OREANDA-NEWS. Fitch Ratings has affirmed AXA entities' Insurer Financial Strength (IFS) ratings at 'AA-', with the exception of AXA Global P&C whose IFS rating has been upgraded to 'AA-' from 'A+' consistent with Fitch's updated notching criteria for the insurance industry. Fitch has also affirmed AXA SA's Long-term Issuer Default Rating (IDR) at 'A' and Short-term IDR at 'F1'. The Outlooks on the Long-term IDR and IFS ratings are Stable. A full list of rating actions is available at the end of this commentary.

KEY RATING DRIVERS

The ratings reflect the AXA group's strong consolidated group capital position and moderate financial leverage, its broad diversification by geography and business lines, and solid business position in its key markets. The affirmation also reflects AXA's strong financial performance.

"Brexit" is expected to drive widespread credit pressure, as life insurers tend to be sensitive to deterioration of the market values of their assets. AXA recently divested its UK life operations so its direct exposure to "Brexit" is limited. However, sustained economic weakness leading to material deterioration in the market values of assets or lower demand for business could place insurers at risk of downgrades.

Capitalisation is 'Very Strong' under Fitch's Prism factor-based capital model (Prism FBM) based on end-2015 data, which supports the ratings. The group's capital adequacy is supported by AXA's disciplined asset-liability management (ALM) policy. The group's Solvency II ratio, under AXA's internal model approved by the ACPR (the French insurance regulator) in November 2015, was 200% at end-March 2016. The ratio is in line with highly rated peers and has limited sensitivity to changes in interest rates or equity markets. AXA targets a group Solvency II ratio between 170% and 230%, which gives a strong capital buffer to absorb the volatility inherent in the ratio.

The ratings also reflect the group's moderate financial leverage and strong fixed-charge coverage. According to Fitch's calculations, financial leverage improved to 24% at end-2015 from 25% at end-2014. In addition, the fixed-charge coverage, as calculated by Fitch, has been 8x on average over the past five years, which we expect to marginally improve, commensurate with the ratings.

Partially offsetting these positive rating factors is AXA's high level of intangibles. At end-2015, the group had EUR17bn (2014: EUR15bn) of goodwill on its consolidated balance sheet, mostly relating to insurance and asset management operations acquired in the US, Switzerland and Japan. Despite a strong increase in shareholders' equity in 2015, goodwill still represented 23% of it (2014: 23%).

Over the past five years, AXA group's operating profitability improved, with a steady rise in underlying earnings to EUR5.6bn at end-2015 from EUR3.9bn at end-2010. Return on equity as calculated by Fitch was 8.4% in 2015 (2014: 8.5%). The ratio is in line with the 'A' rating category. We expect AXA to continue improving its earnings profile through cost efficiencies, tariff adjustments and optimisation of its business and geographical mix, despite headwinds from persistently low interest rates.

AXA has released a new five-year plan where it is targeting selective growth, cost efficiencies, an enhanced business mix with a strong focus on protection business and capital-light savings products, and higher earnings. The group maintains a focus on digitalisation and innovation. The contents outlined in the plan are in line with Fitch's expectations and therefore neutral to AXA's ratings.

The US operations' ratings reflect our view of AXA Financial Inc. (AXF) and its subsidiaries as Core to the AXA group under our insurance rating methodology.

RATING SENSITIVITIES

Factors that could lead to a downgrade of AXA include a sustained deterioration in AXA's Prism FBM score to 'Strong', or a decline in the return on equity to below 8%. In addition, the ratings could be downgraded if financial leverage increases above 30%.

Factors that could lead to an upgrade of AXA include a sustained improvement in profitability with a return on equity above 12%, with the Prism FBM score remaining at least 'Very Strong' and the financial leverage ratio below 25%.

FULL LIST OF RATING ACTIONS

AXA S. A.

Long-term IDR affirmed at 'A'; Outlook Stable

Short-term IDR affirmed at 'F1'

Senior unsecured debt affirmed at 'A-'

Subordinated debt affirmed at 'BBB'

Junior subordinated debt affirmed at 'BBB'

US-registered subordinated debt debentures affirmed at 'BBB+'

Commercial paper affirmed at 'F1'

AXA Financial, Inc.

Long-term IDR affirmed at 'A'; Outlook Stable

Senior unsecured debt affirmed at 'A-'

Commercial paper affirmed at 'F1'

AXA Equitable Life Insurance Company

IFS rating affirmed at 'AA-'; Outlook Stable

Long-term IDR affirmed at 'A+'; Outlook Stable

AXA Versicherungen (Switzerland) AG

IFS rating affirmed at 'AA-'; Outlook Stable

Long-term IDR affirmed at 'A+'; Outlook Stable

AXA Global P&C

IFS rating upgraded to 'AA-' from 'A+'; Outlook Stable

These rating actions do not have any impact on the ratings of AXA Bank Europe SCF's covered bonds.

The following Core subsidiary companies' IFS ratings have been affirmed at 'AA-' with Stable Outlook:

AXA Art Versicherung AG

AXA Art Insurance Limited

AXA France IARD

AXA France Vie

AXA Corporate Solutions Assurance

AXA Insurance Company (US)

AXA Leben (Switzerland) AG

AXA Belgium

AXA Versicherung (Germany) AG

AXA Lebensversicherung AG

AXA Krankenversicherung AG

DBV Deutsche Beamtenversicherung AG

Deutsche Arzteversicherung Aktiengesellschaft (DAV)

AXA Insurance UK Plc

AXA PPP Healthcare Ltd

AXA Insurance Singapore Pte Ltd

AXA General Insurance Hong Kong Ltd

AXA China Region Insurance Co. (Bermuda) Ltd

AXA Equitable Life and Annuity Company

MONY Life Insurance Company of America

U. S. Financial Life Insurance Company