Aegon Gains Repayment Flexibility

Yesterday, Dutch insurer Aegon NV (AEG - Snapshot Report) announced that it has freed itself of the government debt on making the last repayment of €1.125 million. The company was offered a bailout amount of €3.0 billion during the peak of the global financial crisis in 2008.

The latest and last repayment includes €750 million that was used for repurchasing 187.5 million convertible core capital securities and a premium payment of €375 million. Aegon raised this booty from the sale of the reinsurance business of its Transamerica division in the US to France's Scor SE for $1.4 billion in cash and capital.

Earlier, in February this year, Aegon had repaid €900 million, which was raised through a public stock offering of about 10% of its common share capital.

On the whole, Aegon repaid €1.1 billion in interest to the Dutch government along with the principal of €3.0 billion. By repaying the government in full, Aegon has become the first financial institution in Netherlands to liberate itself from the restrictions imposed due to the bailout.

Accordingly, the company can plunge into any form of mergers and acquisitions activity, which also includes the savings bank sector in Spain.

However, management indicated that its primary focus would be to augment the company’s organic growth along with expansion in emerging markets of Eastern Europe, Asia and Latin America. The company now aims to improve its operating and competitive leverage in both the Netherlands and the US, where Aegon has a large size of operation.

As a result, life insurance, asset management and pensions businesses will now be few of the primary focal points for Aegon’s organic growth.

Alongside, timely dividend and bonus payouts could also be the likely results of the liberation. The company had indicated earlier this year that a 10 eurocent per share dividend is expected, post bailout repayment, in the second half of 2011.

Meanwhile, Aegon’s regained solvency appears to be beneficial for the stability of the company. Moreover, the stable ratings affirmed by A.M. Best in April this year, further validates its favorable earnings performance and risk-adjusted capitalization. Aegon also benefits from meaningful economies of scale, strong brand recognition and effective asset-liability and liquidity management.

Going ahead, we believe that the company’s restructuring and de-risking activities along with capital market stability will help improve the risk profile and reduce the credit losses accrued in the investment portfolio and enhance earnings visibility.  

Read the full analyst report on AEG