Aegon to cut UK costs by 25% and pull out of bulk annuities

22 June 2010 0:00 am | Updated: 22 June 2010 8:05 am | By Leah Milner

In a web broadcast for investors and analysts this morning, which followed press reports over the weekend that the dutch insurer was looking to sell off its UK arm in a £1.5bn deal, the company revealed it had considered a full disposal but said to do so in the current market would not represent good value.

Aegon may pull out of the UK protection market in September after reviewing its offering, along with other non-core business areas.

Responding to questions this morning, chief executive Alex Wynaendts refused to rule out a future withdrawal from the UK market or selling its UK distribution arms Positive Solutions and Origen.

When asked whether he would consider a disposal of the two adviser arms, Wynaendts said: “We have done a review which focussed on the life and pensions business. We are looking at all the options and in the current market the one we are pursuing is delivering shareholder value.”

Wynaendts said Aegon will be “reviewing the suitability of these businesses” within the group.

The insurer admitted that the UK is a “difficult market” and said it would look to cut back 25 per cent of its costs here by 2011 by limiting its scope to two main areas – the at-retirement market and the work-based savings market, including continuing with its plans for a corporate wrap.

The insurer says it is pulling out of bulk annuities in the UK as current pricing conditions mean this business does not meet profitability targets. Aegon says it will continue to invest in the UK Sipp market as part of measures to improve return on capital from 2.7 per cent in 2009 to between 8 per cent and 10 per cent by 2014. Aegon says it has no plans to stop paying commission on group pensions until the end of 2012.

Wynaendts also refused to reveal whether the insurer had considered offers for the UK business, saying “we would never disclose any of those discussions”.

Aegon confirmed that job cuts would be inevitable as part of the 25 per cent UK cuts, but said it is too early to disclose numbers.

The insurer is also looking to sell its life reinsurance business, Transamerica Reinsurance.

Wynaendts said: “The UK market is a difficult market and we made it very clear that we were not satisfied with the returns which we were making and that is why we conducted a very thorough review of all the options which are available for us.

“The first one is a full disposal, second one is a run off of the business – effectively closing it for new business. The third one is restructuring the business while building on the strengths which we have.

“We have come to the conclusion in the current market that the best option for shareholders is to implement a restructuring and that is what we are doing.”

“The reasons are that, today, a full disposal would be at a significant discount to its value.

“We also believe that running off the business, in today’s environment, with RDR coming up very soon having quite an impact on distribution would lead to a significant increase in lapsation and therefore destroy shareholder value.”

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