Aegon has underestimated the amount of money needed for investment in its newly acquired platform Cofunds by threefold, according to analysts at RBC Capital.
The Canadian bank argued that €280m (£237.7m) will be needed to improve the technology of the Cofunds platform, while Aegon stated that it has set aside £80m for upgrades.
In an equity research note released after Aegon’s full year results, RCB stated: “We expect that €280m will be needed to invest in upgrading the technology of Cofunds.”
The money is expected to come from the proceeds of Aegon’s sale of its UK annuity business last year, as the company’s management said that it expects a £500m capital release when the final stage of the transfer is completed in the summer this year.
RBC stated that it expects €280m to go towards Cofunds technology and the residual €300m to be passed back to shareholders over an 18 month period to end 2018.
An spokesperson from Aegon said that the company has made “excellent progress on combining the best of the Cofunds and Aegon platforms” and noted that the Cofunds makeover differs from typical replatforming exercises.
“We believe the cost of integration work will be £80m due to our technology upgrade approach and the business spent much of 2016 planning this approach. Unlike a traditional replatforming exercise, which typically means the build of a new platform and migration of customers to it, we are taking an established platform and adding functionality and data to it.
“This means that benefits can be brought to advisers quickly and the enhanced platform is already under development. It’s worth noting that in 2016 we moved 165,000 customers to our platform and many of the skills involved in this upgrade are complementary to the work we’ll undertake in combining the best of Cofunds’ and Aegon’s platforms.”
Aegon bought the Cofunds platform from Legal & General last year in a deal worth £140m.
Platforms are notoriously expensive to upgrade, as demonstrated when Old Mutual spent £450m last year on overhauling its platform technology.