Asian Life Shift And Esure Integration Will Drive Stronger, More Resilient Earnings Ahead

Catalysts

About ageas

Ageas is an international insurance group providing life, non life and reinsurance solutions across Europe and Asia.

What are the underlying business or industry changes driving this perspective?

• Shift toward participating life products in China and other Asian markets is improving capital efficiency and reducing interest rate sensitivity, supporting more resilient earnings growth and potentially higher, more stable net margins over time.
• Consistently strong underwriting discipline in Non Life, reflected in a combined ratio of 92.1% and ongoing portfolio pruning in weaker segments, positions Ageas to sustain attractive technical profitability and expand operating margins through the cycle.
• Growing contribution from Asia and Europe, with higher volumes in short term life and improved new business margins, should translate into structurally higher life inflows and CSM growth, underpinning future revenue and earnings expansion.
• Robust balance sheet with a pro forma Solvency II ratio around 205% and strong operational capital generation enables continued dividend growth and disciplined M&A, which can enhance earnings per share and support total shareholder returns.
• Integration of esure and Saga, alongside ongoing pricing discipline in the U.K. motor and household markets, is expected to unlock meaningful cost and revenue synergies from 2028, driving incremental Non Life revenues and improving group net margins.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming ageas's revenue will grow by 17.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.4% today to 11.4% in 3 years time.
• Analysts expect earnings to reach €1.6 billion (and earnings per share of €8.37) by about December 2028, up from €1.2 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €1.8 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, up from 9.5x today. This future PE is greater than the current PE for the GB Insurance industry at 9.5x.
• Analysts expect the number of shares outstanding to grow by 4.92% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.57%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A prolonged low or further declining interest rate environment in key Asian markets, especially China and Thailand, could pressure the returns on long duration guarantees and slow the pace at which valuation interest rate effects normalise. This would weigh on long term earnings growth and net margins in Life.
• The strategic shift in China from higher margin nonparticipating products to lower margin but more capital efficient participating products may not be fully offset by volume growth. This could lead to structurally lower profitability and constrain future revenue growth and earnings expansion from the region.
• Execution and integration risks around the esure and Saga acquisitions, including higher than expected integration costs, delays in achieving synergies or more persistent U.K. claims inflation, could erode the currently strong combined ratio and reduce group level operating margins and earnings from 2026 onward.
• Adverse developments in China tax rules, FX movements or regulatory metrics such as the illiquidity spread and valuation interest rate could reverse the current low tax benefit and strong capital generation. This could result in higher effective tax rates, more volatile earnings and reduced free cash flow available for shareholder returns.
• A normalisation or increase in natural catastrophe losses from the currently benign weather experience assumed in guidance, combined with persistent inflation in repair and claims costs, could drive the Non Life combined ratio closer to or above budgeted levels over the cycle. This would compress underwriting profitability and group net margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €64.11 for ageas based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €73.0, and the most bearish reporting a price target of just €60.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €13.8 billion, earnings will come to €1.6 billion, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of €57.4, the analyst price target of €64.11 is 10.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.