“In line with our November 2002 forecast, the full year 2002 net income was 35% lower than 2001. Low interest rates, bond credit defaults and the volatile and weak equity markets of the past several years have had a significant impact on our bottom line results. Lower operating results were partially offset by a lower effective tax rate. Nonetheless, we believe the Group is successfully managing through the current challenges to the industry as evidenced by our strong solvency position of over two times the EU minimum standard and our recent new business results,” said Don Shepard, CEO and Chairman of the Executive Board. “Fourth quarter standardized life production was up in the Americas, the Netherlands and the UK.”
“By continuation of our strategy we are enhancing our distribution capabilities in existing and new markets to reach more customers while improving the operating efficiency of our organization. During 2002, we expanded distribution in the United Kingdom with the acquisition of several high quality IFAs. In the Netherlands, the acquisition of TKP Pensioen enhances our capability in managing larger pension schemes; and in the United States we had a solid production year in our major business units. We have also extended our footprint into France through the partnership with La Mondiale. At the same time, cost reduction initiatives in the US and the UK are on track.”
Aegon remains strongly positioned and capitalized in the markets in which it operates. Business operations are sound and we look forward to profitable new business growth and lower expense levels. Nonetheless, weak and volatile financial markets and geo-political uncertainty continue to create a difficult operating environment for our businesses. Aegon’s Executive Board remains cautious in its outlook for 2003 and is not providing an earnings forecast at this time.
Key points fourth quarter 2002
Standardized life production increased 12% in the Americas, 5% in the Netherlands and 1% in the UK compared to the fourth quarter 2001. Total annuity and GICs deposits increased 15% in the Americas, while off balance sheet production was lower in the Americas (-13%) and Netherlands (-21%) but significantly higher in the United Kingdom.
Default provisions in the USA were strengthened by USD 219 million (EUR 219 million) compared to USD 482 million (EUR 538 million) in the fourth quarter of 2001. The balance of the USA default provisions at December 31 was USD 281 million.
Additional deferred policy acquisition cost (DPAC) amortization (unlocking) and provisioning for guaranteed minimum benefits resulted from lowering the equity return assumptions. Additional DPAC amortization on variable annuities in the USA was USD 77 million (EUR 76 million) and CAD 16 million (EUR 9 million) in Canada. Provisions for variable and unit linked products with guaranteed minimum benefits were strengthened by USD 84 million in the USA (EUR 86 million), CAD 67 million (EUR 45 million) in Canada and by EUR 25 million in the Netherlands.
Fourth quarter 2001 results included a USD 307 million (EUR 343 million) profit on the sale of our operations in Mexico.
Net loss for Transamerica Finance Corporation was USD 15 million compared to a USD 15 million profit in the fourth quarter 2001. The loss in the fourth quarter was due primarily to credit loss provisions in commercial lending and aircraft leasing, partially offset by stronger results in real estate information services.
Interest charges and other were EUR 17 million lower reflecting lower interest rates and debt levels and a release of the provision for the general insurance run-off operations in the UK.
Key points full year 2002
Results include an additional USD 89 million (EUR 94 million) pre-tax earnings from the acquired J.C. Penney insurance operations.
Results for 2001 include USD 73 million (EUR 81 million) pre-tax earnings from the divested operations in Mexico and a USD 307 million (EUR 343 million) gain on sale.
Additions to provision for defaults in the USA totaled USD 774 million (EUR 817 million) compared to USD 565 million (EUR 631 million) for 2001.
Accelerated DPAC amortization (unlocking) was EUR 450 million compared to positive unlocking of EUR 22 million for 2001.
Provisions for guaranteed minimum benefits were strengthened by EUR 482 million.
Currency influence on net income was –2% and on shareholders’ equity was EUR –2,190 million.
Shareholders’ equity was EUR 14,231 million at December 31, 2002. As a result of active balance sheet management, shareholders’ equity increased from 70% in 2001 to 71% in 2002 of total capital base. As of December 31, 2002, solvency for Aegon N.V. was in excess of two times the minimum EU capital requirement. The EUR 1,692 million reduction in equity largely reflects currency exchange rate influences and unrealized investment losses offset partly by additional paid-in capital on preferred shares as a result of the transaction with Association Aegon.
The effective tax rate for 2002 was 19% compared to 28% for 2001. The lower effective tax rate is largely due to a reduction of the deferred tax liability, favorable adjustments resulting from the filing of the 2001 corporate tax returns in the US, lower taxable income relative to tax preferred investments and tax-exempt income, and the use of tax losses in the UK.
A more detailed report of the Executive Board is presented in the related documents: Earnings Report (PDF) and Financial Data (Excel).