THE HAGUE, The Netherlands, August 11, 2011 /PRNewswire/ --
- Growth offset by unfavorable currency movements and anticipated exceptional charges
- Underlying earnings before tax of EUR 401 million; growth offset by unfavorable currency movements
(EUR 44 million), higher provisioning for longevity in the Netherlands (EUR 23 million) and UK customer redress charges (EUR 14 million)
- Net income amounts to EUR 404 million, supported by realized gains on investments
- Return on equity of 8.0% in the first half year of 2011
- Continued strong sales in fee-based businesses in line with strategic focus
- Total sales decline to EUR 1.3 billion, due mainly to unfavorable currency movements
- New life sales total EUR 431 million; declines in the Americas and the UK following repricing of products
- Gross deposits amount to EUR 6.7 billion, supported by strong variable annuity and pension deposits
- Strong capital position and healthy cash flows
- Excess capital of EUR 1 billion at the holding after full repurchase of core capital securities from Dutch State
- IGD solvency ratio of ~200% reflection of strong capitalization
- Capital base ratio of 73%; full repurchase of core capital securities partly offset by retained earnings
- Operational free cash flow of EUR 283 million
Statement of Alex Wynaendts, CEO
"During the second quarter, we made solid progress in delivering on AEGON's key strategic priorities, not least of which was the completion of repayment to the Dutch State. The particularly strong sales of variable annuities and pension and retirement products in the United States are a result of the successful repositioning of our business toward more fee-generating income. Our pursuit of growth opportunities in AEGON's new markets led to strong new life sales in Central & Eastern Europe, as well as expanded distribution in Spain, where we recently strengthened our life insurance and pension partnership with Unnim, a leading savings bank in the northeastern region of the country.
"The weakening of the US dollar had a notable impact on AEGON's reported results. Net income was strong for the quarter, however, underlying earnings were negatively affected by anticipated exceptional items in the United Kingdom and the Netherlands.
"Clearly, the current economic environment poses considerable challenges. However, over the past years we have implemented measures to strengthen and protect AEGON's balance sheet by reducing our exposure to equity and credit markets, as well as interest rate risks. At the same time, we are restructuring our businesses in our key markets. These actions, along with our very limited exposure to peripheral European countries, support our confidence in AEGON's growth prospects going forward."
KEY PERFORMANCE INDICATORS Q2 Q1 Q2 amounts in EUR millions b) Notes 2011 2011 % 2010 % Underlying earnings before tax 1 401 414 (3) 483 (17) Net income 2 404 327 24 413 (2) Sales 3 1,261 1,411 (11) 1,475 (15) Value of new business (VNB) 4 103 118 (13) 138 (25) Return on equity 5 8.1% 7.8% 4 8.5% (5)
KEY PERFORMANCE INDICATORS YTD YTD amounts in EUR millions b) Notes 2011 2010 % Underlying earnings before tax 1 815 929 (12) Net income 2 731 785 (7) Sales 3 2,672 2,917 (8) Value of new business (VNB) 4 221 276 (20) Return on equity 5 8.0% 8.4% (5)
For notes see page 22.
1 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 deposits.
- AEGON further detailed strategy and reiterated targets at Analyst & Investor Conference
- Repayment to Dutch State completed
- Divestment of Transamerica Reinsurance concluded
- Appointment of Jaime Kirkpatrick as CEO of AEGON Spain
Sustainable earnings growth with an improved risk-return profile
AEGON's transformational process to deliver sustainable earnings growth with an improved risk-return profile is on track with the completion of full repayment to the Dutch State in June. The company reiterated its targets at its recent Analyst & Investor Conference in London:
- Grow underlying earnings before tax on average by 7%-10% per annum;
- Achieve a return on equity of 10%-12% by 2015;
- Increase fee businesses to 30%-35% of underlying earnings before tax by 2015; and
- Increase 2010 normalized operating free cash flow by 30% by 2015.
AEGON also announced its intention to achieve structural cost reductions in its established markets. In the Netherlands, a 20% reduction in operating expenses as compared to the 2009 base is targeted by the end of 2012. In the United Kingdom, AEGON is on track to reduce costs by 25% by the end of 2011. In the United States, AEGON aims to grow its life and protection business faster than the industry, while keeping operating expenses flat throughout the period until 2015.
AEGON's ambition to be a leader in all of its chosen markets by 2015 is supported by four strategic objectives: Optimize Portfolio, Enhance Customer Loyalty, Deliver Operational Excellence and Empower Employees.
These key objectives have been embedded in all AEGON businesses and provide the strategic framework for the company's ambition to become the most-recommended life insurance and pension provider by customers and distributors, as well as the most-preferred employer in the sector.
To be a leader in all our chosen markets by 2015
AEGON's STRATEGIC OBJECTIVES
- Optimize portfolio
- Enhance customer loyalty
- Deliver operational excellence
- Empower employees
In Spain, AEGON has finalized an agreement to expand its life and health insurance and pension partnership with Unnim. The agreement includes the acquisition of a 50% stake in the life insurance business of Caixa Sabadell, expanding into the network of Caixa Manlleu and strengthening of AEGON's existing partnership with Caixa Terrassa. These three savings banks joined together earlier this year to form Unnim. The agreement gives AEGON the exclusive right to distribute its life insurance and pension products through Unnim's network of 623 branches. Unnim is a leading savings bank in the northeastern part of Spain, with a significant presence and more than one million customers.
Also, AEGON has closed an agreement to jointly develop health insurance business with Caja Navarra, part of Banca Cívica.
AEGON continues to closely monitor the process of consolidation and restructuring in the financial sector in Spain.
AEGON has appointed Jaime Kirkpatrick to the
role of CEO of AEGON Spain effective July 1, 2011. Mr. Kirkpatrick has played a key role in expanding AEGON's presence across the Spanish market in his previous capacity of director of bancassurance for AEGON Spain.
On August 9, 2011, AEGON completed the divestment of its life reinsurance activities, Transamerica Reinsurance, to Scor. The total after-tax consideration amounted to USD 1.4 billion, consisting of cash proceeds of USD 0.9 billion from Scor and a further USD 0.5 billion of capital released. AEGON estimates that this transaction will have a positive impact on its IGD solvency ratio of approximately 13% in the third quarter of 2011.
1 Main economic assumptions embedded in targets: annual gross equity market return of 9%, 10-year US interest rate of 5.25% in 2015 and EUR/USD rate of 1.35.
Enhance customer loyalty
In its aim to develop a stronger and more consistent brand portfolio globally, with shared purposes and core values, AEGON has sharpened its brand proposition in the United States. The company will bring together its North American retail businesses under one name, Transamerica. A new advertising campaign will be launched in September.
AEGON has also decided to rebrand its asset management activities in the United Kingdom as Kames Capital to enhance its distinctive investment propositions while supporting accelerated growth of the business.
Deliver operational excellence
In the Netherlands, AEGON has decided to combine its pension service centre with its corporate & institutional clients sales unit into one pension business with the aim of increasing efficiency, providing better service and strengthening AEGON's leading position in the Dutch pension market. The new unit will serve three customer groups - small and medium sized enterprises, institutional clients and pension plan participants.
AEGON has established a target to reduce the CO2 emissions of its offices by 10% by 2012. The goal is part of AEGON's continuing efforts to manage all assets - including those that affect the environment - in a responsible way. In the long run, the changes that are implemented to meet the target will reduce costs as well as CO2 emissions. Setting a goal in this respect will also help the company meet the growing expectations of its stakeholders.
FINANCIAL OVERVIEW c) EUR millions Notes Q2 2011 Q1 2011 % Q2 2010 % Underlying earnings before tax Americas 325 347 (6) 398 (18) The Netherlands 74 81 (9) 97 (24) United Kingdom 10 12 (17) 22 (55) New markets 59 57 4 40 48 Holding and other (67) (83) 19 (74) 9 Underlying earnings before tax 401 414 (3) 483 (17) Fair value items (23) (85) 73 3 - Realized gains / (losses) on investments 204 91 124 148 38 Impairment charges (100) (62) (61) (77)(30) Other income / (charges) (16) (3) - (60) 73 Run-off businesses 10 22 (55) (10) - Income before tax 476 377 26 487 (2) Income tax (72) (50) (44) (74) 3 Net income 404 327 24 413 (2) Net income / (loss) attributable to: Equity holders of AEGON N.V. 403 327 23 413 (2) Non-controlling interests 1 - - - - Net underlying earnings 339 333 2 350 (3) Commissions and expenses 1,500 1,513 (1) 1,375 9 of which operating expenses 11 847 837 1 841 1 New life sales Life single premiums 1,189 1,726 (31) 1,922 (38) Life recurring premiums annualized 312 328 (5) 362 (14) Total recurring plus 1/10 single 431 501 (14) 554 (22) New life sales Americas 12 104 113 (8) 131 (21) The Netherlands 40 65 (38) 41 (2) United Kingdom 217 247 (12) 308 (30) New markets 12 70 76 (8) 74 (5) Total recurring plus 1/10 single 431 501 (14) 554 (22) New premium production accident and health insurance 145 159 (9) 148 (2) New premium production general insurance 14 13 8 15 (7) Gross deposits (on and off balance) Americas 12 5,014 5,629 (11) 5,154 (3) The Netherlands 442 462 (4) 624 (29) United Kingdom 17 19 (11) 19 (11) New markets 12 1,242 1,267 (2) 1,787 (30) Total gross deposits 6,715 7,377 (9) 7,584 (11) Net deposits (on and off balance) Americas 12 426 (233) - 758 (44) The Netherlands (113) (115) 2 55 - United Kingdom 14 2 - 10 40 New markets 12 (2,487)(1,719) (45) 187 - Total net deposits excluding run-off businesses (2,160)(2,065) (5) 1,010 - Run-off businesses (527) (880) 40 (1,849) 71 Total net deposits (2,687)(2,945) 9 (839) -
FINANCIAL OVERVIEW c) EUR millions Notes YTD 2011 YTD 2010 % Underlying earnings before tax Americas 672 735 (9) The Netherlands 155 201 (23) United Kingdom 22 50 (56) New markets 116 86 35 Holding and other (150) (143) (5) Underlying earnings before tax 815 929 (12) Fair value items (108) (13) - Realized gains / (losses) on investments 295 274 8 Impairment charges (162) (227) 29 Other income / (charges) (19) (37) 49 Run-off businesses 32 (28) - Income before tax 853 898 (5) Income tax (122) (113) (8) Net income 731 785 (7) Net income / (loss) attributable to: Equity holders of AEGON N.V. 730 784 (7) Non-controlling interests 1 1 - Net underlying earnings 672 695 (3) Commissions and expenses 3,013 2,961 2 of which operating expenses 11 1,684 1,653 2 New life sales Life single premiums 2,915 3,841 (24) Life recurring premiums annualized 640 673 (5) Total recurring plus 1/10 single 932 1,057 (12) New life sales Americas 12 217 241 (10) The Netherlands 105 103 2 United Kingdom 464 573 (19) New markets 12 146 140 4 Total recurring plus 1/10 single 932 1,057 (12) New premium production accident and health insurance 304 296 3 New premium production general insurance 27 29 (7) Gross deposits (on and off balance) Americas 12 10,643 10,556 1 The Netherlands 904 1,367 (34) United Kingdom 36 55 (35) New markets 12 2,509 3,380 (26) Total gross deposits 14,092 15,358 (8) Net deposits (on and off balance) Americas 12 193 1,293 (85) The Netherlands (228) 122 - United Kingdom 16 39 (59) New markets 12 (4,206) 308 - Total net deposits excluding run-off businesses (4,225) 1,762 - Run-off businesses (1,407) (4,059) 65 Total net deposits (5,632) (2,297) (145)
REVENUE-GENERATING INVESTMENTS June 30, Mar. 31, 2011 2011 % Revenue-generating investments (total) 391,276 399,882 (2) Investments general account 132,837 136,991 (3) Investments for account of policyholders 142,672 144,296 (1) Off balance sheet investments third parties 115,767 118,595 (2)
Underlying earnings before tax
AEGON's underlying earnings before tax amounted to EUR 401 million in the second quarter. The decline, compared with the same quarter last year, was mainly due to unfavorable currency exchange rate movements, higher provisioning for longevity in the Netherlands and charges related to the customer redress program in the United Kingdom.
Underlying earnings from the Americas decreased to EUR 325 million. The decline was the result of a weakening of the US dollar against the euro and a lower contribution from fixed annuities as balances are being managed lower. Lower earnings from Life & Protection were offset by higher fee-based earnings, consistent with AEGON's strategy.
In the Netherlands, underlying earnings decreased to EUR 74 million as a result of higher provisioning for longevity of EUR 23 million and investments in developing new distribution capabilities. AEGON expects to provision on average EUR 20 million per quarter in 2011 in addition to previous levels of provisioning.
In the United Kingdom, underlying earnings declined to EUR 10 million. The decrease was mainly due to charges of EUR 14 million related to an ongoing program to correct historical issues within customer policy records. Expenses related to the execution of this program amounted to EUR 7 million. In addition, investments in developing new propositions amounted to EUR 8 million.
Underlying earnings from New Markets increased to EUR 59 million driven mainly by strong earnings in Central & Eastern Europe and AEGON Asset Management.
Costs for the holding amounted to EUR 67 million as lower interest income and increased expenses related to the preparation for implementation of Solvency II were more than offset by a one-time benefit of
EUR 14 million in the second quarter of 2011.
Net income decreased slightly to EUR 404 million. Higher net income for the Americas and New Markets was offset by lower net income for the Netherlands and the United Kingdom.
Fair value items
In the second quarter, fair value items recorded a loss of EUR 23 million. Negative results in the Americas, mainly related to lower interest rates and equity market volatility, were partly offset by positive fair value movements of derivatives related to debt issued by the holding.
Realized gains on investments
Realized gains on investments amounted to EUR 204 million for the quarter and were the result of a strategic reallocation of equities into fixed income in the Netherlands in addition to normal trading in the investment portfolio.
Impairment charges amounted to EUR 100 million and were linked to residential mortgage-backed securities in the United States and the result of exchange offers on specific holdings of European banks in the United Kingdom.
Other charges amounted to EUR 16 million and are mostly related to restructuring charges in the United Kingdom (EUR 15 million), the Netherlands (EUR 10 million) and New Markets (EUR 3 million).
The results of run-off businesses increased to
EUR 10 million, mainly as a result of a lower amortization yield paid on internally transferred assets related to the institutional spread-based business.
Tax charges for the quarter amounted to EUR 72 million. These charges included EUR 4 million in tax benefits related to cross-border intercompany reinsurance transactions and a favorable tax settlement of EUR 15 million in the United States.
Return on equity
In the first half of 2011, AEGON's return on equity declined to 8.0%, mainly the result of higher average shareholders' equity excluding revaluation reserves.
The increase in average shareholders' equity was mainly the result of an equity issue of EUR 0.9 billion in February 2011.
As a result of movements in currency exchange rates, operating expenses remained level at EUR 847 million. Excluding restructuring charges and employee benefit plans and at constant currencies, operating expenses remained level as well.
AEGON's total sales decreased 15% to EUR 1.3 billion due mainly to unfavorable currency movements. At constant currencies, total sales declined 7%. New life sales were mainly impacted by lower production in the United Kingdom and the Americas following repricing of products, only partly offset by growth in Central & Eastern Europe.
Gross deposits amounted to EUR 6.7 billion, or a decline of 2% at constant currencies. Strong variable annuity and stable value deposits in the United States were more than offset by the effects of a weaker US dollar, lower asset management inflows and less savings account deposits in the Netherlands.
Value of new business
Compared with the second quarter 2010, the value of new business declined considerably to EUR 103 million. This was the result of higher mortgage-related funding costs and updated mortality assumptions in the Netherlands, lower new business volumes in the United Kingdom and Spain, discontinuance of new mandatory pension sales in Hungary and unfavorable currency exchange rates.
Revenue-generating investments declined 2% compared with the end of the first quarter of 2011 to EUR 391 billion, the result of a weakening of the US dollar against the euro and the transfer of over EUR 2 billion of pension assets to the Hungarian State during the second quarter 2011.
At the end of the second quarter, AEGON's core capital, excluding revaluation reserves, amounted to EUR 15.9 billion, equivalent to 73% of the company's total capital base. The decline from the previous quarter was mainly due to the repurchase of all remaining convertible core capital securities from the Dutch State for an amount of EUR 750 million plus a premium of EUR 375 million. AEGON is on target to achieve the proportion of core capital to be at least 75% of total capital by the end of 2012
Shareholders' equity remained level compared with first quarter-end 2011 at EUR 16.8 billion as net income in the second quarter was offset by the premium paid on the repurchase of the final tranche of convertible core capital securities from the Dutch State.
The revaluation reserves at June 30, 2011, increased to EUR 1 billion, mainly the result of a decrease in risk-free interest rates which had a positive effect on the value of fixed income securities. This positive effect was offset by a decline in the foreign currency translation reserve, primarily the result of a weakening of the US dollar against the euro.
AEGON aims to maintain at least 1.5 times holding expenses as a buffer at the holding, currently equivalent to approximately EUR 900 million. During the second quarter, excess capital in the holding decreased to EUR 1 billion. The EUR 1.125 billion payment to the Dutch State, holding costs, interest payments and the preferred dividend were partly offset by EUR 1.4 billion in dividends received from the company's operating units.
At June 30, 2011, AEGON's Insurance Group Directive (IGD) ratio amounted to ~200%, a slight decline from the level of ~210% at the end of the first quarter. Solvency ratios in the Netherlands and the United Kingdom were relatively flat, while the solvency ratio in the United States declined. The main driver of this decline was up-streaming of dividends to repurchase all remaining convertible core capital securities provided by the Dutch State for an amount of EUR 1.125 billion. The proceeds related to the divestment of Transamerica Reinsurance will be accounted for in the third quarter.
AEGON's subsidiaries generated EUR 564 million in operational cash flows during the second quarter of 2011. Operational free cash flows, which reflect excess capital generation, were relatively stable as the impact of realized gains in the Netherlands was offset by increased capital requirements in the United States related to low interest rates.
After deduction of EUR 281 million for investments
in new business, operational free cash flow totaled EUR 283 million for the quarter. This brings the total for the first half year of 2011 to EUR 547 million of operational free cash flows.
The full version of this release is available at http://www.aegon.com/en/Home/Investors/Quarterly-results/
The Hague, August 11, 2011
Press conference call
8:00 am CET: Audio webcast on http://www.aegon.com
Analyst & investor presentation / conference call
9:00 am CET: Audio webcast on http://www.aegon.com
United States: +1-480-629-9673
United Kingdom: +44-207-153-2027
The Netherlands: +31-45-631-6902
Two hours after the conference call, a replay will be available on http://www.aegon.com and on the following phone numbers:
United Kingdom: +44-207-154-2833, access code: 4458655#
United Sates: +1-303-590-3030, access code: 4458655#
AEGON's Q2 2011 Financial Supplement and Condensed Consolidated Interim Financial Statements are available on http://www.aegon.com.
As an international life insurance, pension and asset management company based in The Hague, AEGON has businesses in over twenty markets in the Americas, Europe and Asia. AEGON companies employ approximately 26,500 people and have some 40 million customers across the globe.
Third Full Second quarter quarter year Key figures - EUR 2011 Full year 2010 2010 2009 Underlying earnings before tax 401 million 1.8 billion 473 million 1.2 billion New life sales 431 million 2.1 billion 527 million 2.1 billion Gross deposits 6.7 billion 33 billion 9.4 billion 28 billion Revenue-generating investments (end of period) 391 billion 413 billion 405 billion 363 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 peers.
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 statements.
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 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.
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.
Willem van den Berg
877-548-9668 - toll free USA only
SOURCE AEGON N.V.