Axa's Cash Flow 'Tight, Vulnerable,' Debt Rising, JPMorgan Says

By Fabio Benedetti-Valentini
Bloomberg News
April 6, 2009

April 6 (Bloomberg) -- Axa SA, the worst-performing stock in France's benchmark CAC 40 Index this year, has "tight and vulnerable" cash flow after its debt soared in 2008, JPMorgan Chase & Co. said.

"Leverage in the holding company is at an all-time high," Duncan Russell, a London-based analyst with JPMorgan, wrote in a research note. "Debt to equity in the holding now stands at 98 percent, compared with 40 percent in 2005."

Insurers around the globe are struggling after the worst financial crisis since the Great Depression reduced the value of investments, caused an economic slump and pushed up financing costs.

Axa's solvency I ratio, a measure of an insurer's capacity to absorb losses, fell to 127 percent at the end of 2008 from 135 percent on Oct. 31. The ratio will probably remain at about 130 percent for the next two years and the Paris-based insurer has "many levers" to help it avoid dropping to the 100 percent regulatory minimum, Russell said.

Europe's second-largest insurer declined 3.2 percent to 10.48 euros as of 11:45 a.m. in Paris, giving it a market value of 21.9 billion euros ($29.6 billion). The stock has fallen 34 percent this year.

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