Company Reports

We think Aegon has continued to develop its operations in line with a core strategy of growth. In the company’s World Financial Group that houses its network of middle market advisors, the unit has 75,652 licensed agents and versus the 74,000 the business reported at the end of last year that is a 2.2% increase. We think that leaves the business roughly on track to reach around 81,000 by the end of this year and build out to 110,000 by the end of 2027. The number of multiticketing agents has increased to 37,211, 3.3% better than the rise at the end of last year. The retirement plans business, or workplace, reported net deposits of $1 billion in the first three months versus $300 million in the same period in the prior year. The focus continues to be on midsize plans with net outflows from large plans. However, those outflows have moderated since the same period last year. Flows into mutual funds have also performed well. However, we think the Transamerica life business has declined. Products are mainly sold by World Financial Group agents and the business reported new life sales of $119 million in the first three months. This implies a decline versus the $486 million reported over last year. Transamerica’s target is for new life sales of $750 million by 2027 and at the moment this is tight.

Aegon has long been plagued by what is sometimes considered a strength of the insurance industry: the diversification of products and geographies. The problem in this strategy lies in the point at which a company chooses to diversify and whether or not it has pinned down its expertise and market leadership before it moves on to another product or country. In this case, a business can apply what it has learned in establishing the local and narrow competitive advantage to its new country or product group. In sum, diversification should be carried out only with core ascendency and it should be carried out in a very focussed and strategic way. Aegon had done neither.

With Aegon’s delivery of full-year earnings, our expectations for the firm remain the same. The main news is that Aegon has delivered on its financial commitments. However, operations look troubled in the UK. With initial guidance of EUR 1 billion in operating capital, Aegon has delivered EUR 1.28 billion, before holding and funding expenses. However, that beat is due to a slightly lower new business strain than was expected, EUR 624 million versus EUR 700 million; a net favorable benefit of EUR 105 million from EUR 160 million in operational variances; and negative EUR 55 million in higher claims. Ultimately, this means the operating capital generated is slightly above EUR 1 billion guidance. The EUR 1.1 billion operating capital generation target for 2024 remains. That will be helped by higher equity market account values delivering higher fees. Operationally, in World Financial Group licensed agents have grown to 74,000 versus 63,000 in the prior year, higher than the 72,000 we expected. The targets of 90,000 for 2025 and 110,000 for 2027 remain. World Financial's multiticket agents are also higher at 36,000, growth of 12.5%, but 2,000 lower than we expected. New life sales in US individual universal life are better than we projected at $486 million, growth of 12.5%. These two businesses are the largest contributors to US strategic asset earnings. Most operating metrics for the US workplace business point to better development, with advancement in sales of midsize plans, net deposits, and assets under administration. However, earnings on "in-force," an economic earnings metric, are down about $20 million because of investment in technology and employees. On the other hand, the UK business is not faring well, with strong outflows of retail deposits continuing. Those should stabilise.

Aegon’s individual solutions business, World Financial Group, continued to grow its licensed agents to just short of 70,000 over the last 12 months and increased the number of multiticketing agents to slightly over 35,000, in line with the firm’s strategy to improve productivity. Transamerica’s market share within the World Financial Group distribution force remains broadly stable at around 65%. In the individual life business, which complements World Financial Group, sales of new individual life insurance policies have risen to $118 million, primarily from higher sales of indexed universal life. This takes individual solutions' individual life sales to $431 million for the year, leaving the business ahead of the EUR 340 million that we forecast Aegon individual life would achieve during 2023. Over 75% of these individual life sales have been generated through World Financial Group.

Aegon has long been plagued by what is sometimes considered a strength of the insurance industry: the diversification of products and geographies. The problem in this strategy lies in the point at which a company chooses to diversify and whether or not it has pinned down its expertise and market leadership before it moves on to another product or country. In this case, a business can apply what it has learned in establishing the local and narrow competitive advantage to its new country or product group. In sum, diversification should be carried out only with core ascendency and it should be carried out in a very focussed and strategic way. Aegon had done neither.

Aegon has announced what we believe to be a good set of results for the first half of 2023. Financial targets for 2025 include a reduction in its leverage to around EUR 5 billion, an increase in operating capital generation to around EUR 1.2 billion, a growth of free cash flow to around EUR 800 million, and an increase in the annual dividend to around EUR 0.40 per share. With these six-month results, financial leverage now stands at EUR 5.6 billion, a 27.4% gross financial leverage ratio on Aegon’s definition of shareholders equity plus the contractual service margin, or CSM. Or, 40.7% of shareholders equity plus debt, which is better than our forecast. Further, Aegon has delivered EUR 620 million of operating capital generation, an increase of 13% from the same period last year. The business looks well placed on this 2025 target. The company is lagging a little bit in terms of its targeted free cash flow generation, with EUR 287 million in the first half. This free cash flow has led to the announcement of a EUR 0.14 interim dividend that the stock will trade with an ex-date of Aug. 29. On Sept. 27, this interim dividend will be paid. Consensus estimates as collected by Refinitiv are for a full-year dividend of EUR 0.30 per share. Aegon typically pays a little more, as it's final. This means, we believe, along with the EUR 1.5 billion buyback that is on target, distributions are on track.

Aegon has reported financial activity during the first quarter of 2023. We think the main takeaway from these numbers is growth. New life sales of individual business in the U.S. have risen from $94 million to $113 million in individual solutions. Correspondingly, the number of Aegon's licensed agents has risen by 10,000. Sales within the U.S. workplace business have risen strongly at $2.550 billion for the first three months versus $1.273 billion in the prior-year period. That strong growth has come from midmarket retirement plans as net deposits have gained traction to $932 million. Retail net deposits in the U.K. have swung to the negative.

Aegon has had its share of problems over the last 15 years, averaging close to 4.5% of return on equity over this period. That is well below the 11% cost of capital we assign to the business. These struggles have stretched across capital, solvency, governance, management, and ongoing nonrecurring items. Additionally, communication with the investment community was not great under former CEO Alex Wynaendts. However, we think results have signalled a change of direction in terms of strategy, wiping the slate clean, communication, and financial strength. Lard Friese was appointed CEO and we welcome this change. With this appointment, he returns to a business he spent 10 years at in the early part of his career.

Aegon has announced the divestment of its U.K. individual protection business, but we don’t think this changes the company’s outlook. The divestment of the individual protection book includes life insurance, critical illness, and income protection policies for high-net-worth individuals who are customers. These Aegon products were sold to these 400,000 customers by independent financial advisers. While the financial terms of the deal have not been disclosed, strategically, management has long communicated a focus on retail and workplace savings in this market and has by and large been derisking critical illness. New life sales have been very low for some time in this part of Aegon's business. As this does not alter the firm's strategic direction and we anticipate it will not be a meaningful divestment, we maintain our fair value estimate and our rating of no economic moat.

When looking at the exposure of insurers to the unfolding banking crisis, we believe this is limited. The main impact of the crisis currently seems to be contagion, so investors are selling shares cheaply. However, exposure to United States bonds is either in government bond securities, or exposure to Credit Suisse, Silicon Valley Bank, and other U.S. regional banks is immaterial, which is 50 basis points or less of their investment portfolio. Some do hold larger bank debt holdings of up to 5.5% of shareholder investments, but nearly all that debt ranks as senior. AT1 debt tends to be very minimal or there is no exposure as a policy with board-level approval. The vast majority of corporate debt held is investment-grade. We maintain our fair value estimates and moat ratings across our European insurance coverage. Allianz remains our Best Idea. Admiral is one of our top picks.

Aegon continues to report murky results, in our opinion, but the clouds are dissipating.

Aegon has had its share of problems over the last 15 years, averaging close to 4.5% of return on equity over this period. That is well below the 11% cost of capital we assign to the business. These struggles have stretched across capital, solvency, governance, management, and ongoing nonrecurring items. Additionally, communication with the investment community was not great under former CEO Alex Wynaendts. However, we think results have signalled a change of direction in terms of strategy, wiping the slate clean, communication, and financial strength. Lard Friese was appointed CEO and we welcome this change. With this appointment, he returns to a business he spent 10 years at in the early part of his career.

Aegon has had its share of problems over the last 15 years, averaging close to 4.5% of return on equity over this period. That is well below the 11% cost of capital we assign to the business. These struggles have stretched across capital, solvency, governance, management, and ongoing nonrecurring items. Additionally, communication with the investment community was not great under former CEO Alex Wynaendts. However, we think results have signalled a change of direction in terms of strategy, wiping the slate clean, communication, and financial strength. Lard Friese was appointed CEO and we welcome this change. With this appointment, he returns to a business he spent 10 years at in the early part of his career.

Aegon has reported typical transformational results and it remains challenging to see the outcome of all these efforts. A number of actions are ongoing such as the recent divestment of Aegon’s Dutch operations to ASR Nederland, excluding the Dutch asset management business. Further, Aegon has achieved another EUR 50 million in expense savings. It seems to be a matter of continual transactions in order to hedge or take volatility out of back books combined with peripheral divestments. However, because Aegon has retained its Dutch asset management business speaks volumes about how messy this process is. This is still a very untidy business. The net result on Nov. 10 is a EUR 206 million loss for the third quarter, which takes the company to a loss so far and well below our full-year forecast. We maintain our EUR 4.95 fair value estimate and no moat rating.

Aegon has announced a tie-up with ASR Nederland for its Dutch operations. The announcement is essentially a sale to ASR of Aegon’s Dutch pension, life, nonlife, banking, and mortgage origination business. For this, Aegon will receive EUR 2.5 billion in gross cash proceeds and a 29.99% stake in ASR. Bewilderingly, Aegon’s Dutch asset-management activities will remain part of Aegon, as Aegon will become the manager of the backing general account, premium pension institution, and the ASR mortgage fund investments.

Within Aegon’s strategic Americas business, the aim continues to be to achieve a top-five term life, whole life, and indexed universal life within Aegon’s individual solutions business. To achieve this, Aegon has set on a path of growth and in this first half achieved new sales of USD 200 million. That is a fair bit better than the USD 178 million that the business achieved in the same period last year—a 12% increase. This sales rise has largely been driven by higher indexed universal life and whole life final expense sold through Aegon’s World Financial Group, or WFG, distribution channel. Management have taken action to strengthen WFG by activating latent producers and increasing the number of licensed agents. The latter now stands at 58,000 as at June 2022 end, also a 12% increase. Transamerica holds a 61% market share in this channel.

Aegon has had its share of problems over the last 15 years, averaging close to 4.4% of return on equity over this period. That is well below the 11% cost of capital we assign to the business. These struggles have stretched across capital, solvency, governance, management, and ongoing nonrecurring items. Additionally, communication with the investment community was not great under former CEO Alex Wynaendts. However, we think first-half 2020 results signalled a change of direction in terms of strategy, wiping the slate clean, communication, and financial strength. Lard Friese was appointed CEO in May 2020, and we welcome this change. With this appointment, he returns to a business he spent 10 years at in the early part of his career.

Aegon has had its share of problems over the last 13 years, averaging close to 4.4% return on equity over this period. That is well below the 11% cost of capital we assign to the business. These struggles have stretched across capital, solvency, governance, management, and recurring nonrecurring items. Additionally, communication with the investment community was not good. However, we think recent results show a change of direction in terms of strategy.

Aegon has reported first-quarter 2022 results that are somewhat reminiscent of the past. Net income reported May 12 is EUR 412 million, but investors have likely been slightly put off by the fact that that figure is buoyed by a EUR 372 million gain. That gain has been booked on the sale of Aegon's Hungarian businesses to Vienna Insurance Group that finally received approval earlier this year. What has ultimately dragged the result down is the longstanding and troublesome fair value items. Here, Aegon has incurred a negative EUR 452 million largely as a result of variable annuities in the United States. While variable annuity discount rates are locked in at point of contract sale, their fair value changes with market rates over time. The difference in value is reported as a true up to accounting basis from economic basis with the latter being under, and, because of Aegon’s dynamic hedge, the results are reported above the line. Our understanding is that as rates continue to rise, this fair value offset will remain. Our sense is that despite all the efforts the business has made establishing dynamic hedges and variable annuity buyout plans, it really is time for Aegon to find a way to report results in a transparent way. We maintain our fair value estimate and our no-moat rating.

On March 23, Aegon announced that it had completed the sale of its Hungary business unit, after a few regulatory hiccups and delays. The proceeds for Aegon’s divestment of its Hungarian business to Vienna Insurance Group amount to EUR 620 million and is a good step in the planned divestment of Aegon’s Central and Eastern Europe businesses. Poland, Romania and Turkey are expected to complete over the course of 2022.