Aegon reports solid business performance and strong capital position

Aegon’s CEO Alex Wynaendts stated: “Aegon’s capital position and cash flows continue to be strong despite the ongoing turbulence in financial markets."

  • Strong capital position with excess capital of over EUR 0.8 billion
  • Solid underlying earnings in turbulent financial markets, down 2% at constant currency
  • Continued growth of life sales and deposits results in 2% increase in VNB at constant currency
  • US credit impairments of EUR 57 million pre-tax reflect the high quality of Aegon’s investment portfolio
  • Interim dividend unchanged at EUR 0.30 per share

Chairman's statement

Aegon’s CEO Alex Wynaendts stated: “Aegon’s capital position and cash flows continue to be strong despite the ongoing turbulence in financial markets. In this environment, Aegon’s businesses performed well with solid underlying earnings and growth in both sales and deposits.  We are pleased by the continued confidence of our customers.  In the US, we achieved especially strong fixed annuities deposits, a six-fold increase over the comparable period. In the Netherlands new life sales were up significantly and our business in the United Kingdom achieved strong sales growth across most lines of business. These developments led to a further increase in Aegon’s value of new business and continued profitable growth. Clearly, the weakening of the dollar and British pound had a considerable impact on our reported results. Net income was affected by losses on investments as well as an increase in credit impairments, which are trending towards our long-term pricing assumptions. The recently completed EUR 315 million securitization of a block of Aegon’s UK business has increased our capital efficiency, one of our key strategic priorities. Also as part of our growth strategy, we continued our expansion in the emerging markets of Central and Eastern Europe and Asia. We remain confident in Aegon’s position and in our ability to grow our business profitably while achieving greater capital efficiency.”

View the performance indicators Q2 2008

For notes please see the full press release

Strategic developments

‘Unlocking the global potential’

In June 2008, Aegon introduced additional financial performance targets, alongside the Group’s value of new business (VNB) target, as part of an ambitious strategy to ensure sustainable profitable growth in the coming years:

  • Grow VNB to EUR 1.25 billion by 2010.
  • Average net underlying earnings growth of at least 10% per annum to 2012 from a 2007 base of EUR 2,033 million (at 2007 constant currency).
  • Return on equity of at least 14% by 2010 and at least 15% by 2012 compared with 12% in 2007.

In order to achieve these targets Aegon has set out three strategic priorities:

  • to reallocate capital toward businesses with higher growth and return prospects, 
  • to improve growth and returns from existing businesses, and
  • to manage Aegon as an international Group.

It is Aegon’s ambition to be a global leader, helping customers around the world secure their financial futures and ensuring sustainable profitable growth.

Aegon is executing its strategy and has launched several initiatives that underpin the Group’s commitment to achieve its targets:

  • In July, Aegon released EUR 315 million of capital through an innovative securitization. The securitization supports each of the Group’s three strategic priorities. This transaction added EUR 315 million of core capital and enhanced the Group’s financial flexibility. The transaction also improved the return on capital deployed in the United Kingdom. To have executed this deal in the current difficult market conditions is clear evidence of continued trust in Aegon’s capital position.
  • Aegon merged its pension fund management company PTE Aegon with BRE Bank’s PTE Skarbiec-Emerytura, positioning Aegon as Poland’s fifth largest pension fund manager with a market share of approximately 6%.
  • Aegon strengthened its position in the rapidly developing pension market in Central & Eastern Europe (CEE) with the merger of the Aegon Hungary Pension Fund with UNIQA and Public Service Pension Fund. As a result of the merger, Aegon is now the second largest pension provider in Hungary.
  • In early July, Aegon finalized its acquisition of Turkish life and pension company Ankara Emeklilik. Turkey has a low life insurance penetration and the country’s private pensions market has significant growth potential.

Following the pension fund mergers in Poland and Hungary, Aegon has now 2 million pension fund members in the CEE region. It is Aegon’s ambition to have 2.3 million pension fund members in CEE by 2010.

  • The joint venture with Caja de Ahorros de Santander y Cantabria in Spain began operations during the quarter.
  • In July, Aegon began selling life insurance policies in India with its partner Religare.
  • Aegon established a new asset management joint venture in China, Aegon Industrial Fund Management Company. Aegon IFMC is a Chinese mutual fund manager with approximately EUR 3 billion in assets under management. 

Value of new business

VNB increased 2% at constant currency, driven by strong growth in the Americas and the United Kingdom. However, due to the weakening of the US dollar and the British pound, the reported VNB declined to EUR 212 million.

Aegon’s internal rate of return remained fairly stable at 18% as the Group continued to focus on writing profitable new business. 

Return on equity

Aegon has been able to make progress on its return on equity target, by increasing its RoE from 12.0% for the full year 2007 to 12.2% in the first half of 2008.

Underlying earnings growth

At constant currency, Aegon was able to grow underlying earnings by 9% in the first half of 2008. 

Financial highlights

View the financial overview Q2 2008 

Operational highlights


Aegon’s businesses delivered a solid underlying performance in the second quarter of 2008. Reported results were significantly impacted by the strengthening of the euro against both the US dollar and the British pound. Underlying earnings, which exclude the effect of market fluctuations on certain fair value items, were down 2% on a constant currency basis (down 12% in euros), compared with a strong second quarter in 2007. The positive earnings contribution of underlying growth in Aegon’s businesses and more favorable investment spreads in the Americas were offset by the negative impact of lower equity and bond markets on earnings from fee generating businesses.

The fair value movements of certain investment classes in the Netherlands and the Americas, as well as a number of products containing financial guarantees, the so called fair value items, outperformed their long-term expected returns in the second quarter of 2008 driven by lower credit spreads and favorable alternative investment returns in the Americas.

Net income was down to EUR 276 million due to lower gains on investments and higher impairments.

Underlying earnings before tax

Underlying earnings before tax decreased by 2% at constant currency and by 12% in euros. The 2% increase in earnings in the Americas (in USD) was the result of business growth, higher institutional spread income partly offset by lower equity markets, a life reinsurance reserve strengthening of USD 49 million and favorable payout mortality in 2007.

In the Netherlands, earnings were positively impacted by a one-off release of accruals, partly offset by a lower investment performance. The United Kingdom reported a decrease in its underlying earnings, due primarily to the impact of lower asset values on fund-related fees and higher expenses related to business investments. The decline in earnings from Other countries is a reflection of investments in the life and pension businesses in Central & Eastern Europe, lower technical results in Taiwan and a lower contribution from Aegon’s partnership with La Mondiale in France. The first time inclusion of the Group’s Chinese asset management joint venture had a positive impact on earnings, as did the joint ventures with Spanish savings banks.

Operating earnings before tax

Operating earnings before tax decreased by 1% on a constant currency basis (or 11% in euro) to EUR 658 million. The quarter showed a partial reversal of the unprecedented widening in credit spreads seen in the first quarter of 2008. This had a positive impact on the market value of Aegon’s EUR 4.2 billion synthetic CDO (collateralized debt obligation) program and other credit-related financial instruments. Aegon’s alternative asset portfolio in the Americas outperformed long-term expectations during the quarter. Private equity investments in the Netherlands, however, underperformed long-term expectations.

Net income

Net income was down at EUR 276 million, the result of primarily currency movements, lower gains on investments in the Americas and the Netherlands, and an increase in impairments. Losses on investments were the result of normal bond trading activity in the Americas. In the Netherlands the positive movement in the market value of real estate and realized gains from shares were more than offset by realized losses on bonds and fair value movements on derivatives.

Net impairments totaled EUR 98 million pre tax in the second quarter of 2008. EUR 57 million is related to Aegon’s US credit portfolio (7 bps), including a first time impairment on subprime mortgage assets of EUR 41 million. Another EUR 26 million relates to the impairment of a US equity investment and a further EUR 15 million to other impairments.

Commissions and expenses

Commissions and expenses declined 1% in the second quarter of 2008. Operating expenses were 3% lower, due to the recent strengthening of the euro. At constant currency, operating expenses increased 7%, due to further investments in the business.

View sales and revenue generating investment information Q2 2008


New life sales increased by 3% at constant currency. Due to currency movements, new life sales declined to EUR 729 million. Sales of group pensions and annuities in the Netherlands showed strong growth. Sales in the United Kingdom were up significantly across most lines of business while retail life sales in the Americas also continued to grow. However, sales of both life reinsurance and bank- and corporate-owned life insurance in the Americas were lower. Unit-linked sales in CEE were impacted by equity market volatility while life sales in Taiwan decreased because of a shift in sales from life products to variable annuity deposits.


Total gross deposits increased by 5% at constant currency. Due to currency movements, gross deposits declined to EUR 9.1 billion. In the Americas, fixed annuities sales had their most successful quarter since 2003, benefiting from a steepening of the yield curve, a new distribution relationship and demand from customers for guaranteed, stable return products.

Variable annuity deposits increased primarily as a result of continued strong sales through broker/dealers, fee planners and banks as well as the inclusion of Merrill Lynch’s life insurance companies.

Net deposits were positive in the second quarter of 2008, mainly the result of the large increase in fixed annuities sales as well as the decline in the decrement rate of fixed annuities. Higher net inflows in the Americas in mutual funds and institutional fee-based business contributed to the increase in net deposits as well. Retail mutual funds in the Americas continued to experience positive net inflows despite negative market sentiment, a result of the successful development of a dedicated wholesaling organization.

Asia showed a strong increase in total gross deposits as well as net deposits, a result of the inclusion of Aegon’s new asset management joint venture in China, and successful variable annuity sales in Taiwan. 

Aegon’s investment portfolio

During the second quarter, higher interest rates partly offset by narrowing credit spreads led to a further decrease in revaluation of fixed income assets. Most of the bonds in Aegon’s portfolio are classified as ‘available for sale’. Under IFRS any changes in the fair value of such assets are reflected in the revaluation reserve as part of the Group’s shareholders’ equity. Since the end of the first quarter 2008, Aegon’s revaluation reserve has declined by EUR 933 million primarily as a consequence of higher interest rates. Under IFRS, the related benefit of higher interest rates on the value of liabilities is not reported. Aegon has limited direct equity exposure in its investment portfolio, reflected in a positive revaluation of EUR 10 million related to equities.

Unlike impairments, revaluations have no impact on the Group’s earnings. Fixed income assets are impaired if Aegon decides to sell at a loss or otherwise does not expect to receive full principal and interest on a particular investment. Aegon is a long-term investor and generally intends to retain large parts of its portfolio until maturity. Moreover, as a result of the Group’s effective asset and liability management, Aegon has ample liquidity in its investment portfolio and does not expect to be a forced seller of assets. In the Americas, the realized losses in second quarter earnings reflect normal trading activity in its bond portfolio.

Aegon’s credit risks are concentrated primarily in the United States. Over the last few years, the Group has structured its US investment portfolio defensively to weather a stressed credit environment. As a result, net impairments on credit investments totaled just EUR 57 million in the second quarter, reflection of the continued high quality of the Group’s investment portfolio.

Impairments include EUR 41 million in Aegon’s US subprime mortgage portfolio of EUR 2.5 billion. However, the credit risk is concentrated primarily in a certain segment, floating rate subprime assets, with over 72% rated AAA and AA. At the end of June, these investments, totaling EUR 1.0 billion, showed an unrealized net loss of EUR 388 million. While there is clearly a risk of future impairments in this area, should the markets continue to decline, Aegon believes its exposure is of manageable size.

Revenue generating investments

Revenue generating investments totaled EUR 344 billion at the end of June 2008, up 1% from March 2008.

Capital management

At the end of June, shareholders’ equity totaled EUR 11.6 billion, a decrease of EUR 1 billion compared with the end of March 2008. Aegon’s revaluation reserve declined by EUR 933 million to minus EUR  2,959 million. Foreign currency translation effects had a positive impact of EUR 118 million. The positive impact of net income (EUR 276 million), however, was more than offset by paid coupons on perpetuals (EUR 45 million) and dividends on common and preferred shares of EUR 290 million and EUR 112 million respectively.

Aegon applies leverage tolerances to its capital base, which reflects the capital employed in its core activities. This capital base consists of three elements: shareholders’ equity, perpetual capital securities and subordinated and senior debt. Aegon aims to ensure that shareholders’ equity accounts for at least 70% of its overall capital base, perpetual capital securities 25% and subordinated and senior debt a maximum of 5%. Aegon manages its economic exposure to currency revaluations in its capital base. Aegon has raised the majority of its perpetual capital securities denominated in US dollars. These securities are part of Group equity and, as a result, are carried in the balance sheet at the original EUR/USD exchange rate. At the end of June 2008, shareholders’ equity excluding the revaluation reserve represented 74% of Aegon’s total capital base. Group equity, which includes other equity instruments (such as perpetual capital securities) and minority interests, represented 95% of total capital 8,9).

Aegon is maintaining its dividend policy and will continue to offer attractive dividends, depending on cash flows and capital position.

During the second quarter, Aegon's capital position and cash flows remained strong, despite continued turmoil in the financial markets. The total 2008 dividend will be determined in March 2009 in line with Aegon’s existing dividend policy. 

Aegon’s capital position remained strong, with EUR 1.8 billion of financial flexibility, which includes excess capital of over EUR 0.8 billion plus leverage capacity. The financial flexibility excludes the recent securitization of EUR 315 million and capacity for further securitizations. Excess capital is available capital minus required capital.

Cash flows from Aegon’s businesses remained strong as well, with the cash flows to the holding company being affected by the continued strength of the euro against the US dollar over the past years.

Aegon believes it can execute its strategy with its current strong capital position and cash flow generation. In addition, Aegon will use securitizations, such as the recently announced EUR 315 million securitization of a book of unit-linked business within the UK operations, to accelerate redeployment of capital as part of its overall strategy.

Interim dividend

The 2008 interim dividend amounts to EUR 0.30. The interim dividend will be paid in cash or stock at the election of the shareholder. The value of the stock dividend will be approximately equal to the cash dividend. Aegon intends to neutralize the dilutive effect of the stock dividend.