AEGON’s small earnings decline masked some substantial differences in segment performance.
Profits in the Americas dropped 13% on unfavorable mortality experience and lower fixed annuity earnings. That was more than offset, however, by large gains in the United Kingdom, which benefited from the absence of unusual charges and lower operating costs, and in new markets, which saw strong profits in Asia and in asset management.
The estimated value of new business sold during the quarter rose 3% from the prior-year period but was well above the levels of last year’s second half. And net deposits were positive on good asset gathering in the pension and variably annuity lines in the United States.
We look for modest earnings growth over the balance of the year. Profits in the Americas will probably reflect morenormal mortality, and the restructuring effected in the U.K last year ought to continue to yield benefits. Profits in new markets, though, may not grow as rapidly as in the March period, since some of that gain resulted from cost shifting. Too, AEGON is staffing up in some new markets, which may pare results this year.
Modest earnings growth is likely in 2013. AEGON has implemented about half its planned cost cuts in the Netherlands; completing that program will likely add a couple of cents a share in 2013. It has also repriced some products, including variable annuities in the United States, which should help, as well. And new markets should keep growing at a good clip, including sales through banks in China, a new distribution channel.
AEGON’s portfolio carries limited risk. Investments in peripheral European countries amount to just 3.1% of the general account, with sovereign debt about a quarter of that. Many of the corporate loans in these countries are to defensive industries, such as utilities.
AEGON shares have above-average total return potential. The company appears to have largely recovered from the 2007-2009 recession. Though AEGON may, perhaps rightly, be penalized for being European, its shares ought to trade eventually at a higher percentage of book value.