Increase long-term returns and improve risk profile
Sharpen focus on core activities: life insurance, pension and asset management
Explore strategic options for life reinsurance business, including identifying suitable buyer
Restructure and re-focus UK business; target cost reductions of 25% by end 2011
CEO Alex Wynaendts will today announce new measures to focus more on key long-term growth opportunities in its core activities aimed at further improving returns from Aegon’s businesses. As part of the measures to sharpen its strategic focus on its core businesses of life insurance, pensions and asset management, Aegon intends to explore strategic options for its life reinsurance business, Transamerica Reinsurance, which include finding a suitable buyer for the business. In the United Kingdom, Aegon will take significant steps to improve return on capital by targeting cost reductions of 25% in life and pensions and refocusing the business on the growth market segments of At Retirement and Workplace Savings where Aegon has leading positions. Mr. Wynaendts will provide further details later today during Aegon’s Analyst & Investor Conference in London.
“Over the past 24 months we have strengthened Aegon's balance sheet, substantially reduced our costs and significantly improved our risk profile," said Mr. Wynaendts.
Shortly after taking over as CEO, Mr. Wynaendts put forth as a key strategic objective the need to focus on its core business and to achieve a greater geographical balance by reallocating capital to the growth markets of Central & Eastern Europe, Asia and Latin America.
"Consistent with our strategy, we are now taking further steps to focus on our core business and to continue to allocate our capital to businesses and markets that offer higher growth and returns over the long term.”
"Over the next five years, we want to become a leader in all our chosen markets. That means not only reallocating our capital, but also increasing efficiency, encouraging innovation and entrepreneurship, and, most importantly, providing the products and services which serve our customers’ changing needs."
Since its acquisition by Aegon in 1999, Transamerica Reinsurance has achieved a leading position among life reinsurers in the United States and internationally, and has made a significant contribution to Aegon’s international expansion. However, Aegon believes that, over the longer term, there is only a limited strategic fit between Transamerica Reinsurance and Aegon’s core activities. Consequently, Aegon has begun exploring options for Transamerica Reinsurance, including finding a suitable buyer who would regard reinsurance as core to its business.
In addition to implementing cost reductions in the United Kingdom, Aegon will re-focus its business in order to build on its leading positions in the At Retirement and Workplace Savings markets. These markets have a strong potential for growth in the years ahead, particularly in light of the continued trend among employers to move from defined benefit to defined contribution pension plans in the United Kingdom, and given the increasing number of people approaching retirement and seeking income solutions. Aegon will withdraw from the bulk annuities market in the United Kingdom as current pricing conditions mean that this business does not meet its profitability targets. However, the company will continue to invest in the UK personal private pensions market (Self Invested Pension Plan, or SIPP). These measures are aimed at improving return on capital from 2.7% in 2009 to between 8% and 10% by 2014, and generating cash flow of GBP 600 million to GBP 650 million between 2010 and 2014.
In its objective to further improve its risk profile, Aegon will increase the hedge of its variable annuities back book in the United States.
It continues to be Aegon’s priority to repay the remaining EUR 2 billion of capital Aegon received from the Dutch government at the height of the financial crisis in 2008. This is also dependent on the final consent of the European Commission, the outcome and timing of which are not known.
Execution of strategy
Since June 2008, Aegon has taken a series of measures aimed at improving growth and returns from its businesses around the world. In the past two years, as part of these measures, Aegon has sold its life insurance operations in Taiwan, released EUR 5 billion in capital, placed its institutional spread-based activities in the United States in run-off and entered new growth markets in Brazil and India. Aegon also improved its risk profile by lowering its equity exposure by additional hedging in the Americas and the Netherlands, reducing interest rate risk by further hedging in the Netherlands, and lowering credit risk by reducing spread-based balances. Aegon will continue to focus on efforts to reallocate capital and increase returns as well as to ‘optimize Aegon’ by managing Aegon more as a single, international company and making the most of its worldwide resources.