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Financial Supermarkets? Aegon Says `Bah!' (Int'l Edition)


International -- European Business: THE NETHERLANDS

FINANCIAL SUPERMARKETS? AEGON SAYS `BAH!' (int'l edition)

In merger-made Europe, the insurer is set on going solo

Kees J. Storm, chairman of the executive board of Dutch insurer AEGON, bristles with defiance. Most European insurance companies are bracing for a single-currency Europe in which formerly homebound financial products can easily be sold in any country on the Continent. His counterparts are rushing to merge with peers in other nations or hook up with banks that can give them Europewide distribution. Not Storm. Where others see a strategic imperative, the 56-year-old Storm sees folly. "Bank tellers don't deal well with insurance claims," he says.

The contrarian Storm is betting that his stand-alone insurer can stay ahead of the financial supermarkets. He believes that despite monetary union, Europe will remain divided into discrete financial markets where only focused companies will thrive. If he's right, AEGON will continue to outperform other insurers. If he's wrong, AEGON could be swallowed by one of the new conglomerates. "AEGON is a great test of how much scope and scale financial institutions need to survive these days," says Andreas de Groot van Embden, an analyst at brokerage MeesPierson in Amsterdam.

So far, AEGON is not just surviving but thriving. A third of its sales are in the Netherlands, and high-margin life insurance and pension products account for more than 80% of turnover. Net income has grown 17% a year since Storm took over as CEO five years ago. In this year's first quarter, it soared 25%, to $324 million. During the past 18 months, AEGON's stock price has leaped 133%.

Storm argues that many insurance products in Europe are linked to national tax laws and social security systems. For that reason, "there will be no single Euroland in insurance," he declares. In the short run, he may be right. "It's almost impossible today to create a single European health or life insurance policy," concedes Christopher Worthley, a spokesman for German insurer Allianz. But longer term, he believes, pressure will mount for a unified European tax and pension system. That's why Allianz recently paid more than $5 billion for a 51% stake in Assurances Generales de France.

Many insurers and banks consider it crucial to team up and offer one-stop financial shopping. But Storm points to European giants that have spent huge sums in a bid to buy their way into a new business--with little to show for it. Instead, Storm has sold AEGON's two largest noninsurance subsidiaries, last month disposing of Amsterdam-based Bank Labouchere.RELUCTANT BRIDE. Yet AEGON bought the insurance business of U.S.-based Providian Corp. last year for $3.6 billion, a record acquisition for a life insurer. Since the U.S. market is more open and homogenous than Europe--at least so far--Storm sees greater opportunities to grow across the Atlantic than in his own backyard. Even a partnership at home doesn't interest him. Many observers think ABN Amro Bank, the Netherlands' biggest, is a natural fit. ABN Amro has not disavowed the idea, but Storm dismisses it. "This bride is not going to the church," he says.

Storm is a maverick in management as well as strategy. For example, he discovered stock options while running AEGON's U.S. unit in Cedar Rapids, Iowa, from 1982 to 1986. On his return to Europe, he introduced a stock-option plan for all of AEGON's 25,000 employees--a rarity among European companies. "Stock options create a bond between shareholders and employees," he says.

They also have enriched him. He exercised some $10 million in options last year. But Storm doesn't relax much. He has run 14 marathons and jogs regularly. Another passion is betting on currency and interest-rate moves with friends, using bottles of fine Bordeaux as the wager.

In his betting on the future of Europe's insurance market, of course, there's much more at stake. If his strategy works, he could end up laughing at the architects of the new financial supermarkets. Or he could wind up on one of their shelves.By William Echikson in The HagueReturn to top


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