November 9, 2017 / 8:11 AM / a year ago

UPDATE 1-Insurer Aegon outperforms on earnings, boosts solvency ratio

(Updates with details; solvency at 195 percent)

AMSTERDAM, Nov 9 (Reuters) - Dutch insurer Aegon reported a 20 percent rise in third-quarter underlying pretax profit to 556 million euros ($645 million) thanks to fewer claims, higher fee revenues, and lower expenses in the United States, where it does two-thirds of its business.

Analysts polled for Reuters were expecting underlying pretax profit at 491 million euros.

The company, whose share price has suffered repeated shocks over a two-year period during the transition to Europe’s new Solvency II regime, said on Thursday its solvency ratio increased by 10 percentage points from the end of June and now stands at 195 percent, at the upper end of its target range.

The ratio is a gauge of financial strength. The new regime is designed to ensure the insurance industry has enough capital to pay all claims even in difficult business circumstances.

In addition, the company completed the sale of a Dutch business, UMG, on Nov. 1, which it said will add another 6 points to solvency at the company’s Dutch national subsidiary, its second-largest, in the fourth quarter.

“I think it’s comforting to not have to have the headline be the Dutch capital position,” said CFO Matthew Rider in a telephone interview after earnings.

“The overall group solvency improved pretty dramatically in the third quarter.”

Aegon shares traded 4.7 percent by 0805 GMT.

Analysts from KBW, who rate shares “Underperform”, said the earnings looked generally positive.

“We expect strength in Aegon’s share price today given a clear headline earnings and Solvency II beat,” they said in a note.

However “we think it remains the case that Aegon is unusually geared to capital market movements, with a balance sheet that is weaker than average for a large cap.” Rider said the company would have no trouble meeting its promises to return 2.1 billion euros to shareholders in buybacks and dividends over the 2016-2018 period.

He also noted that plans by the Dutch government to lower its tax rate to 21 percent from 25 percent will benefit the company’s cash generation and profits. In the U.S., where Aegon operates the Transamerica brand, the company benefited from both fewer claims, and as previous cost cuts bore fruit.

Rider said the company is focusing on profitability rather than growth in contracts in the U.S., so “we’ve seen a slight falloff in sales of some of our life insurance there.”

“That I think is something we’ll try to address going forward.” ($1 = 0.8618 euros) (Reporting by Toby Sterling; Editing by Amrutha Gayathri and Keith Weir)

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