Aegon Delivers Strong Q1 2013 Results
08 May, 2013, 06:30 BST
THE HAGUE, The Netherlands, May 8, 2013 /PRNewswire/ --
- Solid underlying earnings; net income impacted by equity hedging
- Underlying earnings of EUR 445 million; effects of business growth and favorable equity markets offset by exits from partnerships in Spain and higher sales and employee performance related expenses
- Decline in net income to EUR 204 million mainly due to losses on equity hedging programs established to protect the capital position
- Return on equity decreases to 6.3%, or 7.0% excluding run-off businesses, as high net income in previous periods resulted in higher average shareholders' equity
- Continued sales momentum in accumulation and at-retirement products
- New life sales increase 12% to EUR 499 million; particularly strong pension sales in the UK and NL
- Accident & health and general insurance sales increase 14% to EUR 239 million
- Deposits 9% lower at EUR 10 billion; substantial increase in variable annuity and retail mutual fund deposits offset by lower asset management and pension deposits
- Market consistent value of new business increases significantly to EUR 232 million, due to higher sales and improved margins as a result of product repricing and redesign
- Strong capital position and cash flows
- IGDa) solvency ratio stable at 224%; US RBC ratio of ~485%
- Excess capital of EUR 1.8 billion at holding level
- Operational free cash flow of EUR 553 million, including exceptional items of EUR 233 million
Statement of Alex Wynaendts, CEO
"Our solid results, in terms of underlying earnings, sales and our capital position confirm that our strategic priorities are the right ones. In the first quarter, the sharp rise in equity markets resulted in a loss on our equity hedging programs which impacted net income. These hedging programs have been put in place to protect our capital position, in line with our strategy to reduce Aegon's exposure to financial market risk.
The gradual improvement of financial markets resulted in impairments reaching their lowest level since the start of the financial crisis in 2008.
"The recent conclusion of our partnership with Caja de Ahorros del Mediterráneo at favorable terms, along with our new long-term exclusive distribution agreement with Banco Santander, marks the successful restructuring of our business in Spain. In the UK, our focus on reducing expenses, while also making the necessary investments in new platform capabilities, has positioned Aegon to capture the significant growth opportunities in the new environment. Overall, this was a solid quarter for Aegon and it is clear our strategy is delivering the intended benefits for our customers, shareholders, employees and business partners."
Key performance indicators
Q1 Q4 Q1
amounts in EUR millions b) Notes 2013 2012 % 2012 %
Underlying earnings before tax 1 445 461 (3) 439 1
Net income 2 204 431 (53) 525 (61)
Sales 3 1,738 1,813 (4) 1,758 (1)
Market consistent value of new business 4 232 204 14 125 86
Return on equity 5 6.3% 7.4% (15) 7.1% (11)
STRATEGIC HIGHLIGHTS
- Restructuring of Spanish business completed with exit from CAM partnership
- Aegon receives 'Leading Innovation' and 'Best Workplace Savings Platform' awards in the UK
- New online tools launched, including social network insurer Kroodle
- Company-wide employee survey confirms increased employee engagement
Aegon's ambition
Aegon's aim 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. They provide the strategic framework for the company's ambition to become the most-recommended life insurance and pension provider by customers and business partners, as well as the most-preferred employer in the sector.
In recent years, Aegon has implemented a broad restructuring program to sharpen its focus on its core lines of business, significantly reduce its overall cost base, and create greater efficiencies across the organization. A further demonstration of Aegon's more disciplined focus has been a better balance between spread-based and fee-generating business, a substantially improved risk-return profile and an improved capital position.
Continued economic uncertainty has increased the opportunities for Aegon in pursuing its purpose of helping people take responsibility for their financial future. To capture these opportunities, Aegon is accelerating the development of new business models by investing in innovative, technology-driven distribution channels, to connect better and more frequently with customers, improve service levels and increase retention rates. Aegon's accelerated investments in technology will also better support intermediaries to adapt to the changing distribution environment.
Optimize portfolio
Aegon has reached an agreement with Banco Sabadell to sell its 50% stake in its life insurance partnership originally established with Caja de Ahorros del Mediterráneo (CAM) for a consideration of EUR 449.5 million. This amount, combined with the proceeds from its two previously announced joint venture exits (Banca Cívica and Unnim Banc), brings the total realized by Aegon to EUR 1 billion. This transaction with Banco Sabadell completes Aegon's restructuring of its business in Spain after announcing plans last year to exit certain partnerships as a result of the ongoing consolidation within the bank sector.
Aegon maintains a long-term commitment to Spain and has recently reinforced its market position with an exclusive 25-year strategic partnership with Banco Santander to distribute life and general insurance products through its extensive network of over 4,600 bank branches. This long-term alliance with Spain's largest financial group provides access to a potential client base of twelve million individuals across the country. Aegon will also continue to distribute its life insurance and protection products through its network of agents, as well as through the branch networks of Liberbank and Caja Badajoz, the company's other two joint venture partners.
Deliver operational excellence
Aegon recently received two awards for its Aegon Retirement Choices (ARC) platform in the United Kingdom within the categories 'Leading Innovation' and 'Best Workplace Savings Platform'. The awards were given at the annual Platform Awards in London, hosted by The Platforum. The platform is recognized for the innovative seamless link it makes between Workplace Savings and At-Retirement. ARC offers a simple, online interface where both customers and advisors can flexibly manage their savings and retirement income, creating a smooth transition from retirement planning to retirement living.
Enhance customer loyalty
Putting the customer first is central to Aegon's strategy and long-term ambitions. Management within all business units are fully aligned and incentivized to create a customer centered culture and to measure customer satisfaction on a consistent basis. A key element of Aegon's strategy is to get closer to its customers by an increased use of technology and a greater focus on the needs of the customers at every level within the organization.
Increasingly, individuals are exploring financial services and insurance-related products online and desire greater knowledge about how certain products and services will address their needs. New online tools were recently launched in the Dutch and the US market. In the Netherlands, Aegon launched Kroodle, one of the world's first Facebook insurance products. Kroodle offers innovative, online products allowing customers in the Netherlands to purchase insurance and manage their accounts through their Facebook profile. In the United States, the improved Transamerica Direct website makes it easy for customers to learn more about their insurance needs and make purchase decisions. It offers videos, a downloadable guide and a new Plan Builder tool to help educate customers on the different types of insurance products available to them. These are just two examples of the many investments Aegon is making that are expected to yield results in the longer-term and that support the company's strategy and ambitions.
Empower employees
Aegon realizes that continued success is only possible with the commitment and dedication of its employees and recently completed its second annual employee engagement survey. The survey's participation rate increased from 78% to 89% this year. The results, expressed in 'Engagement' and 'Enablement', were up from 63 points to 67 points and from 64 points to 67 points respectively. This provides clear evidence that the initiatives pursued in each business unit are working to help employees better understand Aegon's goals and how they individually contribute to the company's success.
Financial overview c)
EUR millions Notes Q1 2013 Q4 2012 % Q1 2012 %
Underlying earnings before tax
Americas 312 352 (11) 303 3
The Netherlands 85 85 - 81 5
United Kingdom 24 27 (11) 30 (20)
New markets 62 52 19 88 (30)
Holding and other (38) (55) 31 (63) 40
Underlying earnings before tax 445 461 (3) 439 1
Fair value items (286) (77) - 148 -
Realized gains / (losses) on investments 113 149 (24) 45 151
Impairment charges (17) (58) 71 (41) 59
Other income / (charges) (4) 106 - (17) 76
Run-off businesses (14) (15) 7 (2) -
Income before tax 237 566 (58) 572 (59)
Income tax (33) (135) 76 (47) 30
Net income 204 431 (53) 525 (61)
Net underlying earnings 323 357 (10) 338 (4)
Commissions and expenses 1,417 1,465 (3) 1,384 2
of which operating expenses 11 804 835 (4) 766 5
New life sales
Life single premiums 1,491 2,058 (28) 1,160 29
Life recurring premiums annualized 350 471 (26) 329 6
Total recurring plus 1/10 single 499 677 (26) 445 12
New life sales
Americas 12 110 148 (26) 120 (8)
The Netherlands 40 166 (76) 32 25
United Kingdom 286 306 (7) 213 34
New markets 12 63 57 11 80 (21)
Total recurring plus 1/10 single 499 677 (26) 445 12
New premium production accident and health insurance 225 196 15 195 15
New premium production general insurance 14 16 (13) 14 -
Gross deposits (on and off balance)
Americas 12 6,988 6,615 6 7,392 (5)
The Netherlands 404 282 43 560 (28)
United Kingdom 49 15 - 8 -
New markets 12 2,563 2,334 10 3,083 (17)
Total gross deposits 10,004 9,246 8 11,043 (9)
Net deposits (on and off balance)
Americas 12 1,613 788 105 1,061 52
The Netherlands (134) (248) 46 (185) 28
United Kingdom 40 5 - (1) -
New markets 12 145 446 (67) 1,364 (89)
Total net deposits excluding run-off businesses 1,664 991 68 2,239 (26)
Run-off businesses (1,073) (601) (79) (1,160) 8
Total net deposits 591 390 52 1,079 (45)
Revenue-generating investments
Mar. Dec.
31, 31,
2013 2012 %
Revenue-generating investments (total) 476,236 459,077 4
Investments general account 145,718 145,021 -
Investments for account of policyholders 159,563 152,968 4
Off balance sheet investments third parties 170,955 161,088 6
OPERATIONAL HIGHLIGHTS
Underlying earnings before tax
Aegon's underlying earnings before tax increased 1% compared to the first quarter of 2012 to EUR 445 million in the first quarter of 2013. Business growth and the positive effects of favorable equity markets were offset by the loss of earnings due to the sale of the company's interests in partnerships in Spain (EUR 14 million) and higher sales and employee performance related expenses (EUR 13 million).
Underlying earnings from the Americas increased to EUR 312 million. The 3% increase compared to the first quarter of 2012 is mainly the result of growth in Pensions and Life & Protection partly offset by lower fixed annuity earnings due to lower account balances and decreased spreads, as well as higher sales and employee performance related expenses.
In the Netherlands, underlying earnings increased 5% to EUR 85 million as higher earnings in Life & Savings and Non-life were partly offset by lower Pension earnings due to lower investment income as a result of the persisting low interest rate environment.
Underlying earnings from Aegon's operations in the United Kingdom of EUR 24 million were 20% lower compared to the first quarter of 2012. Earnings were negatively impacted by adverse persistency (EUR 8 million) following the implementation of the Retail Distribution Review. It is expected that the effects of adverse persistency will continue at least into the second quarter of 2013. These effects were partly offset by favorable equity market movements.
Underlying earnings from New Markets decreased 30% to EUR 62 million. Higher earnings from Asia were more than offset by lower underlying earnings from Aegon Asset Management, Central & Eastern Europe and Spain. Results in Spain were impacted by EUR 14 million as a result of the divestments of the joint venture with Banca Cívica and the partnership with CAM, while earnings from CEE included a charge of EUR 3 million related to the recently introduced insurance tax.
Total holding costs decreased 40% to EUR 38 million, mainly the result of lower net interest expenses following debt redemption.
Net income
Net income decreased to EUR 204 million as higher underlying earnings, realized gains on investments and lower impairments were more than offset by losses from fair value items.
Fair value items
The results from fair value items amounted to a loss of EUR 286 million. The loss was mainly due to macro equity hedging programs in the Americas which were unfavorably impacted by strong increases in equity markets during the first quarter. Aegon increased the macro hedge program during the fourth quarter of 2012 to also include the economic impact from future fee revenue related to variable annuity account balances. As the macro hedges are being carried at fair value versus the fee revenue emerging over time, the strong equity performance in the first quarter created an unusually large loss that will be offset over time as the fees emerge into underlying earnings. The hedging programs have been designed to mitigate the effect of substantial movements in equity markets on Aegon's capital position.
Realized gains on investments
In the first quarter, realized gains on investments amounted to EUR 113 million and were the result of normal trading activity in the investment portfolio and asset liability management.
Impairment charges
Impairments improved significantly compared to last year and amounted to EUR 17 million. They were largely related to residential mortgage loans in the Netherlands and Hungary as a result of an increase in arrears. In the Americas, there were net recoveries as impairments primarily linked to mortgage loans and mortgage related securities were fully offset by recoveries.
Other charges
Other charges amounted to EUR 4 million and related mostly to a charge of EUR 81 million related to increased accruals in connection with the company's use of the U.S. Social Security Administration's death master-file, offset by a gain of EUR 85 million related to the recapture of certain reinsurance contracts in the United States.
Run-off businesses
The results of run-off businesses amounted to a loss of EUR 14 million, which was primarily due to the reinsurance business. Aegon divested its life reinsurance business during 2011 through a reinsurance transaction and carries an intangible asset as a result. The buyer of the divested life reinsurance business transferred client contracts onto its own book faster than originally anticipated resulting in an acceleration of the amortization of the intangible asset during the quarter (EUR 19 million).
Income tax
Income tax amounted to EUR 33 million in the first quarter. The effective tax rate on underlying earnings for the first quarter of 2013 was 27%. The effective tax rate on total income was 14% driven by the combined effects of negative fair value items taxed at nominal rates, tax credits and tax exempt items.
Return on equity
Return on equity decreased to 6.3% for the first quarter of 2013 as high net income in previous periods resulted in higher average shareholders' equity excluding revaluation reserves and defined benefit plan remeasurements. Return on equity for Aegon's ongoing businesses, excluding the run-off businesses, amounted to 7.0% over the same period.
Operating expenses
In the first quarter, operating expenses increased 5% to EUR 804 million mainly as a result of higher sales and employee performance related expenses as well as favorable timing of expenses in the comparable quarter last year.
Sales
Compared to the first quarter of 2012, Aegon's total sales decreased 1% to EUR 1.7 billion. New life sales grew strongly, driven mainly by higher pension production as a result of strong market propositions in the Netherlands and the United Kingdom. In the Americas, new life sales declined primarily driven by lower universal life sales due to product withdrawals and product redesign, resulting from the focus on value creation. Gross deposits remained strong, with particular success in both the variable annuity and retail mutual fund businesses in the United States. Net deposits, excluding run-off businesses, amounted to EUR 1.7 billion and were primarily driven by variable annuity and retirement deposits in the United States.
Market consistent value of new business
The market consistent value of new business increased strongly to EUR 232 million mainly as a result of product repricing and redesign in the United States and a higher contribution from mortgage and pension production in the Netherlands.
Revenue-generating investments
Revenue-generating investments increased 4% compared to year-end 2012 to EUR 476 billion at March 31, 2013, as a result of continued net inflows and favorable equity market movements.
Capital management
Shareholders' equity decreased EUR 1.1 billion from year-end 2012 to EUR 23.6 billion at March 31, 2013, mainly as a result of accounting changes (IAS 19). The revaluation reserves decreased slightly during the first quarter to EUR 5.7 billion, mainly a reflection of slightly higher interest rates. Aegon's core capital, excluding revaluation reserves and defined benefit plan remeasurements, amounted to EUR 18.9 billion, equivalent to 76.3%[6] of the company's total capital base at March 31, 2013. This is a slight decline from year-end 2012, mainly as a result of a decline in holding excess capital. In the first quarter, excess capital in the holding decreased to EUR 1.8 billion primarily the result of interest payments and operating expenses.
Shareholders' equity per common share, excluding preference capital, revaluation reserves and defined benefit plan remeasurements, amounted to EUR 8.10 at March 31, 2013.
At March 31, 2013, Aegon's Insurance Group Directive (IGD) ratio remained relatively stable at 224%, including a 13% negative impact from IAS 19. Measured on a local solvency basis, the Risk Based Capital (RBC) ratio in the United States decreased to ~485% as net income for the quarter was
offset by higher capital requirements. The IGD ratio in the Netherlands increased to ~265%, as capital benefits were partly offset by the impact of IAS 19 and changes in the revaluation reserves. The Pillar I ratio in the United Kingdom was ~120% at the end of the first quarter of 2013.
Cash flows
Operational free cash flows of EUR 553 million were particularly strong during the quarter. Excluding exceptional items of EUR 233 million and market impacts, operational free cash flows amounted to EUR 327 million. The exceptional items were primarily related to the effects of model refinements and methodology changes in the Netherlands and lower cash flow testing reserves in the United States. The impact of market movements was negligible during the first quarter. Operational free cash flows represent the distributable earnings generated by the business units.
Mandatory changes in accounting policies
On January 1, 2013, the following new, mandatory accounting policies became effective:
- IFRS 10 changes the definition of control and IFRS 11 changes the definition with respect to investments and jointly-controlled entities. As a result, Aegon has consolidated one mortgage securitization vehicle, revisited consolidation of several investment funds and uses the equity method instead of using proportionate consolidation for its joint ventures.
- IAS 19 changes the accounting for assets and liabilities relating to employee benefits. Upon transition to the revised IAS 19, Aegon recognizes all actuarial gains and losses as they occur and therefore no longer applies the corridor approach. Furthermore, past service costs are recognized if the benefits have vested following the introduction of, or changes to, a pension plan.
- IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. It does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS. The application of IFRS 13 has not impacted Aegon's fair value measurements.
Aegon has applied these new standards retrospectively (except for IFRS 13) and therefore restated its 2012 financial position. Shareholders' equity was negatively impacted by EUR 1.1 billion and underlying earnings before tax were positively impacted by EUR 64 million. More details on these changes and a summary of their effects on the financial position of the company are described in Aegon's condensed consolidated interim financial statements for the first quarter of 2013.
ADDITIONAL INFORMATION
The Hague - May 8, 2013
Media conference call
8:00 a.m. CET
Podcast available after the call on aegon.com
Analyst & investor conference call
10:30 a.m. CET
Audio webcast on aegon.com
Dial-in numbers
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 aegon.com.
Presentations
Presentations will be available on aegon.com at 7:35 a.m. CET
Supplements
Aegon's Q1 2013 Financial Supplement and Condensed Consolidated Interim Financial Statements are available on aegon.com.
Use this link for the full version of the press release: http://www.aegon.com/en/Home/Media/Press-Releases/20131/2013/Aegon-delivers-strong-Q1-2013-results-/
DISCLAIMERS
Cautionary note regarding non-IFRS measures
This document includes the non-IFRS financial measures: underlying earnings before tax, income tax, income before tax and market consistent value of new business. These non-IFRS measures are calculated by consolidating on a proportionate basis Aegon's joint ventures and associated companies. The reconciliation of these measures, except for market consistent value of new business, to the most comparable IFRS measure is provided in note 3 "Segment information" of Aegon's condensed consolidated interim financial statements. Market consistent value of new business is not based on IFRS, which are used to report Aegon's primary financial statements and should not be viewed as a substitute for IFRS financial measures. Aegon may define and calculate market consistent value of new business differently than other companies. Aegon believes that its non-IFRS measures, together with the IFRS information, provide meaningful information about the underlying operating results of Aegon's business including insight into the financial measures that senior management uses in managing the business.
Local currencies and constant currency exchange rates
This document contains certain information about Aegon's results, financial condition and revenue generating investments presented 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 Aegon presented in EUR, which is the currency of Aegon's primary financial statements.
Forward-looking 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 Aegon. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Aegon undertakes 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 Aegon's fixed income investment portfolios;
- 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 Aegon holds; and
- The effects of declining creditworthiness of certain private sector securities and the resulting decline in the value of sovereign exposure that Aegon holds;
- Changes in the performance of Aegon's investment portfolio and decline in ratings of Aegon's counterparties;
- Consequences of a potential (partial) break-up of the euro;
- The frequency and severity of insured loss events;
- Changes affecting mortality, morbidity, persistence and other factors that may impact the profitability of Aegon's insurance products;
- Reinsurers to whom Aegon has ceded significant underwriting risks may fail to meet their obligations;
- 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;
- Changes in the availability of, and costs associated with, liquidity sources such as bank and capital markets funding, as well as conditions in the credit markets in general such as changes in borrower and counterparty creditworthiness;
- Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets;
- Changes in laws and regulations, particularly those affecting Aegon's operations, ability to hire and retain key personnel, the products Aegon sells, and the attractiveness of certain products to its consumers;
- Regulatory changes relating to the insurance industry in the jurisdictions in which Aegon operates;
- Changes in customer behavior and public opinion in general related to, among other things, the type of products also Aegon sells, including legal, regulatory or commercial necessity to meet changing customer expectations;
- 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 Aegon's debt ratings issued by recognized rating organizations and the adverse impact such action may have on Aegon's ability to raise capital and on its liquidity and financial condition;
- Lowering of one or more of insurer financial strength ratings of Aegon's insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability and liquidity of its insurance subsidiaries;
- The effect of the European Union's Solvency II requirements and other regulations in other jurisdictions affecting the capital Aegon is required to maintain;
- Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business;
- As Aegon's operations support complex transactions and are highly dependent on the proper functioning of information technology, a computer system failure or security breach may disrupt Aegon's business, damage its reputation and adversely affect its results of operations, financial condition and cash flows;
- Customer responsiveness to both new products and distribution channels;
- Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for Aegon's products;
- Changes in accounting regulations and policies may affect Aegon's reported results and shareholders' equity;
- The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including Aegon's ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions;
- Catastrophic events, either manmade or by nature, could result in material losses and significantly interrupt Aegon's business; and
- Aegon's 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 Aegon are described in its filings with the Netherlands Authority for the Financial Markets and the US Securities and Exchange Commission, including the Annual Report. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, Aegon 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 Aegon's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
About Aegon
As an international insurance, pensions 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 24,000 people and have millions of customers across the globe. Further information: aegon.com.
Media relations
Greg Tucker
+31(0)70-344-8956
gcc@aegon.com
Investor relations
Willem van den Berg
+31(0)70-344-8305
ir@aegon.com
SOURCE AEGON N.V.