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A motivated new CEO’s vision should encourage investors in this multinational insurer

BENJ GALLANDER, BEN STADELMANN, and PHILIP MACKELLAR


Tuesday April 20, 2021

Lard Friese, Aegon NV’s new chief executive, seems motivated, focused, and ready to tackle issues that are holding back the stock price. We at Contra the Heard have owned this Dutch-based multinational insurance company, best known for its Transamerica brand, since 2014. During that time, it has done little for us, and the stock, which trades as an American depositary receipt (AEG-NYSE), is currently below where we purchased it. Thankfully, there has been a dividend throughout, which currently yields 3.1 percent.

Our very own Benj Gallander has regularly argued that Aegon is a sprawling octopus with numerous confusing and complex arms of operations around the globe. Moreover, it regularly buys and sells divisions in various countries, further fogging clear evaluations. Even straightforward insurance companies can be hard for analysts to understand, so simplicity is critical. To our delight, Mr. Friese seems to share this view.

He came onboard in March, 2020, just as the pandemic sent capital markets into freefall and plunged the global economy into recession. In the months that followed, Aegon’s business took a big hit, and European regulators urged financials to suspend dividends and buybacks until late 2020. Aegon faithfully complied as its shares cratered to the lowest point since the 2009 financial crisis.

Not missing a beat, Mr. Friese promptly began cutting costs, deleveraging the balance sheet and streamlining operations. The company sold its iconic Transamerica Pyramid building in San Francisco (but retained naming and branding rights) for US$650 million, sold Stonebridge (a U.K.-based accident insurance provider) for 60 million ($103.8 million), and is now in the process of selling its Eastern European business for 830 million ($1.24 billion). Aegon also closed its traditional distribution network in India, moving to a digital-only service model. This move will save Aegon a lot of money while still maintaining an important foothold on the subcontinent. Cumulatively, these actions helped Aegon keep its all-important Solvency II ratio, a European Union directive governing an insurer’s solvency capital requirements, flat in 2020 versus 2019. Moreover, the excess capital buffer fell only slightly from 1.2 billion to 1.15 billion year-over-year, while the leverage ratio improved from 28.5 percent to 27.9 percent.

In December, 2020, Mr. Friese unveiled his vision for Aegon’s future. Between 2021 and 2023, he aims to reduce debt from 5.5 billion to 5 billion, cut expenses by 400 million, and generate cumulative free cash flows of between 1.4 billion to 1.6 billion. He wants to grow revenue, improve margins and increase the dividend from 6 euro cents in 2020 to around 25 euro cents by 2023, too. Sounds good to us.

To accomplish these goals, he will focus Aegon on its core markets of the US, U.K. and the Netherlands, as well as the growth markets of China, Brazil and Spain/Portugal. He also plans to consolidate the organization’s asset-management divisions onto a single platform. Within the three core markets, there are two types of business available to Aegon — higher-margin strategic assets (such as indexed universal-life policies and workplace retirement plans) and capital-intensive financial assets (annuities and long-term care contracts). His goal is to reallocate capital from financial assets to strategic assets, and this in turn will grow the bottom line and free up funds to pursue new business in the three growth markets. Sounds easy peasy, no?

While any company can set ambitious goals and throw grand ideas around, few include defined timelines and clear financial targets, as has been done here. These milestones are important because they allow investors to more accurately assess how well an enterprise is doing. We give Mr. Friese top marks for his vision and energy so far.

Does he have the experience to execute on his vision? He’s an industry veteran who previously spent 10 years at Aegon from 1993 to 2003. Following that stint, he moved to ING Group NV, where he held various positions for many years. Prior to assuming his current role at Aegon, Mr. Friese was the CEO at NN Group NV, another Netherlands-based insurance company with a global footprint. During his tenure, the organization’s stock handily outperformed Aegon’s shares, and even today boasts far better valuation metrics and key performance indicators.

If Mr. Friese can bring Aegon’s performance up to where NN Group is operating, shareholders should be well-rewarded. You can never be sure of success, but nevertheless we hope this new strategy simplifies Aegon and improves earnings per share, which will render valuation work far easier for analysts and, most importantly, unlock value for owners.

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