Fitch Ratings has upgraded Ageas’ immediate holding company Ageas Insurance International NV Long term Issuer Default Rating (IDR) to ‘A-‘ from ‘BBB+’ and affirmed the Long- and Short-term IDRs of the ultimate Ageas holding company ageas SA/NV at ‘BBB+’ and ‘F2’, respectively. Fitch has also affirmed AG Insurance’s Insurer Financial Strength (IFS) rating at ‘A+’ and IDR at ‘A’. The Outlooks on the IFS rating and the Long-term IDRs are Stable.
Fitch has also affirmed Milleniumbcp-Ageas operating entities’ (MBCPA) IFS ratings at ‘BBB-‘ with a Negative Outlook. The ratings of Ageas Insurance Company (Asia) Ltd and Ageas Capital (Asia) Ltd are unaffected by the rating actions. A full list of ratings is at the end of this comment.
KEY RATING DRIVERS
Following the restructuring of the Ageas group in 2008, Fitch believes that Ageas SA/NV continues to face litigation risk in Belgium and the Netherlands. Despite the company’s denial of all allegations, if the actions against ageas SA/NV were successful, they could eventually have a substantial negative financial impact on the company. This litigation risk is reflected in non-standard holding company notching with ageas SA/NV’s IDR being two notches lower than the IDR of AG Insurance instead of the standard one notch. However, intermediate holding company, Ageas Insurance International NV, 100% owned by ageas SA/NV, is not directly involved in any material litigation initiated by former Fortis shareholders, or other material litigation. Consequently, Fitch has upgraded the rating of this intermediate holding company whose IDR now reflects standard notching, at one notch lower than that of AG Insurance.
AG Insurance’s ratings continue to be supported by its strong capital adequacy, acceptable debt leverage and leading business position in Belgium. Fitch expects AG Insurance’s solvency to remain solid despite a proposed dividend of EUR325m. AG Insurance reported a profit of EUR433m at end- 2012, up from a EUR436m loss in 2011. Operating profitability is good and in line with expectations with the combined ratio improving to 104.4% in at end-2012 (106.6% – 2011). AG Insurance’s financial and business profile is fully in line with the rating range. These strengths are offset by the company’s lack of geographic diversification.
On 21 March 2013, AG Insurance successfully issued a USD550m perpetual subordinated debt. The proceeds of the issue will be used in priority to redeem, fully or partially, the outstanding perpetual subordinated loans of Ageas Hybrid Financing SA. Therefore, Fitch expects AG Insurance’s debt leverage to remain unchanged at an acceptable level in the short term.
MBCPA’s ratings incorporate some benefit from Ageas group’s ratings and ongoing and expected future operational and financial support. Majority owner Ageas has clearly stated that it continues to view MBCPA as a strategic investment and a long-term partnership. In addition, Ageas has indicated that together with Millennium bcp, owner of the remaining 49% of MBCPA, it would ensure the protection of existing policyholders should this be necessary. At end-2012, MBCPA reported a net profit of EUR94m and a regulatory solvency ratio of 273%. The Negative Outlook on MBCPA’s ratings reflects the Negative Outlook on Portugal’s sovereign rating.
RATING SENSITIVITIES
The ratings could be downgraded if entities prove unable to sustainably generate positive earnings or to maintain solvency at their historical level, around 200% of the regulatory minimum. A downgrade could also be triggered by the deterioration of AG Insurance and MBCPA’s leading business positions in both their domestic insurance markets (although this is unlikely in the short term). A reduction in the level of support from Ageas as well as aggravated litigation risk initiated by former Fortis shareholders could also lead to a downgrade.
All of MBCPA’s operations are concentrated on the Portuguese market, which is experiencing very challenging economic conditions. This has a profound impact on life insurance, which is the group’s main activity. As such, the ratings are adversely affected by Portugal’s sovereign rating.
An upgrade of the ratings is unlikely in the medium term, given the companies’ financial and business profile, in particular their lack of geographical diversification.
The ratings actions are as follows:
AG Insurance
IFS rating affirmed at ‘A+’; Outlook Stable
Long-term IDR affirmed at ‘A’; Outlook Stable
Subordinated bond affirmed at ‘BBB+’
ageas SA/NV
Long-term IDR affirmed at ‘BBB+’; Outlook Stable
Short-term IDR affirmed at ‘F2’
Ageas Insurance International
Long-term IDR upgraded to ‘A-‘ from ‘BBB+’; Outlook Stable
Short-term IDR affirmed at ‘F2’
ageas Finance N.V.
Senior unsecured affirmed at ‘BBB’
Ageas Hybrid Financing
Hybrid capital instruments affirmed at ‘BB+’
Ageasfinlux SA
Hybrid capital instruments affirmed at ‘BB’
Ocidental-Companhia Portuguesa de Seguros de Vida S.A.
IFS rating affirmed at ‘BBB-‘; Outlook Negative
Ocidental-Companhia Portuguesa de Seguros S.A.
IFS rating affirmed at ‘BBB-‘; Outlook Negative
Medis – Companhia Portuguesa de Seguros de Saude S.A.
IFS rating affirmed at ‘BBB-‘; Outlook Negative
Unaffected Ratings
Ageas Insurance Company (Asia) Ltd
IFS rating ‘A’; Stable Outlook
Long-term IDR ‘A-‘; Stable Outlook
Ageas Capital (Asia) Ltd
Senior unsecured rating ‘A-‘
