AM Best has removed from under review with developing
implications and affirmed the Financial Strength Rating of B+ (Good) and
the Long-Term Issuer Credit Rating of “bbb-” of AXA Mansard Insurance Plc
(AXA Mansard) (Nigeria). The outlook assigned to these Credit
Ratings (ratings) is negative.
In March 2018, the ratings of AXA Mansard were placed under review with
developing implications following AXA S.A.’s (AXA or the group)
announcement that it had entered into an agreement to acquire 100% of XL
Group Ltd (XL) for a cash consideration of USD 15.3 billion (EUR 12.4
billion). The latest rating actions follow the completion of this
transaction on 12 September 2018, and the conclusion of AM Best’s
assessment of its impact on the credit fundamentals of the group and its
rated subsidiaries. In AM Best’s opinion, the execution risk associated
with the acquisition has been partially alleviated, as completion of the
transaction and integration to date has been in line with expectations.
Furthermore, although the transaction has resulted in an increase in
financial leverage for AXA, AM Best expects this situation to be
temporary, as the group has presented a clear plan to reduce leverage
over the coming years. AXA is expected to maintain a very strong balance
sheet, strong operating performance, although the XL business has the
potential to introduce some volatility, a very favourable business
profile and very strong enterprise risk management (ERM).
The ratings reflect AXA Mansard’s balance sheet strength, which AM Best
categorises as strong, as well as its adequate operating performance,
limited business profile and appropriate ERM. The ratings also reflect
rating enhancement from the AXA group.
The negative outlooks reflect AM Best’s concern regarding AXA Mansards’s
prospective risk-adjusted capitalisation and operating performance.
Risk-adjusted capitalisation, as measured by Best’s Capital Adequacy
Ratio (BCAR), has deteriorated over recent years as the company’s
capital generation has lagged behind its business growth. It is expected
to deteriorate further by the end of 2018. An improvement in
risk-adjusted capitalisation is expected in 2019; however, this is
contingent on the company successfully de-risking its investment
portfolio during the year. AXA Mansard’s underwriting performance has
weakened over recent years, and its non-life business is currently
unprofitable. Although there are indications that the company will
return to underwriting profitability in the near-to-medium term, there
is a risk that this will not be achieved. If the company is unable to
maintain its risk-adjusted capitalisation at the strongest level or turn
around the performance of its non-life business, there will be further
negative pressure on the ratings.
AXA Mansard’s balance sheet strength assessment is underpinned by
risk-adjusted capitalisation at the strongest level, as measured by
BCAR. Offsetting balance sheet strength factors include the company’s
moderate reliance on reinsurance, unsophisticated assessment of
catastrophe exposure and relatively high level of illiquid investments.
The ratings also consider the company’s exposure to high levels of
economic risk and very high levels of political and financial system
risk associated with operating exclusively in Nigeria. Although AXA
Mansard has remained profitable in recent years, its return on equity
has been broadly in line with inflation. The company’s business remains
concentrated in Nigeria.
This press release relates to Credit Ratings that have been published
on AM Best’s website. For all rating information relating to the release
and pertinent disclosures, including details of the office responsible
for issuing each of the individual ratings referenced in this release,
please see AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view Guide
for Media - Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.
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for more information.
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