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AEGON LTD. — Interim / Quarterly Report 2011
May 12, 2011
30489_ir_2011-05-12_fc055aa0-08d3-421e-9090-e6fa8405ec31.pdf
Interim / Quarterly Report
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Q1 2011 RESULTS
MAY 12, 2011
AEGON
AEGON announces Q1 2011 net income of EUR 327 million
Underlying earnings growth in Americas and New Markets offset by declines in UK and Netherlands
- Underlying earnings before tax of EUR 414 million; strong earnings from US pensions and variable annuities offset by exceptional charges in the UK (EUR 24 million) and higher provisioning for longevity in the Netherlands (EUR 24 million)
- Net income of EUR 327 million, supported by lower impairments (EUR 62 million) and higher earnings from run-off businesses (EUR 22 million)
- RoE declines to 7.8% as a result of lower net underlying earnings and higher average shareholders' equity
Sales growth in fee-based businesses – key area of focus
- Total sales of EUR 1,411 million
- New life sales total EUR 501 million; higher sales in New Markets and the Netherlands offset by the UK
- Gross deposits total EUR 7.4 billion, supported by strong US sales of pensions and variable annuities consistent with strategy to increase fee-based business
Continued strong capital position and cash flows
- Excess capital* totaled EUR 3.7 billion, of which EUR 1.3 billion at the holding after repurchase of convertible core capital securities from Dutch State and equity issuance
- IGD* solvency ratio of 209%
- Operational free cash flow of EUR 264 million
Statement of Alex Wynaendts, CEO
"We made solid progress on AEGON's strategic objectives during the quarter, which include the repurchase of EUR 750 million of core capital securities from the Dutch State in March. The recently announced divestment of AEGON's life reinsurance business further supports our aim to complete the repurchase of all remaining securities by the end of June. With these key achievements – along with the other actions we have taken in recent years to optimize our portfolio of businesses – we have established a new basis from which to pursue AEGON's ambitions."
"During the first quarter, AEGON's businesses in the United States continued to show strong results, both in terms of earnings as well as sales. The strong sales of pensions and variable annuities clearly support our strategic shift to more fee-generating business. In the Netherlands, we have been observing a strong increase in life expectancy and are taking a prudent approach by now increasing our provisioning which will have an impact on the earnings of our Dutch business going forward. In the United Kingdom, we are confident that our new CEO and management team will fully deliver on our plans."
"We were particularly pleased by the strong new life sales achieved by AEGON's newer businesses in Central & Eastern Europe and Asia. Over time, these key growth regions, in addition to Latin America, will enable us to achieve a broader geographical balance given the substantial opportunity they present."
KEY PERFORMANCE INDICATORS
| amounts in EUR millions 5) | Notes | Q1 2011 | Q4 2010 | % | Q1 2010 | % |
|---|---|---|---|---|---|---|
| Underlying earnings before tax | 1 | 414 | 452 | (8) | 446 | (7) |
| Net income | 2 | 327 | 318 | 3 | 372 | (8) |
| Sales | 3 | 1,411 | 1,506 | (6) | 1,442 | (2) |
| Value of new business (VNB) | 4 | 118 | 129 | (9) | 138 | (14) |
| Return on equity | 5 | 7.8% | 8.7% | (8) | 8.9% | (8) |
For notes see page 20.
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.
* Excess capital above AA capital adequacy requirements.
Note: The comparative 2010 underlying earnings and sales information has been revised to reflect the transfer of life reinsurance and BOLI/COLI businesses to the run-off businesses line to make the information consistent with current period figures.
Supplements: Financial Supplement and Condensed Consolidated Interim Financial Statements Q1 available on www.aegon.com
AEGON
STRATEGIC HIGHLIGHTS
- Announcement of divestment of Transamerica Reinsurance for a total consideration of USD 1.4 billion
- Equity issuance of EUR 903 million
- Repurchase of EUR 750 million convertible core capital securities from the Dutch State
- Fully hedged US GMIB back-book and further reduced exposure to peripheral European sovereign bonds
- Restructuring in the UK on track; appointment of Adrian Grace as CEO of AEGON UK
Sustainable earnings growth with an improved risk-return profile
AEGON is well on track with the process of transforming its businesses and operations aimed at delivering sustainable earnings growth with an improved risk-return profile. AEGON has announced specific targets which reflect the company's pursuit of these objectives:
- Grow underlying earnings before tax on average by 7%-10% per annum;
- Achieve a return on equity of 10%-12% in the medium term;
- Increase fee businesses to 30%-35% of underlying earnings before tax by 2015;
- Increase normalized operating free cash flow from a level of EUR 1.0-1.2 billion by 30% by 2015;
- Intention to resume dividend payments with EUR 0.10 per common share related to H2 2011 in May 2012.
AEGON's ambition
AEGON's ambition is to become a leader in all its chosen markets by 2015. This means becoming the most recommended life and pensions provider among customers, the preferred partner among distributors and the employer of choice among both current and prospective employees.
AEGON's AMBITION
To be a leader in all our chosen markets by 2015
AEGON'S STRATEGIC PRIORITIES
- Reallocate capital
- Increase returns
- Optimize ONE AEGON
...resulting in sustainable, profitable growth.
Achieving this ambition is based on three strategic priorities: to reallocate capital to areas that offer strong growth prospects and higher returns, to increase returns from the company's existing businesses and to optimize ONE AEGON by increasing efficiency and making better use of the company's global resources.
Reallocate capital
AEGON has taken steps to sharpen its focus on the company's three core businesses: life insurance, pensions and asset management. The company also intends to achieve a greater geographical balance by reallocating capital to the growth markets of Central & Eastern Europe, Asia and Latin America. As part of this approach, AEGON has assessed its businesses to ensure they meet the company's requirements in terms of earnings growth, cash flow generation, return on capital and customer life-cycle needs. As further evidence of this focus, AEGON has recently announced the divestment of its life reinsurance business, Transamerica Reinsurance, for a total after-tax consideration of USD 1.4 billion. AEGON expects to upstream USD 1.1 billion to the holding company to support the repurchase of the remaining convertible core capital securities issued to the Dutch State. AEGON aims to fully repurchase these securities by the end of June 2011.
In addition to reallocating its capital to those regions that offer higher growth and returns, AEGON is also shifting its focus from the sale of spread-based products to fee-based products. This is evidenced by the strong increase in sales of variable annuity and pension products in the United States.
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AEGON
Improve risk profile
As previously announced, AEGON has taken steps to equity hedge its Guaranteed Minimum Income Benefit (GMIB) back-book of variable annuities in the United States. AEGON has now fully covered the equity exposure related to this back-book of GMIB variable annuity guarantees.
In order to improve the risk-return profile of stable value solutions, AEGON's synthetic guaranteed investment contracts business in the United States, a number of contracts have been terminated or contract terms have been tightened for remaining contracts. Fees have been increased to 20 basis points on average from 15 basis points previously.
During the first quarter, AEGON further reduced its already limited exposure to peripheral European sovereign bonds, based on fair value, to EUR 1 billion or 0.7% of its general account investments.
Increase returns
AEGON's aim is to increase returns in all of its businesses by increasing efficiency and delivering operational excellence. This will be achieved by further reducing costs while investing in core competences and improving service levels to ensure continued customer loyalty.
In the United Kingdom, AEGON is taking significant steps to improve its return on capital. AEGON is implementing a broad restructuring program to reduce cost by 25% in its life and pensions operations by the end of 2011. The restructuring program is on track. As part of this process, AEGON has appointed new senior management in the past 18 months. Most recently, Adrian Grace was appointed CEO of AEGON UK.
Optimize ONE AEGON
Over the past three years, measures have been taken to manage AEGON more as an international company. AEGON is committed to making better use of its global resources in managing its businesses and will continue to standardize best practices across the company.
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AEGON
FINANCIAL OVERVIEW
| EUR millions | Notes | Q1 2011 | Q4 2010 | % | Q1 2010 | % |
|---|---|---|---|---|---|---|
| Underlying earnings before tax | ||||||
| Americas | 347 | 369 | (6) | 337 | 3 | |
| The Netherlands | 81 | 87 | (7) | 104 | (22) | |
| United Kingdom | 12 | (6) | - | 28 | (57) | |
| New markets | 57 | 59 | (3) | 46 | 24 | |
| Holding and other | (83) | (57) | (46) | (69) | (20) | |
| Underlying earnings before tax | 414 | 452 | (8) | 446 | (7) | |
| Fair value items | (85) | 30 | - | (16) | - | |
| Realized gains / (losses) on investments | 91 | 255 | (64) | 126 | (28) | |
| Impairment charges | (62) | (133) | 53 | (150) | 59 | |
| Other income / (charges) | (3) | (258) | 99 | 23 | - | |
| Run-off businesses | 22 | 9 | NA | (18) | - | |
| Income before tax | 377 | 355 | 6 | 411 | (8) | |
| Income tax | (50) | (37) | (35) | (39) | (28) | |
| Net income | 327 | 318 | 3 | 372 | (12) | |
| Net income / (loss) attributable to: | ||||||
| Equity holders of AEGON N.V. | 327 | 318 | 3 | 371 | (12) | |
| Non-controlling interests | - | - | - | 1 | - | |
| Net underlying earnings | 333 | 348 | (4) | 345 | (3) | |
| Commissions and expenses | 1,513 | 1,659 | (9) | 1,586 | (5) | |
| of which operating expenses | π | 837 | 909 | (8) | 812 | 3 |
| New life sales | ||||||
| Life single premiums | 1,726 | 2,002 | (14) | 1,919 | (10) | |
| Life recurring premiums annualized | 328 | 330 | (1) | 311 | 3 | |
| Total recurring plus 1/10 single | 501 | 530 | (5) | 503 | - | |
| New life sales | ||||||
| Americas | π | 113 | 118 | (4) | 110 | 3 |
| The Netherlands | 65 | 113 | (42) | 62 | 5 | |
| United Kingdom | 247 | 224 | 10 | 265 | (7) | |
| New markets | π | 76 | 75 | 1 | 66 | 15 |
| Total recurring plus 1/10 single | 501 | 530 | (5) | 503 | - | |
| New premium production accident and health insurance | 159 | 180 | (12) | 148 | 7 | |
| New premium production general insurance | 13 | 15 | (13) | 14 | (7) | |
| Gross deposits (on and off balance) | ||||||
| Americas | π | 5,629 | 5,757 | (2) | 5,402 | 4 |
| The Netherlands | 462 | 490 | (6) | 743 | (38) | |
| United Kingdom | 19 | 25 | (24) | 36 | (47) | |
| New markets | π | 1,267 | 1,541 | (16) | 1,593 | (20) |
| Total gross deposits | 7,377 | 7,813 | (6) | 7,774 | (5) | |
| Net deposits (on and off balance) | ||||||
| Americas | π | (233) | (566) | 59 | 535 | - |
| The Netherlands | (115) | (260) | 56 | 67 | - | |
| United Kingdom | 2 | 12 | (83) | 29 | (93) | |
| New markets | π | (1,719) | 304 | - | 121 | - |
| Total net deposits excluding run-off businesses | (2,065) | (510) | - | 752 | - | |
| Run-off businesses | (880) | (1,436) | 39 | (2,210) | 60 | |
| Total net deposits | (2,945) | (1,946) | (51) | (1,458) | (102) |
REVENUE-GENERATING INVESTMENTS
| Mar. 31, 2011 | Dec. 31, 2010 | % | |
|---|---|---|---|
| Revenue-generating investments (total) | 399,882 | 413,191 | (3) |
| Investments general account | 136,991 | 143,188 | (4) |
| Investments for account of policyholders | 144,296 | 146,237 | (1) |
| Off balance sheet investments third parties | 118,595 | 123,766 | (4) |
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AEGON
OPERATIONAL HIGHLIGHTS
Underlying earnings before tax
AEGON's underlying earnings before tax amounted to EUR 414 million in the first quarter, a 7% decline compared with the same quarter last year.
Underlying earnings from the Americas represent the results of ongoing businesses. As previously announced, earnings from the BOLI/COLI and life reinsurance businesses are reported in the run-off line of business from the first quarter of 2011. All comparative numbers have been adjusted accordingly. On this new basis, underlying earnings from the Americas increased 3% compared with the first quarter of 2010 to EUR 347 million for the first quarter 2011. Higher fee income related to growth in pension, variable annuity and retail mutual fund account balances more than offset lower spread income. This was consistent with AEGON's strategy to increase earnings from its fee businesses.
In the Netherlands, underlying earnings decreased to EUR 81 million as a result of an increased level of provisioning for longevity, as previously indicated. Updated projected mortality tables show a strong increase in life expectancy in the Dutch population. IFRS provisioning is based on yearly observed mortality tables and is taken through underlying earnings, in line with our accounting methodology. Based on this actual experience, the company takes a measured approach toward provisioning by assuming a continuation of the emerging trend of strong improvements in observed mortality for 2010. AEGON expects to add on average EUR 20 million per quarter to the provision, in addition to 2010 levels of provisioning.
In the United Kingdom, underlying earnings declined to EUR 12 million. The decrease was due to charges of EUR 24 million mainly related to an ongoing program to correct historical issues within customer policy records.
Underlying earnings from New Markets increased to EUR 57 million driven by Variable Annuities Europe and AEGON Asset Management.
Higher funding costs and increased expenses related to the preparation for implementation of Solvency II resulted in increased costs for the holding company in the first quarter of 2011.
Net income
Net income amounted to EUR 327 million, supported by lower impairments and higher earnings from run-off businesses. Higher net income for the Americas, the United Kingdom and New Markets was more than offset by lower net income for the Netherlands.
Fair value items
In the first quarter, fair value items recorded a loss of EUR 85 million. A considerable improvement in the Americas, attributable mainly to strong results from real estate and private equity investments, was more than offset by an exceptional loss on strategic allocation funds in the Netherlands.
Realized gains on investments
Realized gains on investments amounted to EUR 91 million for the quarter and were mostly the result of normal trading in the investment portfolio.
Impairment charges
Impairment charges, net of EUR 26 million in recoveries, declined sharply to EUR 62 million and were mostly linked to residential mortgage-backed securities.
Other charges
Other charges totaled EUR 3 million. A benefit of EUR 37 million related to a settlement of legal claims was more than offset by a EUR 20 million charge related to the full year Hungarian bank tax and restructuring charges in the Netherlands (EUR 8 million), the United Kingdom (EUR 8 million) and New Markets (EUR 6 million).
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 latter
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AEGON
two have been included for the first time this quarter. The results of the combined run-off businesses increased to EUR 22 million, mainly as a result of a lower amortization yield paid on internally transferred assets related to the institutional spread-based business and favorable mortality results in the pay-out annuities block of business.
Income tax
Tax charges for the quarter amounted to EUR 50 million. These charges included EUR 17 million in tax benefits related to cross-border intercompany reinsurance transactions and a tax credit of EUR 23 million driven by the reduction of the UK corporate tax rate to 26% effective from April 1, 2011, with consequential impact on deferred taxes.
Operating expenses
Operating expenses increased 3% to EUR 837 million. The increase was driven by higher restructuring charges and the unfavorable effects of movements in currency exchange rates. Excluding restructuring charges and at constant currencies, operating expenses decreased 1%.
Sales and deposits
In order to provide a more accurate view of overall sales generated by its businesses, AEGON has 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. According to this indicator, sales decreased marginally by 2% to EUR 1.4 billion as a result of lower asset management deposits.
New life sales for the first quarter of 2011 increased in all units except the United Kingdom and amounted to EUR 501 million.
Gross deposits amounted to EUR 7.4 billion. Growth in US pension and variable annuity deposits was offset by lower asset management deposits and lower savings deposits in the Netherlands.
Value of new business
Compared with the first quarter of 2010, the value of new business declined considerably to EUR 118 million, mainly a result of lower margins on mortgages and updated mortality assumptions in the Netherlands.
Revenue-generating investments
Revenue-generating investments were 3% lower compared with the end of the fourth quarter of 2010 at EUR 400 billion, primarily a result of the weakening of the US dollar against the euro.
Capital management
At the end of the first quarter, AEGON's core capital position, excluding revaluation reserves, amounted to EUR 17.0 billion, equivalent to 75% of the company's total capital base. The repurchase of convertible core capital securities from the Dutch State for an amount of EUR 750 million - plus a premium of EUR 375 million - was partly offset by an equity issue of EUR 0.9 billion. AEGON has announced its aim to achieve the proportion of core capital to be at least 75% of total capital by the end of 2012.
The revaluation reserves at March 31, 2011 totaled EUR 0.7 billion, as an increase in risk-free interest rates had a negative impact on the value of fixed income securities.
Shareholders' equity declined compared with year-end 2010 to EUR 16.9 billion mainly as a result of weakening of the US dollar against the euro.
During the first quarter, excess capital amounted to EUR 3.7 billion. Excess capital in the holding decreased to EUR 1.3 billion as a result of a EUR 1.125 billion payment to the Dutch State only partly offset by the proceeds of a EUR 0.9 billion equity issue. Excess capital in subsidiaries increased to EUR 2.4 billion as a result of capital generated in the operations.
On March 31, 2011, AEGON's Insurance Group Directive (IGD) ratio amounted to 209%.
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AEGON
Cash flows
AEGON aims to deliver sustainable cash flows and dividends and has announced its intention to improve operational free cash flow from its current normalized level of EUR 1.0-1.2 billion per annum by 30% by 2015. AEGON intends to resume dividend payments on common shares after full repurchase of the convertible core capital securities from the Dutch State. AEGON intends to pay a dividend of EUR 0.10 per share, payable in May 2012, over the second half of 2011, market conditions permitting.
During the first quarter of 2011, AEGON's subsidiaries generated EUR 539 million in operational cash flows. After deduction of EUR 275 million for investments in new business, operational free cash flow totaled EUR 264 million for the quarter.
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AEGON
APPENDIX I • Americas • The Netherlands • United Kingdom • New Markets
AMERICAS (c)
| USD millions | Notes | Q1 2011 | Q4 2010 | % | Q1 2010 | % |
|---|---|---|---|---|---|---|
| Underlying earnings before tax by line of business | ||||||
| Life and protection | 195 | 242 | (19) | 194 | 1 | |
| Fixed annuities | 90 | 81 | 11 | 121 | (26) | |
| Variable annuities | 93 | 68 | 37 | 69 | 35 | |
| Retail mutual funds | 6 | 6 | - | - | - | |
| Individual savings and retirement products | 189 | 155 | 22 | 190 | (1) | |
| Employer solutions & pensions | 81 | 80 | 1 | 69 | 17 | |
| Canada | 11 | 15 | (27) | 11 | - | |
| Latin America | (2) | 2 | - | 1 | - | |
| Underlying earnings before tax | 474 | 494 | (4) | 465 | 2 | |
| Fair value items | (17) | 10 | - | (120) | 86 | |
| Realized gains / (losses) on investments | 35 | 327 | (69) | 33 | 6 | |
| Impairment charges | (80) | (131) | 39 | (191) | 58 | |
| Other income / (charges) | - | (264) | - | - | - | |
| Run-off businesses | 30 | 11 | 173 | (24) | - | |
| Income before tax | 442 | 447 | (1) | 163 | 171 | |
| Income tax | (83) | (53) | (57) | 54 | - | |
| Net income | 359 | 394 | (6) | 217 | 65 | |
| Net income / (loss) attributable to: | ||||||
| Equity holders of AEGON N.V. | 359 | 394 | (9) | 217 | 65 | |
| Net underlying earnings | 346 | 361 | (4) | 358 | (3) | |
| Commissions and expenses | 1,209 | 1,333 | (9) | 1,355 | (19) | |
| of which operating expenses | 492 | 514 | (4) | 501 | (2) | |
| New life sales | c | |||||
| Life single premiums | 147 | 194 | (24) | 179 | (18) | |
| Life recurring premiums annualized | 139 | 139 | - | 136 | 2 | |
| Total recurring plus 1/10 single | 154 | 158 | (3) | 154 | - | |
| Life & protection | 121 | 129 | (6) | 121 | - | |
| Employer solutions & pensions | 6 | 5 | 20 | 8 | (25) | |
| Canada | 17 | 14 | 21 | 15 | 13 | |
| Latin America | 10 | 10 | - | 10 | - | |
| Total recurring plus 1/10 single | 154 | 158 | (3) | 154 | - | |
| New premium production accident and health insurance | 199 | 230 | (13) | 184 | 8 | |
| Gross deposits (on and off balance) by line of business | c | |||||
| Life & protection | 3 | 2 | 50 | 3 | - | |
| Fixed annuities | 83 | 112 | (26) | 185 | (55) | |
| Variable annuities | 1,179 | 1,037 | 14 | 809 | 46 | |
| Retail mutual funds | 775 | 692 | 12 | 976 | (21) | |
| Individual savings & retirement products | 2,037 | 1,841 | 11 | 1,970 | 3 | |
| Employer solutions & pensions | 5,554 | 5,744 | (3) | 5,217 | 6 | |
| Canada | 97 | 102 | (5) | 286 | (66) | |
| Total gross deposits | 7,691 | 7,689 | - | 7,476 | 3 | |
| Net deposits (on and off balance) by line of business | c | |||||
| Life & protection | (14) | (14) | - | (15) | 7 | |
| Fixed annuities | (801) | (660) | (21) | (543) | (48) | |
| Variable annuities | 220 | 158 | 39 | (23) | - | |
| Retail mutual funds | (50) | (37) | (35) | 418 | - | |
| Individual savings & retirement products | (631) | (539) | (17) | (148) | - | |
| Employer solutions & pensions | 485 | (28) | - | 1,386 | (65) | |
| Canada | (158) | (156) | (1) | (482) | 67 | |
| Total net deposits excluding run-off businesses | (318) | (737) | 57 | 741 | - | |
| Run-off businesses | (1,202) | (1,927) | 38 | (3,058) | 61 | |
| Total net deposits | (1,520) | (2,664) | 43 | (2,317) | 34 |
REVENUE-GENERATING INVESTMENTS
| Mar. 31, 2011 | Dec. 31, 2010 | % | |
|---|---|---|---|
| Revenue-generating investments (total) | 324,849 | 319,733 | 2 |
| Investments general account | 124,185 | 125,128 | (1) |
| Investments for account of policyholders | 82,459 | 79,308 | 4 |
| Off balance sheet investments third parties | 118,205 | 115,297 | 3 |
AEGON
AMERICAS
- Underlying earnings before tax increase to USD 474 million driven by pensions and variable annuities
- Net income increases to USD 359 million
- New life sales are stable at USD 154 million
- Gross deposits increase to USD 7.7 billion driven by strong pension and variable annuity deposits
Underlying earnings before tax
Underlying earnings from the Americas represent the results of going concern businesses. As previously announced, earnings from the BOLI/COLI and life reinsurance businesses are reported in the run-off line of business from the first quarter of 2011. All comparative numbers have been adjusted accordingly. On this new basis, underlying earnings from the Americas increased to USD 474 million for the first quarter 2011.
- Earnings from Life & Protection in the Americas were stable at USD 195 million as growth of the business was offset by adverse mortality results of USD 9 million.
- Individual Savings & Retirement earnings amounted to USD 189 million. Fixed annuity earnings decreased to USD 90 million as a result of lower spreads and lower asset balances, while variable annuity earnings increased to USD 93 million mainly driven by strong net inflows and higher equity markets in recent quarters. Retail mutual funds' earnings also increased as a result of higher account balances and amounted to USD 6 million.
- Earnings from Employer Solutions & Pensions increased to USD 81 million as a result of continued growth in the retirement business and substantial rate increases for synthetic guaranteed investment contracts.
- Earnings from Canada were stable at USD 11 million, while the joint-ventures in Latin America recorded a loss of USD 2 million as a result of a USD 3 million one-off charge.
Net income
Net income from AEGON's businesses in the Americas increased to USD 359 million in the first quarter. Higher underlying earnings, improved results from fair value items, substantially lower impairments and a positive contribution from run-off businesses were only partly offset by higher tax charges.
The loss of USD 17 million for fair value items was a considerable improvement compared with the first quarter last year mainly as a result of strong improvements from real estate and private equity investments.
Gains on investments of USD 35 million were realized as a result of normal trading activities.
Net impairments decreased significantly to USD 80 million and were mostly linked to residential mortgage-backed securities.
As of the first quarter of 2011, AEGON's run-off line of business in the Americas is comprised of the institutional spread-based business, structured settlement pay-out annuities, BOLI/COLI and life reinsurance. The latter two have been included for the first time this quarter. The results of the combined run-off businesses increased to USD 30 million, mainly as a result of a lower amortization yield paid on internally transferred assets related to the institutional spread-based business and favorable mortality results in the pay-out annuities block of business.
Net income contained a tax expense of USD 83 million, including a benefit of USD 23 million related to cross-border intercompany reinsurance transactions between the United States and Ireland.
Operating expenses
Operating expenses declined 2% to USD 492 million, the result of continued cost reduction initiatives.
Sales and deposits
New life sales were level at USD 154 million. Growth in recurring premium sales through the agency channel was offset by the effect of the discontinuance of single premium universal life sales in the bank channel which are no longer profitable in the current interest rate environment. New premium production for accident & health increased to USD 199 million.
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AEGON
Gross deposits increased to USD 7.7 billion as a result of higher pension and variable annuity deposits. Continued net inflows for the pension and variable annuity businesses were more than offset by fixed annuity outflows, in addition to retail mutual funds and stable value solutions outflows. Net outflows totaled USD 0.3 billion for the quarter. AEGON is de-emphasizing sales of fixed annuities as part of its strategic repositioning.
Value of new business
Value of new business increased to USD 86 million mainly as a result of improved margins on variable annuities, pension and life insurance products. The internal rate of return on new business was 16%.
Revenue-generating investments
Revenue-generating investments increased to USD 325 billion compared to the fourth quarter of 2010. The effects of favorable equity market performance more than offset a decline in run-off balances and the effects of higher interest rates.
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AEGON
THE NETHERLANDS
| EUR millions | Notes | Q1 2011 | Q4 2010 | % | Q1 2010 | % |
|---|---|---|---|---|---|---|
| Underlying earnings before tax by line of business | ||||||
| Life and Savings | 43 | 54 | (20) | 39 | 10 | |
| Pensions | 22 | 35 | (37) | 47 | (53) | |
| Non life | 5 | 4 | 25 | 7 | (29) | |
| Distribution | 11 | (3) | - | 11 | - | |
| Share in underlying earnings before tax of associates | - | (3) | - | - | - | |
| Underlying earnings before tax | 81 | 87 | (7) | 104 | (22) | |
| Fair value items | (60) | 18 | - | 91 | - | |
| Realized gains / (losses) on investments | 35 | 1 | - | 96 | (64) | |
| Impairment charges | (2) | - | - | (1) | (100) | |
| Other income / (charges) | (8) | 5 | - | - | - | |
| Income before tax | 46 | 111 | (59) | 290 | (84) | |
| Income tax | (7) | (30) | 77 | (67) | 90 | |
| Net income | 39 | 81 | (52) | 223 | (83) | |
| Net income / (loss) attributable to: | ||||||
| Equity holders of AEGON N.V. | 39 | 81 | (52) | 223 | (83) | |
| Net underlying earnings | 66 | 70 | (6) | 77 | (14) | |
| Commissions and expenses | 272 | 283 | (4) | 264 | 3 | |
| of which operating expenses | 189 | 205 | (8) | 182 | 4 | |
| New life sales | ||||||
| Life single premiums | 457 | 737 | (38) | 397 | 15 | |
| Life recurring premiums annualized | 19 | 39 | (51) | 22 | (14) | |
| Total recurring plus 1/10 single | 65 | 113 | (42) | 62 | 5 | |
| Life and Savings | 26 | 17 | 53 | 27 | (4) | |
| Pensions | 39 | 96 | (59) | 35 | 11 | |
| Total recurring plus 1/10 single | 65 | 113 | (42) | 62 | 5 | |
| New premium production accident and health insurance | 10 | 6 | 67 | 11 | (9) | |
| New premium production general insurance | 8 | 6 | 33 | 8 | - | |
| Gross deposits (on and off balance) by line of business | ||||||
| Life and Savings | 382 | 403 | (5) | 683 | (44) | |
| Pensions | 80 | 87 | (8) | 60 | 33 | |
| Total gross deposits | 462 | 490 | (6) | 743 | (38) | |
| Net deposits (on and off balance) by line of business | ||||||
| Life and Savings | (142) | (282) | 50 | 82 | - | |
| Pensions | 27 | 22 | 23 | (15) | - | |
| Total net deposits | (115) | (260) | 56 | 67 | - |
REVENUE-GENERATING INVESTMENTS
| Mar. 31, 2011 | Dec. 31, 2010 | % | |
|---|---|---|---|
| Revenue-generating investments (total) | 73,393 | 72,584 | 1 |
| Investments general account | 37,448 | 37,174 | 1 |
| Investments for account of policyholders | 23,627 | 23,057 | 2 |
| Off balance sheet investments third parties | 12,318 | 12,353 | - |
Page 11 of 22
AEGON
THE NETHERLANDS
- Underlying earnings before tax decrease to EUR 81 million due to higher provisioning for longevity
- Net income decreases to EUR 39 million
- New life sales increase to EUR 65 million mainly as a result of a large single premium pension contract
Underlying earnings before tax
- Earnings from AEGON's Life & Savings operations in the Netherlands increased to EUR 43 million mainly as a result of higher investment income.
- Earnings from the Pension business declined to EUR 22 million primarily due to EUR 24 million higher provisioning for longevity.
- Non-life earnings amounted to EUR 5 million as the positive effect of a low claims ratio was more than offset by a lower release of provisions and investments in the business to increase efficiency.
- Earnings from the Distribution businesses amounted to EUR 11 million.
Updated projected mortality tables show a strong increase in life expectancy in the Dutch population. IFRS provisioning is based on yearly observed mortality tables and is taken through underlying earnings, in line with our accounting methodology. Based on this actual experience, the company takes a measured approach toward provisioning by assuming a continuation of the emerging trend of strong improvements in observed mortality for 2010. AEGON expects to add on average EUR 20 million per quarter to the provision, in addition to 2010 levels of provisioning.
Net income
Net income from AEGON's businesses in the Netherlands decreased to EUR 39 million. Fair value items amounted to a negative EUR 60 million, the result mainly of an exceptional loss on strategic allocation funds. Gains on investments totaled EUR 35 million for the quarter and were mostly the result of normal trading in the investment portfolio. Other charges of EUR 8 million related mainly to the restructuring of AEGON Bank. The reorganization is expected to save EUR 20 million per annum in costs when completed.
Operating expenses
Operating expenses increased 4% to EUR 189 million in the first quarter of 2011, mainly as a result of investments in further developing new distribution capabilities.
Sales and deposits
New life sales increased 5% to EUR 65 million during the first quarter of 2011. This is the result of increased pension sales, mainly due to a large single premium case, while sales of individual life insurance products remained level.
Premium production for accident & health and non-life products amounted to EUR 18 million. A new marketing strategy is being implemented to increase sales in the Motor and Fire segments of the market.
Gross deposits decreased to EUR 462 million as AEGON currently offers less competitive interest rates on savings accounts.
Value of new business
The value of new business declined to EUR 23 million mainly a result of lower margins on mortgages and updated mortality assumptions. The internal rate of return on new business amounted to 14%.
Revenue-generating investments
Revenue-generating investments increased 1% to EUR 73 billion compared with the previous quarter, the result of business growth.
Page 12 of 22
AEGON
UNITED KINGDOM
| GBP millions | Notes | Q1 2011 | Q4 2010 | % | Q1 2010 | % |
|---|---|---|---|---|---|---|
| Underlying earnings before tax by line of business | ||||||
| Life | 21 | 4 | - | 18 | 17 | |
| Pensions | (9) | (8) | (13) | 9 | - | |
| Distribution | (2) | (2) | - | (2) | - | |
| Underlying earnings before tax | 10 | (6) | - | 25 | (60) | |
| Fair value items | (1) | - | - | 2 | - | |
| Realized gains / (losses) on investments | 25 | 7 | - | 2 | - | |
| Impairment charges | - | (20) | - | (7) | - | |
| Other income / (charges) | 7 | (5) | (11) | 55 | 21 | - |
| Income before tax | 29 | (30) | - | 43 | (33) | |
| Income tax attributable to policyholder return | (1) | 6 | - | (21) | 95 | |
| Income before income tax on shareholders return | 28 | (24) | - | 22 | 27 | |
| Income tax on shareholders return | 18 | 8 | 125 | (2) | - | |
| Net income | 46 | (16) | - | 20 | 130 | |
| Net income / (loss) attributable to: | ||||||
| Equity holders of AEGON N.V. | 46 | (16) | - | 20 | 130 | |
| Net underlying earnings | 33 | (2) | - | 22 | 50 | |
| Commissions and expenses | 172 | 164 | 5 | 170 | 1 | |
| of which operating expenses | 98 | 98 | - | 95 | 3 | |
| New life sales | 8 | |||||
| Life single premiums | 841 | 798 | 5 | 1,139 | (26) | |
| Life recurring premiums annualized | 127 | 110 | 15 | 121 | 5 | |
| Total recurring plus 1/10 single | 211 | 190 | 11 | 235 | (10) | |
| Life | 16 | 15 | 7 | 26 | (38) | |
| Pensions | 195 | 175 | 11 | 209 | (7) | |
| Total recurring plus 1/10 single | 211 | 190 | 11 | 235 | (10) | |
| Gross deposits (on and off balance) by line of business | ||||||
| Variable annuities | 17 | 21 | (19) | 32 | (47) | |
| Total gross deposits | 17 | 21 | (19) | 32 | (47) | |
| Net deposits (on and off balance) by line of business | ||||||
| Variable annuities | 2 | 10 | (80) | 25 | (92) | |
| Total net deposits | 2 | 10 | (80) | 25 | (92) |
REVENUE-GENERATING INVESTMENTS
| Mar. 31, 2011 | Dec. 31, 2010 | % | |
|---|---|---|---|
| Revenue-generating investments (total) | 57,717 | 57,641 | - |
| Investments general account | 7,855 | 7,979 | (2) |
| Investments for account of policyholders | 49,862 | 49,662 | - |
Page 13 of 22
AEGON
UNITED KINGDOM
- Underlying earnings before tax decrease to GBP 10 million as a result of exceptional charges
- Net income increases to GBP 46 million
- New life sales decrease to GBP 211 million as a result of lower annuity sales
Underlying earnings before tax
- Earnings from Life increased to GBP 21 million, mainly driven by cost reductions.
- Pensions recorded a loss of GBP 9 million as the benefits from further business growth and improved market conditions were more than offset by charges of GBP 21 million mainly related to the customer redress program.
- Distribution recorded a loss of GBP 2 million, level with the results in the comparable quarter last year.
In May 2009, AEGON initiated a program to identify and correct historical issues within its customer policy records. The main 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. Efforts to determine the full scope of customer redress is expected to continue throughout the remainder of the year and could potentially 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 increased to GBP 46 million, as lower underlying earnings were more than offset by higher gains on investments, a tax benefit and the absence of impairments. Gains on investments amounted to GBP 25 million as a result of a continuing shift from corporate bonds into gilts.
A reduction in the corporate tax rate in the United Kingdom had a positive impact on deferred tax and led to a tax benefit of GBP 20 million. Net income also contained a charge of GBP 7 million related to the restructuring of AEGON's operations in the United Kingdom.
Operating expenses
Operating expenses slightly increased to GBP 98 million mainly driven by expenses related to customer redress and charges relating to the restructuring program announced in June 2010. These charges are only partially offset by cost savings. Excluding restructuring charges, operating expenses declined 4%. The restructuring aims to reduce operating expenses by 25% by the end of 2011. It is expected that further restructuring charges will arise in coming quarters. The restructuring program is on track and of the targeted GBP 80 to 85 million annually, already GBP 37 million has been enacted.
Sales
New life sales decreased to GBP 211 million during the quarter as a result of lower annuity sales due to repricing. These moves are partially offset by an increase in group pension sales.
Value of new business
Value of new business in the United Kingdom declined to GBP 8 million, partly driven by lower sales. The internal rate of return on new business for the first quarter was 10%.
Revenue-generating investments
Compared with the fourth quarter 2010, revenue-generating investments remained level at GBP 58 billion.
Page 14 of 22
AEGON
NEW MARKETS
| EUR millions | Notes | Q1 2011 | Q4 2010 | % | Q1 2010 | % |
|---|---|---|---|---|---|---|
| Underlying earnings before tax | ||||||
| Central Eastern Europe | 26 | 29 | (10) | 27 | (4) | |
| Asia | (11) | (12) | 8 | (6) | (83) | |
| Spain & France | 23 | 24 | (4) | 20 | 6 | |
| Variable Annuities Europe | 5 | 4 | 25 | (2) | - | |
| AEGON Asset Management | 14 | 14 | - | 7 | 100 | |
| Underlying earnings before tax | 57 | 59 | (3) | 46 | 24 | |
| Fair value items | - | - | - | 3 | - | |
| Realized gains / (losses) on investments | 2 | - | - | 3 | (33) | |
| Impairment charges | (2) | (11) | 82 | (2) | - | |
| Other income / (charges) | 11 | (40) | - | - | - | |
| Income before tax | 68 | 8 | - | 50 | 38 | |
| Income tax | (26) | 1 | - | (13) | (100) | |
| Net income | 42 | 9 | - | 37 | 14 | |
| Net income / (loss) attributable to: | ||||||
| Equity holders of AEGON N.V. | 42 | 9 | - | 36 | 17 | |
| Non-controlling interests | - | - | - | 1 | - | |
| Net underlying earnings | 38 | 49 | (22) | 32 | 19 | |
| Commissions and expenses | 180 | 216 | (17) | 175 | 3 | |
| of which operating expenses | 141 | 168 | (16) | 133 | 6 | |
| New life sales | v | |||||
| Life single premiums | 174 | 176 | (1) | 108 | 61 | |
| Life recurring premiums annualized | 59 | 58 | 2 | 55 | 7 | |
| Total recurring plus 1/10 single | 76 | 75 | 1 | 66 | 15 | |
| Life | 62 | 60 | 3 | 53 | 17 | |
| Associates | 14 | 15 | (7) | 13 | 8 | |
| Total recurring plus 1/10 single | 76 | 75 | 1 | 66 | 15 | |
| Central Eastern Europe | 27 | 27 | - | 19 | 42 | |
| Asia | 11 | 9 | 22 | 10 | 10 | |
| Spain & France | 38 | 39 | (3) | 37 | 3 | |
| Total recurring plus 1/10 single | 76 | 75 | 1 | 66 | 15 | |
| New premium production accident and health insurance | 3 | 2 | 50 | 4 | (25) | |
| New premium production general insurance | 5 | 9 | (44) | 6 | (17) | |
| Gross deposits (on and off balance) | v | |||||
| Central Eastern Europe | 182 | 231 | (21) | 226 | (19) | |
| Asia | 11 | 10 | 10 | 44 | (75) | |
| Spain & France | 8 | 23 | (65) | 25 | (68) | |
| Variable Annuities Europe | 131 | 133 | (2) | 188 | (30) | |
| AEGON Asset Management | 935 | 1,144 | (18) | 1,110 | (16) | |
| Total gross deposits | 1,267 | 1,541 | (18) | 1,593 | (28) | |
| Net deposits (on and off balance) | v | |||||
| Central Eastern Europe | 108 | 140 | (23) | 69 | 57 | |
| Asia | 11 | 8 | 38 | 25 | (56) | |
| Spain & France | (11) | 4 | - | 25 | - | |
| Variable Annuities Europe | 26 | 40 | (35) | 79 | (67) | |
| AEGON Asset Management | (1,853) | 112 | - | (77) | - | |
| Total net deposits | (1,719) | 304 | - | 121 | - |
REVENUE-GENERATING INVESTMENTS
| Mar. 31, 2011 | Dec. 31, 2010 | % | |
|---|---|---|---|
| Revenue-generating investments (total) | 32,211 | 34,075 | (5) |
| Investments general account | 2,926 | 2,810 | 4 |
| Investments for account of policyholders | 6,210 | 6,139 | 1 |
| Off balance sheet investments third parties | 23,075 | 25,126 | (6) |
Page 15 of 22
AEGON
NEW MARKETS
- Underlying earnings before tax increase 24% to EUR 57 million
- Net income increases 14% to EUR 42 million
- New life sales increase to EUR 76 million, driven by strong recurring premium sales in CEE
Underlying earnings before tax
- Earnings from Central & Eastern Europe remained relatively constant at EUR 26 million as growth of the life business was offset by the negative impact of the new pension legislation in Hungary.
- AEGON's operations in Asia recorded a loss of EUR 11 million driven by continued investments in the company's joint ventures in China, India and Japan. Additionally, the results for the Asia regional office are included in the Asia results from the first quarter of 2011, following the implementation of the new operational structure for the Asian operations.
- Earnings from Spain & France increased to EUR 23 million as a result of business growth following the continued strategic focus on protection products in Spain.
- Earnings from Variable Annuities Europe increased to EUR 5 million driven by improved market conditions and growth of the business.
- AEGON Asset management reported strong earnings of EUR 14 million for the quarter.
As part of the new pension legislation in Hungary, assets are expected to be transferred to the Hungarian State during the second quarter 2011. In Poland, the government will reduce 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.
Net income
Net income from New Markets increased to EUR 42 million during the quarter as a result of higher underlying earnings and higher other income. Other income amounted to EUR 11 million, as a settlement of legal claims of EUR 37 million was offset by a charge of EUR 20 million related to the full year Hungarian bank tax and restructuring costs of EUR 6 million. Impairment charges remained stable at EUR 2 million.
Operating expenses
Operating expenses increased to EUR 141 million in the first quarter, as a result of restructuring charges of EUR 6 million relating to asset management.
Excluding restructuring charges, operating expenses increased slightly compared with the first quarter of 2010. Compared to the fourth quarter of last year, operating expenses were down 16% as Q4 2010 included a write-down of intangibles following the changes in pension legislation in Hungary.
Sales and deposits
New life sales increased 15% to EUR 76 million.
- In Central & Eastern Europe, new life sales increased 42% to EUR 27 million as a result of strong recurring premium production in Hungary as the focus of the tied distribution network shifted from pension to life insurance products. Single premium production benefited from improved economic conditions.
- In Asia, new life sales increased 10% to EUR 11 million driven by growth in India. New life sales in China were impacted by new regulation and remained level.
- New life sales in Spain and France increased 3% to EUR 38 million.
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 from New Markets declined 20% to EUR 1.3 billion, primarily driven by lower asset management deposits.
Page 16 of 22
AEGON
Value of new business
Value of new business in New Markets decreased to EUR 23 million as the negative effects of adverse pension legislation in Hungary and margin pressure for Variable Annuities Europe were only partly offset by growth in Turkey. The internal rate of return on new business for the first quarter remained high at 35%.
Revenue-generating investments
Revenue-generating investments declined 5% compared with the fourth quarter of 2010 to EUR 32 billion, driven by net outflows in asset management.
Page 17 of 22
AEGON
FINANCIAL OVERVIEW, Q1 2011 GEOGRAPHICALLY e)
| EUR millions | Americas | The Netherlands | United Kingdom | New Markets | Holding, other activities & eliminations | Total |
|---|---|---|---|---|---|---|
| Underlying earnings before tax by line of business | ||||||
| Life | 150 | 43 | 24 | 19 | - | 236 |
| Individual savings and retirement products | 139 | - | - | - | - | 139 |
| Pensions | 59 | 22 | (10) | 3 | - | 74 |
| Non-life | - | 5 | - | 11 | - | 16 |
| Distribution | - | 11 | (2) | - | - | 9 |
| Asset Management | - | - | - | 14 | - | 14 |
| Other | - | - | - | - | (83) | (83) |
| Share in underlying earnings before tax of associates | (1) | - | - | 10 | - | 9 |
| Underlying earnings before tax | 347 | 81 | 12 | 57 | (83) | 414 |
| Fair value items | (12) | (60) | (1) | - | (12) | (85) |
| Realized gains / (losses) on investments | 25 | 35 | 29 | 2 | - | 91 |
| Impairment charges | (58) | (2) | - | (2) | - | (62) |
| Other income / (charges) | - | (8) | (6) | 11 | - | (3) |
| Run-off businesses | 22 | - | - | - | - | 22 |
| Income before tax | 324 | 46 | 34 | 68 | (95) | 377 |
| Income tax | (61) | (7) | 20 | (26) | 24 | (50) |
| Net income | 263 | 39 | 54 | 42 | (71) | 327 |
| Net underlying earnings | 253 | 66 | 39 | 38 | (63) | 333 |
EMPLOYEE NUMBERS
| Mar. 31, 2011 | Dec. 31, 2010 | |
|---|---|---|
| Employees excluding agents | 23,990 | 24,408 |
| Agents | 2,990 | 3,066 |
| Total number of employees excluding Associates | 26,980 | 27,474 |
| AEGON's share of employees (including agents) in Associates | 3,932 | 3,680 |
| Total | 30,912 | 31,154 |
Page 18 of 22
AEGON
APPENDIX II
VALUE OF NEW BUSINESS AND IRR
| VNB | VNB | VNB | |||
|---|---|---|---|---|---|
| EUR millions, after tax | Q1 2011 | Q4 2010 | % | Q1 2010 | % |
| Americas | 63 | 53 | 10 | 44 | 43 |
| The Netherlands | 23 | 42 | (45) | 49 | (53) |
| United Kingdom | 9 | 9 | - | 14 | (36) |
| New Markets | 23 | 25 | (8) | 31 | (26) |
| Total | 118 | 129 | (9) | 138 | (14) |
| IRR % | IRR% | IRR% | |||
| --- | --- | --- | --- | ||
| EUR millions, after tax | Q1 2011 | Q4 2010 | Q1 2010 | ||
| Americas | 16.0 | 13.9 | 12.6 | ||
| The Netherlands | 13.9 | 10.9 | 19.2 | ||
| United Kingdom | 10.0 | 10.1 | 10.7 | ||
| New Markets | 35.1 | 36.3 | 34.2 | ||
| Total | 18.8 | 16.8 | 19.3 |
MODELED NEW BUSINESS, APE AND DEPOSITS
| Premium business | ||||||
|---|---|---|---|---|---|---|
| APE | ||||||
| EUR millions | Notes | Q1 2011 | Q4 2010 | % | Q1 2010 | % |
| 9 | ||||||
| Americas | 248 | 265 | (6) | 216 | 15 | |
| The Netherlands | 75 | 188 | (60) | 93 | (19) | |
| United Kingdom | 237 | 225 | 5 | 265 | (11) | |
| New Markets | 95 | 99 | (4) | 80 | 51 | |
| Total | 655 | 776 | (16) | 654 | - | |
| Deposit business | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| Deposits | ||||||
| EUR millions | Notes | Q1 2011 | Q4 2010 | % | Q1 2010 | % |
| 9 | ||||||
| Americas | 4,636 | 3,483 | 33 | 3,926 | 18 | |
| United Kingdom | 19 | 24 | (21) | 34 | (44) | |
| New Markets | 216 | 219 | (1) | 307 | (30) | |
| Total | 4,871 | 3,726 | 31 | 4,267 | 14 |
VNB/PVNBP SUMMARY
| Premium business | |||||
|---|---|---|---|---|---|
| VNB | PVNBP | VNB / PVNBP | VNB / APE | ||
| EUR millions | Notes | Q1 2011 | % | % | |
| 10 | |||||
| Americas | 30 | 826 | 3.7 | 12.2 | |
| The Netherlands | 23 | 637 | 3.7 | 31.2 | |
| United Kingdom | 9 | 1,489 | 0.6 | 3.8 | |
| New Markets | 22 | 694 | 3.1 | 22.8 | |
| Total | 84 | 3,646 | 2.3 | 12.9 | |
| Deposit business | |||||
| --- | --- | --- | --- | --- | --- |
| VNB | PVNBP | VNB / PVNBP | VNB / Deposits | ||
| EUR millions | Notes | Q1 2011 | % | % | |
| 10 | |||||
| Americas | 33 | 6,477 | 0.5 | 0.7 | |
| United Kingdom | 0 | 19 | 0.5 | 0.5 | |
| New Markets | 1 | 316 | 0.3 | 0.5 | |
| Total | 34 | 6,812 | 0.5 | 0.7 |
AEGON
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 standardized meaning to these measures under IFRS or any other recognized set of accounting standards and readers are cautioned to consider carefully the different ways in which we and our peers present similar information before comparing them.
AEGON believes the non-IFRS measures shown herein, when read together with our reported IFRS financial statements, provide meaningful supplemental information for the investing public to evaluate AEGON's business after eliminating the impact of current IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (i.e. companies can use different local GAAPs) and that can make the comparability from period to period difficult.
For a definition of underlying earnings and the reconciliation from underlying earnings before tax to income before tax we refer to Note 3 "Segment information" of our Condensed consolidated interim financial statements.
2) Net income refers to net income attributable to equity holders of AEGON N.V. and minority interest.
3) 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.
| Q1 2011 | |
|---|---|
| Employee expenses | 537 |
| Administrative expenses | 284 |
| Operating expenses for IFRS reporting | 821 |
| Operating expenses related to associates | 16 |
| Operating expenses in earnings release | 837 |
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 on 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.
4) 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.
14) The results in this release are unaudited.
15) 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 1.3663 (2010: USD 1.3838).
Income statement items: average rate 1 EUR = GBP 0.8523 (2010: GBP 0.8865).
Balance sheet items: closing rate 1 EUR = USD 1.4207 (2010: USD 1.3479; year-end 2010: USD 1.3362).
Balance sheet items: closing rate 1 EUR = GBP 0.8837 (2010: GBP 0.8898; year-end 2010: GBP 0.8608).
Page 20 of 22
AEGON
ADDITIONAL INFORMATION
The Hague, May 12, 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
USA: +1 480 629 9726
UK: +44 207 153 2027
NL: +31 45 631 6901
Replay
Two hours after the conference call, a replay will be available on www.aegon.com and on the following phone numbers:
UK +44 207 154 2833 Access Code: 4434477#
US +1 303 590 3030 Access Code: 4434477#
Supplements
AEGON's Q1 2011 Financial Supplement and Condensed Consolidated Interim Financial Statements and the Embedded Value Report 2010 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 27,000 people and have some 40 million customers across the globe. | Contact information Media relations: Greg Tucker +31(0)70 344 8956 [email protected] | ||
|---|---|---|---|
| Key figures - EUR | First quarter 2011 | Full year 2010 | |
| Underlying earnings before tax | 414 million | 1.8 billion | Investor relations: Willem van den Berg |
| New life sales | 501 million | 2.1 billion | +31 (0)70 344 8305 |
| Gross deposits | 7.4 billion | 33 billion | 877 548 9668 – toll free USA only [email protected] |
| Revenue-generating investments (end of period) | 400 billion | 413 billion | www.aegon.com |
AEGON
Cautionary note regarding non-GAAP measures
This document includes certain non-GAAP financial measures: underlying earnings before tax and value of new business. The reconciliation of underlying earnings before tax to the most comparable IFRS measure is provided in Note 3 "Segment information" of our Condensed consolidated interim financial statements. Value of new business is not based on IFRS, which are used to report AEGON's primary financial statements and should not viewed as a substitute for IFRS financial measures. We may define and calculate value of new business differently than other companies. Please see AEGON's Embedded Value Report dated May 12, 2011 for an explanation of how we define and calculate. AEGON believes that these non-GAAP measures, together with the IFRS information, provide a meaningful measure for the investment community to evaluate AEGON's business relative to the businesses of our peers.
Local currencies and constant currency exchange rates
This document contains certain information about our results and financial condition in USD for the Americas and GBP for the United Kingdom, because those businesses operate and are managed primarily in those currencies. Certain comparative information presented on a constant currency basis eliminates the effects of changes in currency exchange rates. None of this information is a substitute for or superior to financial information about us presented in EUR, which is the currency of our primary financial statements.
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 our company. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. We undertake no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which merely reflect company expectations at the time of writing. Actual results may differ materially from expectations conveyed in forward-looking statements due to changes caused by various risks and uncertainties. Such risks and uncertainties include but are not limited to the following:
- Changes in general economic conditions, particularly in the United States, the Netherlands and the United Kingdom;
- Changes in the performance of financial markets, including emerging markets, such as with regard to:
- The frequency and severity of defaults by issuers in our fixed income investment portfolios; and
- The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securities we hold;
- The frequency and severity of insured loss events;
- Changes affecting mortality, morbidity, persistence and other factors that may impact the profitability of our insurance products;
- Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels;
- Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates;
- Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets;
- Changes in laws and regulations, particularly those affecting our operations, the products we sell, and the attractiveness of certain products to our consumers;
- Regulatory changes relating to the insurance industry in the jurisdictions in which we operate;
- Acts of God, acts of terrorism, acts of war and pandemics;
- Changes in the policies of central banks and/or governments;
- Lowering of one or more of our debt ratings issued by recognized rating organizations and the adverse impact such action may have on our ability to raise capital and on our liquidity and financial condition;
- Lowering of one or more of insurer financial strength ratings of our insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability of its insurance subsidiaries and liquidity;
- The effect of the European Union's Solvency II requirements and other regulations in other jurisdictions affecting the capital we are required to maintain;
- Litigation or regulatory action that could require us to pay significant damages or change the way we do business;
- Customer responsiveness to both new products and distribution channels;
- Competitive, legal, regulatory, or tax changes that affect the distribution cost of or demand for our products;
- The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including our ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions;
- Our failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving initiatives;
- Our inability to obtain consent from the Dutch Central Bank to repurchase our Core Capital Securities; and
- The non-fulfillment of the conditions precedent underlying the agreement to divest Transamerica Reinsurance.
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.
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