The French and Swiss subsidiaries of Paris Re, formerly Axa Re, have been assigned an "A-" rating by S&P

Standard & Poor's has assigned its 'A-' long-term counterparty credit and insurer financial strength ratings to Paris Re (France) and Paris Re Switzerland (Switzerland). At the same time, it lowered to 'A-' from 'AA-' its long-term insurer financial strength rating on Compagnie Générale de Réassurance de Monte Carlo (CGRM). The outlook on all entities is stable.

The ratings on the Paris Re subsidiaries reflect their core status within the newly-formed Paris Re group. The downgrade of CGRM reflects that the existing guarantee provided to this entity by AXA Re (AA-/Stable) has ceased and been replaced by a qualifying guarantee provided to it by affiliate Paris Re (France).

"The ratings reflect the Paris Re group's clearly articulated strategy and track record of successful execution since 2003, when the current management team assumed leadership," said S&P credit analyst Peter Grant. "The ratings also reflect the group's strong capitalisation and strong financial flexibility."

The ratings are constrained, however, by the vulnerability of Paris Re's competitive position to the imminent termination of its fronting agreement with AXA Re, which is guaranteed by AXA France IARD (AA-/Stable/--), and its continuing, albeit diminished, earnings volatility.

The stable outlook reflects Standard & Poor's expectation that Paris Re's competitive position will not be materially adversely affected by the termination of its fronting agreement with AXA Re. Prospective earnings are expected to be strong (combined ratio of less than 95% in 2007/2008) and less volatile than in the past.

The group's current extremely strong capital adequacy is expected to weaken over time, largely as a function of the build-up of reserves and the potential for capital management initiatives, but to remain a key strength for the ratings.

Demonstrated resilience of Paris Re's competitive position following the cessation of the fronting agreement, coupled with a continuation of the group's strong recent earnings momentum, could give rise to a positive outlook.

A negative outlook is unlikely over the rating horizon, but could be triggered by a material weakening of the group's competitive position or the incurrence of a loss beyond the board's stated risk tolerance.