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Online Extra: The Insurer That Almost Made the Cut


By David Fairlamb It has been a tough couple of years for European insurance companies, with volatile equity markets, record-low interest rates, an unprecedented wave of terrorist attacks, and a number of major natural disasters. So it's hardly surprising that -- despite underwriters' best efforts to restructure their operations, strengthen their balance sheets, and drive up premium rates -- none made it into the European BusinessWeek 50 this year.

One that almost cracked the list is Aegon (AEG), which takes 52nd place in our ranking. The Hague-based insurer, which earns two-thirds of its income from the U.S., was the first European underwriter to issue a profit warning in July, 2002. But it has come back with a vengeance since then by cutting costs, selling off noncore operations, and focusing on the life-insurance, pension, and long-term savings markets. They generally provide a more stable earnings flow than nonlife products.

Net income rebounded 16% last year and would have increased as much as 30% if the euro hadn't risen against the dollar. Aegon's large exposure to the U.S. means it's highly vulnerable to exchange rate movements.

On the other hand, Aegon's strong presence across the Atlantic, where it primarily operates under the Transamerica and Providian names, is proving to be one of its biggest advantages. Premium revenues have grown strongly there as the U.S. economy has rebounded.

LOCAL FREEDOM. Another big reason for Aegon's comparative success, say analysts, is that it doesn't spread its resources too thinly. It focuses on just a handful of key countries - the U.S., Britain, and the Netherlands -- where it has built up a strong market presence and powerful brand name. In addition, the group has moved into a number of other fast-growing insurance markets, including Hungary, Spain, Taiwan, and China.

Aegon also benefits from its highly decentralized structure, whereby local managers, who know their markets intimately, are given the freedom to run their operations as they think best. One result of that, say analysts, is that Aegon has devised one of the most efficient distribution systems in the U.S.

On May 12, CEO Donald Shepard, a U.S. citizen, announced that first-quarter net income had risen 35%, compared to the same period last year. (The increase would have been 53%, if the dollar hadn't fallen against the euro.) He says he's particularly pleased by strong new sales of traditional life-insurance products sold in the Americas, as well as increased life-insurance sales in Britain. If it manages to keep up its recent pace, the group - which came so close to getting onto the list this year - looks destined to make it in 2005. Fairlamb writes for BusinessWeek from Frankfurt, Germany


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