Standard & Poor’s Ratings Services said on September 15 that it lowered its long-term counterparty credit and insurer financial strength ratings to ‘A-‘ from ‘A+’ on U.K.-based AXA Sun Life PLC, currently a subsidiary of France-based insurer AXA group. The outlook is negative.
The rating action reflects confirmation that AXA Sun Life will be among the legal entities sold by AXA to Friends Provident Holdings (UK) Ltd. (Friends Provident). Earlier this month, the U.K. Financial Services Authority gave notice of its approval, subject to conditions, of the change in control applications submitted in connection with Friends Provident’s acquisition of most of AXA’s U.K. life business. Friends Provident is a subsidiary of Resolution Ltd.
“In light of the fact that the AXA Sun Life legal entity will be sold to Resolution, we are removing AXA group support from the rating; the rating now solely reflects the stand-alone characteristics of the entity,” said Standard & Poor’s credit analyst Sanjay Joshi.
The ‘A-‘ rating reflects the company’s strong capitalization, which has been somewhat strengthened by the exchange of shares in AXA Asia Pacific for cash. This is offset by its competitive position and operating performance, which, while still considered good, are viewed as weaknesses to the rating.
The rating also reflects our view that industry and economic risks in the U.K. life sector remain elevated. In our opinion, these risks are weighing on credit quality for all insurers operating in this market. We consider that AXA Sun Life’s concentration in the U.K. life market exposes it to these risks and to changes in the competitive landscape
The negative outlook reflects AXA Sun Life’s weakened U.K. competitive position and the execution risk on integration within the acquiring entity.
It also reflects uncertainty regarding capital and new business activity relating to AXA Sun Life’s current business in the enlarged Friends Provident organization. However, we would expect capital to be maintained at levels commensurate with the rating.
The ratings could be downgraded if the competitive position or financial profile of AXA Sun Life weakens considerably. Conversely, the outlook could be moved to stable on successful integration and enhanced competitive position and business profile, as measured by earnings on in force and new business.
Source : Standard and Poor’s