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Higher Mortality & Lower Rates

13 August 2020 by jbchevrel

Today Aegon NV under-performed. 5y subordinated CDS widened +5bp while SubFin index widened just +1bp. Aegon stock lost roughly 15% of its value today (NB: it had doubled from March lows, before that). That is because Net Income was divided by roughly 3, dividend divided by more than 2. Credit remains solid as solvency far from being an issue (S2: 195%). Thus why, more of an impact in equity than credit. Net income was €202M, down from €617M, as Underlying PBT for H1-2020 fell -31% to €700M (consensus: €763M). That poor print was due to adverse mortality and lower rates in the US. Aegon reported Fair value gains of €680M from liabilities reduction in the NL (thanks to wider spreads). They reported Net impairments of €194M (mainly on the US bond portfolio and unsecured loans in the NL). Other charges of €1.1B were reported, mainly due to assumption changes in the US (reflecting i. lower rates ii. mortality). The Solvency II ratio remains comfortably high at 195% vs 201% in the previous period. Sadly, another theme in the insurance/reinsurance sector is the recent blast in Beirut, where property damage could exceed $7B , although only a fraction of the losses are covered. Insured losses at the port and nearby vessels and cargoes could reach $250M. MunRe CFO declined to estimate the size of the loss yet, but referred to the incident as 'major', implying a loss of at least €10M. HanRe also anticipates a loss of at least €10M.