Dutch insurer Aegon’s objective of
slashing costs in its UK operation by 25% by 2011 began to take
more shape in September with initiation of a number of moves aimed
at creating a far more focused business.
Announced on 22 June 2010 by Aegon
CEO Alexander Wynaendts, developments in the UK are part of a wider
strategy aimed at accelerating restructuring of the insurer’s
global operations over the next five years.
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There is no doubt that radical
restructuring of Aegon UK is required. In 2009 the UK generated a
meager €6m ($6.6m) net profit despite having been the source of
€1.05bn (52%) of new life insurance sales. A 25% reduction in costs
would equate to annual savings of about £81m ($125m).
Aegon’s strategy in the UK is to
focus on the at-retirement and workplace savings markets. Aegon
intends to retain its life insurance and protection business which
it views as supportive of its strategy in the at-retirement
market.
As first steps in its UK
restructuring move Aegon closed its group risk business in June
2009 and more recently withdrew from the bulk annuities market
where it feels pricing conditions do not meet its profitability
targets.
Aegon has now followed these moves
with a decision to cut the number of regional sales centres from 12
to six resulting in the loss of 142 jobs. New business processing,
previously managed from within regional sales centres, will be
centralised to the Edinburgh customer service centre.
Aegon UK employs some 4,000 people,
of which 2,400 are based in Edinburgh. The significance of
Edinburgh dates back to 1994. Although Aegon entered the UK market
in 1991 with the acquisition of Regency Life it was in 1994 that it
acquired Edinburgh-based Scottish Equitable which became the core
of its UK operations.
With less direct contact with
financial advisers, Aegon will rely more on the phone. According to
Aegon, evidence from its pilot studies show that many advisers
value a phone support service which provides them with service they
need in a more efficient and less time-consuming manner.
However, Aegon’s strategy includes
some expansion. Specifically, its corporate solutions sales force
will be enlarged to support expansion in the workplace savings
market. Together with the increased in phone support services this
will lead to creation of 36 new positions.
But more job losses lie ahead, some
of which will involve an unspecified number of senior managers who
will fall victim to implementation of what Aegon terms “a
streamlined management and organisational structure” which will be
in place by the end of 2011.
Jobs will also be axed as a result
of Aegon’s decision to close its third party pension administration
business, which has a staff of 82, and its employee benefits
software business, Aegon Benefit Solutions, which employs seven
people. Aegon notes these businesses are not core to its “future
proposition”.
Flowing from Aegon’s
rationalisation in the UK is an aimed at improvement in return on
capital from 2.7% in 2009 to between 8% and 10% by 2014. In
addition, the objective is to generate cumulative operating cash
flow of between £600m and £650m in the UK between 2010 and
2014.
Aegon’s strategy is both bold and ambitious and its success will
undoubtedly be watched with keen interest by its rivals.
