Aegon Outlines Repayment Plan for Dutch State Loan

Financial services group Aegon N.V. said it expects final approval from the European Commission today on the repayment plan for the remaining 2 billion euros of the original 3 billion euros of capital support obtained from the Dutch state.

Aegon said it plans to repay 500 million euros of the remaining amount this month and the rest of the outstanding 1.5 billion euro balance by June 2011, “market conditions permitting.”

According to Aegon, the Dutch Central Bank approved repayment of 500 million euros this month at a premium of 10.3% plus accrued interest of 11 million euros. The Central Bank must approval all future repayments as well.

The company said it expects the EU to impose “behavioral constraints” only until the borrowed capital is fully repaid. Under those constraints, Aegon is not to pursue acquisitions except in the Spanish market. It must also submit to “price-leadership restrictions” in limited segments of the Dutch market, and cannot pay out dividends on common shares.

As part of the current agreement, Aegon said the premium payable on the remaining 2 billion euros will be reduced to 40% from the previous 50%. The company repaid 1 billion euros of the loan last year.

Two months ago, Aegon outlined a strategy that it says will sharpen its focus on the core businesses of life insurance, pensions and asset management; cut costs in its U.K. operations; and possibly sell its life reinsurance unit, Transamerica Re (BestWire, June 22, 2010).

Chief Executive Alex Wynaendts said at that time that the measures will allow Aegon to “focus on key long-term growth opportunities in its core activities.” He added that Aegon’s goal is to be the leader in all of its chosen markets by 2015.

Among its plans, Aegon will “explore strategic options” for Transamerica Re, including finding a “suitable buyer” for the unit, said Wynaendts. He said the life reinsurer, acquired by Aegon in 1999, achieved a “leading position” in the United States and internationally, and has “made a significant contribution” to Aegon’s international expansion.

Another key objective for Aegon is to “achieve greater geographical balance” by reallocating capital to growth market in Central and Eastern Europe, Asia and Latin America.

The group is also seeking to reduce costs in the United Kingdom by 25% by 2011. It also intends to continue to run off the institutional spread-based balances and de-emphasize fixed annuities in the United States, moves that Aegon said will reduced Aegon USA’s general account by $25 billion (19.43 billion euros) by the end of 2012.

(By David Pilla, international editor, BestWeek: David.Pilla@ambest.com)