Today, Aegon reports its preliminary 2004 comparative figures under International Financial Reporting Standards (IFRS).
- Shareholders' equity amounts to EUR 14.9 billion compared to EUR 14.4 billion on a Dutch Accounting Principles (DAP) basis on December 31, 2004
- Net income amounts to EUR 2,259 million (EUR 1.38 per share), compared to net income of EUR 1,663 million (EUR 1.05 per share) on a DAP basis
- Operating earnings before tax amount to EUR 1,813 million
These figures and the explanation of the most important effects are provided as additional information for the financial community in order to facilitate the comparison of Aegon's 2004 DAP results with the results on an IFRS basis. This information should not be viewed as a replacement of the official 2004 financial statements that were prepared under DAP. From January 1, 2005, all publicly listed companies in the European Union – including Aegon – are required to prepare their financial statements in conformity with IFRS. Aegon's first complete set of IFRS financial statements and accompanying notes will be the annual financial statements for 2005. The 2005 quarterly results will only be reported on an IFRS basis. Aegon will report its first quarter 2005 results on May 11, 2005.
"Aegon strongly supports the transition to a uniform accounting framework that can facilitate the comparability of companies. We will continue to contribute to the development of the standards, specifically as these standards continue to evolve for IFRS insurance accounting in phase II. During the initial phase of the IFRS implementation, the volatility of reported earnings and shareholders' equity will increase. This volatility largely reflects the difference between the way certain assets are valued on the one hand and related liabilities on the other. In conjunction with net income, operating earnings and embedded value are important measures of underlying business performance. While the adoption of a new accounting system changes the way Aegon reports externally, it is important to understand that this does not change the fundamental economics of our business", said Aegon's CFO and Member of the Executive Board Jos Streppel.
The starting point for preparation of comparative figures is the Opening Balance Sheet on January 1, 2004. The difference between assets and liabilities valued under DAP and assets and liabilities valued on an IFRS basis, is reflected as an adjustment in shareholders' equity in the Opening Balance Sheet.
The preliminary 2004 IFRS information presented is unaudited and has been derived from accounting policies based on IFRS as of March 31, 2004 (referred to as the 'stable platform'). These accounting policies, and consequently the information presented, may still change due to revisions in IFRS up to December 31, 2005. In addition, further review and analysis of items such as (but not limited to) the consolidation of investment vehicles may cause some of the reported key effects to change as well.
Effect IFRS on shareholders’ equity
Shareholders’ equity at December 31, 2004 under IFRS amounted to EUR 14.9 billion, compared to EUR 14.4 billion on a DAP basis. The main differences arise from a combination of:
- Investments: Under DAP, investments in bonds were valued at amortized cost and realized gains and losses on bonds were deferred and released into earnings over a period of time. Under IFRS most investments in bonds are measured at fair value while deferral of realized gains and losses on bonds is not allowed. The deferred net realized gains that existed in the DAP balance sheet have been released to shareholders’ equity and under IFRS realized gains and losses on bonds are recognized in earnings when incurred. Unrealized gains and losses on bonds classified as “available for sale” are reflected in shareholders’ equity under IFRS. The inclusion of both deferred bond gains and unrealized bond gains had a positive effect on shareholder’s equity under IFRS.
- DPAC, VOBA and liability valuation: The positive effect from the unrealized gains on bonds in shareholders’ equity has been partially offset by the application of shadow accounting. This accounting method adjusts insurance liabilities and related assets, such as Deferred Policy Acquisition Costs (DPAC) and Value of Business Acquired (VOBA), to the same extent that they would have been adjusted if those unrealized gains and losses had actually been realized. For some products, DPAC and VOBA amortization is based on the estimated gross profits, which are expected to be realized over the life of the policies. With the reversal of the deferred bond gains, expected future profit emergence will change. This, together with shadow accounting, resulted in additional DPAC and VOBA amortization and decreased shareholders’ equity under IFRS.
- Defined benefit plans: Under IFRS, for defined benefit pension plans the difference between the present value of the defined benefit obligation and the fair value of the plan assets is recognized. This decreased shareholders’ equity under IFRS.
- Tax differences: Mainly due to the change from discounted (DAP) to an undiscounted basis (IFRS), tax differences resulted in a decrease in shareholders’ equity under IFRS.
Perpetual capital securities are classified as equity under IFRS, as opposed to debt under DAP. These securities are included under Group Equity and are not part of shareholders’ equity.
Net income under IFRS amounted to EUR 2,259 million compared to EUR 1,663 million on a DAP basis. The main differences arise from a combination of:
- Investment income and net gains on investments: Under DAP only realized gains and losses on shares and real estate were recognized when incurred, while gains and losses on bonds were deferred and released as investment income into earnings over the estimated average remaining term to maturity. Under IFRS all realized gains and losses on investments are recognized when incurred. On balance, the inclusion of all net realized gains and the reversal of the amortization of deferred gains on bonds resulted in an increase in earnings under IFRS.
- DPAC, VOBA and liability valuation: For some products the amortization of DPAC is based on the estimated gross profits expected to be realized over the life of the policies. The inclusion of all realized gains and losses and the exclusion of the amortization of deferred bond gains caused changes in estimates of future profit emergence and resulted in increases in DPAC and VOBA amortization. This resulted in a decrease in earnings under IFRS.
- Interest charges and related fees: Perpetual capital securities are classified as equity under IFRS, rather than debt. As a result, coupons and transaction costs on these instruments are recognized as a direct deduction from equity, instead of an expense in the income statement under DAP. This resulted in an increase in earnings under IFRS.
- Non-recurring income: The gain on the sale of TFC businesses in 2004, which was credited to shareholders’ equity under DAP, is reflected in the income statement in 2004 under IFRS and resulted in an increase in earnings.
Management believes that pre-tax operating earnings provides useful and important information to analysts and investors as an indicator of Aegon’s financial performance. Operating earnings before tax exclude the effect from net gains and losses on investments, impairment charges and non-recurring income and expense items. Operating earnings before tax amounted to EUR 1,813 million.
The document, Aegon 2004 comparative IFRS figures (see related documents), provides an extensive set of comparative IFRS data, including explanations of the main differences that arise between IFRS and DAP. The document contains an overview of significant IFRS accounting policies as applied by Aegon, a reconciliation of consolidated net income from DAP to IFRS, as well as the 2004 IFRS consolidated income statement. Line of business results are also presented. In addition, shareholders’ equity as of January 1, 2004 and December 31, 2004 are reconciled from DAP to IFRS. The consolidated balance sheet under IFRS together with an equity roll forward is presented for both January 1, 2004 and December 31, 2004. Finally, the document contains addenda with relevant information per line of business and reconciliations of net income, per country unit and per quarter. We believe that this information will aid in enhancing the understanding of Aegon’s new reporting basis for investors, analysts and the general public.