Aegon NV, the Dutch owner of U.S. insurer Transamerica Corp., said shareholders’ equity will drop by as much as 2.5 billion euros ($3.4 billion) after an accounting change to bring its reporting method in line with competitors and future regulatory requirements.
Equity, a measure of assets minus liabilities, is expected to decrease by 2.2 billion euros to 2.5 billion euros, The Hague-based company said in a statement today. Gross financial leverage, or debt as a percentage of total capital, will rise by 2.8 percentage points to 3.3 percentage points, from 30.1 percent at the end of September, it said.
Aegon said in June it is seeking to cut leverage to 26 percent to 30 percent to improve financial flexibility and support its credit ratings. To cushion the impact of the revised accounting method, the insurer said today it will redeem $550 million in perpetual capital securities, improving the leverage ratio by 1.2 percentage points.
The company said it’s changing its method to record deferred acquisition costs, or expenses related to selling, underwriting and initiating customers’ insurance-policy contracts. Under some accounting methods, insurers can record costs related to the policies, which can run for years, as an asset on their balance sheet. Instead of deducting them from earnings right away, firms write them down gradually. Aegon said it will now expense sales and marketing costs directly.
Aegon is also revising its method for calculating longevity reserves in the Netherlands, it said.
Aegon is scheduled to report fourth-quarter earnings on Feb. 20. The company reported a 40 percent drop in third-quarter net income to 227 million euros on Nov. 7 after a charge to reflect lower expected interest rate, bond and equity-market returns. Underlying pretax earnings, which exclude investment swings, will increase by about 80 million euros in 2014 after the accounting changes, which were effective Jan. 1, Aegon said.
Aegon rose 1.4 percent to 6.75 euros at 10:04 a.m. in Amsterdam, increasing its market value to 14 billion euros. That compared with a 0.3 percent drop in the Stoxx Insurance 600 Index.