UPDATE: Aegon Profit Beats Views, Cautions On Low Rates
November 11 2010 - 4:39AM
Dow Jones News
Dutch life insurance and pensions company Aegon NV (AGN.AE)
Thursday reported forecast-beating third-quarter net profit, mainly
on improved business conditions and investment gains, but cautioned
that its future profitability is threatened by low interest
rates.
The company, which generates the bulk of its business in the
U.S. through its Transamerica operation, said net profit was EUR657
million for the three months ended Sept. 30, up from EUR145 million
a year earlier. Analysts polled by FactSet Research had forecast
net profit of EUR247 million.
Earnings were buoyed "by growth across most businesses, strict
cost control, higher equity markets and the strengthening of the
U.S. dollar against the euro," it said in a statement.
"Aegon once again showed that it is able to increase returns,
improve its risk profile and continue to focus on its core business
with excellent results," SNS Securities said in a note to
investors.
Investors welcomed the results, and at 0751 GMT, Aegon shares
were 2.5% higher at EUR4.72, the biggest riser in a flat AEX
market.
Still, echoing comments from peers in recent weeks, Aegon
cautioned that low interest rates present "longer-term challenges
to the industry" and that this will put pressure on new business
margins.
The value of new business, a key indicator of future
profitability, fell 19% to EUR120 million, partly caused by low
interest rates, Chief Financial Officer Jan Nooitgedagt told
reporters.
In recent weeks, U.S peers such as Hartford Financial Services
Group Inc. (HIG) and MetLife Inc. (MET) estimated that earnings or
revenue could be dented by tens of millions of dollars over the
next few years if ultralow rates persist.
To mitigate the negative impact, CFO Nooitgedagt said Aegon is
stepping up efforts in hedging interest rate risks and that it is
raising prices on its products. He said that in the Netherlands,
Aegon's second-largest market, interest rates are fully hedged. In
the U.S., its largest market, Nootgedagt said he expects a negative
impact of $20 million a quarter in coming quarters. The CFO said
the risks seem manageable, but added that the effects will emerge
over time.
Aegon reiterated it aims to repay the remaining EUR1.5 billion
it owes the Dutch state before the end of June 2011. The company
last summer said it would prefer to use earnings and cash generated
by the upcoming sale of Transamerica Re, a U.S.-based reinsurance
business, to pay back the funds. It will elaborate on the progress
made "in due course," it said.
-By Maarten van Tartwijk, Dow Jones Newswires; +31 20 571 5201;
maarten.vantartwijk@dowjones.com
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