Aegon shares down after disappointing first-half results

Investing.com -- Shares of Aegon (AS:AEGN) fell on Thursday following its first-half results.

At 3:48 am (0748 GMT), Aegon was trading 5.8% lower at €5.476.

The company’s IFRS operating profit for 1H24 fell 6% short of JP Morgan’s expectations and was below consensus estimates, largely due to negative variances in U.S. claims, lower results in the UK non-insurance sector, and losses on international contracts. 

This resulted in a net loss of €65 million, compared to an anticipated profit of €609 million according to Morgan Stanley’s estimates.

Morgan Stanley and UBS noted that while the headline OCG figures were strong, the underlying performance was weaker. UBS particularly highlighted the impact of €312 million in negative fair value items and €403 million in other charges, primarily from mortality assumption updates. 

However, Aegon reported an OCG of €588 million for the second quarter of 2024, exceeding both JP Morgan's and Morgan Stanley's estimates by 12% and 7%, respectively. This result was bolstered by approximately €40 million in one-off benefits, including favorable reserve releases and investment income. 

Despite this, Aegon has maintained its full-year OCG guidance of €1.1 billion, with JP Morgan noting that the company might surpass this target.

Aegon's capital position remained robust, with the U.S. Risk-Based Capital (RBC) ratio at 446%, beating expectations by 9 percentage points, as flagged by both JP Morgan and UBS. 

In the UK, the Solvency II (S2) ratio was 189%, slightly below consensus but in line with JP Morgan's estimates. Despite a solid capital base, free cash flow was lower than expected, with UBS noting a 3% shortfall from consensus estimates.

“However, IFRS17 operating profit (on which Aegon has not collected consensus) is materially lower than we expected due in large part to -ve mortality-related claims experience in the US business,” said analysts at J.P. Morgan. 

Morgan Stanley flagged the divergence between headline figures and underlying performance, including new business strain and fair value losses, contributing to the market’s cautious stance.

UBS noted that although some metrics were strong, the results were marred by large charges and a challenging market environment. They pointed out that the lack of a significant positive catalyst in the near term further dampened investor sentiment, leading to a price target reduction and a muted reaction from the market.

Aegon reiterated its full-year guidance for OCG at €1.1 billion, with an expected increase to €1.2 billion in 2025. The company also maintained its target for free cash flow of over €700 million in 2024 and €800 million in 2025.

Analysts from JP Morgan, Morgan Stanley, and UBS have raised concerns about the potential for downward revisions to IFRS operating profit estimates for 2024. These concerns stem from ongoing market challenges and potential variances in actual experience compared to initial expectations.