Fortis reports outcome of strategic review
(Thomson Reuters ONE) - Fortis has finalised its strategic review, which began in May of thisyear, immediately following the approval by shareholders of thetransactions with BNP Paribas, Fortis Bank and the Belgian State.The key elements of this strategy are:* Fortis is in a strong position to prosper as an international insurance group, excelling in partnerships in Europe and Asia* Current capitalisation levels, which are among the strongest in the industry, are deemed appropriate in the current circumstances* About half of the capital of the General Account is considered to be discretionary capital. Part of this will be reserved for prudential reasons; the remainder could be allocated to a number of potential investments. Fortis does not intend to buy back the hybrid instruments issued at this stage* Fortis intends to resume payment of a regular annual cash dividend of 40% to 50% of the net profit of the insurance activities* Fortis will continue to proactively manage the legacy issues in order to maximise long term value. A Public Offer on the EUR 1.0 billion outstanding debt of Fortis Finance was announced on 24 SeptemberBart De Smet, CEO of Fortis, summarizes:"After the significant changes that have happened over the last yearFortis has regained stability. The strategic review was an importantexercise, which allowed us to review in detail where we are today andwhere we want to be in the future. Management is committed todelivering a solid performance, combining profitability and growth,measured against a set of key performance indicators. We will providean update of our performance in 2009 in relation to these indicatorswhen we publish our full year 2009 results. Having completed thisstrategic review I feel very confident that we are well positioned tocontinue to build our franchise as a solid and conservatively managedinternational insurer with a good balance between stable cashgenerative activities and exciting growth opportunities built on ourwell established expertise and partnership skills."Fortis reports outcome of strategic review* Fortis is in a strong position to prosper as an international insurance groupThe solid results over the first half year 2009, which were publishedon 27 August 2009, have demonstrated that Fortis is a soundinternational insurance group, with a strong capital position, aconservative risk profile, motivated employees and a resilientcommercial performance, notwithstanding the challenging marketcircumstances and the uncertainty resulting from the 2008/2009events.Fortis will continue to capitalize on its strong market position inthe stable and cash generative core markets in which it is a leader.It will use its recognised expertise and partnership skills to growfurther in a focused number of markets in Europe and Asia, primarilythrough partnerships with leading distributors. Fortis thereby aimsto achieve an appropriate balance between profitability in maturemarkets and value creation in growth markets. While Fortis' firstpriority is to improve the profitability of its existing operations,Fortis also expects to generate significant top line growthorganically as well as through the specific growth initiativesalready identified.Fortis will streamline the current portfolio to ensure that, overtime, all businesses* are able to reach a critical size* make a meaningful contribution to Fortis' insurance earnings* generate returns exceeding its cost of equityThe cost of equity is currently estimated at 11% and will be adjustedupwards, when appropriate, to take into account the specificities ofeach business.Fortis will only consider acquisitions that meet these stringentcriteria and where it has a competitive advantage due to its existingmarket presence or because of its ability to secure a strongpartnership with a leading distributor such as Tesco in the UK or UBIBanca in Italy. The latter initiative is also a testimony to theconstructive relationship that Fortis is developing with its partnerBNP Paribas.Fortis remains confident in the strength of the multi channeldistribution model which continues to perform strongly both inBelgium and in its other markets.* Current capitalisation levels, which are among the strongest in the industry, are considered as appropriate in the current circumstancesThrough a bottom up review of the capital requirements for each ofthe individual businesses Fortis has determined that, for the timebeing, the current capitalisation is appropriate. The currentcapitalisation, a solvency level of 229% (including VOBA) of theregulatory minimum, is higher than that of industry peers. Fortisbelieves this to be justified particularly in the wake of such anunprecedented period of uncertainty in the past year and itdemonstrates to customers and other stakeholders the company'scommitment to remain one of the best capitalised insurance companiesin Europe.The current capitalisation levels reflect the specificcharacteristics of each of its businesses including the commitmentsresulting from agreements with its partners. Retaining a strongcapital base in the individual insurance operations is also necessaryin order to fund the capital requirements resulting from thesignificant organic growth that is planned while satisfying the localrating and solvency requirements.Fortis expects to maintain a minimum aggregate solvency ratio of 200%of the regulatory requirement. A further review of the capitalrequirements in each of its businesses could lead to a revision ofthis target in the future and a possible release of capital overtime, although no such review is expected to take place before theintroduction of Solvency 2 (expected 2012).* About half of the capital of the General Account is considered to be discretionary capital. Part of this will be reserved for prudential reasons; the remainder could be allocated to a number of potential investments. A buy back of the hybrid instruments issued is not currently intendedFortis estimates it has within the General Account approximately EUR1.3 billion of discretionary capital[1].Fortis will retain this amount for the time being in order to havesufficient resources to fund potential investments providing thesemeet the stringent strategic and financial criteria, as well as toretain a prudential buffer in view of the remaining uncertainties,including legal matters on which there is currently littlevisibility. Fortis will continue to assess the appropriate level ofthe self imposed buffer.Fortis does not intend to buy back the hybrid instruments issued atthis stage.* Fortis intends to resume payment of a regular annual cash dividend of 40 % to 50% of the net profit of the insurance activitiesFortis intends to pay a regular annual cash dividend based on theprofit of the insurance activities. Fortis has a target dividendpay-out ratio of 40 % to 50% of the net profit of the insuranceactivities. The exact level will be dependent on the circumstances atthe time, in particular the status of growth plans and the resourcesavailable to finance these. This policy will allow shareholders tobenefit fully from the cash generative activities of Fortis whilestill being able to enjoy long term value creation in growth markets.Once the uncertainties regarding the legacy issues and the currentmarket conditions are lifted and, to the extent Fortis considers ithas discretionary capital available, Fortis is committed toinvestigate the most appropriate way to use this capital to createshareholders value.In line with previous communications, Fortis will propose to itsshareholders to distribute in the form of an additional dividend theadvantage gained from the exercise or monetisation of the BNP Paribascall option granted by the Belgian state.* Fortis will continue to proactively manage the legacy issues in order to maximise long term valueFortis has taken a number of initiatives to manage the legacy issuesand adjust its structure and balance sheet to the requirements of afocused insurance group. In that context a public offer by FortisFinance on the EUR 1.0 billion of outstanding debt under the EuropeanMedium Term Notes (EMTN) programme and the Inflation Linked Notes wasannounced on 24 September. These financing structures (including theNotes) are no longer in line with the new objectives of the GeneralAccount. The public offer will be made at the same price as the earlyredemption procedure that Fortis announced on 8 December 2008.Fortis has also decided not to take up a EUR 760 million tranche ofthe EUR 1.0 billion loan facility provided by BNP Paribas FortisBank, with a guarantee of the Belgian state, to refinance theacquisition of the equity stake in Royal Park Investments. Fortis'capital structure is sufficiently sound for Fortis not to rely anymore on financial support from the Belgian State, especially as suchsupport relates to funding of a relatively short tenure.Fortis will continue to proactively manage legacy liabilities andassets in a way that maximises long term value creation withoutimposing on itself any artificial deadlines. As shown in the resultspublished on 27 August, Fortis has disclosed all known legacy assetsand liabilities in a transparent way.* The investment portfolio of the insurance activities remains of high quality and reflects a pro-active approach to asset and liability managementThe equity component of the investment portfolio is currently 2%. Theinvestment grade instruments account for 98% of the bond portfolio.The real estate assets are of high quality and their values have notbeen impaired. While the insurance activities did account for anumber of write downs and impairments over the last year as a resultof the unprecedented financial crisis, the level of these losses hasremained relatively low. This demonstrates the pro-active approach ofthe insurance entities towards asset and liability management (ALM)and their strong ALM expertise.* A new management structure is now in placeTo reflect the company's new profile, Fortis recently announced a neworganizational structure based on a lean Executive Committee and aManagement Committee including the CFO and the CEOs of the fourregions (Belgian, UK, Continental Europe and Asia).Management is committed to delivering a solid performance, combiningprofitability and growth, and measured against a set of keyperformance indicators reflecting the nature (mature/growth) of thebusinesses, such as Return on Equity, top line growth, cost ratio,combined ratio Non-Life, Embedded Value, etc. An update of theperformance in 2009 in relation to these indicators will be providedat the time of publication of the full year 2009 results.In parallel, Fortis is studying the best way to simplify the currentlegal structure of the group.* BrandingAs BNP Paribas has acquired the Fortis brand name, Fortis Group canonly use the Fortis brand until May 2011. Fortis has thus started theprocess of developing a new brand name for the group.* Investor DayFortis management will present the results of the strategic review toinvestors and analysts at an Investor Day in Brussels. Allpresentations can be viewed live via www.fortis.com .+-------------------------------------------------------------------+| | | || Live Video | 10.00 CET /09.00 | www.fortis.com || Webcast | UK time | by selecting Investor Day || | | 2009 ||----------------+-------------------+------------------------------|| | | || Telephone dial | Please dial in 5 | + 32 2 404 03 05 (Belgium) || in | minutes in | + 44 207 750 99 26 (UK) || | advance | + 1 703 621 91 23 (US) || | | Confirmation code: 25092009# || | | Please note that numbers are || | | listen-only || | | || | | Replay lines available until || | | 25 October 2009: +32 (0)2 || | | 401 89 89 || | | Confirmation code: 288380# ||----------------+-------------------+------------------------------|| | | || Archived Video | From 25 September | www.fortis.com/ir || Webcast | 2009 | by selecting Presentations || | | |+-------------------------------------------------------------------+With insurance as core business, Fortis (www.fortis.com) employs over10,000 people in in Belgium and internationally. Its four key marketsare Belgium, the United Kingdom, Continental Europe and Asia.Fortis's 75%-owned subsidiary AG Insurance is the long-establishedleader in its domestic Belgian Life and Non-Life insurance markets.It is also a leading player in the Employee Benefits segment.Outside Belgium, the wholly-owned subsidiary Fortis InsuranceInternational is active in the three other markets through directsubsidiaries, joint ventures and local partnerships. Fortis is set tobecome the second largest motor insurer in the UK and the company isalso applying its know-how in Asia to build high value-addedpartnerships.In 2008, 54% of Fortis's insurance revenues were generated by theBelgian market and 46% by the three other markets.Fortis additionally holds a 45% interest in the structured creditportfolio entity Royal Park Investments, and is the 100% owner ofseveral financing vehicles, of which it manages the assets andliabilities.The company is listed on Euronext (Brussels - Amsterdam).Fortis's robust commitment to social responsibility is expressedthrough the activities of its Fortis Foundations, which are dedicatedto philanthropy and promoting volunteer work.Press Contacts:Brussels: +32 (0)2 228 82 92 Utrecht: +31 (0)30 226 32 61Investor Relations:Brussels: +32 (0)2 565 53 78 Utrecht: +31 (0)30 226 65 66[1] Fortis defines discretionary capital as the lower of theavailable cash and the total capital of the General Account correctedfor (contingent) illiquid assets and existing investment commitments.The calculation of discretionary capital of the General Account is asfollows:Total Capital (equity plus FRESH) EUR 3.9 billionIlliquid investments (RPI, call option BNP, AG Loan) (EUR 1.4billion)Contingent asset ( related to Fortis Bank loan 2011) (EUR 1.0billion)Investments committed (Tesco, UBI Banca) (EUR 0.2 billion)Discretionary capital EUR 1.3 billionhttp://hugin.info/134212/R/1343609/321882.pdfThis announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 25.09.2009 - 07:31 Uhr
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