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Announcement:

Moody's affirms AG Insurance A2 IFSR and Ageas Holdings' Baa3 issuer ratings

26 Jul 2012

Negative outlook maintained on all ratings

NOTE: On August 24 2012, the press release was revised as follows: Added a hybrid (hyb) indicator to the backed junior subordinated debt and the backed preferred stock ratings of Ageas Hybrid Financing, and to the backed junior subordinated debt rating of Ageasfinlux S.A.. Revised release follows:

Paris, July 26, 2012 -- Moody's Investors Service today affirmed AG Insurance's A2 insurance financial strength rating (IFSR) and the Baa3 issuer ratings of Ageas SA/NV and Ageas N.V. The ratings on guaranteed securities issued by Ageas Finance N.V., Ageas Hybrid Financing and Ageasfinlux were also affirmed. Furthermore, Moody's maintained a negative outlook on all these ratings.

A list of all the ratings affected by this rating action is available at the end of the press release.

RATINGS RATIONALE

AG INSURANCE

Moody's says that the affirmation of AG Insurance's A2 IFSR mainly reflects the company's ability to maintain a leading market position in Belgium as well as a good capitalisation, and the de-risking of its investment portfolio. Nonetheless, Moody's maintains its negative outlook on this rating, as the rating agency believes the company's profitability will remain under pressure in the near term. Although the non-life segment has started to show signs of improvement, Moody's believes that the company continues to face significant challenges in its life segment.

Moody's mentioned that the company's solvency ratio was negatively impacted in 2011 by a very high level of asset impairments (EUR687 million net impairment on equities and Greek bonds, according to year-end financial statements). The company stated a solvency I ratio down from 198% at year-end 2010 to 174% at year-end 2011. Nonetheless, capitalization remains at a good level, and asset risk has been significantly reduced in the course of 2011, with for example a material reduction in the exposure to Greek, Irish, Portuguese, Italian and Spain government bonds in the last three years (these bonds cumulatively represented less than 6% of Ageas Group's investment portfolio as of 31 March 2012 versus more than 30% at year-end 2009).

Commenting on profitability, Moody's says that the company's operating performance has remained weak since 2008. In the non-life segment, the combined ratio has been consistently above 100% since 2007 and above 103% since 2009. In 2011, AG Insurance reported improved results in some segments (notably motor insurance), but the combined ratio for workers' compensation deteriorated significantly. Nonetheless, the company is continuing to implement tariff increases and portfolio pruning measures whose impact are expected to materialize in the results over time.

In the life segment, Moody's notes that the high guarantees granted in life policies continues to limit the company's financial margin in the current low interest rate environment. This may be partly mitigated by a slow decrease in the average guaranteed rate and potentially reduced returns to policyholders on policies including profit-sharing mechanisms. However, Moody's believes that AG Insurance faces significant reinvestment risk.

The high guarantees also increase AG Insurance's vulnerability to asset losses, as evidenced by the significant impact of equities and Greek bond impairments on the company's results in 2011. Although asset risk has been reduced significantly in recent years, Moody's mentioned that the outlook of many European sovereigns ratings remain negative, including the outlook on the rating of Belgium (Aa3, negative outlook), indicating some potential increase in the credit risk borne by AG Insurance in the medium term.

Furthermore, Moody's believes that the de-risking of the asset portfolio creates some ALM challenges. The frequent rebalance of the sovereign bonds portfolio could result in lower recurring yields on the investments portfolio and place additional pressure on the ability of the company to meet its guarantees.

Moody's also said that AG insurance ability to sell new life insurance business is currently constrained by the high level of competition in Belgium between banking products and insurance products.

Commenting on what could change AG Insurance's rating down, Moody's mentioned (i) a deterioration in profitability with a normalised return on equity of below 8%; (ii) a significant deterioration in capitalization; or (iii) deterioration in the credit quality of European sovereigns, including Belgium.

Conversely, positive pressure could be exerted on the rating in the event of an improvement in profitability and financial flexibility. In particular, Moody's could change the outlook on AG Insurance's rating back to stable if the company manages to reduce its non-life combined ratio and improves its life technical results in the next twelve to eighteen months.

AGEAS SA/ NV and AGEAS N.V.

Ageas SA/NV and Ageas N.V. are the holding companies of the Ageas Group, whose main assets are (i) 75% of AG Insurance, (ii) Ageas UK, a British non-life insurer, (iii) insurance activities in Continental Europe, among which most notably 51% of Millennium BCP Ageas in Portugal and 50% of Fortis Luxembourg Vie in Luxembourg, and (iv) insurance activities in Asia, which are non-controlled and jointly operated with local banking operators, except for Ageas Insurance Company Asia in Hong Kong which is 100% owned. Ageas Group also includes some financial assets and liabilities and financing vehicles.

Moody's says that the affirmed Baa3 long-term issuer ratings of Ageas SA/NV and Ageas N.V. continue to reflect the combined financial strength and dividend capacity of the Group's operating insurance companies, the subordination of the holding company creditors, and the currently sound financial situation of the holding companies, with an estimated cash position of around EUR1.7 billion as of July 2012 (after the settlement of legal disputes with the Dutch State and the payment of dividends), covering EUR0.2 billion of outstanding senior debt. The investment grade rating reflects Moody's expectation that the Group will be able to meet all its financial obligations in the near term.

The Ageas holding companies continue to carry some off-balance sheet commitments towards previously owned entities, mainly Fortis Bank SA/NV (part of the BNP Paribas Group). However, Moody's noted positively that these commitments have been significantly reduced in the last 12 months, notably following the agreement reached with BNP Paribas in February 2012 and the settlement of legal proceedings with the Dutch State and ABN Amro in June 2012. Moody's does not expect these off-balance sheet commitments to negatively impact the financial situation of the Group in the short to medium term.

However, the rating also reflects continuing uncertainty over the resolution of various legal risks as detailed below, which might have a material financial impact and, in adverse scenarios, deplete the holding companies' resources.

Several legal actions have been initiated by shareholders in Belgium and the Netherlands claiming for monetary damages after the dismantling of the Fortis Group. Although the Group has not yet quantified the potential financial impact of these claims, the financial impact could be potentially very high if the claims lead to a court judgment in favour of the shareholders. Furthermore, Moody's notes that on 15 February 2012, the Utrecht Court decided in the first instance on the proceedings initiated by certain Fortis shareholders that Fortis published misleading information during the period between 22 May and 26 June 2008. Although the Court has ruled that it must be decided in separate proceedings whether the shareholders concerned did actually suffer a loss as a consequence of Fortis' actions and, if so, the amount of any claim, Moody's believes the Court decision increases the probability of materialisation of an adverse scenario for the Ageas Group.

Moody's says that the negative outlook on Ageas SA/NV and Ageas N.V. ratings continues to reflect the risk linked to these legal disputes. Moody's comments that in the event of an adverse outcome to the legal disputes with a significant impact on the holding's financial resources, the ratings of Ageas holdings might be downgraded by several notches. Moody's does not expect to resolve this outlook before having more clarity on the probable financial impact of the legal proceedings. As legal proceedings initiated against the Ageas Group may take a long time to conclude, Moody's may maintain the negative outlook on the ratings for a longer period than the typical twelve to eighteen months.

Financing vehicles

Moody's said that the affirmations of Ageas Finance N.V., Ageas Hybrid Financing and Ageasfinlux S.A. ratings fully reflect the guarantees received by these financing vehicles from the Group's holding companies and therefore follows the rating actions on Ageas SA/NV and Ageas N.V..

Ageas Finance N.V. is a funding vehicle guaranteed by Ageas SA/NV and Ageas N.V.. As of end of March 2012, EUR0.2 billion of debt issued by this entity was outstanding.

The hybrid debts issued by Ageas Hybrid Financing (NITSH I, NITSH II and Hybrone) have been on-lent to Fortis Bank SA/NV and AG Insurance, and are therefore economically matched by loans to operating entities. They are backed by Ageas SA/NV and Ageas N.V..

The FRESH securities, perpetual and mandatory convertible debt, were issued by Ageasfinlux with Ageas SA/NV and Ageas N.V. acting as co-obligors.

Ageas SA/NV and Ageas N.V. are expected to be merged in August 2012, and all assets and liabilities of Ageas N.V. will be transferred to Ageas SA/NV.

For more information on the ratings of these hybrid securities, please refer to Moody's previous rating actions.

LIST OF RATINGS

The following ratings have been affirmed with a negative outlook:

- AG Insurance -- insurance financial strength rating at A2;

- Ageas SA/NV -- long term issuer rating at Baa3;

- Ageas N.V. - long term issuer rating at Baa3;

- Ageas Finance N.V. -- backed senior unsecured debt rating at Baa3;

- Ageas Hybrid Financing -- backed junior subordinated debt rating at Ba2 (hyb)

- Ageas Hybrid Financing -- backed preferred stock rating at Ba2 (hyb)

- Ageasfinlux S.A. -- backed junior subordinated debt rating at Ba3 (hyb).

The methodologies used in these ratings were Moody's Global Rating Methodology for Property and Casualty Insurers published in May, Moody's Global Rating Methodology for Life Insurers published in May 2010, and Moody's Guidelines for Rating Insurance Hybrid Securities and Subordinated Debt published in January 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Brussels, Belgium and in Utrecht, the Netherlands, Ageas Group had total assets of EUR90.6 billion and reported shareholders' equity (including minority interest) of EUR8.4 billion as of 31 December 2011.

This rated entity or its agent(s) did not participate in the rating process. Moody's was not provided, for purposes of the rating, access to the books, records and other relevant internal documents of the rated entity.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Benjamin Serra
Vice President
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Simon Harris
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms AG Insurance A2 IFSR and Ageas Holdings' Baa3 issuer ratings
No Related Data.
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