Solid growth in embedded value and value of new business in 2006
May 09, 2007, 2:00 CEST
Joseph B.M. Streppel, member of the Executive Board and CFO of Aegon N.V., said: "While Aegon performed well on an operating basis, the increase in EV was hampered by the impact of the weakening US dollar.
INCREASE IN TOTAL EMBEDDED VALUE OF 8% AND A 13% INCREASE ON CONSTANT CURRENCY
TOTAL EMBEDDED VALUE PER COMMON SHARE INCREASED 7% TO EUR 13.29
VALUE OF NEW BUSINESS INCREASED 41% TO EUR 775 MILLION
Aegon'S DEVELOPING MARKETS GENERATED 20% OF 2006 VALUE OF NEW BUSINESS
The embedded value (EV) and value of new business (VNB) information as reported today by Aegon N.V. demonstrates both solid performance of the in-force book, as well as continued successful focus on profitable new growth. The increase in VNB was driven by strong business growth in both Aegon's established and developing markets, while EV reflects growth across most country units partially offset by currency effects.
Joseph B.M. Streppel, member of the Executive Board and CFO of Aegon N.V., said: "While Aegon performed well on an operating basis, the increase in EV was hampered by the impact of the weakening US dollar. The EV operating margin, which is calculated on a constant currency basis, improved to 11.2% from 7.8% in the prior year. The internal rate of return on new business of 14.5% - well above our internal 11% hurdle rate - demonstrates our disciplined approach to writing profitable business."
At year-end 2006, the total embedded value (TEV) of Aegon N.V. amounted to EUR 22.6 billion, an increase of 8% compared to 2005. The weakening of the US dollar had a negative impact on TEV. On a constant currency basis, the increase in TEV would have been 13%. Adjusted for the value of Aegon preferred shares, the total embedded value per common share amounted to EUR 13.29, an increase of 7%.
The embedded value life insurance (EVLI) was nearly unchanged at EUR 27.5 billion. The EVLI benefited from the performance of the inforce book of EUR 2.2 billion, higher than expected investment returns of EUR 0.6 billion, offset by negative currency translation effects of EUR 1.7 billion. Net capital movements out of the life operations reduced EVLI by a further EUR 2.2 billion. Economic assumptions were relatively stable with the exception of Taiwan where the net impact of lowering economic assumptions led to a negative charge. EVLI benefited slightly from the inclusion of mutual funds in the Americas.
The embedded value operating margin, representing the embedded value operating return (value of new business plus inforce performance) divided by beginning of year EVLI, calculated on a constant currency basis, increased to 11.2% in 2006 from 7.8%, primarily reflecting the improvement in the Netherlands. The embedded value total margin, which reflects the total change in EVLI excluding capital movements, decreased to 7.4% from 25.0% in 2005. The decrease primarily reflects the impact of currency movements.
The VNB, reflecting the present value of the projected distributable earnings arising from the sale of new business in 2006, amounted to EUR 775 million, an increase of 41% compared to EUR 550 million reported in 2005. The Americas, which reported solid performance across almost all lines of business, and the United Kingdom, which benefited from very strong sales growth and a change in business mix toward higher margin products, were the important contributors to the increase. The total internal rate of return on new business in 2006 amounted to an above target rate of 14.5%, up from 12.4% in 2005.
Aegon's 2006 embedded value results have been reviewed by Tillinghast. As a result of this review, Tillinghast concluded that the methodology and assumptions employed comply with the EEV Principles and Guidance, and that the results in all material aspects have been prepared in a manner consistent with methodology and assumptions described in Aegon's embedded value report. In giving this opinion, Tillinghast has relied on the values placed on the 'other activities' by Aegon (for more details, please refer to section 6 of Aegon's embedded value report - see related documents).
The tables in this press release provide a summary of Aegon's key 2006 embedded value and value of new business figures. These should be read in conjunction with the detailed information on embedded value life insurance and total embedded value in the report that is available on this website (please refer to related documents on the right).