Aegon Net Falls, Hurt by Stocks, Interest-Rate Drop

(Corrects net income figures in first and second paragraphs, market effects on earnings in seventh.)

Aegon NV (AGN), the Dutch owner of U.S. insurer Transamerica Corp., said third-quarter profit dropped 91 percent after stock markets tumbled and it took a charge to reflect lower long-term interest-rate assumptions.

Net income fell to 60 million euros ($82 million) from 657 million euros a year earlier, the insurer, based in the Hague, said today. The shares rose after earnings beat the average estimate of a 3.3 million-euro loss in a Bloomberg survey of nine analysts and the charges were lower than some forecasts.

“Challenging financial market conditions clearly impacted Aegon’s earnings,” Chief Executive Officer Alex Wynaendts said in the company’s statement. “The actions we have taken to strengthen our balance sheet have enabled us to withstand the extreme market volatility we have seen in recent months, while also continuing to grow our business.”

The insurer this year completed repaying the Dutch state 3 billion euros in aid that it received during the 2008 financial crisis. In the last two years, Aegon has taken measures to better protect its balance sheet from market risks, including a hedge against stock market declines for its U.S. variable annuity book.

Aegon shares erased an early drop of as much as 5 percent and were up 3.2 percent to 3.19 euros at 10:17 a.m. in Amsterdam trading, giving the company a market value of 6.1 billion euros.

Lower Rates

It was the best performer in the 28-company Bloomberg Europe 500 Insurance Index, which fell 0.1 percent today.

Falling stocks and rates, a weaker U.S. dollar and a provision to account for life-expectancy risks reduced earnings by 105 million euros in the quarter, the company said. Aegon also took a 168 million-euro charge after lowering its interest- rate assumptions to “reflect current market circumstances,” less than the 300 million euros estimated by by Albert Ploegh, an Amsterdam-based analyst at ING Groep NV.

The company lowered its assumption for the 10-year U.S. Treasury yield by 0.50 percentage point to 4.75 percent over the next five years.

That target is “wishful thinking,” considering the 10- year Treasury yield is below 2 percent, said Benoit Petrarque, an analyst at Kepler Capital Markets in Amsterdam.

Lower Annuity Charge

Underlying pretax profit, which excludes investment swings, fell to 361 million euros, exceeding the average estimate of 321 million euros in a Bloomberg survey of eight analysts.

Aegon said earnings from variable annuities in the U.S. included a $12 million charge, while Ploegh had estimated the charge would be $75 million.

The insurer has said a 20 percent decline in equity markets would hurt underlying earnings before tax by 40 million euros to 50 million euros a quarter. A 100-basis-point drop in interest rates would remove another 20 million euros to 25 million euros.

Falling equity markets in the quarter led to “fair value” losses of 288 million euros, versus a 204 million-euro gain a year earlier, the company said. Investment gains dropped 21 percent to 102 million euros in the third quarter.

Aegon repeated its goal of increasing underlying pretax profit by 7 percent to 10 percent a year on average until 2015. The company aims to reduce costs and free up capital in its mature markets of the Netherlands, the U.S. and the U.K. and shift “excess capital” to new markets from Turkey to China, as well as its asset-management businesses.

Update on Goals

The company will provide an update on its strategy when it meets with analysts and investors in New York on Dec. 6 and 7, Chief Financial Officer Jan Nooitgedagt said today.

“We are fully committed to take the necessary steps to achieve our long-term targets,” Nooitgedagt said on a conference call with analysts.

The goals are based on economic assumptions including an annual gross equity market return, including dividend yields, of 9 percent in the Netherlands, the U.K. and the U.S., and a 10- year U.S. interest rate of 5.25 percent in 2015.

“Given that the market uncertainty continues in the coming quarters, Aegon’s 2015 objectives may be impeded by the prolonged tumultuous market environment,” Lemer Salah, an Amsterdam-based analyst at SNS Securities, said today.

Aegon said it had a capital surplus of 1.2 billion euros at the holding, and repeated it plans to pay out a dividend of 10 cents a share over the second half of 2011.

To contact the reporter on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net