bancassurance giant which ranked as the world’s 20th largest
company by revenue in 2007. Fortis’ glory ended abruptly in late
September when three governments were forced to cobble together a
rescue package that has left it a shadow of its former self.
In what was to prove to be a sign of the turbulent times Fortis
issued a reassuring statement on 26 September in which it stressed:
“Above all we underline the solid position of the bank.” Less than
two weeks later, the once mighty European bancassurer found itself
decimated with the spoils divided up between French bank BNP
Paribas and the, no-doubt reluctant, governments of the Netherlands
and Belgium.
Go deeper with GlobalData
The beginning of the rapid-end began on 29 September when the
Belgian, Luxembourg and the Netherlands governments announced they
were to pump €11.2 billion ($16 billion) into ailing Fortis’s
banking operations. That news was greeted by a sweeping downgrade
by rating agency Moody’s Investors Service which added to the gloom
by warning that the ratings were on review for possible
downgrades.
Fortis’ banking units bore the brunt of heavy asset impairments,
including a €3.7 billion impairment to the group’s structured
credit portfolio and associated €1.2 billion write-down of US
deferred tax assets announced at the time of the government
bail-out.
Creditworthiness
Moody’s stressed Fortis’ creditworthiness, in particular
capitalisation of its banks, had been impacted by strains imposed
by “sizeable” exposure to structured credit products and its
acquisition in 2007 of a portion of Netherlands bank ABN Amro for
€24.7 billion.
The acquisition was in partnership with Banco Santander and Royal
Bank of Scotland with Fortis’s share held in a special purpose
vehicle, RFS Holdings formed by the consortium.
Fortis’ European life and general insurance units did not escape
the Moody’s rating revision. Fortis NV and Fortis SA/NV, the
ultimate controlling entities of Fortis’ insurance operations, saw
their long-term issuer ratings cut from A1 to Baa1. These rating
were also put under review for possible downgrade.
According to Moody’s: “Insurance companies rated Baa offer adequate
financial security. However, certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time.”
Commenting on the ratings of Fortis’ insurance units, Moody’s noted
current “credit events, while limited to Fortis’ banking
operations, may have a negative impact on the market position and
profitability of the insurance operations”.
Moody’s explained that in Belgium, where most products are sold
through the banking channel, any damage to Fortis’ banking
franchise would impact the ability of the insurance operations to
sustain activity levels. Moody’s added that it expected the market
positions and franchises of Fortis’ banking operations “to come
under considerable pressure in all markets”.
In the Netherlands, added Moody’s, Fortis’ life insurance unit,
Fortis ASR Levensverzekering, had very low control of its
distribution because its products are mainly sold via
brokers.
Despite expansion in Europe and Asia, Fortis’ life operations
remained dominated by Belgium and the Netherlands where it had
market shares of about 26 percent and 8 percent,
respectively.
In addition, Moody’s said its downgrade of Fortis’ European
insurance units reflected the group’s overall capitalisation levels
and potential calls on earnings and capital of insurance
operations. Clearly, this proved untenable situation and one that
sparked further drastic action and the break-up of Fortis.
Action came on 3 October when the Netherlands government announced
it had acquired Fortis’s Netherlands’ banking and insurance units
and its stake in RFS Holdings for €16.8 billion. Of the total
purchase price, €4 billion was in respect of insurance
operations.
Of note, just preceding the government’s action, Netherlands
bancassurer ING said it would not make an offer to acquire Fortis’
ABN Amro stake.
In a statement ING said: “After careful consideration ING concluded
a transaction would not meet its financial requirements.”
The next step in Fortis’ disintegration came on 5 October with news
that the Belgian government had acquired full control of Fortis’
Belgian and Luxembourg banking operations. Simultaneously it was
announced French bank BNP Paribas would acquire 75 percent of these
operations and 100 percent of Fortis’ Belgian insurance operations
for €14.5 billion of which €5.73 billion relates to insurance
units.
As part of the deal, €10.4 billion of the most impaired structured
credit assets in Fortis’ portfolio were transferred to a separate
entity in which BNP Paribas has a 10 percent stake, Fortis Group a
66 percent stake and the Belgian State a 24 percent stake.
Insurance asset
After the transactions, Fortis will be a shadow of its former self
with Fortis Insurance International (FII) its major insurance
asset. In the first half of 2008 FII produced a net profit of €102
million of which €25 million related to life insurance operations.
Fortis’ total net profit for the six months was €1.638
billion.
Based on FII’s annualised figures in the first half of 2008, total
gross written premiums will be about €1.5 billion from life and
€2.1 billion from general insurance.
Within FII significant units include Fortis Insurance Company
(Asia) Limited (FICA), one of the largest life insurers in Hong
Kong. Fortis acquired 100 percent of FICA in June 2007 for €675
million.
Among other Asian investments is a 24.9 percent stake in Taiping
Life, China’s sixth largest life insurer; a 31 percent stake in
Mayban Fortis, Malaysia’s third largest life and general insurer;
and a 40 percent stake in Muang Thai-Fortis, Thailand’s sixth
largest life insurer.
Another attractive asset is IDBI Fortis Life Insurance, an Indian
joint venture in which Fortis has a 26 percent stake. Launched in
April 2008 the insurer focuses on the bancassurance channel
provided by the 1,040 branches of Fortis’ partners, Industrial
Development Bank of India and Federal Bank.
Overall it is probably hard to fault the solution worked out to
address a perilous situation faced by Fortis. However, it is a sad
ending to the bancassurance group formed in 1990 out of the merger
of Netherlands insurer NV AMEV, Netherlands bank VSB Groep and
Belgian insurer AG Group, in what was the first European
cross-border financial merger.
