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AEGON is a prime example of the move toward larger units in the insurance industry. The company was formed by the merger of two insurance firms, AGO and Ennia, in 1983. These two companies were themselves the result of merger--they were formed in the late 1960s when Algemeene Friesche, Groot-Noordhollandsche, and Olveh became AGO, and Eerste Nederlandsche, Nieuwe Eerste Nederlandsche, and Nillmij merged into Ennia. The history of these firms is the story of combining still smaller companies into larger and more competitive organizations. The second-largest Dutch insurance company, AEGON's name, made up of the initials of its major predecessors, reflects its roots, while its structure is designed to help the company compete successfully in a mature, internationalized market.
The company's earliest predecessors were burial funds such as the Broederlijke Liefdebeurs (the Fraternal Fund of Love), which was established in Haarlem in 1759. Burial funds were set up to serve a locality or industry and offered some protection from a city-provided pauper's funeral. The funds became increasingly common in the 19th century. The burial funds had a number of distinctive characteristics. Statute limited them to operating in only one Dutch province. Low premiums that appealed to working people were collected weekly at the insured's home, and fixed premiums did not always mean a fixed death payment. Burial funds also traditionally insured young children free.
One such fund was started when J. Oosterhoff, a civil servant and former burial-fund agent, decided to go into business for himself in 1844. He and another civil servant founded Algemeene Friesche in Friesland. After several years of growth, Oosterhoff wanted to expand nationwide. In 1860, the company passed a government examination of its actuarial practices and became a full-fledged mutual insurance company, and all the people it insured gained equal rights. Ordinary life insurance companies could become national concerns and offer a broader range of insurance products, including annuities, term policies, whole life policies, endowment policies, and group life insurance. When Algemeene Friesche's organizational form changed, it continued to offer basically the same product but in a broader market.
Groot-Noordhollandsche also began as a burial fund. This fund was established by a local vicar in the western Netherlands in 1845, a year after Oosterhoff set up Algemeene Friesche. Groot-Noordhollandsche also became an ordinary life insurance company, in 1918.
Another burial fund that grew into a life insurance company was the Dordrecht. The Dordrecht's main competitor in the 1880s was an ordinary insurance company, so the burial fund's managers reorganized to remain competitive. In 1883 the Dordrecht became an industrial life insurer, underwriting low-cost policies aimed at working men, basically the same market it had served as a burial fund.
Other life insurance predecessors of AEGON, however, did not come out of the burial fund tradition. Vennootschap Nederland was set up to offer a complete line of life insurance products, the first firm to be able to make that claim.
Vennootschap Nederland was established by Count A. Langrand-Dumonceau in 1858. Langrand-Dumonceau was a colorful European financier who had begun his career selling pencils, paper, and wallets as a youngster. As soon as possible, he left his native Belgium to join the French Foreign Legion, but his career there was short lived--Langrand-Dumonceau was one of the few legionaires ever to have his legion contract annulled. Back home in Belgium, he founded a number of life insurance companies, the most important of which was the Royal Belge. In 1858 he established Vennootschap Nederland, and that same year became one of the founding directors of Der Anker in Vienna. At age 32 he headed four insurance companies and was a self-made millionaire.
Langrand-Dumonceau's companies sold a very popular tontine, a policy in which the capital of group savings was divided among the survivors after a specified period. The right to claim the surrender value of a policy or to borrow on the policy made the product attractive to small savers with few options. About 1860, however, the millionaire began to expand into mortgage banking throughout Western Europe. When an economic crisis hit in the late 1860s his empire crumbled. While his insurance companies survived because they had been more carefully managed, they were no longer as sound as they had been before Langrand-Dumonceau's entry into banking. In 1913 Vennootschap Nederland merged with Eerste Nederlandsche, an almost unheard-of step in an industry that generated growth from within.
Another insurance firm, the Olveh, began as a self-help organization for civil servants in 1877. The Olveh was patterned after a similar Austrian union, which had been very successful in promoting the interests of its members. The group's goal was to reduce the cost of living and provide some security for members by setting up consumer cooperatives, a savings plan, and a life insurance program. In 1878 the life insurance end of the Olveh became a separate company, and in 1879 it began to offer the same coverage for members and nonmembers of its parent organization. By 1909 all ties with the original self-help organization had been cut, but it retained the association form.
Another of AEGON's predecessors was the Nillmij. The Nillmij was established in the Dutch East Indies in 1859 by C.F.W. Wiggers van Kerchem, one of the colony's foremost financiers who had set up the first general bank in the Indies. The Nillmij was successful because of its unique relationship with the colonial government. Van Kerchem used his influence to win the active support of authorities. Some premiums were collected by government tax collectors and military paymasters; the governor and commanders of the colonial army and navy recommended the Nillmij as a way for civil servants and military personnel to save outside of their pension systems. The Nillmij's monopoly continued until the 1880s. In 1883 the government stopped helping the company collect premiums, and competition from the Dordrecht, the Olveh, Eerste Nederlandsche, and others gained a foothold in the colony.
While the Nillmij's special relationship with the government initially made it successful, government regulation of the life insurance industry at home made operation more difficult for domestic companies. State regulation of life insurance dated to special decrees issued by Napoleon Bonaparte in 1809. Royal decrees of 1830 and 1833 strengthened these controls. Under them, the government controlled entry into the field and defined what constituted life insurance. In 1860 the government formulated the mortality table to be used and the interest rate to be charged. Foreign life insurance companies operating in the country were exempt from these rules, which often meant that they could charge lower rates.
In 1880 the Dutch Supreme Court ruled that the royal decrees were not binding, and government regulation ended. Although the regulated system had been criticized, life insurers were concerned that the public would lose faith in an unregulated industry. It was not until 1922--a year after the bankruptcy of the largest Dutch life insurance company, the Algemeene Maatschappij van Levensverzekering en Lijfrente (the General Company for Life Insurance and Superannuation)--that new regulations of the industry were passed, with input from life insurance companies.
Despite the problems of life insurance regulation, Dutch life insurers generally did not offer any other type of insurance product, just as other insurers did not offer life insurance. Another of AEGON's predecessors, Eerste Nederlandsche, had pioneered non-life coverage, specifically accident and health insurance.
Eerste Nederlandsche introduced accident insurance in the Netherlands about 1880. The company's founder brought the concept to the Netherlands after a visit to England, where he became familiar with the Railway Passengers Assurance Company. Eerste Nederlandsche filled another niche as well, offering collective accident insurance for factory and construction workers. Since health and accident insurance was still new, however, the new company's directors decided to also provide life insurance for security.
Although Eerste Nederlandsche was involved in administering payments when the Workmen's Compensation Act was passed in 1901, government social insurance was the impetus for a reorganization of the company. The accident and health department became a separate company, the Nieuwe Eerste Nederlandsche, whose shares were held by the parent firm. The company also decided to diversify at this time, becoming one of the first to offer insurance against liability and burglary. It also began to insure bicycles, and in 1911 wrote its first motor vehicle policy.
By 1913 AEGON's predecessors, Algemeene Friesche, Eerste Nederlandsche, Groot-Noordhollandsche, Olveh, and Nillmij were strong competitors in the life insurance field, while Nieuwe Eerste Nederlandsche was successfully staking out new areas of insurance. Algemeene was by far the largest Dutch insurer, the Dordrecht was second, and Eerste Nederlandsche, Nillmij, and Olveh all had places in the top ten. All of these companies except the Dordrecht were primarily domestic firms. The Dordrecht had successfully established a presence in Hungary, Italy, and northern France. Other companies' attempts to sell insurance abroad, especially Venootschap Nederland's efforts in Prussia and New York, were not as successful.
During World War I, Dordrecht's foreign interests meant that it was more seriously hurt than companies with primarily domestic operations. Even in neutral Holland, war led to interruptions in premium collection and mobilization of part of the staff.
The postwar years meant growth for the larger insurance companies. An increased emphasis on security and sharing risks increased profits for these companies. Acquisitions became a more acceptable way to put profits to work. Algemeene Friesche and Groot-Noordhollandsche especially grew through acquisitions between the wars, and Eerste Nederlandsche took over the Dordrecht in 1919. When Algemeene Maatschappij van Levensverzekering en Lijfrente failed in 1921 Algemeene Friesche took over its Dutch business, and the Nillmij acquired its business in the East Indies.
Expansion and profitability came to an abrupt end with the Depression and then World War II. The German Army occupied the Netherlands on May 10, 1940. Communications abroad were cut off, as eventually were communications within the country as well. Nearly all men were sent to work in Germany or went underground to avoid being transported to work camps. Potential customers concentrated on survival in a time of chronic food shortages. Eerste Nederlandsche's headquarters was among the many buildings destroyed when Germans bombed the Hague in March 1945.
The German occupying force also required that Jewish employees be dismissed and that all Jewish policies be surrendered. While the Insurance Board unofficially asked for inconspicuous noncooperation and the Dutch government in exile declared the measures null and void, companies did not always avoid compliance.
The war reached the Dutch East Indies in 1942, with even more devastating results. The European population there was interned, and the companies that operated there simply vanished.
Postwar rebuilding offered new opportunities for insurance companies, while testing their flexibility. Premium income expanded rapidly between 1945 and 1950, by approximately 13% overall. Increases in group insurance and insurance-based pension plans contributed to this growth. Government involvement in social programs increased in the aftermath of World War II, and the impact was mixed. The state's social security program, enacted in 1957, promoted financial planning with social insurance as one basis and supplementary private insurance as another. Compulsory car insurance offered new opportunities in 1961. The Disability Law of 1967, however, ended group disability insurance, a concept the Nieuwe Eerste Nederlandsche had pioneered.
In this new environment, the division between general and life insurance became less pronounced. Large life insurance companies such as Algemeene Friesche and Groot-Noordhollandsche gained experience in general insurance by acquiring smaller firms. Insurance companies also began to diversify into noninsurance areas, especially mortgage banking.
The insurance companies that operated in the Dutch East Indies, however, faced more difficult postwar problems. Operations had to be rebuilt from scratch. Currency restrictions and inflation drastically cut profits. Finally, the colony became independent in 1949 and Dutch concerns were nationalized by the Indonesian government in 1957. The Nillmij, which had originated in the Dutch East Indies, had to change dramatically to continue to operate. Its subsidiary in the Netherlands was made the parent company, and the assets of the former parent in Indonesia were nationalized.
The movement toward combining accelerated during the 1960s. Postwar emphasis on European cooperation culminated in the establishment of the European Economic Community in 1957. The movement toward a single European market gave larger companies a competitive edge. Inflation and rising operation costs--especially the cost of computerizing operations--also made bigger companies more profitable.
Mergers in the United States, Great Britain, and Canada were followed by the merger of the largest and second-largest Dutch insurance companies, the Netherlands Insurance Company and the Nationale Levensverzekering-Bank, in 1963. Algemeene Friesche, Groot-Noordhollandsche, and the Olveh merged in 1968 to form AGO; and Eerste Nederlandsche, Nieuwe Eerste Nederlandsche, and the Nillmij merged in 1969 to form Ennia.
Both mergers involved major organizational changes, but the AGO merger proved especially difficult because the firms involved had different structures. Algemeene Friesche and the Olveh were mutuals while Groot-Noordhallandsche had retained its vereniging, or association, structure. In a series of steps, the new company became a holding company with subsidiaries concentrating on different aspects of the insurance market. AGO Life Insurance Company and AGO General Insurance Company operated as limited companies, while AGO Holding Company retained the vereniging structure and was not owned by shareholders.
The mergers were completed as the Dutch insurance market was contracting. Pension-linked insurance business dropped, and the collapse of the housing market undermined mortgage operations. High interest rates also had an adverse impact. In this domestic climate, worldwide insurance expansion was attractive. Attempts to establish foreign branches or subsidiaries during the 1950s and 1960s had not been very successful. Europe and the United States, the largest single insurance market in the world, offered potential for expansion as domestic opportunities diminished.
In 1979 AGO acquired a majority interest in Life Investors in Cedar Rapids, Iowa. Ennia began its foreign acquisitions in earnest when it established operations in Spain in 1980. In 1981 Ennia purchased National Old Line Insurance Company of Little Rock, Arkansas. In 1982, the year before AEGON was formed, 50% of AGO's life insurance income came form foreign sources as did 46% of its general insurance income. For Ennia, 55% of general insurance premiums were foreign, although its foreign life insurance business remained small.
The mergers that formed AGO and Ennia had made both companies more effective competitors both at home and abroad. By 1983, however, both managements were exploring other opportunities. Merger again looked advantageous, and for the same reasons: cost reduction, the economies of combining computer networks, and a better basis for foreign expansion. With European integration looming in 1992, those advantages were even more important.
AEGON was formed in November 1983, becoming the second-largest Dutch insurance firm behind Nationale-Nederlanden. The new company continued to pursue a strategy of expansion at home and abroad. In 1986 it purchased the troubled mortgage bank Friesch-Groningsche Hypotheek-bank and improved earnings there by the end of the decade. That same year it increased its presence in Spain, buying Union Levantina de Seguros. AEGON's chairman, J. F. M. Peters, said Spain's entry into the European common market and the country's economic development made it an attractive market. Citing opportunities for growth in the United States, Peters announced the purchase of Monumental Corporation of Baltimore, Maryland, the same year.
By the end of the 1980s, management reorganization and cost controls had led to rising profits. European deregulation with its increasing competition had some short-term impact on profits. AEGON's selective expansion in profitable markets and its cost-reduction measures promise to help the company meet those new challenges as its components have adapted over their long history to meet the challenges of change in the past.
Principal Subsidiaries: AEGON International B.V.; AEGON Nederland N.V.; AEGON NEVAK Holding B.V.; AEGON Onderlinge Ziektekostenverzekering U.A.; AEGON Reinsurance N.V.; Algemene Friese Onderlinge.
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