Update: Dutch Insurer Aegon Plans $432M Share Buy-Back, to Cut U.S. Costs

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Aegon NV jumped the most in almost six years after saying it plans to buy back 400 million euros ($432 million) of shares and cut costs to improve its return on equity.

The Dutch owner of insurer Transamerica Corp. announced a plan to lower expenses in the U.S and the Netherlands by 200 million euros by 2018 and reiterated a return on equity target of 10 percent. The stock is still 27 percent lower than the peak of 7.66 euros in March.

Aegon stock plunged in August and again in November on concerns about the way it calculates its solvency ratio, a key measure of financial strength. The company Wednesday said it won approval from the Dutch central bank for the way it tallies risk, reducing uncertainty and allowing the share buyback to go ahead. The expected cost savings will also help make up for expenses incurred in changing the risk model.

“I am confident that delivering on our strategy to grow our business profitably, reduce expenses, and return capital to shareholders will enable us to achieve a 10 percent return on equity in 2018,” Chief Executive Officer Alex Wynaendts said in the statement.

Aegon has an additional 600 million euros that it may return to shareholders, Chief Financial Officer Darryl Button said on a call with investors. The company plans to complete the 400 million euro share buyback this year, he said.

Analysts were split on whether the company has done enough to win back investors. The shares climbed as much as 14 percent in Amsterdam trading and were up 11.1 percent at 5.50 euros as of 12:32 p.m. The stock is down 9.2 percent over the last 12 months.

“Aegon has removed insecurities by announcing the internal model approval and the share buyback program,” Marcell Houben, an analyst at SNS Securities with a buy rating on the insurer, said by phone. Albert Ploegh, an analyst at ING Groep NV, called today’s moves “a strong statement of confidence in its capital position and capital generation.”

William Hawkins and Rufus Hone, analysts at Keefe, Bruyette & Woods, were more skeptical.

“Whilst they have delivered on the critical buyback that we have sought, it seems one-off in nature rather than sustainable and leaves the impression that Aegon still needs to strengthen solvency over the medium term,” they said in a note to clients. “We continue to feel that the risk/reward is challenged for the Aegon shares versus peers.”

Aegon, which gets two-thirds of its income from Transamerica, is planning $150 million of cost savings in the U.S. through 2018 and 50 million euros of savings in the Netherlands. It will cut “management layers” as part of the strategy, the company said in the presentation.

Matthias de Wit, an analyst at KBC Securities in Brussels, wrote that while he was positively surprised by the buyback, “we nevertheless reiterate our reduce rating as we see more value elsewhere in our coverage.”

The insurer will grow asset management earnings by 20 percent within three years and will seek venture partners to help it increase its Asia business, the presentation to investors said.

Aegon is increasing its dividend to 13 cents, beating a Bloomberg Dividend Forecast of 12 cents a share. It also added four new members to its management board including Sarah Russell, the chief executive officer at the asset management unit.

After receiving central bank approval for its risk model, the insurer said its ratio of eligible own funds to the solvency capital requirement was 160 percent at Dec. 31 based on its partial internal model, the upper end of its forecast range of 140 percent to 170 percent.

The insurer announced a loss of 524 million euros in November because of model assumption changes as well as recurring costs of 100 million euros for the model refinements and 50 million euros for digitalization expenses.

Aegon was added to a list of too-big-to-fail insurers in November, compiled by global financial rulemakers, meaning it could face even tougher capital requirements and tighter regulation.

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