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Search for Ethias capital solution hits Belgian political snags

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Search for Ethias capital solution hits Belgian political snags

Differencesof opinion between Belgian state governments could complicate the search for arecovery plan for troubled insurer Ethias SA amid reports it may be a takeover target.

Thefinance minister of the predominantly French-speaking region of Wallonia, whowants to preserve Ethias as a stand-alone entity, said he was prepared to helprecapitalize Ethias if necessary, while his counterpart in Dutch-speakingFlanders is looking for an investment bank to advise on its holding in thecompany, L'Echo reported. Bothstates hold 25% stakes in the insurer.

"There is a lot of political maneuvering around thisfile. It's clearly going to make things more difficult," one Belgium-basedanalyst said in an interview, speaking on condition of anonymity.

A reported capital hole has fed speculation that Ethias willbe sold, possibly to BelfiusBanque SA, and that Belgian insurer may also be considering atakeover bid. But the economy minister of Socialist Wallonia, Jean-ClaudeMarcourt, fears a merger with another insurer would be a "bloodbath," Finance 7sur7reported Oct. 4. Flanders, governed by a center-right coalition, hasshown no such discomfort.

Thedisagreement has arisen as Ethias is under pressure from the Belgian governmentafter it reportedly failed a European stress test in September, which leftit needing another €500 million to €600 million in capital.

"Themost palatable solution might be a sale to Belfius. That could involve lesspain and fewer job cuts than a sale to Allianz or Ageas, who are rumored to be potentialbuyers," the analyst said.

Ethias'acting CEO, Benoit Verwilghen, denied the company was considering a sale to Belfius ina September call with analysts. A Belgian finance ministry spokesman alsodenied the rumor.

Yetit will be challenging for Ethias to solve its capital woes on its own,Philippe Picagne, an analyst at CreditSights, said.

Whileit has strong underwriting profitability in P&C, its First A life insuranceproducts, which offer lifelong annuities of on average 3.4%, have put pressureon its solvency, he said. The insurer could decide to hedge its risk through areinsurance contract or boost its capital base through a rights issue, thoughthis latter option might be politically tricky in Belgium and run into EUopposition, he added.

Alternatively,the owners could yet decide to merge it with another company.

"Allthe options are valid and will lead to improving the solvency position ofEthias," Picagne said. "We recently upgraded our recommendation to 'outperform'because we believe that they will have to opt for one of the above mentionedoptions."

InSeptember, Verwilghen submitted a recovery plan to the National Bank ofBelgium in which he targeted boosting the company's Solvency II ratio to 150%from 125% as of June 30, using measures including axing First A. The plan ismeant to ensure that the company can remain a stand-alone operation.