TIDMAGN
AEGON announces Q2 2011 net income of EUR 404 million
- 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 sales1 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
amounts in EUR millions b) Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 %
Underlying earnings before tax 1 401 414 (3) 483 (17) 815 929 (12)
Net income 2 404 327 24 413 (2) 731 785 (7)
Sales 3 1,261 1,411 (11) 1,475 (15) 2,672 2,917 (8)
Value of new business (VNB) 4 103 118 (13) 138 (25) 221 276 (20)
Return on equity 5 8.1% 7.8% 4 8.5% (5) 8.0% 8.4% (5)
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.
For notes see page 22.
STRATEGIC HIGHLIGHTS
- 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 targets1 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.
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.
AEGON's ambition
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.
Optimize portfolio
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.
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 % YTD 2011 YTD 2010 %
Underlying earnings before tax
Americas 325 347 (6) 398 (18) 672 735 (9)
The Netherlands 74 81 (9) 97 (24) 155 201 (23)
United Kingdom 10 12 (17) 22 (55) 22 50 (56)
New markets 59 57 4 40 48 116 86 35
Holding and other (67) (83) 19 (74) 9 (150) (143) (5)
Underlying earnings before tax 401 414 (3) 483 (17) 815 929 (12)
Fair value items (23) (85) 73 3 - (108) (13) -
Realized gains / (losses) on 204 91 124 148 38 295 274 8
investments
Impairment charges (100) (62) (61) (77) (30) (162) (227) 29
Other income / (charges) (16) (3) - (60) 73 (19) (37) 49
Run-off businesses 10 22 (55) (10) - 32 (28) -
Income before tax 476 377 26 487 (2) 853 898 (5)
Income tax (72) (50) (44) (74) 3 (122) (113) (8)
Net income 404 327 24 413 (2) 731 785 (7)
Net income / (loss) attributable
to:
Equity holders of AEGON N.V. 403 327 23 413 (2) 730 784 (7)
Non-controlling interests 1 - - - - 1 1 -
Net underlying earnings 339 333 2 350 (3) 672 695 (3)
Commissions and expenses 1,500 1,513 (1) 1,375 9 3,013 2,961 2
of which operating expenses 11 847 837 1 841 1 1,684 1,653 2
New life sales
Life single premiums 1,189 1,726 (31) 1,922 (38) 2,915 3,841 (24)
Life recurring premiums annualized 312 328 (5) 362 (14) 640 673 (5)
Total recurring plus 1/10 single 431 501 (14) 554 (22) 932 1,057 (12)
New life sales
Americas 12 104 113 (8) 131 (21) 217 241 (10)
The Netherlands 40 65 (38) 41 (2) 105 103 2
United Kingdom 217 247 (12) 308 (30) 464 573 (19)
New markets 12 70 76 (8) 74 (5) 146 140 4
Total recurring plus 1/10 single 431 501 (14) 554 (22) 932 1,057 (12)
New premium production accident and 145 159 (9) 148 (2) 304 296 3
health insurance
New premium production general 14 13 8 15 (7) 27 29 (7)
insurance
Gross deposits (on and off balance)
Americas 12 5,014 5,629 (11) 5,154 (3) 10,643 10,556 1
The Netherlands 442 462 (4) 624 (29) 904 1,367 (34)
United Kingdom 17 19 (11) 19 (11) 36 55 (35)
New markets 12 1,242 1,267 (2) 1,787 (30) 2,509 3,380 (26)
Total gross deposits 6,715 7,377 (9) 7,584 (11) 14,092 15,358 (8)
Net deposits (on and off balance)
Americas 12 426 (233) - 758 (44) 193 1,293 (85)
The Netherlands (113) (115) 2 55 - (228) 122 -
United Kingdom 14 2 - 10 40 16 39 (59)
New markets 12 (2,487) (1,719) (45) 187 - (4,206) 308 -
Total net deposits excluding (2,160) (2,065) (5) 1,010 - (4,225) 1,762 -
run-off businesses
Run-off businesses (527) (880) 40 (1,849) 71 (1,407) (4,059) 65
Total net deposits (2,687) (2,945) 9 (839) - (5,632) (2,297) (145)
REVENUE-GENERATING INVESTMENTS
June 30, Mar. 31,
2011 2011 %
Revenue-generating investments 391,276 399,882 (2)
(total)
Investments general account 132,837 136,991 (3)
Investments for account of 142,672 144,296 (1)
policyholders
Off balance sheet investments third 115,767 118,595 (2)
parties
OPERATIONAL HIGHLIGHTS
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
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
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
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).
Run-off businesses
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.
Income tax
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.
Operating expenses
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.
Sales
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
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.
Capital management
At the end of the second quarter, AEGON's core capital, excluding revaluation
reserves, amounted to EUR 15.9 billion, equivalent to 73%6 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.
Cash flows
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.
APPENDIX I -- Americas --The Netherlands --United Kingdom --New Markets
FINANCIAL OVERVIEW, Q2 2011 GEOGRAPHICALLY c)
Holding,
other
The United New activities &
EUR millions Americas Netherlands Kingdom Markets eliminations Total
Underlying earnings before tax by line of
business
Life 147 55 20 19 - 241
Individual savings and retirement 119 - - (4) - 115
products
Pensions 58 16 (8) 4 - 70
Non-life - - - 11 - 11
Distribution - (1) (2) - - (3)
Asset Management - - - 18 - 18
Other - - - - (67) (67)
Share in underlying earnings before tax of 1 4 - 11 - 16
associates
Underlying earnings before tax 325 74 10 59 (67) 401
Fair value items (52) 2 - (3) 30 (23)
Realized gains / (losses) on 51 142 11 - - 204
investments
Impairment charges (53) (3) (40) (4) - (100)
Other income / (charges) (3) (11) 1 (3) - (16)
Run-off businesses 10 - - - - 10
Income before tax 278 204 (18) 49 (37) 476
Income tax (41) (35) - (10) 14 (72)
Net income 237 169 (18) 39 (23) 404
Net underlying earnings 256 67 15 47 (46) 339
EMPLOYEE NUMBERS
June 30, Mar. 31,
2011 2011
Employees excluding agents 23,639 23,990
Agents 2,892 2,990
Total number of employees excluding 26,531 26,980
Associates
AEGON's share of employees (including 3,561 3,932
agents) in Associates
Total 30,092 30,912
AMERICAS
- Underlying earnings before tax decline to USD 469 million; a result of lower
fixed annuity earnings
- Net income increases to USD 342 million
- New life sales decline to USD 151 million as a result of lower universal
life sales due to repricing
- Gross deposits increase to USD 7.2 billion driven by strong variable annuity
and stable value deposits
Underlying earnings before tax
Underlying earnings from the Americas decreased to USD 469 million for the
second quarter 2011.
- Earnings from Life & Protection in the Americas amounted to USD 194 million.
The decrease, as compared to the same quarter last year, was mainly due to
unfavorable persistency and lower spreads, while the comparable quarter last
year included reserve releases.
- Individual Savings & Retirement earnings amounted to USD 170 million. Fixed
annuity earnings decreased to USD 77 million as a result of lower spreads and
declining asset balances as the product is de-emphasized. Variable annuity
earnings increased as a result of continued strong net inflows and higher
asset balances to USD 87 million. Earnings from retail mutual funds also
increased as a result of higher account balances and amounted to USD 6
million.
- Earnings from Employer Solutions & Pensions increased to USD 83 million
mainly as a result of continued growth of the business.
- Earnings from Canada amounted to USD 19 million and included a one-time
benefit of USD 7 million. The joint ventures in Latin America contributed USD
3 million.
Net income
Net income from AEGON's businesses in the Americas increased to USD 342
million in the second quarter. Lower underlying earnings and lower earnings
from fair value items were more than offset by higher realized gains on
investments and a positive contribution from run-off businesses. In addition,
the second quarter 2010 included a one-time charge of USD 140 million for
settlement of a dispute related to a BOLI policy in the United States.
The loss of USD 72 million for fair value items in the Americas was mainly
related to lower interest rates and equity market volatility.
Gains on investments of USD 71 million were realized as a result of normal
trading activity. Net impairments amounted to USD 76 million and were largely
linked to residential mortgage-backed securities.
The results of run-off businesses increased to USD 15 million. This was
mainly a result of a lower amortization yield paid on internally transferred
assets related to the institutional spread-based business.
Net income contained a tax expense of USD 60 million in the second quarter,
including a favorable tax settlement of USD 20 million and USD 6 million in
tax benefits related to cross-border intercompany reinsurance transactions.
Return on capital
In the first half of 2011, the return on average capital, excluding
revaluation reserves, invested in AEGON's businesses in the Americas declined
to 7.1%, mainly the result of lower net underlying earnings. Excluding the
capital allocated to the run-off businesses, the return on capital in the
Americas would amount to 9.3%. Return on capital of AEGON's businesses
excludes the benefit of leverage at the holding.
Operating expenses
Operating expenses increased 4% to USD 502 million, mainly as a result of
higher employee benefit plan expenses. Operating expenses increased 2%
excluding restructuring charges and employee benefit plan expenses.
Sales
New life sales declined to USD 151 million, mainly
the effect of the discontinuance of single premium universal life sales in the
bank channel during the second half of 2010, as well as repricing of certain
universal life products this year to reflect the current interest rate
environment. New premium production for accident & health insurance increased
to USD 201 million.
Gross deposits increased to USD 7.2 billion as a result of higher fee-based
deposits. In addition to organic growth in traditional distribution channels,
the introduction during the first quarter of a new variable annuity rider,
Retirement Income Max, drove an 8-year record level of variable annuity
deposits of USD 1.4 billion in the second quarter. Stable value and retirement
plan deposits also continued to be strong during the quarter.
Net deposits for the ongoing businesses totaled USD 0.6 billion as continued
net inflows for the pension and variable annuity businesses were only partly
offset by fixed annuity outflows. AEGON is de-emphasizing sales of fixed
annuities as part of a strategic repositioning and incurred net outflows
for this business as a result.
Value of new business
Value of new business increased to USD 73 million, mainly as a result of
improved margins on variable annuities. The internal rate of return on new
business was 15%.
Revenue-generating investments
Revenue-generating investments were stable at USD 325 billion as compared to
the first quarter of 2011. The decline in general account assets as a result
of a fixed annuity coinsurance transaction of USD 1.5 billion and lower
run-off balances was compensated for by higher variable annuity and pension
account balances.
AMERICAS c)
USD millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 %
Underlying earnings before tax by line
of business
Life and protection 194 195 (1) 241 (20) 389 435 (11)
Fixed annuities 77 90 (14) 125 (38) 167 246 (32)
Variable annuities 87 93 (6) 50 74 180 119 51
Retail mutual funds 6 6 - - - 12 - -
Individual savings and retirement 170 189 (10) 175 (3) 359 365 (2)
products
Employer solutions & pensions 83 81 2 79 5 164 148 11
Canada 19 11 73 15 27 30 26 15
Latin America 3 (2) - 1 200 1 2 (50)
Underlying earnings before tax 469 474 (1) 511 (8) 943 976 (3)
Fair value items (72) (17) - (39) (85) (89) (159) 44
Realized gains / (losses) on 71 35 103 21 - 106 54 96
investments
Impairment charges (76) (80) 5 (73) (4) (156) (264) 41
Other income / (charges) (5) - - (140) 96 (5) (140) 96
Run- off businesses 15 30 (50) (13) - 45 (37) -
Income before tax 402 442 (9) 267 51 844 430 96
Income tax (60) (83) 28 (12) - (143) 42 -
Net income 342 359 (5) 255 34 701 472 49
Net income / (loss) attributable
to:
Equity holders of AEGON N.V. 342 359 (5) 255 34 701 472 49
Non-controlling interests - - - - - - - -
Net underlying earnings 368 346 6 361 2 714 719 (1)
Commissions and expenses 1,210 1,209 - 961 26 2,419 2,316 4
of which operating expenses 502 492 2 484 4 994 985 1
New life sales 12
Life single premiums 78 147 (47) 278 (72) 225 457 (51)
Life recurring premiums annualized 143 139 3 138 4 282 274 3
Total recurring plus 1/10 single 151 154 (2) 166 (9) 305 320 (5)
Life & protection 114 121 (6) 134 (15) 235 255 (8)
Employer solutions & pensions 7 6 17 4 75 13 12 8
Canada 18 17 6 16 13 35 31 13
Latin America 12 10 20 12 - 22 22 -
Total recurring plus 1/10 single 151 154 (2) 166 (9) 305 320 (5)
New premium production accident and 201 199 1 180 12 400 364 10
health insurance
Gross deposits (on and off balance) 12
by line of business
Life & protection 3 3 - 3 - 6 6 -
Fixed annuities 71 83 (14) 124 (43) 154 309 (50)
Variable annuities 1,401 1,179 19 1,028 36 2,580 1,837 40
Retail mutual funds 765 775 (1) 957 (20) 1,540 1,933 (20)
Individual savings & retirement 2,237 2,037 10 2,109 6 4,274 4,079 5
products
Employer solutions & pensions 4,913 5,554 (12) 4,311 14 10,467 9,528 10
Canada 83 97 (14) 118 (30) 180 404 (55)
Total gross deposits 7,236 7,691 (6) 6,541 11 14,927 14,017 6
Net deposits (on and off balance) 12
by line of business
Life & protection (10) (14) 29 (12) 17 (24) (27) 11
Fixed annuities (810) (801) (1) (653) (24) (1,611) (1,196) (35)
Variable annuities 471 220 114 217 117 691 194 -
Retail mutual funds (5) (50) 90 357 - (55) 775 -
Individual savings & retirement (344) (631) 45 (79) - (975) (227) -
products
Employer solutions & pensions 1,048 485 116 1,264 (17) 1,533 2,650 (42)
Canada (105) (158) 34 (197) 47 (263) (679) 61
Total net deposits excluding 589 (318) - 976 (40) 271 1,717 (84)
run-off businesses
Run-off businesses (772) (1,202) 36 (2,332) 67 (1,974) (5,390) 63
Total net deposits (183) (1,520) 88 (1,356) 87 (1,703) (3,673) 54
REVENUE-GENERATING INVESTMENTS
June 30, Mar. 31,
2011 2011 %
Revenue-generating investments 324,919 324,849 -
(total)
Investments general account 121,723 124,185 (2)
Investments for account of 83,383 82,459 1
policyholders
Off balance sheet investments third 119,813 118,205 1
parties
THE NETHERLANDS
- Underlying earnings before tax decrease to EUR 74 million due to higher
provisioning for longevity
- Net income amounts to EUR 169 million
- New life sales were level at EUR 40 million
Underlying earnings before tax
Underlying earnings from AEGON's operations in the Netherlands decreased to
EUR 74 million as higher results in Life & Savings were more than offset by
higher provisioning for longevity in Pensions and a decline in non-life
results.
- Earnings from AEGON's Life & Savings operations in the Netherlands were
strong and amounted to EUR 55 million as a result of favorable mortality and a
higher contribution from mortgages compared to the second quarter of 2010.
- Earnings from the Pension business declined to EUR 16 million primarily due
to higher provisioning for longevity of EUR 23 million. AEGON expects to
provision approximately EUR 20 million on average per quarter in 2011, in
addition to 2010 levels of provisioning.
- Earnings from Non-life were nil, a decrease from the comparable quarter of
2010 as a result of higher claims and investments made in the business to
increase efficiency.
- The Distribution businesses recorded a loss of EUR 1 million, while
associates contributed EUR 4 million.
Net income
Net income from AEGON's businesses in the Netherlands remained level and
amounted to EUR 169 million. Fair value items amounted to EUR 2 million, as
the negative movement in market value of real estate was offset by other fair
value items. Gains on investments totaled EUR 142 million for the quarter and
were primarily a result of a strategic reallocation of equities into fixed
income. Other charges of EUR 11 million included EUR 10 million of charges
related to the restructuring of AEGON's bank and distribution businesses. The
reorganization is expected to save EUR 20 million per annum in costs when
completed.
Return on capital
In the first half of 2011, the return on capital excluding revaluation
reserves, invested in AEGON's businesses in the Netherlands, remained level
compared to the same period last year at 7.3%. Return on capital of AEGON's
businesses excludes the benefit of leverage at the holding.
Operating expenses
Operating expenses increased to EUR 201 million in the second quarter of 2011,
mainly as a result of restructuring charges and investments in the further
development of new distribution capabilities. Excluding restructuring charges,
operating expenses would have been level with the second quarter of 2010.
Sales
New life sales remained level at EUR 40 million during the second quarter of
2011. Individual life sales increased 19% to EUR 25 million driven by
mortgage-related product sales. Through successful mortgage production AEGON
increased its market share in the individual life insurance market to above
11%. New mortgage production for the quarter amounted to EUR 1.1 billion,
equivalent to an estimated market share of approximately 9%. Pension sales
were lower than in the comparable quarter last year as the market is waiting
for a final outcome of the national pension debate and pricing became more
competitive in this market. AEGON was one of the first parties to adjust its
pricing policy to reflect updated mortality tables.
Premium production for accident & health and non-life products amounted to EUR
11 million and increased slightly compared with the second quarter of 2010.
Gross deposits decreased to EUR 442 million as AEGON offered less competitive
interest rates on savings accounts. Following the transfer of activities,
third-party pension deposits are included in AEGON Asset Management's gross
deposits from the second quarter of 2011.
Value of new business
The value of new business declined to EUR 20 million, mainly as a result of
higher mortgage-related funding costs and updated mortality assumptions. The
internal rate of return on new business amounted to 17%.
Revenue-generating investments
Revenue-generating investments decreased 18%
to EUR 60 billion compared with the previous quarter. This was mainly driven
by the transfer of EUR 12 billion of assets related to third-party pension
asset management operations from AEGON
The Netherlands to AEGON Asset Management.
THE NETHERLANDS
EUR millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 %
Underlying earnings before tax by line
of business
Life and Savings 55 43 28 42 31 98 81 21
Pensions 16 22 (27) 29 (45) 38 76 (50)
Non life - 5 - 19 - 5 26 (81)
Distribution (1) 11 - 6 - 10 17 (41)
Share in underlying earnings before 4 - - 1 - 4 1 -
tax of associates
Underlying earnings before tax 74 81 (9) 97 (24) 155 201 (23)
Fair value items 2 (60) - 68 (97) (58) 159 -
Realized gains / (losses) on 142 35 - 23 - 177 119 49
investments
Impairment charges (3) (2) (50) (6) 50 (5) (7) 29
Other income / (charges) (11) (8) (38) 33 - (19) 33 -
Income before tax 204 46 - 215 (5) 250 505 (50)
Income tax (35) (7) - (45) 22 (42) (112) 63
Net income 169 39 - 170 (1) 208 393 (47)
Net income / (loss) attributable
to:
Equity holders of AEGON N.V. 169 39 - 170 (1) 208 393 (47)
Net underlying earnings 67 66 2 57 18 133 134 (1)
Commissions and expenses 278 272 2 263 6 550 527 4
of which operating expenses 201 189 6 182 10 390 364 7
New life sales
Life single premiums 217 457 (53) 241 (10) 674 638 6
Life recurring premiums annualized 18 19 (5) 18 - 37 40 (8)
Total recurring plus 1/10 single 40 65 (38) 41 (2) 105 103 2
Life and Savings 25 26 (4) 21 19 51 48 6
Pensions 15 39 (62) 20 (25) 54 55 (2)
Total recurring plus 1/10 single 40 65 (38) 41 (2) 105 103 2
New premium production accident and 4 10 (60) 4 - 14 15 (7)
health insurance
New premium production general 7 8 (13) 6 17 15 14 7
insurance
Gross deposits (on and off balance)
by line of business
Life and Savings 442 382 16 534 (17) 824 1,217 (32)
Pensions - 80 - 90 - 80 150 (47)
Total gross deposits 442 462 (4) 624 (29) 904 1,367 (34)
Net deposits (on and off balance)
by line of business
Life and Savings (113) (142) 20 50 - (255) 132 -
Pensions - 27 - 5 - 27 (10) -
Total net deposits (113) (115) 2 55 - (228) 122 -
REVENUE-GENERATING INVESTMENTS
June 30, Mar. 31,
2011 2011 %
Revenue-generating investments 60,005 73,393 (18)
(total)
Investments general account 36,810 37,448 (2)
Investments for account of 23,195 23,627 (2)
policyholders
Off balance sheet investments third - 12,318 -
parties
UNITED KINGDOM
- Underlying earnings before tax of GBP 9 million due to anticipated
exceptional charges and expenses
- Net income amounts to GBP (15) million
- New life sales decrease to GBP 191 million as a result of lower pension
sales
Underlying earnings before tax
In the United Kingdom, underlying earnings before tax amounted to GBP 9
million as a result of charges relating to the customer redress program (GBP
12 million) and expenses related to the execution of this program (GBP 6
million), the development of new product propositions (GBP 7 million) and
expenses related to regulatory changes. These exceptional expenses are
expected to continue throughout the remainder of 2011.
- Earnings from Life increased to GBP 17 million, mainly as a result of cost
reductions.
- Pensions recorded a loss of GBP 7 million as the benefits from further
business growth and improved market conditions were more than offset by
charges of GBP 12 million relating to the customer redress program, expenses
related to the execution of this program of GBP 6 million and investments of
GBP 7 million in the development of new propositions.
- Distribution recorded a loss of GBP 1 million, level with the results in the
same quarter last year.
In May 2009, AEGON began the implementation of a program to identify and
correct historical issues within its customer policy records. The immediate
priority of the program has been to deal with issues that resulted in
financial detriment and to return affected customers to the financial position
they would have been in had the issue not occurred. The program of determining
the full scope of customer redress is expected to continue throughout the
remainder of the year and could lead to additional charges. AEGON is on track
to resolve all issues and expects to have repaid the majority of the customer
detriment by the end of 2011.
Net income
Net income declined to GBP (15) million, as lower underlying earnings and
higher impairments were only partly offset by better results on fair value
items and higher gains on investments.
Gains on investments amounted to GBP 10 million as a result of a continuing
shift from corporate bonds into gilts. Impairments in the second quarter
increased to GBP 35 million as a result of exchange offers on specific
holdings of European banks. Net income also contained a charge of GBP 13
million related to the restructuring of AEGON's operations in the United
Kingdom.
Return on capital
In the first half of 2011, the return on average capital invested in the
United Kingdom, excluding the revaluation reserves, declined to 3.8%. The
decrease was the result of higher average capital invested in the unit in
combination with lower net underlying earnings. Return on capital of AEGON's
businesses excludes the benefit of leverage at the holding.
Operating expenses
Operating expenses increased to GBP 109 million, mainly driven by charges
relating to the restructuring program of GBP 13 million, as well as
investments in the new proposition development of GBP 7 million. Operating
expenses in the second quarter of 2011 also include expenses of GBP 6 million
relating to the execution of the customer redress program. The restructuring
aims to reduce operating expenses by 25%, or GBP 80-85 million, by the end of
2011. It is expected that further restructuring charges will arise in coming
quarters. To date, AEGON has enacted cost savings of GBP 58 million.
Sales
New life sales decreased to GBP 191 million during the quarter as a result of
a planned decrease in sales of individual pensions, new group schemes and
annuities following repricing, partially offset by an increase in group
pension new entrants.
Value of new business
Value of new business in the United Kingdom declined to GBP 10 million, mainly
driven by lower sales. The internal rate of return on new business for the
second quarter was 11%.
Revenue-generating investments
Revenue-generating investments remained level at GBP 58 billion compared with
the first quarter 2011.
UNITED KINGDOM
GBP millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 %
Underlying earnings before tax by line
of business
Life 17 21 (19) 15 13 38 33 15
Pensions (7) (9) 22 5 - (16) 14 -
Distribution (1) (2) 50 (2) 50 (3) (4) 25
Underlying earnings before tax 9 10 (10) 18 (50) 19 43 (56)
Fair value items - (1) - (11) - (1) (9) 89
Realized gains / (losses) on 10 25 (60) 3 - 35 5 -
investments
Impairment charges (35) - - (1) - (35) (8) -
Other income / (charges) 7 1 (5) - 19 (95) (4) 40 -
Income before tax (15) 29 - 28 - 14 71 (80)
Income tax attributable to (15) (1) - (19) 21 (16) (40) 60
policyholder return
Income before income tax on (30) 28 - 9 - (2) 31 -
shareholders return
Income tax on shareholders return 15 18 (17) 15 - 33 13 154
Net income (15) 46 - 24 - 31 44 (30)
Net income / (loss) attributable
to:
Equity holders of AEGON N.V. (15) 46 - 24 - 31 44 (30)
Net underlying earnings 14 33 (58) 31 (55) 47 53 (11)
Commissions and expenses 193 172 12 181 7 365 351 4
of which operating expenses 109 98 11 95 15 207 190 9
New life sales 8
Life single premiums 711 841 (15) 1,050 (32) 1,552 2,189 (29)
Life recurring premiums annualized 120 127 (6) 158 (24) 247 279 (11)
Total recurring plus 1/10 single 191 211 (9) 263 (27) 402 498 (19)
Life 15 16 (6) 23 (35) 31 49 (37)
Pensions 176 195 (10) 240 (27) 371 449 (17)
Total recurring plus 1/10 single 191 211 (9) 263 (27) 402 498 (19)
Gross deposits (on and off balance)
by line of business
Variable annuities 14 17 (18) 16 (13) 31 48 (35)
Total gross deposits 14 17 (18) 16 (13) 31 48 (35)
Net deposits (on and off balance)
by line of business
Variable annuities 12 2 - 9 33 14 34 (59)
Total net deposits 12 2 - 9 33 14 34 (59)
REVENUE-GENERATING INVESTMENTS
June 30, Mar. 31,
2011 2011 %
Revenue-generating investments 58,319 57,717 1
(total)
Investments general account 7,952 7,855 1
Investments for account of 50,367 49,862 1
policyholders
NEW MARKETS
- Underlying earnings before tax increase 48% to EUR 59 million mainly driven
by higher results in CEE
- Net income increases to EUR 39 million
- New life sales decline to EUR 70 million driven by lower single premium
sales in Poland and Spain
Underlying earnings before tax
In New Markets, AEGON reported underlying earnings before tax of EUR 59
million as a result of higher underlying earnings before tax from Central &
Eastern Europe and AEGON Asset Management.
- Earnings from Central & Eastern Europe increased to EUR 29 million, largely
driven by higher earnings in Hungary, as an improvement in the claim
experience more than offset the negative impact from pension legislation
changes. The comparable quarter in 2010 included higher claims related to
storms and floods in Hungary.
- Results from AEGON's operations in Asia improved to EUR (8) million. Higher
contributions from the in-force business were only partly offset by continued
investments in the company's joint ventures in China, India and Japan. The
results for the Asia regional office have been included in the Asia results
since the first quarter of 2011, following the implementation of the new
operational structure for the Asian operations.
- Earnings from Spain & France increased to EUR 20 million as a result of
business growth in Spain following the successful strategic focus on the
bancassurance channel.
- Earnings from Variable Annuities Europe amounted to nil as a result of a
true up of deferred policy acquisition costs.
- AEGON Asset Management reported increased earnings of EUR 18 million driven
by higher performance fees and lower expenses.
In June, over EUR 2 billion of pension assets were transferred to the
Hungarian State. As part of the new pension legislation in Hungary, asset
management and administration fees have been reduced. In Poland, the
government reduced contributions to private pension funds. AEGON expects the
measures in Hungary and Poland to have a negative impact on underlying
earnings of approximately EUR 20 million in 2011, much of which is expected to
occur during the second half of the year.
Net income
Net income from New Markets increased to EUR 39 million during the quarter,
primarily as a result of higher underlying earnings. In addition, lower
realized gains were offset by lower other charges. Impairment charges declined
to EUR 4 million and were mainly related to mortgages in the CEE.
Return on capital
In the first half of 2011, the return on capital invested in New Markets,
excluding revaluation reserves, increased to 8.2%, mainly the result of higher
net underlying earnings. AEGON's businesses reported under New Markets are in
different stages of development and therefore generate different returns. The
majority of the capital is allocated to Central & Eastern Europe and Spain &
France, which posted returns of 15.6% and 6.0% respectively. Return on capital
of AEGON's businesses excludes the benefit of leverage at the holding.
Operating expenses
Operating expenses increased to EUR 132 million in the second quarter, mainly
as a result of higher operating expenses in Spain, Asia and Variable Annuities
Europe as a result of growth of the business.
Sales
New life sales declined 5% to EUR 70 million.
- In Central & Eastern Europe, new life sales increased by 25% to EUR 30
million driven by Hungary and Turkey. A decline in single premium production
in Poland was offset by an increase in life recurring premium production,
mainly as a result of increased focus on life insurance in Hungary and Poland.
- In Asia, new life sales declined to EUR 7 million as growth in India was
offset by lower new life sales in China, primarily as a result of new
regulation.
- New life sales in Spain & France declined 20% to EUR 33 million, largely as
a result of lower production at one of the distribution partners in Spain.
New premium production from AEGON's general insurance and accident & health
businesses decreased to EUR 8 million, driven by lower motor insurance
production due to increased competition.
Gross deposits in New Markets declined to EUR 1.2 billion, primarily driven by
lower asset management deposits.
Value of new business
Value of new business in New Markets decreased to EUR 20 million as a result
of combined negative effects of adverse pension legislation in Hungary, lower
production at one of the distribution partners in Spain and margin pressure
for Variable Annuities Europe.
Revenue-generating investments
Revenue-generating investments increased 31% compared with the first quarter
of 2011 to EUR 42 billion, driven by the transfer of EUR 12 billion of assets
related to third-party pension asset management operations from AEGON The
Netherlands to AEGON Asset Management, which were only partly offset by net
outflows in Hungary.
NEW MARKETS
EUR millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 %
Underlying earnings before tax
Central Eastern Europe 29 26 12 19 53 55 46 20
Asia (8) (11) 27 (11) 27 (19) (17) (12)
Spain & France 20 23 (13) 19 5 43 39 10
Variable Annuities Europe - 5 - 1 - 5 (1) -
AEGON Asset Management 18 14 29 12 50 32 19 68
Underlying earnings before tax 59 57 4 40 48 116 86 35
Fair value items (3) - - (4) 25 (3) (1) (200)
Realized gains / (losses) on - 2 - 8 - 2 11 (82)
investments
Impairment charges (4) (2) (100) (9) 56 (6) (11) 45
Other income / (charges) (3) 11 - (11) 73 8 (11) -
Income before tax 49 68 (28) 24 104 117 74 58
Income tax (10) (26) 62 (9) (11) (36) (22) (64)
Net income 39 42 (7) 15 160 81 52 56
Net income / (loss) attributable
to:
Equity holders of AEGON N.V. 38 42 (10) 15 153 80 51 57
Non-controlling interests 1 - - - - 1 1 -
Net underlying earnings 47 38 24 30 57 85 62 37
Commissions and expenses 175 180 (3) 169 4 355 344 3
of which operating expenses 132 141 (6) 127 4 273 260 5
New life sales 12
Life single premiums 117 174 (33) 234 (50) 291 342 (15)
Life recurring premiums annualized 58 59 (2) 51 14 117 106 10
Total recurring plus 1/10 single 70 76 (8) 74 (5) 146 140 4
Life 64 62 3 66 (3) 126 119 6
Associates 6 14 (57) 8 (25) 20 21 (5)
Total recurring plus 1/10 single 70 76 (8) 74 (5) 146 140 4
Central Eastern Europe 30 27 11 24 25 57 43 33
Asia 7 11 (36) 9 (22) 18 19 (5)
Spain & France 33 38 (13) 41 (20) 71 78 (9)
Total recurring plus 1/10 single 70 76 (8) 74 (5) 146 140 4
New premium production accident and 1 3 (67) 4 (75) 4 8 (50)
health insurance
New premium production general 7 5 40 9 (22) 12 15 (20)
insurance
Gross deposits (on and off balance) 12
Central Eastern Europe 167 182 (8) 249 (33) 349 475 (27)
Asia 7 11 (36) 10 (30) 18 35 (49)
Spain & France 11 8 38 12 (8) 19 56 (66)
Variable Annuities Europe 159 131 21 175 (9) 290 363 (20)
AEGON Asset Management 898 935 (4) 1,341 (33) 1,833 2,451 (25)
Total gross deposits 1,242 1,267 (2) 1,787 (30) 2,509 3,380 (26)
Net deposits (on and off balance) 12
Central Eastern Europe (1,972) 108 - 149 - (1,864) 218 -
Asia 4 11 (64) 9 (56) 15 34 (56)
Spain & France (43) (11) - 4 - (54) 29 -
Variable Annuities Europe 63 26 142 47 34 89 126 (29)
AEGON Asset Management (539) (1,853) 71 (22) - (2,392) (99) -
Total net deposits (2,487) (1,719) (45) 187 - (4,206) 308 -
REVENUE-GENERATING INVESTMENTS
June 30, Mar. 31,
2011 2011 %
Revenue-generating investments 42,154 32,211 31
(total)
Investments general account 2,819 2,926 (4)
Investments for account of 6,203 6,210 -
policyholders
Off balance sheet investments third 33,132 23,075 44
parties
FINANCIAL OVERVIEW, 2011 YEAR-TO-DATE GEOGRAPHICALLY c)
Holding,
other
The United New activities &
EUR millions Americas Netherlands Kingdom Markets eliminations Total
Underlying earnings before tax by line of business
Life 297 98 44 38 - 477
Individual savings and retirement products 258 - - (4) - 254
Pensions 117 38 (18) 7 - 144
Non-life - 5 - 22 - 27
Distribution - 10 (4) - - 6
Asset Management - - - 32 - 32
Other - - - - (150) (150)
Associates - 4 - 21 - 25
Underlying earnings before tax 672 155 22 116 (150) 815
Fair value items (64) (58) (1) (3) 18 (108)
Realized gains / (losses) on investments 76 177 40 2 - 295
Impairment charges (111) (5) (40) (6) - (162)
Other income / (charges) (3) (19) (5) 8 - (19)
Run-off businesses 32 - - - - 32
Income before tax 602 250 16 117 (132) 853
Income tax (102) (42) 20 (36) 38 (122)
Net income 500 208 36 81 (94) 731
Net underlying earnings 509 133 54 85 (109) 672
OPERATIONAL HIGHLIGHTS FIRST SIX MONTHS 2011
Underlying earnings before tax
AEGON's underlying earnings before tax amounted to EUR 815 million for the
first six months of 2011. The decline compared with the same period last year
was mainly due to unfavorable currency exchange rates, 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 672 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 155 million as a
result of higher provisioning for longevity of EUR 47 million and investments
in developing new distribution capabilities. AEGON expects to provision on
average EUR 20 million per quarter in 2011, in addition to 2010 levels of
provisioning.
In the United Kingdom, underlying earnings declined to EUR 22 million. The
decrease was mainly due to charges of EUR 39 million related to an ongoing
program to correct historical issues within customer policy records.
Underlying earnings from New Markets increased to EUR 116 million driven
mainly by growth in Central & Eastern Europe and AEGON Asset Management.
Higher funding costs and increased expenses related to the preparation for
implementation of Solvency II increased costs for the holding company to EUR
150 million in the first six months of 2011.
Net income
Net income decreased to EUR 731 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 first six months of 2011, fair value items recorded a loss of EUR 108
million. An improvement in the Americas related to strong results from real
estate and private equity was more than offset by an exceptional loss on
strategic allocation funds in the Netherlands. In addition, results related to
the interest rate hedging program in the Netherlands contributed less than in
the comparable period.
Realized gains on investments
Realized gains on investments increased to EUR 295 million for the first half
of the year and were the result of normal trading in the investment portfolio
and a reallocation of equities into fixed income in the Netherlands.
Impairment charges
Impairment charges improved considerably to EUR 162 million and were linked to
residential mortgage-backed securities in the United States and the result of
exchange offers on specific European bank holdings in the United Kingdom.
Other charges
Other charges amounted to EUR 19 million and are mostly related to the annual
Hungarian bank tax of EUR 20 million and restructuring charges in the United
Kingdom (EUR 23 million), the Netherlands (EUR 18 million) and New Markets
(EUR 9 million). These charges are partly offset by a EUR 37 million benefit
related to the settlement of legal claims.
Run-off businesses
As of the first quarter of 2011, AEGON's run-off line of business in the
Americas comprises the institutional spread-based business, structured
settlement pay-out annuities, BOLI/COLI and life reinsurance. The results of
the combined run-off businesses for the first six months of 2011 increased to
EUR 32 million, mainly as a result of a lower amortization yield paid on
internally transferred assets related to the institutional spread-based
business, favorable mortality results in the pay-out annuities block of
business and strong BOLI/COLI earnings.
Income tax
Tax charges for the first six months of 2011 amounted to EUR 122 million.
These charges included EUR 21 million in tax benefits related to cross-border
intercompany reinsurance transactions and one-time tax credits the United
States and the United Kingdom totaling EUR 38 million.
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.
Operating expenses
Operating expenses increased 2% to EUR 1,684 million. Cost savings in AEGON's
established markets were more than offset by restructuring charges in these
businesses. At constant currencies and excluding restructuring charges and
employee benefit plans, operating expenses remained level.
Sales
AEGON's total sales decreased 8% to EUR 2.7 billion. New life sales declined
mainly as a result of lower production in the United Kingdom and the Americas
following repricing of products, only partly offset by growth in Central &
Eastern Europe and the Netherlands. Growth of gross deposits in the Americas
was offset mainly as a result of a weakening of the US dollar, lower asset
management inflows and less savings account deposits in the Netherlands.
Value of new business
Compared with the first six months of 2010, the value of new business declined
20% to EUR 221 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
Revenue-generating investments declined compared with the end of 2010 to EUR
391 billion, the result primarily of weakening of the US dollar against the
euro and over EUR 2 billion of pension assets that have been transferred to
the Hungarian State during the second quarter 2011.
Capital management
At June 30, 2011, AEGON's core capital position, excluding revaluation
reserves, amounted to EUR 15.9 billion, equivalent to 73% of the company's
total capital base. The decline from the year-end 2010 was mainly due to the
repurchase of EUR 1,500 million of convertible core capital securities from
the Dutch State, related premium of EUR 750 million and unfavorable currency
movements, partly offset by net income of EUR 0.7 billion and an equity issue
of EUR 0.9 billion in February 2011. AEGON aims the proportion of core capital
to be at least 75% of total capital by the end of 2012.
Shareholders' equity declined compared with year-end 2010 at EUR 16.8 billion
as net income and the proceeds of the equity issue were offset by the premium
paid on the repurchase of the final tranche of convertible core capital
securities from the Dutch State in addition to unfavorable currency movements.
The revaluation reserves at June 30, 2011 remained level compared with
year-end 2010 at EUR 1 billion.
AEGON aims to maintain at least 1.5 times holding expenses as a buffer at the
holding, equivalent to approximately EUR 900 million. During the first six
months of 2011, excess capital in the holding decreased to EUR 1 billion as a
result of a EUR 2.25 billion payment to the Dutch State only partly offset by
dividends received from the company's operating units and an equity issue of
EUR 0.9 billion.
At June 30, 2011, AEGON's Insurance Group Directive (IGD) ratio amounted to
approximately 200%.
Cash flows
AEGON's subsidiaries generated EUR 1,103 million in operational cash flows
during the first half of 2011. After deduction of EUR 556 million for
investments in new business, operational free cash flow totaled EUR 547
million for the period.
APPENDIX II
VALUE OF
NEW BUSINESS
AND IRR
VNB VNB VNB VNB VNB
EUR millions, after tax Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 %
Americas 51 63 (19) 52 (2) 114 96 19
The Netherlands 20 23 (13) 30 (33) 44 80 (45)
United Kingdom 11 9 22 24 (54) 20 37 (46)
New Markets 20 23 (13) 32 (38) 43 63 (32)
Total 103 118 (13) 138 (25) 221 276 (20)
IRR % IRR% IRR%
EUR millions, after tax Q2 2011 Q1 2011 Q2 2010
Americas 14.8 16.0 12.9
The Netherlands 17.3 13.9 17.0
United Kingdom 10.6 10.0 11.9
New Markets 36.5 35.1 35.3
Total 19.5 18.8 18.4
MODELED NEW BUSINESS,
APE AND DEPOSITS
Premium Premium business
business
APE APE
EUR millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 %
9
Americas 231 248 (7) 238 (3) 479 454 6
The Netherlands 45 75 (40) 58 (22) 120 150 (20)
United Kingdom 227 237 (4) 303 (25) 464 569 (18)
New Markets 88 95 (7) 97 (9) 183 177 3
Total 592 655 (10) 696 (15) 1,247 1,351 (8)
Deposit Deposit business
business
Deposits Deposits
EUR millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 %
9
Americas 4,223 4,636 (9) 4,325 (2) 8,859 8,250 7
United Kingdom 17 19 (11) 17 - 36 51 (29)
New Markets 258 216 19 303 (15) 474 610 (22)
Total 4,498 4,871 (8) 4,645 (3) 9,369 8,911 5
VNB/PVNBP
SUMMARY
Premium Premium business
business
VNB PVNBP VNB / VNB / VNB PVNBP VNB / VNB /
PVNBP APE PVNBP APE
EUR millions Notes Q2 2011 % % YTD 2011 % %
10
Americas 18 742 2.5 7.9 48 1,568 3.1 10.1
The Netherlands 20 370 5.5 45.2 44 1,007 4.3 36.5
United Kingdom 11 1,329 0.8 4.9 20 2,818 0.7 4.3
New Markets 21 641 3.3 23.6 42 1,335 3.2 23.2
Total 71 3,082 2.3 11.9 155 6,728 2.3 12.4
Deposit Deposit business
business
VNB PVNBP VNB / VNB / VNB PVNBP VNB / VNB /
PVNBP Deposits PVNBP Deposits
EUR millions Notes Q2 2011 % % YTD 2011 % %
10
Americas 32 5,240 0.6 0.8 65 11,717 0.6 0.7
United Kingdom 0 17 0.6 0.6 0 36 0.5 0.5
New Markets (0) 312 (0.1) (0.2) 1 629 0.1 0.1
Total 32 5,569 0.6 0.7 66 12,381 0.5 0.7
Notes:
1) For segment reporting purposes underlying earnings before tax, net underlying earnings,
commissions and expenses, operating expenses, income tax including associated companies,
income before tax including associated companies and value of new business (VNB) are
calculated by consolidating on a proportionate basis the revenues and expenses of certain
of our associated companies in Spain, India, Brazil and Mexico. We believe that our
non-IFRS measures provide meaningful information about the underlying operating results of
our business including insight into the financial measures that our senior management uses
in managing our business. Among other things our senior management is compensated based in
part on AEGON's results against targets using the non-IFRS measures presented here. While
other insurers in our peer group present substantially similar non-IFRS measures, the
non-IFRS measures presented in this document may nevertheless differ from the non-IFRS
measures presented by other insurers. There is no s
2) Net income refers to net income attributable to equity holders of AEGON N.V. and minority
interest.
3) Sales is defined as new recurring premiums plus 1/10 of single premiums plus 1/10 of gross
deposits plus new premium production accident and health plus new premium production
general insurance.
4) 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
5) 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.
6) 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.
7) Included in other income/(charges) are charges made to policyholders with respect to
income tax in the United Kingdom.
8) 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.
9) APE = recurring premium + 1/10 single
premium.
10) PVNBP: Present Value New Business
Premium.
11) Reconciliation of operating expenses, used for segment reporting, to our IFRS based
operating expenses.
Q2 2011 YTD 2011
Employee expenses 517 1,054
Administrative expenses 313 597
Operating expenses for IFRS reporting 830 1,651
Operating expenses related to 17 33
associates
Operating expenses in earnings release 847 1,684
12) New life sales, gross deposits and net deposits data include results of
our associated companies in Spain, India, Brazil and Mexico which are
consolidated on a proportionate basis.
13) Operational free cash flow reflect the sum of the return on free
surplus, earnings on in-force business, release of required surplus on
in-force business reduced by new business first year strain and
required surplus on new business. Refer to our Embedded Value 2010
report for further details.
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.
c) The comparative 2010 earnings and sales information has been revised to
reflect the transfer of the Life Reinsurance and BOLI/COLI businesses
to the Run-off businesses line to make the information consistent with
the current period figures.
Currencies
Income statement items: average rate 1 EUR = USD 1.4025 (2010: USD 1.3279).
Income statement items: average rate 1 EUR = GBP 0.8670 (2010: GBP 0.8696).
Balance sheet items: closing rate 1 EUR = USD 1.4499 (2010: USD 1.2271; year-end 2010: USD 1.3362).
Balance sheet items: closing rate 1 EUR = GBP 0.9031 (2010: GBP 0.8175; year-end 2010: GBP 0.8608).
ADDITIONAL INFORMATION
The Hague, August 11, 2011
Press conference call
8:00 am CET: Audio webcast on www.aegon.com
Analyst & investor presentation / conference call
9:00 am CET: Audio webcast on www.aegon.com
Call-in numbers
United States: +1 480 629 9673
United Kingdom: +44 207 153 2027
The Netherlands: +31 45 631 6902
Replay
Two hours after the conference call, a replay will be available on
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#
Supplements
AEGON's Q2 2011 Financial Supplement and Condensed Consolidated Interim
Financial Statements are available on www.aegon.com.
About AEGON
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.
Key figures - EUR Second quarter 2011 2011 Full year
Underlying earnings
before tax 401 million 1.8 billion
New life sales 431 million 2.1 billion
Gross deposits 6.7 billion 33 billion
Revenue-generating
investments (end of
period) 391 billion 413 billion
Contact information
Media relations:
Greg Tucker
+31(0)70 344 8956
gcc-ir@aegon.com
Investor relations:
Willem van den Berg
+31 (0)70 344 8305
877 548 9668 - toll free USA only
ir@aegon.com
www.aegon.com
DISCLAIMERS
Cautionary note regarding non-GAAP measures
This press release includes certain non-GAAP financial measures: underlying earnings
before tax, net underlying earnings, commission and expenses, operating expenses and
value of new business (VNB). 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. VNB 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. We may define and calculate VNB
differently than other companies. Please see AEGON's Embedded Value Report dated May
12, 2011 for an explanation of how we define and calculate VNB. AEGON believes that
these non-GAAP measures, together with the IFRS information, provide meaningful
supplemental information that our management uses to run our business as well as
useful information for the investment community to evaluate AEGON's business
relative to the businesses of our
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 unce
o Changes in general economic conditions, particularly in the United States, the
Netherlands and the United Kingdom;
o 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;
o The frequency and severity of insured loss events;
o Changes affecting mortality, morbidity and other factors that may impact the
profitability of our insurance products;
o Changes affecting interest rate levels and continuing low or rapidly changing
interest rate levels;
o Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP
exchange rates;
o Increasing levels of competition in the United States, the Netherlands, the United
Kingdom and emerging markets;
o Changes in laws and regulations, particularly those affecting our operations, the
products we sell, and the attractiveness of certain products to our consumers;
o Regulatory changes relating to the insurance industry in the jurisdictions in which
we operate;
o Acts of God, acts of terrorism, acts of war and pandemics;
o Changes in the policies of central banks and/or governments;
o 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;
o Lowering of one or more of insurer financial strength ratings of our insurance
subsidiaries and the adverse impact such action may have on premium writings, policy
retention, profitablity of its insurance subsidiaries and liquidity;
o The effect of the European Union's Solvency II requirements and other regulations in
other jurisdictions affecting the capital we are required to maintain;
o Litigation or regulatory action that could require us to pay significant damages or
change the way we do business;
o Customer responsiveness to both new products and distribution channels;
o Competitive, legal, regulatory, or tax changes that affect the distribution cost of
or demand for our products;
o The impact of acquisitions and divestitures, restructerings, product withdrawels and
other unusual tems, including our ability to integrate acquisitions and to obtain
the anticipated results and synergies from acquisitions;
o Our failure to achieve anticipated levels of earnings or operational efficiencies as
well as other cost saving initiatives; and
o 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.
END
Aegon Nv (LSE:AGN)
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