Delta Lloyd Plans to Raise $1.06 Billion in Rights Offer

  • Company suspends final dividend, plans cash payout in 2016
  • Insurer pushing to improve capital ahead of Solvency II rules

Delta Lloyd NV plans to raise as much as 1 billion euros ($1.06 billion) in a rights offer as the Dutch insurer seeks to strengthen its capital to meet new regulatory standards. The shares dropped.

“We realize this is a very substantial capital raise,” Chief Executive Officer Hans van der Noordaa said in a statement on Monday. “But after executing this plan, Delta Lloyd will be appropriately capitalized and well-positioned for the new regulatory regime.”

Delta Lloyd is also reviewing options for its 30 percent stake in private bank Van Lanschot NV and is in advanced talks to sell its retail real estate portfolio, it said. It suspended its final dividend and set a target of 130 million euros in cash payouts for 2016. The shares fell by as much as 9.5 percent in Amsterdam trading and were down 8.7 percent at 6.92 euros as of 1:38 p.m., the most in almost three weeks.

The company has been under pressure to reassure investors as the European Union introduces stricter capital requirements for insurers in January under rules known as Solvency II. Delta Lloyd has lost more than 60 percent of its market value this year after a first-half loss reported in August fueled speculation that the insurer would seek a capital increase.

“The 1 billion-euro rights issue with additional optimization measures on the top is worse than expected,” Arnaud Girod and Lyonel Francoy, analysts at Kepler Cheuvreux, said in an e-mailed note Monday.

New Model

The company will change the way it calculates its solvency, adopting a standard model under Solvency II starting next year and drop an internal model that was under review by the Dutch central bank. The rights offer and other steps planned by management will raise its solvency ratio to about 175 percent to 180 percent, the company said Monday.

"We saw over the course of 2015 that we were clearly dealing with a highly unstable Solvency II figure based on our internal model,” Van der Noordaa said on a conference call with reporters Monday. "That led to a lot of indignation on the market. We’ve concluded that our internal model isn’t yet ready to steer Delta Lloyd in the right direction.”

The main aim of Solvency II is to reduce companies’ risk of insolvency by ensuring they have sufficient capital set aside to meet all potential claims. It will also introduce new corporate governance standards.

‘Right Direction’

“Delta Lloyd’s decision to use the standard model is a step in the right direction,” said Jos Versteeg, an analyst at Theodoor Gilissen Bankiers NV in Amsterdam, with a hold rating on the stock. “The application of the internal model was completely untransparent.”

The capital raise comes after Emiel Roozen and Jean Frijns stepped down as chief financial officer and supervisory board chairman respectively this year following the insurer’s alleged use of confidential central bank information for trading purposes in 2012.

Delta Lloyd sold new shares to investors in March, and completed a longevity swap with Reinsurance Group of America in June, protecting liabilities of 12 billion euros from the risk of pensioners living longer than expected.

The share sale announced Monday is fully underwritten and will begin shortly after Feb. 24, when the company reports full-year results. Goldman Sachs Group Inc. will act as global coordinator on the rights offer and will serve as joint book runner along with Bank of America Corp. and Barclays Plc.

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