Delta Lloyd NV, Aviva Plc’s publicly traded Dutch insurance unit, predicted an increase of at least 3 percent in its profit and dividend in the next two years.
The company fell as much as 2.6 percent in Amsterdam trading after its forecasts for the operational result, a measure of profit that excludes investment swings, and the dividend disappointed investors. Delta Lloyd, which held presentations for shareholders today, also said increased longevity risk would reduce its so-called solvency ratio by about 5 percentage points, even after cost reductions.
“At first sight, the impact of the increased longevity and operational result growth targets for 2011 and 2012 look to be below expectations,” wrote Thomas Nagtegaal, an Amsterdam-based analyst at Royal Bank of Scotland Group Plc, in a note to investors.
Aviva, the U.K.’s second-biggest insurer, sold Delta Lloyd shares in November 2009 in western Europe’s biggest initial public offering last year. The Dutch insurer paid 40 cents a share in an interim dividend over the first half of this year and 50 cents last year since it became a listed company. Dutch publicly traded competitors ING Groep NV, Aegon NV and SNS Reaal NV haven’t paid dividends in that period.
Delta Lloyd’s predicted dividend increase of 3 percent a year for the next two years was less than the average estimate for 8.6 percent growth in 2011 and 5.3 percent in 2012, according to a Bloomberg survey of analysts.
Delta Lloyd dropped 35 cents, or 2.3 percent, to 14.73 euros in Amsterdam as of 1:57 p.m. local time, valuing the company at 2.45 billion euros ($3.4 billion). The shares have fallen 7.9 percent since they started trading.
Increased longevity has a negative effect on an insurer’s solvency ratio, which measures the capacity to absorb losses. The Dutch Actuarian Assocation in August raised its life expectancy for newborns in 2050 by 3 years, to 85.5 for men and 87.3 for women.
The longevity risk is cushioned by cost savings, Delta Lloyd said. The insurer said it is “on track” to cut operating expenses by 50 million euros this year to less than 950 million euros and to reduce costs to below 850 million euros by 2012. Solvency was estimated to be 182 percent at the end of October, Delta Lloyd said.
Delta Lloyd aims for a dividend pay-out ratio of 40 percent to 45 percent of its operational result after tax and minority interests, as long as the regulatory solvency ratio doesn’t fall below 160 percent.
“You might assume that as usual we are somewhat on the conservative side,” Chief Executive Officer Niek Hoek told investors today, commenting on the 3 percent estimated profit and dividend growth.