Aegon UK earnings drop on customer redress charge

Earnings at Aegon UK declined in the second quarter as the insurer continues to pay millions in customer redress following administrative problems at Scottish Equitable.

Underlying earnings before tax declined to €10m (£8.7m) in Q2 compared with €12m (£10.5m) in the previous quarter and €22m (£19m) in the corresponding three months last year.

Aegon said the decrease was mainly due to charges of €14m related to an ongoing program to compensate customers affected by administrative errors at Scottish Equitable, but also as a result of continued investment in the development of new propositions.

Scottish Equitable - rebranded as Aegon in 2009 - was fined a total of £2.8m last year for a series of administrative failings which, the FSA said, led to thousands of cases of customer detriment.

The life and pensions company identified some 300 issues in total - five of which were deemed 'serious' by the regulator - and agreed to pay redress or compensation to customers to the tune of about £60m.

Aegon said expenses related to this program amounted to €7m.

Meanwhile, the insurer said its distribution proposition, comprising national IFAs Positive Solutions and Origen Financial Services, recorded a loss of £1m, on par with the results in the same quarter last year.

Overall, Aegon UK recorded a net income loss of £15m but new sales dropped to £191m as a result of lower pensions sales

Adrian Grace, Aegon UK CEO, said: "This quarter's results reflect the impact of the changes we are making in UK business as we reposition it for the future.

"[We are] developing plans to offer a new platform proposition for our chosen markets of 'at retirement' and workplace savings markets alongside our existing product range. We expect to begin a phased roll out of the platform later this year.

"We've also seen the impact of anticipated exceptional charges from our ongoing customer redress programme, which is on track to repay the majority of redress by the end of 2011."

Aegon UK is currently undergoing a restructuring programme to strip £80m of costs out of the business. It said it has, to June, delivered cuts worth £58m.