Aegon warning casts pall over life insurers

Life insurance stocks plummeted yesterday after the Dutch insurance giant Aegon, which owns Scottish Equitable in the UK, warned its profits this year could take a 35 per cent hit.

Losses from bond investments in the US, tumbling stock markets and a weak dollar have eaten into earnings, forcing Aegon to drastically reassess its 2002 profit expectations. Its shares plunged 18 per cent to end the day at €13.91 (£8.88).

Fears that rivals such as Axa and Prudential, which also have significant exposure in the US, may post lower than expected earnings led to sharp falls across the sector, as analysts were left wondering whether Aegon was alone in its problems.

Prudential's shares fell 8 per cent to 456.5p and Axa dropped 11 per cent to €12.09. Other insurers did not escape. Aviva fell 10 per cent to 380p, Friends Provident closed 7 per cent down at 128.75p. Legal & General also fell 5 per cent to 107.25p, with Royal & SunAlliance off 7 per cent at 185.75p and Zurich 11 per cent lower.

Aegon earns about 60 per cent of its profit from the US. The dollar's misfortunes mean lower earnings when profit is converted to euros.

Scott White, a spokesman for Aegon in the UK, said its UK businesses were not affected by the warning. Scottish Equitable is one of the UK's top 10 pension providers and competes in the low margin stakeholder market. "Our solvency position remains strong and we are still quite bullish about what we are doing in the UK. The capital structure of the organisation is very good," he said.

Aegon still expects profits to at least match last year's €2.4bn, but some analysts believe more bad news could be on the way.