Ageas : 2018 looks set to be an important milestone for legacy settlements

> - Strengths/Opportunities - - Ageas boasts strong positions in Belgium where it is the leading life insurer, in Asia (strong positioning in China and eight other countries through partnership agreements with local players), and in mature European markets (e.g. UK, Luxembourg and Portugal).- Geographical and product diversification provide a strong and stable earnings base. - Management has been in place since 2009 and proven capable of turning the franchise around and seeing through strategic plans. In May 2017, chief executive Bart De Smet's term was renewed for the third time, extending it to 2021. - Capital ratios are strong, reflected in a regulatory margin of 187% for the insurance business and of 183% for the group. Applying the group's internal model, the margins are 194% for insurance and 193% for the group, topping the target of 175% set by management. - Weaknesses/Threats - - Lingering legal risk after the setback to the proposed transactional settlement. The deadline for an amended settlement is 12 December 2017. Ageas has set aside € 1bn of cash for the settlement and recorded a charge of € 889m in 2016 and an additional € 100m in Q3 2017. - Uncertainty surrounding the renewal of the distribution agreement for AG Insurance products in the BNP Paribas Fortis network and the put option held by BNP Paribas Fortis on AG shares. Ageas holds a 75% stake in AG Insurance and BNP Paribas Fortis the remaining 25%. This last bank has a put option exercisable for six months starting in January 2018. On Ageas' assumptions, this liability has a net discounted value of € 1.4bn. Possible negotiations over the sale of the stake may be linked to the renewal of the distribution agreement which terminates in 2020. - The RPN (I) remains a source of volatility for consolidated earnings. - Recommendation: BUY on AG 2047/2027 – NEUTRAL on FRESH/CASHES - We reiterate our Stable credit opinion on Belgian insurer AG Insurance, which boasts strong competitive positions in Belgium, improved profitability this year and adequate solvency, including at the Ageas holding company, with the assumption that a settlement will reached on litigation. In addition to this key settlement, 2018 looks set to be an important milestone for Ageas with: 1/ the end of uncertainty about BNP's put option on AG and the future of distribution agreements in Belgium; and 2/ the end of the Horizon 2018 strategic plan. Lastly, it is still possible to hope for a new agreement with BNP to unwind the RPN(I), a major source of earnings volatility. We confirm our Buy recommendation on AG 2047/2027, which offers a yield of around 2.4%, and our Neutral recommendation on CASHES and FRESH, whose performance has surpassed our expectations in 2017, driven by investor appetite for perpetual floaters without a step-up, trading below par. Our Neutral vs. Buy recommendation is based on the fact that we do not control the final redemption date, which depends on regulations and management’s economic interests and, in both cases, will require agreements/changes of terms given the complexity of the two instruments and their convertible features.