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Aegon reports full year 2005 results

The Hague, March 9, 2006

During 2005, we made good progress in strengthening Aegon's position in our three major markets. In addition, we continued to invest in Central and Eastern Europe, Spain and Asia, where we see good growth prospects.

Strong financial performance

  • Net income increased 21% in 2005 to EUR 2,732 million and 2% in the fourth quarter.
  • Operating earnings before tax increased 21% in 2005 to EUR 2,147 million and 64% in the fourth quarter.
  • New life sales1 remained stable in the fourth quarter and increased 9% to EUR 2,539 million in 2005.
  • Strong capital base and cash flow generation: 10% increase in proposed 2005 final dividend to EUR 0.23 per share, bringing the total dividend for 2005 to EUR 0.45, a 7% increase over 2004. The value for cash and stock will be approximately the same for the final dividend. 

Improved position in Aegon's three major markets

  • All major markets contributed to increased operating earnings.
  • In the Americas, strong sales in the pension business, substantial growth in life reinsurance and a new product introduction in variable annuities led to enhanced performance.
  • The improved organization in the Netherlands concluded several large pension contracts in 2005 and is uniquely positioned to capture further growth in the group pension business.
  • Aegon UK recorded highest sales ever in the fourth quarter. The UK organization introduced a broader range of non-pension products and is in a good position to benefit from developments in the distribution market. 

Expansion strategy on track

  • Aegon Poland achieved record sales in the fourth quarter, its first as an Aegon company.
  • Two new bancassurance joint ventures were established in Spain to strengthen life distribution.
  • Further expansion was achieved in China with new licenses to operate in Beijing and Nanjing.
  • Brokers were added to strengthen multi-channel distribution advantage.
  • Expansion continues in 2006, with a life insurance license for the Shandong province in China.
  • In addition, HDI Pensionsmanagement AG has joined the Aegon Pension Network as a new partner, adding Germany to the network.

1 New life sales refers to standardized new premium production and is defined as new recurring premium + 1/10 of single premium 

Table earnings summary

Note: This press release includes a non-GAAP financial measure: operating earnings before tax. The reconciliation of this measure to the most comparable GAAP measure and an explanation for its use is provided on page 28 of the full press release. In addition, 2004 financial data have been adjusted to reflect further refinements to the adoption of IFRS. A reconciliation of the data 'as reported' to 'as adjusted' is provided on pages 29 to 33 of the full press release.  

 

Chairman's overview

"During 2005, we made good progress in strengthening Aegon's position in our three major markets. In addition, we continued to invest in Central and Eastern Europe, Spain and Asia, where we see good growth prospects. We have taken a number of steps to improve the operations of our businesses as well as enhance Aegon's strategic position in the life insurance and pension sectors. We are pleased to report increased earnings from all major country units for the year, enhanced distribution and a stronger balance sheet. We believe that Aegon is well-positioned to deliver the products and services that will lead to the continued growth of our business," said Don Shepard, Chairman of the Executive Board. 

"In the Americas we achieved a 7% increase in new life sales over last year, as well as a 17% increase in operating earnings for 2005. Sales through our reinsurance division were particularly strong." 

"Our variable annuity business in the Americas showed 19% sales growth for the year, led by a 41% increase through the wirehouse and fee planner channel and a 24% increase in our pension business. Although fourth quarter retail sales were lower than previous quarters of the year, we anticipate sales growth going forward driven by accelerated new product development and additional wholesaling capability. Despite the challenging interest rate environment in the US, and against the backdrop of declining industry sales, we have seen consecutive quarterly growth in our fixed annuity sales in 2005, due largely to new bank distribution agreements as well as growth in our pension business." 

"In the Netherlands, the improved organization reported a 64% increase in operating earnings for the year. Leveraging its leading position in the group pension market, Aegon The Netherlands was successful in capturing several large pension contracts. The Dutch organization is focused on maximizing its opportunities. For instance, to date, we signed 775 "Levensloop" contracts with employers and 2,250 group disability contracts. Looking ahead, we expect continued momentum of sales in our group business, as well as improved sales to individuals driven by new product initiatives in the intermediary channel." 

"Aegon UK had a good year with a 32% increase in operating earnings before costs associated with the accelerated acquisition of Positive Solutions, our Independent Financial Advisor network, in 2005. In the fourth quarter of 2005 we recorded our highest sales performance ever. We have successfully introduced a broader range of non-pension products in the UK market, which resulted in over 30 percent of new business coming from annuities, bonds and protection products in 2005. Moreover, Aegon UK is in a good position to both drive and benefit from developments in the distribution market. The number of registered individuals affiliated with Positive Solutions has more than doubled since making our initial investment in the company in late 2002. We regard this as key to ensuring Aegon's leading position in the UK market as further reforms are implemented and the distribution environment becomes more competitive." 

"Elsewhere in Europe, we divested our general insurance business in Spain and focused our efforts on establishing life insurance partnerships with savings banks. Our partnership with Caja de Ahorros del Mediterráneo achieved a 27% increase in recurring premiums during the year. We also established two new bancassurance joint ventures in 2005 with Caja de Badajoz and Caja Navarra. Our life products will soon be sold in over 1500 branches across the country. We will be looking at opportunities to expand this network given the dominant role of banks in the Spanish life and pensions market." 

"Relying on our strong management in Hungary, we have been pleased with the progress of our strategy for Central and Eastern Europe. The countries where Aegon is now active, with a total population of over 65 million, offer strong growth potential for life and pension products. Aegon Hungary achieved a notable increase of 26% in net earnings for the year. Aegon Poland, which we acquired in October, had record sales in the fourth quarter, its first as a member of the Aegon group. Membership in Aegon's pension fund in Slovakia continues to grow with over 70,000 currently enrolled, and life sales have begun in the Czech Republic where we launched operations in April." 

"We continue to see pensions as a key growth driver for our business. Leveraging Aegon's pension expertise, we formally launched the Aegon Pension Network, which has been developed with our French partners at La Mondiale to provide multi-national corporate clients cross-border solutions. The recent addition of HDI Pensionsmanagement, a leading provider of group pensions in Germany, has added further momentum to this initiative which now covers ten European countries as well as the United States." 

"Finally, we have been pleased by the progress of our operations in Asia during 2005. In Taiwan, new life sales increased 58% following especially strong sales in the first half of the year. Although recurring traditional life business continued to be the main driver of growth, increased efforts to sell unit-linked products led to encouraging results in the fourth quarter." 

"In China, we have expanded from our base in Shanghai, having received licenses to begin operations in Beijing, Nanjing and most recently, the Shandong province, where we are among the first foreign insurers to gain access to the region. During the fourth quarter, Aegon-CNOOC's multi-channel distribution advantage was strengthened with the addition of brokers. We have made clear our long-term commitment to China and we will continue to identify additional opportunities to expand Aegon's geographic presence." 

"Aegon continues to benefit from strong capitalization in all our country units. The year 2005 was especially good in terms of capital formation and cash flows. Shareholders' equity at December 31, 2005 was EUR 19.3 billion, an increase of 30% compared to year-end 2004. In 2005, Aegon further strengthened the quality of its capital base by replacing senior debt and perpetual subordinated bonds with perpetual capital securities. Group equity, which includes shareholders' equity and other equity instruments, represented 89% of the total capital base at the end of December. Due to our strengthened capital position and good cash flows, we propose to raise the final dividend by 10% to EUR 0.23 per common share, bringing the total 2005 dividend to EUR 0.45 per common share. The value of the final stock dividend will be approximately the same as the cash dividend."

"In summary, 2005 was a good year. We expect the momentum to continue in 2006 and are confident about our prospects for capturing further growth in Aegon's core lines of business. The increased sales and earnings for the year, combined with enhanced distribution and improved operational efficiency, indicate that we have made good progress within Aegon's three major markets while investing in new markets that offer long-term profitable growth." 

2005 GROUP HIGHLIGHTS


Table earnings overview

Sales

During 2005, new life sales increased 9% to EUR 2,539 million. New life sales in the Americas increased 7% to USD 1,166 million, primarily reflecting higher reinsurance sales. The combination of higher group pension sales and lower individual life sales led to a 2% increase in new life sales in the Netherlands. New life sales in the United Kingdom increased 4% for the year, despite lower sales in the first quarter as a result of certain pricing and commission changes in the core pensions markets. In Taiwan, new life sales increased 58%, due to a particularly strong increase in sales of traditional life products in the second quarter. 

Sales of annuity and institutional guaranteed products in the Americas increased 8% compared to 2004. Variable annuity sales benefited from higher sales to individuals and through the pension businesses. Sales of fixed annuities were lower and reflect Aegon's pricing discipline and the challenging interest rate environment. New fixed annuity sales of EUR 521 million in the fourth quarter were 12% higher than in the third quarter due to higher pension sales and marginally higher retail sales. Off balance sheet production increased 9%, reflecting strong performance from the asset management operations in the Netherlands and the UK, increased pension sales in Central and Eastern Europe and higher synthetic GIC sales in the US. 

Operating earnings before tax

Operating earnings before tax in 2005 increased 21% to EUR 2,147 million. In the fourth quarter of 2005, total operating earnings before tax increased 64% to EUR 643 million as compared to 2004. The three major country units – the Americas, the Netherlands and the United Kingdom - each reported increases in operating earnings before tax for the year. The increase in the Americas reflects business growth, favorable mortality experience and the impact of volatile items, partly offset by decreased spreads. The increase in operating earnings before tax in the Netherlands is largely due to improved interest results and released provisions for profit-sharing and employee benefits, increased technical life and non life results, partially offset by additional provisions for guarantees and improvements to "Spaarkas" life products in the first quarter of 2005. In the United Kingdom, the increase mainly reflects the positive impact from higher equity and bond markets. The increase is largely offset by a charge for an incentive payout to registered individuals and relates to the accelerated acquisition of the remaining 40 percent of Positive Solutions. The divestiture of the general insurance activities in Spain at the beginning of this year is the primary reason for the decline in operating earnings in Other Countries. 

Net income

Net income increased 21% to EUR 2,732 million in 2005 reflecting higher operating earnings, increased net gains on investments and impairment charges, and higher non-operating income. The effective tax rate increased to 24% from 19% in 2004, reflecting higher taxable earnings, higher policyholder taxes in the United Kingdom and one-time tax benefits in 2004. Net income per share increased 18% to EUR 1.63. Net income in the fourth quarter of 2005 amounted to EUR 687 million and increased 2% compared to the previous year, while net income per share decreased 2% to EUR 0.41. This reflects higher operating earnings before tax, the settlement with Dexia in 2004, lower net gains on investments and a higher tax charge due to a one-time tax benefit in the fourth quarter of 2004 in the Americas. 

Net gains/losses on investments (before tax) and impairment charges

Net gains/losses on investments (before tax) and impairment charges together amounted to a gain of EUR 1,171 million compared to a gain of EUR 1,020 million in 2004. Other non-operating income/(charges) and share in profit/(loss) of associates together amounted to EUR 297 million, reflecting the book gain on the sale of the Spanish general insurance activities and the charges to Aegon UK policyholders related to taxes payable for the account of policyholders. 

Commission and expenses

Commission and expenses decreased 5% to EUR 5,522 million. The sale of most of Transamerica Finance Corporation's businesses in 2004, the sale of the general insurance business in Spain, and expense savings in Aegon UK, all contributed to lower operating expenses. 

Revenue generating investments

Total revenue generating investments amounted to EUR 358 billion at December 31, 2005, an increase of 17% compared to year-end 2004.

Shareholders' equity

Shareholders' equity at December 31, 2005 amounted to EUR 19.3 billion, an increase of 30% compared to December 31, 2004. 

Dividend

The Executive Board will propose a total dividend for 2005 of EUR 0.45 per common share, a 7% increase compared to the 2004 dividend. Taking into account the interim dividend of EUR 0.22 paid in September 2005, the proposed final dividend will amount to EUR 0.23 per common share. The final dividend will be paid in cash or shares, at the election of the shareholder. The value of the stock dividend will be approximately the same as the value of the cash dividend.