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Axa Could Resist Euro Break-Up Without Added Capital

Axa SA, Europe’s second-biggest insurer, said it has taken steps that would let it withstand the effect of a disorderly Greek euro exit without boosting capital.

“We think that the euro will survive, but we need to be prepared for the extreme,” Chief Executive Officer Henri de Castries told journalists at a media seminar near Bordeaux yesterday. Axa would “of course” be able to withstand a disorderly Greek euro exit without needing a capital increase, he said.

Axa in late 2011 took “concrete” steps to defend against a possible euro break up, Chief Risk Officer Jean-Christophe Menioux said in a separate presentation. To protect its balance sheet, Axa several months ago stopped buying Italian and Spanish public debt, he said. The insurer also shifted several billion euros of sovereign-debt holdings within its European units so that each country’s balance sheet holds sovereign debt mostly issued locally, Menioux added.

“We can sustain it in each country,” Menioux said, declining to provide more details of the financial cost of a possible euro break-up. “We would be severely wounded, not killed,” he said.

Axa’s exposure to Greek banks is minimal and the insurer no longer has Greek sovereign-debt holdings as it sold the rest after a 78 percent writedown booked last year, Menioux said. While the direct impact of a Greek euro exit are “already in the accounts,” Menioux declined to elaborate on costs from a contagion to other European countries.

Corporate Investments

Axa which has “very diversified” corporate investments, is monitoring closely “exposures to each and every name,” he said. Maximum losses from a bank failure would be 300 million euros ($371 million) to 500 million euros, Menioux added.

Axa’s risk-management office in 2009 started studying how the insurer will be able to weather severe stress situations including a bank failure, a worldwide pandemic, hyperinflation, a European storm, a terrorist attack and a euro break-up, Menioux said. While in 2009 a euro break-up “was a pure intellectual scenario,” last year Axa refined “in a more concrete way” the scenario of a Greek euro exit, including contagion effects that could lead to a break-up of the euro zone, he said.

Axa’s contingency plans include ensuring that information-technology systems can sustain a conversion from the euro to another currency, analyzing legal implications stemming from debt denominated under U.K. law or local law and continuity of service to clients, Menioux said.

Euro Exit

Axa repeated yesterday that a Greek euro exit is not the insurer’s main scenario.

“Is the euro going to break up? I think the political price will be huge,” de Castries said. “There are no immediate good solutions,” the CEO said, adding that for Greece a possible mixed solution would be to stay in the euro with a default on debt owned by public institutions.

“It’s going to be a continuation of the transfers. It’s not a very virtuous model because the countries which are making real efforts, like Spain, Portugal, Italy will look at it and say: ‘Well, two standards,” de Castries said. “It’s a choice between a non-satisfactory continuation of the bleeding and the Pandora box” of unknown consequences stemming from a Greek exit, he said.

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