Update: Aegon Reports Q4 Pretax Profit of $534.9M, Down 14% on U.S. Income

By David de Jong | February 19, 2016

Aegon NV, the Dutch owner of U.S. insurer Transamerica Corp., fell in Amsterdam trading after decline in U.S. income pushed down fourth-quarter pre-tax earnings.

The stock dropped as much as 4.5 percent and was down 3.2 percent as of 10:25 a.m. Underlying pretax profit figure fell 14 percent from a year earlier to 486 million euros [$534.9 million], the Hague-based insurer said in a statement Friday. Citigroup Inc. said pretax earnings missed the consensus estimate by 6 percent.

“The underlying earnings picture is weaker than expected, and Aegon continues to be plagued by one-offs,” Citigroup analyst Farooq Hanif wrote in a note to clients.

The Dutch insurer announced a plan last month to buy back 400 million euros [$440.3 million] of shares, of which it has repurchased about a quarter. It said it plans to lower expenses in the U.S. and the Netherlands by 200 million euros [$220.1 million] by 2018, while reiterating a return on equity target of 10 percent. Aegon stood 1.7 percent below that target at the end of the fourth quarter, down 0.9 percent from the year before.

“One of our key financial ambitions is to reduce costs, and we are well on track to realize savings – particularly in the U.S.,” Chief Executive Officer Alex Wynaendts said in the statement. “The recent market volatility, fueled by uncertainty about economic growth, once again demonstrates the challenging environment in which we operate.”

The company won approval from the Dutch central bank in January for the way it tallies risk, reducing uncertainty and allowing the share buyback to go ahead. The expected cost savings will help make up for expenses incurred in changing the risk model. Aegon was added in November to a list of too-big-to- fail insurers, compiled by global financial rulemakers, meaning it could face even tougher capital requirements and tighter regulation.

Fourth-quarter net income grew to 477 million euros [$525 million] from 399 million euros [$439.2 million] a year earlier on higher investment income. Full-year net income totaled 619 million euros [$681.3 million], beating a 431 million-euro [$474.4 million] average of 13 analyst estimates compiled by Bloomberg. The company gets about two-thirds of its income from Transamerica.

“Underlying earnings before tax came in lower than expected mainly due to Americas which was primarily caused by recurring impact of actuarial assumption changes and model updates, lower annuity and retirement plan earnings,” SNS Securities NV analyst Marcell Houben, who has a buy rating on the stock, wrote in a note to clients. “This is disappointing as this is Aegon’s most important market.”

Aegon is in talks with British insurer Rothesay Life Ltd. to sell its 9 billion-pound [$12.8 billion] U.K. annuity book. The company said in September it’s reviewing its U.K. operations to decide whether they fit with the business’s goals.

The insurer’s ratio of eligible own funds to the solvency capital requirement stood at about 160 percent at the end of the year. Aegon uses a partial internal model to calculate risk under stricter Solvency II capital regulations that took effect Jan. 1.

–With assistance from Chris Malpass.

Related:

Inclusion on List of Too-Big-to-Fail Insurers May Alter Business Strategy: Fitch

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