profitability to benefit from the re-underwriting of its business, including lower policy limits, higher attachment points, additional reinsurance protection and higher re/insurance pricing.

Any future rating change for AXA could lead to a similar change for XL Bermuda, Moody’s noted.