(Updates with CFO comment in sixth and seventh paragraphs.)
Aug. 14 (Bloomberg) -- Aegon NV, the Dutch owner of U.S. insurer Transamerica Corp., fell the most in five months in Amsterdam trading on speculation third-quarter earnings will be hurt by greater provisions for longer life expectancy.
The shares dropped as much as 4.5 percent and were down 3.2 percent at 5.77 euros as of 3:45 p.m. in Amsterdam. The stock has dropped 16 percent so far this year, compared to a 0.3 percent advance for the 32-member Bloomberg Europe 500 Insurance Index during the period.
Aegon will review life expectancy assumptions in the U.S. in the third quarter, probably resulting in more conservative expectations, The Hague-based company said in a statement today, without giving an estimate of the impact. Second-quarter underlying pretax profit, which excludes impairments and some investments, rose 7 percent to 514 million euros ($164 million), beating a 503 million-euro estimate.
“Investors seem concerned the mortality update Aegon has announced for the third quarter will have a negative impact on earnings,” said Cor Kluis, an analyst at Rabobank Securities in the Dutch city of Utrecht.
Aegon, led by Chief Executive Officer Alex Wynaendts, is cutting costs and shifting capital to higher-yielding investments to bolster profit under pressure from years of low interest rates. The steps, including a review of under- performing operations in Canada and France, are designed to help the insurer achieve a targeted return on equity of 10 percent to 12 percent by next year. The measure of profitability improved to 8.8 percent in the second quarter from 8.4 percent in the first three months.
Aegon, which annually reviews mortality assumptions for mainly U.S. life insurance products in the third quarter, has seen “a negative trend in mortality, particularly in the old age segment,” Chief Financial Officer Darryl Button said in a phone interview today. “We are taking a hard look at our own data and industry data and I foreshadowed an adjustment will be coming for that in the third quarter.”
The company can’t give a “firm number on the magnitude yet” because the review isn’t complete, Button said.
Net income rose to 343 million euros in the second quarter from 239 million euros a year earlier, Aegon said. That beat the 338 million-euro estimate of eight analysts in a Bloomberg survey. The company will pay an interim dividend of 0.11 euros a share for the first half, unchanged from a year earlier.
Life insurers estimate future pay-out obligations on life insurance policies based on life expectancy from their own data and industry data.
Returns on investments increased to 198 million euros from 81 million euros a year earlier. Aegon said the growth reflected de-risking in the U.K., gains on the sale of private-equity investments in the Netherlands and the release of previously impaired equity investments in the Americas.
Revenue-generating investments increased five percent in the quarter to a record 503 billion euros, driven by net inflows and positive market movements.
Impairments totaled 3 million euros compared with 57 million euros a year earlier, “the result of the favorable credit environment in the U.S.,” Aegon said.
Underlying pretax earnings at the Americas unit, dominated by the Transamerica brand, fell to 331 million euros from 341 million euros. In dollars, the amount increased 2 percent as higher growth of variable annuity, mutual fund and pension balances, resulting from financial markets and net inflows, more than offset unfavorable mortality and lower income from fixed annuities, Aegon said.
The unit, whose Pyramid building overlooks San Francisco’s financial district, accounted for 64 percent of total underlying income.
Aegon said it is merging the individual savings and retirement division and the employer solutions and pensions business into one group, to be called Transamerica Investments and Retirement, partly to improve coordination of distribution.
In June, Aegon told investors that spending on core businesses increased to 86 percent of capital in 2013 from 75 percent in 2010. The firm earned 2.4 billion euros in proceeds from divestments since. A review of activities in France and Canada should be completed before the end of the year, Wynaendts said on June 25.
Aegon will buy a 51 percent stake in Banco Santander Totta SA’s insurance activities in Portugal, expanding a partnership with the Spanish bank that started last year, it said today.