Last checked at 24 Feb 2011 07:00
AEGON announces strong Q4 2010 results
- Strong earnings, sales and capital position
- Underlying earnings before tax in Q4 up 2% to EUR 489 million, bringing the total for 2010 to EUR 2 billion
- Net income in Q4 of EUR 318 million resulting in a net profit for the year of EUR 1.8 billion
- New life sales stable at EUR 558 million; full year sales up 5% to EUR 2.2 billion
- Gross deposits increased 16% to EUR 7.8 billion adding to a total of EUR 32.6 billion in full year deposits
- Excess capital* of EUR 3.8 billion, of which EUR 1.7 billion at the holding; IGDa) solvency ratio of 198%
- Repurchase all remaining convertible core capital securities by end of June 2011
- Today's 10% equity issue will fund part of EUR 2.25 billion required for repurchase, allowing AEGON to maintain its strong capital position and to achieve the targeted 75% core capital ratio by year-end 2012
- Remaining amount generated from internal resources, including any proceeds from divestments
- Sustainable earnings growth with an improved risk-return profile
AEGON is well on track with its transformational process and aims to deliver sustainable earnings growth with an improved risk-return profile. However, underlying earnings and other key metrics in 2011 will be affected by strategic management actions. From this new base, the company announces specific targets today which reflect AEGON's pursuit of these objectives:
- Grow underlying earnings before tax on average by 7 to 10% per annum - Achieve a return on equity of 10% to 12% in the medium term
- Increase fee businesses to 30% to 35% of underlying earnings before tax by 2015
- Increase normalized operational free cash flow14 with 30% by 2015
- Intent to resume dividend payments with dividend of EUR 0.10 per common share related to H2 2011 in May 2012
Statement of Alex Wynaendts, CEO
"AEGON has delivered a strong set of results for the full year 2010. Duringthe year, we have concentrated our efforts on executing a consistent strategyaimed at sharpening our focus on our core business, improving our risk-returnprofile and executing significant cost reduction programs. As a result of ourefforts over the past years, AEGON is a different company today. Today'sequity offering, together with internal resources, including proceeds fromdivestments, will position us to repurchase all remaining core capitalsecurities provided by the Dutch State by the end of June 2011. The equityoffering supports our strategy to maintain a strong capital position,including achieving our target ratio of 75% core capital by the end of 2012.After completing the repurchase, we intend to resume dividend payments in May2012. AEGON has demonstrated its ability to deliver and we are committed todelivering the long-term value that our customers, shareholders and businesspartners have every reason to expect."KEY PERFORMANCE INDICATORS amounts in EUR millions b) Notes Q4 2010 Q3 2010 % Q4 2009 % FY 2010 FY 2009 %
Underlying earnings before tax 1 489 473 3
478 2 1,972 1,185 66 Net income 2 318 657 (52) 393 (19) 1,760 204 - New life sales 3 558 527 6 557 - 2,213 2,100 5
Gross deposits excluding run-off businesses 4 7,813 9,408 (17) 6,723 16 32,580 27,616 18
Value of new business (VNB) 5 141 120 18
216 (35) 555 767 (28)
Return on equity 6 9.9% 10.0% (1) 9.4% 5 9.8% 5.7% 72For notes see page 20.
* Excess capital above AA capital adequacy requirements
Supplements: Financial Supplement and Condensed Consolidated Interim Financial Statements Q4 available on www.aegon.com
STRATEGIC HIGHLIGHTS
- AEGON announces targets to deliver sustainable earnings growth with improved risk-return profile
- Sharpened focus on core activities and capturing efficiencies in US
- Integration of Asian businesses under leadership of new CEO AEGON Asia
Pursuing sustainable earnings growth with an improved risk-return profile
AEGON will pursue sustainable earnings growth, underpinned by an improved risk-return profile and a strong capital position, with the objective of sustainable cash flows and dividends. AEGON has announced specific targets which reflect the company's pursuit of these objectives.
Underlying earnings before tax in 2011 are expected to be negatively impactedby strategic management actions; the wind-down of small bank BOLI and COLI andthe potential divestment of Transamerica Reinsurance. In addition, pensionlegislation changes in Hungary and Poland are expected to negatively impactunderlying earnings.
AEGON's ambition
AEGON's ambition is to become a leader in all its chosen markets by 2015. Thismeans becoming the most recommended life and pensions provider amongcustomers, the preferred partner among distributors and the employer of choiceamong both current and prospective employees.Achieving this ambition is based on three strategic priorities: to reallocatecapital to areas that offer strong growth prospects and higher returns, toincrease returns from the company's existing businesses and to optimize ONEAEGON by increasing efficiency and making better use of the company's globalresources.Reallocate capitalAEGON has taken steps to sharpen its focus on the company's three corebusinesses: life insurance, pensions and asset management. The company alsointends to achieve a greater geographical balance by reallocating capital tothe growth markets of Central & Eastern Europe, Asia and Latin America. Aspart of this approach, AEGON has assessed its businesses to ensure they meet the company's requirements in terms of earnings growth,cash flow generation, return on capital and customer life cycle needs. As a result, AEGON is currentlyreviewing its strategic options for its life reinsurance business,Transamerica Reinsurance.As announced in December 2010, AEGON decided to discontinue new sales ofexecutive non-qualified benefit plans and related small bank Bank-Owned andCorporate-Owned Life Insurance (BOLI/COLI) business in the United States. In2010, underlying earnings before tax from BOLI/COLI amounted to EUR 49million. As of the first quarter of 2011, earnings from the BOLI/COLI businesswill no longer be reported in underlying earnings but in the run-off category.In Spain, AEGON has signed an agreement to expand its life insurance andpension partnership with Banca CÂvica. The agreement includes the acquisitionof a 50% stake in the life insurance business of Caja de Burgos and astrengthening of AEGON's existing partnership with Caja Navarra. Caja deBurgos, Caja Navarra and two other savings banks, Caja Canarias and CajaSol,joined together in 2010 to form Banca CÂvica. The agreement will give AEGONthe exclusive right to distribute its life insurance and pension productsthrough Caja de Burgos's network of 148 branches. Caja de Burgos is theleading savings bank in Spain's northern province of Burgos, with asignificant presence in the surrounding areas and more than 550,000 customers.The agreement is subject to various conditions and approvals, includingauthorization by the European Commission.
Improve risk profile
AEGON has recently further increased equity hedging on its back-book in the Netherlands by extending its current equity hedge program.
During the fourth quarter, AEGON further reduced its already limited exposure to peripheral European sovereign bonds, based on fair value, from EUR 1.5 billion to EUR 1.1 billion at December 31, 2010.
Increase returns
AEGON's aim is to increase returns in all of its businesses by increasing efficiency and delivering operational excellence. AEGON expects to achieve this by further reducing costs while investing in core competences and improving service levels to ensure continued customer loyalty.
In the United States, AEGON will pursue further operational and cost efficiencies by consolidating its operations currently based in Louisville, Kentucky with other existing US locations. Additional efficiencies are also being captured through the consolidation and outsourcing of certain back office activities currently carried out in Cedar Rapids, Iowa
In the United Kingdom, AEGON is taking significant steps to improve its return on capital.AEGON is on track to reduce costs by 25% in its UK life and pensionsoperations by the end of 2011, and is directing more resources to the keygrowth At-Retirement and Workplace Savings markets, where AEGON has leadingpositions. The restructuring program is progressing well and of the targetedreduction in operating expenses of GBP 80 to 85 million annually, already GBP33 million has been enacted in 2010.
Optimize ONE AEGON
AEGON will implement a new organizational structure for its operations in Asiaunder the leadership of a newly-established CEO position for Asia. Whereas anumber of AEGON's businesses in Asia previously had been managed from the US,under the new structure all Asian based insurance businesses will be managedas one regional division headquartered in Hong Kong. The aim is to leverageproduct and distribution expertise, capture efficiencies, and pursue organicgrowth of AEGON's franchise in Asia. The integration, which will be carriedout during 2011, is in line with AEGON's strategy to achieve a greatergeographical balance in favor of those regions and markets that offer highergrowth and returns in the longer-term.
AEGON's AMBITION
To be a leader in all our chosen markets by 2015
AEGON'S STRATEGIC PRIORITIES- Reallocate capital- Increase returns- Optimize ONE AEGON
...resulting in sustainable, profitable growth.
FINANCIAL OVERVIEW EUR millions Notes Q4 2010 Q3 2010
% Q4 2009 % FY 2010 FY 2009 %
Underlying earningsbefore taxAmericas 406 376 8 350 16 1,598 817 96The Netherlands 87 97 (10) 95 (8) 385 398 (3)United Kingdom (6) 28 - 33 - 72 52 38New markets 59 55 7 48 23 200 170 18Holding and other (57) (83) 31 (48) (19) (283) (252) (12)
Underlying earnings before tax 489 473
3 478 2 1,972 1,185 66
Fair value items 30 204 (85) (164) - 221 (544) -Realized gains / (losses) on investments 255 129 98 315 (19) 658 518 27Impairment charges (133) (92) (45) (212) 37 (452) (1,277) 65Other income / (charges) (258) (14) - 5 - (309) (323) 4Run-off businesses (28) (28) - (47) 40 (165) (13) -Income before tax 355 672 (47) 375 (5) 1,925 (454) -Income tax (37) (15) (147) 18 - (165) 658 -Net income 318 657 (52) 393 (19) 1,760 204 - Net income / (loss) attributable to:Equity holders of AEGON N.V. 318 657 (52) 393 (19) 1,759 204 -Minority interest - - - - - 1 - - Net underlying earnings 387 395 (2) 390 (1) 1,553 1,005 55 Commissions and expenses 1,659 1,525 9 1,407 18 6,145 6,046 2
of which operating expenses 12 909 835
9 841 8 3,397 3,292 3 New life salesLife single premiums 2,003 1,656 21 2,017 (1) 7,512 7,062 6
Life recurring premiums annualized 358 361 (1) 355 1 1,462 1,393 5Total recurring plus 1/10 single 558 527
6 557 - 2,213 2,100 5 New life salesAmericas 13 146 171 (15) 143 2 629 566 11The Netherlands 113 32 - 93 22 248 239 4United Kingdom 224 264 (15) 247 (9) 1,061 1,010 5New markets 13 75 60 25 74 1 275 285 (4)
Total recurring plus 1/10 single 558 527
6 557 - 2,213 2,100 5
New premium production accident and health insurance 180 146 23 125 44 622 561 11New premium production general insurance 15 14
7 21 (29) 58 56 4
Gross deposits (on and off balance)Americas 13 5,757 4,706 22 4,404 31 21,020 19,188 10The Netherlands 490 525 (7) 1,107 (56) 2,382 3,434 (31)United Kingdom 25 16 56 35 (29) 96 177 (46)New markets 13 1,541 4,161 (63) 1,177 31 9,082 4,817 89Total gross deposits excluding run-off businesses 7,813 9,408
(17) 6,723 16 32,580 27,616 18Run-off businesses - - - (4) - - 930 -Total gross deposits 7,813 9,408 (17) 6,719 16 32,580 28,546 14 Net deposits (on and off balance)Americas 13 (578) 535 - 385 - 1,227 3,769 (67)The Netherlands (260) (83) - 496 - (221) 1,101 -United Kingdom 12 2 - 29 (59) 53 151 (65)New markets 13 304 3,293 (91) 18 - 3,905 286 -
Total net deposits excluding run-off businesses (522) 3,747 - 928 - 4,964 5,307 (6)Run-off businesses (1,424) (1,081) (32) (6,513) 78 (6,541) (14,111) 54Total net deposits (1,946) 2,666
- (5,585) 65 (1,577) (8,804) 82
REVENUE-GENERATING INVESTMENTS
Dec. 31, Sept. 30, 2010 2010 %
Revenue-generating investments (total) 413,191 404,894 2 Investments general account
143,188 145,625 (2)
Investments for account of policyholders 146,237 140,438 4 Off balance sheet investments third parties 123,766 118,831 4
OPERATIONAL HIGHLIGHTS
Underlying earnings before tax
AEGON's underlying earnings before tax increasedto EUR 489 million in the fourth quarter, a 2% improvement compared with thesame quarter last year.In the Americas, underlying earnings rose to EUR 406 million as higher feeincome - related to growth in pension and variable annuity account balances -more than offset lower spread income. This was consistent with AEGON'sstrategy to increase earnings from fee businesses. Earnings from the Americasincluded a one-time EUR 28 million favorable employee benefits plan release.In the Netherlands, underlying earnings decreased to EUR 87 million as aresult of lower investment income and lower results on mortality. In theUnited Kingdom, underlying earnings amounted to a loss of EUR 6 million, dueto a EUR 30 million charge related to an ongoing program to correct historicalissues within customer policy records. Underlying earnings from New Marketsincreased to EUR 59 million as a result of the inclusion of AEGON AssetManagement. Higher funding costs and increased project related expensesresulted in EUR 57 million of costs in the fourth quarter of 2010 for theholding company.
Net income
Net income decreased to EUR 318 million. This was primarily the result of higher underlying earnings, a positive contribution from fair value items and lower impairments offset by lower realized gains and charges mainly related to restructuring in the United States.
Fair value items
In the fourth quarter, results from fair value items amounted to EUR 30million. In the Americas, most categories showed considerable improvementscompared with the fourth quarter 2009, while in the Netherlands the improvedresults were driven by the fair value of guarantees net of related hedges andbetter private equity performance.
Realized gains on investments
Realized gains on investments increased to EUR 255 million, primarily as aresult of an asset sale of multiple mineral estates located primarily in theWestern United States (EUR 183 million). The remainder was realized mainly asa result of normal trading in AEGON's bond portfolios.
Impairment charges
Impairments amounted to EUR 133 million and were mostly linked to US residential mortgage-backed securities, US commercial mortgage loans and Irish banks.
Other chargesOther charges amounted to EUR 258 million and consisted of a number of items.In the United States, the wind-down of small bank BOLI and COLI business andthe consolidation of the Louisville operations with other existing USlocations as announced in December 2010 resulted in a charge of EUR 206million.
Consolidation of AEGON's asset management operations led to a EUR 12 million restructuring charge.
A restructuring program is ongoing in the United Kingdom to achieve a 25% cost reduction by the end of 2011. This led to a charge of EUR 6 million in the fourth quarter of 2010.
In Hungary, unfavorable pension legislation changes resulted in a write-down of intangibles of EUR 18 million and a EUR 5 million restructuring charge related to the Hungarian pension operations. In addition, a bank tax in Hungary led to a charge of EUR 5 million.
Run-off businesses
AEGON's run-off businesses in the Americas recorded a loss of EUR 28 million, an improvement over the comparable period last year primarily due to lower account balances and less amortization yield paid on internally transferred assets.
Income tax
Tax charges for the quarter amounted to EUR 37 million. These charges includedEUR 17 million in tax benefits related to cross-border intercompanyreinsurance transactions and tax benefits of EUR 51 million resulting from theutilization of tax losses for which previously no deferred tax asset wasrecognized.
Operating expenses
Operating expenses increased 8% compared with the fourth quarter 2009 to EUR 909 million, mainly due to strengthening of the dollar and pound sterling against the euro. However, operating expenses declined 2% during 2010, excluding currency effects, restructuring and US employee benefit plan charges.
New life sales
New life sales for the fourth quarter amounted to EUR 558 million, which was the same level achieved during the comparable quarter last year. Higher sales in the Netherlands as a result of strong pensions sales and continued strong single premium production in Central & Eastern Europe were offset by declines in the Americas and the United Kingdom.
Deposits
Gross deposits, excluding run-off businesses, increased 16% to EUR 7.8 billion driven by US pensions, variable annuities and AEGON Asset Management.
As a result of outflows from fixed annuities and stable value solutions in theUS and the Dutch savings business, total outflows for the fourth quarter 2010amounted to EUR 0.5 billion. For the full year, however, AEGON recorded EUR 5billion in net deposits driven by strong asset management and US pensionsales.
Value of new business
Compared with the fourth quarter 2009, the value of new business declined considerably to EUR 141 million, mainly as a result of the strategic shift from spread to fee business. In the Americas, the value of new business declined as a result of lower sales of fixed annuities and life reinsurance products and lower margins. In the United Kingdom, the main reason was a decrease in immediate annuity sales and margins. In the Netherlands the positive effect of higher pension sales was more than offset by lower margins for life insurance.
Revenue-generating investments
Revenue-generating investments increased 2% compared with the end of the third quarter 2010 to EUR 413 billion, primarily as a result of higher equity markets.
Capital management
At the end of the fourth quarter, AEGON's core capital position amounted toEUR 17.8 billion, excluding revaluation reserves. This was equivalent to 75%7of the company's total capital base. Repurchase of the Convertible CoreCapital Securities issued to the Dutch State will decrease this capital baseratio. However, AEGON aims to bring the proportion of core capital up to atleast 75% of total capital by the end of 2012.
The revaluation reserves at December 31, 2010 declined compared with the end of the third quarter to EUR 1 billion, as an increase in risk-free interest rates had a negative impact on the value of fixed income securities. Shareholders' equity declined to EUR 17.2 billion, as the earnings contribution and positive currency effects were more than offset by lower revaluation reserves.
During the fourth quarter, excess capital rose to EUR 3.8 billion. Excess capital in the holding increased to EUR 1.7 billion as a result of dividend payments received from the operating units, while the units were able to increase their excess capital position to EUR 2.1 billion as a result of capital generated in the operations of EUR 1 billion partly offset by new business strain of EUR 0.4 billion. Excess capital was negatively impacted by a lower than expected charge in the Netherlands forlongevity of EUR 225 million.AEGON has agreed with its regulator, the Dutch Central Bank (DNB), that in thecurrent environment it will maintain a capital buffer at the holding of 1.5times its annual holding expenses. Currently, these holding expenses amount toEUR 0.6 billion on a normalized annual basis, which in effect means a bufferof EUR 0.9 billion for the holding.
At December 31, 2010, AEGON's Insurance Group Directive (IGD) ratio amounted to 198%. Higher regulatory solvency in the United States and the United Kingdom was offset by the Netherlands as result of a charge for longevity.
Dividend policy
AEGON aims to pay out a sustainable dividend to allow equity investors to share in the performance of the company, which can grow over time if performance of the company so allows. After investments in new business to generate organic growth, capital generation in AEGON's operating subsidiaries is available for distribution to the holding company, while maintaining a capital and liquidity position in the operating subsidiaries in line with AEGON's capital management and liquidity risk policies.
AEGON uses cash flows from the operating subsidiaries to pay for holding expenses, including funding costs. The remaining cash flow is available to execute AEGON's strategy and to fund dividends on its shares, subject to maintaining the holding company targeted excess capital. Depending on circumstances, future prospects and other considerations, AEGON may deviate from this target. AEGON will also take capital position, financial flexibility, leverage ratios and strategic considerations into account when declaring or proposing dividends on its common shares.
Under normal circumstances, AEGON would expect to declare an interim dividendwhen announcing its second quarter results and to propose a final dividend atthe Annual General Meeting of Shareholders for approval. Dividends wouldnormally be paid in cash or stock at the election of the shareholder. Therelative value of cash and stock dividends may vary. Stock dividends paid may,subject to capital management and other considerations, be repurchased inorder to limit dilution.AEGON intends to resume dividend payments on its common shares after the fullrepurchase of the core capital securities issued to the Dutch State, whichAEGON expects to occur before the end of June 2011. Absent unforeseencircumstances, AEGON intends to propose a final EUR 0.10 dividend per commonshare at the annual General Meeting of Shareholders in 2012 covering thesecond half of 2011.
When determining whether to declare or 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. Also, AEGON's operating subsidiaries are subject to (local) insurance regulations which could restrict dividends to be paid to the holding company. There is no requirement or assurance that AEGON will declare and pay any dividends.
APPENDIX I -- Americas --The Netherlands --United Kingdom --New Markets
FINANCIAL OVERVIEW, Q4 2010 GEOGRAPHICALLY
Holding, other The United New activities &EUR millions Americas Netherlands
Kingdom Markets eliminations Total
Underlying earnings beforetax by line of businessLife 189 54 6 15 - 264Individual savings and 119 - - (2) - 117retirement productsPensions 77 35 (10) 6 - 108Life reinsurance 19 - - - - 19Non-life - 4 - 12 - 16Distribution - (3) (2) - - (5)Asset Management - - - 14 - 14Other - - - - (57) (57)
Share in underlying earnings 2 (3) - 14 - 13before tax of associatesUnderlying earnings before tax 406 87
(6) 59 (57) 489
Fair value items 8 18 - - 4 30Realized gains / (losses) on 247 1 8 - (1) 255investmentsImpairment charges (98) - (24) (11) - (133)Other income / (charges) (200) 5
(13) (40) (10) (258)Run-off businesses (28) - - - - (28)Income before tax 335 111 (35) 8 (64) 355Income tax (40) (30) 16 1 16 (37)Net income 295 81 (19) 9 (48) 318
Net underlying earnings 309 70 (3) 49 (38) 387EMPLOYEE NUMBERS Dec. 31, Sept. 30, 2010 2010 Employees excluding agents 24,408 24,730Agents 3,066 3,147
Total number of employees excluding Associates 27,474 27,877AEGON's share of employees (including agents) in Associates
3,680 3,157Total 31,154 31,034AMERICAS USD millions Notes Q4 2010 Q3 2010 % Q4 2009 % FY 2010 FY 2009 % Underlying earnings before tax by line of businessLife and protection 242 220 10 237 2 897 903 (1)Fixed annuities 81 112 (28) 116 (30) 439 334 31Variable annuities 68 29 134 50 36 216 (348) -Retail mutual funds 6 3 100 (3) - 9 (16) -Individual savings and retirement products 155 144 8 163 (5) 664 (30) -Employer solutions & pensions 103 101 2 69 49 385 222 73Life reinsurance 26 4 - 22 18 105 29 -Canada 15 13 15 21 (29) 54 32 69Latin America 2 2 - (2) - 6 (6) -Underlying earnings before tax 543
484 12 510 6 2,111 1,150 84
Fair value items 10 117 (91) (222) - (32) (123) 74Realized gains / (losses) on investments 327 121 170 153 114 502 89 -Impairment charges (131) (111) (18) (231) 43 (506) (1,337) 62Other income / (charges) (264) - - - - (404) (4) -Run- off businesses (38) (35) (9) (64) 41 (218) (18) -Income before tax 447 576 (22) 146 - 1,453 (243) -Income tax (53) 52 - 120 - 41 940 (96)Net income 394 628 (37) 266 48 1,494 697 114 Net income / (loss) attributable to:Equity holders of AEGON N.V. 394 628 (37) 266 48 1,494 697 114 Net underlying earnings 412 367 12 423 (3) 1,599 1,017 57 Commissions and expenses 1,333 1,167 14 1,159 15 4,816 5,065 (5)of which operating expenses 514 472 9 559 (8) 1,971 2,249 (12) New life sales 13Life single premiums 196 369 (47) 184 7 1,038 606 71Life recurring premiums annualized 176 184 (4) 197 (11) 727 735 (1)Total recurring plus 1/10 single 196 221 (11) 216 (9) 831 796 4 Life & protection 129 147 (12) 124 4 531 480 11Employer solutions & pensions 5 6 (17) 6 (17) 24 29 (17)Life reinsurance 38 41 (7) 58 (34) 172 206 (17)Canada 14 15 (7) 20 (30) 60 61 (2)Latin America 10 12 (17) 8 25 44 20 120Total recurring plus 1/10 single 196
221 (11) 216 (9) 831 796 4
New premium production accident and health insurance 230
179 28 184 25 773 758 2
Gross deposits (on and off balance) by line of business 13Life & protection 2 2 - 2 - 10 10 -Fixed annuities 112 164 (32) 641 (83) 585 4,730 (88)Variable annuities 1,037 956 8 785 32 3,830 3,372 14Retail mutual funds 692 861 (20) 859 (19) 3,486 2,408 45Individual savings & retirement products 1,841 1,981 (7) 2,285 (19) 7,901 10,510 (25)Employer solutions & pensions 5,744 3,975 45 4,232 36 19,247 16,075 20Life reinsurance 1 - - - - 3 2 50Canada 102 100 2 197 (48) 606 403 50Total gross deposits excluding run-off businesses 7,690 6,058 27 6,716 15 27,767 27,000 3Run- off businesses - - - 27 - - 1,309 -Total gross deposits 7,690
6,058 27 6,743 14 27,767 28,309 (2)
Net deposits (on and off balance) by line of business 13 Life & protection
(14) (12) (17) (10) (40) (53) (56) 5Fixed annuities (660) (584) (13) (128) - (2,440) 1,248 -Variable annuities 158 225 (30) (4) - 577 599 (4)Retail mutual funds (37) 233 - 387 - 971 482 101Individual savings & retirement products (539) (126) - 255 - (892) 2,329 -Employer solutions & pensions (28) 1,030 - 516 - 3,652 3,374 8Life reinsurance (16) (14) (14) (17) 6 (60) (72) 17Canada (156) (191) 18 (85) (84) (1,026) (272) -Total net deposits excluding run-off businesses (753) 687 - 659 - 1,621 5,303 (69)Run-off businesses (1,911) (1,370) (39) (9,430) 80 (8,641) (19,855) 56Total net deposits (2,664)
(683) - (8,771) 70 (7,020) (14,552) 52
REVENUE-GENERATING INVESTMENTS
Dec. 31, Sept. 30, 2010 2010 %
Revenue-generating investments (total) 319,733 316,655 1 Investments general account
125,128 129,925 (4)
Investments for account of policyholders 79,308 75,255 5 Off balance sheet investments third parties 115,297 111,475 3
AMERICAS
- Underlying earnings before tax increase to USD 543 million, including one-time USD 38 million favorable benefit plan adjustment
- Net income increased to USD 394 million
- New life sales declined to USD 196 million mainly as a result of lower reinsurance sales
- Gross deposits amounted to USD 7.7 billion driven by continued strong pension deposits
Underlying earnings before tax
- Earnings from Life & Protection in the Americas increased to USD 242 million including a one-time employee benefit plan release of USD 19 million.
- Individual Savings & Retirement earnings decreased to USD 155 million including a one-time employee benefit plan release of USD 5 million. Fixed annuity earnings decreased to USD 81 million as a result of lower spreads due to higher quality investments in addition to lower asset balances. Variable annuity earnings of USD 68 million were mainly driven by higher account balances, while the comparable quarter last year included an exceptional write-down of intangible assets. Retail mutual funds' earnings increased to USD 6 million as a result of higher account balances.
- Earnings from Employer Solutions & Pensions increased to USD 103 million mainly as a result of continued growth of the business and a one-time employee benefit plan release of USD 11 million.
- Life reinsurance earnings increased to USD 26 million including a one-time employee benefit plan release of USD 3 million.
- Earnings from Canada declined to USD 15 million as the fourth quarter last year included a release of USD 7 million.
Net income
Net income from AEGON's businesses in the Americas increased to USD 394 million in the fourth quarter as higher underlying earnings, improved results from fair value items, substantially higher realized gains and lower impairments were only partly offset by restructuring charges and higher taxes.
Results from fair value items increased compared with the same quarter last year to USD 10 million as most categories showed considerable improvements.
Realized gains on investments increased to USD 327 million, primarily as aresult of an asset sale of multiple mineral estates located primarily in theWestern United States (USD 242 million). The remainder was realized mainly asa result of normal trading in the bond portfolio.
Impairments amounted to USD 131 million and were mostly linked to residential mortgage-backed securities and commercial mortgage loans.
Other charges of USD 264 million related to the wind-down of the small bank BOLI and COLI business and the consolidation of the Louisville operations with other existing US locations as announced in December 2010.
AEGON's run-off businesses in the Americas recorded a loss of USD 38 million, an improvement over the comparable period last year primarily due to lower account balances and less amortization yield paid on internally transferred assets.
Net income included a tax benefit of USD 90 million, of which USD 23 million related to cross-border intercompany reinsurance transactions between the United States and Ireland and USD 67 million related to the partial utilization of tax losses for which previously no deferred tax asset was recognized.
Operating expenses
Operating expenses declined 8% as a result of expense savings, lower employee benefit plan costs and the transfer of asset management activities to AEGON Asset Management. On a comparable basis, excluding fourth quarter 2010 restructuring charges, operating expenses also decreased 8%.
Sales and deposits
New life sales decreased to USD 196 million as an increase in retail new life sales was more than offset by lower life reinsurance sales. The decline compared with the third quarter of 2010 is mainly related to the discontinuance of single premium universal life sales in the bank channel, which were no longer profitable in the current interest rate environment.
New premium production for accident & health increased to USD 230 million, primarily the result of a block of supplemental health business that was taken over during the fourth quarter.
Gross deposits increased 15% to USD 7.7 billion as a result of higher pensionand variable annuity deposits. Continued net inflows for the pension andvariable annuity businesses were more than offset by fixed annuity outflows -as sales continue to be de-emphasized - and retail mutual funds and stablevalue solutions outflows, which resulted in net outflows of USD 0.8 billion.
Value of new business
Value of new business declined to USD 87 million as a result of lower sales offixed annuities and life reinsurance products, lower margins and a change inbusiness mix. The internal rate of return on new business was 14%.
Revenue-generating investments
Compared with the third quarter 2010, revenue-generating investments increasedto USD 320 billion as the effects of favorable equity market performance morethan compensated a decline in run-off balances.THE NETHERLANDS EUR millions Notes Q4 2010 Q3 2010 % Q4 2009 % FY 2010 FY 2009 % Underlying earnings before taxby line of businessLife and Savings 54 51 6 34 59 186 180 3Pensions 35 42 (17) 53 (34) 153 174 (12)Non life 4 3 33 9 (56) 33 29 14Distribution (3) 2 - 1 - 16 16 -Share in underlying earnings (3) (1) (200) (2) (50) (3) (1) (200)before tax of associatesUnderlying earnings before tax 87 97 (10)
95 (8) 385 398 (3)
Fair value items 18 184 (90) (31) - 361 (374) -Realized gains / (losses) on investments 1 35 (97) 178 (99) 155 351 (56)Impairment charges - (4) - 7 - (11) (111) 90Other income / (charges) 5 - -
- - 38 - -Income before tax 111 312 (64) 249 (55) 928 264 -Income tax (30) (75) 60 (45) 33 (217) (23) -Net income 81 237 (66) 204 (60) 711 241 195 Net income / (loss) attributable to:Equity holders of AEGON N.V. 81 237 (66) 204 (60) 711 241 195 Net underlying earnings 70 88 (20) 72 (3) 292 298 (2) Commissions and expenses 283 248 14 321 (12) 1,058 1,181 (10)of which operating expenses 205 179 15 258 (21) 748 873 (14) New life salesLife single premiums 737 176 - 638 16 1,551 1,503 3Life recurring premiums annualized 39 14 179 29 34 93 89 4Total recurring plus 1/10 single 113 32 - 93 22 248 239 4 Life and Savings 17 18 (6) 21 (19) 83 82 1Pensions 96 14 - 72 33 165 157 5Total recurring plus 1/10 single 113 32 -
93 22 248 239 4
New premium production 6 5 20 4 50 26 17 53accident and health insuranceNew premium production general insurance 6 6 -
7 (14) 26 26 -
Gross deposits (on and off balance)by line of businessLife and Savings 403 416 (3) 1,017 (60) 2,036 3,032 (33)Pensions 87 109 (20) 90 (3) 346 402 (14)Total gross deposits 490 525 (7)
1,107 (56) 2,382 3,434 (31)
Net deposits (on and off balance)by line of businessLife and Savings (282) (139) (103) 454 - (289) 870 -Pensions 22 56 (61) 42 (48) 68 231 (71)Total net deposits (260) (83) -
496 - (221) 1,101 -
REVENUE-GENERATING INVESTMENTS
Dec. 31, Sept. 30, 2010 2010 %
Revenue-generating investments (total) 72,584 73,843 (2) Investments general account
37,174 37,457 (1)
Investments for account of policyholders 23,057 23,869 (3) Off balance sheet investments third parties 12,353 12,517 (1)
THE NETHERLANDS
- Underlying earnings before tax amount to EUR 87 million
- Net income decreased to EUR 81 million
- New life sales increase to record level of EUR 113 million as a result of strong pension sales
Underlying earnings before tax
- Earnings from AEGON's Life & Savings operations in the Netherlands increased to EUR 54 million as cost savings and improved margins on savings account balances were only partly offset by margin pressure in the Life business.
- Earnings from the Pension business declined to EUR 35 million mainly due to lower investment income and higher claims.
- Non-life earnings decreased to EUR 4 million, mainly the result of lower provision releases.
- Distribution recorded an underlying loss of EUR 3 million as a result of lower fee income compared with the fourth quarter of 2009.
Net income
Net income from AEGON's businesses in the Netherlands decreased to EUR 81million. Fair value items amounted to EUR 18 million, the result mainly of animproved performance of the fair value of guarantees net of related hedges andbetter private equity performance. Gains on investments were modest at EUR 1million, while Other income amounted to EUR 5 million.
Operating expenses
Operating expenses declined 21% to EUR 205 million in the fourth quarter of 2010. This was the result of a combination of cost savings and the transfer of asset management activities to AEGON Asset Management, while the fourth quarter of 2009 included exceptional charges of EUR 35 million. On a comparable basis, operating expenses declined 5%.
Sales and deposits
AEGON successfully utilized its leading position in the Dutch pension marketto secure a number of sizeable pension contracts. As a result, new life salesincreased to a record EUR 113 million during the fourth quarter of 2010. Salesof individual life insurance products declined during the quarter. This marketsegment is experiencing difficulty as consumer appetite for unit-linkedinsurance products is decreasing.
Consistent with its strategy to enhance distribution capabilities, AEGON agreed with retailer Kruidvat/Trekpleister to provide non-life insurance products through its (web) shops as of January 1, 2011.
Value of new business
The positive effect of higher pension sales was more than offset by lower margins for life insurance. As a result the value of new business declined to EUR 42 million. The internal rate of return on new business amounted to 11%.
Revenue-generating investments
Revenue-generating investments decreased 2% compared with the previous quarter to EUR 73 billion, mainly the result of lower bond markets.
UNITED KINGDOM GBP millions Notes Q4 2010 Q3 2010 % Q4 2009 % FY 2010 FY 2009 % Underlying earnings before taxby line of businessLife 4 23 (83) 10 (60) 60 38 58Pensions (8) - - 27 - 6 25 (76)Distribution (2) 1 - (8) 75 (5) (16) 69
Underlying earnings before tax (6) 24 - 29
- 61 47 30 Fair value items - 1 - 6 - (8) 25 -Realized gains / (losses) 7 - - 24 (71) 12 70 (83)on investmentsImpairment charges (20) (2) - (49) 59 (30) (163) 82Other income / (charges) 8 (11) 12 - 8 - 41 59 (31)Income before tax (30) 35 - 18 - 76 38 100Income tax attributable to 6 (23) - (8) - (57) (59) 3policyholder returnIncome before income tax on (24) 12 - 10 - 19 (21) -shareholders returnIncome tax on 8 32 (75) 3 167 53 29 83shareholders returnNet income (16) 44 - 13 - 72 8 - Net income / (loss) attributable to:Equity holders of AEGON N.V. (16) 44 - 13 - 72 8 - Net underlying earnings (2) 52 - 29 - 103 59 75 Commissions and expenses 164 179 (8) 180 (9) 694 662 5of which operating expenses 98 102 (4) 110 (11) 390 413 (6) New life sales 9Life single premiums 798 859 (7) 1,037 (23) 3,846 4,123 (7)Life recurring premiums annualized 110 133 (17) 121 (9) 522 487 7Total recurring plus 1/10 single 190 219 (13) 224 (15) 907 899 1 Life 15 17 (12) 31 (52) 81 183 (56)Pensions 175 202 (13) 193 (9) 826 716 15Total recurring plus 1/10 single 190 219 (13) 224
(15) 907 899 1
Gross deposits (on and off balance)by line of businessVariable annuities 21 13 62 32 (34) 82 158 (48)Total gross deposits 21 13 62 32 (34) 82 158 (48) Net deposits (on and off balance)by line of businessVariable annuities 10 1 - 27 (63) 45 135 (67)Total net deposits 10 1 - 27 (63) 45 135 (67)
REVENUE-GENERATING INVESTMENTS
Dec. 31, Sept. 30, 2010 2010 %
Revenue-generating investments (total) 57,641 55,990 3 Investments general account
7,979 8,265 (3)
Investments for account of policyholders 49,662 47,725 4
UNITED KINGDOM
- Underlying earnings before tax of GBP (6) million, including GBP 25 million customer redress charge
- Net income declines to GBP (16) million
- New life sales decrease to GBP 190 million mainly as a result of lower annuity sales
Underlying earnings before tax
- Earnings from Life decreased to GBP 4 million, driven by adverse mortality results.
- Pensions recorded a loss of GBP 8 million as the benefits from further business growth and improved market conditions were more than offset by the transfer of asset management activities to AEGON Asset Management, higher deferred policy acquisition costs amortization and a GBP 25 million charge related to customer redress.
- Distribution recorded a loss of GBP 2 million, an improvement from the same quarter last year as a result of cost savings and improved market conditions.
In May 2009, AEGON began to implement a program to identify and correcthistorical issues within its customer policy records. The immediate priorityof the program was to deal with issues that resulted in financial detrimentand to return affected customers to the financial position they would havebeen in had the issue not occurred. The program to determine the full scope ofcustomer redress continues. AEGON is on track to have paid out the majority ofthe customer detriment by the end of 2011.
Net income
Net income amounted to GBP (16) million, mainly as a result of lowerunderlying earnings. Impairments for the quarter were GBP 20 million and weremostly related to securities issued by Irish banks. Net income also containeda charge of GBP 6 million related to the restructuring of AEGON's operationsin the United Kingdom.Operating expenses
Operating expenses declined to GBP 98 million mainly driven by cost savingsand the transfer of asset management activities to AEGON Asset Management,which were partly offset by higher project related costs and charges relatingto the restructuring of AEGON's operations in the United Kingdom announced inJune 2010. The restructuring aims to reduce costs by 25% in the life andpensions operations by the end of 2011. It is expected that furtherrestructuring charges will arise in coming quarters. The restructuring programis progressing well and of the targeted reduction in operating expenses of GBP80 to 85 million annually, already GBP 33 million has been enacted during2010.
Sales and deposits
New life sales amounted to GBP 190 million during the quarter as a result oflower annuity sales due to a combination of lower market volumes, repricingand changes in commission structure. Lower annuity sales were offset by highergroup pension sales, taking into account that Q4 2009 included existing AEGONgroup personal pension business, which was transferred internally to new grouppension contracts. AEGON has decided not to include these rewrites as part ofits new business reporting format. The company believes that the exclusion ofsuch rewrites provides a clearer indication of new premium secured.
Value of new business
Value of new business in the United Kingdom declined to GBP 7 million as a result of lower annuity sales and margins. The internal rate of return on new business for the fourth quarter was 10%.
Revenue-generating investments
Revenue-generating investments increased 3% to GBP 58 billion, compared with the third quarter 2010, mainly as a result of higher equity markets.
NEW MARKETS EUR millions Notes Q4 2010 Q3 2010 % Q4 2009 % FY 2010 FY 2009 % Underlying earnings before taxCentral Eastern Europe 29 20 45 29 - 95 117 (19)Asia (12) (10) (20) (6) (100) (39) (14) (179)Spain & France 24 24 - 24 - 87 71 23Variable Annuities Europe 4 8 (50) 1 - 11 (4) -AEGON Asset Management 14 13 8 - - 46 - -
Underlying earnings before tax 59 55
7 48 23 200 170 18
Fair value items - (9) - (2) - (10) 3 -Realized gains / (losses) on investments - 2
- - - 13 5 160Impairment charges (11) - - (21) 48 (22) (27) 19Other income / (charges) (40) (5) - (4) - (56) (387) 86Income before tax 8 43 (81) 21 (62) 125 (236) -Income tax 1 (13) - (2) - (34) (53) 36Net income 9 30 (70) 19 (53) 91 (289) - Net income / (loss) attributable to:Equity holders of AEGON N.V. 9 30 (70) 19 (53) 90 (289) -Minority Interest - -
- - - 1 - -
Net underlying earnings 49 41
20 36 36 152 110 38
Commissions and expenses 216 175 23 102 112 735 392 88of which operating expenses 168 134
25 62 171 562 227 148 New life sales 13Life single premiums 176 156 13 110 60 674 498 35
Life recurring premiums annualized 58 44 32 63 (8) 208 235 (11)Total recurring plus 1/10 single 75 60
25 74 1 275 285 (4) Life 60 50 20 59 2 229 196 17Associates 15 10 50 15 - 46 89 (48)
Total recurring plus 1/10 single 75 60
25 74 1 275 285 (4) Central Eastern Europe 27 26 4 22 23 96 76 26Asia 9 9 - 8 13 37 35 6Spain & France 39 25 56 44 (11) 142 174 (18)
Total recurring plus 1/10 single 75 60
25 74 1 275 285 (4)
New premium production accident and health insurance 2 1 100 1 100 11 5 120New premium production general insurance 9 8
13 14 (36) 32 30 7
Gross deposits (on and off balance) 13Central Eastern Europe 231 242 (5) 235 (2) 948 801 18Asia 10 8 25 - - 53 4 -Spain & France 23 10 130 32 (28) 89 61 46Variable Annuities Europe 133 167 (20) 160 (17) 663 622 7AEGON Asset Management 1,144 3,734 (69) 750 53 7,329 3,329 120Total gross deposits 1,541 4,161 (63) 1,177 31 9,082 4,817 89 Net deposits (on and off balance) 13Central Eastern Europe 140 154 (9) 142 (1) 512 446 15Asia 8 8 - - - 50 2 -Spain & France 4 (11) - (17) - 22 (34) -Variable Annuities Europe 40 71 (44) 21 90 237 129 84AEGON Asset Management 112 3,071 (96) (128) - 3,084 (257) -Total net deposits 304 3,293 (91) 18 - 3,905 286 -
REVENUE-GENERATING INVESTMENTS
Dec. 31, Sept. 30, 2010 2010 %
Revenue-generating investments (total) 34,075 33,459 2 Investments general account
2,810 2,890 (3)
Investments for account of policyholders 6,139 5,934 3 Off balance sheet investments third parties 25,126 24,635 2
NEW MARKETS
- Underlying earnings before tax up 23% to EUR 59 million
- Net income down to EUR 9 million, driven by charges related to new pension legislation in Hungary
- New life sales stable at EUR 75 million
Underlying earnings before tax
- Earnings from Central & Eastern Europe remained level at EUR 29 million as lower investment income and pension earnings in Hungary were offset by cost efficiencies and scale benefits across the region.
- AEGON's operations in Asia recorded a loss of EUR 12 million driven by continued investments in China, India and Japan.
- Earnings from Spain and France remained stable compared with the fourth quarter 2009 at EUR 24 million.
- Earnings from Variable Annuities Europe increased to EUR 4 million driven by higher equity markets, growth of the business and cost efficiencies.
- AEGON Asset Management reported earnings of EUR 14 million for the quarter.
As part of the new pension legislation in Hungary, mandatory pension fundassets have been taken over by the Hungarian State during the first quarter2011. In addition, asset management and administration fees have been reduced.In Poland, the government announced plans to reduce contributions to privatepension funds. AEGON expects these measures to have a combined negative impacton underlying earnings of approximately EUR 25 million for the full year 2011.
Net income
Net income from New Markets declined to EUR 9 million during the quarter ashigher underlying earnings and lower impairments were offset by charges as aresult of unfavorable pension legislation changes in Hungary. These changesresulted in a write-down of intangibles of EUR 18 million and a charge of EUR5 million related to the restructuring of AEGON's Hungarian pensionoperations, to redirect its resources to other lines of business. In addition,net income included a EUR 5 million charge related to the Hungarian bank tax.The consolidation of AEGON's asset management operations currently based inLouisville with other US locations, led to a EUR 12 million restructuringcharge.
Operating expenses
Operating expenses increased to EUR 168 million in the fourth quarter, as aresult of the inclusion of AEGON Asset Management in New Markets. Compared tothe third quarter of this year, operating expenses were up 25%, mainly due
torestructuring charges.Sales and deposits- In Central & Eastern Europe, new life sales increased 23% to EUR 27 million,compared with the fourth quarter 2009. This was the result of continued strongsingle premium production through the bank channel in Poland and growing salesvia the tied network in Hungary.
- In Asia, new life sales increased 13% to EUR 9 million as a result of growth in China and India.
- New life sales in Spain and France declined 11% to EUR 39 million, mainly a result of lower recurring premium production in AEGON's joint venture with Caixa Terrassa.
New premium production from AEGON's general insurance and accident & health businesses amounted to EUR 11 million as higher household insurance sales were offset by lower motor insurance production due to increased competition.
Gross deposits from New Markets increased 31% to EUR 1.5 billion, primarily driven by higher asset management deposits.
Value of new business
Value of new business in New Markets decreased to EUR 25 million as higher production was offset by lower profit margins. The internal rate of return remained high at 36%.
Revenue-generating investments
Revenue-generating investments rose 2% compared with the third quarter of 2010 to EUR 34 billion driven by continued net deposits and stronger equity markets.
FINANCIAL OVERVIEW, 2010 FULL YEAR GEOGRAPHICALLY
Holding, other The United New activities &EUR millions Americas Netherlands
Kingdom Markets eliminations Total
Underlying earnings before taxby line of businessLife 715 186 71 76 - 1,048Individual savings and 508 - - (8) - 500retirement productsPensions 291 153 7 18 - 469Life reinsurance 79 - - - - 79Non-life - 33 - 20 - 53Distribution - 16 (6) - - 10Asset Management - - - 46 - 46Other - - - - (283) (283)Associates 5 (3) - 48 - 50Underlying earnings 1,598 385 72 200 (283) 1,972before tax Fair value items (24) 361 (9) (10) (97) 221Realized gains / (losses) 380 155 14 13 96 658on investmentsImpairment charges (383) (11) (36) (22) - (452)Other income / (charges) (306) 38
48 (56) (33) (309)Run-off businesses (165) - - - - (165)Income before tax 1,100 928 89 125 (317) 1,925Income tax 31 (217) (5) (34) 60 (165)Net income 1,131 711 84 91 (257) 1,760
Net underlying earnings 1,211 292
120 152 (222) 1,553APPENDIX II
VALUE OF NEW BUSINESS AND IRR
VNB VNB VNB VNB VNBEUR millions, after tax Q4 2010 Q3 2010 % Q4 2009 % FY 2010 FY 2009 % Americas 65 51 27 85 (24) 230 293 (22)The Netherlands 42 23 83 66 (36) 144 184 (22)United Kingdom 9 19 (53) 35 (74) 65 170 (62)New Markets 25 27 (7) 30 (17) 116 120 (3)Total 141 120 18 216 (35) 555 767 (28) IRR % IRR% IRR%EUR millions, after tax Q4 2010 Q3 2010 Q4 2009 Americas 13.9 12.1 14.7The Netherlands 10.9 16.2 14.9United Kingdom 10.1 11.4 13.5New Markets 36.3 34.1 36.2Total 16.8 17.8 17.6
MODELED NEW BUSINESS, APE AND DEPOSITS
Premium business Premium business APE APEEUR millions Notes Q4 2010 Q3 2010 % Q4 2009 % FY 2010 FY 2009 % 10Americas 297 275 8 235 26 1,084 997 9The Netherlands 188 38 - 120 57 377 328 15United Kingdom 225 254 (11) 250 (10) 1,047 1,070 (2)New Markets 99 80 24 79 25 356 357 -Total 809 647 25 684 18 2,864 2,753 4 Deposit business Deposit business Deposits Deposits
EUR millions Notes Q4 2010 Q3 2010 % Q4 2009 % FY 2010 FY
2009 % 10Americas 1,410 4,131 (66) 3,022 (53) 13,792 17,753 (22)United Kingdom 24 16 50 - - 91 - -New Markets 219 231 (5) 108 103 1,060 525 102Total 1,653 4,378 (62) 3,130 (47) 14,943 18,278 (18)VNB/PVNBP SUMMARY Premium business
Premium business
VNB PVNBP VNB / PVNBP VNB / APE VNB PVNBP VNB / PVNBP VNB / APEEUR millions Notes Q4 2010 % % FY 2010 % % 11Americas 44 1,187 3.7 14.7 139 4,648 3.0 12.8
The Netherlands 42 1,113 3.8 22.3 144 2,491 5.8 38.3United Kingdom 9 1,379 0.6 3.9 65 6,829 1.0 6.2New Markets 24 705 3.4 23.8 92 2,721
3.4 25.8Total 118 4,384 2.7 14.6 440 16,689 2.6 15.4 Deposit business Deposit business VNB PVNBP VNB / PVNBP VNB / Deposits VNB PVNBP VNB / PVNBP VNB / DepositsEUR millions Notes Q4 2010 % % FY 2010
% % 11Americas 22 4,049 0.5 1.5 91 21,040 0.4 0.7United Kingdom - 24 0.7 0.7 - 91 - -New Markets 2 313 0.5 0.7 24 1,678 1.4 2.3Total 23 4,386 0.5 1.4 115 22,809 0.5 0.8Notes:1)For segment reporting purposes underlying earnings before tax, netunderlying earnings, commissions and expenses, operating expenses and value ofnew business (VNB) are calculated by consolidating on a proportionate basisthe revenues and expenses of certain of our associated companies in Spain,India, Brazil and Mexico. We believe that our non-IFRS measures providemeaningful information about the underlying operating results of our businessincluding insight into the financial measures that our senior management usesin managing our business. Among other things our senior management iscompensated based in part on AEGON's results against targets using thenon-IFRS measures presented here. While other insurers in our peer grouppresent substantially similar non-IFRS measures, the non-IFRS measurespresented in this document may nevertheless differ from the non-IFRS measurespresented by other insurers. There is no standardized meaning to thesemeasures under IFRS or any other recognized set of accounting standards andreaders are cautioned to consider carefully the different ways in which we andour peers present similar information before comparing them. AEGON believesthe non-IFRS measures shown herein, when read together with our reported IFRSfinancial statements, provide meaningful supplemental information for theinvesting public to evaluate AEGON's business after eliminating the impact ofcurrent IFRS accounting policies for financial instruments and insurancecontracts, which embed a number of accounting policy alternatives thatcompanies may select in presenting their results (i.e. companies can usedifferent local GAAPs) and that can make the comparability from period toperiod difficult. For a definition of underlying earnings and thereconciliation from underlying earnings before tax to income before tax werefer to Note 3 "Segment information" of our Condensed consolidated interimfinancial statements.
2)Net income refers to net income attributable to equity holders of AEGON N.V. and minority interest.
3)New life sales is defined as new recurring premiums + 1/10 of single premiums.
4)Deposits on and off balance sheet. Run-off businesses includes results of business units where management has decided to exit the market and to run-off the existing block of business.
5)The present value of future distributable earnings on the block of businesssold in the reporting period. Value of new business is calculated usingbeginning of year economic assumptions and assumptions outside of managementcontrol, and beginning of quarter operating assumptions6)Return on equity is calculated by dividing the net underlying earnings aftercost of leverage by the average shareholders' equity excluding the preferredshares and the revaluation reserve.
7)Capital securities that are denominated in foreign currencies are, for purposes of calculating the capital base ratio, revalued to the period-end exchange rate. All ratios exclude AEGON's revaluation reserve.
8)Included in other income/(charges) are charges made to policyholders with respect to income tax in the United Kingdom.
9)Includes production on investment contracts without a discretionary participation feature of which the proceeds are not recognized as revenues but are directly added to our investment contract liabilities.
10)APE = recurring premium + 1/10 single premium.
11)PVNBP: Present Value New Business Premium.
12)Reconciliation of operating expenses, used for segment reporting, to our IFRS based operating expenses.
Q4 2010 FY 2010 Employee expenses 538 2,151Administrative expenses 355 1,182
Operating expenses for IFRS reporting 893 3,333 Operating earnings related to associates 16 64 Operating earnings in earnings release 909 3,397
13)New life sales, gross deposits and net deposits data include results of ourassociated companies in Spain, India, Brazil and Mexico which are consolidatedon a proportionate basis.14)Operational free cash flow reflect the sum of the return on free surplus,earnings on in-force business, release on required surplus on in-forcebusiness reduced by new business first year strain and required surplus on newbusiness. Refer to our Embedded Value 2009 report for further details.a)The calculation of the IGD (Insurance Group Directive) capital surplus andratio are based on Solvency I capital requirements on IFRS for entities withinthe EU (Pillar 1 for AEGON UK), and local regulatory solvency measurements fornon-EU entities. Specifically, required capital for the life insurancecompanies in the US is calculated as two times the upper end of the CompanyAction Level range (200%) as applied by the National Association of InsuranceCommissioners in the US. The calculation of the IGD ratio excludes theavailable and required capital of the UK With-Profit funds. In the UK solvencysurplus calculation the local regulator only allows the available capitalnumber of the With-Profit funds included in overall local available capital tobe equal to the amount of With-Profit funds' required capital.
b)The results in this release are unaudited.
Currencies
Income statement items: average rate 1 EUR = USD 1.3210 (2009: USD 1.4071).
Income statement items: average rate 1 EUR = GBP 0.8544 (2009: GBP 0.8903).
Balance sheet items: closing rate 1 EUR = USD 1.3362 (2009: USD 1.4406).
Balance sheet items: closing rate 1 EUR = GBP 0.8608 (2009: GBP 0.8881).
ADDITIONAL INFORMATION
The Hague, February 24, 2011
Press conference call
8:00 am CET: Audio webcast on www.aegon.com
Analyst & investor presentation / conference call
9:00 am CET: Audio webcast on www.aegon.com
Call-in numbersUSA: +1 480 629 9725UK: + 44 207 153 2027NL: +31 45 631 6901Record date AGM
The record date for attending and voting at the Annual General Meeting of Shareholders of AEGON N.V. is April 14, 2011. The agenda will be available on AEGON's website from March 31, 2011.
Supplements
AEGON's Q4 2010 Financial Supplement and Condensed Consolidated Interim Financial Statements are available on www.aegon.com.
Cautionary note regarding non-GAAP measures
This press release includes certain non-GAAP financial measures: underlyingearnings before tax, net underlying earnings, commission and expenses,operating expenses and value of new business (VNB). The reconciliation ofunderlying earnings before tax to the most comparable IFRS measure is providedin Note 3 "Segment information" of our Condensed consolidated interimfinancial statements. VNB is not based on IFRS, which are used to reportAEGON's primary financial statements, and should not be viewed as a substitutefor IFRS financial measures. We may define and calculate VNB differently thanother companies. Please see AEGON's Embedded Value Report dated May 12, 2010for an explanation of how we define and calculate VNB. AEGON believes thatthese non-GAAP measures, together with the IFRS information, providemeaningful supplemental information that our management uses to run ourbusiness as well as useful information for the investment community toevaluate AEGON's business relative to the businesses of our peers.
Local currencies and constant currency exchange rates
This press release contains certain information about our results and financial condition in USD for the Americas and GBP for the United Kingdom, because those businesses operate and are managed primarily in those currencies. Certain comparative information presented on a constant currency basis eliminates the effects of changes in currency exchange rates. None of this information is a substitute for or superior to financial information about us presented in EUR, which is the currency of our primary financial statements.
Forward-looking statementsThe statements contained in this press release that are not historical factsare forward-looking statements as defined in the US Private SecuritiesLitigation Reform Act of 1995. The following are words that identify suchforward-looking statements: aim, believe, estimate, target, intend, may,expect, anticipate, predict, project, counting on, plan, continue, want,forecast, goal, should, would, is confident, will, and similar expressions asthey relate to AEGON. These statements are not guarantees of futureperformance and involve risks, uncertainties and assumptions that aredifficult to predict. We undertake no obligation to publicly update or reviseany forward-looking statements. Readers are cautioned not to place unduereliance on these forward-looking statements, which merely reflect companyexpectations at the time of writing. Actual results may differ materially fromexpectations conveyed in forward-looking statements due to changes caused byvarious risks and uncertainties. Such risks and uncertainties include but arenot limited to the following:
- Changes in general economic conditions, particularly in the United States, the Netherlands and the United Kingdom;
- Changes in the performance of financial markets, including emerging markets, such as with regard to:
- The frequency and severity of defaults by issuers in our fixed income investment portfolios; and
- The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securities we hold;
- The frequency and severity of insured loss events;
- Changes affecting mortality, morbidity, persistence and other factors that may impact the profitability of our insurance products;
- Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels;
- Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates;
- Increasing levels of competition in the Americas, the Netherlands, the United Kingdom and new markets;
- Changes in laws and regulations, particularly those affecting our operations, the products we sell, and the attractiveness of certain products to our consumers;
- Regulatory changes relating to the insurance industry in the jurisdictions in which we operate;
- Acts of God, acts of terrorism, acts of war and pandemics;
- Changes in the policies of central banks and/or governments;
- Lowering of one or more of our debt ratings issued by recognized rating organizations and the adverse impact such action may have on our ability to raise capital and on our liquidity and financial condition;
- Lowering of one or more of insurer financial strength ratings of our insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability of its insurance subsidiaries and liquidity;
- The effect of the European Union's Solvency II requirements and other regulations in other jurisdictions affecting the capital we are required to maintain;
- Litigation or regulatory action that could require us to pay significant damages or change the way we do business;
- Customer responsiveness to both new products and distribution channels;
- Competitive, legal, regulatory, or tax changes that affect the distribution cost of or demand for our products;
- The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including our ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions;
- Our failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving initiatives;
- Our inability to obtain consent from the Dutch Central Bank to repurchase our Core Capital Securities; and
- Our inability to divest Transamerica Reinsurance on terms acceptable to us.
Further details of potential risks and uncertainties affecting the company aredescribed in the company's filings with Euronext Amsterdam and the USSecurities and Exchange Commission, including the Annual Report on Form 20-F.These forward-looking statements speak only as of the date of this document.Except as required by any applicable law or regulation, the company expresslydisclaims any obligation or undertaking to release publicly any updates orrevisions to any forward-looking statements contained herein to reflect anychange in the company's expectations with regard thereto or any change inevents, conditions or circumstances on which any such statement is based.
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