He couldn't stop global insurance, pension and investment giant AEGON from getting hurt in the US subprime meltdown. Yet, the creditable thing was that despite a high exposure to the US market, AEGON under Alexander R. Wynaendts, Chairman (Executive Board) and CEO, had only a very small exposure to the toxic mortgages—it stood at a little over a billion dollars in 2008. Today, Wynaendts' challenge is to grow the company in emerging markets. On a recent whistlestop visit to India, he spoke with BT's Anand Adhikari on the state of the global markets today and AEGON's plans for India. Excerpts:
Global corporations—from GM to Bank of America—are repaying the government the bailout money (GM plans to repay $6.7 billion and Bank of America, $45 billion). How significant is this in indicating a recovery?
It's a very positive sign. Corporations faced an unusual financial crisis post-Lehman, where their respective governments had to come to the rescue. By doing so, they retained the confidence of stakeholders, especially customers, in the financial system. It's good that these corporations are now in a position to pay back the money.
What are the factors you considered before signing a cheque for the Dutch government?
We took the opportunity of taking the state's support when there was unprecedented uncertainty in the market. We wanted to make sure that we had an additional capital buffer just in case the market plunged further. The market actually didn't go down that much. Therefore, in December 2009, we repaid one third of the amount, which is close to e1 billion. We would like to repay the balance e2 billion as quickly as possible.
Today, we have a strong capital position. We have a buffer of close to e4 billion, which is well in excess of what is needed for an AA rating. But I also think that it's not a luxury to have a buffer in any uncertain time. Even though markets have moved up in the recent past, you don't know what could happen tomorrow. Events can come up—like the surprise of Dubai (debt crisis), which suddenly scared the market again. We can have other (uncertain events). And we will have other (uncertain events).
Does it make any difference if the government becomes a shareholder in the company?
The government directors are only entitled to have a view on a very limited and specific number of issues, and certainly not on strategy.
There are two government directors on the AEGON Board...
One of the directors was already a member much before the bailout money came into the company. The other is an Independent Director and also a very well respected name in the industry. We have absolutely no interference from the government. They have been very supportive.
Is the business environment still as challenging as it was a year ago?
We have seen a recovery in the financial market. Yet, if you look at the world economy, a real unemployment rate of 20 per cent in the US is really very bad. Unemployment in Europe, in my view, is high and may go up in the future. Unemployment, consumption and bank delinquencies are issues that are not yet resolved. These things will take time (to improve). The reality is that the economies of the US, Europe and Japan are still struggling.
So, do corporations like AEGON have to live with slower growth in their traditional markets?
Yes, it's a reality.
US President Barack Obama recently proposed a tax on financial institutions. How will that impact your US operations? It's not clear yet. First of all, we are not a bank. Second, we have not received any US taxpayers' money. However, if such a thing comes about, the impact in the market would be very nominal.
How significant is Asia in your overall operations?
Asia can play a significant role in new business in the short to medium term. It is about positioning the company well for the future because it takes time before the profits come in life insurance. We are into a long-term business and also have a long-term commitment to Asia.
You entered China much before you entered India. Are you happy with the progress so far?
The Chinese operations are bigger than India as we started much earlier, in early 2000. Today, the joint venture AEGON-CNOOC operates in eight provinces and in each of the seven coastal provinces, we are amongst the top three players. The Chinese market is huge and we are growing robustly. There is a bit of a regulatory hurdle—unlike in India—as you have to apply for a new licence for every new province. But we do not see that as a barrier. In 2007, we also started a joint venture in asset management in partnership with one of China's leading financial securities firms.
What's your assessment of the India JV in life insurance?
We want to build a solid and sustainable long-term business. We plan to expand our branch network significantly. Our vision is to be amongst the top five foreign players (in life insurance) in the not-so-distant future.
Insurance penetration is still low in India and private sector companies are still reeling under losses...
Our strategy is to grow with high ambition, but with profitability. Profits are very important in any business. In fact, growing profitably is a challenge for us in India. It's all about finding the right balance between growth and profitability. There is also no constraint on investment. In fact, we have committed to make any investment which is required for us to be a successful large company (AEGON has, so far, pumped Rs 150 crore into the JV). But we are not going to invest to pay for losses.
By when do you see the Indian JV making profits?
The breakeven period could be 7-8 years. We have no problem with that. Our objective is to create value for everybody.