Deprivation of the throne in Hungary: Aegon withdraws, an old Viennese dream comes true

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Expensive purchase

The news, which has been aired in several places in recent months and first written by us in September, turned out to be true: as part of the weight-loss program launched in the spring.

The price is € 830 million, which is 2.6 times the book value in mid-2020 and 15 times last year’s result.

Both values very high, especially given the fact that enormous synergies – at least in Hungary – do not lie in the transaction. Regional insurers (even in light of the expected performance for the next 12 months, which promises to be much tougher than last year) are priced by exchanges with an average P / BV of only 0.6 and a forward looking P / E of 8 , 3. Based on the latter, it is the seller Aegon and the buyer VIG who are rated the worst among the large regional insurers.

12-month forward-looking stock prices of regional insurers
P / E P / BV
Allianz 10.1 1.0
Uniqa 9.7 0.6
General 9.0 0.8
PZU 8.8 1.2
NN 8.1 0.3
VIG 7.4 0.5
Aegon 5.2 0.3
Average 8.3 0.7
Median 8.8 0.6
Source: Refinitive, Portfolio

The transaction, organized by JP Morgan in the US, was preceded by keen interest, and we heard about the negotiations

  • In addition to German Allianz and Belgian KBC, Dutch NN was also interested, which also actively participated (it is worth noting that NN has recently acquired Aegon’s Czech and Slovak interests),
  • the price decided: VIG, offering a high price from the start, walked in,
  • “They also covered the subject in the Carmelite Monastery,” but the insurer was fired for lack of an adequate team of insurance professionals.
  • According to market views, such a transaction could only take place with the consent of the Hungarian Prime Minister, even if it involved a sale and purchase of a regional package.

According to one of our sources, the government missed a historic opportunity by not making an offer, such as the superbank with the trio Takarékbank, MKB and Budapest Bank as a sales channel, the health insurance market on the brink of an explosion, Aegon’s existing premium reserve and ‘State insurance buyback If a political message would have been of exceptional value to the state. According to one of our sources, it would have been “too sudden” for the government to prepare for the purchase with the right team of professionals.

However, instead of Hungary, Aegon will be owned by Austria, and the buyer will be partly owned by cooperatives / associations:

The Hungarian market is worth a lot to VIG

The question rightly arises: why is the regional Aegon worth so much to VIG?

Aegon’s gem in the region is clearly Aegon Hungary (partly where the region was built), which brought in EUR 400 million of last year’s premium income of EUR 600 million and EUR 44 million of last year’s profit of EUR 50 million.

For example, the Viennese buyer mainly buys a share on the Hungarian market through the transaction and the takeover will allow his premium income to increase by 5-6 percent, of which 3-4 percent thanks to the Hungarian subsidiary. Now it buys the Hungarian insurance company VIG for the fourth time: in 1996 it expanded into the Hungarian market with the acquisitions of Union, Erste Biztosító in 2008 and Axa Biztosító, which was later renamed Vienna Life. For a long time, the multi-brand strategy was preferred, but in 2018 the three companies merged and now operate under the Union logo. The company has grown nicely not only through M&A, but also organically, especially in recent years, but its importance has radically increased with the acquisition of Aegon, You can jump from 8% to 19%.

According to our sources, Aegon Hungary is especially valuable to VIG because of the following:

  • with a little exaggeration for VIG the Hungarian market leader is worth all the money (several of our sources mentioned the common Austro-Hungarian historical past), while for Aegon, which has been present since 1992, this was not an aspect despite its state insurance history,
  • to VIG he has a lot of money for acquisitions: despite the high price, the Solvency II ratio can remain within the comfortable range of 170-230%,
  • besides Allianz, Aegon is Hungary most profitable insurer (in our opinion, however, it will fetch the price for VIG for a long time to come),
  • Aegone is one if not the largest (estimated at about 1,500 people) own sales network in the Hungarian insurance market, while Unioné, which is owned by VIG, accounts for about a third of this (the bancassurance channel is stronger than Union through the Erste partnership, while Aegon has a looser business partnership)
  • extremely valuable to Aegon lacacia insurance portfoliothe annual portfolio of more than HUF 30 billion means a market share of more than 30% (although the Union was the first to come out with qualified consumer-friendly home insurance at the beginning of the year, this market is far from strong),
  • Aegon is significant group life and accident insurance portfolioCSÉB insurance policies concluded in the 1980s and 1990s still represent a significant portion of its portfolio,
  • own fund manager and pension fundowned by Aegon, which is not the case with Union,
  • Union can be considered stronger in the health insurance segment, industrial insurance and unit-linked than Aegon, which is much bigger than it, and there is no significant difference between them in auto insurance.

According to our sources, due to differences in organizations, product portfolios and sales channels, it will be difficult to merge the two insurers, so this is probably only to be expected in the long run.

What about Hungarian customers?

According to Aegon

  • the customer agreements of Aegon Magyarország Általános Biztosító Zrt. and Aegon Magyarország Befektetési Alapkezelő Zrt. are valid under unchanged conditions, customer service and the sale of new insurance will continue in the usual manner,
  • According to Péter Zatykó, the company’s CEO, their customers receive unchanged service, valid insurance contracts and customer accounts are valid under unchanged conditions. Customers and contractors therefore have nothing to do with the transfer of ownership.
  • Aegon continues to sell all of its insurance policies, contracts are ongoing and customer claims are settled unchanged. The identity of colleagues and partners involved in insurance and claims handling does not change.
  • The sale and purchase will take place after Magyar Nemzeti Bank’s approval, expected in the second half of 2021. Until official approval, Aegon’s name will not change. After official approval and transfer of ownership, all contracts will remain in effect under the same conditions, but the company will perform its services under the brand name of the new owner.

Cover Photo: Getty Images / Paul Mayall

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