Aegon Profit Falls 40 Percent on Rate, Equity Assumption Change

Aegon NV, the Dutch owner of U.S. insurer Transamerica Corp., said third-quarter profit fell 40 percent as the company took a charge to reflect lower expected interest rate, bond and equity-market returns.

Net income declined to 227 million euros ($307 million) from 376 million euros a year earlier, the Hague-based insurer said in a statement today. That beat the average estimate of 131 million euros in a Bloomberg survey of six analysts.

Aegon is cutting costs and reviewing lower-return businesses to meet a 2015 profitability target as interest rates remain lower than anticipated. The company took a charge of 405 million euros related to the changes in its assumptions, plans to cut 150 jobs in its Americas unit and announced the sale of its Czech pension business in the third quarter.

Underlying pretax earnings, which exclude investment swings, rose 7 percent to 531 million euros as sales advanced 9 percent to 1.7 billion euros. Aegon’s Americas unit, dominated by the U.S., reported a 2 percent increase in earnings, to 371 million euros.

“Underlying pretax earnings adjusted for assumption changes beat estimates, with the U.S. performing exceptionally strong,” Maarten Altena, a London-based analyst at Mediobanca SpA, with an underperform rating on the stock, said in an e-mail. “We had not expected the downward equity market assumption, while the extension of the targeted interest rate to 10 years also seems more conservative.”

Aegon shares rose 2.1 percent to 5.95 euros at 11:05 a.m. in Amsterdam trading, for a market value of 12.7 billion euros. The stock is up 24 percent this year.

Market Return

The insurer reduced its equity market return expectations to 8 percent from 9 percent. Aegon also cut its assumption for 10-year U.S. Treasury yields to 4.25 percent from 4.75 percent, while extending the timeframe for the increase to 10 years from five years.

U.S. Federal Reserve stimulus efforts have driven interest rates near record lows, weighing on investment income at insurers, which invest in bonds to back future obligations to policyholders. The yield on the 10-year Treasury was 2.6 percent at the end of the third quarter.

The drop in net income was cushioned by an income tax benefit of 73 million euros with the reduction of the U.K. corporate rate to 20 percent from 23 percent.

Investment gains rose 58 percent to 202 million euros in the third quarter, more than the 82 million euros predicted by Cor Kluis, an Utrecht, Netherlands-based analyst at Rabobank International.

The company expects to cut about 150 jobs in the Americas unit in the next six to nine months, Chief Executive Officer Alex Wynaendts told analysts on a conference call today.

“We continue to work toward our stated objective of keeping costs flat while growing the business,” Wynaendts said. “An important step toward achieving this is by implementing a significant reorganization by which we’ll consolidate our support functions in the Americas into one shared service center.”

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