Aegon NV (AGN), the Dutch owner of U.S. insurer Transamerica Corp., said first-quarter profit increased 59 percent, helped by cost reductions and gains on investments.
Aegon rose as much as 7.3 percent in Amsterdam trading after saying net income climbed to 521 million euros ($675 million), topping the average estimate of 269 million euros in a Bloomberg survey of 11 analysts. The company booked a 156 million-euro gain from fair-value gains on certain holdings.
“Aegon reported a strong first-quarter result,” said Lemer Salah, an Amsterdam-based analyst at SNS Securities who has a buy recommendation on the shares. “The company was able to improve its growth profile in particular in its core markets.”
Chief Executive Officer Alex Wynaendts has been cutting costs in its U.S., U.K. and Dutch operations, offering products that are less sensitive to market volatility and adjusting prices to reflect lower interest rates as he seeks to increase underlying pretax profit by 7 percent to 10 percent a year on average until 2015 and post a return on equity of 10 percent to 12 percent. Profit by that measure, which excludes investment swings, rose 3 percent to 425 million euros, compared with the 418 million-euro estimate of 10 analysts.
Aegon shares gained 23 cents to 3.54 euros by 10:49 a.m. Amsterdam time, giving the company a market value of 6.8 billion euros. The stock is up 14 percent this year, compared with a 5 percent gain in the 28-company Bloomberg Europe 500 Insurance Index in 2012.
“Following a year of considerable transformation, Aegon’s businesses made a strong start in the first quarter of 2012 with solid increases in sales and earnings,” Wynaendts said in a statement today. “Our successful efforts to reduce costs across our organization have created greater focus while also contributing to higher earnings.”
Alternative assets in the U.S., a guarantee portfolio in the Netherlands and derivatives led to a “fair value” gain of 156 million euros, versus an 86 million-euro markdown a year earlier. Impairment charges fell 34 percent to 41 million euros, the lowest level in four years, the company said.
Sales rose 25 percent to 1.76 billion euros. Gross deposits increased 50 percent to 11 billion euros as the company added pension assets in the U.S. and new asset management mandates.
Aegon last year cut costs in its U.K. operations by 25 percent from 2009 levels. That helped increase the unit’s underlying earnings before tax to 29 million euros from 12 million euros in the year-earlier period.
Underlying pretax earnings in the Americas, dominated by the U.S. business, fell 13 percent to 292 million euros as income from fixed annuities declined and amid higher mortality claims.
“We expect Aegon to show a strong recovery in earnings over the next three years as a result of cost savings, and a shift in business mix,” Michael van Wegen, a London-based analyst at Bank of America Corp., said in a note today. The shares are “attractively valued,” at a 15 percent discount to the industry, he said.
Aegon got 35 percent of underlying earnings from fee products in the quarter. Spread-based products such as fixed annuities generally offer clients a guaranteed return and rely on interest rates, while fee businesses such as term life and health products are a more stable source of income.
U.S. Bond Yields
Shares of the insurer, which gets most of its earnings from the U.S., were boosted in the first quarter as the U.S. 10-year bond yield rose to as much as 2.38 percent. Aegon’s profit goals rely on assumptions including a 4.75 percent U.S. 10-year bond yield for 2016.
Yields fell below 1.8 percent yesterday as concern increased that Europe’s financial turmoil is worsening. Insurers suffer from lower long-term interest rates as they hold back returns from bond investments and increase future liabilities.
The insurer sees no reason to change its assumption after cutting it from 5.25 percent in November, Chief Financial Officer Jan Nooitgedagt told analysts today.
Amid persisting market volatility, “I feel quite confident with our strong position and also with the measures we have taken,” he told reporters earlier. “We have been successful in executing our strategy as the results of this quarter show.”
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