The Q1 2006 results included a notable increase in the value of new business, providing further indication that our focus on growing our core lines of business profitably in our major and developing markets makes sense.
Net income down 7%, while operating earnings up 92%
- Investment performance remained strong, but decrease in fair value of derivatives led to lower gains.
- Lower non-operating income reflects gain on sale of Spanish general insurance business last year.
- Operating earnings up significantly, reflecting the effect of favorable financial markets on the valuation of certain assets and liabilities.
New life sales op 12% led by record quarter in the UK
- New life sales in the UK up 51% driven by increases in all major lines of business.
- Aegon Poland achieves second consecutive record sales quarter.
- New life sales in the Americas decreased, but profitability improved.
Value of new business amounted to EUR 163 million
- Value of new business for the first quarter of 2006 increased 18% compared to pro forma first quarter 2005 value of new business2.
- The internal rate of return on new business for the first quarter amounted to 14.7%, compared to 12.4% for the full year 2005.
- Aegon's developing markets continued to contribute strongly to value of new business.
Stengthened broad-based distribution
- Increased wholesaling capacity and introduction of an enhanced withdrawal benefit rider drove 16% increase in variable annuity sales.
- Bank partnerships in Spain obtained final approval, strengthening Aegon's distribution capabilities.
1 New life sales refers to standardized new premium production and is defined as new recurring premium + 1/10 of single premium
2 Pro forma first quarter 2005 value of new business is equal to one-fourth of the full year 2005 value of new business
Use this link for the table Earnings summary Q1 2006.
Note: This press release includes non-GAAP financial measures: operating earnings before tax and value of new business. The reconciliation of operating earnings before tax to the most comparable GAAP measure and an explanation for its use is provided on page 28 of the full press release. Value of new business is not based on IFRS, which are used to report Aegon's quarterly statements and should not be viewed as a substitute for IFRS financial measures. On pages 23 and 24 of the full press release (see related documents), a further breakdown is given and reference is made to the assumptions included in the Embedded Value disclosure document (see related documents). Aegon believes the value of new business, together with the GAAP information, provides a meaningful measure for the investment community to evaluate Aegon's business relative to the businesses of our peers.
Chairman's overview
"Aegon's results for the first quarter of 2006 included a notable increase in the value of new business, providing further indication that our focus on growing our core lines of business profitably in our major and developing markets makes sense," said Aegon Chairman Donald J. Shepard.
"The diversification of Aegon's business, both in terms of products and geographical spread, resulted in a solid performance in our year-over-year results for the Group. The 12% growth in standardized new life sales, combined with a 18% increase in the value of new business compared to one-fourth of full year 2005, give us continued confidence in the long-term growth potential of our business." Mr. Shepard further emphasized that Aegon's disclosure of value of new business results on a quarterly basis, beginning with the current first quarter of 2006, constitutes an important supplemental measurement of Aegon's business development.
Commenting on other highlights of the quarter, Mr. Shepard remarked: "Distribution again fueled Aegon's solid performance. In the Americas, the 16% increase in variable annuity sales was a result of strong sales across all of our distribution channels, supported by enhanced wholesaling capacity in the US. In the UK, we produced a 51% increase in new life sales over the same period last year, while Aegon's IFA platform, Positive Solutions, achieved another record quarter with higher productivity of the sales force. New individual life sales sold through intermediaries in the Netherlands improved.
"The internal rate of return of 7.9% on products sold in the Netherlands remains below our hurdle rate, largely due to margin pressure in mortgage-related business and a change in interest rates. Standardized new life production in the Americas declined 11% from the year-ago quarter, with the majority of the decrease reflecting lower sales of BOLI/COLI business. In addition, there is some decrease in production from the Transamerica agency channel as there is dislocation occurring in the industry in the older age market. The internal rate of return in the Americas rose 100 basis points in the first quarter of this year to 12.3%.
"In Spain, we further strengthened our position in the important bank channel which continues to be the primary means for selling life insurance and pensions. The regulatory authorities have recently given final approval to Aegon's joint ventures with Caja Navarra and Caja de Badajoz. With the completion of these agreements, Aegon's products will be sold in approximately 1500 bank branches throughout Spain.
"We made good progress during the quarter in Aegon's pension businesses internationally. Going forward, we will look to capture further growth in this expanding market, given demographics and our established expertise. "Overall, Aegon experienced a good quarter with promising sales growth across our company while at the same time making progress in expanding sales and distribution within our developing markets. The strong increase in the value of new business for the Aegon Group further demonstrates our ongoing commitment to writing profitable business to ensure long-term value for all of our stakeholders."
