Dutch insurer Aegon reaches deal with European Union on repaying €2 billion in state aid

By Toby Sterling, AP
Tuesday, August 17, 2010

Insurer Aegon strikes deal to repay state aid

AMSTERDAM — Insurer Aegon NV said Tuesday it has reached a deal with European Union regulators on repaying euro2 billion ($2.56 billion) in support it received from the Dutch government at the height of the 2008 financial crisis.

Aegon said it will repay the money — “market conditions permitting” by the end of 2011, including a payment of euro500 million this month.

As part of the deal it will keep its dividends frozen and not pursue any acquisitions until the money is paid back.

Additionally, Aegon will only have to pay euro800 million extra back to the state, instead of the euro1 billion required under the original deal.

Chief Executive Alex Wynaendts said on a conference call that the company would fund the repayments with some mix of cash, selling operations, and issuing new securities.

“We cannot rule out any options at this time,” he said.

Aegon plans to sell its Transamerica reinsurance business in the United States, where it does two-thirds of its business. The division has a book value of euro1.6 billion.

Last week the company reported second quarter net profit of euro413 million ($532 million), from a loss of euro161 million in the same period a year ago and up 11 percent from the first quarter.

Investors cheered the developments, and Aegon’s share price was up 4 percent to euro4.494 in early Amsterdam trading.

SNS Securities analyst Maarten Altena said the announcement “removes uncertainty for investors” about possible concessions the EU might demand regarding the repayment.

“More importantly, we believe today’s statements to substantially reduce the probability of an equity issue, which would disappoint investors again in a short period and result in dilution,” he said in a note. He repeated a Buy rating on shares.

Wynaendts said due to measures the company has taken to reduce its cost base and shed risky businesses, Aegon can live with a smaller capital surplus. But he declined to give specifics of how much it could be reduced.

“Let’s first see how the world develops,” he said.

In the second quarter Aegon reported a capital surplus of euro7 billion under European accounting rules, and its solvency ratio slipped to 200 percent from 205 percent in the first quarter.

will not be displayed