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Rating Action:

Moody’s assigns an A2 IFSR to ageas SA/NV with a positive outlook

30 November 2020


Frankfurt am Main , November 30, 2020 – Moody's Investors Service ("Moody's") today assigned an A2 Insurance Financial Strength Rating (IFSR) to ageas SA/NV, the holding company of Ageas group, ("Ageas") and affirmed the A2 IFSR on AG Insurance. At the same time Moody's upgraded ageas SA/NV's long-term issuer rating to A2 from A3 and changed the outlooks on ageas SA/NV and AG Insurance to positive from stable. Moody's also affirmed the Baa3(hyb) rating on Backed Junior Subordinated Notes (FRESH securities) issued by Ageasfinlux S.A. and changed the outlook on this entity to positive from stable.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Ageas SA/NV has a dual nature, acting both as the holding company of the Ageas group and as an operating reinsurance company providing reinsurance protection exclusively to its subsidiaries. The A2 IFSR on this entity therefore reflects the financial strength of the entire group. The rating is supported by the group's strong market positions in Belgium, Portugal and the United Kingdom and the strong foothold in rapidly growing Asian markets, strong earnings levels and strong and resilient capital adequacy. These strengths are partially offset by the limited degree of control over the fast-growing subsidiaries outside Europe and the relatively smaller size of most of these operations, with the notable exception of Taiping Life in China, limited control over distribution channels, and the dependence of Ageas's earnings on investment results.

The upgrade of ageas SA/NV's long-term issuer rating to A2 from A3, at the same level as the IFSR, reflects that the issuer is now fully operational as the internal reinsurer of the group, with meaningful quota-share and loss portfolso transfer agreements in place with all major consolidated subsidiaries. Ageas SA/NV's A2 issuer rating is now consistent with Moody's standard notching practices for reinsurers, where reinsurers' senior creditors are pari passu with cedants. The ramping up of internal reinsurance has significantly increased the size and diversification of the cash flows available to ageas SA/NV. In addition, Moody's expects that the holding company's liquidity position will not be affected to a meaningful extent by legacy issues which have been largely resolved.

The affirmation of AG Insurance's IFSR at A2 reflects the company's strong stand-alone credit profile and its weight in the larger Ageas group. AG Insurance is the market leader in Ageas's Belgian home market and continues to be a dominant driver for the group's credit profile. Ageas SA/NV owns 75% of AG Insurance, with the remaining 25% being held by BNP Paribas Fortis SA/NV, which is also AG Insurance's main distribution channel. The positive outlook mirrors that on Ageas's IFSR. Moody's says that AG Insurance's IFSR will likely move in tandem with that of Ageas given it is an inherent part of the group.

The Baa3(hyb) rating on the backed Junior Subordinated Notes (FRESH securities) issued by Ageasfinlux S.A. is four notches below Ageas' IFSR, reflecting the guarantee provided by ageas SA/NV to Ageasfinlux S.A., but also the deeply subordinated ranking of the instrument, as preferred securities and its coupon skip risk (the coupon may be paid through an Alternative Coupon Settlement Method when the annual dividend yield on the Ageas share is below 0.5%).

POSITIVE OUTLOOK

The positive outlook reflects the recent improvement in the issuer's credit profile, which - if maintained over the next 6-12 months - could result in an upgrade of its ratings. The improvements in the credit profile are exemplified by the resolution of legal legacy issues, the improvement in underlying insurance earnings, resilient capitalisation throughout the coronavirus induced crisis, and improvements in financial flexibility.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Positive rating pressure on Ageas's ratings could occur over the next 6-12 months from: (1) Diversification in terms of product risk and earnings contribution maintained; and (2) Group Solvency II ratio (based on Pillar 2) maintained in excess of 175% ; and (3) Return on Capital (Moody's definition) maintained in excess of 5% through the economic cycle, with no material negative impact from lower economic activity on earnings.

Given the positive outlook, there is limited downward pressure on Ageas's ratings in the near term. However, the outlook could return to stable in case of: (1) Significant weakening in Ageas's geographic diversification or increase in product risk; or (2) Group Solvency II ratio (based on Pillar 2) sustainably below 150%; and/or (3) Return on Capital (Moody's definition) sustainably lower than 4% or return of volatility in earnings levels; and/or (4) Sustained rise in adjusted financial leverage above 35%.

LIST OF AFFECTED RATINGS

Issuer: ageas SA/NV

..Upgrade:

....Long-term Issuer Rating, upgraded to A2 from A3

..Assignment:

....Insurance Financial Strength Rating, assigned A2

..Outlook Action:

....Outlook changed to Positive from Stable

Issuer: AG Insurance

..Affirmation:

....Insurance Financial Strength Rating, affirmed A2

..Outlook Action:

....Outlook changed to Positive from Stable

Issuer: Ageasfinlux S.A.

.. Affirmation:

....Backed Junior Subordinate Rating, affirmed Baa3(hyb)

..Outlook Action:

....Outlook changed to Positive from Stable

PRINCIPAL METHODOLOGIES

The methodologies used in these ratings were Property and Casualty Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187352 , and Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569 .

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Christian Badorff
VP-Senior Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main
Germany
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Benjamin Serra
Senior Vice President
Financial Institutions Group
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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