AMSTERDAM Dutch insurer Aegon NV (AEGN.AS) is considering the sale of its U.S.-based Transamerica Reinsurance unit but has decided not to sell its UK arm, as it seeks to concentrate on its most profitable activities.
Aegon said on Tuesday any proceeds from the possible sale of Transamerica Re, which had a book value of 1.6 billion euros ($2.2 billion) excluding excess capital at the end of 2009, would be reinvested in fast-growing markets rather than repay an emergency government loan it received during the financial crisis.
"The whole process around Transamerica is independent from repaying our debt to the Dutch government," Chief Executive Alex Wynaendts told Reuters. "This is to help us accelerate our strategy of relocating capital to high-growth areas."
The U.S. sale would follow several big deals in global casualty and property reinsurance in the past year, such as PartnerRe's PRE.N buyout of smaller rival Paris Re for $2 billion and Warren Buffett's Berkshire Hathaway (BRKa.N) amassing a 3 percent stake in Germany's Munich Re (MUVGn.DE).
Transamerica Re, which operates globally, takes on pay-out obligations of another insurer's life products.
Aegon retains the rest of the Transamerica group which it bought for $9.7 billion in 1999 to make it the third-largest U.S. life insurer after Prudential Life Insurance Co. of America (PRU.N) and Metropolitan Life Insurance Co. (MET.N).
Currently, Aegon ranks itself among the top 10 largest life or pension insurers in the United States for most of the product areas in which it operates.
European and U.S. insurers are keen to shift investment away from sluggish domestic markets toward high-growth economies of Asia and eastern Europe. Aegon will continue to expand there, as well as in Spain and Latin America, Wynaendts told reporters.
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Analysts said they did not expect Aegon to fetch more than its 1.6 billion euros of embedded value, which includes the present value of the estimated future profits of policies held by an insurer.
"We would be surprised to see a valuation much in excess of 0.6 to 0.8 times embedded value, which given the favorable US$ /euro movement, would imply about 1.3 billion euros at the lower end," Citi analyst William Elderkin said in a note.
U.S. companies could be the prime candidates to buy Transamerica Re, said Dutch asset manager Fred Huibers of Het Haags Effektenkantoor. "Life reinsurance is a very specialized business. Economies of scale are important. For U.S.-based rivals it is logical to be interested."
Rivals of Transamerica Reinsurance include Reinsurance Group of America Inc (RGA.N), Berkshire Hathaway's General Re and Germany's Hannover Re (HNRGn.DE).
Munich Re was rumored in February to be interested in Aegon and analyst Thomas Nagtegaal at RBS said Aegon's life reinsurance unit was the German reinsurer's most likely target.
Aegon shares were down 3.3 percent at 4.93 euros by 1440 GMT, having risen 3.1 percent on Monday after Britain's Mail on Sunday said the UK unit was being readied for sale.
There has been frequent speculation over the past two years that Aegon might sell the underperforming British division to help repay its government loan, with insurance-focused buyout vehicle Resolution RSL.L seen as a potential buyer.
Aegon had considered an outright sale of its UK arm, or closing it to new business, but Wynaendts said it had opted instead to slim the unit down and refocus it on high-margin individual and company pension products.
Aegon aims to cut costs in the unit's life and pension operation by 25 percent or 80 million pounds ($123.7 million) in the next 18 months and Wynaendts said job losses would be proportionate among the unit's 3,700 payroll.
Some analysts said Aegon could still in future opt to sell its UK operations. "Looking at the limited profitability of this unit in 2009 there is much scope for improvement, making a sale in time much more profitable for Aegon shareholders," said Theodoor Gilissen analyst Tom Muller in a note.
The UK unit had underlying earnings before tax of 28 million euros in the first three months of 2010, against overall group earnings of 488 million.
(Additional reporting by Myles Neligan in London; Editing by Greg Mahlich and David Holmes)