UPDATE: Aegon Profit Beats Views, Cautions On Low Rates

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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