European insurance shares rose sharply on Thursday, as Dutch insurer Aegon announced steps to boost capital and reduce risk, while British peer Aviva Plc bolstered its hedges against slumping stock markets.
Aegon, which has seen its share price sliced in half since the global credit crisis intensified in September, projected a €275 million ($374.7 million) third quarter charge on credit impairments, a figure one analyst described as “not extraordinary”.
Aviva said it would protect itself from stock market falls through increased hedges, and that a further 40 percent fall in equity markets would reduce its surplus regulatory capital by £700 million ($1.2 billion), compared with an estimated drop of 1.3 billion as of June 30 this year.
The announcements came as shares in Europe’s biggest insurers rebounded in a market recovering from steep losses as efforts by governments and central banks to thaw credit markets helped to calm jittery investors.
The DJ Stoxx insurance index was 3.6 percent higher, outperforming a 2.6 percent rise in the FTSEurofirst 300 index of top European shares as of 0810 GMT.
Aegon rose 5 percent to €4.31 ($5.93) and Aviva rallied 7.4 percent to 440 pence ($7.63), after being caught in a wave of broad worries over the viability of the financial system as banks in the Benelux region, Britain and United States seek merger partners or are nationalized.
Aviva, owner of the Norwich Union brand, also said its surplus regulatory capital had risen to £1.9 billion ($3.3 billion) as of Sept. 30 from £1.8 billion ($3.12 billion) three months earlier.
“We are pleased to confirm that in the face of the recent market turmoil, Aviva’s capital position remains strong,” Aviva Chief Executive Andrew Moss said in a statement.
Aegon said it expected to maintain a level of capital above ‘AA’ rating requirements and a strong liquidity position. The Dutch insurer said it would stick to its strategy announced in June to become less dependent on U.S. income, sell under performing assets and seek growth via new products and acquisitions.
“It is a good signal that Aegon stands up and indicates how it is tackling the current credit crisis,” Petercam analyst Thijs Berkelder said in a note. “The third quarter impairments are, in view of the size of the turmoil, not extraordinary.”
Aegon’s exposures to troubled U.S. banks and insurers, announced last month, were included in the projected third quarter impairment, an Aegon investor relations spokesman said.
Aegon said it had €265 million ($364 million) worth of fixed income exposure to Lehman Brothers, €125 million ($172 million) to Washington Mutual Inc.
“In view of the continued deterioration in the current market environment Aegon believes it is prudent to take further steps to maintain a strong capital base to protect the Group against a possible further fall in the capital markets,” Company Chief Executive Alex Wynaendts sated in a presentation at a Merrill Lynch conference in London.
The company also said it has hedged its U.S. dollar position at current levels for the rest of 2008 and 2009. Aegon, which gets around two-thirds of its profit in the United States, is seeking to reduce its reliance on income there.
Elsewhere in Europe, Allianz shares were up 3.3 percent, AXA was up 6 percent and ING was up 3.2 percent.
(Additional reporting by Myles Neligan in London; Editing by Hans Peters and John Stonestreet)
By Reed Stevenson
AMSTERDAM, Oct 9 (Reuters
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