Aegon reports on first half year 2004 results

"The strong and continuing earnings improvement across all of our major country units is a clear indication that our business is progressing in line with our priorities," said Donald J. Shepard, Chairman of the Executive Board.

• Net income amounted to EUR 790 million in the first six months of 2004, compared to EUR 329 million in 2003
• Strong growth in earnings in all major country units on a comparable basis
• Interim dividend declared of EUR 0.21 per common share, a 5% increase compared to the prior year
   

View the Highlights second quarter 2004 (amounts in millions, except per share data, 2003 adjusted for comparability¹).

^{Note: 2003 financial data have been adjusted for the change in accounting principles related to the discontinuance of the indirect income method for recognizing gains and losses on shares and real estate and the adoption of SOP 03-1. For details, please refer to page 21 of the full press release and/or to our first quarter 2004 earnings release for a reconciliation of 'as reported' to 'as adjusted'.}

"The strong and continuing earnings improvement across all of our major country units is a clear indication that our business is progressing in line with our priorities," said Donald J. Shepard, Chairman of the Executive Board. 

"While production was mixed, our profit margins have improved in keeping with our ongoing focus on profitability in our most important core businesses. The fact that we have raised the interim dividend is a further indication of our improved cash flows and stronger capital position."

Income before realized gains and losses on shares and real estate from the group's core operations continued to show strong progress across all major country units. Income before realized gains and losses on shares and real estate increased 45% to EUR 889 million in the first six months this year. At constant currency exchange rates the increase was 57%. The main factors driving the improvement in results were improved product spreads, higher interest results and increased fee income as well as improved equity and credit markets. The group's core operations exclude Transamerica Finance Corporation (TFC), the majority of which was sold in late 2003 and early 2004. In the first six months of 2004, the TFC contribution amounted to a net loss of EUR 14 million compared to a net profit of EUR 169 million in the first half of 2003.

Aegon reports strong increases in net income and net income per share for the first six months of 2004, on a comparable basis. Net income, which includes realized gains and losses on shares and real estate, amounted to EUR 790 million in the first six months of 2004. Net income per share amounted to EUR 0.50 in the first half of 2004. On a comparable basis, net income per share was EUR 0.19 in the first half of 2003. The significant increase in both measures primarily reflects the change in realized gains and losses on shares and real estate, which can be volatile between reporting periods. Management therefore believes that net income before realized gains and losses on shares and real estate is a valuable indicator of Aegon's financial performance.

Net income before realized gains and losses on shares and real estate increased 5% to EUR 633 million for the first six months of 2004. The increase reflects the strong contribution to income by our country units, which more than compensated the lower income from TFC. The sale of the majority of TFC late last year and early this year distorts comparison of net income in the first six months of this year with the same period the prior year. At constant currency exchange rates, net income before realized gains and losses on shares and real estate showed an increase of 15% in the first six months this year compared to the same period last year.

Realized gains on shares and real estate in the first six months of 2004 amounted to EUR 194 million on a pretax basis (EUR 157 million net of tax), compared to a net realized loss of EUR 283 million (EUR 273 million net of tax) in the first six months of 2003. At June 30, 2004, the revaluation reserve, comprising of unrealized gains and losses on shares and real estate, amounted to EUR 1,507 million compared to EUR 1,393 million at year-end 2003.

Total revenue generating investments rose 7% during the first six months of 2004 from EUR 284 billion at year-end 2003 to EUR 305 billion.

An interim dividend of EUR 0.21 per common share has been declared. This represents a 5% increase compared to the interim dividend and the final dividend of 2003, which were both EUR 0.20 per share. Aegon recognizes the importance of offering its shareholders a stable and adequate dividend, which is supported by the company's cash flow and capital position.

Included in this report are financial measures, pre-tax as well as after-tax, that exclude realized gains and losses on shares and real estate. Net income before realized gains and losses on shares and real estate is a non-GAAP measure. Management uses this non-GAAP measure, in addition to GAAP measures, as an indicator of Aegon's financial performance and believes that the presentation of this measure provides useful and important information to analysts and investors. This non-GAAP measure should be seen as part of a range of supplementary measures, that assist in achieving greater transparency and understanding of insurance reporting and can help investors and analysts in comparing Aegon with its peers. Reconciliation of this measure to the most comparable GAAP measure is provided on page 24 of the full press release.  

Key points for the first six months 2004

Income before realized gains and losses on shares and real estate increased 46% to USD 958 million (31% to EUR 781 million) in the Americas, increased 58% to EUR 175 million in the Netherlands and rose 19% to GBP 69 million (20% to EUR 102 million) in the United Kingdom. Income before realized gains and losses on shares and real estate in Other countries increased 28% to EUR 50 million.

Additions to the default provision in the United States were USD 137 million (EUR 112 million) compared to USD 293 million (EUR 265 million) in the first six months of 2003. Actual default losses charged against the provision were USD 137 million (EUR 112 million), compared to USD 284 million (EUR 257 million) in the first half of 2003. The default provision remains at USD 277 million.
On an operating basis, TFC reported an income before tax of EUR 27 million (USD 33 million) in the first six month of 2004. After interest expenses, TFC's pre-tax loss amounted to EUR 22 million (USD 27 million), with a net loss of EUR 14 million (USD 16 million). TFC contributed EUR 169 million (USD 187 million) to net income in the first six months of 2003.

Total revenue generating investments rose 7% during the first six months of 2004 from EUR 284 billion at year-end 2003 to EUR 305 billion. In the Americas revenue generating investments rose 5% to USD 238 billion (9% to EUR 196 billion), increased 5% to EUR 55 billion in the Netherlands, remained stable at GBP 34 billion in the United Kingdom (increased 5% to EUR 51 billion) and increased 15% to EUR 4 billion in Other countries.

Standardized new life production, when compared to the first six months of 2003, was down 3% to USD 531 million (down 12% to EUR 433 million) in the Americas, declined 20% to EUR 118 million in the Netherlands, was 3% higher at GBP 333 million (5% higher at EUR 494 million) in the United Kingdom and decreased 33% to EUR 110 million in Other countries primarily due to lower production as well as currency translation effects in Taiwan.

Variable annuity account balances rose 3% to USD 43.6 billion (7% to EUR 35.9 billion) in the first six months of 2004. New variable annuity deposits in the Americas declined 27% to USD 2,901 million (declined 35% to EUR 2,364 million) compared to the first six months last year. The decline reflects the discontinuance of the guaranteed minimum income benefit (GMIB) feature in the first quarter last year, which primarily affected the wire-house and broker-dealer distribution channels. New production of variable annuities in our pension business continued to be strong and increased by 40% to USD 1.4 billion (increased 26% to EUR 1.1 billion).

Fixed annuity account balances decreased slightly to USD 44.6 billion (increased 3% to EUR 36.7 billion). New fixed annuity deposits in the Americas of USD 1,656 million were 51% lower (decreased 55% to EUR 1,350 million) compared to the first six months of last year as a result of reductions in policyholder crediting rates and adjustments to compensation structures made last year. Deposits in our pension business were strong. Fixed annuity earnings improved from USD 108 million (EUR 98 million) in the first half of 2003 to USD 195 million (EUR 159 million) in the first half of 2004 due to lower bond defaults and higher spreads.

Compared to year-end 2003, shareholders' equity increased by EUR 1,126 million to EUR 15,093 million. Aegon's capital leverage ratio improved in the first six months of 2004. Shareholders' equity represents 72% of the total capital base compared to 71% at year-end 2003.

An interim dividend of EUR 0.21 per common share has been declared. This represents a 5% increase compared to the interim dividend and the final dividend of 2003, which were both EUR 0.20 per share.

Key points for the second quarter 2004

Income before realized gains and losses on shares and real estate increased 50% to USD 475 million (43% to EUR 395 million) in the Americas, increased 40% to EUR 88 million in the Netherlands and rose 28% to GBP 37 million (31% to EUR 55 million) in the United Kingdom. Income before realized gains and losses on shares and real estate in Other countries increased 35% to EUR 27 million.

Additions to the default provision in the United States benefited from an improved credit market and were below pricing assumptions. Actual default losses charged against the default provision were USD 87 million (EUR 82 million), compared to USD 134 million (EUR 117 million) in the second quarter of 2003. An amount of USD 87 million (EUR 82 million) was added to the default provision compared to USD 144 million (EUR 126 million) in the second quarter of 2003.

Standardized new life production, when compared to the first quarter of 2004, was up 18% to USD 287 million (up 22% to EUR 238 million) in the Americas, declined 24% to EUR 51 million in the Netherlands, was 11% lower at GBP 157 million (9% lower at EUR 235 million) in the United Kingdom and decreased 36% to EUR 43 million in Other countries primarily due to lower production in Taiwan. Standardized new life production, when compared to the second quarter of 2003, was down 3% to USD 287 million (down 8% to EUR 238 million) in the Americas, declined 32% to EUR 51 million in the Netherlands, was 2% lower at GBP 157 million (2% higher at EUR 235 million) in the United Kingdom and decreased 38% to EUR 43 million in Other countries primarily due to lower production as well as adverse currency translation effects in Taiwan.

New variable annuity deposits in the Americas declined 7% to USD 1,304 million (declined 9% to EUR 1,087 million) compared to the second quarter last year. Compared to the first quarter of 2004, variable annuity deposits declined 18%, largely due to strong institutional sales in the first quarter of the year.

New fixed annuity deposits in the Americas decreased by 50% compared to the second quarter of last year as a result of reductions in policyholder crediting rates and adjustments to compensation structures made last year. However, production of USD 826 million (EUR 686 million) was fairly stable compared to the preceding two quarters.

On an operating basis, TFC reported an income before tax of EUR 22 million (USD 26 million) in the second quarter of 2004. After interest expense, TFC's pre-tax result amounted to EUR 4 million (USD 5 million), with a net income contribution of EUR 2 million (USD 3 million). TFC contributed EUR 96 million (USD 109 million) to net income in the second quarter of 2003. The net results reported in the second quarter compare favorably with the loss of EUR 16 million reported in the first quarter of this year. The majority of TFC was sold in late 2003 and early 2004. The remaining part of TFC, mainly consisting of maritime container and European trailer leasing, is consolidated as of January 1, 2004.