Aegon doing 'utmost' to avoid rights issue

Aegon, the Dutch insurer, said on Thursday it would "do its utmost" to avoid a rights issue as it works on non-dilutive measures to bolster its capital base which faces erosion due to the financial crisis.

The group revealed that it expected impairments of €275m in the third quarter, up from €98m in the second quarter, mostly on investments in its US credit portfolio and exposure to Lehman Brothers, Washington Mutual and AIG.

Aegon said it expected to maintain its AA credit rating, which is necessary for some of its activities.

"We will do our utmost to prevent having to issue shares in the coming year," Jos Streppel, chief financial officer, told the Financial Times.

"I do not have a crystal ball," he said. "If this crisis deepens much, much further than calculated for in our stress scenarios, you cannot exclude anything. Every honest senior management should admit that that is the case in a financial institution."

However Mr Streppel said Aegon's board had not taken a view on whether it would sooner resort to a rights issue or sacrifice the rating and added he did not expect to be forced to make such a decision.

Although insurers have held up well relative to banks in the global financial crisis – and groups like Aegon have repeatedly stressed that they are insurers rather than banks – concern has grown about their financial strength.

Aegon's share price has nearly halved since September, though the stock staged a partial recovery on Thursday to trade nearly 7 per cent higher at €4.39.

"Any financial institution in the world today is not fully trusted by its shareholders," Mr Streppel said.

"If you look out of the window and you see what kind of a mess there is, predominantly among banks with another business model than insurance, how many banks need to be taken over or need guarantees, it is pretty logical that there are not many people in the market with their hands up when your shares are offered saying 'give it to me'."

At the end of the second quarter, Aegon had €842m in excess capital above the level required to maintain its AA rating and it said it had cash and spare leverage amounting to €1bn. It has no debt maturing until 2010.

Aegon, which makes 40 per cent of its revenues in the US, has already announced plans to reduce its reliance on north America. It has also taken steps to cut its exposure to equity markets. Its direct exposure of €500m to shares accounts for less than 3 per cent of its general portfolio.

"Our capital situation and our cash flow is okay," Mr Streppel said, but if markets deteriorated further than predicted he could not guarantee the full dividend to shareholders. "By definition they bear part of the risk of the company, that's why they're called shareholders."

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