Delta Lloyd Uncertainties Persist Amid Concern It May Need to Plug Capital Gap

By | August 13, 2015

Delta Lloyd NV extended a record decline on Tuesday after Goldman Sachs Group Inc. cut the shares to neutral amid concern the insurer may need to ask shareholders for funds to plug a capital gap.

The stock plummeted 8.2 percent to 12.09 euros at the close of trading in Amsterdam, adding to a loss of 20 percent on Tuesday. The two days of declines have wiped off 989 million euros ($1.1 billion) from the company’s market value.

Delta Lloyd on Tuesday reported a surprise first-half loss totaling 533 million euros after interest-rate hedges backfired and bonds declined. The losses have weakened the company’s finances just as Chief Executive Officer Hans van der Noordaa, who took over in January, is seeking to bolster capital as the company prepares for stricter international rules next year.

Van der Noordaa, talking with analysts after the earnings, said it was important to stabilize capital without saying how the firm’s solvency ratio, a key measure of financial strength, fell to 179 percent at the end of June from 183 percent at the end of last year, or outlining a concrete plan to improve it.

“Investors don’t know what to think — whether there’s a major problem, whether there’s a problem with the regulator,” Trevor Moss, who works on the sales desk at Berenberg in London, said by telephone. “This is the sort of uncertainty that the market hates — there’s no understanding of why the solvency numbers moved and no understanding of how they plan to fix it.”

Central Bank

As part of an effort to more easily meet Solvency II requirements next year, Delta Lloyd sold new shares to investors in March. It also completed a second longevity swap with Reinsurance Group of America in June, protecting liabilities of 12 billion euros from the risk of pensioners living longer than expected.

The Dutch central bank, which supervises insurers, declined to comment on whether the lower capital position reported by Delta Lloyd was as a result of consultations or pressure from bank officials.

The bank “always addresses institutions on their capital position, and also on swings in their capital position,” Tobias Oudejans, a spokesman, said by telephone. He declined to comment further.

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