Aegon to enhance disclosure with new reporting format
April 12, 2010, 10:00 CEST
As previously announced, Aegon will introduce a new reporting format that better aligns with the way Aegon manages its businesses, beginning on May 12 when the company announces its financial results for the first quarter of 2010.
Today’s announcement is intended to provide an explanation of the new reporting format and prepare financial analysts and media with the key changes to ensure proper comparison of 2010 first quarter results with previous quarters.
Going forward, Aegon will report its underlying earnings primarily on the following segments:
Aegon will continue to provide details of underlying earnings by lines of business. “Underlying earnings” changed based on the new reporting format, however, net income remains unchanged.
Aegon CFO Jan Nooitgedagt stated: “In recent months, we have implemented a number of significant reorganizational changes within Aegon’s businesses, particularly in our operations in the Americas. In doing so, we recognized the need to enhance our reporting and ensure that it reflects the way we manage our business. As part of this process, we have also evaluated our disclosures and eliminated elements which are redundant or not particularly useful with the aim of providing the most relevant measurements for the progress of our business.”
In anticipation of Aegon’s first quarter 2010 results on May 12, Aegon is providing its full-year 2008 and quarterly 2009 earnings and sales numbers according to the new format to facilitate comparison. Tomorrow, at 4.30 p.m. CET, Mr. Nooitgedagt will host a briefing in London to provide a further explanation of the changes to analysts and investors. Mr. Nooitgedagt’s presentation will be available at 8 a.m. CET on April 13 on the corporate website. The meeting will also be broadcast live via this website.
Aegon’s new reporting structure will also include a number of other changes:
The use of “operating earnings” will be discontinued to further simplify Aegon’s reporting and to focus on the key performance indicator, “underlying earnings.”
“Run-off businesses”, mainly consisting of US institutional spread-based business, will be reported in a separate line.
Earnings from Aegon Asset Management will also be reported separately within “New markets” as of Q1 2010.
“Earnings from associates” will be reported on an underlying earnings basis and sales from associates will be reported proportionately as well.
These descriptions are intended to provide general guidance, but are not exhaustive and are subject to change.
Americas Covers business units operating in the United States, Canada, Mexico and Brazil, including any of the units’ activities located outside these countries.
The Netherlands Covers businesses operating in the Netherlands.
United Kingdom Covers businesses operating in the United Kingdom.
New markets Covers businesses operating in Central & Eastern Europe, Asia, Spain and France as well as Aegon’s variable annuity activities in Europe and Aegon Asset Management.
ITEMS EXCLUDED FROM UNDERLYING EARNINGS
Fair value items Fair value items include the ‘over’ or ‘under’ performance of investments and guarantees held at fair value for which the expected long-term return is included in underlying earnings, the gains (losses) on real estate and hedge ineffectiveness.
Certain assets held are carried at fair value, and managed on a total return basis, with no offsetting changes in the valuation of related liabilities. These include assets such as hedge funds, private equities, real estate limited partnerships, convertible bonds and structured products. Underlying earnings exclude any over- or underperformance compared to management’s long-term expected return on these assets. Based on current holdings and asset class returns, the long-term expected return on an annual basis is 8-10%, depending on the asset class, including cash income and market value changes. The expected earnings from these asset classes are net of DPAC where applicable.
In addition, certain products offered in the Americas contain guarantees and are reported on a fair value basis, including the segregated funds offered in Canada and the total return annuities and guarantees on variable annuities in the United States. The earnings on these products are impacted by movements in equity markets and risk free interest rates. Short-term developments in the financial markets may therefore cause volatility in earnings. Included in underlying earnings is a long-term expected return on these products, and any over- or underperformance compared to management’s expected return is excluded from underlying earnings. The fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees in the Netherlands and Variable Annuities Europe (included in New market) are excluded from underlying earnings.
Realized gains or losses on investments Includes realized gains and losses on available-for-sale investments, as well as mortgage and loan portfolios.
Impairment charges Impairments (reversals) on available-for-sale shares and bonds, including the effect of deferred policyholder acquisition costs and mortgage and loan portfolios on amortized costs and associates.
Other income or charges Other income or charges is used to report any items which cannot be directly allocated to a specific line of business. No changes have been made to what was previously reported in this line.
Run-off businesses Business units where management has decided to exit the market and to run-off the existing block of business. Currently, this line includes the run-off of the institutional spread-based business and structured settlements blocks of business in the United States.
LINES OF BUSINESS
Life ‘Life’ covers products with mortality, morbidity and longevity risks. These include traditional life and universal life products, as well as endowment, term and whole life insurance products sold in the Americas and the Netherlands. Also included are annuity products sold in the Netherlands and term insurance and annuity products sold in the United Kingdom. Most of the business written in countries included in ‘New Markets’ is also reported as part of the ‘Life’ line, with the exception of general insurance sold by Hungary, pensions sold in Central & Eastern Europe, health insurance sold in Spain as well as business from variable annuities Europe and asset management.
Accident and health business comprises products with morbidity risk such as accidental death and dismemberment insurance, critical illness, cancer treatment, disability, income protection and long-term care insurance in the Americas, the United Kingdom and Asia.
Individual savings & retirement products ‘Individual savings & retirement products’ includes products with no or insignificant longevity risk, primarily fixed and variable annuity products sold in the Americas. These products are mainly in the accumulation phase, but also include immediate and pay-out annuities. This line of business also includes the retail mutual fund business in the Americas, and the variable annuity businesses in Europe and Japan.
Pensions ‘Pensions’ includes both individual and group pensions as well as 401(k) and similar products, typically sponsored by, or obtained via, an employer. This line of business covers products in the accumulation phase as well as in the pay-out phase. Also included are pension products sold in the Americas, the Netherlands, the United Kingdom, as well as Aegon’s pension business in Central & Eastern Europe.
Life reinsurance ‘Life Reinsurance’ includes business assumed by Aegon’s subsidiary Transamerica Reinsurance and is reported within the Americas segment. No changes have been made to what was previously reported in this line.
Distribution Distribution includes commissions earned by independent financial advisors in the Netherlands and the United Kingdom. No changes have been made to what was previously reported in this line.
Non-life Non-life includes General insurance and Health insurance. General insurance includes mainly automotive insurance, liability insurance, household insurance and fire protection. General insurance is sold in the Netherlands and Hungary. Health insurance is sold in the Netherlands and Spain.
Asset management Earnings from Aegon’s newly-formed global asset management organization will be reported separately under this line, which covers both services provided to Aegon’s life insurance operations and to third parties.
Interest charges and other ‘Interest charges and other’ includes funding interest expenses and holding expenses. No changes have been made to what was previously reported in this line.
Share in underlying earnings before tax of associates Aegon’s share in underlying earnings before tax of associates are reported under this separate line and mainly cover Aegon’s partnerships with La Mondiale Participations in France, CAM in Spain, Religare in India, and the Latin American partnerships with Argos in Mexico and Mongeral in Brazil.