AEGON Posts Strong Results for Second Quarter 2010
By Aegon N.v., PRNEWednesday, August 11, 2010
THE HAGUE, August 12, 2010 -
- Increase in underlying earnings and net income
- Underlying earnings before tax increase to EUR 522 million, supported
by improved financial markets
- Impairments decline to EUR 77 million, their lowest level in two years
- Net income improves significantly to EUR 413 million
- Return on equity of 9.7%
- Increase in sales and deposits
- New life sales of EUR 590 million, driven by increased sales in the
United States and United Kingdom
- Gross deposits total EUR 7.6 billion, driven mainly by strong pension
deposits in the Americas
- Value of new business declines to EUR 148 million, mainly due to
decrease of sales in US fixed annuities and UK immediate annuities as a
result of earlier repricing
- Continued strong capital position
- Excess capital above S&P's AA capital adequacy requirements declines to
EUR 3.0 billion, as higher capital requirements from S&P offset
earnings contribution
- IGDa) capital surplus of EUR 7 billion, equivalent to solvency ratio of
approximately 200%
- Shareholders' equity increases to EUR 8.83 per common share
- No interim dividend on common shares
Statement of Alex Wynaendts, CEO
"The significant increase in sales, underlying earnings and net income
during the second quarter of this year demonstrate the continued strength of
AEGON's business. Consistent with our focus on serving the growing need for
long-term retirement security, pension sales were particularly strong in the
Americas and the United Kingdom. Impairments in our investment portfolio
continued their downward trend, reaching their lowest level in two years and
approaching our long-term assumptions. As a result of changes to S&P's
capital requirements for our businesses, AEGON's excess capital declined,
however, it continues to provide what we consider a solid buffer. We are
implementing a number of key measures, as announced in June, to sharpen our
focus on our core activities and improve returns, particularly within our
business in the United Kingdom. At the same time, we are continuing to pursue
our options for AEGON's life reinsurance business, which include finding a
suitable buyer for Transamerica Reinsurance. Furthermore, we expect soon to
receive a final decision from the European Commission on the plan we
submitted to demonstrate AEGON's long-term viability as part of the State
support AEGON received at the height of the financial crisis in 2008. We will
communicate that decision at the earliest opportunity. Going forward, we will
maintain our focus on better leveraging our broad resources, pursuing further
operational improvements and putting AEGON's proven expertise to work for our
customers in all our markets."
KEY PERFORMANCE INDICATORS
amounts in EUR Notes Q2 2010 Q1 2010 % Q2 2009 % YTD YTD %
millions b) 2010 2009
Underlying 1 522 488 7 415 26 1,010 317 -
earnings before
tax
Net income 2 413 372 11 (161) - 785 (334) -
New life sales 3 590 538 10 484 22 1,128 1,051 7
Gross deposits 4 7,584 7,775 (2) 6,523 16 15,359 14,055 9
excluding
run-off
businesses
Value of new 148 146 1 181 (18) 294 382 (23)
business (VNB)
Return on equity 5 9.7% 10.1% (4) 9.4% 3 9.6% 2.1% -
For notes see page 23.
Supplements: AEGON's Q2 2010 Financial Supplement and Condensed
Consolidated Interim Financial Statements are available on
www.aegon.com
STRATEGIC HIGHLIGHTS
- Sharpened focus on core activities of life insurance, pensions and
asset management
- Restructuring UK business; targeting cost reductions of 25% by end 2011
to improve returns
- Exploring strategic options for life reinsurance business, including
identifying a suitable buyer
- Appointment of global head of human resources
AEGON's AMBITION
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.
At the Analyst & Investor Conference last June, CEO Alex Wynaendts
announced new measures to focus more on key long-term growth opportunities in
AEGON's core activities and further improve returns from the company's
existing businesses. Over the next five years, AEGON aims to become a leader
in all of its chosen markets by being the most recommended life and pensions
company by customers, the preferred partner for distributors and an employer
of choice among current and prospective employees.
Reallocate capital
One of AEGON's key strategic objectives is to focus on its core
businesses of life insurance, pensions and asset management, and achieve a
greater geographical balance by reallocating capital to the growth markets of
Central & Eastern Europe, Asia and Latin America. AEGON continues to assess
its businesses to ensure they meet requirements in terms of earnings growth,
cash flow generation, return on capital and customer life cycle needs. As
part of this review, AEGON announced in June that it would explore strategic
options for Transamerica Reinsurance, the company's life reinsurance
business, including finding a suitable buyer.
As part of efforts to further improve its risk profile, AEGON will also
be increasing equity hedging of its back book of variable annuities in the
United States and continue to shift its focus to fee-based business from
spread-based products.
Increase returns
In the United Kingdom, AEGON is taking significant steps to improve the
return on capital by targeting cost reductions of 25% in the company's life
and pension operations and refocusing resources on the At Retirement and
Workplace Savings markets where there is strong potential for growth and
AEGON has leading positions. In addition, AEGON has withdrawn from the UK
bulk annuities market and is exploring strategic options for parts of its
existing back books. Taken together, these measures are aimed at improving
return on capital from AEGON's UK business to 8%-10% and cumulative cash
flows of GBP 600 million to 650 million by 2014.
AEGON aims to increase returns by delivering operational excellence in
all of its businesses. This will be achieved by further reducing costs while
investing in core capabilities and improving service levels to ensure
continued customer loyalty.
In addition, AEGON is developing new products that are simpler, more
transparent and offer customers better value. To deliver on this strategy,
AEGON will further invest in its global workforce. As part of this approach,
the company has launched a global talent management program aimed at
encouraging and developing talent among employees. Last month, AEGON
announced the appointment of a new global head of human resources, Carla
Mahieu, who will work with business units to better leverage the top talent
available throughout the organization. In addition, AEGON is rolling out an
engagement plan for employees around the world and has taken steps to bring
target compensation for senior management further in line with the company's
overall strategic objectives.
Optimize ONE AEGON
Over the past two years, measures have been taken to manage AEGON more as
one international company. AEGON is committed to making better use of its
global resources in managing its businesses, to standardize best practices
and to introduce a single balance sheet approach to capital management.
To meet these objectives, AEGON will implement and monitor new
performance measurement standards across the company.
FINANCIAL OVERVIEW
EUR millions Q2 2010 Q1 2010 % Q2 2009 % YTD YTD %
2010 2009
Underlying
earnings
before tax
Americas 437 379 15 289 51 816 143 -
The
Netherlands 97 104 (7) 129 (25) 201 201 -
United
Kingdom 22 28 (21) 20 10 50 28 79
New markets 40 46 (13) 49 (18) 86 80 8
Holding and
other (74) (69) (7) (72) (3) (143) (135) (6)
Underlying
earnings
before tax 522 488 7 415 26 1,010 317 -
Fair value
items 3 (16) - (17) - (13) (184) 93
Realized
gains /
(losses) on
investments 148 126 17 21 - 274 165 66
Impairment
charges (77) (150) 49 (394) 80 (227) (779) 71
Other income
/ (charges) (60) 23 - (352) 83 (37) (376) 90
Run-off
businesses (49) (60) 18 (9) - (109) 68 -
Income before
tax 487 411 18 (336) - 898 (789) -
Income tax (74) (39) (90) 175 - (113) 455 -
Net income 413 372 11 (161) - 785 (334) -
Net income /
(loss)
attributable
to:
Equity
holders of
AEGON N.V. 413 371 11 (161) - 784 (334) -
Minority
interest - 1 - - - 1 - -
Net
underlying
earnings 390 381 2 331 18 771 267 189
Commissions
and expenses 1,375 1,586 (13) 1,515 (9) 2,961 3,150 (6)
of which
operating
expenses 841 812 4 820 3 1,653 1,667 (1)
New life
sales
Life single
premiums 1,923 1,930 - 1,397 38 3,853 3,371 14
Life
recurring
premiums
annualized 398 345 15 345 15 743 715 4
Total
recurring
plus 1/10
single 590 538 10 484 22 1,128 1,051 7
New life
sales
Americas 167 145 15 136 23 312 278 12
The
Netherlands 41 62 (34) 32 28 103 94 10
United
Kingdom 308 265 16 239 29 573 518 11
New markets 74 66 12 77 (4) 140 161 (13)
Total
recurring
plus 1/10
single 590 538 10 484 22 1,128 1,051 7
New premium
production
accident and
health insurance 148 148 - 146 1 296 310 (5)
New premium
production
general
insurance 15 14 7 11 36 29 23 26
Gross
deposits (on
and off
balance)
Americas 5,154 5,403 (5) 4,710 9 10,557 10,646 (1)
The
Netherlands 624 743 (16) 720 (13) 1,367 1,182 16
United
Kingdom 19 36 (47) 61 (69) 55 113 (51)
New markets 1,787 1,593 12 1,032 73 3,380 2,114 60
Total gross
deposits excluding
run-off businesses 7,584 7,775 (2) 6,523 16 15,359 14,055 9
Run-off
businesses - - - 209 - - 883 -
Total gross
deposits 7,584 7,775 (2) 6,732 13 15,359 14,938 3
Net deposits
(on and off
balance)
Americas 746 524 42 827 (10) 1,270 2,831 (55)
The
Netherlands 55 67 (18) 170 (68) 122 225 (46)
United
Kingdom 10 29 (66) 52 (81) 39 101 (61)
New markets 187 121 55 (171) - 308 (485) -
Total net deposits
excluding run-off 998 741 35 878 14 1,739 2,672 (35)
businesses
Run-off
businesses (1,837) (2,199) 16 (1,372) (34) (4,036) (4,326) 7
Total net
deposits (839) (1,458) 42 (494) (70) (2,297) (1,654) (39)
REVENUE GENERATING INVESTMENTS
June 30, Mar. 31,
2010 2010 %
Revenue generating investments (total) 408,589 387,912 5
Investments general account 151,394 142,254 6
Investments for account of policyholders 139,717 135,385 3
Off balance sheet investments third parties 117,478 110,273 7
OPERATIONAL HIGHLIGHTS
Underlying earnings before tax
AEGON's underlying earnings before tax increased
to EUR 522 million in the second quarter, a significant improvement compared
with the same period last year. This increase in earnings was due mainly to
improved financial markets, strengthening of the US dollar against the euro
and growth of the business, while last year's earnings had also included
several exceptional items.
In the Americas, underlying earnings totaled
EUR 437 million, a 51% increase compared with last year, primarily the result
of higher investment income, a recovery in equity markets and lower expenses.
Underlying earnings in the Netherlands came in strong at EUR 97 million.
However, earnings declined as the second quarter last year had included a
one-time release in provisions of EUR 20 million. Results for the second
quarter of 2010 were also affected by lower investment income and the sale of
AEGON's Dutch funeral insurance business.
In the United Kingdom, underlying earnings increased slightly to EUR 22
million as higher profits from annuities were partly offset by higher
project-related expenses.
Underlying earnings from New Markets declined to EUR 40 million. The
inclusion of AEGON Asset Management was more than offset by lower results
from Central & Eastern Europe and further investments in the company's
operations in Asia.
Expenses for the holding company increased slightly in the second quarter
of 2010 to EUR 74 million, primarily a result of higher funding costs.
Fair value items
In the second quarter, fair value items showed an overall performance of
EUR 3 million.
Overperformance in the Netherlands was the result mainly of gains in the
fair value of guarantees and related hedges, partly offset by lower
residential real estate values. In the Americas, underperformance was due
primarily to a decline in results from credit derivatives and variable
annuity guaranteed minimum withdrawal benefits products, which offset gains
from the company's macro equity hedge.
AEGON has decided to set its short term equity market return assumption
in determining estimated gross profits on variable life and variable annuity
products in the Americas at 9% for the second quarter, reflecting the
continued volatility experienced in equity markets and the use of macro
equity hedges. This decision resulted in an additional charge of EUR 144
million, which has been included in fair value items, partly offsetting gains
from the company's macro equity hedge.
In addition, a widening of AEGON's own credit spread was more than offset
by fair value movements of derivatives, which resulted in a loss for the
holding company.
Gains on investments
In the second quarter, realized gains on investments increased to EUR 148
million. In both the United States and the Netherlands, gains were related
primarily to the sale of bonds as part of asset and liability management,
while the gain of EUR 97 million in the holding was realized on investments
related to excess capital.
Impairment charges
Net impairments continued their downward trend, amounting to EUR 77
million, reaching their lowest level in two years and approaching AEGON's
long-term assumptions. Impairments during the second quarter were primarily
related to US housing related securities.
Other charges
Other charges amounted to EUR 60 million. These included a one-time
provision of EUR 105 million for settlement of a dispute related to a
Bank-Owned Life Insurance (BOLI) policy in the United States. Subsequent to
the disruption in the credit market, which affected the investment value of
the policy's underlying assets, a suit was filed alleging that the policy
terms were not sufficiently fulfilled by AEGON.
This provision was partly offset by a book gain of
EUR 33 million from the sale of AEGON's funeral insurance business in the
Netherlands.
Run-off businesses
AEGON's run-off businesses in the Americas recorded a loss in the second
quarter of EUR 49 million. This loss was lower than expected because of
better portfolio yields.
Income tax
Tax charges in the second quarter amounted to
EUR 74 million and included a EUR 26 million tax benefit related to
cross-border intercompany reinsurance transactions between the United States
and Ireland.
Operating expenses
Operating expenses increased 3% to EUR 841 million due to a strengthening
of the US dollar and pound sterling against the euro. However, operating
expenses declined 2% at constant currencies as result of a number of
initiatives to reduce expenses.
New life sales
New life sales increased 22% compared with the second quarter of 2009 to
EUR 590 million as almost all units experienced double-digit growth. The main
drivers behind the increase were pension sales in the United Kingdom and
retail life sales in the Americas.
Deposits
Gross deposits, excluding run-off businesses,
rose 16% to EUR 7.6 billion. Primary drivers of
the increase were third-party asset management,
US pensions and retail mutual fund inflows, offsetting lower fixed annuity
deposits, which were managed lower. Net deposits totaled EUR 1 billion,
excluding AEGON's run-off businesses, as all units reported positive net
deposits.
Value of new business
AEGON's value of new business declined to EUR 148 million in the second
quarter due to a decrease in the United Kingdom, following earlier repricing
of immediate annuities and lower fixed annuity sales in the United States. In
Spain, lower sales of risk products also led to a lower value of new
business.
In the second quarter, 22% of AEGON's total value of new business came
from New Markets. The internal rate of return on new business remained strong
at 18% in the second quarter.
Revenue-generating investments
Revenue-generating investments increased 5% compared with the end of the
first quarter to EUR 409 billion, primarily as a result of a strengthening in
both the US dollar and the pound sterling against the euro.
Capital management
At the end of the second quarter, AEGON's core capital position,
excluding revaluation reserves, amounted to EUR 18.6 billion, equivalent to
74% 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 over time to
75%6.
AEGON's revaluation reserves at June 30, 2010, turned positive for the
first time in almost three years and amounted to EUR 588 million. This
significant improvement is mainly the result of an increase in the value of
fixed income securities.
Shareholders' equity rose to EUR 17.2 billion as a result of the improved
revaluation reserves, strengthening of the US dollar and the pound sterling
against the euro, and the addition of second quarter net income.
Excess capital above S&P's AA capital adequacy requirements declined to
EUR 3.0 billion, of which EUR 1.9 billion was held in operating units and
EUR 1.1 billion at the holding company. Positive contributions from earnings
and capital preservation measures were more than offset by increased capital
requirements for asset related risks. Standard & Poor's revised their risk
factors, significantly increasing applied charges related primarily to bond
portfolios. As a result, capital requirements in the Americas rose during the
second quarter by USD 0.9 billion.
At June 30, 2010, AEGON's Insurance Group Directive (IGD) capital surplus
totaled EUR 7 billion, equivalent to a solvency ratio of approximately 200%.
Over the past few months, AEGON has been engaged in the process of
obtaining the European Commission's final consent to the terms relating to
AEGON's participation in the capital support program of the Dutch State.
AEGON expects the European Commission to announce its final decision in the
near future.
Dividend
AEGON's dividend policy remains unchanged and is based on its capital
position and cash flows. AEGON aims to maintain a sizeable cash buffer in
order to fulfill its priority of repaying the Dutch State as soon as it is
responsible and feasible to do so. AEGON will therefore not declare an
interim dividend to common shareholders in 2010.
Risk management
In the second quarter, AEGON reduced its already limited exposure to
peripheral European sovereign bonds, which amounted to a market value of EUR
1.5 billion at June 30, 2010. As part of this reduction, AEGON sold
approximately EUR 450 million in Spanish government bonds during the quarter.
Financial strength ratings
During the second quarter, the financial strength ratings of AEGON's US
operating companies were upgraded by A.M. Best to A+ with a Stable outlook,
reflecting A.M. Best's assessment of the companies' financial strength and
support of the parent. In July, Fitch Ratings lowered AEGON's operating
companies' insurer financial strength ratings to AA- and raised the outlook
to Stable.
The full version of this release is available at
www.aegon.com/en/Home/Investors/Quarterly-results/
ADDITIONAL INFORMATION
The Hague, August 12, 2010
Media conference call
08:00 CET
Audio webcast on www.aegon.com
Analyst & investor conference call
09:00 CET
Audio webcast on www.aegon.com
Call-in numbers (listen only):
USA: +1-480-629-9822
UK: +44-208-515-2302
NL: +31-20-796-5332
Replay
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: 4329936#
US +1-303-590-3030 Access Code: 4329936#
Supplements
AEGON's Q2 2010 Financial Supplement and Condensed Consolidated Interim
Financial Statements are available on www.aegon.com.
AEGON's Form 6-K for the six months ended June 30, 2010 will be available
on www.aegon.com on Friday August 13, 2010 as of 15.30 CET (opening
NYSE).
About AEGON
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 more than 40 million customers across the globe.
Second quarter Full year
Key figures - EUR 2010 2009
Underlying earnings
before tax 522 million 1.2 billion
New life sales 590 million 2.1 billion
Gross deposits
(excl. run-off) 7.6 billion 28 billion
Revenue generating
investments
(end of period) 409 billion 363 billion
Cautionary note regarding non-GAAP measures
This press release 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 quarterly statements and should not viewed
as a substitute for IFRS financial measures. 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 peers.
Local currencies and constant currency exchange rates
This press release 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
statements.
Forward-looking statements
The statements contained in this press release 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 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;
- Effects of deliberations of the European Commission regarding the aid
we received from the Dutch State in December 2008;
- 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 maintain;
- 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
acquisitions;
- Our failure to achieve anticipated levels of earnings or operational
efficiencies as well as other cost saving initiatives; and
- The impact our adoption of the International Financial Reporting
Standards may have on our reported financial results and financial
condition.
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
based.
Contact information
Media relations: Greg Tucker
+31(0)70-344-8956
gcc-ir@aegon.com
Investor relations: Gerbrand Nijman
+31-(0)70-344-8305
877-548-9668 - toll free USA only
ir@aegon.com
Contact information: 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., August 12, Netherlands, The hague
