Moody’s Ratings considers Ageas’ recent acquisition of esure is credit positive, as it has the potential to enhance the Belgian insurer’s business and geographic diversification, while increasing its share of earnings from fully controlled operations.
On 14 April, Ageas announced that it has reached an agreement with Bain Capital to acquire esure, a digital UK personal lines insurer, for a cash consideration of GBP1.295 billion.
The combination of Ageas UK and esure, known for its strong positioning on UK price comparison websites (PCWs), will reportedly create the UK’s third-largest personal lines insurance platform.
Moody’s analysts elaborated on the benefits, stating: “As of year-end 2024, Ageas’ business was predominantly life insurance, representing 63% of gross inflows and 67% of its insurance results. The acquisition of esure will shift this balance, increasing the contribution of non-life business to 41% of Ageas’ inflows from the previous 37%.”
The analysts further noted: “The non-life contribution to the group’s results will also increase. esure is a profitable operation, reporting a combined ratio of 84.5% in 2024, down from 102.5% in 2023, and a trading profit of GBP127 million, up from a trading loss of GBP17 million over the same period.”
Ageas anticipates generating over €115 million in pre-tax synergies through this transaction, primarily through scale effects and migrating all UK business to the esure IT platform.
According to the announcement, an initial one-off costs of around €150 million will be necessary to achieve these synergies, however.
Moody’s currently has a stable outlook on the UK property and casualty market and is confident that prices for personal lines cover, such as motor insurance, have risen sufficiently to absorb claims inflation.
The acquisition will also enhance Ageas’ geographic diversification. Following the transaction, Ageas’ non-Belgian European business, mostly the UK and Portugal, will account for 28% of group inflows, up from 23% as of year-end 2024.
Moreover, the ratings agency highlights that Ageas will significantly strengthen its market position in the UK, becoming the third-largest player in the UK motor and home insurance sectors.
The transaction will provide Ageas with strong access to price comparison websites while legacy Ageas mostly focused on the brokerage channel.
“The acquisition will increase Ageas’ share of earnings generated by fully controlled operations,” analysts added. “As of year-end 2024, Asian operations, which comprise only minority-owned joint ventures, accounted for 39% of Ageas’ net operating result. The limited control over these operations prevents Ageas from fully benefitting from the earnings they generate.
“Consequently, only 16% of cash upstreamed to Ageas from its operations came from Asia in 2024. The acquisition will reduce the weight of Asia to 34% and Ageas expects an increase in upstreamed cash flow by 19%.”
However, Moody’s notes that the transaction will result in a decrease of 10 percentage points in the group’s Solvency II ratio (218% Pillar 2 ratio and 183% regulatory ratio as of year-end 2024).
The group has also announced its intention to issue debt to finance the acquisition, which will lead to an increase in its financial leverage. Nonetheless, Moody’s expects that Ageas’ financial metrics will remain in line with its current rating level.
The post esure acquisition credit positive for Ageas: Moody’s appeared first on ReinsuranceNe.ws.