Aegon maintains strong capital position

Earnings affected by business restructuring

• Underlying earnings of EUR 346 million impacted by exceptional items of EUR 40 million in the UK
• Impairments decline to EUR 94 million, continuing downward trend
• Net income of EUR 81 million impacted by restructuring charges
• Return on equity of 5.2%, or 6.2% excluding run-off businesses

Sales remain robust, demonstrating strength of franchise

• New life sales decline 6% to EUR 498 million, mainly the result of anticipated lower pension sales in the UK
• Accident and health sales increase 4% to EUR 188 million, driven mainly by growth in the Americas
• Deposits of EUR 7.1 billion driven by resilient sales of pensions and variable annuities in the United States

Strong capital position and cash flows

• IGD ^a) solvency ratio increases to 195%; IGD surplus capital of EUR 6.5 billion
• Excess capital of EUR 1.2 billion at the holding and EUR 3.4 billion in total
• Capital base ratio of 73.5% supports aim to surpass minimum of 75% by the end of 2012
• Operational free cash flow of EUR 233 million
• Proposed final dividend over H2 2011 of EUR 0.10 per common share 

Statement of Alex Wynaendts, CEO

"The past year was challenging, but also one of considerable progress for Aegon, having delivered on our key strategic priorities. The completion of the repayment to the Dutch State was a singular achievement, allowing us to turn our full attention to pursuing the clear opportunities for our business. In order to strengthen our competitive position, we initiated a broad restructuring program to reduce costs and create a more focused and responsive organization. This had an impact on earnings in the fourth quarter of 2011. We are on track, however, to realize the benefits this program aims to deliver, having achieved our targeted cost reductions in the United Kingdom. A clear indication of the continued strength of our franchise was the very high level of deposits throughout the year relating to our successful variable annuity and pension businesses in the United States. We aim to further leverage our broad capabilities and expertise to serve the growing demand for retirement security while strengthening our position in this core market.

"Reflecting the strength of our capital position, we reiterate our intention to propose a dividend of EUR 0.10 per common share over the second half of 2011. In what has been a year dedicated to transforming our business as well as our prospects for the future, we have strengthened Aegon's position to deliver sustainable earnings growth going forward."

Please view the table Key performance indicators (for notes see page 23 of the full version).

STRATEGIC HIGHLIGHTS

• Aegon reaffirmed targets at lower end of target ranges
• UK expense base reduction of 25% achieved and customer redress program in final phase
• Aegon executes innovative transaction to reduce longevity risk in the Netherlands

Sustainable earnings growth with an improved risk-return profile
Aegon continues to implement its transformation program aimed at delivering sustainable earnings growth with an improved risk-return profile. The following targets* have been set by the company:
- Grow underlying earnings before tax on average by 7%-10% per annum between 2010 and 2015.
- Achieve a return on equity of 10%-12% by 2015.
- Increase fee-based earnings to 30%-35% of underlying earnings before tax by 2015.
- Increase normalized operational free cash flow by 30% by 2015 from 2010 level.

^{* Main economic assumptions embedded in targets: annual gross equity market return of 9%, 10 year US interest rate of 4.75% in 2016 and EUR/USD rate of 1.35.}

Aegon reaffirmed these targets at its analyst and investor conference last December, albeit at the lower end of the target ranges as the economic slowdown adversely affects the company's growth potential.

Aegon'S STRATEGIC PRIORITIES

• Optimize portfolio
• Enhance customer loyalty
• Deliver operational excellence
• Empower employees

Aegon's ambition
Aegon's aim to be a leader in all of its chosen markets by 2015 is supported by four strategic objectives: Optimize Portfolio, Enhance Customer Loyalty, Deliver Operational Excellence and Empower Employees. These key objectives have been embedded in all Aegon businesses. They provide the strategic framework for the company's ambition to become the most-recommended life insurance and pension provider by customers and distributors, as well as the most-preferred employer in the sector.

Optimize portfolio
In January 2012, Aegon completed an innovative financial transaction to partially offset the risk of future increases in longevity in the Netherlands. As a result of this capital markets transaction, approximately one-third, or EUR 12 billion, of underlying reserves within its Dutch business is now partially covered against future increases in longevity. The transaction reduces required capital at an attractive cost of capital.

Early 2012, Aegon received approval from the Dutch Central Bank (DNB) to set up a premiepensioen-instelling (PPI), a low-cost carrier for individual retirement savings accounts. Aegon's PPI will provide a defined contribution pension solution to larger corporations that highly value quality.

Aegon has launched its Aegon Retirement Choices platform in the United Kingdom. This platform aims to help customers benefit more from their retirement savings. The platform will offer customers a range of products including Self Invested Personal Pension, Individual Savings Accounts and General Investment Accounts. The investment proposition allows access to Aegon insured funds, offshore bonds, collectives and other investment types. Aegon has adopted a phased roll-out approach and will offer its platform to the At Retirement market in the first half of 2012, a platform tailored for the needs of the corporate market will be launched in the second half of the year.

In line with its strategic objective to optimize its portfolio, Aegon has sharpened its strategic focus in Canada by rebalancing its overall product offering with a focus on life and protection products while withdrawing sales and marketing support for investment products.

In Brazil, Mongeral Aegon is partnering with Finsol, a non-governmental microcredit organization, to provide micro-insurance policies. Additionally, the company recently launched an investment service designed for high-end customers. These new initiatives are part of a strategy to further expand the company's product range. During 2011, Mongeral Aegon signed a number of new distribution agreements and increased revenues by 8% to approximately USD 290 million. Aegon has a 50% interest in this joint venture.

Deliver operational excellence
In the United Kingdom, Aegon has implemented its new operating model and reached its target to reduce operating expenses for its Life and Pension businesses by 25% from 2009 levels. The program to restructure the business delivers GBP 80 million in expense savings, the benefits of which are expected in 2012.

In the Netherlands, Aegon is on track with reorganizing its business to be more agile and better positioned to respond to changing conditions and opportunities in the Dutch market. The reorganization program and other initiatives will result in reducing the cost base for Aegon The Netherlands by EUR 100 million, compared to the cost base for 2010. The cost savings aim to offset pressure on underlying earnings from higher mortgage funding costs, increased longevity provisioning and a declining life insurance back-book. The majority of the cost savings is expected to be achieved in 2012.

Aegon adopted a new Responsible Investment Policy. This policy sets out a number of environmental, social and governance standards which will be used to help identify potential risks and opportunities associated with companies in which Aegon invests. The policy is part of broader efforts to incorporate environmental, social and governance factors into Aegon's investment decision-making process and into the on-going management and monitoring of its investment portfolios.

Enhance customer loyalty
Aegon has recently made improvements in how it serves and communicates with its customers around the world: rewriting customer letters and product documentation to enhance clarity and demonstrate empathy, creating dedicated customer experience teams and improving product development processes to reflect customer feedback. These examples emphasize the company's ambition to become the most-recommended life insurance and pension provider by customers and distributors.

Empower employees
Aegon performed its global employee survey late last year. The survey focused on both Engagement and Enablement. The results in both categories were in line with the average results of financial services companies internationally. These are key areas in which the company aspires to make continuous advancements in its goal of strengthening employee empowerment and becoming an employer of choice in the insurance sector.

Reporting adjustments
From the first quarter of 2012, Aegon will adjust its financial reporting to reflect changes in its organization. A number of businesses in Asia, which were previously managed by and reported to the United States, will be included in the Asia segment within New Markets, and will be managed from Aegon's regional head office in Hong Kong. Comparable full year 2010 and quarterly 2011 numbers will be published on April 12, 2012. Also as of the first quarter of 2012, operating expenses incurred by the holding regarding services provided to business units will be reflected in the results of the business units.

Use this link for the table Financial overview and Revenue-generating investments.

OPERATIONAL HIGHLIGHTS

Underlying earnings before tax
Aegon's underlying earnings before tax amounted to EUR 346 million in the fourth quarter of 2011. The decline compared with the same quarter last year was mainly due to higher exceptional charges and expenses in the United Kingdom related to the customer redress program, the effects of lower equity markets and interest rates and a one-time benefit for the holding in the comparable period last year.

Underlying earnings from the Americas amounted to EUR 328 million. Earnings from the Life & Protection business included a charge of EUR 22 million offsetting a one-time benefit of EUR 23 million for variable annuities. Consistent with Aegon's strategy, earnings from fee-based businesses grew compared with the fourth quarter last year. Earnings from fixed annuities were lower as this line of business is de-emphasized.

In the Netherlands, underlying earnings decreased to EUR 75 million, mainly the result of higher expenses related to the execution of a program for product improvements in the Life business. Additional provisioning for longevity was offset by favorable results on mortality and morbidity.

In the United Kingdom, underlying earnings amounted to a loss of EUR 26 million. This was mainly due to charges related to an ongoing program to correct historical issues within customer policy records and the execution of this program partly offset by the one-time benefit of changes to employee benefit plans. The sale of Guardian during the third quarter of 2011, and the subsequent loss of earnings, also contributed to the decrease.

Underlying earnings from New Markets were affected by unfavorable currency movements on earnings from Central & Eastern Europe and amounted to EUR 53 million during the fourth quarter of 2011. Favorable claim experience in the non-life business was offset by the impact of pension legislation changes in Hungary and Poland.

Total holding costs increased to EUR 84 million as the comparable quarter last year included a one-time benefit of EUR 20 million.

Net income
Net income of EUR 81 million was impacted by the result of lower underlying earnings, less gains on investments compared to the comparable period last year and considerable restructuring charges.

Fair value items
In the fourth quarter, fair value items resulted in a loss of EUR 20 million. Negative results in the Americas and the holding were offset by positive fair value movements in the Netherlands.

Realized gains on investments
In the fourth quarter, realized gains on investments amounted to EUR 49 million and were the result of normal trading in the investment portfolio.

Impairment charges
Impairment charges amounted to EUR 94 million. In the United States, impairments were linked mainly to residential mortgage-backed securities. Impairments in Central & Eastern Europe were largely attributable to new legislation in Hungary, related to Swiss franc denominated mortgages, affecting the mortgage portfolio.

Other charges
Other charges amounted to EUR 194 million. In the Americas, a charge of EUR 37 million related to increased reserves in connection with the company's use of the U.S. Social Security Administration's death master-file. Restructuring charges in the Netherlands amounted to EUR 12 million and a write-down of intangible assets related to the distribution businesses led to a charge of EUR 75 million. In the United Kingdom, restructuring charges amounted to EUR 48 million. The charge of EUR 18 million for the holding related partly also to restructuring.

Run-off businesses
The results of run-off businesses amounted to EUR 1 million as lower amortization yield paid on internally transferred assets related to the institutional spread-based business was offset by the amortization of the prepaid cost of reinsurance asset related to the divestment of the life reinsurance activities.

Income tax
Net income contained a tax charge of EUR 7 million in the fourth quarter, including a benefit of EUR 15 million in the United States related to utilization of losses for which previously no deferred tax asset was recognized. In the United Kingdom a charge of
EUR 29 million related to deferred tax assets.

Return on equity
Higher average shareholders' equity excluding revaluation reserves and lower net underlying earnings resulted in a return on equity of Aegon's ongoing business of 7.9% for the full year 2011. Return on equity including the run-off businesses amounted to 6.7% over the same period.

Operating expenses
In the fourth quarter, operating expenses decreased 4% to EUR 872 million as a result of cost savings and the positive effect of changes to employee benefit plans.

Sales and deposits
Aegon's total sales decreased 6% to EUR 1.4 billion. New life sales declined mainly as a result of lower single premium production in the United Kingdom. Gross deposits of EUR 7.1 billion were supported by continued strong variable annuity deposits offset by lower stable value deposits in the United States. New premium production for accident, health and general insurance increased 3% to EUR 201 million.

Value of new business
Compared with the fourth quarter of 2010, the value of new business declined considerably to EUR 53 million, reflecting current market circumstances of lower interest rates in the Americas and lower mortgage production in the Netherlands.

Revenue-generating investments
Revenue-generating investments rose 5% compared with the end of the third quarter of 2011 to EUR 424 billion at year-end, mainly the result of higher equity markets, the effect of lower credit spreads on the value of fixed income securities and a stronger dollar against the euro.

Capital management
Aegon's core capital excluding revaluation reserves amounted to EUR 17.5 billion, equivalent to 73.5%⁶ of the company's total capital base at year-end 2011. Aegon is on track to reach a capital base ratio of at least 75% by the end of 2012.

Shareholders' equity increased to EUR 21 billion mainly as a result of the appreciation of the US dollar against the euro and an increase in the revaluation reserves to EUR 3.5 billion during the fourth quarter. Shareholders' equity per common share, excluding preference capital, amounted to EUR 10.03 at December 31, 2011.

The revaluation reserves at December 31, 2011 increased to EUR 3.5 billion, mainly the result of a decrease in credit spreads which had a positive effect on the value of fixed income securities. In addition, the foreign currency translation reserves improved, primarily the result of a strengthening of the US dollar against the euro.

Aegon aims to maintain at least 1.5 times holding expenses as a buffer at the holding, in 2011 equivalent to approximately EUR 900 million. At year-end 2011, excess capital in the holding amounted to EUR 1.2 billion.

At December 31, 2011, Aegon's Insurance Group Directive (IGD) ratio amounted to 195%, an increase from the level of 192% at the end of the third quarter. Measured on a local solvency basis, the Risk Based Capital (RBC) ratio in the United States improved to ~450%, the IGD ratio in the Netherlands amounted to ~195%, while the Pillar I ratio in the United Kingdom was ~150% at year-end 2011.

The Dutch Central Bank (DNB) provided an option to use the average fourth quarter 2011 interest rate curves for discounting liabilities, instead of year-end curves. Although opting for the average-method would have increased the IGD ratio in the Netherlands substantially, Aegon has decided to keep to its methodology of discounting liabilities on quarter-end interest rate curves at year-end 2011.

In January 2012, Aegon issued USD 500 million of 8% non-cumulative subordinated notes due 2042 in a public offering in the United States. As part of the offering, the underwriters subsequently exercised their option to purchase an additional USD 25 million of notes to cover over-allotments. Following the exercise of this option, the gross proceeds of the offering are USD 525 million. Aegon expects the securities to be eligible as Tier 2 capital under Solvency II and will use the proceeds from the issuance of the notes for general corporate purposes.

Aegon completed a EUR 2 billion syndicated credit facility agreement with a syndicate of international banks in January 2012. The facility has a term of five years with two one-year extension options. The new facility replaced a USD 3 billion facility, which would have expired in September 2012.

Cash flows
Aegon aims to deliver sustainable cash flows and has announced its intention to improve operational free cash flow from its 2010 normalized level of EUR 1.0-1.2 billion per annum by 30% by 2015.

Aegon's subsidiaries generated EUR 233 million in operational free cash flows during the fourth quarter. For the full year 2011, Aegon's operational free cash flow amounted to EUR 103 million, including a negative market impact of EUR 1,075 million in the third quarter. Operational free cash flows represent distributable earnings generation of the business units. The impact of capital preservation initiatives is not included in the reported operational free cash flows.

Final dividend 2011
At the Annual General Meeting of shareholders on May 16, 2012, the Executive Board will, absent unforeseen circumstances, propose a final dividend for 2011 of EUR 0.10 per common share related to the second half of 2011. The final dividend will be paid in cash or stocks at the election of the shareholder. The value of the stock dividend will be approximately equal to the cash dividend. When deciding to propose a dividend, Aegon has to balance prudence versus offering an attractive return to shareholders, for example in adverse economic and/or financial market conditions.

If the proposed dividend is approved by shareholders, Aegon shares will be quoted ex-dividend on May 18, 2012. The record date for the dividend will be May 22, 2012. The election period will run from May 23 up to and including June 8, 2012. The stock fraction for the stock dividend will be based on the average price for the Aegon share on the Euronext Amsterdam stock exchange for the five trading days from June 4 through June 8, 2012. The dividend will be payable as of June 15, 2012.

Annual General Meeting
The record date for attending and voting at the Annual General Meeting of shareholders of Aegon N.V. is April 18, 2012. The agenda for this meeting will be published on April 4, 2012.