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Aegon takes capital hit from low rates, market turmoil

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By Toby Sterling

AMSTERDAM (Reuters) – Dutch insurer Aegon NV <AEGN.AS> on Thursday showed how low interest rates and turbulent markets hit its capital position in the first half of the year, sending the group’s shares down as much as 8%.

Aegon, which does two-thirds of its business in the United States under the Transamerica brand, had said earlier this week its CEO Alex Wynaendts would step down and be succeeded by Lard Friese, the boss of Dutch rival NN Group <NN.AS>.

NN Group, the biggest insurer in the Netherlands, on Thursday reported lower capital levels for the second quarter and both insurers reported lower profits, highlighting the tough conditions in the industry.

Aegon’s capital or solvency rate under Europe’s new accounting regime, known as Solvency II, fell to 197% at the end of June, from 211% at the end of 2018.

Analysts polled by the company had, on average, expected a ratio of 204%, slightly above the company’s 150-200% target range.

“In a turbulent first half of 2019, market movements had a negative impact on the capital position in the Netherlands,” outgoing CEO Wynaendts said in statement.

The two insurers’ fortunes have diverged over the past five years since NN was split from ING bank. NN shares have risen 45%, compared with a 35% fall at Aegon.

On Thursday Aegon’s shares fell as much as 8%, while NN Group’s were up as much as 2.8%.

Aegon’s results were heavily impacted by both the turbulent macroeconomic environment (lower yields) and net outflows (€2.7bn), mostly from the U.S. fee-based business, analysts at Jefferies said.

ING analyst Albert Plough said the low ratio was “an area of concern in relation to dividend remittance capacity in the near term.”

“We believe the impact is temporary and Aegon showed good underlying capital generation,” Plough, who rates shares a “buy”, said.

Aegon reported a 5% fall in underlying pre-tax profit to 1.01 billion euros (934.09 million pounds). Analysts polled by Refining had forecast Argon’s operating profit at 988 million euros.

NN Group reported a 12.4% fall in quarterly profit to 445 million euros from 508 million euros. NN Group’s solvency ratios under Europe’s Solvency II regime fell to 210% from 213% in the same period a year ago.

“Low rates, I think it’s well known, are not the best environment for insurance companies in general and we have seen that reflected in the stock evolution of most companies in our industry,” NN Group CFO Delfin Rueda told reporters.

Both companies said they would continue to cut costs in response, with NN Group keeping a target of 94 million euros in cost savings by the end of 2020 and Aegon looking to trim 35 million euros at its Dutch operations by 2023.

Wynaendts will remain in his job at Aegon until April. David Knibbe, the CEO of NN Group’s Dutch operations, has been named to take Frieze’s place from October 1.

(Reporting by Toby Sterling; Editing by Jane Merriman)

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