Aegon concludes approval process with European Commission

Aegon today expects to receive final approval from the European Commission regarding the EUR 3 billion of capital support the company obtained from the Dutch State in December 2008.

  • Total premium on repayment of EUR 2 billion remainder state support reduced to 40%
    - Aegon repays EUR 0.5 billion this month
    - Repayment of remaining EUR 1.5 billion by end of June 2011, market conditions permitting
  • European Commission expected to impose behavioral constraints only until full repayment
    - Aegon not to pursue acquisitions except for Spanish market
    - Price–leadership restrictions in limited segments of the Dutch market
    - No dividends on common shares

Aegon today expects to receive final approval from the European Commission regarding the EUR 3 billion of capital support the company obtained from the Dutch State in December 2008. As part of the process to conclude the Commission’s review, Aegon has agreed with the Dutch Ministry of Finance to amend the terms and conditions of full repayment of the remaining EUR 2 billion. In doing so, the total premium payable on the remaining EUR 2 billion will be reduced to 40% instead of the originally agreed 50%. Aegon completed early repayment of EUR 1 billion to the Dutch State late last year.

Alex Wynaendts, CEO, said:  “We are pleased to have concluded this process with the European Commission, which is expected to approve the capital support. As part of the agreement with the European Commission, Aegon will complete full repayment of the remaining EUR 2 billion by the end of June 2011 market conditions permitting and as a further step we will repay EUR 500 million this month. Going forward, we will continue to pursue our actions to ensure continued financial strength, greater cost and operational efficiencies and an improved risk profile.”

Since June 2008, Aegon has taken a number of actions across its businesses in the Americas, Europe and Asia to strengthen its capital position, reduce its exposure to financial market risks, lower costs and improve operational efficiencies.  Aegon will continue to run-off the institutional spread-based balances and de-emphasize fixed annuities in the United States, resulting in a USD 25 billion reduction of Aegon USA’s general account from 2007 to the end of 2012. As previously announced, Aegon will increase the equity hedge on the variable annuity back-book in the US. Aegon will also implement measures to further improve the quality of the capital base increasing the proportion of core capital to at least 75% by the end of 2012. These actions have been included in the plan submitted to the European Commission.

Repayment of capital support

Aegon will repay EUR 500 million of the remaining amount owed to the Dutch State before the end of this month at a premium of 10.3% plus accrued interest of EUR 11 million. The repayment will be made from excess capital which has been upstreamed from operating companies during the third quarter and has been approved by the Dutch Central Bank. Aegon has agreed to repay the remaining EUR 1.5 billion at 150% before the end of June 2011, without accrued interest. However, it has been agreed that accelerated repayment of EUR 1.5 billion will be contingent upon Aegon’s ability to upstream cash generated by its businesses and utilize existing excess capital, the progress of disposals, as well as market conditions.  In addition, Aegon maintains its right to convert the convertible core capital securities into common shares as of December 1, 2011. Any repayment has to be approved by the Dutch Central Bank.

Temporary behavioral constraints

The European Commission recognizes Aegon’s execution of its strategy as contributing to its financial strength and long-term viability. However, the Commission requires that Aegon not pursue acquisitions, with the exception of allowing for investments in existing bancassurance partnerships in Spain, provided that Aegon does not increase its overall market share in the Spanish market.

The Commission further requires that Aegon not pursue a top-three price leadership position in its residential mortgage and internet savings businesses in the Netherlands. Aegon has also agreed to request Standard & Poor’s to no longer publish its ‘AA-‘insurance financial strength rating on Aegon Levensverzekering N.V. in the Netherlands. This measure aims to eliminate a perceived competitive advantage in segments of the Dutch pension market. Aegon does not expect that these measures will materially impact its ability to grow its business in the Dutch market profitably.

All temporary behavioral constraints, including the Commission’s requirement that Aegon not pay dividends on common shares, will remain in place until the company completes full repayment to the Dutch State.

Note: The amended agreement with the Dutch Ministry of Finance will be posted on Aegon’s website after the final decision of the European Commission is made public.