Aegon pulls back from US in $650m JPM deal

Dutch insurer Aegon has released $650 million in regulatory capital from its US operations through a capital management deal with US bank JP Morgan, as part of a long-term strategy to shrink the proportion of its business based in the world’s largest economy.

Gerbrand Nijman, Aegon’s group director of investor relations, says that as well as shoring up the global business in the wake of the financial crisis – the company was forced to call on a e3 billion capital injection from the Dutch government last year – the strategy is aimed at reducing the concentration of its business in the US.

“We are using some of the capital released as an additional buffer, but eventually we want to reallocate for high growth and high returns, especially outside the US,” he says. “At the end of 2008, 55% of group capital was in our US business, but by 2012 we would like it to be 40–50%. We aim to do this not by shrinking our existing business, but by looking to grow outside of the US.”

The deal is part of an ongoing capital raising strategy, aimed at raising e4bn–e5bn in capital by the end of 2012. The disclosed amount raised since the target was announced in June 2008 is now e3.7 billion.

“The group capital raising strategy was absolutely the main driver behind this transaction. This is one large deal, but we are looking for other ways to free up capital.” More deals are expected to be announced in Aegon’s quarterly figures on November 12.

The deal is similar to a cashless financial reinsurance – one with no money exchanged upfront. Aegon secured a long-dated letter of credit from JP Morgan which covers it for excess shortfall up to $900 million over 10 years on one of its life books – allowing it to pocket a capital credit in a similar fashion to a reinsurance agreement.

The $250 million difference between the covered shortfall and the regulatory capital credit comes from the lapsing of an undisclosed reinsurance deal on the book.