We are satisfied with the overall results of Aegon's third quarter. New life sales improved and we have continued our focus on profitably growing our core lines of business.
- New life sales1 increased 11% in the nine months to EUR 1,896 million and increased 1% in the third quarter
- Third quarter new life sales were higher in the Americas, the Netherlands and the United Kingdom and lower in Taiwan
- Operating earnings before tax increased 13% in the nine months to EUR 1,596 million and 45% in the third quarter
- Net income increased 30% in the nine months to EUR 2,069 million and increased 25% in the third quarter
- Acquisition of Nationwide Poland completed
1 New life sales refers to standardized new premium production and is defined as new recurring premium + 1/10 of single premium
View the Highlights Q3 2005.
Chairman's Overview:
Outlining key developments of Aegon's nine months results for 2005, Aegon Chairman Donald J. Shepard detailed the following:
"We are satisfied with the overall results of Aegon's third quarter. New life sales improved and we have continued our focus on profitably growing our core lines of business. In the United States there were notable increases in life sales to institutional clients as well as in Aegon's variable annuity business sold to individuals. Moreover, fixed and variable annuity pension sales were up significantly in the third quarter. Our "5 for Life" variable annuity product has achieved consecutive quarterly growth since its introduction late last year. At a time when the fixed annuity market has experienced steady decreases, Aegon's new fixed annuity deposits in the third quarter were higher than in the first and second quarters, mainly due to new distribution agreements in the bank channel. Finally, reinsurance sales were particularly strong during the past nine months. We continue to see good growth prospects for life reinsurance going forward.
"In the Netherlands, the improvement in new life sales was driven mainly by our group pension business. Throughout the Dutch organization, we continue to work on improving service to our customers. New life sales in the United Kingdom were stable for the nine month period and showed an increase during the second and third quarters. Our IFA platform Positive Solutions continues to experience an increase in Registered Individuals joining the network. At the same time, Aegon has accelerated the acquisition of the remaining 40% of Positive Solutions. We see this as an important step for Aegon's position in the UK market as changes brought on by depolarization become fully implemented.
"Driven by higher results from all of our major country units, operating earnings increased 13 percent. Certain volatile items resulting from the application of International Financial Reporting Standards (IFRS) had a significant impact, particularly in the third quarter where they contributed 108 million euro to operating earnings compared to a negative of 6 million in the same period last year. Net income showed a strong gain for the nine months (30%) as well as in the third quarter (25%).
"Aegon's growth in Central and Eastern Europe is on track with the recent completion of our acquisition of Nationwide Poland. Our strategy to develop business with savings banks in Spain, such as the partnership with CAM and the new joint venture with Caja de Badajoz, is progressing well, and we continue to look at other opportunities in the market. In Asia, new life sales in Taiwan for the nine month period were exceptionally strong in the second quarter before commissions on certain whole life products were decreased. Sales declined in the third quarter. In China, we have obtained a license to operate in the prosperous Jiangsu province and have begun sales in the city of Nanjing. We look forward to further rollout as the right opportunities develop.
"We have made good progress during the nine months of the year in new life sales, enhanced distribution agreements and strategic expansion in Asia and Central and Eastern Europe. Aegon continues to be well-positioned to serve the developing needs of our customers in our major and emerging markets."
View the full Highlights Q3 2005.
Sales
During the nine months, new life sales increased 11% to EUR 1,896 million. New life sales in the Americas increased 12% to USD 879 million, primarily reflecting strong sales to institutional clients and higher reinsurance sales. The conclusion of a number of large pension contracts drove the 10% increase in new life sales in the Netherlands. New life sales in the United Kingdom were stable during the nine months, reflecting a solid pick up in UK life sales after lower first quarter sales due to certain pricing and other changes in the core pensions markets. In Taiwan, new life sales in the nine months more than doubled to NTD 11.3 billion, due to a particular strong increase in sales of traditional life products in the second quarter. Third quarter new life sales in Taiwan showed a decline.
Sales of annuity and institutional guaranteed products in the Americas increased 5% compared to the nine months of 2004. Variable annuity sales benefited from higher sales to individuals and higher sales through the pension businesses. Sales of fixed annuities in the nine months of 2005 were lower and reflect Aegon's pricing discipline and the interest rate environment. New fixed annuity sales in the third quarter were 9% higher than in the second quarter due to enhanced bank distribution. Off balance sheet production increased in all country units with the largest portion coming from new pension mandates in the United Kingdom.
Operating earnings before tax
Operating earnings before tax in the nine months of 2005 increased 13% to EUR 1,596 million (and increased 16% on a constant currency basis). The three major country units - the Americas, the Netherlands and the United Kingdom - each reported increases in operating earnings before tax. The increase in the Americas primarily reflects business growth and the impact of volatile items, as well as several positive non-recurring items, partly offset by decreased spreads on institutional guaranteed products. The increase in operating earnings before tax in the Netherlands primarily reflects higher investment income and improved claims in non life insurance, partly offset by additions to provisions for certain guarantees and for improvements to certain life products made in the first half of the year. In the United Kingdom, the increase mainly reflects the positive impact from higher equity and bond markets. The increase is partly offset by a charge for a recruitment incentive plan for Registered Individuals. At the same time, Aegon has accelerated its acquisition of the remaining 40% 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 nine months operating earnings in Other countries. In the third quarter of this year, operating earnings before tax increased 45% to EUR 652 million when compared to the same period last year.
Net income
Net income increased 30% to EUR 2,069 million in the nine months of 2005 (32% on a constant currency basis) primarily reflecting higher operating earnings and increased net gains on investments. The effective tax rate remained stable at 27.3% in the nine months of 2005. Net income per share increased 28% to EUR 1.23. Net income in the third quarter of 2005 amounted to EUR 643 million and increased 25% compared to the same period last year, while net income per share increased 18% to EUR 0.39.
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 1,059 million compared to a gain of EUR 548 million in the nine months of 2004. Non-recurring income amounted to EUR 176 million before tax, reflecting the book gain on the sale of the Spanish general insurance activities.
Commissions and expenses
Commissions and expenses decreased 7% to EUR 4,096 million (6% at constant currency exchange rates). The sale of most of Transamerica Finance Corporation's businesses in the course of 2004 as well as expense savings in the Americas and Aegon UK contributed to lower operating expenses.
Revenue generating investments
The value of investments on which Aegon earns an investment spread and/or fee income amounted to EUR 343 billion at September 30, 2005, an increase of 13% compared to year-end 2004.
Shareholders' equity
Shareholders' equity at September 30, 2005 amounted to EUR 18.5 billion, an increase of 24% compared to December 31, 2004.
