Thoresen plays down 81% fall as Aegon looks to long term

LIFE and pensions group Aegon UK yesterday reported an 81 per cent fall in first-quarter underlying earnings to £6.6 million as volatility in bond and equity markets took its toll.

The fall in earnings was revealed as the UK operation's Netherlands-based parent, Aegon NV, disclosed a net loss of 173m (£155m) – better than expected by the market – while its 2.7 billion capital "buffer" won praise from analysts.

The group's UK performance compared well with Aegon's US division, which booked a comparable 68m loss in earnings.

Last year the insurance giant benefited from a 3bn lifeline from the Dutch government and posted losses of 1.2bn, but yesterday's figures appeared to show the company was riding out the economic downturn.

Otto Thoresen, chief executive of Edinburgh-based Aegon, said the collapse in underlying earnings in the UK was as a result of falling markets.

Thoresen said: "Our business model is very simple in many ways. We charge revenue from funds under management and when markets are down, those revenues go down. We would expect to see as markets recover those revenues will come back."

Life and pensions sales dropped 6 per cent to £275m compared with a year ago, which Aegon said was in line with the rest of the sector.

Thoresen said the fall was due to the effects of customers consolidating their pension pots, which are smaller due to poorly-performing markets. Market volatility was also discouraging investors.

Thoresen explained: "People are having reduced levels of confidence because of equity market volatility. Some people will be putting off the decision to commit their money to the markets and that is understandable."

Yesterday's figures showed that Aegon UK's annuity business increased 56 per cent over the quarter compared with 2008, with group pensions growing from £355m to £555m.

The group's "5 for Life" variable annuity plan saw sales grow from £23m in 2008 to £102m in 2009.

Thoresen commented: "The variable annuity product, with its offer of guarantees is appealing more to clients at the moment who have concerns about future stock market development."

The value of new business rose 30 per cent over the quarter compared with 2008 to £51.7m, reflecting a trend towards higher-margin business.

Last year Aegon NV chief executive Alex Wynaendts revealed plans to slash overall group costs by 150m.

But Thoresen yesterday refused to reveal how much of this would come from the UK or how it would affect its 3,000-strong UK workforce, most of them based in Edinburgh.

He said: "There are no plans at the moment for further significant changes in the business."

Thoresen has been widely tipped to be a front-runner in the race to succeed Sir Sandy Crombie, the chief executive of rival insurer Standard Life.

But yesterday he remained coy about his intentions. While he did not rule out taking the Standard Life job, Thoresen said there was "plenty engaging me here taking the business on to the next level".