EUR 850.00 For Business Accounts Only

Morningstar | AEG Updated Forecasts and Estimates from 20 May 2019

Aegon has had its fair share of problems, which have stretched across capital, solvency, governance, management, recurring nonrecurring items, and a missing strategy. Communication from management to the investment community has been very weak at best. However, we think Aegon has really turned a corner and is demonstrating that management has addressed and is addressing all of these issues. Nonetheless, the stock is still languishing at 0.5 times book value; in our view, this is because investors are still anchoring to the past. And while there have been signs of more cheer recently and the market has demonstrated willingness to start getting onside with Aegon, this hasn’t followed through. The business is still posting some horrible key performance indicators from one of its renaissance acquisitions.However, we think that a) historical issues have abated; b) there is a strategy, and investors just have to dig deep to see it; and c) the eyesore KPIs are not as bad as they seem.We do rate Aegon as being a no-moat business. This is because it predominantly operates in commoditised lines of life insurance where it is difficult to establish an edge, and the problems of operating in these more commoditised lines are absolutely clear. Focusing on growth is not the way to run an insurance company, but where a business does not have an edge, we can see that this is much easier to do, and management's variable compensation objectives have encouraged this. As a result, Aegon has been through an extensive period of actuarial model and assumption updates, and management compensation objectives are now emphasising control. The business has also divested a stream of capital-intensive business units that have helped with both shoring up its balance sheet and solvency, and relieving some underwriting risk. It is now focusing on more asset-light accumulation lines and "roll-over" retention.