AEGON Improves Earnings, Sales and Capital PositionBy Aegon N.v., PRNE
Wednesday, November 10, 2010
THE HAGUE, The Netherlands, November 11, 2010 -
- Increase in Underlying Earnings and Net Income - Underlying earnings before tax increase by 21% to EUR 473 million - Net income improves significantly to EUR 657 million, driven mainly by underlying earnings, fair value items and lower impairments - Return on equity improves to 10.0% - Increase in Sales and Deposits - New life sales up 7% to EUR 527 million, driven by increased sales in US, UK and New Markets - Gross deposits up 38% to EUR 9.4 billion as a result of strong third-party asset management inflows - Value of new business declines to EUR 120 million, mainly due to a change in business mix - Continued Strong Capital Position - Excess capital above S&P's AA capital adequacy requirements increases to EUR 3.3 billion; earnings contribution and capital preservation measures were offset by repayment of EUR 0.5 billion to Dutch State - IGDa) solvency ratio of 205%
Statement of Alex Wynaendts, CEO
"During the third quarter AEGON achieved significantly improved
year-over-year results, as measured by increases in underlying earnings, net
income, new life sales and deposits. The strong earnings performance during
the quarter was driven by growth across most businesses, strict cost control,
higher equity markets and the strengthening of the US dollar against the
euro. The quarter, however, also included the negative impact of changes in
assumptions relating to customer behavior in our variable annuity business in
the United States.
"AEGON's continued strong franchise resulted in the increase in new life
sales within nearly all country units, while our asset management business
was the main driver of the significant increase in deposits. AEGON's excess
capital position improved to EUR 3.3 billion, after repaying an additional
EUR 500 million to the Dutch State in August. We reaffirm our aim to complete
full repayment by the end of June 2011, market conditions permitting.
"During the quarter, we made further progress in restructuring our
business in the United Kingdom. We are similarly on track with our plans for
AEGON's life reinsurance business and will communicate further on the
progress in due course.
"Overall, AEGON's businesses performed well during the third quarter and
are on track to deliver the benefits of our strategic priorities."
KEY PERFORMANCE INDICATORS Notes Q3 Q2 % Q3 % YTD YTD % amounts in EUR millions b) 2010 2010 2009 2010 2009 Underlying earnings before tax 1 473 522 (9) 390 21 1,483 707 110 Net income 2 657 413 59 145 - 1,442 (189) - New life sales 3 527 590 (11) 492 7 1,655 1,543 7 Gross deposits excluding run-off businesses 4 9,408 7,584 24 6,838 38 24,767 20,893 19 Value of new business (VNB) 5 120 148 (19) 169 (29) 414 551 (25) Return on equity 6 10.0% 9.7% 3 9.7% 3 10.0% 4.6% 117
Supplements: AEGON's Q3 2010 Financial Supplement and Condensed
Consolidated Interim Financial Statements are available on
- First steps taken in restructuring UK business in order to achieve targeted cost reduction - European Commission approves 2008 Dutch State support
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.
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. AEGON 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 continuously assesses 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. Currently, AEGON
is in the process of exploring strategic options for Transamerica
Reinsurance, the company's international life reinsurance activities,
including finding a suitable buyer. At this
stage, AEGON is not in a position to provide further details.
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.
Improve risk profile
AEGON has recently further increased equity hedging on its GMIB back-book
of variable annuities in the United States by extending its current macro
equity hedge program. As a result, AEGON has now covered approximately 80% of
the equity exposure from its back-book of GMIB variable annuity guarantees.
The company expects to fully equity hedge this back-book by the end of 2012.
In all of its businesses worldwide, AEGON's aim is
to increase returns by increasing efficiency and delivering operational
excellence. This will be achieved by further reducing costs while investing
in core capabilities and improving service levels to ensure continued
In the United Kingdom, AEGON is taking significant steps to improve its
return on capital. AEGON is targeting to reduce cost by 25% in its UK life
and pensions operations by the end of 2011, and is directing more resources
to the key growth At-Retirement and Workplace Savings markets, where AEGON
has leading positions. As part of this process, AEGON has restructured its
UK's sales division, has sold its third party pension administration business
and is closing its employee benefits software business.
Approval European Commission
In August, AEGON received final approval from the European Commission
regarding the capital support obtained from the Dutch State in December 2008
at the height of the financial crisis. AEGON has repaid a further EUR 500
million to the Dutch State and aims to repay the remaining EUR 1.5 billion by
the end of June 2011, market conditions permitting.
FINANCIAL OVERVIEW EUR millions Q3 2010 Q2 2010 % Q3 2009 Underlying earnings before tax Americas 376 437 (14) 324 The Netherlands 97 97 - 102 United Kingdom 28 22 27 (9) New markets 55 40 38 42 Holding and other (83) (74) (12) (69) Underlying earnings before tax 473 522 (9) 390 Fair value items 204 3 - (196) Realized gains / (losses) on investments 129 148 (13) 38 Impairment charges (92) (77) (19) (286) Other income / (charges) (14) (60) 77 48 Run-off businesses (28) (49) 43 (34) Income before tax 672 487 38 (40) Income tax (15) (74) 80 185 Net income 657 413 59 145 Net income / (loss) attributable to: Equity holders of AEGON N.V. 657 413 59 145 Minority interest - - - - Net underlying earnings 395 390 1 348 Commissions and expenses 1,525 1,375 11 1,489 of which operating expenses 835 841 (1) 784 New life sales Life single premiums 1,656 1,923 (14) 1,674 Life recurring premiums annualized 361 398 (9) 323 Total recurring plus 1/10 single 527 590 (11) 492 New life sales Americas 171 167 2 145 The Netherlands 32 41 (22) 52 United Kingdom 264 308 (14) 245 New markets 60 74 (19) 50 Total recurring plus 1/10 single 527 590 (11) 492 New premium production accident and health insurance 146 148 (1) 126 New premium production general insurance 14 15 (7) 12 Gross deposits (on and off balance) Americas 4,706 5,154 (9) 4,138 The Netherlands 525 624 (16) 1,145 United Kingdom 16 19 (16) 29 New markets 4,161 1,787 133 1,526 Total gross deposits excluding run-off businesses 9,408 7,584 24 6,838 Run-off businesses - - - 51 Total gross deposits 9,408 7,584 24 6,889 Net deposits (on and off balance) Americas 535 746 (28) 553 The Netherlands (83) 55 - 355 United Kingdom 2 10 (80) 21 New markets 3,293 187 - 753 Total net deposits excluding run-off businesses 3,747 998 - 1,682 Run-off businesses (1,081) (1,837) 41 (3,272) Total net deposits 2,666 (839) - (1,590) (continued) FINANCIAL OVERVIEW EUR millions % YTD 2010 YTD 2009 % Underlying earnings before tax Americas 16 1,192 467 155 The Netherlands (5) 298 303 (2) United Kingdom - 78 19 - New markets 31 141 122 16 Holding and other (20) (226) (204) (11) Underlying earnings before tax 21 1,483 707 110 Fair value items - 191 (380) - Realized gains / (losses) on investments - 403 203 99 Impairment charges 68 (319) (1,065) 70 Other income / (charges) - (51) (328) 84 Run-off businesses 18 (137) 34 - Income before tax - 1,570 (829) - Income tax - (128) 640 - Net income - 1,442 (189) - Net income / (loss) attributable to: Equity holders of AEGON N.V. - 1,441 (189) - Minority interest - 1 - - Net underlying earnings 14 1,166 615 90 Commissions and expenses 2 4,486 4,639 (3) of which operating expenses 7 2,488 2,451 2 New life sales Life single premiums (1) 5,509 5,045 9 Life recurring premiums annualized 12 1,104 1,038 6 Total recurring plus 1/10 single 7 1,655 1,543 7 New life sales Americas 18 483 423 14 The Netherlands (38) 135 146 (8) United Kingdom 8 837 763 10 New markets 20 200 211 (5) Total recurring plus 1/10 single 7 1,655 1,543 7 New premium production accident and health insurance 16 442 436 1 New premium production general insurance 17 43 35 23 Gross deposits (on and off balance) Americas 14 15,263 14,784 3 The Netherlands (54) 1,892 2,327 (19) United Kingdom (45) 71 142 (50) New markets 173 7,541 3,640 107 Total gross deposits excluding run-off businesses 38 24,767 20,893 19 Run-off businesses - - 934 - Total gross deposits 37 24,767 21,827 13 Net deposits (on and off balance) Americas (3) 1,805 3,384 (47) The Netherlands - 39 580 (93) United Kingdom (90) 41 122 (66) New markets - 3,601 268 - Total net deposits excluding run-off businesses 123 5,486 4,354 26 Run-off businesses 67 (5,117) (7,598) 33 Total net deposits - 369 (3,244) - REVENUE-GENERATING INVESTMENTS Sept. 30, June 30, 2010 2010 % Revenue-generating investments (total) 404,894 408,589 (1) Investments general account 145,625 151,394 (4) Investments for account of policyholders 140,438 139,717 1 Off balance sheet investments third parties 118,831 117,478 1
Underlying earnings before tax
AEGON's underlying earnings increased to
EUR 473 million in the third quarter, a significant improvement compared with
the same period last year. This increase in earnings was mainly the result of
growth in most businesses, strict cost control, higher equity markets and
strengthening of the US dollar against the euro.
In the Americas, underlying earnings rose to EUR 376 million, primarily
the result of higher fee and investment income, partly offset by charges of
EUR 59 million related to changes in policyholder behavior assumptions.
Underlying earnings in the Netherlands remained strong at EUR 97 million. In
the United Kingdom, underlying earnings increased
to EUR 28 million as earnings for the same period last year were affected by
an exceptional charge of EUR 43 million related to a program to improve the
consistency of customer records. Underlying earnings from New Markets
increased to EUR 55 million as the contribution of AEGON Asset Management and
associates was only partly offset by higher non-life claims in Central &
Eastern Europe and continued investments in growth of the business in Asia.
Higher funding costs and increased expenses resulted in EUR 83 million of
expenses in the third quarter of 2010 for the holding company.
Net income increased significantly to EUR 657 million. This was primarily
the result of higher underlying earnings, a positive contribution from fair
value items, higher realized gains on investments and lower impairments.
Fair value items
In the third quarter, results from fair value items amounted to EUR 204
million. In the Americas, fair value items were positively impacted by lower
implied volatility and favorable equity markets in the third quarter. In
addition, the net hedge result was small, as hedge results from AEGON's macro
equity hedge program were more than offset by the effect of favorable equity
markets on guarantees. In the Netherlands, the positive contribution was the
result mainly of an increase in the fair value of guarantees, net of related
A narrowing of AEGON's own credit spread, in addition to negative fair
value movements in derivatives, resulted in a loss of EUR 60 million for
the holding company.
Realized gains on investments
In the third quarter, realized gains on investments amounted to EUR 129
million. In the United States, gains were mainly related to normal trading in
corporate investment grade bonds, while in the Netherlands gains were
primarily due to sales of high yield and emerging market debt.
Net impairments for the quarter amounted to EUR 92 million and were
mostly linked to US housing related securities. Compared with the previous
quarter, gross impairments remained at the same level, while recoveries
Other charges of EUR 14 million included EUR 12 million related to
restructuring in the United Kingdom.
AEGON's run-off businesses in the Americas recorded a loss in the third
quarter of EUR 28 million, an improvement over recent quarters.
Tax charges for the quarter amounted to EUR 15 million. These charges
included EUR 46 million in tax benefits related to cross-border intercompany
reinsurance transactions between the United States and Ireland and tax
benefits of EUR 98 million resulting from the utilization of tax losses for
which previously no deferred tax asset was recognized. In the United Kingdom,
tax credits of EUR 29 million related to a reduction of the corporate tax
rate from 28% to 27% effective from April 1, 2011 with consequential impact
on deferred taxes.
Operating expenses increased 7% to EUR 835 million due to a strengthening
of the US dollar and pound sterling against the euro. At constant currencies,
however, operating expenses declined 1% as result of a number of measures to
reduce expenses, partly offset by investments in New Markets.
New life sales
New life sales increased 7% compared with the third quarter of 2009 to
EUR 527 million as most units experienced growth. The main drivers behind the
increase were retail life sales in the Americas, pension sales in the United
Kingdom and favorable exchange rates, partly offset by lower sales in the
Gross deposits, excluding run-off businesses, increased 38% to EUR 9.4
billion. This substantial increase was the result mainly of strong
third-party asset management deposits.
Value of new business
Compared with the third quarter 2009, the value of new business declined
considerably to EUR 120 million. In the Netherlands, the decline in value of
new business is attributable to lower sales and a decrease in margins, while
in the United Kingdom the main reason for the decline was a decrease in
immediate annuity sales and margins. In the Americas, the value of new
business declined mainly due to lower sales of fixed annuities in addition to
lower margins in the life insurance businesses.
Revenue-generating investments decreased slightly compared with the end
of the second quarter 2010 to EUR 405 billion, primarily as a result of a
weakening of the US dollar against the euro.
At the end of the third quarter, AEGON's core capital position, excluding
revaluation reserves, amounted to EUR 17.2 billion, equivalent to 74%7) of
the company's total capital base and above its target threshold of 70%.
AEGON's aim is to increase the proportion of core capital to at least 75% by
the end of 2012.
AEGON's revaluation reserves at September 30, 2010, increased
significantly to EUR 2.3 billion. This significant improvement was mainly the
result of an increase in the value of fixed income securities as a result of
lower risk-free interest rates and a further narrowing in credit spreads.
Shareholders' equity rose compared with the end
of the second quarter to EUR 18 billion, mainly as a result of improved
revaluation reserves and third quarter net income, partly offset by the
weaker US dollar.
Excess capital above S&P's AA capital adequacy requirements rose to EUR
3.3 billion, of which EUR 2 billion was held in operating units and EUR 1.3
billion at the holding company. An additional payment of EUR 563 million to
the Dutch State was more than offset by the positive effect of earnings of
EUR 0.6 billion and further capital preservation measures of EUR 0.3 billion.
During the third quarter of 2010, AEGON's Insurance Group Directive (IGD)
solvency ratio increased to 205%.
Improved longevity in the Netherlands
Updated mortality tables show a strong increase in life expectancy in the
Dutch population. AEGON is in the process of assessing the possible impact of
this on its insurance reserves. The company expects that adoption of these
new mortality tables will have no immediate impact on earnings. However,
higher longevity charges will impact underlying earnings over time. The
impact on excess capital above S&P's capital adequacy requirements is
currently estimated to be less than EUR 250 million.
The full version of this release is available at
Notes: 1) For a definition of underlying earnings and the reconciliation from underlying earnings to income before tax we refer to Note 3 "Segment information" of our Condensed consolidated interim financial statements. 2) Net income refers to net income attributable to equity holders of AEGON N.V. and minority interest. 3) New life sales is defined as new recurring premiums + 1/10 of single premiums. 4) Deposits on and off balance sheet. Run-off businesses includes results of business units where management has decided to exit the market and to run-off the existing block of business. 5) The present value of future distributable earnings on the block of business sold in the reporting period. Value of new business is calculated using beginning of year economic assumptions and assumptions outside of management control, and beginning of quarter operating assumptions. 6) Return on equity is calculated by dividing the net underlying earnings after cost of leverage by the average shareholders' equity excluding the preferred shares and the revaluation reserve. 7) Capital securities that are denominated in foreign currencies are, for purposes of calculating the capital base ratio, revalued to the period-end exchange rate. All ratios exclude AEGON's revaluation reserve. Included in other income/(charges) are charges made to policyholders with respect to income tax in the United Kingdom. 9) Includes production on investment contracts without a discretionary participation feature of which the proceeds are not recognized as revenues but are directly added to our investment contract liabilities. 10)APE = recurring premium + 1/10 single premium. 11)PVNBP: Present Value New Business Premium. a) The calculation of the IGD (Insurance Group Directive) capital surplus and ratio are based on Solvency I capital requirements on IFRS for entities within the EU (Pillar 1 for AEGON UK), and local regulatory solvency measurements for non-EU entities. Specifically, required capital for the life insurance companies in the US is calculated as two times the upper end of the Company Action Level range (200%) as applied by the National Association of Insurance Commissioners in the US. The calculation of the IGD ratio excludes the available and required capital of the UK With-Profit funds. In the UK solvency surplus calculation the local regulator only allows the available capital number of the With-Profit funds included in overall local available capital to be equal to the amount of With-Profit funds' required capital. b) The results in this release are unaudited.
The Hague, November 11, 2010
Media conference call
Audio webcast on www.aegon.com
Analyst & investor conference call
Audio webcast on www.aegon.com
A replay of the conference call will be available 2 hours after the
conference call on www.aegon.com and on the following phone numbers:
UK +44-207-154-2833: Access Code: 4372526#
US +1-303-590-3030: Access Code: 4372526#
AEGON's Q3 2010 Financial Supplement and Condensed Consolidated Interim
Financial Statements are available on www.aegon.com
As an international life insurance, pension and investment
company based in The Hague, AEGON has businesses in over twenty
markets in the Americas, Europe and Asia. AEGON companies employ
approximately 28,000 people and have some 40 million customers across
Third quarter Full year Key figures - EUR 2010 2009 Underlying earnings before tax 473 million 1.2 billion New life sales 527 million 2.1 billion Gross deposits (excl. run-off) 9.4 billion 28 billion Revenue generating investments (end of period) 405 billion 363 billion Contact information Media relations: Greg Tucker +31(0)70-344-8956 email@example.com Investor relations: Gerbrand Nijman +31(0)70-344-8305 877-548-9668 - toll free USA only firstname.lastname@example.org www.aegon.com
Media relations: Greg Tucker, +31(0)70-344-8956, gcc-ir at aegon.com, Investor relations: Gerbrand Nijman, +31(0)70-344-8305, 877-548-9668 - toll free USA only, ir at aegon.com
Tags: AEGON N.V., Netherlands, November 11, The hague, The Netherlands