Aegon’s Results Remain Murky Despite All Hedging and Buyout Actions Taken

Aegon has reported first-quarter 2022 results that are somewhat reminiscent of the past. Net income reported May 12 is EUR 412 million, but investors have likely been slightly put off by the fact that that figure is buoyed by a EUR 372 million gain. That gain has been booked on the sale of Aegon's Hungarian businesses to Vienna Insurance Group that finally received approval earlier this year. What has ultimately dragged the result down is the longstanding and troublesome fair value items. Here, Aegon has incurred a negative EUR 452 million largely as a result of variable annuities in the United States. While variable annuity discount rates are locked in at point of contract sale, their fair value changes with market rates over time. The difference in value is reported as a true up to accounting basis from economic basis with the latter being under, and, because of Aegon’s dynamic hedge, the results are reported above the line. Our understanding is that as rates continue to rise, this fair value offset will remain. Our sense is that despite all the efforts the business has made establishing dynamic hedges and variable annuity buyout plans, it really is time for Aegon to find a way to report results in a transparent way. We maintain our fair value estimate and our no-moat rating.