EUR 850.00 For Business Accounts Only

Morningstar | Ageas' Full-Year Results Show Signs of Traditional Life in Belgium

Despite some challenging business line and geographic performance, we think Ageas' 2018 results show that the outlook for the business may be moving to favourable. While Ageas reported full-year net profit of EUR 809 million, below our estimate of EUR 850 million, life in Belgium potentially looks good. We maintain our EUR 42 fair value estimate while we await full balance sheet data in the annual report, and we maintain our no-moat rating.

In terms of the business units, gross inflows at the Belgium life unit looked solid, up 10%. What is surprising to us--and confirms something we have suspected for a while--is that the drivers of these inflows were relatively balanced. For example, we would expect unit-linked business to be the main contributor for growth, and it was the more dominant at 11%, driven by a more aggressive sales campaign in the first half of the year. Inflows into guaranteed product were also up 9%, which is a continuation of a positive trend since the beginning of the year. What this indicates is that either policyholders or Ageas Belgium are beginning to have more confidence in traditional spread-based products. The guaranteed operating margin stayed at 85 basis points, unit-linked operating margin rose 6 basis points to 40 basis points, and we think the outlook for fixed rates of return in Belgium is beginning to look positive. Belgium life overall delivered a rough and flattish EUR 440 million operating result for the full year.

Belgium nonlife, on the other hand, was a bit disappointing, with operating earnings dropping from EUR 265 million to EUR 220 million for the full year. This was mainly driven by household, though we have seen a nice reversal in motor. Gross inflows, or gross premiums, were up more modestly at 4%. The reserves ratios were also pretty much down across the board, and while this in itself is not a leading indicator, it may signal a topping of the market. We have basically witnessed a strengthening of reserves ratio across the Belgium nonlife business since 2013. This year is really the first year indicating a downturn in this coverage, which might indicate we are moving from a hard to soft Belgium nonlife market. At a business unitwide level, the combined ratio deteriorated from 91.0% to 93.4% on the back of a 60-basis-point improvement in prior-year claims, again a negative indicator. We will wait to see developments in these trends.

The 95.9% combined ratio in household ultimately looks bad compared with the year-ago 84.2% on the back of adverse weather in the first half of the year. However, 2017 is a tough comparable, and we would expect something between 95% and 98% as a better long-term average. The reverse goes for motor. The 92.6% combined ratio was exceptional, and we expect something more in the region of 97%-98% on a longer-term basis.

Ageas’ other business units are much smaller contributors to the group operating result. The United Kingdom is a purely nonlife division for Ageas, and this has bounced higher to EUR 90 million for the full year. We see little colour on these results and are sceptical of Ageas' view that this is a soft market. There have been some business exits, and we think this is most likely the driver of the improved U.K. operating result.

Within continental Europe, the life division is struggling on quite extreme margin pressure, and nonlife motor remains very challenging. However, the operating result in these two divisions is only EUR 95 million and EUR 55 million, respectively.

From a legal perspective, the Fortis settlement was declared final by the Amsterdam Court of Appeal on July 13, 2018, with a further EUR 0.7 billion of liquid assets ring-fenced for the final Fortis settlement. About 250,000 claims have been filed and 73,000 partially compensated. Remaining payment is expected around year-end 2019. The put option granted to BNP Paribas Fortis has expired, and the general account contributed EUR 12 million, including EUR 90 million from the revaluation of the RPN(I) liability.