Aegon NV (NYSE: AEG) is one of the world’s largest life insurance and pension companies. Its three major markets are the U.S., the Netherlands and the U.K.; the company also has numerous operations in various other countries. Having completed its restructuring, AEG has a nice 4% dividend yield and significant growth prospects with a new long-term partnership with Banco Santander and a recent entry into the Ukraine by purchasing Fidem Life.
The Americas contributed about 72% of underlying pretax profits in 2011 (excluding holdings and other activities). The U.S. is the dominant part of the region, accounting for more than 97% of 2011 underlying pretax earnings, but the region also includes business in Canada and Latin America. The major product lines in the U.S. are traditional life policies (universal life, term life, accident and health), annuities (fixed and variable), life reinsurance and a pension segment which is active in 401(k) and similar products. Aegon is among the leading U.S. providers of universal life and term life policies, through its TransAmerica unit.
Aegon also has important operations in new markets, which include Hungary, Poland, France and Spain, and smaller operations in some other CEE countries as well as in Asia. New markets generated 12% of 2011 underlying pretax profit. The CEE activities were pensions-focused, but changes to legislation in Poland and nationalization of pension funds in Hungary mean that, outside of Poland, the emphasis is shifting to protection and non-life and non-pension savings. Spain is a bancassurance operation for Cajas. France (35% owned) is a major life insurer that operates through affinity groups and brokers selling savings and protection products. Working with joint venture partners in Asia, the company provides life insurance in China and India and variable annuities in Japan.
We see AEG’s sales, measured by the present value of new business premiums, commencing a recovery in 2012 with 10% growth after four years of declines. We see stronger U.S. indexed universal life and variable annuities offsetting lower U.S. fixed annuity sales, which the group is de-emphasizing.
AEG has a target of 7-10% per annum “underlying profit” growth in the 2010-2015 period. We see this target being achieved through the gearing provided by the interest charge (lower fixed costs), advances in operating profit, and a paydown in debt over the period.
Aegon’s restructuring has been completed, providing what we think is a solid operating base alongside enhanced capital strength. The IGD ratio is around 222% as of the 2012 third quarter and should continue rising, we think, as the U.S. fixed annuity book runs off. The resumption of dividends with 2011 full-year reporting should, in our view, be followed by a modestly progressive dividend. AEG has a current dividend yield of 3.96% which is paid on a semi-annual basis.
Aegon has a 12-month price target of $8.00. AEG has an equity summary score of 7.5 out of 10 for a Bullish outlook.