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Aegon hopes to put US SEC probe behind it as settlement nears

Aegon NV's U.S. asset management business is ready to put a long-running SEC investigation into modelling errors behind it and "concentrate on executing its growth strategy," according to group CEO Alex Wynaendts.

The Dutch insurer revealed in its fourth-quarter 2017 results that it had set aside €85 million to settle the probe, which it expects to conclude in 2018. Wynaendts told analysts during a Feb. 15 earnings call that negotiations with the SEC had made "good progress," which had prompted Aegon to provision for a potential settlement.

"We believe that we are close to reaching an agreement with the SEC and expect that the investigation will come to a conclusion in 2018," he added.

The investigation was launched after Aegon had discovered errors in the quantitative models for one of its investment funds as well as concerns about whether it had made appropriate disclosures to clients, which it then reported to the SEC. Wynaendts said the investigation process had been "going on for several years."

'Very significant progress'

Aegon's profit in the last quarter of 2017 jumped 110% to €986 million from €470 million a year earlier thanks to a one-off benefit from the recent U.S. tax reforms. With the one-off gain stripped out, pretax underlying earnings were down 5% on annual basis to €525 million, which the company attributed to a weakening U.S. dollar.

Both profit numbers beat analysts' average consensus of €517 million for underlying profit and €659 million for net profit including one-offs, according to Aegon's website. The company's share price was up 3.29% to €5.59 at 12.57 p.m. in the Netherlands on Feb. 15.

In addition to the profit boost, Aegon unveiled a number of other positive developments, including a rise in its Solvency II coverage ratio to 201%, putting it above its 200% target, and an increased final dividend of 14 cents per share.

The company's outsourcing of its U.S. life and annuity business to Tata Consultancy Services is expected to cut annual expenses by $70 million initially, rising to $100 million.

Wynaendts told analysts that as a result of the "very significant progress" made in 2017, the company is "well on track to deliver on our targets in 2018."

Targets for the year include boosting return on equity to 10% and achieving run-rate annualized cost savings of €350 million. In addition, the insurer aims to return €2.1 billion of capital to shareholders in the three years from 2016 to 2018.

The CEO also said that "a key strategic initiative" for Aegon was to continue to digitize the business. The company embarked on a number of related initiatives in 2017, which included implementing robotics in the Netherlands to handle simple customer requests such as changing names and bank account details, and introducing electronic policy issuance in the U.S.

"We will continue to invest in these transformative projects as part of our efforts to create more efficiencies and improve customer experience moving forward," Wynaendts said.