By Maarten van Tartwijk, Of DOW JONES NEWSWIRES
AMSTERDAM -(Dow Jones)- Dutch life insurance and pensions company Aegon NV ( AGN.AE) Thursday joined the chorus of major European insurers warning about the negative impact of stubbornly low interest rates, even as it reported a forecast-beating net profit for the third quarter.
Chief Financial Officer Jan Nooitgedagt said that "persistent low interest rates
are not good for our sector."
He warned that the risks will materialize in higher capital requirements to cover liabilities, putting pressure on profits "for all the years that rates remain low." The total impact, he added, could be "substantial."
Low interest rates hit insurance companies in several ways. Most significantly, they lower returns from the bonds insurers invest in and reduce their ability to cope with future claims costs. In addition, insurers sell long- term annuity and pension products that provide their clients with retirement income. The amount of income they pay is linked to interest rates, so when these are low, clients are discouraged from buying them.
In recent weeks, many European insurers have said their profitability is being threatened, although for many the exact impact has yet to be determined.
Oliver Baete, the CFO of Germany's Allianz SE (ALV.XE), said Wednesday that in life insurance business, "next year's development of the interest-rate environment will be crucial. It will impact revenues and profits."
U.S. peers such as Hartford Financial Services Group Inc. (HIG) and MetLife Inc. (MET) have estimated that earnings or revenue could be dented by tens of millions of dollars over the next few years if ultra-low rates persist.
And the U.K.'s Old Mutual PLC (OML.LN) and RSA Insurance Group (PLC) have also been warning of the negative impact.
Although Aegon's third-quarter results comfortably beat analyst expectations, the value of new business, a key measure of future profitability, fell 19% to EUR120 million.
This was mainly caused by low interest rates, as it resulted in a drop in fixed-annuity sales and lower margins on life insurance activities.
CFO Nooitgedagt said Aegon is particularly vulnerable in the U.S., where it generates the majority of its business through its Transamerica operation. He estimated that operating profit at the U.S. business will face a negative impact of $20 million in each quarter of 2011.
In an effort to offset this, Nooitgedagt said Aegon is focusing more on hedging interest-rate risks and lifting prices on some its life insurance products. The CFO said the risks seem manageable, but added that the final effects still have to emerge over time.
Aegon on Thursday reported net profit of EUR657 million, up from EUR145 million a year earlier. Analysts polled by FactSet Research had forecast net profit of EUR247 million.
The firm said earnings were buoyed "by growth across most businesses, strict cost control, higher equity markets and the strengthening of the U.S. dollar against the euro."
Aegon, which got a EUR3 billion capital injection from the Dutch state in the financial crisis, Thursday reiterated that it aims to repay the remaining money it owes before the end of June 2011. The company still has to redeem EUR1.5 billion plus a EUR750 million penalty.
CFO Nooitgedagt said Aegon aims to pay back the funds through earnings and the proceeds of the upcoming sale of Transamerica Re, its U.S.-based reinsurance business which has attracted interest from both strategic and financial buyers.
------------------------------------------------------------------------------------------------------------------------------------------------------
Am I the only one who is scratching their head at the headline? Company moaning at low rates despite quadrupling profits, not doubling, not tripling, but quadrupling?! For that sort of rise in profits you really don’t have much to complain about really, especially with the storm that’s coming next year. Enjoy it today otherwise they’ll really be wailing next year.
No comments:
Post a Comment