Aegon improves underlying earnings and capital position in Q2 2009

"Ensuring that Aegon maintains a strong capital position continues to be front and center in our actions."

Capital position strengthened

  • EUR 1.6 billion in capital freed up in first half 2009, above full year target
  • Excess capital a) of EUR 3.5 billion by end June
  • Revaluation reserves improve by EUR 3.4 billion, or 40%, a result of narrowing credit spreads 
  • IGD b) solvency ratio increases to 202% 
  • No interim dividend payment for 2009 – dividend policy remains unchanged

Improved earnings

Underlying earnings before tax of EUR 404 million, substantial improvement compared with the past two quarters

  • Underlying earnings include lower investment income as result of de-risking measures
  • Fair value items of EUR (31) million include EUR 202 million net gain from higher equity markets, offset by a loss on interest rate hedges
  • Net loss of EUR 161 million, including one-time EUR 385 million loss from sale of Taiwanese life activities
  • Impairments of EUR 393 million, approximately half from US housing market related assets
  • Cost savings well on track to achieve EUR 150 million target

Continued profitable sales, despite difficult environment




  • New life sales of EUR 469 million, helped by an increase in US retail sales
  • Net deposits c) of EUR 857 million, due to strong sales of annuities and pensions, and improved persistency
  • Value of new business of EUR 181 million, with overall increase in rates of return.

Statement Alex Wynaendts, CEO

“Ensuring that Aegon maintains a strong capital position continues to be front and center in our actions. In the first half of the year, we have exceeded our full-year capital release target. We are also pleased with the further improvement, quarter over quarter, to our underlying earnings, despite the impact of our de-risking measures on investment income. Our strong capital position has allowed us to begin reversing in part the impact of these measures by investing cash in higher yielding, quality assets. We have not declared an interim dividend, however our dividend policy remains unchanged. Our decision to pay a full-year dividend will continue to depend on cash flows and Aegon’s capital position at the end of the year.


“We are well on track to achieve our cost savings target for 2009. At the same time, we are working to identify additional cost saving measures with the determination not to undermine the high level of service our customers have come to expect. We are especially pleased by the continued confidence of our customers, as demonstrated by solid retail sales in the United States and net deposits for the quarter.

“We remain convinced that our strategic objectives to strengthen Aegon’s capital position, reduce costs and implement actions to safeguard customer trust are the right ones in the current environment and for the long term. Aegon has weathered the turmoil of the past year and is committed to being in a strong position to maximize the opportunities ahead.”

View the table key performance indicators 

Strategic highlights and short-term priorities

Last year, Aegon set out three long-term strategic priorities:

  1. To reallocate capital toward businesses with higher growth and return prospects;
  2. To improve growth and returns from existing businesses;
  3. To manage Aegon as an international company.

Subsequently, Aegon identified and announced three priorities to counter the challenges of the current global financial crisis and position the company for future growth:

  • Focus on capital preservation and accelerate the capital release program;
  • EUR 150 million in cost saving measures for 2009;
  • Develop contingency plans for possible deterioration in financial markets.

Aegon further aims to reduce its earnings sensitivity to financial markets to realize more stable earnings. 

Portfolio review

Aegon is continuing to review its portfolio of businesses to ensure they meet the criteria outlined in the company’s strategy. Recent developments:

  • Sale of life business in Taiwan, decreasing Aegon’s long-term interest rate exposure and substantially lowering required economic capital;
  • Withdrawal from Group Risk market in the UK, releasing EUR 55 million in capital over next three years.

Consistent with its strategy to allocate capital to businesses and geographies that offer attractive growth and higher return prospects, Aegon completed its acquisition of a 50% stake in Mongeral, Brazil’s sixth largest independent life insurer, and the acquisition of Banca Transilvania’s 50% share in BT Aegon, a Romanian pension business the two companies set up in 2008.  

Cost measures

  • Cost saving measures well on track to achieve the full-year EUR150 million target;
  • Operating expenses down 5% in the first half of 2009, excluding impact from restructuring charges, increased employee benefit plan expenses and currency effects. 

Capital preservation

  • A total of EUR 1.6 billion in capital released from Aegon's businesses in H1, above target of EUR 1.5 billion for full year;
  • Aegon started to invest cash in higher yielding quality assets, which will in part reverse earnings impact from de-risking measures;
  • Aegon aims to maintain an amount of excess capital substantially above AA capital adequacy requirements. 

Capital management

Excess capital

  • Excess capital at the end of June 2009 totaled EUR 3.5 billion over AA capital adequacy requirements, up EUR 0.8 billion from the end of Q1 2009;
  • The positive impact from improved capital markets, the company’s capital release program and statutory earnings were partly offset by impairments and rating migration in the Americas. At the end of Q2 2009, Aegon had an IGD solvency ratio of 202%;
  • Because of uncertain economic conditions, Aegon still expects an elevated level of asset impairments in its investment portfolio in 2009 compared with its long-term assumptions. Impairments negatively impacted the company’s capital position in Q2 2009, reducing excess capital by approximately EUR 0.3 billion. In addition, rating migration in the Americas’ asset portfolio was limited to a EUR 0.1 billion increase in capital requirements.

IFRS core capital

  • At the end of June 2009, core capital, excluding the revaluation reserves, totaled EUR 15.8 billion, 75% of the total capital base, well above Aegon’s minimum target of 70%7,8). Core capital, including the revaluation reserves, was EUR 10.6 billion, consisting of EUR 7.6 billion in shareholders’ equity and a further EUR 3 billion in convertible core capital securities. Aegon’s revaluation reserves improved by 40% during Q2 2009, or EUR 3.4 billion, to a negative EUR 5.1 billion.

The improved revaluation reserves were the main driver behind an increase in shareholders’ equity. The revaluation reserves improved primarily due to the impact of narrowing credit spreads on bond values.


  • Aegon has not declared an interim dividend to common shareholders for 2009. The company’s dividend policy, however, remains unchanged,  i.e. the payment of a dividend depends on the capital position and cash flows of the company. A decision on a final dividend will be announced with the Q4 2009 results. 

Risk management

Equity market sensitivities

  • During Q2 2009, Aegon implemented a macro hedge program for equity exposure related to its retail variable annuity portfolio to reduce the sensitivity of Aegon’s capital position to equity market movements. This program, a combination of out-of-the-money put options and linear hedge instruments, is in place for twelve months, but can be extended for a longer period. The hedge instruments will be carried at fair value through profit or loss and will be reported under fair value items. 

Financial highlights

View the table financial overview


Aegon reported a net loss of EUR 161 million for Q2 2009, including a one-time EUR 385 million loss from the sale of the company’s Taiwanese life insurance business. Excluding this one-time loss, net income was EUR 224 million, a strong improvement compared with previous quarters.

Underlying earnings before tax amounted to EUR 404 million, a substantial increase from the first quarter of 2009.

Fair value items contributed a negative EUR 31 million to earnings in Q2 2009, again a strong improvement compared with recent quarters.

Net income during the second quarter of 2009 was negatively impacted by impairment charges of EUR 393 million, associated in part with investments in structured residential mortgage assets in the Americas. Impairments of EUR 330 million in the Americas would have amounted EUR 255 million under US GAAP.

Net income in the second quarter of 2009 also included a tax gain of EUR 228 million related to cross border intercompany reinsurance transactions between Ireland and the United States. This gain was a partial reversal of previous tax charges from these internal transactions during 2008. 

Underlying earnings before tax

In Q2 2009, underlying earnings before tax for the company totaled EUR 404 million, a substantial improvement compared with recent quarters. Underlying earnings were impacted by a few exceptional items totaling EUR 36 million. Excluding these exceptional items, underlying earnings would have been EUR 440 million. Underlying earnings were also impacted by de-risking measures in the first half of 2009, which affected earnings by EUR 45 million. The main exceptional items were:

  • US employee benefit plan accounting mismatch of EUR (15) million:
  • Restructuring charges of EUR (18) million;
  • Accelerated amortization of DPAC related to universal life in Canada of EUR (23) million;
  • Reserve adjustments of EUR 20 million.

Underlying earnings in the Americas improved significantly compared with Q1 2009 when lower equity markets led to a strengthening in minimum guarantee reserves and accelerated amortization of deferred policy acquisition costs (DPAC).

Compared with Q2 2008 however, earnings from the Americas decreased to USD 371 million, a result of lower investment spreads, reduced fees from lower asset balances, increased employee benefit plan expenses (USD 60 million), accelerated amortization of DPAC in the Life and Protection line (USD 30 million), and one-time restructuring costs (USD 14 million) related to cost saving initiatives. In Q2 2008, earnings from the Americas had included a one-off reserve strengthening of USD 49 million in the life reinsurance business.

In the Netherlands, underlying earnings totaled EUR 129 million, including a one-time EUR 20 million release of provisions.

Underlying earnings in the United Kingdom, meanwhile, totaled GBP 17 million, lower than Q2 2008, due primarily to the impact of lower equity and corporate bond markets on fund related charges in the pension business.

Underlying earnings from Other countries, which exclude earnings from the Taiwanese life business this quarter, amounted to EUR 47 million, up from EUR 29 million in Q2 2008. Earnings for the second quarter 2008 had included a EUR 6 million underlying loss in Taiwan. The increase in earnings in Other Countries was the result of a strong earnings performance from Aegon’s operations in Central & Eastern Europe and the company’s bancassurance joint ventures in Spain.  

Net income

Net income for the second quarter of 2009 included a total underperformance of fair value items of EUR 31 million. Fair value items primarily include certain (alternative) investment classes, as well as a number of products containing financial guarantees.

In the Americas, fair value items showed an overperformance of USD 240 million, a result primarily of increased market values for credit derivatives, as well as a positive contribution from both total return annuities and the impact of lower implied equity market volatilities on the fair value of GMWB guarantees. The results of Aegon’s macro equity hedge program are reported under fair value items and amounted to a gain of USD 26 million in the second quarter 2009. Alternative assets in the Americas, such as real estate partnerships and private equity, however, showed an underperformance.

In Q2 2009, fair value items included a EUR 54 million charge related to fair value movements of guarantees and related hedges in the Netherlands. During the second quarter of 2009, a EUR 186 million gain from higher equity markets, as well as the benefit from lower equity market volatility, were more than offset by losses from the company’s program for managing guarantee related interest exposures.

Three bonds issued by Aegon N.V. and their hedge instruments are held at fair value through profit or loss. In previous quarters, the widening of Aegon’s credit spread had a positive contribution to earnings. In Q2 2009 however, Aegon’s credit spread narrowed substantially, leading to a loss of EUR 163 million. 

Gains on investments

Gains on investments during the second quarter of 2009 amounted to EUR 35 million, including gains on economic hedges. These gains were partly offset by losses from the revaluation of direct residential real estate investments in the Netherlands. 

Impairment charges

Impairments during the second quarter of 2009 totaled EUR 393 million. This included EUR 123 million relating to subprime mortgage asset backed securities and a further EUR 85 million to residential mortgage backed securities, both in the Americas. The remainder was mainly related to corporate credits in the Americas, the United Kingdom and the Netherlands. Impairments of EUR 330 million in the Americas would have amounted to EUR 255 million under US GAAP.  


Net income in the second quarter of 2009 included a tax gain of EUR 228 million related to cross border intercompany reinsurance transactions between Ireland and the United States. These reinsurance transactions are accounted for at fair value in both tax jurisdictions. While losses in the United States were taxed at 35%, gains in Ireland were taxed at 12.5%. The gain was a partial reversal of previous tax charges on these internal transactions in 2008.

The loss from the sale of Aegon’s Taiwanese life activities did not lead to tax relief on earnings for the second quarter of 2009.  

Commissions and expenses

Compared with Q1 2009, commissions and expenses decreased by 7% to EUR 1.5 billion. Operating expenses were down 3% to EUR 814 million as a result of cost saving initiatives, partly offset by restructuring charges and higher employee benefit plan expenses. Excluding the impact from restructuring charges, increased employee benefit plan expenses and currencies, operating expenses were down 5% in the first half of 2009 compared with the same period last year.

Compared with Q2 2008, commissions and expenses were down 5% on a constant currency basis. On the same basis, operating expenses were up 1% as an increase in employee benefit plan expenses and restructuring charges offset further cost savings. Operating expenses also increased as a result of acquisitions in Central & Eastern Europe in 2008 and the inclusion of new joint ventures in Spain.

View the table sales and revenue generating investments


Total new life sales in Q2 2009, excluding Taiwan, were down 13% compared with Q1 2009.

Total new life sales in the Americas were in line with Q1 2009. Retail life sales increased 7% from Q1 2009 reflecting expanded distribution, particularly in the term life insurance market, offset by lower sales of both BOLI/COLI and life reinsurance.

In the Netherlands, pension sales slowed significantly during the second quarter of 2009 and proved volatile after the standstill in the group pension market during the third and fourth quarters of last year. The first quarter of 2009 had seen strong group pension sales.

New life sales in the United Kingdom in the second quarter of the year were down 16% compared with Q1 2009, due primarily to a decline in sales of annuities.

In Other countries new life sales, excluding Taiwan, increased by 9% compared with Q1 2009. New life sales in Spain rose to EUR 24 million, a reflection of higher sales at Aegon’s bancassurance joint ventures. Sales through Caja de Ahorros del Mediterráneo (CAM), Aegon’s largest bank partner in Spain, remained strong at EUR 57 million (on a 100% basis) in Q2 2009. It should be noted that CAM is an associate of Aegon and its results are therefore not consolidated.

In Central & Eastern Europe, new life sales totaled EUR 18 million, up 13% compared with Q1 2009, due to higher recurring premium sales.

With the exception of Spain, all country units showed a decline in sales compared with Q2 2008. In Other countries, sales were down year-on-year primarily as a result of the sale of Aegon’s Taiwanese life business and lower unit-linked sales in Central & Eastern Europe. Sales were also affected by a decline in certain parts of the retail market in the Americas, as well as lower life reinsurance sales and the impact of the financial crisis on sales of BOLI/COLI contracts. In the United Kingdom, sales declined year-on-year across most lines of business. Q2 2008 had been a record sales quarter in the United Kingdom. Sales in the Netherlands were also down year-on-year, primarily because of a slowdown in the Dutch group pension market and lower demand for unit-linked products, as well as lower annuity sales due to conservative pricing. 


Total gross deposits of EUR 5.6 billion in Q2 2009, both on and off balance, excluding institutional guaranteed products, were down 12% compared with Q1 2009. The decline was due mainly to lower fixed annuity deposits in the Americas – the result of a reduction in Aegon’s crediting rates since the end of Q1 2009. Pension deposits in the Americas remained strong, but were down compared with the previous quarter, a reflection of seasonal factors. Sales of variable annuities were up by 33% compared with Q1 2009 due to improved markets.

Gross deposits in Other countries amounted to EUR 653 million, down from the previous quarter as a result of a decline in sales from Aegon’s asset management joint venture in China. Gross deposits in Central & Eastern Europe were up 7% compared with Q1 2009. Despite an adverse economic environment, pension deposits remained strong, reflecting the overall growth of the business. In Q2 2009, deposits in Other countries also included sales of European variable annuities, amounting to EUR 162 million.

Net deposits, excluding institutional guaranteed products, totaled EUR 0.9 billion, an increase compared with Q2 2008, but a decrease compared with Q1 2009. Compared with the first quarter of 2009, net inflows in fixed annuities and the pension and asset management business in the Americas declined. The variable annuities and mutual fund businesses both saw strong sales and lower outflows, leading to net inflows during Q2 2009. Net deposits in Other countries declined compared with Q1 2009, primarily as a result of outflows from Aegon’s Chinese asset management joint venture.  

Value of new business

Value of new business (VNB) amounted to EUR 181 million in the Q2 2009. Declines in VNB compared with Q1 2009 in the Americas, the United Kingdom and Central & Eastern Europe were partly offset by increases in the Netherlands and Spain. Aegon’s internal rate of return amounted to 21.9%, higher than Q1 2009, a result of improved returns in most country units, and a change in the geographical mix of new business. 

a) Excess capital over S&P AA capital adequacy requirements.
b) The calculation of the IGD (Insurance Group Directive) capital surplus and ratio are based on Solvency I capital requirements on IFRS for entities within the EU (Pillar I for Aegon UK), and local regulatory solvency measurements for non-EU entities. Specifically, required capital for the life insurance companies in the US is calculated as two times the upper end of the Company Action Level range (200%) as applied by the National Association of Insurance Commissioners in the US. The methodology to calculate the ratio for the Netherlands has been adjusted to include the excess value above the technical provisions, calculated according to the local regulatory liability adequacy test, as of Q2 2009. The comparable IGD ratio as per end of Q1 2009 would have been 193%.
c) Excluding institutional guaranteed products. 


Cautionary note regarding non-GAAP measures
This press release includes certain non-GAAP financial measures: net operating earnings, operating earnings before tax,  underlying earnings before tax, net underlying earnings and value of new business. The reconciliation of underlying earnings before tax and operating earnings before tax to the most comparable IFRS measures is provided on page 9. A reconciliation of (net) underlying earnings to operating earnings before tax is provided on page 28. 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. Aegon believes that these non-GAAP measures, together with the IFRS information, provide a meaningful measure for the investment community to evaluate Aegon’s business relative to the businesses of our peers.

Local currencies and constant currency exchange rates
This press release contains certain information about our results and financial condition in USD for the Americas and GBP for the United Kingdom, because those businesses operate and are managed primarily in those currencies. Certain comparative information presented on a constant currency basis eliminates the effects of changes in currency exchange rates. None of this information is a substitute for or superior to financial information about us presented in EUR, which is the currency of our primary financial statements.