Best’s News & Research Service - August 14, 2014 03:03 PM (EDT)
Aegon Posts 43% Rise in Net Income in 'Strong' Second Quarter
THE HAGUE, Netherlands //BestWire// - In what it described as a "strong" performance, Dutch life insurer and pension provider Aegon NV reported a 43% increase in net income in the second quarter of 2014 to €343 million (US$459.3 million), from €240 million in the same period last year.
The jump was mainly due to higher realized gains, Aegon said.
Sales increased 5% to €2.06 billion from €1.97 billion. Underlying earnings rose 7% to €514 million from €481 million, Aegon said, pointing to the effects of "growth, improved operational performance and higher equity markets."
"We are pleased with the strong results that Aegon has delivered, as we build on the positive momentum achieved in previous quarters," Alex Wynaendts, chief executive officer, said in a statement.
A 10% increase in return on equity to 8.8%, from 8%, was supported by "higher net underlying earnings and lower interest expenses resulting from deleveraging," Aegon said in a statement.
Gross deposits increased by 3% to €13 billion, boosted by sales of pensions and variable annuities in the United States. Net deposits set a record at €6.1 billion. Life sales fell 2% to €511 million.
Boosted by Iowa-based Transamerica, an Aegon subsidiary since 1999, accident and health and general insurance sales rose by 36% to €252 million. The market consistent value of new business rose 9% to €221 million from €202 million. Aegon said its capital position remained strong, with a solvency ratio of 211%. The interim dividend was set at 11 euro cents.
"Our revenue-generating investments now exceed €500 billion for the first time in the company's history," Wynaendts said.
Within the overall group totals, Aegon UK reported a 33% increase in second quarter underlying pretax earnings to €32 million from €24 million in the same period last year. The better performance in the United Kingdom, Aegon said, "was mainly the result of improved persistency. Aegon expects technology expenses [in the U.K.] to increase in the second half of 2014, compared to the first half, as most of the key projects that are being undertaken reach implementation stage."
Albert Ploegh, an equity analyst at ING in Amsterdam, said Aegon's underlying results beat consensus by 3% to 4%. "Also the production numbers looked pretty good," he told Best's News Service, "with solid net flows, mainly in the retirement business and variable annuities."
Ploegh blamed the weakness in Aegon's shares on flatness in some areas, notably U.S. mortality. "I think that created some noise and some uncertainty," he said.
Aegon was trading at €5.77 on the afternoon of Aug. 14, down 3.17% from the previous close.
While U.S. mortality is likely to be an area of concern across the industry in the third quarter of 2014, Ploegh said, Aegon's sales in the United States are about what the market had expected. He noted good results in pensions and variable annuities.
Ploegh said the interim dividend is in line with expectations of a full-year dividend of 23 euro cents.
Wynaendts said Aegon has continued to offer product innovation while broadening its distribution. He noted the group's plans to widen its existing alliance with Banco Santander from Spain to Portugal.
In July 2014, Aegon signed a 25-year deal to sell life and nonlife insurance via Portuguese bank Banco Santander Totta. The agreement also gives Aegon a 51% stake in the insurance business of the Portuguese bank.
Wynaendts mentioned Aegon's decision to amalgamate its individual savings and retirement, and employer services and pensions divisions in the United States into a new division, to be known as Transamerica Investments & Retirement.
"The new structure," Aegon said, "will improve the coordination of distribution efforts, and supports Aegon's strategy to provide products that address customers' needs at every stage of their financial journey -- from buying a house and starting a family, to retirement and elderly care."
In the Netherlands, Aegon has increased its 50% holding in online car insurance broker Onna-Onna to 100%. The company, which stresses the use of technology and seeks to market to women, claims more than 30,000 customers.
Wynaendts, who cited the group's efforts to build global awareness of the need to save for retirement, emphasized Aegon's four strategic goals as it seeks to "become the most-recommended life insurance and pension provider." He identified these targets as: Optimizing the value of the portfolio; delivering operational excellence; enhancing customer loyalty, and empowering employees.
Transamerica Life Insurance Co. has a current Best's Financial Strength Rating of A+ (Superior).
(By Robert O'Connor, London editor: Robert.OConnor@ambest.com)