AEGON N.V. (AEG) recently announced that it has made certain changes to its accounting policies associated with deferred policy acquisition costs and longevity reserves. These changes have come into effect from Jan 1, 2014.
These changes are expected to improve the consistency, transparency and comparability of the financial results of AEGON. They will be reflected in the first-quarter 2014 financial results.
Per the revised accounting policy, deferred policy acquisition costs will only include those costs that are directly related to renewal of insurance or acquisition contracts. Under the previous policy, the cost included additional sales support costs that could be deferred.
Moreover, from Jan 1, 2014, the longevity reserves of AEGON have been established on the prospective mortality tables in Netherlands instead of observed mortality tables. This new adoption ensures that AEGON’s International Financial Reporting Standards reserving for longevity is consistent with that of its regulatory solvency calculations and internal economic framework.
The change in longevity reserves is expected to boost bottom-line growth. However, growth will likely be partially offset by the proposed new accounting policy. AEGON expects that both these changes taken together will be accretive to its earnings before tax which is expected to increase by €80 million for 2014.
The Zacks Consensus Estimate for 2014 increased 6.8% during the last 30 days to 79 cents a share. However, the company expects a decreased shareholder’s equity going forward that might lead to a debt-to-capital ratio deterioration due to the new changes.
Moreover, AEGON announced $550 million redemption of junior perpetual capital securities in order to improve its gross financial leverage ratio and bring it within the range of 26% to 30%. Gross leverage ratio improved by 120 basis points and is also expected to improve the future leverage costs.
AEGON presently carries a Zacks Rank #2 (Buy Other top-ranked multi line insurers worth considering include Kemper Corp. (KMPR), Prudential plc (PUK) and CNO Financial Group, Inc. (CNO). All these stocks carry a Zacks Rank #1 (Strong Buy).