Aegon has agreed to sell its Canadian life insurance business to US player, Wilton Re, for CAD 600 million ($529.7 million), saying the decision will improve the group’s return on equity.
The transaction is expected to close in Q1 2015, subject to regulatory approval.
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Explaining the decision, Alex Wynaendts, CEO of Aegon, said the insurer continually reviews the performance of its businesses to ensure that they support its ambition to become a leader in its chosen markets.
Wynaendts said: "We have concluded that our Canadian life insurance business does not support that goal. The decision to divest these activities will lead to an improvement in the group’s return on equity of 40 basis points. At the same time, we believe this is a good outcome for our customers and employees, as the company will continue to offer competitive choices for the middle market in Canada."
Aegon said the net underlying earnings of Aegon’s Canadian operations were CAD 26 million ($23 million) over the trailing four quarters ending June 2014, while its shareholders’ equity excluding revaluation reserves on an IFRS basis amounted to CAD 1.8 billion ($1.59 billion) at the end of June 2014.
As a result, the sale price represents a multiple of 23 times net underlying earnings. The transaction is expected to result in a book loss of approximately CAD 1.2 billion ($1.1 billion).
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By GlobalDataAegon has said it will earmark the proceeds of the transaction to further reduce outstanding debt through the redemption of the $500 million 4.625% senior bond, due December 2015.
This is in addition to the already planned redemption of the 500 million ($637.7 million) 4.125% senior bond, due December 2014.
According to Aegon, the combination of the divestment and the non-refinancing of the bond will improve Aegon’s return on equity by 40 basis points, while reducing net underlying earnings by less than 1%.
The insurer said It will also keep its leverage ratio unchanged on a pro forma basis, while its fixed charge cover ratio will improve by 0.6 times.
Wilton Re focuses on the North American life insurance market where the company provides risk capital and related services including M&A, reinsurance and longevity risk management.
