Aegon today announces changes to its accounting policies related to deferred policy acquisition costs and longevity reserves as of January 1, 2014. These changes improve the consistency, comparability and transparency of Aegon’s financial results and will be applied beginning with the first quarter 2014 condensed consolidated interim financial statements. The retrospective adoption of these two accounting changes is expected to decrease shareholders’ equity by between EUR 2.2 and 2.5 billion at January 1, 2014. Aegon estimates that these accounting changes will increase underlying earnings before tax by approximately EUR 80 million in 2014.
“With the measures announced today, we continue to execute on our financial strategy. Management believes the amended accounting policies related to deferred policy acquisition costs improve the consistency, comparability and transparency of our financial results,” said Aegon CFO Darryl Button. “Furthermore, the amended accounting policy related to longevity reserves is consistent with our internal economic framework, the current regulatory solvency regime and the future methodology to be applied under Solvency II.”
Aegon’s new accounting policy for deferred policy acquisition costs is aligned with the current proposals for future insurance accounting under IFRS. Under the new accounting policy, deferred policy acquisition costs only include costs that are directly attributable to the acquisition or renewal of insurance contracts. The previous accounting policy was based on a broader definition of costs that could be deferred, including sales support costs. The adoption of the new accounting policy is expected to decrease shareholders’ equity by between EUR 1.4 and 1.6 billion. The company estimates that this accounting change will reduce underlying earnings before tax in 2014 by approximately EUR 50 million, as certain expenses are no longer deferrable and are directly accounted for in the income statement.
In addition, effective January 1, 2014, Aegon will establish its longevity reserves in the Netherlands on prospective mortality tables instead of observed mortality tables. IFRS reserves were previously based on observed mortality tables, while actual experience was taken through underlying earnings. The adoption of prospective mortality tables ensures that Aegon’s IFRS reserving for longevity is consistent with that of its regulatory solvency calculations and internal economic framework. The change is expected to lead to a decrease in shareholders’ equity of between EUR 0.8 and 0.9 billion, and an increase in underlying earnings before tax of approximately EUR 130 million in 2014.
Aegon’s gross financial leverage ratio stood at 30.1% on September 30, 2013. The pro forma impact of the announced accounting policy changes on the leverage ratio is 2.8 to 3.3 percentage points as a result of lower shareholders’ equity. Consistent with Aegon’s objective to reduce its gross financial leverage ratio to within its target range of 26 to 30%, the company has today announced the redemption of the USD 550 million junior perpetual capital securities in a separate press release. This redemption improves the gross leverage ratio by 1.2 percentage points and will reduce Aegon’s future leverage costs. The adverse impact on Aegon’s group IGD ratio is approximately six percentage points. On September 30, 2013, the pro forma group IGD solvency ratio including the repayment of the securities would have been approximately 202%.
The changes to Aegon’s accounting policies have no impact on the statutory capital position of the company’s subsidiaries or on the company’s group IGD solvency ratio.