UK/NETHERLANDS - Aegon has raised £250m (€315m) of core capital through a securitisation transaction on the future profits of its UK pension business Aegon Scottish Equitable.
Under the terms of the deal, structured by Barclays Capital and rated by Fitch as a single 'A' transaction, Aegon has received a loan from three private institutional investors against the cash flows from its Scottish Equitable book of unit-linked business.
The "core capital" of £250m raised by the deal will be transferred from the UK business to Aegon NV, the parent company, to provide "financial flexibility" and to invest in growth areas "in line with Aegon's three strategic priorities" announced in June, which included the reallocation of capital toward businesses with higher growth and return prospects.
Aegon conducted a similar transaction, known as a value in-force (VIF) securitisation, earlier this year - in which it raised £90m on the closed book of business from Guardian Financial Services - however this is the first time a VIF securitisation has been completed on an open book of business.
As a result, the deal contains a "revolver" element, which means over the next three years, as the loan is paid off, Aegon has the option of placing new policies into the fund to "top it up" back to £250m.
The collateral behind the loan, which is an insurance-linked securitisation (ILS), is the future profits of Aegon Scottish Equitable.
That said, the firm pointed out the value of the deal is only secured against about 10% of the firm's embedded value of £2.5bn, and not the whole book of business.
A spokesman for Aegon said the deal "is not a capital issue" as the transaction has been in the making "for about a year", and instead it is "just a way of getting more capital back to the business and is not being driven by market conditions".
But as it is the first transaction to be completed on an open book of business, Aegon admitted other insurers might look to mimic the deal, given the current economic environment.
Alexander Wynaendts, chief executive of Aegon, said: "Innovative transactions such as this enable us to manage capital more effectively across the Aegon Group, representing one of our key strategic objectives."
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