S&P revises AXIS outlook to negative

S&P Global Ratings has revised its outlook on AXIS to negative from stable in the wake of its  acquisition of Novae.

The rating agency said that the negative outlook reflects its concerns about the level of redundancy at the 'AAA' level on a pro-forma consolidated basis.

According to S&P: “We believe the existing capital redundancies will shrink significantly as AXIS integrates Novae during the next couple of years. In addition, the change in outlook reflects the potential stress on the new consolidated group's business profile, given the expected growth in the London market and the potential volatility in earnings in light of the headwinds in the company's key (re)insurance segments.

“The negative outlook on AXIS means that we could lower the ratings within the next 24 months. We would lower our ratings by one notch if AXIS cannot successfully integrate Novae because of potential cultural challenges, earnings volatility, and difficulty rebuilding its capital adequacy at the 'AAA' level.”

However, S&P did say that it could affirm the current ratings and revise its outlook to stable from negative if Novae's acquisition enhances AXIS' breadth and depth in the London market, generates sustainable strong earnings, and rebuilds its capital adequacy at the 'AAA' level to pre-acquisition levels.

Reacting to the revised outlook, Joe Cohen, chief communications officer at AXIS Capital, told Bermuda:Re+ILS that: “We believe that this transaction has significant strategic merits for AXIS, strengthening our competitive positioning in the international specialty insurance market while enhancing the financial and robust credit profile of the combined company going forward. We believe that AXIS will deliver increased, more diversified profitability and an enhanced financial position and liquidity profile that will continue to support our strong ratings.”