By:
Jacob Bishop, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary:
• Aegon N.V. (NYSE:AEG) is a multinational holding company based in
The Hague, Netherlands that provides life insurance, pensions, and asset
management. The firm was founded in 1983 from the merger of AGO Holding N.V.
• A.M. Best recently gave
AEG’s US subsidiaries a Financial Strength Rating of A+ and a Long-Term Credit
Rating of “aa-“.
• AEG's US subsidiaries
recently reached a settlement with the SEC to pay $97.6 million due to creation
of a quantitative model that lead to the sale of investments.
Key
points:
Aegon’s US subsidiaries received a strong financial
strength rating from A.M. Best, indicating that A.M. believes that Aegon USA’s
balance sheet is strong. This is favorable news for the firm as they are
looking to expand their brand throughout the US. According to the Wall Street
Journal, the rating affirmation is due to Aegon’s strong balance sheet and
increased profitability on new business, which should continue to improve as
the firm continues to implement programs that reduce overhead expenses.
On the other hand, A.M.
Best’s Long-Term Credit Rating has decreased to an aa-. This is due to the
firms top line trends flattening or declining. Gross premiums and annuity
considerations has dropped since 2014 from $33,365 million to $24,597 million
in 2016. In addition, their net premiums in the US have remained relatively
flat since 2014.
Aegon’s US subsidiary Transamerica
recently settled a lawsuit with the SEC that claimed that the firm used a
quantitative model to sell investments. According to the SEC, the models were
created by a junior analyst with little experience in portfolio management,
thus not working as intended. The SEC claimed that employees knew about the
errors in the models and this lead to the significant losses for the firm’s
clients. Aegon paid a $36.3 million civil fine as well as $61.3 million of
disgorged sums and interest. The $63.1 million will be returned to the
investors.
What
has the stock done lately?
Since AEG announced
earnings on March 23, 2018, the stock peaked at $7.41 a month later. However,
since then the stock has dropped down to $6.07 with very minor intraday gains.
This represents an 18% decline in stock price in the past 5 months. The firm
announced a $0.162 dividend on August 16th to be paid on September
21st.
Past Year Performance:
AEG’s stock price has fluctuated significantly in the last twelve
months. 12 months ago, the stock price of AEG was at $5.72. While the 6.12%
increase in the stock price in the last year seems positive, the price has been
very volatile with an annualized standard deviation of 21.52 over the past 52
weeks. The stock’s 52 week range as of September 13th is $5.50-$7.48,
with a one year estimated target of $6.48 according to FactSet.
Source:
FactSet
My
Takeaway:
Although there have been
some hiccups with US subsidiaries, Aegon is a significantly large player in the
insurance industry that shows no signs of disappearing. The firm has over 29
million customers worldwide and while Aegon N.V. has only been around since
1983, the firm has roots that stretch back more than 160 years. This is not a
stock I would look at for significant gains in the medium term, but I would
recommend this stock as a hold if you already own it. However, if you are
looking to replace a stock in the international financial services sector, this
wouldn’t hurt you in the long run.
