Aegon significantly improves earnings in first quarter of 2009

"Despite the persistent challenges of the financial crisis, Aegon significantly improved earnings compared to the second half of 2008..."

  • Underlying loss before tax of EUR 22 million due primarily to lower equity markets
  • Impairments of EUR 386 million contribute to net loss of EUR 173 million
  • New life sales of EUR 543 million; total gross deposits of EUR 8.2 billion; net deposits of EUR 1.1 billion, excluding institutional guaranteed products 
  • Value of new business of EUR 201 million
  • Excess capital over AA capital adequacy requirements of EUR 2.7 billion
  • IGD a) solvency ratio of approximately 170%
  • Core capital b) of EUR 16.4 billion, excluding revaluation reserve at the end of Q1 2009 (EUR 7.9 billion including revaluation reserve)

Statement Alex Wynaendts, CEO
“Despite the persistent challenges of the financial crisis, Aegon significantly improved earnings compared to the second half of 2008. Although we posted a net loss in the first quarter, we are encouraged by the improvement in earnings and the indications that the fundamentals of our business remain sound.

"We continue to focus on freeing up capital from our businesses, reducing costs, and taking measures to counter the effects of the current environment. Consequently, we released an additional EUR 900 million of capital during the first quarter, and made solid progress toward our target of reducing costs by EUR 150 million this year. The sale of our life insurance business in Taiwan and the decision to downsize our institutional markets division in the United States are but two examples of our determination to execute on our strategy.

"The relatively stable new life sales and deposits quarter-over-quarter reflect the strength of Aegon’s franchise and the continued confidence of our customers."

Use this link for 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 growth:

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

As announced last June, Aegon is conducting an ongoing review of its portfolio of businesses to ensure that they meet the criteria outlined in the strategy. On February 17, 2009, Aegon announced it will downsize its institutional spread based business in the Americas, which will result in lower credit risk in the long run and a release of capital in the near term. On April 22, 2009, Aegon announced the sale of its life insurance activities in Taiwan.  

Capital preservation

In the current economic environment, acceleration of capital preservation actions has been a priority. The actions taken and plans to be executed are evidence of the financial flexibility within Aegon to manage through these extraordinary times. They include:

  • Releasing EUR 1.7 billion of capital in the second half of 2008;
  • Commitment to release an additional EUR 1.5 billion of capital in 2009, including EUR 0.3 billion from Aegon’s institutional business. EUR 0.9 billion has been realized in Q1 2009.

As a result of actions taken, the capital position of the company remains strong with excess capital of EUR 2.7 billion over AA capital adequacy requirements at March 31, 2009.

Cost measures

Aegon announced cost savings measures totaling EUR 150 million in 2009. Actions to achieve this include:

  • Americas: no wage increases in 2009, staff reductions, deferred hiring, reorganization of agency distribution;
  • The Netherlands: reduction of contract services, process re-engineering, general cost savings;
  • United Kingdom: restructuring of IT, marketing and customer services, cost containment and savings in distribution.

Aegon’s cost measures are on track with approximately one third of the total expense savings of 2009 realized across the company in the first quarter of 2009. 

Capital management

Excess capital
During Q1 2009 financial markets remained challenging. Equity markets showed a negative return, the S&P 500 lost 12% in the quarter, and real estate prices also continued to decline. Except for some structured asset classes, spreads in many credit market segments, though volatile during the quarter and still at historically high and stressed levels, were tighter or stable when compared to 2008 year-end levels. Volatilities in equity and bond markets were down from the peaks recorded late 2008, while interest rates gradually increased from historic lows. The negative impact from capital markets on Aegon’s excess capital in Q1 2009 was estimated at EUR 0.6 billion, primarily from lower equity markets leading to additional minimum guarantee reserve strengthening.

The world economic outlook for 2009 remains uncertain and most countries are facing a severe recession. Though policymakers continue to respond aggressively to the economic crisis, specifically in the United States where most of Aegon’s credit risk is concentrated, Aegon expects an elevated level of asset impairments in its investment portfolio in 2009.  Impairments negatively impacted Aegon’s capital position in Q1 2009, reducing excess capital by approximately EUR 0.2 billion.

In addition, rating agencies have been responding to the economic environment, revising their credit risk assessments. In Q1 2009, for example, parts of Aegon’s mortgage-related asset portfolio, in particular securities backed by near-prime mortgages referred to as Alt-A and negative amortization/Option ARM floaters, were downgraded to below investment grade ratings. The rating migration of Aegon’s US portfolio led to higher capital requirements, reducing Aegon’s excess capital by an estimated EUR 0.6 billion for Q1 2009. Aegon considers the rating migration experienced in Q1 2009 as extraordinarily high and expects it not to be repeated to the same extent in coming quarters.

Aegon has preserved capital over the last few quarters and continues to focus on freeing up capital from its businesses. Part of the EUR 0.9 billion capital preservation in Q1 2009 is related to the decision to reduce investment risk and increase the asset allocation of Aegon’s investment portfolio to cash, Treasury, government and agency bonds. At the end of Q1 2009, 25% of Aegon’s total general account assets was invested in these asset classes, up from 23% at the end of 2008.  The general account of Aegon in the Americas had an asset allocation of 20% to cash, treasuries and agencies (16% at year-end 2008).

This investment strategy, executed in the last few quarters, has been successful in a period of widening credit spreads across fixed income markets, and has helped managing the maturity mismatch as a result of institutional spread liabilities getting shorter as puts have been exercised. At the same time, some structured assets classes have experienced extension of duration. As a result of this investment strategy, Aegon has not been a forced seller of assets at depressed prices. This strategy has preserved value, even though currently the return on short-dated and government investments is lower. Going forward, Aegon will continue to manage its credit portfolio actively. However, with current market conditions and the maturity of assets and liabilities of institutional spread business closer aligned now, Aegon will start to put part of the new money inflows into highly rated credit investments.

At the end of Q1 2009, Aegon had EUR 2.7 billion excess capital over AA capital adequacy requirements, down from EUR 2.9 billion at the end of 2008. The positive impacts from capital preservation actions and statutory earnings were mitigated by rating migration, impairments and lower equity markets on required and available capital. At the end of Q1 2009, Aegon had an IGD solvency ratio of approximately 170% (Q4 2008: 183%).

IFRS core capital
At the end of March 2009, core capital excluding the revaluation account was EUR 16.4 billion, 77% of the total capital base, well above the minimum target of 70%. Core capital including revaluation reserve was EUR 7.9 billion, consisting of EUR 4.9 billion of shareholders’ equity and EUR 3 billion of convertible core capital securities provided by Vereniging Aegon, funded by the Dutch State.

Aegon’s revaluation account decreased during Q1 2009 by EUR 1.4 billion to a negative EUR 8.5 billion. The lower revaluation account was the main driver of the decline in shareholders’ equity. The revaluation account was down primarily due to the impact of higher risk free long-term interest rates on bond values.

Use this link for the table financial overview

Operational highlights


Aegon reported a net loss for Q1 2009 of EUR 173 million, a reversal of the downward trend in net income in the second half of 2008. The loss in Q1 2009 was the result primarily of the impact of lower equity markets, underperformance of fair value items and impairment charges.

Underlying earnings before tax of minus EUR 22 million were down mainly due to lower financial markets compared to the same quarter last year, but improved substantially compared to Q4 2008.

Fair value items, which primarily include certain investment classes in the Netherlands and the Americas, as well as a number of products containing financial guarantees, contributed a negative EUR 197 million to earnings in Q1 2009, a strong improvement compared to recent quarters.

Net income was also negatively impacted by impairment charges (EUR 386 million).

Gains on investments totaled EUR 173 million, largely due to gains on shares and bonds in the Netherlands.

The underlying loss in Q1 2009, as well as impairments and mark-to-market losses on the fair value items, resulted in a tax benefit of EUR 282 million. 

Underlying earnings before tax

In Q1 2009 the underlying loss for the company amounted to EUR 22 million. Excluding the impact from capital markets the earnings were approximately EUR 450 million.

The underlying loss in the Americas was USD 88 million. Lower equity markets led to minimum guarantee reserves strengthening and accelerated amortization of deferred policy acquisition costs (DPAC), primarily affecting earnings in the variable annuity and life reinsurance business. The total impact on earnings from lower equity markets amounted to approximately USD 600 million, which also includes lower fee income due to reduced asset balances.

Underlying earnings in the Americas in Q1 2009 were also affected by the decisions to lower the allocation to hedge funds and increase the asset allocation to cash, treasury and agency bonds, in order to preserve capital.

In the Netherlands, underlying earnings were down 36% to EUR 72 million, a result of lower technical results in the life and pension business and adverse claims experience in general insurance. Also, investment income declined across most businesses.

Underlying earnings in the United Kingdom, meanwhile, totaled GBP 7 million, lower than last year, 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 amounted to EUR 30 million, lower than last year, as a result of higher losses in Taiwan and currency depreciation in Central & Eastern Europe. 

Net income

Net income included a total underperformance result on fair value items of EUR 197 million. Fair value items primarily include certain (alternative) investment classes in the Netherlands and the Americas, as well as a number of products containing financial guarantees.

In Q1 2009, underperformance of alternative investment classes in the Americas, in particular real estate as well as private equity and credit derivatives amounted to EUR 163 million.

Fair value items also include the under/overperformance on assets held at fair value through profit or loss and backing liabilities of a specific portfolio of group pension contracts in the Netherlands. In Q1 2009 these assets underperformed long-term expected returns by EUR 54 million. The assets backing this portfolio of liabilities were accounted for as fair value through profit or loss and have been replaced with assets accounted for as available for sale as per Q2 2009. As a result this item will not recur as fair value item going forward.

In order to maintain consistency in definitions, starting in Q4 2008, the net impact of the fair value movements of guarantees and the related hedges in the Netherlands has been included in fair value items. 

Previously, differences in fair value between guarantees and related hedges, referred to as hedge ineffectiveness, were reported in gains/losses on investments. Results for prior years have been adjusted (see Financial Supplement).

Net fair value gains of EUR 132 million on GMWB guarantees and related hedges in the Americas were offset by the negative impact of EUR 135 million from hedge ineffectiveness in the Netherlands.

The fair valuation of certain products with guarantees includes a credit spread in the discount rates, a reflection of dislocated, volatile and illiquid markets.

Gains on investments
Gains on investments of EUR 173 million include primarily gains on sales of bonds in the Netherlands and in the United Kingdom, the sales of shares in the Netherlands and positive results from economic hedges at holding level.

Impairment charges
Impairments of EUR 386 million included EUR 133 million on subprime mortgage asset backed securities and EUR 72 million on residential mortgage backed securities, both in the Americas. The remainder of impairments in the Americas was mainly related to corporate bonds. Impairments in the Netherlands were taken on equity and bonds.

The underlying loss in Q1 2009, as well as impairments and mark-to-market losses on the fair value items, resulted in a tax benefit of EUR 282 million. The high effective tax rate is mainly a result of tax credits and other permanent differences.  

Commissions and expenses

Compared to Q4 2008 commissions and expenses decreased by 13% to EUR 1.6 billion. Operating expenses were down 9% to EUR 842 million as a result of cost savings, partly offset by restructuring charges and higher employee pension costs.

Compared to Q1 2008 commissions and expenses increased by 14% (8% at constant currency), primarily due to acceleration of DPAC amortization.

Operating expenses increased by 8% (4% at constant currency) compared to Q1 2008. An increase in employee benefit pension expenses and restructuring expenses in several businesses offset expense savings from cost savings programs. Operating expenses also increased as a result of acquisitions in Central & Eastern Europe in 2008. 


Total new life sales in Q1 2009 were down 9% compared to Q4 2008, and decreased by 15% (at constant currency) to EUR 543 million compared to Q1 2008. With the exception of Spain, all countries recorded lower sales compared to Q1 2008.

New life sales in the Americas were down 11% compared to Q4 2008 and 31% compared to Q1 2008 in local currency, due to lower universal life sales in the high net worth and variable life sales in the middle market as well as lower sales of bank-owned and corporate-owned life insurance (BOLI/COLI) contracts. Life reinsurance sales were down as well compared to last year, but were in line with previous quarters.

In the Netherlands new life sales were up 51% compared to Q4 2008, primarily due to a strong increase in group pension sales, which included several large contracts. Sales were down 13% compared to Q1 2008, a result primarily of lower individual life sales. Q1 2009 group pension sales were in line with last year.

New life sales in the United Kingdom in the first quarter of the year were down 9% compared to both Q1 2008 and Q4 2008. Sales were down across most lines of business offsetting growth in annuities. In Q1 2008 new life sales in the UK included European variable annuities, which are now reported in Other countries. Including the sales of variable annuities in the UK in Q1 2009, the new life sales declined with 6% compared to Q1 2008.

In Other countries new life sales in Q1 2009 were down 14% compared to Q4 2008 and down 11% compared to Q1 2008. New life sales in Spain rose to EUR 22 million, a reflection mainly of the incorporation of two new joint ventures, as well as higher sales at existing joint ventures.

Use this link for the table sales.

Sales through Caja de Ahorros del Mediterranéo (CAM), Aegon’s largest bank partner in Spain, which is an associate and therefore not consolidated, more than tripled to EUR 66 million (on a 100% basis) in Q1 2009, mainly due to higher sales of recurring premium risk products and sales of pension products following changes in pension legislation.

In Central & Eastern Europe, new life sales totaled EUR 16 million, down 24% (18% at constant currency) compared to Q1 2008. Single premium sales in Poland were lower due to a decline in equity markets.

In Asia, new life sales decreased to EUR 12 million as increased sales in China were more than offset by a decline in Taiwan.



Total gross deposits excluding institutional guaranteed products were up 19% to EUR 6.4 billion. Total gross on and off balance deposits for the company decreased by 5% (down 15% in constant currency) to EUR 8.2 billion in Q1 2009. The main driver for the decline was the significantly lower sales of both institutional spread and institutional fee business in the Americas. Aegon recently announced its decision to downsize its institutional spread based business.

Fixed annuities sales in the Americas continued to be strong. Aegon continues to expect these sales to decrease during the remainder of the year. Variable annuity sales in the Americas were in line with sales in the last few quarters. Sales of retirement plans in the pension business were strong, particularly when taking into account the impact of lower financial markets on the balances taken over. Managed assets and retail mutual fund sales were down as a result of the turmoil in financial markets.

Gross deposits in Other countries tripled to EUR 706 million. Gross deposits in Central & Eastern Europe were up 11% in constant currency.  Despite the adverse economic environment, pension deposits continue to be strong, reflecting growth of the business as well as the incorporation of acquisitions. Deposits in Asia totaled EUR 405 million, a result of the inclusion of the asset management joint venture in China. In Q1 2009 deposits in Other countries also included sales of European variable annuities for the first time which amounted to EUR 111 million. A variable annuity product was introduced in France through Aegon’s partner La Mondiale.

Net deposits amounted to approximately EUR 1.1 billion, excluding institutional guaranteed products. Net deposits for the company amounted to a negative EUR 1.3 billion as a result of outflows in the institutional business in the Americas, following the decision to downsize that business. This effect offset net inflows in fixed annuities and the pension business in the Americas and CEE, as well as net inflows in Aegon’s asset management joint venture in China.


Value of new business

The value of new business (VNB) for the company was up 8% compared to Q1 2008. VNB was up due to increases in Spain and the Netherlands. The internal rate of return is 17.8%, slightly lower than last year.


a) The calculation of the IGD (Insurance Group Directive) capital surplus and ratio is 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
b) Core capital is the sum of shareholders’ equity and the EUR 3 billion in convertible core capital securities from Vereniging Aegon, funded by the Dutch State


About Aegon

As an international life insurance, pension and investment company based in The Hague, Aegon has businesses in over twenty markets in the Americas, Europe and Asia. Aegon companies employ just over 31,000 people and have over 40 million customers across the globe. 

Key figures First quarter 2009 Full year 2008
Underlying earnings before tax     EUR (22) million EUR 1.57 billion
New life sale EUR 543 million EUR 2.63 billion
Gross deposits EUR 8.2 billion EUR 40.75 billion
Revenue generating investments
(End of period)
EUR 334 billion EUR 332 billion