Axa Group Gives Equitable Life a Shot in the Arm

Two of the world’s biggest insurers joined forces Thursday when Axa Group of France put up $1 billion for up to a 49% stake in Equitable Life Assurance Society, the third-largest life insurer in the United States.

Equitable, which has been hard hit by losses in its real estate and junk bond portfolios, took immediate advantage of Axa’s capital infusion by setting aside $500 million for future writeoffs in those troubled areas.

Axa’s capital infusion sets the stage for Equitable to move forward with its previously announced plan to alter its ownership structure by transforming itself from a mutual insurance company--one owned by its policyholders--into a company owned by public shareholders.

Equitable Chairman and Chief Executive Richard H. Jenrette, who as recently as last November was battling rumors in financial markets that Equitable was about to file for bankruptcy protection, hailed the global partnership as “pioneering” and “epoch-making.”

“This is the largest single equity investment in the history of the U.S. insurance industry,” he said at a press conference here with AXA Chairman Claude Bebear.

Axa’s investment in Equitable, which must be approved by New York regulators, was also welcomed by industry officials who have been shaken by a series of insurance company collapses this year, most recently the seizure this week of Mutual Benefit Life Insurance Co. by New Jersey regulators after a run by policyholders.

“This is not just a vote of confidence in Equitable,” said Henri Bersoux, a spokesman for the Washington-based American Council of Life Insurance, an industry association. “It’s also a vote of confidence in the American economy” and the U.S. markets in which Equitable’s $61 billion in assets are invested.

The French investment “shores up Equitable’s capital position considerably and was somewhat in the nick of time,” William Bitterli, an analyst with Northington Partners, told Reuters.

Axa’s investment, which is made up of $250 million in surplus notes and $750 million in secured notes, will be converted into Equitable common stock when the U.S. company becomes a public firm next spring or summer. The size of Axa’s stake will range from 40% to 49%, depending upon the pricing of the stock offering.

Axa is Europe’s eighth-largest insurer and controls 49 insurance, reinsurance and financial services companies in Europe, North America and the Far East. Axa has been searching for a major investment in the United States since it was frustrated by California regulators in its 1989 attempt to purchase Los Angeles-based Farmers Insurance Group, a unit of Britain’s BAT Industries.

Jenrette expects the companies to team up in a number of areas, particularly asset management.