Published on March 6, 2014
Bart De Smet CEO Merril Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 0
Conclusion Ageas’s Investor Day 2012 It’s all about …. 6 Values 5 Choices 4 Targets Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 1
Realizations after Investor Day 2012 Since 2012 Calculation based on Inflows @ Ageas’s part FY 12 at 67/33 6M 13 at 67/33 Calculation based on Non-Life Net Underwriting result in % Net earned premiums FY 12 at 99.1% 6M 13 at 97.8% Equity of Turkey, China, Malaysia, Thailand & India as % Insurance equity FY 12 at 12.1% 6M 13 at 14.8% Insurance result in % average Insurance equity (Beginning of period + End of period)/2 FY 12 at 8.7% 6M 13 at 8.4% Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 2
A closer look at our targets Shifting towards Non-Life positive for overall ROE target ROE Non–Life + Other above 11% 6M 13 (in EUR mio) Total Life Non-Life +Other Avg insurance equity 7,818 6,040 1,777 329 201 128 ROE 8.4% 6.7% 14.4% Non-Life + Other 6M 12 6M 13 Combined ratio 98.3% Net profit Net profit ROE 97 97.8% 128 13.0% 14.4% ROE Non-Life + Other already well above 11% - ahead of target Growing contribution from non-consolidated activities not reflected in reported Combined Ratio Strategic choice to invest in Non-Life justified by its performance Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 3
A closer look at our targets Shifting towards emerging markets positive for overall ROE target Overall ROE < 11% - ROE emerging markets > 11% 6M 13 (in EUR mio) Total Belgium UK CEU Asia Avg insurance equity 7,818 3,695 1,102 1,189 1,831 329 160 58 46 66 8.4% 8.6% 10.5% 7.7% 7.2% Net profit ROE Emerging markets 6M 12 6M 13 Avg insurance equity 964 1,054 Net profit * 67 76 13.9% 14.5% ROE Emerging markets = Turkey, China, Thailand, India & Malaysia Solid & increasing contribution from emerging markets to Ageas’s net profit & ROE *excluding regional costs Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 4
A closer look at our ROE target How to meet the challenge? FY 12 8.7% Challenge 2.3% Calculation: Insurance result EUR 624 mio / Average insurance equity EUR 7.1 bn (FY12 – FY11) Improvements needed: At constant average insurance equity: EUR 155-160 mio more profit or At constant insurance result: EUR 1.4 bn less average insurance equity or a mixed scenario Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 5
How to reach Vision 2015 targets path towards realizing the Vision 2015 targets The Focuses on: numerator : net profit ROE denominator : insurance equity 1. ROE 2. Through: 1. Improving overall profitability 2. Gradually changing the company’s Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 profile 6
How to work on ROE numerator & denominator Various levers available to realize objectives Numerator Improve net profit levels Denominator Active capital management 1.Improve profitability consolidated Life activities through better operating margin 2.Improve profitability consolidated Non-Life activities through better combined ratio 3.Work on overall business mix with focus on higher ROE activities & product lines 4.Gradually change the company profile by increasing profits from fast growing emerging market activities Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 7
How to work on ROE numerator & denominator Various levers available to realize objectives Numerator Improve net profit levels Denominator Active capital management 1. Capital efficiency is an operational day-to-day concern 2. Capital allocation of means is a strategic choice Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 8
6M 13 net cash position General Account at EUR 2.1 bn In EUR mio announced cash movements 144 ≈200 (≈200) (≈200) (57) RPI transaction share buy-back capital reduction 827 (68) (77) (270) 2,055 340 1,216 688 FY 11 FY 12 buy-back capital paid upstream injection dividend opco's TPL RPI call option other 6M 13 Expected cash in of EUR 0.2 bn from transactions RPI & BNPP Call option. Expected cash out of EUR 0.4 bn in the coming months related to capital reduction & share buy-back Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 9
3 alternative uses for General Account net cash Balanced use of cash since 2009 1. Invest in Businesses Organic growth Selective acquisitions Create new partnerships ≈ EUR 1.0 bn from net cash on top of retained earnings ≈ EUR 600 mio UK (Tesco, KFIS, Castle Cover, Groupama) ≈ EUR 200 mio CE (Italy, Turkey) ≈ EUR 200 mio Asia (India, HK, China) 2. Return to shareholders 3. Return to debtholders Dividend payment Share buy-back Redemption of EMTN Call/tender Hybrids (Hybrone, NITSH I & II) ≈ EUR 1.8 bn Net cash neutral ≈ EUR 900 mio cash dividend over ‘09, ’10, ’11 & ‘12 EUR 450 mio share buybacks finalized early ‘12 & ’13 EUR 200 mio share buy-back launched 12/08/13 EUR 230 mio capital reduction from proceeds of BNP Call Option & RPI EUR 0.9 bn EMTN redemption EUR 1.2 bn call NITSH I/II & tender Hybrone Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 10
Priority 1 : M&A : Focus on high ROE accretive activities New businesses need to pass the test on 3 key criteria Critical size Meaningful contribution Local presence should be such that every entity can compete effectively in its market or niche Each activity should make a meaningful contribution to the insurance earnings in the medium term Return business will have to exceed cost of equity while taking into account the business’ specificities Critical size will ensure each activity is able to comply with Ageas’s quality standards The contribution to the insurance earnings should be significant enough to justify management time Return of growth business will also take into consideration the expected value creation Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 Return in excess of cost of equity 11
Priority 1 : M&A : Focus on high ROE accretive activities Disciplined approach will drive inorganic growth development 1. Priority to strengthen positions in existing markets Inorganic growth 2. Clear preference for Non-Life. Expansion in Life on a case by case basis 3. Further expansion in fast growing emerging markets while respecting Ageas M&A criteria & overall financial targets continuing to build on a successful partnership model 4. Flexibility for opportunities where Ageas believes its expertise can create growth & improve the business Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 12
Priority 2 : Return to shareholders Ageas delivered upon its dividend policy since 09; positive track record 2013 capital reduction: EUR 230 mio (approved – EUR 1.00/share) 2010 cash dividend: EUR 200 mio (EUR 0.80/share) 2012 cash dividend: EUR 270 mio (EUR 1.20/share) 2009 cash dividend: EUR 190 mio (EUR 0.80/share) 1/01/2010 ■ 2011 cash dividend: EUR 190 mio (EUR 0.80/share) 1/01/2011 1/01/2012 1/01/2013 Ageas dividend policy reconfirmed: aim to pay out an annual cash dividend of 40-50% of Insurance net profit ■ Dividend is funded by sufficient upstreams from Opcos; no impact expected on net cash position in General Account Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 13
Priority 2 : Return to shareholders Ageas started annual share buy-back programs in 2011 EUR 200 mio SBB - launched 08/2013 EUR 250 mio SBB - launched 08/2011 - 7.3% shares cancelled - on going EUR 200 mio SBB - launched 08/2012 - 3.8% shares cancelled 1/01/2010 ■ 1/01/2011 1/01/2012 1/01/2013 If no adequate M&A opportunities would arise, Ageas intends to continue returning cash to shareholders in the most appropriate way (share buy backs, dividends, capital reductions…) Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 14
Priority 3 : Return to debtholders No longer a priority Recent initiatives returning cash to debtholders had no impact on net cash position General Account No intention to bid on FRESH financial instrument No intention to raise new external hybrid debt Optimizing debt levels in Opcos Clear intention to lend on part of FRESH Return cash to debtholders no longer a priority From now on, Ageas will only report about 2 alternative uses of net cash Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 15
Conclusions Net cash General Account allocation priorities Disciplined cash management Use funds in priority to invest in business & return to shareholders 1. Discplined M&A approach along precise criteria 2. Existing dividend policy reconfirmed 3. Intention to return cash to shareholders if no adequate M&A opportunities 4. Continued active capital management Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 16
Closing remarks Insurance ROE target is leading & reconfirmed at 11% The path to realize the 2015 target is clear & well defined targets of 97%, 85-90 bps, 40-45 bps & capital optimization Disciplined cash management rules all decisions on the use of cash Priority to first reinvest cash in business & return to shareholders if no adequate M&A opportunities No intention to bid on FRESH instrument Continued active capital management going forward with focus on debt optimization Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 17
Disclaimer Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Future actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in Ageas’s core markets, (ii) performance of financial markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) interest rate levels, (vii) currency exchange rates, (viii) increasing levels of competition, (ix) changes in laws and regulations, including monetary convergence and the Economic and Monetary Union, (x) changes in the policies of central banks and/or foreign governments and (xi) general competitive factors, in each case on a global, regional and/or national basis. In addition, the financial information contained in this presentation, including the pro forma information contained herein, is unaudited and is provided for illustrative purposes only. It does not purport to be indicative of what the actual results of operations or financial condition of Ageas and its subsidiaries would have been had these events occurred or transactions been consummated on or as of the dates indicated, nor does it purport to be indicative of the results of operations or financial condition that may be achieved in the future. Merrill Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 18
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Merril Lynch 18th Annual Banking & Insurance CEO Conference I 26 September 2013 0 Bart De Smet CEO