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Aegon: € 265m pre-tax “Woekerpolis” provision

Aegon: € 265m pre-tax “Woekerpolis” provision

31.5.2012 9:07

AEGON accelerates the product improvements for its unit-linked insurance policies in the Netherlands. AEGON brings forward the measures related to the agreement announced on July 13, 2009 and reduces future costs for its customers with unit-linked insurance policies. With these measures, AEGON commits to the 'best of class' principles of the Dutch Ministry of Finance.

AEGON had previously made substantial product improvements to the unit-linked insurance policies which its Dutch business sold before January 1, 2008. AEGON's approach was to settle compensation with clients when the policy expires. However, to comply with the Ministry's principles, AEGON will now settle compensation immediately by making direct additions to policy values before year-end 2012.

As a result of this acceleration of previously announced measures, AEGON will take a one-off charge of € 265m beforetax that will be recognized in the second quarter of 2012.

In addition, AEGON will reduce future policy costs beginning in 2013 onward for the large majority of its unit-linked portfolio. This will impact underlying earnings before tax over the remaining duration of the policies by approximately € 125m on aggregate. The quarterly impact in 2013 is expected to be EUR 7 million before tax, to be mitigated by the cost savings program in the Netherlands.

Our View:
In setting our € 7 target price (vs embedded value > € 10 per share) we anticipated that the costs related to the “Woekerpolis” (unit-linked contracts that were sold with overcharging of costs) could be in excess of € 0.5bn. Today’s statement of AEGON therefore doesn’t come as a surprise and does not alter our investment case. The “Woekerpolis” provision has nothing to do with the “Koersplan” case where we expect conclusion in 2H12E with potential cost of c. € 150m.
The “Woekerpolis” charge is likely to be booked in “Other charges” in the NL Bu and does not affect adjusted EPS, but reduces our full year FY12 forecast basic EPS by 6 euro cent.

We maintain our Buy rating and € 7 target price.

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