Divested of banking
operations that brought it to the verge of insolvency two years
ago, Fortis has re-emerged as Ageas with a single-minded focus on
life and general insurance. Progress has so far been encouraging,
with the Belgian insurer returning to profitability and achieving
solid premium growth.
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The
name Fortis is fast disappearing from the insurance market as the
former European bancassurer rebrands under its new name
Ageas.
Following rebranding
operations in Hong Kong, the latest in line for change are its UK
operations, which by early-2011 will see Fortis Life become Ageas
and its general insurance unit Ageas Insurance.
Shareholder approval for the
name change was received in April 2010 and followed the Belgian
government’s sale of 75% of Belgian bank Fortis Bank to French
bancassurer BNP Paribas (BNPP) in October 2008 for €9.4bn
($13bn).
In addition to its
acquisition of control of Fortis Bank, BNPP bought a 25% stake in
Fortis Insurance Belgium.
The dismantling of Fortis as
a bancassurer was set in motion in October 2008 when the Belgian
government acquired full control of Fortis Bank for €9.4bn, as part
of a combined effort by the governments of Belgium, the Netherlands
and Luxembourg to save Fortis from bankruptcy.
Also in October 2008, the
Netherlands’ government acquired Fortis’ Dutch banking and
insurance businesses for €16.8bn.
Under its new banner, Ageas
has, it believes, created a new identity that “reflects who we are,
what we do and where our focus and priorities lie.”
The first two letters of the
name Ageas were derived from AG Leven, a life insurance company
formed in Belgium in 1824.
In 1990, AG Group merged with
Netherlands insurer NV AMEV, Netherlands bank VSB Groep and Belgian
insurer AG Group, in what was the first European cross-border
financial merger.
AG Group went on to change
its name to Fortis AG in 2000.
The ‘e’ and ‘a’ in the new
name stand for Europe and Asia – the focus of Ageas’ growth
strategy. The ‘a’ plays another role when combined with ‘s’,
standing simply for assurance.
The insurer also noted that
Ageas derives from the Latin word agere, which means action, drive,
and a conviction to forge ahead.
Road to
recovery
As a pure insurer,
Ageas is making progress on its road to recovery following the
crippling €28bn loss reported in 2008.
This loss was down from a net
profit of €4bn in 2007 when it was ranked by Forbes magazine as the
world’s 20th largest company by revenue. Based on Ageas’ gross
written premium income of €16bn in 2009, it ranks as Europe’s 17th
largest insurer.
Ageas turned the corner in
2009, reporting a net profit of €1.19bn, though this came with the
assistance of a once-off gain of €697m on the sale of the 25% stake
of Fortis Insurance Belgium to BNPP.
The Belgian unit, which has
operated as AG Insurance since June 2009, is the largest insurer in
Belgium and remains Ageas’ largest profit generator.
Ageas’ recovery in the first
half of 2010, in terms of premium growth, was solid with total
inflow reported at €9.6bn, up 21.5% compared with the first half of
2009. Life insurance premium income increased 22.2% to €7.742bn
while general insurance premium income was up 18.8% at
€1.919bn.
From a profit perspective,
Ageas’ results were down compared with the first half of 2009 with
net profit attributable to shareholders down from €895.8m to €455m.
However, results in the first half of 2009 included a number of
once-off items including the €697m gain on the sale of the 25%
stake of Fortis Insurance Belgium to BNPP.
Excluding once-off items,
Ageas’ insurance operations reported a net profit of €228m in the
first half of 2009, including a €94m once-off tax
recovery.
AG Insurance produced mixed
results, with gross written life premium income falling 3% compared
with the first half of 2009 to €2.65bn. Life insurance profit
before tax was, however, up 25% at €188.5m.
At the net attributable
level, a swing from a €31.5m tax credit in the first half of 2009
to a €49.4m tax payment and a €27m increase in minority share of
profits, cut net attributable profit by 41% to €103.3m.
AG Insurance’s general
insurance operations in Belgium made heavy weather, moving from a
profit of €50m in the first half of 2009 to a €15.4m loss. This saw
Ageas’ net profit in Belgium fall 55% from €195.4m in the first
half of 2009 to €87.9m in the first half of 2010.
Ageas CEO Bart De Smet said
AG Insurance results in the first half of 2009 had also been
negatively impacted by the sale of part of its Southern European
sovereign bond portfolio. Ageas reported that this had a negative
impact of €55m on results.
Other factors that impacted
performance, said De Smet, were severe winter conditions in the
first quarter of 2010 and the “disappointing performance” of its
workmen’s compensation insurance book.
In 2008, AG Insurance
achieved a 25% share of Belgium’s life insurance market, well ahead
of the 14% market share of its closest rival, KBC. Other major
players are Axa, which had a 13% market share in 2008, and Ethias
and Dexia, both with 12% market shares.
In Belgium’s general
insurance market, AG Insurance achieved a 17% market share in 2008,
which placed it second to Axa with a 22% market share. AG Insurance
was followed by Ethias (13%), KBC (9%) and P&V (6%).
Ageas also fared poorly in
the UK where net attributable profit fell from €20.8m in the first
half of 2009 to €8.3m in the first half of 2010.
Unlike the wider Ageas group,
life insurance plays a minor role in its UK operations, and in the
first half of 2010 contributed only €11.2m out of total gross
written premiums of €549.5m. UK life operations produced a €1.7m
loss in the first half of 2010.
Excluding Belgium and the UK,
Ageas’ European operations fared well in the first half of 2010,
increasing total gross written premium income by 45.2% to €2.21bn.
General insurance led with a 79% rise in premium income to €118.9m,
while life operations also performed strongly, lifting premium
income 41% to €1.107bn.
Ageas’ most significant
market in Europe, excluding Belgium, is Portugal where it has a 51%
stake in composite insurer Millenniumbcp Ageas (MA). In 2009, MA
produced life premium income of €2.163bn and general insurance
premium income of €214m.
The third most significant
market in Europe for Ageas is Luxembourg, where it has a 50% stake
in what is still Fortis Luxembourg, which produced life premium
income of €1.102bn in 2009. Ageas also has wholly-owned life units
in France (premium income €335m in 2009) and Germany
(€41m).
As part of a rationalisation
strategy initiated in late-2009, Ageas announced in July it had
sold its Turkish life and pensions unit, Fortis Emeklilik ve Hayat
(FEH), to BNP Paribas for an undisclosed sum. FEH, which was
acquired by Fortis in 2005, produced premium income of €62m in
2009.
In a further rationalisation,
Ageas announced in September it had entered into an agreement to
sell its life insurance unit in Ukraine, Fortis Life Insurance
Ukraine (FLIK), for an undisclosed sum to US investment company
Horizon Capital. FLIK, which was acquired in 2007, produced premium
income of €2m in 2009.
Ageas also has wholly-owned
life units in France (€335m in 2009), Germany (premium income €41m)
and Turkey (€62m).
Asia going
well
Ageas’ Asian operations
performed exceptionally well, lifting premium income (including
non-consolidated partnerships at 100%) 59%, compared with the first
half of 2009, to €3.4bn. Life operations contributed €3.1bn, up 63%
compared with the first half of 2009.
Asia operations also did well
from a profit perspective, lifting net profit attributable to
shareholders by 158% to €62.2m.
Ageas’ largest operation in
Asia, and the only one it consolidates, is Ageas Hong Kong (AHG),
one of Hong Kong’s largest life insurers, in which it acquired a
100% stake in 2007 for €675m.
In the first half of 2009,
AHG lifted new business premium income 12% to €32m while total
gross inflow was up 7% at €151m.
Ageas’ other major ventures
in Asia are:
- Taiping Life, China’s sixth
largest life insurer in which it has a 24.9% stake; - Mayban Fortis, Malaysia’s
third largest life and general insurer in which it has a 31%
stake; - Muang Thai-Fortis,
Thailand’s sixth largest life insurer in which it has a 40% stake;
and - Indian life insurer IDBI
Federal in which it has a 26% stake
Facing
uncertainty
Ageas’ share price responded
positively to results for the half year to 2010, rising by some 20%
since their release to €2.39 per share. This is, however, still
some way off the insurers’ 52-week high of €3.40 per share. In its
Fortis guise, the share reached a peak in €28.95 per share in March
2007.
At its current price of €2.39
per share, the market is affording Ageas a 6.7 price to earnings
ratio. After a 25 month break, Aegis paid its first dividend in
June 2010.
The share’s current dividend
yield is 3.52%. Europe’s largest insurer by premium income,
Allianz, is currently trading at a price to earnings ratio of 8.04
and a dividend of 4.61%.
Overall, the modest ratings
afforded major European insurers indicate that investors are taking
a cautious wait-and-see approach to the industry.
De Smet emphasised the
uncertainty facing not only Ageas but the insurance industry as a
whole at US investment bank Goldman Sachs’ recent European
Financials Conference.
Uncertainty, De Smet said, is
not aided by the debate between economists about possible
scenarios. On the one hand, these include a pick-up of demand,
growth, inflation and higher interest rates, and on the other hand,
subdued demand, no growth, deflation and low interest
rates.
Other major questions, said
De Smet, are whether consumers will take over if government support
is reversed, and whether governments can restore fiscal balance
without creating new crises.
“The scenario that will
emerge will drive not only interest rates but also equity markets,
business environment and consumer behaviour – all very important
for the insurance industry,” he stressed.
De Smet said Ageas’ strategy
to cope with uncertainty encompasses:
- A cautious approach with
asset mix; - A strong match of assets and
liabilities; - Cost control;
- A presence in markets with
different dynamics, Europe and Asia; - Maintaining a healthy mix
between life and non-life; - Maintaining a strong capital
position to absorb shocks; and - High attention for
liquidity.
Ageas’ strategy has elicited
a positive response from rating agency Fitch, which published an
assessment of the insurer in September 2010.
Fitch commented that the
regulatory solvency of Ageas’ insurance operations is healthy, with
a ratio of 226% of the regulatory minimum across the group at the
end of June 2010.
Broken down by countries and
regions, Ageas’ solvency was 195% of the regulatory minimum in
Belgium, 302% in the UK, 238% in Continental Europe and 926% in
Asia.
Encouragingly, Fitch affirmed Ageas’ rating at BBB+ and
simultaneously revised its outlooks on Ageas’ insurer financial
strength rating and long-term issuer default rating to stable from
negative.
