Aegon says Positive Solutions and Origen are not for sale despite the two distribution businesses posting combined losses of £24m in the last two and a half years.
In a joint interview with Money Marketing, Aegon global chief executive Alex Wynaendts and UK chief executive Adrian Grace insist the two firms remain strategically important as the product provider prepares for the RDR.
PosSol and Origen made combined losses of £3m in the first half of 2011 following losses of £16m in 2009 and £5m in 2010. In June, Aegon appointed Patrick Gale as executive chairman of distribution in an effort to boost operational performance at the two firms.
Wynaendts says: “These businesses have not been generating the level of profits we were expecting. We need to fix these companies so they are RDR-proof and ready in the new environment. Positive Solutions and Origen give us a lot of good intelligence on the market and they position us well in the market, so they are clearly not for sale.
“What is important is they contribute to our positioning in the market as a whole but they can only contribute if they are fixed and that is why we are pleased that we have somebody like Patrick Gale who can address those issues.”
Grace (pictured) says: “It is always difficult for a life insurance company to manage distribution companies because it is clear these are different companies with different cultures. But both PosSol and Origen are strategically important for Aegon and we have no plans to offload either of these businesses.”
Aegon’s year has been dominated by the restructure of its UK operations, which will see costs cut by 25 per cent by the end of 2011, and the ongoing redress programme for Scottish Equitable customers. The provider was fined £2.8m by the FSA in December and ordered to pay customers £60m following “significant administrative failings”. Costs associated with the redress have now reached £100m.
Wynaendts says: “The UK management team is meeting the commitment both in restructuring the business and in completing the customer redress programme by the end of this year.
“We have started making clear steps for the future by investing in the platform proposition, but that would not have been possible without a firm commitment to deal with the historic issues.”
Wynaendts says the financial crisis will accelerate the shift towards a US-style insurance system in the UK, with insurers rather than the Government providing people with security in retirement. He says: “We believe the UK is a large market with significant potential for a company like Aegon. The economic crisis only makes it more clear that people need to take more responsibility. Volatility also means people want more stability because you cannot rely on the FTSE for your pension.
“That is exactly where a company like Aegon, with products which provide guarantees and upside and secure income streams for the future, is very well positioned. We are going to leverage that.”
Wynaendts dismisses concerns that the higher charges associated with guarantees could prevent the market from taking off in the UK.
He says: “There is nothing worse than people being unsure if they are going to outlive their assets, which is something we have a lot in the US. There is more and more demand for guarantees and the crisis has accelerated that because it shows there is a lot of volatility in the markets.”
Grace says: “The awareness of how much people have in retirement is going to become more obvious to people as result of automatic enrolment. We are positioning ourselves to take advantage of this trend in customer behaviour.”