Aegon Restructures US Business - Analyst Blog

Keeping pace with its ongoing restructuring program that began in 2009, yesterday, Dutch insurer Aegon NV (AEG) announced the decision to restructure its operations in the US in order to build upon its core efficiencies and increase overall operating leverage. As such, the company will right size its US sales force by laying off 5% or about 400-500 employees.

Accordingly, the company has decided to discontinue its new sales of executive non-qualified benefit plans and related Bank-Owned and Corporate-Owned Life Insurance (BOLI/COLI) business in the U.S.

Further, Aegon is also attempting to merge several of its operating units in the U.S., including Louisville and Kentucky. Meanwhile the company also plans to outsource certain back office operations that are now carried out in Cedar Rapids, Iowa.

Implementation of the organizational restructuring will result in a one-time restructuring charge of approximately $80 million, $60 million of which will be charged in the fourth quarter of 2010 and the balance in 2011. Besides, the winding down of BOLI/COLI will help in writing-off $210 million of goodwill and related intangible assets of the company. Further, a successful organizational restructuring is expected to help Aegon generate about $70 million in annual cost savings.

The wind-down and consolidation of the US operations are part of the Aegon's long-term growth strategy. These operations no longer fit in well with the core business growth. Eliminating and reorganizing these units will help the company boost its quality of service, cost efficiencies and capital position, thereby also enhancing Aegon's operating competence.

Previously, in April 2010, Aegon announced the sale of its funeral insurance business in Netherlands to Egeria, a Dutch investment firm for €212 million. Besides, in February 2009, the company disposed off its institutional spread-based business in the US.

As a result, Aegon's total workforce declined 7% in 2009 to just over 25,000 employees, mainly due to restructuring in the U.S. and the U.K., as well as the sale of real estate brokerage activities in the Netherlands and life insurance operations in Taiwan.

The efforts taken in 2009 resulted in cost reductions of €250 million, significantly ahead of the target of €150 million. However, concerns regarding restructuring charges, increased employee benefit expenses and currency movements partially offset the positive effects.

Nevertheless, Aegon continues to move ahead with its strategic priorities of reallocating capital towards business with higher growth and return prospects. This also comes as a measure to enhance growth and returns from existing businesses as well as reduce financial market risk, primarily when Aegon has to operate amid strong peers such as MetLife Inc. (MET) and ING Group NV (ING).

 
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