Aegon Declines the Most in Six Years After $563 Million Loss

  • Insurer hurt by sale of Canada unit, risk-assumption changes
  • Company hasn't yet got approval for Solvency II model

Aegon NV dropped the most in six years after the Dutch insurer swung to a third-quarter net loss of 524 million euros ($563 million) on the sale of its Canada business, changes to the way it calculates risk and lower fixed-annuity earnings.

The results were affected by “assumption changes, our ongoing model refinement program, and the anticipated book loss on the sale of our low-return business in Canada,” Chief Executive Officer Alex Wynaendts said in a statement on Thursday. Net income was 52 million euros a year earlier.

Aegon was down 11 percent at 5.10 euros at the 5:30 p.m. close in Amsterdam on Thursday, the biggest drop since May 2009. That wiped 1.37 billion euros off the company’s market value and brought the decline for this year to 18.5 percent.

Stricter Demands

Aegon’s solvency ratio, a measure of capital available to meet obligations toward policyholders, rose to 225 percent from 206 percent at the end of June, the company said. Aegon, which is preparing for stricter capital demands next year, “still hasn’t received the internal model approval” from the Dutch central bank for the new capital regime, Chief Financial Officer Darryl Button said in a telephone interview. The new rules, known as Solvency II, come into force in January.

“The news on capital is mixed, as a better than expected Solvency I ratio is offset by an unexpected drop in U.S. excess capital and lack of news flow on Solvency II,” Matthias de Wit, an analyst at KBC Securities in Brussels, wrote in a note to clients.

The insurer, which receives two-thirds of its income from its U.S. subsidiary Transamerica Corp., said the book loss on the divestment of its Canadian insurance business amounted to 751 million euros, while the assumption changes and model updates accounted for 204 million in charges in the third quarter.

‘Unclear Story’

“The book loss on the Canada sale is a big one-off,” Joost van Beek, an analyst for Theodoor Gilissen Bankiers NV, said by phone. “The assumption adjustments are a bit of an unclear story. It may just be because they’re two steps behind the market.”

The Hague-based insurer was added last week to a list of nine too-big-to-fail insurers compiled by global financial rule makers, meaning it could face a 10 percent increase in capital requirements and tighter regulation. In September, the company said it’s reviewing its U.K. operations to decide whether they fit with the business’s future goals.

Underlying pretax earnings were 436 million euros, up from 291 million euros a year ago. Return on equity, a measure of profitability, fell to 6.8 percent in the third quarter from 8.2 percent in the second quarter.

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