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Aegon posts strong results for first quarter 2010

The Hague, May 12, 2010

 

Increase in underlying earnings and net income

  • Underlying earnings before tax increase to EUR 488 million, supported by improved financial markets
  • Impairments decline to EUR 150 million, their lowest level in seven quarters
  • Net income amounts to EUR 372 million, a strong improvement compared with first quarter 2009
  • Return on equity of 10%

Robust sales in key areas

  • New life sales of EUR 538 million, increase in Americas and Central & Eastern Europe offset by Spain and United Kingdom
  • Gross deposits, excluding run-off businesses, of EUR 7.8 billion, driven mainly by strong pension sales in the Americas
  • Value of new business declines mainly due to decrease in fixed annuity sales in United States and immediate annuities in United Kingdom as a result of repricing

Continued strong capital position

  • Excess capital amounts to EUR 3.7 billion, as earnings contribution was offset by higher capital requirements
  • Insurance Group Directivea capital surplus of EUR 7.0 billion, equivalent to solvency ratio of 205%
  • Shareholders’ equity increases to EUR 7.28 per common share

Statement of Alex Wynaendts, CEO

“Aegon’s first quarter results demonstrate the strength of our business during what continues to be an uncertain economic environment. We saw improved underlying earnings and net income, as well as strong deposits and new life sales. Aegon’s excess capital continues to provide the substantial buffer we feel is necessary at this time. During the first three months of the year, deposits totaled EUR 7.8 billion, a substantial increase of 16% over the previous quarter and a further indication of the continued strength of Aegon’s franchise. In the current environment, we decided to reprice fixed annuities in the United States as well as immediate annuities in the United Kingdom. These actions led to a modest decline in sales in the quarter and a lower value of new business overall. Impairments to Aegon’s investment portfolio showed consecutive improvement, continuing their downward trend. All in all, we are pleased with these first results of 2010 as they confirm that our strategic priorities are the right ones.”

Use this link for the Key performance indicators (for notes see page 17 of the full version).

Supplements: Aegon’s Q1 2010 Financial Supplement and Condensed Consolidated Interim Financial Statements are available here.

STRATEGIC HIGHLIGHTS

  • Completed sale of Dutch funeral insurance business
  • Operating expenses decline 4% mainly as a result of cost saving measures
  • Run-off of US institutional spread-based business on track
  • Received 9th provincial license in China

Portfolio review
Aegon is continuing to assess its businesses to ensure they meet requirements in terms of earnings growth, cash flow potential, return on capital and customer life cycle needs. As part of this review, Aegon earlier this year announced the sale of its funeral insurance business in the Netherlands for EUR 212 million. The transaction was completed on April 1 and will result in a modest book gain in the second quarter 2010.

Cost savings
To improve returns from its businesses, Aegon implemented a number of measures to reduce operating expenses. As a result, operating expenses declined 4% compared with the first quarter of 2009 to EUR 812 million mainly driven by cost reductions, lower restructuring expenses and currency movements, partly offset by higher regulatory costs.

Operational excellence
Aegon differentiates itself by competing on customer service levels and quality products and, in general, not on pricing. Though Aegon is already a cost-efficient provider, the company has identified possible further efficiencies, such as reducing the number of administration platforms, reducing processing time and increasing productivity, while improving the level of customer service.

Aegon is also investing in its web capabilities to further improve customer service levels, lower distribution costs and improve communications with customers.

Capital preservation
During the first quarter, a further EUR 0.1 billion in capital was released from Aegon’s businesses, primarily the result of a reduction in asset balances from run-off businesses. The release in the first quarter of 2010 was substantially lower than in previous quarters.

Manage Aegon as an international company
Starting with the first quarter of 2010, Aegon will report results from Aegon Asset Management separately within its ‘New Markets’ segment. Aegon Asset Management was launched at the beginning of October 2009 and brings together asset management businesses from around the world.


Aegon’S AMBITION

To be a global leader in helping customers secure their financial futures

Aegon’S STRATEGIC PRIORITIES

  • Rebalance capital allocation towards businesses with higher growth and higher return prospects
  • Improve growth and returns from existing businesses
  • Reduce financial markets risk
  • Manage Aegon as an international company

…resulting in sustainable profitable growth.


Use this link for the table Financial overview and Revenue-generating investments.

OPERATIONAL HIGHLIGHTS

Underlying earnings before tax
Aegon’s underlying earnings before tax increased to EUR 488 million in the first quarter, a considerable improvement compared with the same period last year, the result mainly of improved financial markets and cost savings measures.

In the Americas, underlying earnings totaled USD 524 million compared with a loss of USD 189 million a year earlier. A recovery in equity markets and higher account balances and investment income led to better results.

Underlying earnings in the Netherlands increased to EUR 104 million, up from EUR 72 million in the first quarter last year. This increase was mainly the result of higher investment income and lower operating expenses.

In the United Kingdom, underlying earnings amounted to GBP 25 million, a substantial increase from GBP 9 million in the first quarter 2009, as investment income and fees benefitted from the improvement in equity and bond markets. Technical results also improved, as a result of lower than expected claims.

Underlying earnings from New Markets increased to EUR 46 million due to improved results from most operating units and the inclusion for the first time of earnings from Aegon Asset Management.

Expenses for Aegon’s holding company increased in the first quarter 2010 to EUR 69 million, primarily a result of higher funding costs.

Fair value items
In the first quarter, fair value items showed an overall underperformance of EUR 16 million, a significant improvement compared with last year.
Over performance in the Netherlands is mainly a result of movements in the fair value of guarantees and related hedges. This was offset by an under-performance in the Americas, due primarily to a decline in the value of both the company’s macro equity hedge and its real estate related assets. In addition, a further narrowing of Aegon’s own credit spread and fair value movements of derivatives resulted in a loss of EUR 27 million for the holding company.

Gains on investments
In the first quarter, realized gains on investments amounted to EUR 126 million. In both the United States and the Netherlands, gains were related
primarily to the sale of bonds, driven by asset and liability management.

Impairment charges
Compared with the first quarter of 2009, net impairments decreased sharply to EUR 150 million, their lowest level for seven quarters, though still above Aegon’s long-term average expectations. Included are impairments related to the US-based financial services provider Ambac of EUR 43 million.

Run-off businesses
Aegon’s run-off businesses in the Americas recorded a loss for the first quarter of EUR 60 million, in line with the company’s expectations.

Income tax
Tax charges in the first quarter amounted to EUR 39 million and included a EUR 43 million tax benefit related to cross-border intercompany reinsurance transactions between the United States and Ireland.

New life sales
Increased new life sales in the Americas and Central & Eastern Europe were more than offset by decreases in the United Kingdom and Spain, resulting in total new life sales for the first quarter of 2010 of EUR 538 million.

Deposits
Gross deposits, excluding run-off businesses, rose 3% to EUR 7.8 billion compared with the first quarter last year. US pensions and third-party asset management showed increases, while deposits of fixed annuities were significantly lower following repricing. All country units recorded net deposits in the first quarter, which totaled EUR 741 million, excluding run-off businesses. The company’s US pension business added a new bank distribution partner during the quarter, and accounted for the majority of net deposits.
 
Value of new business
Aegon’s value of new business declined to EUR 146 million in the first quarter. Higher value of new business from the Netherlands and variable annuities in Europe was more than offset by decreases in the United Kingdom, the Americas and Spain. In the United Kingdom immediate annuity sales and in the United States fixed annuity sales declined following repricing, while lower sales of risk products led to a lower value of new business in Spain. Aegon’s internal rate of return on new business increased to 19% in the first quarter, due to improvements in both the Americas and the Netherlands.

Revenue-generating investments
Revenue-generating investments totaled EUR 388 billion, an increase of 7% compared with year-end 2009. The increase was due primarily to a strengthening of the US dollar against the euro and improvements in market values.

Capital management

  • At the end of the first quarter, Aegon’s core capital, excluding revaluation reserves, amounted to EUR 17 billion, or 74% of the company’s total capital base6,7.
  • Revaluation reserves at March 31, 2010 amounted to a negative EUR 474 million, a significant improvement from year-end 2009 levels, mainly due to an increase in the value of fixed income securities.
  • Shareholders’ equity improved to EUR 14.5 billion as a result of improved revaluation reserves, strengthening of the US dollar against the euro and net income of EUR 372 million for the first quarter. 
  • At March 31, 2010, Aegon’s Insurance Group Directive (IGD) capital surplus totaled EUR 7.0 billion, equivalent to a solvency ratio of 205%.
  • Excess capital above AA capital adequacy requirements totaled EUR 3.7 billion

Risk management
Standard & Poor’s has upgraded its assessment of Aegon’s enterprise risk management (ERM) framework to ‘strong’, reflecting significant advances the company has made in developing its risk management framework and the fact that this framework is now fully embedded in its business.
Aegon is engaged in the process of obtaining the European’s Commission’s final consent to the terms relating to Aegon’s participation in the capital support program of the Dutch government at the end of 2008. In November 2009, Aegon submitted a plan, through the Dutch Ministry of Finance, to the European Commission to demonstrate that its businesses are fundamentally sound and viable. This plan is a requirement for all financial institutions that received state support during the financial crisis. Aegon is not in a position to speculate about the timing or final outcome of this process; nor to discuss any details relating to the process underway.

Use this link for the table Financial overview geographically and Number of employees.