Morningstar | Disappointing 1Q From CNP
CNP Assurances reported quarterly indicators for the first quarter of 2019. Results were almost in line with our estimates and we maintain our EUR 23.0 fair value estimate and no-moat rating.Top-line growth looks a little light and mostly, CNP's push into Latin America seems to be making up for giving up ground in its other two core markets. However, we are not too concerned about these two markets currently. The French business has suffered on savings and protection. And there has been a 200-basis point contraction in the margin- on-annual premium equivalent. There have been some contract terminations, and these results are a continuation of a poor showing in 2018. Contraction in the Europe ex France savings business has been even more dramatic and we think CNP have suffered from strong competition and product changes in Italy.
All this is countered with a strong performance in Latin America, where CNP has a strong presence in Brazil as the third largest life insurer. This is basically all unit-linked business which is good for the Group’s capital position. However, we have also seen a 90-basis contraction in the margin here.
As we saw throughout 2018, management continues to work on costs, and the cost/income ratio has improved by a further 80 basis points to 31.2%.
These results are not great. But there is book value support for the current market price and our fair value estimate. We definitely don't think the business is in crisis. And underlying it all, we think CNP is quite a decent business, and it's a franchise. However, we are aware that with partial French government ownership, there is a feeling it is being run by the civil service. What we are seeing above are execution issues. With the right management and direction, CNP has the potential to be a high-quality business.
CNP Assurances is an insurance company. Co. designs, develops, distributes and manages savings, pension & personal risk, and term creditor products. Co. offers savings products and insurance against the risks of everyday life to its customers. Co.'s operations are organized along three business segments. The Savings business concerns products enabling policyholders to build up capital which they can cash in. The Pensions business concerns products designed to enable policyholders to receive an annuity or lump sum on retirement. The Personal Risk business includes products enabling policyholders to insure against the risks of death, accident or illness, property damage or liability claims.
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