Ageas secures upgrade on resilient earnings growth despite COVID-19

S&P Global Ratings has raised its insurer financial strength rating of Belgian insurer Ageas and its core subsidiaries to A+ from A on "resilient" earnings growth and stable outlook for full-year 2020 and 2021 despite challenging conditions due to the COVID-19 pandemic.

The rating agency said the move primarily reflects its view that Ageas will continue to generate robust profits and maintain capitalisation comfortably above the AA level, supported by resilient risk profile and modest impacts from market volatility.

Ageas saw robust profits for the first nine months of 2020. Excluding more than €300 million in non recurring gains on the buy-back of a legacy hybrid, the insurer reported a return on equity (ROE) of close to 10 percent and a combined ratio of 90 percent.

S&P noted that these results reflect the group's defensive investment portfolio and limited asset-liability mismatches. Additionally, Ageas' property/casualty activity benefits from its focus on personal lines of business and the sharp drop in claims frequency brought by lockdown measures.

The agency predicts that Ageas is "well placed" to reach €900 million net profit in 2020, (excluding hybrid buybacks), and further exceed profits in 2021-2022 with combined ratio remaining below 96 percent over the period.

Ageas' profitability will continue to benefit from the growth trends of its Asian joint ventures," said S&P, adding that the insurer will maintain its capital adequacy comfortably in the 'AA' range over the next two years, even taking into account possible impairments in its equity and bond portfolio in case of a renewed market downturn as witnessed in first quarter 2020.

Given its strong business risk profile in its domestic market and profitable positions in the UK and Portugal, as well as stakes in profitable joint ventures in major developing Asian countries, S&P is confident that Ageas will not carry out any share buybacks between year-end 2020 and mid-year 2021 to compensate for its acquisitions. Although it assumes moderate share buybacks between second-half 2021 and mid-year 2022.