AEGON Improves Earnings, Sales and Capital Position
THE HAGUE, The Netherlands, November 11, 2010 /PRNewswire-FirstCall/ --
- 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 http://www.aegon.com
STRATEGIC HIGHLIGHTS
- 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.
Reallocate capital
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.
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.
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.
Increase returns
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 customer loyalty.
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
OPERATIONAL HIGHLIGHTS
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
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 hedges.
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.
Impairment charges
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 declined.
Other charges
Other charges of EUR 14 million included EUR 12 million related to restructuring in the United Kingdom.
Run-off businesses
AEGON's run-off businesses in the Americas recorded a loss in the third quarter of EUR 28 million, an improvement over recent quarters.
Income tax
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
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 Netherlands.
Deposits
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
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.
Capital management
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 http://www.aegon.com/en/Home/Investors/Quarterly-results/
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.
8) 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.
ADDITIONAL INFORMATION
The Hague, November 11, 2010
Media conference call
08:00 CET
Audio webcast on http://www.aegon.com
Analyst & investor conference call
09:00 CET
Audio webcast on http://www.aegon.com
Call-in numbers:
NL +31-45-6316901
UK +44-207-153-2027
USA +1-480-629-9726
Replay
A replay of the conference call will be available 2 hours after the conference call on http://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#
Supplements
AEGON's Q3 2010 Financial Supplement and Condensed Consolidated Interim Financial Statements are available on http://www.aegon.com
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 some 40 million customers across the globe.
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 protected]
Investor relations: Gerbrand Nijman
+31(0)70-344-8305
877-548-9668 - toll free USA only
[email protected]
http://www.aegon.com
SOURCE AEGON N.V.
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