AEGON's Executive Board Chairman Kees Storm: "We are very pleased with the successful integration efforts of the Transamerica and Guardian life insurance activities. Continued strong premium and deposit growth and autonomous EPS growth
Earnings outlook 2000
Barring unforeseen exceptional circumstances we expect an increase in 2000 earnings between 25% and 30% and in earnings per share between 17% and 22%. As a result of the continued strength of the US dollar against the euro, we anticipate the increase to be at the upper end of this range.
View the highlights Q3 2000.
Summary
Net income increased 39% to EUR 1,530 million (EUR 1.16 per share). The autonomous increase in net earnings and net earnings per share amounted to 13% and 14% respectively. The 12% difference between the autonomous increase and the total increase in earnings per share comprises a positive effect of 9% due to higher average currency exchange rates to the euro and the remainder being the net effect from acquisition and divestitures.
All major business units produced autonomous net earnings growth exceeding 10%. Net income in the Americas increased 45% to USD 924 million (EUR 981 million). Results from Transamerica's insurance activities have been included for nine months this year and just over two months in the same reporting period last year. Excluding earnings from bank Labouchere for 1999 and 2000, nine months net income in the Netherlands increased 10%. Including the EUR 31 million of net earnings from bank Labouchere in the first quarter of this year net income in the Netherlands totaled EUR 504 million. Net income from AEGON UK increased 85% to GBP 115 million (EUR 188 million) in the first nine months. Total net income from the operations grouped under "other countries" totaled EUR 40 million.
Premium income rose 49% to EUR 15,317 million. Gross deposits were up 90% totaling EUR 21,329 million. The overall increase in gross margin was 40%, while commissions and expenses increased 37%.
Shareholders' equity increased 5% to EUR 14,252 million on September 30. On August 3 we finalized the sale of Labouchere. The book profit of approximately EUR 600 million has been credited directly to shareholders' equity. Retained earnings and higher period-end exchange rates for the US dollar and the British pound against the euro also had a positive effect on shareholders' equity. Due to the decision to retain Transamerica's non-insurance operations, the accounting for these companies was changed. This had a negative effect on shareholders' equity.
Chairman’s statement
Commenting on the earnings for the first nine months of 2000, AEGON's Executive Board Chairman Kees Storm said: "We are very pleased with the successful integration efforts of the Transamerica and Guardian life insurance activities. Continued strong premium and deposit growth and autonomous EPS growth of 14% provide a strong foundation for a successful fourth quarter this year and for continued earnings growth in 2001.”
REPORT OF THE EXECUTIVE BOARD
Autonomous earnings growth of 14% per share, continued positive net effects of 3% from acquisitions and divestitures and a boost from favorable currency exchange rate movements (up 9%) all supported AEGON's earnings growth in the first nine months of this year.
The growth in new life production, premiums and deposits as detailed later in this report is very satisfying. Each of the major country units is clearly on the right path to further building on their already strong positions. Technological innovation is a major driver to the continued strengthening of distribution relationships and client services.
The results of the acquired insurance activities are exceeding expectations, while our autonomous operations continue to exceed their growth target of 10%. The life insurance business of Guardian has been successfully integrated with the existing AEGON UK operations. The integration of the Transamerica Insurance activities in the US is ahead of schedule and is expected to be completed in the first half of next year.
Results by product group
The table 'results by product group' presents a summary of net income for the first nine months of 2000, geographically and by activity, in euro. Figures in Dutch guilders and US dollars are presented in the attachments.
Life insurance income before tax totaled EUR 2,188 million. Last year's acquisitions in the U.S. and the UK contributed significantly to the 54% increase in the nine months result in AEGON's most important product group.
Life insurance earnings in the Americas increased 69% in euro to EUR 1,376 million (USD 1,296 million) due primarily to the inclusion of the acquired Transamerica activities for nine months this year and just over two months last year. Due to the integration and restructuring of the merged Transamerica and AEGON USA divisions, separate figures for Transamerica are no longer available. The increase in the exchange rate of the US dollar versus the euro also had a positive effect on earnings.
Life insurance results in the Netherlands rose 13% to EUR 536 million in the first nine months of this year. Next year's introduction of a new income tax regime is having an effect on the sales mix, as clients assess retirement plan alternatives.
Life insurance income before tax in the UK more than doubled, in euro terms, to EUR 257 million. This includes earnings from the acquired Guardian businesses. The increase of the average exchange rate of the British pound versus the euro also contributed to the increase.
Total life insurance income before tax from the activities grouped under "other countries" increased 46% to EUR 19 million, mainly due to strong earnings contributions from AEGON Hungary and AEGON Spain.
Accident & health insurance results rose 14% tot EUR 123 million. AEGON Americas produced the largest portion of earnings in this product group: EUR 99 million (USD 93 million). The earnings increase in the Netherlands in this product group was 18%, resulting in a EUR 20 million earnings contribution in the first nine months of this year. Accident & health insurance income before tax from the other countries totaled EUR 4 million.
General insurance income before tax totaled EUR 44 million. AEGON The Netherlands reported a EUR 21 million profit before tax in this product group, a 16% decrease compared to the first nine months of last year resulting from some extraordinary large claims. General insurance results in other countries increased to EUR 21 million before tax (first nine months 1999: EUR 41 million loss).
Income before tax from the banking activities in the Netherlands totaled EUR 86 million. On a comparable basis, adjusting for this year's divestiture of Bank Labouchere, income before tax in this product group more than doubled.
Interest charges on US dollar and pound sterling denominated debt rose as a result of the increased currency exchange rate of the US dollar and the pound sterling against the euro and inclusion of the interest on acquisition related debt, which will be fully paid-off prior to the end of the year.
The increase in the effective corporate tax rate accounts for the difference in the increase in total income before tax of 44% compared with the lower rise in net income. The effective corporate tax rate rose from 26% in the first nine months of 1999 to 29% in the same period of this year. As indicated in previous reports the causes for this were the increase in the effective tax rate for the Netherlands and the increased proportion of earnings from the Americas and the UK.
The Americas
Net income increased 45% - in US dollar terms - to USD 924 million in the first nine months of this year. Income before tax rose 43% to USD 1,391 million. Earnings from the Transamerica insurance activities have been included since July 21 of last year and many of these activities have been merged into the AEGON USA structure. As a consequence, no separate figures are available for the Transamerica insurance activities. Gross margin showed a 40% increase, while commissions and expenses increased by 38%. Integration efforts continued through the third quarter. In this respect, the most significant achievement in this quarter was the completion of the data center consolidation. As more of the integration activities are completed, additional reductions in expenses will be realized. As indicated with the publication of the six months results, the initially anticipated annual cost savings of about USD 150 million as a result of the consolidation, are now expected to approach USD 200 million.
Life insurance income before tax increased 48% to USD 1,296 million (first nine months of 1999: USD 873 million).
Life insurance premium income (excluding annuity and GIC deposits) increased 88% to USD 5,035 million (first nine months 1999: USD 2,685 million). The increase was in large part due to the inclusion of Transamerica premium income, an increase in Bank Owned Life Insurance (BOLI) single premium production and of variable universal life premium. New life insurance premium production totaled USD 867 million on a standardized basis, up 107%.
Gross annuity and GIC deposits totaled USD 17,537 million (first nine months 1999: USD 9,068 million).
Accident & health insurance income before tax totaled USD 93 million (first nine months 1999: USD 97 million). Results were adversely influenced by a discontinued block of business. Accident & health insurance premium income totaled USD 1,310 million (1999: USD 1,011 million).
The results for the first nine months of Seguros Banamex AEGON and Afore Banamex AEGON in Mexico further increased, reflecting the continued favorable development of these businesses.
The Netherlands
Excluding the earnings contribution from Labouchere, net income rose 10%, while income before tax rose 15% to EUR 614 million.
Higher investment income in the pensions business and an increase in profitability within the life insurance business units contributed to the rise in income before tax. A focus on selling a range of high performing products has proved to be successful.
Life insurance income before tax rose 13% to EUR 536 million. New tax rules have impacted the sales mix of recurring premium and single premium production. Recurring premium production is below expectations, while new production of single premiums increased substantially. The business units selling life insurance are introducing new and innovative products in response to coming legislative changes and are helping their clients to convert existing arrangements to fit in the new environment.
New life insurance premium production totaled EUR 215 million on a standardized basis, down 16%, reflecting the shift to single premium products and investment contracts.
Non-life insurance income before tax totaled EUR 41 million (first nine months 1999: EUR 42 million). Several extraordinary large claims adversely affected non-life insurance earnings in the first nine months of this year. These claims resulted from the explosion of a fireworks factory in Enschede, a storm in May and a motor coach accident in France.
Income before tax from AEGON Bank and banking related products increased 111% to EUR 38 million, reflecting the shift in business mix from traditional life products to investment and savings products. Notional amounts of investment contract sales totaled EUR 641 million, up 86%. Excluding Labouchere gross margin increased 7%, while commissions and expenses decreased by 4%.
United Kingdom
AEGON UK net income, including earnings from the acquired Guardian businesses, increased 85% in pounds sterling to GBP 115 million. Income before tax rose 89% to GBP 157 million, including GBP 64 million from the acquired Guardian businesses.
The continued growth of the business portfolio and of assets under management supported the increase in earnings. Assets under management amount to GBP 34.2 billion at September 30, marking an increase of 3% since the beginning of this year.
Overall gross margin increased by 76%, while commissions and expenses rose 66%.
The increase in total premium income amounted to 27%. The GBP 3,008 million premium income in the first nine months includes GBP 312 million from the Guardian businesses. New premium production of GBP 403 million, measured on a standardized basis, including Guardian, increased by 23%.
Other countries
Total net income from the activities in other countries amounted to EUR 40 million (first nine months 1999: EUR 27 million loss).
Life insurance income before tax totaled EUR 19 million. Life insurance premium income increased 43% to EUR 363 million. Standardized new life insurance premium production was EUR 88 million, up 66%.
The life insurance operations in Hungary continued their strong earnings growth as new premium production surged and persistency improved, reflecting the improvement in sales quality and customer service.
The life insurance operations in Spain are being supported by the growth in the life insurance market and the acquisition of Covadonga.
Income before tax from general insurance activities totaled EUR 21 million (first nine months 1999: EUR 41 million loss). Stricter underwriting practices with regard to household (Hungary) and motor insurance (Hungary and Spain), caused an increase in policy cancellations, which is reflected in a decrease in general insurance premium income.
Unconsolidated group companies
The non-insurance operations acquired with the Transamerica acquisition include lending, leasing and real estate services. Following the accounting change effected as per June 30, a net earnings contribution of USD 15 million from these activities in the third quarter has been included in the nine months results. Net income from the non-insurance operations totaled USD 32 million in the third quarter of this year, while the after tax financing costs amounted to USD 17 million.
The following is a description of the operating results of the non-insurance businesses, based on Dutch Accounting Principles and on a comparable basis:
- Total net income for the first nine months of this year amounted to USD 112 million compared to USD 141 million for the same period of 1999. The earnings decline is primarily due to strategic divestitures and to decreases in the leasing and real estate information businesses, which were partially offset by an increase in income from the lending business.
- Revenues increased 9% to USD 1,643 million. The increase was mainly attributable to higher lending revenues from larger net finance receivables outstanding.
- During the period, the assets of the tank leasing division and the consumer mortgage portfolio were sold resulting in a small book profit.
Capital gains
In the first nine months of this year, EUR 551 million of realized and unrealized gains from the general account equities and real estate portfolio were credited to the revaluation account. EUR 424 million was released from the revaluation account as indirect return to the Group's earnings before tax (first nine months 1999: EUR 237 million).
Capital and funding
On September 30, 2000, shareholders' equity totaled EUR 14,252 million, compared to EUR 13,543 million at year-end 1999. Due to the decision to retain Transamerica's non-insurance operations, the accounting for these companies was changed. This had a negative effect on shareholders' equity. The retention of earnings, the divestiture of Labouchere, higher capital gains and the higher period-end exchange rates for the US dollar and the British pound against the euro all had a positive effect on shareholders' equity.
Outlook
Barring unforeseen exceptional circumstances we expect an increase in 2000 earnings between 25% and 30% and in earnings per share between 17% and 22%. As a result of the continued strength of the US dollar against the euro, we anticipate the increase to be at the upper end of this range.
Earnings update first nine months 2000 (Excel)