Aegon reported a EUR 1.2 billion net loss in Q4 2008, reflecting the impact of severe disruption in world financial markets. But the company’s capital position remains strong and the fundamentals of its businesses resilient, as measures to withstand the global financial crisis continue to prove effective.
Aegon’s year-end core capital excluding the revaluation reserve totaled EUR 16.2 billion. Moreover, Aegon had excess capital of EUR 2.9 billion over AA capital adequacy requirements. The company’s solvency ratio stood at 183%, compared with 190% at the end of 2007.
This significant capital buffer is the result of a strategy to reduce risk, lower costs and release capital, as well as an additional EUR 3 billion from Aegon’s largest shareholder Group, Association Aegon, funded by the Dutch government.
Alex Wynaendts, Aegon CEO, said, “The severe disruption in world financial markets significantly impacted Aegon’s earnings during the fourth quarter of 2008. This challenging environment which has persisted in the early part of 2009 confirms that our strategic priorities of releasing capital and reducing costs, as well as putting in place contingencies to withstand further market deterioration, are the right ones.”
Aegon released EUR 1.7 billion of capital in 2008 – including EUR 1 billion in Q4 – and Mr. Wynaendts said the company expects to free-up a further EUR 1.5 billion in 2009.
Cost Reduction Program
Aegon has also announced a EUR 150 million cost reduction program for 2009, equivalent to 5% of its 2008 operating expense base, and, in October 2008, Aegon secured EUR 3 billion from the Dutch government as a further contingency to withstand further market deterioration.
Mr. Wynaendts pointed to resilient sales and a strong increase in deposits as evidence that customers continue to trust Aegon. “The solid fundamentals of our business, combined with Aegon’s financial position and the actions we are taking justify their continued confidence,” Aegon’s CEO said.
New life sales were EUR 598 million in Q4, in line with those of the previous quarter, while the value of new business was EUR 233 million - 3% higher than a year earlier and with an internal rate of return of 16.5%.
Fourth quarter net deposits amounted to EUR 1.7 billion, while total gross deposits rose 17% at constant currency to EUR 11.9 billion. This increase was mainly the result of the continued growth in fixed annuity deposits and strong demand for synthetic guaranteed investment contracts in the Americas. Sales of retirement plans in the Americas also held up well.
The EUR 1.2 billion Q4 net loss is in line with Aegon’s pre-announcement of February 17, 2009, and includes an extraordinary tax charge of EUR 300 million. Aegon posted a EUR 1.1 billion full year 2008 net loss.
Q4 2008 Net Income
Net income in Q4 was affected by increased impairment charges, primarily from housing related structured assets, corporate high-yield bonds and equity investments. Aegon expects impairments will be at “elevated levels” in 2009. Fair value items, including investments in hedge funds, private equity and credit derivatives, significantly under-performed and financial market turbulence hit certain guarantee products. Aegon’s long-term business model and its liquidity and asset and liability management, however, mean that it is unlikely to be forced to sell assets at distressed prices to generate cash.
Underlying earnings before tax in Q4 was a loss of EUR 181 million. That included EUR 240 million in US one-off charges, but was largely the result of declining financial markets that triggered reserve strengthening and accelerated amortization of deferred acquisition costs in the Americas, and lower fees on asset balances in general. Full-year underlying earnings before tax fell 37% at constant currency to EUR 1.6 billion, sharply impacted by distressed capital markets.
