VFB - Dag van de tips (2010)

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Information about VFB - Dag van de tips (2010)
Finance

Published on March 6, 2014

Author: Ageas

Source: slideshare.net

Bart De Smet CEO VFB Dag v/d Tips 2 October 2010

Are insurers different from banks ? Ageas: fundamentals, strategy en financials Your partner in Insurance I 2 October 2010 1

Different or similar ? Your partner in Insurance I 2 October 2010 2

Business model : Smart  Skilled Insurers Focus Your partner in Insurance I 2 October 2010 Banks Multi-tasking 3

Liquidity risk : Limited  Key Your partner in Insurance I 2 October 2010 4

Funding : Monogamous  Polygamous Insurers Policyholders Customers Banks Peers Financial markets Your partner in Insurance I 2 October 2010 5

MatchingMismatching Generic balance sheet of 6 major European insurers Debt/tax Shareholders’s equity Other assets 11% 6% 6% Own account investments 70% 69% Insurance and other liabilitues 19% 19% Unit-linked liabilities Unit-linked investments Your partner in Insurance I 2 October 2010 6

(Inter)connectivity? Your partner in Insurance I 2 October 2010 7

Are insurers different from banks ? Ageas: fundamentals, strategy en financials Your partner in Insurance I 2 October 2010 8

2 sets of assets: insurance & general account General Account Insurance Belgium Belgium United Kingdom United Kingdom Your partner in Insurance I 2 October 2010 Continental Europe Asia Other assets & liabilities 9

Strong fundamentals  Balanced insurance portfolio   Europe vs Asia   Life vs Non-Life Mature vs emerging markets Strong market positions    Partnerships with key distributors in Europe & Asia Solid & de-risked balance sheet    Market leader in Belgium Southern European sovereign debt reduced significantly Strong & high quality capital base General Account managed for value  Incl. management legacies Your partner in Insurance I 2 October 2010 10

General account Holding related :  Corporate costs recurring  Non-Insurance related assets & liabilities Legacy related :  non- recurring Financial assets and liabilities related to the former Fortis group − Financial instruments owned by Ageas − Off or on-balance sheet ‘guarantee’ commitments related to instruments , issued by Fortis on behalf of its former subsidiaries (BNP Paribas Fortis Bank, Fortis Bank Nederland, …)  Transaction related assets or liabilities: − − Your partner in Insurance I 2 October 2010 Stake in Royal Park Investments −  Call option on BNP Paribas shares RPN(I) Contingent liabilities related to Ageas 11

Strategic priorities 1  Streamline the portfolio of insurance activities and address issues of entities that are lacking critical size or market position, or that do not meet the cost of equity and value creation criteria, possibly resulting in closing down or disposal  Grow the core entities organically and small add-on acquisitions, based on the ability to team up with different partners, including BNP Paribas  Optimize the operational performance of entities that are core Your partner in Insurance I 2 October 2010 3  Develop greenfield operations 2  Acquire new businesses in attractive markets, meeting strict strategic and financial criteria (critical size and market position) by building on partnerships expertise 12

Streamlining of the insurance activities: 3 criteria  Critical size The local presence should be such that every entity can compete effectively in its market or niche  Critical size will ensure that each activity is able to comply with Ageas’s quality standards   Meaningful contribution Each activity should make a meaningful contribution to the insurance earnings  The contribution to the insurance earnings should be significant enough to justify management time   Return in excess of cost of equity The return of a business will have to exceed the cost of equity, which is estimated to be around 11% today, while taking into account the specificities of the business  The return of a growth business will also take into consideration the expected value creation  Your partner in Insurance I 2 October 2010 13

Execution of our strategy Streamline the insurance portfolio, simplification of the Group structure FY 09  Russia: Discontinuation operations  Luxembourg : Sale NonLife to La Bâloise H1 10  Turkey : Sale Pension & Life activities to BNP Paribas Assurances Grow the core entities organically and small addon acquisitions, based on ability to team up with different partners  UK: Underwriting partnership Tesco Bank  Thailand: Increased stake of KASIKORN Bank -> Inflows +45% in H1 10 Acquire new businesses in attractive markets  Italy: Partnership with BNP Paribas Assurances and UBI Assuricazioni in Non-Life  UK : Acquisition of Kwik- Fit Insurance Services  Liquidation Fortis Brussels Your partner in Insurance I 2 October 2010 14

Key financials Insurance H1 2010 Inflow Net profit By region By region In EUR bn In EUR mio 9.6 7.9 260.4 15.0 20.8 3.4 Asia 1.8 0.5 2.2 0.6 Continental Europe UK 3.5 3.5 Belgium H1 09 H1 10 2.1 195.4 In EUR mio 67.1 17.2 8.3 H1 10 By type In EUR bn 180.5 87.9 H1 09 By type 29.2 9.6 7.9 1.9 Non-Life 260.4 180.5 7.0 Retail 1.6 206.8 6.3 7.7 Life 7.9 178.5 Non-Life 46.6 H1 09 -5.9 H1 10 H1 09 Your partner in Insurance I 2 October 2010 Life H1 10 15

Net result General Account remains volatile Net profit FY 09 H1 10 In EUR mio In EUR mio 705** Others Sale 25% AG Insurance 44 275 697 Deferred tax impact Call option on BNP Paribas shares 405 581 RPI RPN(I) -316 Net-of-tax impact legal dispute FBN -301 * Includes EUR 12.4 mio capital gain on sale Luxembourg Non-Life ** 2009 net result General Account restated from EUR 736 mio to EUR 705 mio Your partner in Insurance I 2 October 2010 23 Call option on BNP Paribas shares -121 RPN(I) Others* -24 -10 1 16

Ageas’s core equity EUR 6.0 bn above required regulatory minimum Other Core Tier 1 capital Base : H1 10 data Core equity Required Regulatory minimum EUR 3.7 bn excess capital in Insurance + EUR 2.3 bn General Account = EUR 6.0 bn 6.6 0.1 4.1 0.6  3.5 2.1 2.3 2.9 0.6*/** 0.6 0.6 2.5 1.3 0.2 Actual Min United Kingdom Total Solvency Ratio 302% 195% Actual Min Belgium * ** 6.5 1.3 0.6 Actual Min Continental Europe 238% 0.9 0.1 0.3 Actual Min Asia Actual Minimum Insurance 926% 0.2 Actual 226% General Asia : Investments in partnerships are deducted from Total Capital; Given the significant investments in partnerships, total capital is lower than Core capital Under local Asian solvency regulation, different valuation rules apply leading to a solvency ratio for FICA of 342% end of June 10. Your partner in Insurance I 2 October 2010 17

Conclusion  Significant operational challenges ahead for insurance companies  Corrective measures taken  Future Life business model influenced by new regulation & interest environment  Need to adapt investment strategy & product mix  Solvency II should contribute to a better balance between risk & return  Ageas well prepared  Return to pure insurers & new business model  Ageas develops flexible partnerships in Europe & Asia Your partner in Insurance I 2 October 2010 18

Annexes

Non-Life Insurance : Challenge to improve operational performance First impact corrective measures since Q2 10 Ageas’s combined ratio evolution by business 2005 – Q2 2010 Operational performance under pressure  General trend of increasing combined ratios  Negative impact of weather related events, impacting claims amount & claims frequency  climate change? % Combined ratio 120  Increased fraudulent or excessive claims  impact economic recession? 110 Pressure on future Non-Life earnings power  Potential for reserves releases almost expired 100  Fierce competition, specific distribution models stimulate pricing pressure 90 Corrective measures a must, company & sector wise  Tariff increases – More discipline 80 2006 2007 2008 Belgium 2009 H1 09 H1 10 Q1 10 Q2 10 UK Portugal  Stricter claims management  Cost containment  Revised policy conditions Your partner in Insurance I 2 October 2010 20 10/03/2010 I page 20

Life : Uncertain & low interest rate environment Creating challenges for a competitive product & investment strategy 10y- Government bond yields In % 12 Controlled sales growth and adapted product mix  Inflated high interest rate scenario vs. deflated low interest rate scenario 10  Need to adapt product portfolio as a function of risk vs. return : unit-linked, 0%-guarantee products 8 Future investment strategy under study taking into account various possible scenarios  Ideal asset mix or asset mix scenarios 6  Investment strategy  Organisational implications 4  Target returns vs. risk appetite 2 Ageas’s strenghts in an uncertain world  Appropriate match of assets & liabilities 0 1/ 07 /0 1/ 4 01 /0 1/ 5 07 /0 1/ 5 01 /0 1/ 6 07 /0 1/ 6 01 /0 1/ 7 07 /0 1/ 7 01 /0 1/ 8 07 /0 1/ 8 01 /0 1/ 9 07 /0 1/ 9 01 /1 1/ 0 07 /1 0  Presence in markets with different dynamics  Healthy mix between Life & Non-Life  Strong capital position helping to absorb shocks Portugal Greece Belgium Germany France Source : Company Data Your partner in Insurance I 2 October 2010 21 10/03/2010 I page 21

Valuation call option BNP Paribas shares Valuation based on Black & Scholes  Implied volatility up from 27% to 39%*  Dividend yield up from 3.565% to 5.208%  Strike price unchanged at EUR 66.672 per share ► EUR 1,085 mio total value option as at 30 June 2010  30% haircut maintained ► EUR 759 mio  Volatility +5% ► total value option +22% (32% end 09)** Monetisation  Ageas has opted to move to a gradual exercise strategy in accordance with a disciplined methodology over the contractually foreseen exercise period (from 10/10/10 til 09/10/16) Taxation  Ageas announced the decision to liquidate sub-holding Fortis Brussels SA/NV (now Brussels Liquidation Holding)  As a result deferred tax liability of EUR 257 mio on value call option can be offset by deferred tax assets of the same amount of ageas SA/NV Value as per 30/06/10  Net-of-tax valuation call option on BNP Paribas shares estimated at EUR 759 mio; * Because of the decision to move to a gradual exercise strategy, an extrapolated implied volatility is used without any discount ** Changed sensitivity relates to changed likelihood of various volatility scenarios Your partner in Insurance I 2 October 2010 22

Overview funding structure Royal Park Investments As per 30 April 2010* State of Belgium (SFPI/FPIM) Capital 740 (44%) Senior 200 (12%) 760 (45%) 1,700 519 519 Commercial Paper 5,057** Super Senior Total Capital & Debt 2,980 740 719 760 2,980 5,057 2,980 5,057 10,256 * For more information see www.royalparkinvestments.com ** End of February, senior debt Fortis Bank fully replaced by commercial paper programme, benefiting from a Belgian State Guarantee. Senior debt provided by BNP Paribas is not state guaranteed Your partner in Insurance I 2 October 2010 23

Royal Park Investments SA/NV ORIGIN      Dismantlement structure with respect to assets of Fortis Bank, part of the sale of Fortis Bank to BNP Paribas Nominal outstanding value of the assets EUR 18.5 bn Shareholders : Ageas (44.7%), Belgian State (43.5%) and BNP Paribas (11.8%) IFRS fair value of the assets EUR 7.6 bn More than 40% of the portfolio has a rating superior or equal to BBB- (investment grade) Outstanding debt  Senior debt  Commercial paper EUR 8.6 bn EUR 3.5 bn EUR 5.1 bn Limited equity investment, major part debt financed All proceeds will be 100% used to redeem the debt related to Royal Park Investments (cash sweep) ACCOUNTING  Balance sheet items as per 30 June 2010 Accounted as an equity investment of EUR 760 million, increased to EUR 840 mio as per 30 June 2010 Income Statement related information (FY 09) Interest payments EUR 1.1 bn Principal redemptions EUR 141 mio Result accounted for by Ageas under IFRS EUR 0 mio Income Statement related information (H1 10) Interest payments Principal redemptions EUR 889 mio Result accounted for by Ageas under IFRS Your partner in Insurance I 2 October 2010 EUR 93 mio EUR 23 mio 24

Press Tel: + 32 2 557 57 37 E-mail: Kathleen.steel@ageas.com Website: www.ageas.com Your partner in Insurance I 2 October 2010 25

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