MOODY'S ASSIGNS "a1" RATINGS TO FORTIS' PROPOSED US$500 MILLION GUARANTEED CAPITAL SECURITIES
Moody's Investors Service assigned "a1" ratings to the proposed US$500 million of Trust Capital Securities and Class B Capital Securities to be issued by Funding Trusts of Fortis Capital Funding LP. Both the proposed Trust Capital Securities and the Class B Capital Securities are non-cumulative and are jointly and severally guaranteed on a subordinated basis by Fortis (NL) NV and Fortis (B) SA/NV, the two listed holding companies of the Fortis group, and AMEV Levensverzekeing NV, the Dutch life insurance company within the Fortis group. Only the Trust Capital Securities will be sold to investors. The Class B Capital Securities are also rated by Moody's because, under certain conditions, they might become distributable to investors in the Trust Capital Securities. The proposed ratings are subject to receipt and review of the final documentation.
Moody's assigned a Aa3 debt rating on March 25th 1999 to the senior notes issued under Fortis' EURO 3 billion Euro Medium Term Note Programme, which is unconditionally and irrevocably guaranteed by Fortis (B) SA/NV and by Fortis (NL) NV, the two listed holding companies of the Fortis group.
Moody's said that the rating reflects the combined credit strength of the several separate operating entities within the Fortis group. In addition, the group's competitive position and earnings capacity are underpinned by its leading share of the Belgian banking and insurance markets, and its diverse revenue streams both by industry and geography. Furthermore, the group has a centralised strategy, controlled by a single board of directors, of building critical mass in insurance and banking on an international scale.
The rating agency added that Fortis has good financial flexibility owing to its large equity base, its good access to equity markets as well as its strong group profitability which includes a significant contribution from its niche operations outside Benelux. The group's diversified earnings stream ensures that interest cover on its core debt is good. Moody's added that Fortis' financial management strategy should ensure that debt levels remain moderate in relation to the group's economic capitalisation.
Moody's said that these strengths are somewhat offset by the lack of synergies between some of Fortis' operations, largely due to their different locations and different distribution channels. Fortis' rapid expansion also brings with it the challenge of integrating successfully some of its more recent acquisitions. In addition, Moody's noted that the purchase price paid for the acquisition of Generale de Banque in 1998 was quite full. Moody's added that Fortis may make further acquisitions in line with its growth strategy, although Moody's expects such acquisitions and their financing to be consistent with its current risk profile both operationally and financially.
In this regard Moody's said that it was monitoring Fortis' recent agreed $2.6 billion bid for American Bankers Insurance Group ("ABI"), the US credit insurer. Should the bid succeed, Fortis' existing US credit insurance operation will combine with ABI to create the leading US credit insurer. Although credit insurance has a higher risk profile than normal life and pensions business, Moody's believes that ABI's risk profile is well-dimensioned and that the size of the acquisition is not sufficient to cause a material increase in the risk profile of the whole Fortis group. In addition, Fortis intends to fund this acquisition in a manner consistent with its current capital structure.
Fortis was originally created in 1990 when the Belgian insurance group, AG 1824, joined with the Dutch insurance group, AMEV, and the Dutch bank, VSB. Two holding companies were listed, one in Belgium and the other in the Netherlands. Since then the Fortis group has expanded its banking franchise in particular, by the acquisition of three major banks, ASLK-CGER Bank in 1993, Mees Pierson, in 1997, and Generale de Banque, Belgium's leading bank, in 1998. A majority stake in the bancassurer, ASLK-CGER, was increased to 100% in December 1998. Fortis' banking operations have the following Moody's ratings: deposit ratings of Aa3 for Generale de Banque; Aa3 for ASLK-CGER Bank; A1 for Fortis Bank Nederland. A number of smaller operations worldwide have been acquired and disposed of during the last decade so that Fortis presently owns leading niche operations in the USA and small but profitable operations in Australia, Spain, the UK and some other countries.
Fortis' principal insurance operations consist of 3 main entities - AG 1824 which is Belgium's leading composite insurer; AMEV which is a major Dutch life insurer; and, ASLK-CGER Insurance which is the bancassurance arm of ASLK-CGER Bank. The insurance operations have considerable strengths, including critical mass and strong franchises in their respective markets; multi-distribution capability in Belgium through AG 1824 (focused on independent intermediaries) and ASLK-CGER (focused on bancassurance); strong capitalisation and good asset quality. These strengths are mitigated to some extent by some more negative aspects such as AG's non-life operations, which have shown declining profit margins due to increased competition following deregulation in 1994; spread deficiency risk on the old books of traditional life business carrying higher interest rate guarantees (4.75% in Belgium and 4% in Holland), although Fortis has made a special provision of ECU471m at group level; and the partial de-capitalisation of insurance companies to fund Fortis' expansion, in particular AG 1824, which paid a substantial special dividend in 1998.
Fortis has two listed holding companies, Fortis (B) SA/NV, headquartered in Brussels, Belgium, and Fortis (NL) NV, headquartered in Utrecht, Holland. The group had pro-forma total assets of ECU337 billion and shareholders' assets of ECU11.3 billion at December 31, 1998.
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