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Otto Thoresen interview: Aegon plays the numbers game

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Aegon UK chief executive Otto Thoresen says the firm has no plans to offload loss-making distribution arms Positive Solution and Origen.

In an interview with Money Marketing, Thoresen says that both firms have gone through expensive restructures ahead of the retail distribution review, with Origen currently in a stronger position as it has concluded its restructure.

The two businesses made a combined loss of £2m in the second quarter of this year and posted a £16m loss for 2009. Aegon does not break down the results between the individual firms.

Thoresen says: “Both businesses are going through the preparatory work they need to do for the RDR and we have had to spend in both businesses to get them there. Origen is through that period and now actually in a very strong position. With Positive Solutions, we have still got a bit more work to do, but that plan is clear and we will keep working on delivery of it.

“As CEO, I am looking at all parts of the business to improve returns but we knew there was going to be a period when we had to restructure and invest to be ready for the future.”

Following its recent strategic review, which saw the firm announce 25 per cent of cuts by 2011, Thoresen insists the firm remains committed to the UK over the long term despite predictions of a “difficult decade” in the life and pension sector.

Thoreson says the firm’s decision to make the cuts came as a response to a “fundamental market shift” driven by Solvency II and an increased focus on the deployment of capital. The purpose of the changes, he argues, is ensuring the UK remains attractive to institutional investors in the face of stiff competition from overseas markets, particularly Asia and the US.

Thoreson says: “If you talk to the analyst community who advise these investors, I think there are a few questions at the moment about whether the UK can get itself to a point where it is attractive in the medium term and long term. I think it can because there are some very clear drivers of growth.

“We are keen to stay in the UK over the long term. The strength of what we are doing in the UK is the extent to which it is now entirely consistent with the mature markets of Aegon, such as the US and the Netherlands.”

A primary focus for Aegon UK will be the at-retirement sector, which Thoresen says represents a multi-billion-pound opportunity for the life and pension company. He adds: “If you look at the numbers tied up in the at-retirement area, you are talking about billions and billions of pounds worth of assets that are flowing through.

“Where currently they are sitting in funds, those have got to be managed through to income over the next 20 years and therein lies a business opportunity for the adviser community and for companies like Aegon.”

Thoreson also indicates the firm will continue to push its corporate offering to “the middle market” which he believes is not currently served by employee benefit consultants. “I think the complexity issue continues to be a really important part of the way the UK market works,” he says. “People have tried to make pension legislation simpler, tried to make tax legislation more simple, tried to make the benefits system more simple, but it continues to be one of the most complex in the world and demands the support of an adviser to guide somebody through the harder decisions.”

The company’s targeting of the lucrative at-retirement market might be predictable but the decision to keep its protection arm raised a few eyebrows. However, Thoresen insists the business remains intrinsically linked to its savings offerings and there are no plans to offload it in the near future.

He says: “Just as it is sensible for us to be offering guarantees and insuring longevity risks, then for us to retain the ability to insure the mortality risk has to make sense as well.”

One area the firm will not be targeting in the near future, however, is equity release. “It does not look to me like something we would be putting high on the priority list,” says Thoresen.

On the impact of the RDR and the potential for an “advice gap” emerging as a result, Thoresen remains cautious. He says: “I do have a concern about the creation of an advice gap. I do not think it would be fair to say that I have got to the stage where I am optimistic yet, but I am certainly more hopeful that some of the more pessimistic predictions that were being made will turn out not to be the truth.”

And despite broadly supporting the coalition Government’s pension reform package, Thoresen remains wary of the risk of “piecemeal” changes to legislation.

He says: “The issue with pensions is giving people the confidence to make commitments to saving through a pension, and the more you change things the more risk there is that people start to think there is not enough predictability of how things will be when they get to retirement.”

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