(Rating) Vortex

These last couple of years every winter, various popular media often refer to the so called “polar vortex”. But what does it actually mean? The polar vortex is a large area of low pressure located about 20 to 50 km above the Earth’s surface over both the poles. That's the polar part. The vortex part describes a powerful and intense whirlwind or a counter-clockwise flow of air that keeps the cold polar air up at the poles. Sometimes, however, that flow of air is disrupted, either by the winds changing direction or stopping entirely. Either of these events causes the vortex area to warm and collapse allowing the cold polar air to go south, causing ‘polar’ cold conditions in much of North America, Europe and Asia. And that’s exactly what happened earlier this month when the polar vortex split into two separate vortices with one vortex pushed over the European continent while another one over the North American continent. This year the polar vortex seems to have more influence over the US than usual causing temperatures of -30°C in some states!

On the Ageas news front, last week was also marked by another chapter in the swirling ‘vortex’ of rating upgrades of these last couple of months when rating agency Moody’s upgraded the rating of Ageas by two notches from Baa2 (similar to BBB) to A3 (similar to A-). Moody’s is already the third rating agency to upgrade the rating of Ageas following the 3 notch upgrade from BBB to A by Standard & Poor’s rating agency on the 20th of November 2018 and Fitch attributing Ageas, on the 7th of December 2018 an IFSR (Insurance Financial Strength Rating) of A+. In its report, which you can find on the Ageas corporate website, Moody’s attributes the two notch upgrade of Ageas' issuer rating with a stable outlook to (i) the resolution of legacy issues, primarily the finalisation of the Fortis settlement and (ii) the change in group structure whereby the holding company Ageas will operate as the group internal reinsurer, which will diversify the cash flows available to the holding. Moody's says that internal reinsurance should also enhance the fungibility of capital within Ageas Group by lowering capital requirements at the subsidiary level and potentially allowing for more capital upstream to the parent Ageas. Each of these two drivers accounted for a one notch improvement in Ageas' issuer rating.

Overall, European equities started the week on a somewhat nervous note still concerned about the outlook for the Chinese economy and trade dispute between China & US.  However, as the trading week progressed equities recovered somewhat following encouraging US-China trade talks aimed at to resolving the trade dispute before March 2nd, the date on which the US threatens to increase tariffs on certain Chinese goods. On Thursday morning shares peaked this trading week after the US Federal Reserve (FED) announced it ‘will be patient on future rate hikes’ and that the central bank is no longer in any rush after raising rates almost every quarter over the past two years. This ‘vortex’ shift in policy comes on the back of a suddenly less positive outlook for the U.S. economy due to global headwinds and impasses over trade and government budget negotiations

At the end of the ‘vortex’ trading week the Ageas share closed at EUR 41.07 or -0.7% slightly below the SXIP 600 Insurance index (-0.5%). And after closing of the stock exchange on Friday Ageas benefitted from a favourable tailwind when it received a positive judgment from the Brussels Court of Appeal in the MCS case, dismissing all claims from the former Mandatory Convertible Securities holders.