Aegon is leaving the Canadian life insurance business. The Dutch multinational is selling its Canadian operations to Wilton Re for $600 million. The acquired insurance business includes a portfolio of assets valued at $10.6 billion as of September 30, 2014, made up of individual life, annuity and segregated funds policies as well as credit insurance products.
The insurer's Canadian division, which consists of Transamerica Life Canada, Canadian Premier Life, Legacy General Insurance Company, Aegon Capital Management, Aegon Fund Management, CRI Canada and Selient Inc., had net underlying earnings of $26 million a year for the four quarters ending in June 2014. With shareholders' equity of $1.8 billion (excluding revaluation reserves), Aegon expects the transaction to result in a book loss of about $1.2 billion.
“We continually review the performance of our businesses to ensure that they support our ambition to become a leader in our chosen markets”, explains Aegon CEO Alex Wynaendts. “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 intends to use the sale proceeds to reduce its outstanding debt, and redeem a 4.625% senior bond of $500 million USD that matures in December next year. Aegon says that selling its Canadian division will reduce net underlying earnings by less than 1%, while its leverage ratio will remain unchanged (on a pro forma basis) and its fixed charge cover ratio will improve by 0.6 times.
“We are delighted to work on this important transaction with Aegon. Wilton Re views the acquisition of the Transamerica Canada businesses as well-aligned with our strategy to provide risk and capital solutions to clients throughout North America," comments Wilton Re chairman and CEO Chris Stroup. "Wilton Re is committed to the middle market, and Transamerica Canada is well positioned to serve the middle market in Canada. We intend to support the profitable growth of this business." Wilton Re was itself purchased by the Canada Pension Plan earlier this year.
In a message to clients posted on the Transamerica web site, the insurer said that it is in the process of building a new brand and plans to announce a new name next year.
The transaction is subject to regulatory approval, and is expected to close during the first three months of 2015.