The Hague based life insurance, pensions and asset management company Aegon N.V. (AEG) culminated an agreement which allows it to partner with the largest financial group in Spain, Banco Santander for a period of 25 years. The deal was previously announced in Dec 2012.
As per the deal, the parties formed a joint venture company with a life and a non-life insurance business wherein Aegon acquired 51% stake in a life and a non-life insurance company for EUR 220 million or $288.2 million.
Moreover, Aegon’s Spain business will serve the back-office functions for the joint venture operations. Meanwhile, the joint venture company will utilize Banco Santander’s widespread network of 4000 branches and tap the latter’s clientele base of 12 million to provide life and general insurance products.
This long-term alliance is aimed at strengthening Aegon’s market position in Spain and placing it as a leading insurer in the country.
Aegon has been operating in Spain for more than 30 years through several bancassurance joint ventures in the region. The aforesaid joint venture with the leading bancassurer not only boosts its product portfolio but also enhances the company’s competitive position in European markets. Such efforts are also likely to be accretive to the company’s financials in the long run.
We expect the alliance to bolster the revenues of Aegon thereby favoring company growth going forward. The long term earnings growth rate of the company is 18.90%.
In order to fortify its operations, Aegon underwent a restructuring of its Spanish business last month. It had initially partnered with Caja de Ahorros del Mediterráneo (CAM). As part of the restructuring program, Aegon inked a deal to divest its 50% stake in the partnership with CAM to Banco Sabadell for EUR 449.5 million or $588.8 million. It also exited two other joint ventures with Banca Civica and Unnim Banc under this program.
However, Aegon’s financials were adversely affected following the implementation of the new accounting policies. The accounting policies (IAS 19) negatively impacted Aegon’s shareholders’ equity by EUR 1.1 billion or $1.4 billion. Additionally in the first quarter, excess capital of the company suffered a decline owing to higher operating expenses and interest payments. Also the Retail Distribution Review led to a decline in AEG U.K's operating earnings, the adverse effect of which is expected to continue through the second quarter of 2013.
Aegon currently carries a Zacks Rank #4 (Sell). Among others in the industry, Assured Guarantee Ltd. (AGO), Eastern Insurance Holdings Inc. (EIHI) and Kemper Corporation (KMPR) carry a favorable Zacks Rank #1 (Strong Buy) and are worth considering.
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