Aegon 2004 embedded value and value of new business underlines strategic direction to focus on profitability
- Value of new business on an internal surplus basis1 amounted to EUR 489 million, an increase of 48% (58% at constant currency exchange rates)
- Total embedded value Aegon group on an internal surplus basis rose 12% to EUR 17.6 billion in 2004 (17% at constant currency exchange rates)
- Aegon has adopted the European embedded value principles
The embedded value and value of new business information as reported today underlines the success of Aegon's strategy to focus on profitability. The measures taken throughout the year to improve product margins and to emphasize profitability over short-term sales growth have led to tangible results, with solid improvements in total embedded value and embedded value life insurance and a strong increase in value of new business across all all country units.
At year-end 2004, the total embedded value of Aegon N.V. amounted to EUR 17.6 billion, an increase of 12% compared to 2003. The embedded value of life insurance business increased 10% to EUR 22.8 billion. The embedded value life insurance benefited from the performance of the inforce book (EUR 2.1 billion) and higher than expected investment returns (EUR 0.8 billion), which more than offset adverse currency translation effects (EUR (0.9) billion). At constant currency exchange rates, total embedded value and embedded value life insurance rose by 17% and 14%, respectively, in 2004.
The value of new business, reflecting the present value of the projected net profits arising from the sale of new business in 2004, amounted to EUR 489 million, an increase of 48% compared to the EUR 331 million achieved in 2003. At constant currency exchange rates, value of new business rose by 58% in 2004. The reported value of new business excludes a contribution of EUR 18 million from new operations in China, France, Slovakia and Spain, which is calculated using local solvency requirements2.
Joseph B.M. Streppel, Member of the Executive Board and CFO of Aegon N.V., said: "We are pleased with the broad based improvement in our embedded value life insurance and the strong increase in our value of new business. All country units contributed to this positive development, which demonstrates that our disciplined approach in focusing on profitability is paying off. Aegon strongly supports the European Embedded Value principles and has prepared its information in line with these principles, which provide a consistent framework for the calculation and reporting of embedded value."
The total embedded value for Aegon N.V. consists of the embedded value of the life insurance business plus the value of other activities and holding activities. The value of the holding activities, largely representing debt and capital securities, amounted to EUR (6.3) billion (in 2003 EUR (6.5) billion). The other activities are included at book value based on Dutch Accounting Principles and amounted to EUR 1.1 billion (EUR 1.4 billion in 2003).
The adoption of International Financial Reporting Standards (IFRS) from January 1, 2005 is not expected to have a significant impact on embedded value life insurance. The only material adjustment expected will come from a reduction in other activities by approximately EUR 0.7 billion after tax related to the US pension plan, consistent with the fresh-start approach utilized in the opening IFRS balance sheet.
Embedded value life insurance and the value of new business have been reviewed by Tillinghast. As a result of this review, Tillinghast considers that the methodology adopted, the assumptions used and the results in Aegon's 2004 embedded value report have been properly prepared and comply with the European Embedded Value Principles. In giving this opinion, Tillinghast has relied on the values placed on the 'other activities' by Aegon. Tillinghast's review did not cover the contribution to new business from Aegon's new operations.
1 Embedded value life insurance has been prepared using required capital on the internal surplus basis as a base case. This is a change from last year, where the base case was presented with required capital on a regulatory surplus basis and the internal surplus basis presented as an addendum to the report. Aegon has adopted this presentation as it is believed to be consistent with European Embedded Value principles and this is the basis on which the business is managed.
2 Tillinghast's review did not cover the contribution to new business from Aegon's new operations.