AEGON Announces Q1 2011 net Income of EUR 327 MillionBy Aegon N.v., PRNE
Wednesday, May 11, 2011
Underlying earnings growth in Americas and New Markets offset by declines in UK and Netherlands
THE HAGUE, Netherlands, May 12, 2011 - Statement of Alex Wynaendts, CEO
"We made solid progress on AEGON's strategic objectives during the
quarter, which include the repurchase of EUR 750 million of core capital
securities from the Dutch State in March. The recently announced divestment
of AEGON's life reinsurance business further supports our aim to complete the
repurchase of all remaining securities by the end of June. With these key
achievements - along with the other actions we have taken in recent years to
optimize our portfolio of businesses - we have established a new basis from
which to pursue AEGON's ambitions."
"During the first quarter, AEGON's businesses in the United States
continued to show strong results, both in terms of earnings as well as sales.
The strong sales of pensions and variable annuities clearly support our
strategic shift to more fee-generating business. In the Netherlands, we have
been observing a strong increase in life expectancy and are taking a prudent
approach by now increasing our provisioning which will have an impact on the
earnings of our Dutch business going forward. In the United Kingdom, we are
confident that our new CEO and management team will fully deliver on our
"We were particularly pleased by the strong new life sales achieved by
AEGON's newer businesses in Central & Eastern Europe and Asia. Over time,
these key growth regions, in addition to Latin America, will enable us to
achieve a broader geographical balance given the substantial opportunity they
KEY PERFORMANCE INDICATORS amounts in EUR millions (b) Notes Q1 2011 Q4 2010 % Q1 2010 % Underlying earnings before tax 1 414 452 (8) 446 (7) Net income 2 327 318 3 372 (12) Sales 3 1,411 1,506 (6) 1,442 (2) Value of new business (VNB) 4 118 129 (9) 138 (14) Return on equity 5 7.8% 8.7% (10) 8.9% (12)
For notes see page 20 of full release.
*To reflect all of AEGON's sales in one sales indicator, AEGON introduced
a composite sales number consisting of new life sales, new premium production
of both accident & health insurance and general insurance and 1/10 of gross
** Excess capital above AA capital adequacy requirements.
Note: The comparative 2010 underlying earnings and sales information has
been revised to reflect the transfer of life reinsurance and BOLI/COLI
businesses to the run-off businesses line to make the information consistent
with current period figures.
- Announcement of divestment of Transamerica Reinsurance for a total
consideration of USD 1.4 billion
- Equity issuance of EUR 903 million
- Repurchase of EUR 750 million convertible core capital securities from
the Dutch State
- Fully hedged US GMIB back-book and further reduced exposure to
peripheral European sovereign bonds
- Restructuring in the UK on track; appointment of Adrian Grace as CEO of
Sustainable earnings growth with an improved risk-return profile
AEGON is well on track with the process of transforming its businesses
and operations aimed at delivering sustainable earnings growth with an
improved risk-return profile. AEGON has announced specific targets which
reflect the company's pursuit of these objectives:
- Grow underlying earnings before tax on average by 7%-10% per annum;
- Achieve a return on equity of 10%-12% in the medium term;
- Increase fee businesses to 30%-35% of underlying earnings before tax by
- Increase normalized operating free cash flow from a level of EUR
1.0-1.2 billion by 30% by 2015;
- Intention to resume dividend payments with
EUR 0.10 per common share related to H2 2011 in May 2012.
AEGON's ambition is to become a leader in all its chosen markets by 2015.
This means becoming the most recommended life and pensions provider among
customers, the preferred partner among distributors and the employer of
choice among both current and prospective employees.
To be a leader in all our chosen markets by 2015
AEGON'S STRATEGIC PRIORITIES
- Reallocate capital
- Increase returns
- Optimize ONE AEGON
…resulting in sustainable, profitable growth.
Achieving this ambition is based on three strategic priorities: to
reallocate capital to areas that offer strong growth prospects and higher
returns, to increase returns from the company's existing businesses and to
optimize ONE AEGON by increasing efficiency and making better use of the
company's global resources.
AEGON has taken steps to sharpen its focus on the company's three core
businesses: life insurance, pensions and asset management. The company also
intends to achieve a greater geographical balance by reallocating capital to
the growth markets of Central & Eastern Europe, Asia and Latin America. As
part of this approach, AEGON has assessed its businesses to ensure they meet
the company's requirements in terms of earnings growth, cash flow generation,
return on capital and customer life-cycle needs. As further evidence of this
focus, AEGON has recently announced the divestment of its life reinsurance
business, Transamerica Reinsurance, for a total after-tax consideration of
USD 1.4 billion. AEGON expects to upstream USD 1.1 billion to the holding
company to support the repurchase of the remaining convertible core capital
securities issued to the Dutch State. AEGON aims to fully repurchase these
securities by the end of June 2011.
In addition to reallocating its capital to those regions that offer
higher growth and returns, AEGON is also shifting its focus from the sale of
spread-based products to fee-based products. This is evidenced by the strong
increase in sales of variable annuity and pension products in the United
Improve risk profile
As previously announced, AEGON has taken steps
to equity hedge its Guaranteed Minimum Income Benefit (GMIB) back-book of
variable annuities in the United States. AEGON has now fully covered the
equity exposure related to this back-book of GMIB variable annuity
In order to improve the risk-return profile of stable value solutions,
AEGON's synthetic guaranteed investment contracts business in the United
States, a number of contracts have been terminated or contract terms have
been tightened for remaining contracts. Fees have been increased to 20 basis
points on average from 15 basis points previously.
During the first quarter, AEGON further reduced its already limited
exposure to peripheral European sovereign bonds, based on fair value, to EUR
1 billion or 0.7% of its general account investments.
AEGON's aim is to increase returns in all of its businesses by increasing
efficiency and delivering operational excellence. This will be achieved by
further reducing costs while investing in core competences and improving
service levels to ensure continued customer loyalty.
In the United Kingdom, AEGON is taking significant steps to improve its
return on capital. AEGON is implementing a broad restructuring program to
reduce cost by 25% in its life and pensions operations by the end of 2011.
The restructuring program is on track. As part of this process, AEGON has
appointed new senior management in the past 18 months. Most recently, Adrian
Grace was appointed CEO of AEGON UK.
Optimize ONE AEGON
Over the past three years, measures have been
taken to manage AEGON more as an international company. AEGON is committed to
making better use of its global resources in managing its businesses and will
continue to standardize best practices across the company.
FINANCIAL OVERVIEW (c) EUR millions Notes Q1 2011 Q4 2010 % Q1 2010 % Underlying earnings before tax Americas 347 369 (6) 337 3 The Netherlands 81 87 (7) 104 (22) United Kingdom 12 (6) - 28 (57) New markets 57 59 (3) 46 24 Holding and other (83) (57) (46) (69) (20) Underlying earnings before tax 414 452 (8) 446 (7) Fair value items (85) 30 - (16) - Realized gains / (losses) on investments 91 255 (64) 126 (28) Impairment charges (62) (133) 53 (150) 59 Other income / (charges) (3) (258) 99 23 - Run-off businesses 22 9 144 (18) - Income before tax 377 355 6 411 (8) Income tax (50) (37) (35) (39) (28) Net income 327 318 3 372 (12) Net income / (loss) attributable to: Equity holders of AEGON N.V. 327 318 3 371 (12) Non-controlling interests - - - 1 - Net underlying earnings 333 348 (4) 345 (3) Commissions and expenses 1,513 1,659 (9) 1,586 (5) of which operating expenses 11 837 909 (8) 812 3 New life sales Life single premiums 1,726 2,002 (14) 1,919 (10) Life recurring premiums annualized 328 330 (1) 311 5 Total recurring plus 1/10 single 501 530 (5) 503 - New life sales Americas 12 113 118 (4) 110 3 The Netherlands 65 113 (42) 62 5 United Kingdom 247 224 10 265 (7) New markets 12 76 75 1 66 15 Total recurring plus 1/10 single 501 530 (5) 503 - New premium production accident and health insurance 159 180 (12) 148 7 New premium production general insurance 13 15 (13) 14 (7) Gross deposits (on and off balance) Americas 12 5,629 5,757 (2) 5,402 4 The Netherlands 462 490 (6) 743 (38) United Kingdom 19 25 (24) 36 (47) New markets 12 1,267 1,541 (18) 1,593 (20) Total gross deposits 7,377 7,813 (6) 7,774 (5) Net deposits (on and off balance) Americas 12 (233) (566) 59 535 - The Netherlands (115) (260) 56 67 - United Kingdom 2 12 (83) 29 (93) New markets 12 (1,719) 304 - 121 - Total net deposits excluding run-off businesses (2,065) (510) - 752 - Run-off businesses (880) (1,436) 39 (2,210) 60 Total net deposits (2,945) (1,946) (51) (1,458)(102) REVENUE-GENERATING INVESTMENTS Mar. 31, Dec. 31, 2011 2010 % Revenue-generating investments (total) 399,882 413,191 (3) Investments general account 136,991 143,188 (4) Investments for account of policyholders 144,296 146,237 (1) Off balance sheet investments third parties 118,595 123,766 (4)
Underlying earnings before tax
AEGON's underlying earnings before tax amounted
to EUR 414 million in the first quarter, a 7% decline compared with the same
quarter last year.
Underlying earnings from the Americas represent
the results of ongoing businesses. As previously announced, earnings from the
BOLI/COLI and life reinsurance businesses are reported in the run-off line of
business from the first quarter of 2011. All comparative numbers have been
adjusted accordingly. On this new basis, underlying earnings from the
Americas increased 3% compared with the first quarter of 2010 to EUR 347
million for the first quarter 2011. Higher fee income related to growth in
pension, variable annuity and retail mutual fund account balances more than
offset lower spread income. This was consistent with AEGON's strategy to
increase earnings from its fee businesses.
In the Netherlands, underlying earnings decreased
to EUR 81 million as a result of an increased level of provisioning for
longevity, as previously indicated. Updated projected mortality tables show a
strong increase in life expectancy in the Dutch population. IFRS provisioning
is based on yearly observed mortality tables and is taken through underlying
earnings, in line with our accounting methodology.. Based on this actual
experience, the company takes a measured approach toward provisioning by
assuming a continuation of the emerging trend of strong improvements in
observed mortality for 2010. AEGON expects to add on average EUR 20 million
per quarter to the provision, in addition to 2010 levels of provisioning.
In the United Kingdom, underlying earnings declined to EUR 12 million.
The decrease was due to charges of EUR 24 million mainly related to an
ongoing program to correct historical issues within customer policy records.
Underlying earnings from New Markets increased to EUR 57 million driven
by Variable Annuities Europe and AEGON Asset Management.
Higher funding costs and increased expenses related to the preparation
for implementation of Solvency II resulted in increased costs for the holding
company in the first quarter of 2011.
Net income amounted to EUR 327 million, supported by lower impairments
and higher earnings from run-off businesses. Higher net income for the
Americas, the United Kingdom and New Markets was more than offset by lower
net income for the Netherlands.
Fair value items
In the first quarter, fair value items recorded a loss of EUR 85 million.
A considerable improvement in the Americas, attributable mainly to strong
results from real estate and private equity investments, was more than offset
by an exceptional loss on strategic allocation funds in the Netherlands.
Realized gains on investments
Realized gains on investments amounted to EUR 91 million for the quarter
and were mostly the result of normal trading in the investment portfolio.
Impairment charges, net of EUR 26 million in recoveries, declined sharply
to EUR 62 million and were mostly linked to residential mortgage-backed
Other charges totaled EUR 3 million. A benefit of
EUR 37 million related to a settlement of legal claims was more than offset
by a EUR 20 million charge related to the full year Hungarian bank tax and
restructuring charges in the Netherlands (EUR 8 million), the United Kingdom
(EUR 8 million) and New Markets (EUR 6 million).
As of the first quarter of 2011, AEGON's run-off line of business in the
Americas comprises the institutional spread-based business, structured
settlement pay-out annuities, BOLI/COLI and life reinsurance. The latter
two have been included for the first time this quarter. The results of
the combined run-off businesses increased to EUR 22 million, mainly as a
result of a lower amortization yield paid on internally transferred assets
related to the institutional spread-based business and favorable mortality
results in the pay-out annuities block of business.
Tax charges for the quarter amounted to EUR 50 million. These charges
included EUR 17 million in tax benefits related to cross-border intercompany
reinsurance transactions and a tax credit of EUR 23 million driven by the
reduction of the UK corporate tax rate to 26% effective from April 1, 2011,
with consequential impact on deferred taxes.
Operating expenses increased 3% to EUR 837 million. The increase was
driven by higher restructuring charges and the unfavorable effects of
movements in currency exchange rates. Excluding restructuring charges and at
constant currencies, operating expenses decreased 1%.
Sales and deposits
In order to provide a more accurate view of overall sales generated by
its businesses, AEGON has introduced a composite sales number consisting of
new life sales, new premium production of both accident & health insurance
and general insurance and 1/10 of gross deposits. According to this
indicator, sales decreased marginally by 2% to EUR 1.4 billion as a result of
lower asset management deposits.
New life sales for the first quarter of 2011 increased in all units
except the United Kingdom and amounted to EUR 501 million.
Gross deposits amounted to EUR 7.4 billion. Growth in US pension and
variable annuity deposits was offset by lower asset management deposits and
lower savings deposits in the Netherlands.
Value of new business
Compared with the first quarter of 2010, the value of new business
declined considerably to EUR 118 million, mainly a result of lower margins on
mortgages and updated mortality assumptions in the Netherlands.
Revenue-generating investments were 3% lower compared with the end of the
fourth quarter of 2010 at EUR 400 billion, primarily a result of the
weakening of the US dollar against the euro.
At the end of the first quarter, AEGON's core capital position, excluding
revaluation reserves, amounted to EUR 17.0 billion, equivalent to 75%6 of the
company's total capital base. The repurchase of convertible core capital
securities from the Dutch State for an amount of EUR 750 million - plus a
premium of EUR 375 million - was partly offset by an equity issue of EUR 0.9
billion. AEGON has announced its aim to achieve the proportion of core
capital to be at least 75% of total capital by the end of 2012.
The revaluation reserves at March 31, 2011 totaled EUR 0.7 billion, as an
increase in risk-free interest rates had a negative impact on the value of
fixed income securities.
Shareholders' equity declined compared with year-end 2010 to EUR 16.9
billion mainly as a result of weakening of the US dollar against the euro.
During the first quarter, excess capital amounted
to EUR 3.7 billion. Excess capital in the holding decreased to EUR 1.3
billion as a result of a EUR 1.125 billion payment to the Dutch State only
partly offset by the proceeds of a EUR 0.9 billion equity issue. Excess
capital in subsidiaries increased to EUR 2.4 billion as a result of capital
generated in the operations.
On March 31, 2011, AEGON's Insurance Group Directive (IGD) ratio amounted
AEGON aims to deliver sustainable cash flows and dividends and has
announced its intention to improve operational free cash flow from its
current normalized level of EUR 1.0-1.2 billion per annum by 30% by 2015.
AEGON intends to resume dividend payments on common shares after full
repurchase of the convertible core capital securities from the Dutch State.
AEGON intends to pay a dividend of EUR 0.10 per share, payable in May 2012,
over the second half of 2011, market conditions permitting.
During the first quarter of 2011, AEGON's subsidiaries generated EUR 539
million in operational cash flows. After deduction of EUR 275 million for
investments in new business, operational free cash flow totaled EUR 264
million for the quarter.
The Hague, May 12, 2011
Press conference call
8:00 am CET: Audio webcast on www.aegon.com
Analyst & investor presentation / conference call
9:00 am CET: Audio webcast on www.aegon.com
Two hours after the conference call, a replay will be available on
www.aegon.com and on the following phone numbers:
UK +44-207-154-2833 Access Code: 4434477#
US +1-303-590-3030 Access Code: 4434477#
AEGON's Q1 2011 Financial Supplement and Condensed Consolidated Interim
Financial Statements and the Embedded Value Report 2010 are available on
The full version of this press release is available at:
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this hyperlink into your Internet browser's URL address field. Remove the
space if one exists.)
As an international life insurance, pension and asset
management company based in
The Hague, AEGON has businesses in over twenty markets in the
Europe and Asia. AEGON companies employ approximately 27,000
people and have some 40 million customers across the globe.
First quarter Full year Key figures - EUR 2011 2010 Underlying earnings before tax 414 million 1.8 billion New life sales 501 million 2.1 billion Gross deposits 7.4 billion 33 billion Revenue-generating investments (end of period) 400 billion 413 billion
Cautionary note regarding non-GAAP measures
This document includes certain non-GAAP financial measures: underlying
earnings before tax and value of new business. The reconciliation of
underlying earnings before tax to the most comparable IFRS measure is
provided in Note 3 "Segment information" of our Condensed consolidated
interim financial statements. Value of new business is not based on IFRS,
which are used to report AEGON's primary financial statements and should not
viewed as a substitute for IFRS financial measures. We may define and
calculate value of new business differently than other companies. Please see
AEGON's Embedded Value Report dated May 12, 2011 for an explanation of how we
define and calculate. AEGON believes that these non-GAAP measures, together
with the IFRS information, provide a meaningful measure for the investment
community to evaluate AEGON's business relative to the businesses of our
Local currencies and constant currency exchange rates
This document contains certain information about our results and
financial condition in USD for the Americas and GBP for the United Kingdom,
because those businesses operate and are managed primarily in those
currencies. Certain comparative information presented on a constant currency
basis eliminates the effects of changes in currency exchange rates. None of
this information is a substitute for or superior to financial information
about us presented in EUR, which is the currency of our primary financial
The statements contained in this document that are not historical facts
are forward-looking statements as defined in the US Private Securities
Litigation Reform Act of 1995. The following are words that identify such
forward-looking statements: aim, believe, estimate, target, intend, may,
expect, anticipate, predict, project, counting on, plan, continue, want,
forecast, goal, should, would, is confident, will, and similar expressions as
they relate to our company. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that are
difficult to predict. We undertake no obligation to publicly update or revise
any forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which merely reflect company
expectations at the time of writing. Actual results may differ materially
from expectations conveyed in forward-looking statements due to changes
caused by various risks and uncertainties. Such risks and uncertainties
include but are not limited to the following:
- Changes in general economic conditions, particularly in the United
States, the Netherlands and the United Kingdom;
- Changes in the performance of financial markets, including emerging
markets, such as with regard to:
- The frequency and severity of defaults by issuers in our fixed income
investment portfolios; and
- The effects of corporate bankruptcies and/or accounting restatements on
the financial markets and the resulting decline in the value of equity and
debt securities we hold;
- The frequency and severity of insured loss events;
- Changes affecting mortality, morbidity, persistence and other factors
that may impact the profitability of our insurance products;
- Changes affecting interest rate levels and continuing low or rapidly
changing interest rate levels;
- Changes affecting currency exchange rates, in particular the EUR/USD
and EUR/GBP exchange rates;
- Increasing levels of competition in the United States, the Netherlands,
the United Kingdom and emerging markets;
- Changes in laws and regulations, particularly those affecting our
operations, the products we sell, and the attractiveness of certain products
to our consumers;
- Regulatory changes relating to the insurance industry in the
jurisdictions in which we operate;
- Acts of God, acts of terrorism, acts of war and pandemics;
- Changes in the policies of central banks and/or governments;
- Lowering of one or more of our debt ratings issued by recognized rating
organizations and the adverse impact such action may have on our ability to
raise capital and on our liquidity and financial condition;
- Lowering of one or more of insurer financial strength ratings of our
insurance subsidiaries and the adverse impact such action may have on the
premium writings, policy retention, profitability of its insurance
subsidiaries and liquidity;
- The effect of the European Union's Solvency II requirements and other
regulations in other jurisdictions affecting the capital we are required to
- Litigation or regulatory action that could require us to pay
significant damages or change the way we do business;
- Customer responsiveness to both new products and distribution channels;
- Competitive, legal, regulatory, or tax changes that affect the
distribution cost of or demand for our products;
- The impact of acquisitions and divestitures, restructurings, product
withdrawals and other unusual items, including our ability to integrate
acquisitions and to obtain the anticipated results and synergies from
- Our failure to achieve anticipated levels of earnings or operational
efficiencies as well as other cost saving initiatives;
- Our inability to obtain consent from the Dutch Central Bank to
repurchase our Core Capital Securities; and
- The non-fulfillment of the conditions precedent underlying the
agreement to divest Transamerica Reinsurance.
Further details of potential risks and uncertainties affecting the
company are described in the company's filings with Euronext Amsterdam and
the US Securities and Exchange Commission, including the Annual Report on
Form 20-F. These forward-looking statements speak only as of the date of this
document. Except as required by any applicable law or regulation, the company
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained herein to
reflect any change in the company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
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Tags: AEGON N.V., May 12, Netherlands, The hague