Last checked at 17 Feb 2012 07:00
Q4 2011 RESULTS FEBRUARY 17, 2012
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 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 forAEGON, having delivered on our key strategic priorities. The completion of therepayment to the Dutch State was a singular achievement, allowing us to turnour full attention to pursuing the clear opportunities for our business. Inorder to strengthen our competitive position, we initiated a broadrestructuring program to reduce costs and create a more focused and responsiveorganization. This had an impact on earnings in the fourth quarter of 2011. Weare on track, however, to realize the benefits this program aims to deliver,having achieved our targeted cost reductions in the United Kingdom. A clearindication of the continued strength of our franchise was the very high levelof deposits throughout the year relating to our successful variable annuityand pension businesses in the United States. We aim to further leverage ourbroad capabilities and expertise to serve the growing demand for retirementsecurity while strengthening our position in this core market."Reflecting the strength of our capital position, we reiterate our intentionto propose a dividend of EUR 0.10 per common share over the second half of2011. In what has been a year dedicated to transforming our business as wellas our prospects for the future, we have strengthened AEGON's position todeliver sustainable earnings growth going forward."
KEY PERFORMANCE INDICATORS
amounts in EUR Notes Q4 Q3 % Q4 % FY FY %millions b) 2011 2011 2010 2011 2010 Underlying earnings (23)before tax 1 346 361 (4) 452 1,522 1,833 (17) Net income 2 81 60 35 318 (75) 872 1,760 (50) Sales 3 1,409 1,620 (13) 1,506 (6) 5,701 6,018 (5) Value of newbusiness (VNB) 4 53 58 (9) 129 (59) 332 514 (35) Return on equity 5 5.2% 6.8% (24) 8.6% (40) 6.7% 8.6% (22)For notes see page 23.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.
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.
* 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's AMBITION
To be a leader in all our chosen markets by 2015
AEGON'S STRATEGIC PRIORITIES- Optimize portfolio- Enhance customer loyalty
- Deliver operational excellence
- Empower employees
AEGON's ambitionAEGON's aim to be a leader in all of its chosen markets by 2015 is supportedby four strategic objectives: Optimize Portfolio, Enhance Customer Loyalty,Deliver Operational Excellence and Empower Employees. These key objectiveshave been embedded in all AEGON businesses. They provide the strategicframework for the company's ambition to become the most-recommended lifeinsurance and pension provider by customers and distributors, as well as themost-preferred employer in the sector.Optimize portfolioIn January 2012, AEGON completed an innovative financial transaction topartially offset the risk of future increases in longevity in the Netherlands.As a result of this capital markets transaction, approximately one-third, orEUR 12 billion, of underlying reserves within its Dutch business is nowpartially covered against future increases in longevity. The transactionreduces required capital at an attractive cost of capital.Early 2012, AEGON received approval from the Dutch Central Bank (DNB) to setup a premiepensioen-instelling (PPI), a low-cost carrier for individualretirement savings accounts. AEGON's PPI will provide a defined contributionpension solution to larger corporations that highly value quality.AEGON has launched its AEGON Retirement Choices platform in the UnitedKingdom. This platform aims to help customers benefit more from theirretirement savings. The platform will offer customers a range of productsincluding Self Invested Personal Pension, Individual Savings Accounts andGeneral Investment Accounts. The investment proposition allows access to AEGONinsured funds, offshore bonds, collectives and other investment types. AEGONhas adopted a phased roll-out approach and will offer its platform to the AtRetirement market in the first half of 2012, a platform tailored for the needsof 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-governmentalmicrocredit organization, to provide micro-insurance policies. Additionally,the company recently launched an investment service designed for high-endcustomers. These new initiatives are part of a strategy to further expand thecompany's product range. During 2011, Mongeral AEGON signed a number of newdistribution agreements and increased revenues by 8% to approximately USD 290million. AEGON has a 50% interest in this joint venture.Deliver operational excellenceIn the United Kingdom, AEGON has implemented its new operating model andreached its target to reduce operating expenses for its Life and Pensionbusinesses by 25% from 2009 levels. The program to restructure the businessdelivers GBP 80 million in expense savings, the benefits of which are expectedin 2012.In the Netherlands, AEGON is on track with reorganizing its business to bemore agile and better positioned to respond to changing conditions andopportunities in the Dutch market. The reorganization program and otherinitiatives will result in reducing the cost base for AEGON The Netherlands byEUR 100 million, compared to the cost base for 2010. The cost savings aim tooffset pressure on underlying earnings from higher mortgage funding costs,increased longevity provisioning and a declining life insurance back-book. Themajority of the cost savings is expected to be achieved in 2012.AEGON adopted a new Responsible Investment Policy. This policy sets out anumber of environmental, social and governance standards which will be used tohelp identify potential risks and opportunities associated with companies inwhich AEGON invests. The policy is part of broader efforts to incorporateenvironmental, social and governance factors into AEGON's investmentdecision-making process and into the on-going management and monitoring of itsinvestment portfolios.Enhance customer loyaltyAEGON has recently made improvements in how it serves and communicates withits customers around the world: rewriting customer letters and productdocumentation to enhance clarity and demonstrate empathy, creating dedicatedcustomer experience teams and improving product development processes toreflect customer feedback. These examples emphasize the company's ambition tobecome the most-recommended life insurance and pension provider by customersand distributors.Empower employeesAEGON performed its global employee survey late last year. The survey focusedon both Engagement and Enablement. The results in both categories were in linewith the average results of financial services companies internationally.These are key areas in which the company aspires to make continuousadvancements in its goal of strengthening employee empowerment and becoming anemployer of choice in the insurance sector.Reporting adjustmentsFrom the first quarter of 2012, AEGON will adjust its financial reporting toreflect changes in its organization. A number of businesses in Asia, whichwere previously managed by and reported to the United States, will be includedin the Asia segment within New Markets, and will be managed from AEGON'sregional head office in Hong Kong. Comparable full year 2010 and quarterly2011 numbers will be published on April 12, 2012. Also as of the first quarterof 2012, operating expenses incurred by the holding regarding servicesprovided to business units will be reflected in the results ofthe business units.FINANCIAL OVERVIEW c) Q4 Q3 Q4 FY FYEUR millions Notes 2011 2011 % 2010 % 2011 2010 % Underlying earnings beforetaxAmericas 328 310 6 369 (11) 1,310 1,459 (10)The Netherlands 75 68 10 87 (14) 298 385 (23)United Kingdom (26) 9 - (6) - 5 72 (93)New markets 53 43 23 59 (10) 212 200 6Holding and other (84) (69) (22) (57) (47) (303) (283) (7)Underlying earnings beforetax 346 361 (4) 452 (23) 1,522 1,833 (17) Fair value items (20) (288) 93 30 - (416) 221 -Realized gains / (losses) oninvestments 49 102 (52) 255 (81) 446 658 (32)Impairment charges (94) (132) 29 (133) 29 (388) (452) 14Other income / (charges) (194) (54) - (258) 25 (267) (309) 14Run-off businesses 1 (5) - 9 (89) 28 (26) -Income before tax 88 (16) - 355 (75) 925 1,925 (52)Income tax (7) 76 - (37) 81 (53) (165) 68Net income 81 60 35 318 (75) 872 1,760 (50) Net income / (loss) attributable to:Equity holders of AEGON N.V. 79 60 32 318 (75) 869 1,759 (51)Non-controlling interests 2 - - - - 3 1 200 Net underlying earnings 253 308 (18) 348 (27) 1,233 1,417 (13) Commissions and expenses 1,684 1,575 7 1,659 2 6,272 6,145 2of which operating expenses 11 872 886 (2) 909 (4) 3,442 3,397 1 New life salesLife single premiums 1,876 1,073 75 2,002 (6) 5,864 7,493 (22)Life recurring premiumsannualized 311 298 4 330 (6) 1,249 1,332 (6)Total recurring plus 1/10 single 498 405 23 530 (6) 1,835 2,081 (12) New life salesAmericas 12 119 110 8 118 1 446 497 (10)The Netherlands 117 32 - 113 4 254 248 2United Kingdom 189 199 (5) 224 (16) 852 1,061 (20)New markets 12 73 64 14 75 (3) 283 275 3Total recurring plus 1/10 single 498 405 23 530 (6) 1,835 2,081 (12) New premium productionaccident and healthinsurance 188 153 23 180 4 645 622 4New premium productiongeneral insurance 13 12 8 15 (13) 52 58 (10) Gross deposits (on and offbalance)Americas 12 5,009 7,376 (32) 5,757 (13) 23,028 21,018 10The Netherlands 560 584 (4) 490 14 2,048 2,382 (14)United Kingdom 9 11 (18) 25 (64) 56 96 (42)New markets 12 1,522 2,525 (40) 1,541 (1) 6,556 9,082 (28)Total gross deposits 7,100 10,496 (32) 7,813 (9) 31,688 32,578 (3) Net deposits (on and offbalance)Americas 12 (886) 2,840 - (566) (57) 2,147 1,272 69The Netherlands (160) 54 - (260) 38 (334) (221) (51)United Kingdom 1 1 - 12 (92) 18 53 (66)New markets 12 108 1,502 (93) 304 (64) (2,596) 3,905 -Total net depositsexcluding run-offbusinesses (937) 4,397 - (510) (84) (765) 5,009 -Run-off businesses (611) (1,121) 45 (1,436) 57 (3,139) (6,586) 52Total net deposits (1,548) 3,276 - (1,946) 20 (3,904) (1,577) (148)REVENUE-GENERATING INVESTMENTS Dec. 31, Sept. 30, 2011 2011 %
Revenue-generating investments (total) 423,518 404,254 5 Investments general account
144,079 143,006 1
Investments for account of policyholders 142,529 139,599 2 Off balance sheet investments third parties 136,910 121,649 13
OPERATIONAL HIGHLIGHTS
Underlying earnings before taxAEGON's underlying earnings before tax amounted to EUR 346 million in thefourth quarter of 2011. The decline compared with the same quarter last yearwas mainly due to higher exceptional charges and expenses in the UnitedKingdom related to the customer redress program, the effects of lower equitymarkets and interest rates and a one-time benefit for the holding in thecomparable 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 26million. This was mainly due to charges related to an ongoing program tocorrect historical issues within customer policy records and the execution ofthis program partly offset by the one-time benefit of changes to employeebenefit plans. The sale of Guardian during the third quarter of 2011, and thesubsequent loss of earnings, also contributed to the decrease.Underlying earnings from New Markets were affected by unfavorable currencymovements on earnings from Central & Eastern Europe and amounted to EUR 53million during the fourth quarter of 2011. Favorable claim experience in thenon-life business was offset by the impact of pension legislation changes inHungary 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 itemsIn 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 fairvalue 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 chargesOther charges amounted to EUR 194 million. In the Americas, a charge of EUR 37million related to increased reserves in connection with the company's use ofthe U.S. Social Security Administration's death master-file. Restructuringcharges in the Netherlands amounted to EUR 12 million and a write-down ofintangible assets related to the distribution businesses led to a charge ofEUR 75 million. In the United Kingdom, restructuring charges amounted to EUR48 million. The charge of EUR 18 million for the holding related partly alsoto restructuring.Run-off businessesThe results of run-off businesses amounted toEUR 1 million as lower amortization yield paid on internally transferredassets related to the institutional spread-based business was offset by theamortization of the prepaid cost of reinsurance asset related to thedivestment 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 equityHigher average shareholders' equity excluding revaluation reserves and lowernet underlying earnings resulted in a return on equity of AEGON's ongoingbusiness of 7.9% for the full year 2011. Return on equity including therun-off businesses amounted to 6.7% over the same period.Operating expensesIn the fourth quarter, operating expenses decreased 4% to EUR 872 million as aresult of cost savings and the positive effect of changes to employee benefitplans.Sales and depositsAEGON's total sales decreased 6% to EUR 1.4 billion. New life sales declinedmainly as a result of lower single premium production in the United Kingdom.Gross deposits of EUR 7.1 billion were supported by continued strong variableannuity 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 businessCompared with the fourth quarter of 2010, the value of new business declinedconsiderably to EUR 53 million, reflecting current market circumstances oflower interest rates in the Americas and lower mortgage production in theNetherlands.
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 managementAEGON's core capital excluding revaluation reserves amounted to EUR 17.5billion, equivalent to 73.5%6 of the company's total capital base at year-end2011. AEGON is on track to reach a capital base ratio of at least 75% by theend 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 effecton the value of fixed income securities. In addition, the foreign currencytranslation reserves improved, primarily the result of a strengthening of theUS 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 amountedto 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 theUnited 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-end2011.The Dutch Central Bank (DNB) provided an option to use the average fourthquarter 2011 interest rate curves for discounting liabilities, instead ofyear-end curves. Although opting for the average-method would have increasedthe IGD ratio in the Netherlands substantially, AEGON has decided to keep toits methodology of discounting liabilities on quarter-end interest rate curvesat year-end 2011.In January 2012, AEGON issued USD 500 million of 8% non-cumulativesubordinated notes due 2042 in a public offering in the United States. As partof the offering, the underwriters subsequently exercised their option topurchase an additional USD 25 million of notes to cover over-allotments.Following the exercise of this option, the gross proceeds of the offering areUSD 525 million. AEGON expects the securities to be eligible as Tier 2 capitalunder Solvency II and will use the proceeds from the issuance of the notes forgeneral 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 flowsAEGON aims to deliver sustainable cash flows and has announced its intentionto improve operational free cash flow from its 2010 normalized level of EUR1.0-1.2 billion per annum by 30% by 2015.AEGON's subsidiaries generated EUR 233 million in operational cash flowsduring the fourth quarter. For the full year 2011, AEGON's operational freecash flow amounted to EUR 103 million, including a negative market impact ofEUR 1,075 million in the third quarter. Operational free cash flows representdistributable earnings generation of the business units. The impact of capitalpreservation initiatives is not included in the reported operational free cashflows.Final dividend 2011At the Annual General Meeting of shareholders on May 16, 2012, the ExecutiveBoard will, absent unforeseen circumstances, propose a final dividend for 2011of EUR 0.10 per common share related to the second half of 2011. The finaldividend 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 cashdividend. When deciding to propose a dividend, AEGON has to balance prudenceversus offering an attractive return to shareholders, for example in adverseeconomic and/or financial market conditions.If the proposed dividend is approved by shareholders, AEGON shares will bequoted ex-dividend on May 18, 2012. The record date for the dividend will beMay 22, 2012. The election period will run from May 23 up to and includingJune 8, 2012. The stock fraction for the stock dividend will be based on theaverage price for the AEGON share on the Euronext Amsterdam stock exchange forthe five trading days from June 4 through June 8, 2012. The dividend will bepayable as of June 15, 2012.Annual General MeetingThe record date for attending and voting at the Annual General Meeting ofshareholders of AEGON N.V. is April 18, 2012. The agenda for this meeting willbe published on April 4, 2012.APPENDIX I -- Americas -- The Netherlands -- United Kingdom -- New MarketsFINANCIAL OVERVIEW, Q4 2011GEOGRAPHICALLY c) Holding, other The United New activities &EUR millions Americas Netherlands
Kingdom Markets eliminations Total
Underlying earnings beforetax by line of businessLife 128 40 35 15 - 218Individual savings and retirementproducts 139 - - (3) - 136Pensions 61 36 (58) (1) - 38Non-life - 2 - 19 - 21Distribution - - (3) - - (3)Asset Management - - - 13 - 13Other - - - - (84) (84)Share in underlying earningsbefore tax of associates - (3) - 10 - 7Underlying earnings beforetax 328 75 (26) 53 (84) 346 Fair value items (139) 189 3 (10) (63) (20)Realized gains / (losses) oninvestments 8 33 8 - - 49Impairment charges (66) (5) - (23) - (94)Other income / (charges) (36) (84) (57) 1 (18) (194)Run-off businesses 1 - - - - 1Income before tax 96 208 (72) 21 (165) 88Income tax 4 (60) (16) (5) 70 (7)Net income 100 148 (88) 16 (95) 81 Net underlying earnings 233 50 (46) 46 (30) 253EMPLOYEE NUMBERS Dec. 31, Sept. 30, 2011 2011 Employees excluding agents 22,249 22,781Agents 3,039 3,024
Total number of employees excluding Associates 25,288 25,805AEGON's share of employees (including agents) inAssociates 3,982 4,125Total 29,270 29,930AMERICAS
- Underlying earnings before tax amount to USD 443 million
- Net income decreases to USD 131 million, mainly driven by lower gains on
investments
- New life sales increase to USD 161 million; accident & health sales increase
to USD 240 million
- Gross deposits remain strong at USD 6.7 billion driven by continued strong
variable annuity deposits
Underlying earnings before taxUnderlying earnings from the Americas decreased 10% to USD 443 million for thefourth quarter 2011.
- Earnings from Life & Protection in the Americas amounted to USD 171 million
including a higher provision for Long Term Care of USD 31 million related to a
refinement of the impact from assumption changes reported in the third
quarter. Earnings in the comparable quarter last year included an employee
benefit plan release of USD 19 million.
- Individual Savings & Retirement earnings increased to USD 184 million.
Earnings from variable annuities improved to USD 121 million, and included a
benefit of USD 32 million related to updated assumptions for revenue sharing
with third-party fund managers. Earnings from retail mutual funds of USD 5
million decreased as a result of lower average account balances. Fixed annuity
earnings decreased to USD 58 million as a result of lower product spreads and
declining asset balances as the product is de-emphasized.
- Earnings from Employer Solutions & Pensions increased to USD 83 million as a
result of continued growth of the business.
- Canada earnings decreased to USD 4 million as
a result of charges of USD 11 million related to updated investment return,
persistency and mortality assumptions.
Net incomeNet income from AEGON's businesses in the Americas declined to USD 131 millionin the fourth quarter. The main drivers were lower gains on investments andnegative results from fair value items, partly offset by an improvement inother charges as the comparable quarter last year included charges related tothe wind-down of BOLI/COLI and the consolidation of offices.Results from fair value items amounted to a loss of USD 189 million for thequarter. Alternative asset performance was USD 66 million below its expectedreturn, primarily due to negative valuations of hedge funds and privateequities. The macro hedge loss of USD 103 million reflects the strong increasein equity markets during the quarter and the continued low interest rateenvironment. In addition, the loss on guarantees net of hedges amounted to USD50 million.
Gains on investments of USD 9 million were realized as a result of normal trading activity. Net impairments amounted to USD 90 million and were primarily linked to residential mortgage-backed securities.
Other charges included increased reserves of USD 51 million in connection withthe company's use of the U.S. Social Security Administration's deathmaster-file to identify potential life insurance claims that have not yet beenpresented to the company.
The results of run-off businesses amounted to USD 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.
Net income included a net tax benefit of USD 7 million in the fourth quarter,including a benefit of USD 21 million related to the utilization of tax lossesfor which previously no deferred tax asset was recognized.Return on capitalIn 2011, the return on average capital, excluding revaluation reserves,invested in AEGON's business in the Americas amounted to 6.7%. Excluding thecapital allocated to the run-off businesses, the return on capital in theAmericas would amount to 8.4%. Return on capital of AEGON's businessesexcludes the benefit of leverage at the holding.
Operating expenses Operating expenses decreased 4% to USD 492 million, mainly as a result of lower restructuring expenses. Excluding restructuring charges and employee benefit plan expenses, operating expenses increased 2% as a result of merit increases and business growth.
Sales
New life sales increased 2% to USD 161 million. New premium production for accident & health insurance increased to USD 240 million, primarily the result of improved sales for affinity marketing businesses.
Gross deposits amounted to USD 6.7 billion. Higher variable annuity sales were more than offset by lower pension deposits as a result of lower takeover deposits in the retirement plan space. Stable value deposits declined as expected, consistent with the objective to maintain balances around USD 60 billion.
Variable annuity sales continued to be strong, supported by expandeddistribution and a new, recently launched GLWB rider in the partnershipchannel. AEGON has re-priced its variable annuity offerings as a result of thecurrent low interest rate environment and subsequent higher hedging costs inits riders.
The deposits businesses showed net outflows of USD 1.3 billion - excluding run-off businesses - as strong net inflows for variable annuities were more
than offset by stable value, retail mutual fund and fixed annuity outflows.
AEGON is de-emphasizing sales of fixed annuities as part of a strategic repositioning and therefore incurs net outflows as a result.
In addition, higher withdrawal rates in the pension business led tosignificantly lower net deposits for the quarter. Consolidation in the healthcare space resulted in an increase in plan terminations during the quarter.Written sales are strongly up over the comparable period last year, reflectinga full pipeline.
Value of new business Value of new business decreased to USD 4 million, mainly driven by a lower contribution from variable annuities and universal life as a result of the current low interest rate environment.
Revenue-generating investmentsRevenue-generating investments increased 1% toUSD 318 billion at year-end 2011 compared with the third quarter. The decreasein general account assets as a result of a fixed annuity and medium term notecoinsurance transaction of USD 3.1 billion was more than compensated by theeffect of higher equity markets on unit-linked and off balance sheet assets.AMERICAS c) Q4 Q3 Q4 FY FYUSD millions Notes 2011 2011 % 2010 % 2011 2010 % Underlying earnings beforetax by line of businessLife and protection 171 219 (22) 242 (29) 779 897 (13)Fixed annuities 58 61 (5) 81 (28) 286 439 (35)Variable annuities 121 57 112 68 78 358 216 66Retail mutual funds 5 5 - 6 (17) 22 9 144Individual savings and retirementproducts 184 123 50 155 19 666 664 -Employer solutions &pensions 83 79 5 80 4 326 307 6Canada 4 17 (76) 15 (73) 51 54 (6)Latin America 1 (1) - 2 (50) 1 6 (83)Underlying earnings beforetax 443 437 1 494 (10) 1,823 1,928 (5) Fair value items (189) (387) 51 10 - (665) (32) -Realized gains / (losses) oninvestments 9 57 (84) 327 (97) 172 502 (66)Impairment charges (90) (106) 15 (131) 31 (352) (506) 30Other income / (charges) (50) 6 - (264) 81 (49) (404) 88Run- off businesses 1 (7) - 11 (91) 39 (35) -Income before tax 124 - - 447 (72) 968 1,453 (33)Income tax 7 101 (93) (53) - (35) 41 -Net income 131 101 30 394 (67) 933 1,494 (38) Net income / (loss)attributable to:Equity holders of AEGON N.V. 131 101 30 394 (67) 933 1,494 (38) Net underlying earnings 311 343 (9) 361 (14) 1,368 1,419 (4) Commissions and expenses 1,372 1,255 9 1,333 3 5,046 4,816 5of which operating expenses 492 506 (3) 514 (4) 1,992 1,971 1 New life sales 12Life single premiums 117 113 4 194 (40) 455 1,014 (55)Life recurring premiumsannualized 149 144 3 139 7 575 556 3Total recurring plus 1/10single 161 155 4 158 2 621 657 (5) Life & protection 129 117 10 129 - 481 531 (9)Employer solutions &pensions 5 6 (17) 5 - 24 22 9Canada 15 15 - 14 7 65 60 8Latin America 12 17 (29) 10 20 51 44 16
Total recurring plus 1/10 single 161 155 4 158 2
621 657 (5)
New premium productionaccident and health insurance 240 206 17 230 4
846 773 9
Gross deposits (on and offbalance) by line of business 12Life & protection 4 2 100 2 100 12 10 20Fixed annuities 72 87 (17) 112 (36) 313 585 (46)Variable annuities 1,396 1,338 4 1,037 35 5,314 3,830 39Retail mutual funds 627 618 1 692 (9) 2,785 3,486 (20)Individual savings &retirement products 2,095 2,043 3 1,841 14 8,412 7,901 6
Employer solutions & pensions 4,517 8,282 (45) 5,744 (21)
23,266 19,247 21Canada 82 73 12 102 (20) 335 606 (45)Latin America 4 - - - - 4 - -Total gross deposits 6,702 10,400 (36) 7,689 (13) 32,029 27,764 15 Net deposits (on and offbalance) by line of business 12Life & protection (9) (10) 10 (14) 36 (43) (53) 19Fixed annuities (752) (728) (3) (660) (14) (3,091) (2,440) (27)Variable annuities 658 489 35 158 - 1,838 577 -Retail mutual funds (191) (234) 18 (37) - (480) 971 -Individual savings &retirement products (285) (473) 40 (539) 47 (1,733) (892) (94)Employer solutions &pensions (950) 4,514 - (28) - 5,097 3,652 40Canada (37) (39) 5 (156) 76 (339) (1,026) 67Latin America 4 - - - - 4 - -Total net deposits excludingrun-off businesses (1,277) 3,992 - (737) (73) 2,986 1,681 78Run-off businesses (812) (1,580) 49 (1,927) 58 (4,366) (8,701) 50Total net deposits (2,089) 2,412 - (2,664) 22 (1,380) (7,020) 80
REVENUE-GENERATING INVESTMENTS
Dec. 31, Sept. 30, 2011 2011 %
Revenue-generating investments (total) 317,677 315,362 1 Investments general account
118,169 122,645 (4)
Investments for account of policyholders 80,137 76,217 5 Off balance sheet investments third parties 119,371 116,500 2
THE NETHERLANDS
- Underlying earnings before tax of EUR 75 million, a decrease due to expenses
for product improvements
- Net income increases to EUR 148 million as a result of fair value results
- New life sales increased 4% to EUR 117 million driven by strong production
in pensions
Underlying earnings before taxUnderlying earnings from AEGON's operations in the Netherlands amounted to EUR75 million, a decrease compared to the fourth quarter of 2010. This was mainlydue to lower earnings in Life & Savings while earnings from Pensions remainedlevel.
- Earnings from AEGON's Life & Savings operations in the Netherlands of EUR 40
million were down 26% compared to the fourth quarter of last year. This was a
result of higher expenses related to the execution of a program for product
improvements (EUR 6 million) and investments in new propositions (EUR 7
million).
- Earnings from the Pension business remained level at EUR 36 million as
additional provisioning for longevity of EUR 11 million was offset by
favorable results on mortality and morbidity. The positive impact from cost
savings was offset by lower investment returns.
- Earnings from Non-life declined to EUR 2 million, as the positive impact
from costs savings was more than offset by adverse claim experience.
- Income from the distribution businesses was nil as fee income remains under
pressure as a result of the competitive environment.
Net incomeNet income from AEGON's businesses in the Netherlands increased to EUR 148million. This increase was mainly a result of an increase in the fair value ofguarantees net of related hedges to EUR 189 million. Gains on investmentstotaled EUR 33 million for the quarter and were a result of normal tradingactivity in the portfolio. Other charges amounted to EUR 84 million andincluded a write-down of EUR 75 million of intangibles related to thedistribution businesses. AEGON's distribution businesses in the Netherlandsare experiencing pressure on margins and are implementing a new operatingmodel following legislative changes related to commission payments which willresult in lower profitability going forward.Return on capitalIn 2011, the return on average capital, excluding revaluation reserves,invested in AEGON's businesses in the Netherlands declined to 6.4%, mainly theresult of lower net underlying earnings.Operating expensesOperating expenses were reduced by 7% to EUR 191 million in the fourth quarterof 2011, mainly as a result of cost savings. Operating expenses includedadditional one-time charges of EUR 12 million related to the restructuring ofthe Dutch operations.In 2011, AEGON initiated actions to make its business in the Netherlands moreagile and better positioned to respond to changing conditions andopportunities in the Dutch market. This restructuring of AEGON's Dutchbusiness is an acceleration of previously announced strategic plans. Thereorganization program and other initiatives will result in a reduction of thecost base by EUR 100 million in comparison to the cost base for 2010. The fullbenefit will be visible in 2013.Sales and depositsNew life sales increased to EUR 117 million. Pension sales increased 8%compared to the fourth quarter of 2010, mainly driven by successfulinstitutional sales during the fourth quarter of 2011. Individual life salesdeclined and amounted to EUR 13 million, primarily driven by lower recurringpremium as mortgage production slowed down.Premium production for accident & health increased 17% to EUR 7 million andbenefited from stronger sales in income insurance products. General insuranceproduction amounted to EUR 6 million and remained level with the fourthquarter of 2010. Gross deposits increased 14% to EUR 560 million after AEGON Bank launched a marketing campaign and offered more competitive interest rates.
Value of new business The value of new business declined to EUR 28 million, mainly as a result of lower mortgage production and reduced margins for annuity products.
Revenue-generating investmentsRevenue-generating investments increased 2% to EUR 62 billion, compared withthe previous quarter. The increase was driven by the positive impact fromlower interest rates and higher equity markets.THE NETHERLANDS EUR millions Notes Q4 2011 Q3 2011 % Q4 2010 % FY 2011 FY 2010 % Underlyingearnings beforetax by line ofbusinessLife andSavings 40 47 (15) 54 (26) 185 186 (1)Pensions 36 24 50 35 3 98 153 (36)Non life 2 (1) - 4 (50) 6 33 (82)Distribution - (2) - (3) - 8 16 (50)Share inunderlying earningsbefore tax ofassociates (3) - - (3) - 1 (3) -Underlyingearnings beforetax 75 68 10 87 (14) 298 385 (23) Fair valueitems 189 25 - 18 - 156 361 (57)Realized gains /(losses) oninvestments 33 59 (44) 1 - 269 155 74Impairmentcharges (5) (5) - - - (15) (11) (36)Other income /(charges) (84) (61) (38) 5 - (164) 38 -Income before tax 208 86 142 111 87 544 928 (41)Income tax (60) (23) (161) (30) (100) (125) (217) 42Net income 148 63 135 81 83 419 711 (41) Net income /(loss) attributableto:Equity holdersofAEGON N.V. 148 63 135 81 83 419 711 (41) Netunderlyingearnings 50 55 (9) 70 (29) 238 292 (18) Commissionsandexpenses 261 311 (16) 283 (8) 1,122 1,058 6of whichoperatingexpenses 191 242 (21) 205 (7) 823 748 10 New life salesLife singlepremiums 856 210 - 737 16 1,740 1,551 12Life recurringpremiumsannualized 31 12 158 39 (21) 80 93 (14)Totalrecurringplus1/10single 117 32 - 113 4 254 248 2 Life andSavings 13 17 (24) 17 (24) 81 83 (2)Pensions 104 15 - 96 8 173 165 5Totalrecurring plus1/10 single 117 32 - 113 4 254 248 2 New premiumproductionaccident and healthinsurance 7 6 17 6 17 27 26 4New premiumproductiongeneral insurance 6 6 - 6 - 27 26 4 Gross deposits (onand offbalance) by line ofbusinessLife andSavings 560 584 (4) 403 39 1,968 2,036 (3)Pensions - - - 87 - 80 346 (77)Total grossdeposits 560 584 (4) 490 14 2,048 2,382 (14) Net deposits(on andoffbalance) by line ofbusinessLife andSavings (160) 54 - (282) 43 (361) (289) (25)Pensions - - - 22 - 27 68 (60)Total netdeposits (160) 54 - (260) 38 (334) (221) (51)
REVENUE-GENERATING INVESTMENTS
Dec. 31, Sept. 30, 2011 2011 %
Revenue-generating investments (total) 62,242 61,092 2 Investments general account
39,019 38,346 2
Investments for account of policyholders 23,223 22,746 2 Off balance sheet investments third parties - - -
UNITED KINGDOM
- Underlying loss before tax of GBP 22 million as a result of exceptional
charges and expenses
- Final phase of customer redress program leads to charges of GBP 52 million
- Target to reduce operating expenses by 25% achieved
- New life sales decrease to GBP 161 million as a result of anticipated lower
pension sales
Underlying earnings before taxIn the United Kingdom, underlying earnings before tax amounted to a loss ofGBP 22 million, which was driven by higher charges related to the customerredress program, and was partly offset by the one-time benefit of changes toemployee pension plans. Charges related to the customer redress program andthe exceptional expenses related to the execution of this program are notexpected to recur in 2012.
- Earnings from Life increased to GBP 30 million, mainly as a result of
one-time benefits related to the annuities business of GBP 7 million, and to
changes to the employee pension plan of GBP 8 million. In addition, the
comparable quarter in 2010 was impacted by adverse mortality experience.
- Pensions recorded a loss of GBP 50 million, reflecting a charge of GBP 52
million related to the customer redress program. The comparable quarter last
year included a charge of GBP 25 million. Expenses related to the execution of
this program amounted to GBP 19 million. This was partly offset by a one-time
benefit of GBP 38 million as a result of changes to the employee pension plan.
Costs related to the development of AEGON's new pension proposition amounted
to GBP 10 million, while assumption changes led to a charge of GBP 7 million.
Lower asset balances, primarily driven by developments on equity markets, had
an adverse impact on earnings of GBP 7 million compared to the fourth quarter
of 2010. Additionally, the comparable quarter of 2010 included earnings from
Guardian of GBP 11 million, which was sold in the third quarter of 2011.
- Distribution recorded a loss of GBP 2 million.
AEGON is close to finalizing the program to identify and correct historicalissues within its customer policy records, which began in May 2009. Theimmediate priority of the program has been to deal with issues that resultedin financial detriment and to return affected customers to the financialposition in which they would have been had the issue not occurred. AEGONexpects the remaining repayments to customers to occur in 2012, for which thecompany has already provisioned.Net incomeNet income amounted to a loss of GBP 76 million, as a result of lowerunderlying earnings and a charge of GBP 42 million relating to therestructuring of AEGON's operations in the United Kingdom. Results on fairvalue items improved to GBP 3 million and impairment charges declined to GBP 1million. Gains on investments remained level at GBP 6 million, while incometax included a charge of GBP 25 million related to deferred tax assets.Return on capitalIn 2011, the return on average capital, excluding revaluation reserves,invested in AEGON's businesses in the United Kingdom declined to 1.3%, mainlythe result of lower net underlying earnings.Operating expensesOperating expenses amounted to GBP 98 million, as cost savings were offset bycharges related to the restructuring program of GBP 42 million, as well asinvestments in the new proposition development of GBP 10 million and expensesof GBP 19 million relating to the execution of the customer redress program.Operating expenses included the one-time benefit from changes to employeepension plans of GBP 46 million. AEGON has implemented a new operating modelin the United Kingdom and reached its target to reduce operating expenses forits Life and Pension businesses by 25% from 2010 levels. The program torestructure the business delivers GBP 80 million in expense savings, thebenefits of which are expected in 2012.Sales and depositsNew life sales decreased 15% to GBP 161 million during the quarter as a resultof an anticipated decrease in sales of individual pensions and new grouppension schemes following reductions in the commission levels paid to advisorson these products.Value of new businessThe value of new business in the United Kingdom remained level at GBP 7million, mainly driven by lower sales volumes offset by the impact from costsavings. Revenue-generating investments
Revenue-generating investments declined to GBP 51 billion compared with the third quarter of 2011, as a result of the sale of Guardian, which was partly offset by the effect of higher equity markets.
UNITED KINGDOM GBP millions Notes Q4 2011 Q3 2011 % Q4 2010 % FY 2011 FY 2010 % Underlying earningsbefore tax by line of businessLife 30 18 67 4 - 86 60 43Pensions (50) (9) - (8) - (75) 6 -Distribution (2) (1) (100) (2) - (6) (5) (20)Underlying earnings before tax (22) 8 -
(6) - 5 61 (92)
Fair value items 3 (7) - - - (5) (8) 38Realized gains / (losses) on investments 6 3 100 7 (14) 44 12 -Impairment charges (1) (19) 95 (20) 95 (55) (30) (83)Other income / (charges) 7 (49) 4 - (11) - (49) 41 -Income before tax (63) (11) - (30) (110) (60) 76 -Income tax attributable to policyholderreturn (4) (17) 76 6 - (37) (57) 35Income before income tax on shareholdersreturn (67) (28) (139) (24) (179) (97) 19 -Income tax on shareholdersreturn (9) 28 - 8 - 52 53 (2)Net income (76) - - (16) - (45) 72 - Net income / (loss)attributable to:Equity holders of AEGON N.V. (76) - - (16) - (45) 72 - Net underlying earnings (40) 26 -
(2) - 33 103 (68)
Commissions and expenses 184 183 1 164 12 732 694 5of which operating expenses 98 104 (6)
98 - 409 390 5
New life sales 8Life single premiums 648 615 5 798 (19) 2,815 3,846 (27)Life recurring premiumsannualized 96 113 (15) 110 (13) 456 522 (13)Total recurring plus 1/10 single 161 175 (8) 190 (15) 738 907 (19) Life 17 18 (6) 15 13 66 81 (19)Pensions 144 157 (8) 175 (18) 672 826 (19)Total recurring plus 1/10 single 161 175 (8)
190 (15) 738 907 (19)
Gross deposits(on and off balance) by line ofbusinessVariable annuities 8 10 (20) 21 (62) 49 82 (40)Total gross deposits 8 10 (20) 21 (62) 49 82 (40) Net deposits (on and off balance)by line of businessVariable annuities 1 1 - 10 (90) 16 45 (64)Total net deposits 1 1 -
10 (90) 16 45 (64)
REVENUE-GENERATING INVESTMENTS
Dec. 31, Sept. 30, 2011 2011 %
Revenue-generating investments (total) 51,052 54,611 (7) Investments general account
8,313 8,168 2
Investments for account of policyholders 42,739 46,443 (8)
NEW MARKETS
- Underlying earnings before tax declined to EUR 53 million due to unfavorable
currency movements
- Net income increased to EUR 16 million
- New life sales amount to EUR 73 million
Underlying earnings before taxIn New Markets, AEGON reported underlying earnings before tax of EUR 53million. The decline is a result of lower underlying earnings from Central &Eastern Europe and Variable Annuities Europe.
- Earnings from Central & Eastern Europe declined to EUR 26 million which is
mainly the result of unfavorable currency movements. Lower fee income
following the pension asset transfer to the Hungarian State and reduced
contributions to mandatory pension funds in Poland were offset by improved
claim experience.
- Results from AEGON's operations in Asia remained level at EUR (11) million
as the positive impact from growth of the business and cost reductions have
been offset by the inclusion of the expenses related to the Asian regional
office. The results for the regional office in Asia have been included since
the first quarter of 2011, following the implementation of the new operational
structure for the Asian operations.
- Earnings from Spain & France amounted to EUR 24 million as result of business
growth in Spain and the inclusion of earnings from Caixa Sabadell Vida.
Earnings contributions from partner La Mondiale in France decreased compared
with the same quarter last year to EUR 5 million.
- Earnings from Variable Annuities Europe declined to EUR 1 million which was
mainly the result of unfavorable currency movements and additional
provisioning.
- Earnings from AEGON Asset Management amounted to EUR 13 million for the
quarter.
Net incomeNet income from AEGON's operations in New Markets increased to EUR 16 millionas the comparable quarter of 2010 included charges of EUR 12 million relatedto restructuring in AEGON Asset Management and charges of EUR 28 millionrelated to legislation changes in the Central & Eastern Europe. In the fourthquarter of 2011, results of fair value items amounted to a loss of EUR 10million, driven mainly by hedge ineffectiveness in Variable Annuities Europe.Impairments amounted to EUR 23 million and were mainly driven by increasedmortgage impairments in Central & Eastern Europe, following unfavorablecurrency movements. Following new legislation in Hungary, customers areallowed to repay their mortgages before the end of February 2012 at pre-setforeign exchange rates between the Swiss franc and the Hungarian forint.
Return on capital In 2011, the return on average capital, excluding revaluation reserves, invested in AEGON's businesses in New Markets declined to 7.1%, mainly the result of lower net underlying earnings.
Operating expensesOperating expenses declined 14% to EUR 144 million in the fourth quarter, as aresult of lower operating expenses in AEGON Asset Management and cost savinginitiatives in Central & Eastern Europe.Sales and depositsNew life sales declined 3% to EUR 73 million.
- In Central & Eastern Europe, new life sales decreased by 4% to EUR 26
million due to unfavorable currency movements. However, at constant
currencies, new life sales increased 11%.
- In Asia, new life sales declined to EUR 5 million, mainly as a result of new
regulation in China and increased competition.
- New life sales in Spain & France increased 8% to EUR 42 million, mainly as a
result of the inclusion of Caixa Sabadell Vida.
New premium production from AEGON's general insurance and accident & healthbusinesses in Central & Eastern Europe decreased to EUR 7 million, as stronghousehold insurance sales in Hungary were offset by lower motor production dueto increased price competition.Gross deposits in New Markets amounted to EUR 1.5 billion and remained levelwith the comparable quarter of 2010. Gross deposits in AEGON Asset Managementincreased 4% as a result of good performance in the retail segment, whichoffset the decline in gross deposits in Central & Eastern Europe followingpension legislation changes. AEGON Asset Management has entered into along-term contract with Cinven and will manage the assets of Guardian,following the sale of Guardian. These assets are not included in grossdeposits, but are included in revenue generating investments.Value of new businessThe value of new business in New Markets decreased to EUR 12 million as aresult of the combined negative effects of adverse pension legislation inHungary, lower production in Poland, and margin pressure at Variable AnnuitiesEurope.Revenue-generating investmentsRevenue-generating investments increased 23% compared with the third quarterof 2011 to EUR 55 billion, mainly driven by the inclusion of the Guardianassets which are managed by AEGON Asset Management following the sale ofGuardian earlier in the year.NEW MARKETS EUR millions Notes Q4 2011 Q3 2011 % Q4 2010 % FY 2011 FY 2010 % Underlying earnings beforetaxCentral Eastern Europe 26 15 73 29 (10) 96 95 1Asia (11) (11) - (12) 8 (41) (39) (5)Spain & France 24 21 14 24 - 88 87 1Variable Annuities Europe 1 3 (67) 4 (75) 9 11 (18)AEGON Asset Management 13 15 (13) 14 (7) 60 46 30Underlying earnings beforetax 53 43 23 59 (10) 212 200 6 Fair value items (10) (16) 38 - - (29) (10) (190)Realized gains / (losses) oninvestments - - - - - 2 13 (85)Impairment charges (23) (29) 21 (11) (109) (58) (22) (164)Other income / (charges) 1 (2) - (40) - 7 (56) -Income before tax 21 (4) - 8 163 134 125 7Income tax (5) (9) 44 1 - (50) (34) (47)Net income 16 (13) - 9 78 84 91 (8) Net income / (loss)attributable to:
Equity holders of AEGON N.V. 14 (13) - 9 56
81 90 (10)Non-controlling interests 2 - - - - 3 1 200 Net underlying earnings 46 26 77 49 (6) 157 152 3 Commissions and expenses 190 180 6 216 (12) 725 735 (1)
of which operating expenses 144 130 11 168 (14)
547 562 (3) New life sales 12Life single premiums 176 82 115 176 - 549 674 (19)Life recurring premiumsannualized 55 56 (2) 58 (5) 228 208 10Total recurring plus 1/10single 73 64 14 75 (3) 283 275 3 Life 70 59 19 60 17 255 229 11Associates 3 5 (40) 15 (80) 28 46 (39)Total recurring plus 1/10single 73 64 14 75 (3) 283 275 3 Central Eastern Europe 26 27 (4) 27 (4) 110 96 15Asia 5 7 (29) 9 (44) 30 37 (19)Spain & France 42 30 40 39 8 143 142 1Total recurring plus 1/10single 73 64 14 75 (3) 283 275 3 New premium productionaccident and healthinsurance 3 2 50 2 50 9 11 (18)New premium production generalinsurance 7 6 17 9 (22) 25 32 (22) Gross deposits (on and offbalance) 12Central Eastern Europe 153 160 (4) 231 (34) 662 948 (30)Asia 32 9 - 10 - 59 53 11Spain & France 34 8 - 23 48 61 89 (31)Variable Annuities Europe 118 122 (3) 133 (11) 530 663 (20)AEGON Asset Management 1,185 2,226 (47) 1,144 4 5,244 7,329 (28)Total gross deposits 1,522 2,525 (40) 1,541 (1) 6,556 9,082 (28) Net deposits (on and off balance) 12Central Eastern Europe 144 112 29 140 3 (1,608) 512 -Asia 29 6 - 8 - 50 50 -Spain & France (12) 1 - 4 - (65) 22 -Variable Annuities Europe 38 33 15 40 (5) 160 237 (32)AEGON Asset Management (91) 1,350 - 112 - (1,133) 3,084 -Total net deposits 108 1,502 (93) 304 (64) (2,596) 3,905 -
REVENUE-GENERATING INVESTMENTS
Dec. 31, Sept. 30, 2011 2011 %
Revenue-generating investments (total) 54,703 44,302 23 Investments general account
3,329 3,354 (1)
Investments for account of policyholders 6,415 6,129 5 Off balance sheet investments third parties 44,959 34,819 29
FINANCIAL OVERVIEW, 2011 FULL YEAR GEOGRAPHICALLY c)
Holding, other The United New activities &
EUR millions Americas Netherlands
Kingdom Markets eliminations Total
Underlying earnings beforetax by line of businessLife 591 185 99 70 - 945Individual savings and retirementproducts 485 - - (11) - 474Pensions 234 98 (86) 8 - 254Non-life - 6 - 45 - 51Distribution - 8 (8) - - -Asset Management - - - 60 - 60Other - - - - (303) (303)Associates - 1 - 40 - 41Underlying earnings beforetax 1,310 298 5 212 (303) 1,522 Fair value items (478) 156 (6) (29) (59) (416)Realized gains / (losses) oninvestments 124 269 51 2 - 446Impairment charges (253) (15) (62) (58) - (388)Other income / (charges) (35) (164)
(57) 7 (18) (267)Run-off businesses 28 - - - - 28Income before tax 696 544 (69) 134 (380) 925Income tax (26) (125) 17 (50) 131 (53)Net income 670 419 (52) 84 (249) 872
Net underlying earnings 984 238 38 157 (184) 1,233APPENDIX IIVALUE OF NEW BUSINESSAND IRR VNB VNB VNB VNB VNBEUR millions, after tax Q4 2011 Q3 2011 % Q4 2010 % FY 2011 FY 2010 % Americas 4 24 (83) 53 (92) 142 189 (25)The Netherlands 28 14 100 42 (33) 86 144 (40)United Kingdom 8 3 167 9 (11) 31 65 (52)New Markets 12 16 (25) 25 (52) 72 116 (38)Total 53 58 (9) 129 (59) 332 514 (35) IRR % IRR% IRR%EUR millions, after tax Q4 2011 Q3 2011 Q4 2010 Americas 8.6 10.6 13.9The Netherlands 11.1 18.1 10.9United Kingdom 10.4 9.0 10.1New Markets 28.0 30.8 36.3Total 17.7 19.1 16.8
MODELED NEW BUSINESS, APE AND DEPOSITS
Premium Premium business business APE APEEUR Notesmillions Q4 2011 Q3 2011 % Q4 2010 % FY 2011 FY 2010 % 9Americas 280 242 16 265 6 1,001 966 4The 34Netherlands 174 - 188 (7) 328 377 (13)United 200Kingdom 187 (6) 225 (17) 852 1,047 (19)New 77Markets 88 14 99 (11) 348 356 (2)Total 729 554 32 776 (6) 2,529 2,746 (8) Deposit business Deposit business Deposits DepositsEUR millions Notes Q4 2011 Q3 2011 % Q4 2010 % FY 2011 FY 2010 % 9Americas 3,710 6,566 (43) 3,483 7 19,135 15,864 21United 11Kingdom 10 (9) 24 (58) 56 91 (38)New Markets 253 188 35 219 16 915 1,060 (14)Total 3,973 6,765 (41) 3,726 7 20,106 17,016 18VNB/PVNBP SUMMARY Premium business Premium business VNB PVNBP VNB / PVNBP VNB / APE VNB PVNBP VNB / PVNBP VNB / APEEUR millions Notes Q4 2011 % % FY 2011 % % 10Americas 24 857 2.8 8.6 95 3,149 3.0 9.4The Netherlands 28 1,271 2.2 16.2 86 2,543 3.4 26.3United Kingdom 8 1,132 0.7 4.1 31 5,128 0.6 3.7New Markets 17 673 2.6 19.6 77 2,554 3.0 22.0Total 77 3,933 2.0 10.6 289 13,375 2.2 11.4 Deposit business Deposit business VNB PVNBP VNB / VNB / VNB PVNBP VNB / VNB / PVNBP Deposits PVNBP DepositsEUR millions Notes Q4 2011 % % FY 2011 % % 10Americas (20) 4,581 (0.4) (0.5) 47 24,478 0.2 0.2United Kingdom 0 10 0.5 0.5 0 56 0.5 0.5New Markets (5) 351 (1.4) (1.9) (5) 1,260 (0.4) (0.5)Total (25) 4,942 (0.5) (0.6) 43 25,795 0.2 0.2Notes:
1) For segment reporting purposes underlying earnings before tax,
net underlying earnings, commissions and expenses, operating expenses, income tax including associated companies, income before tax including associated companies and value of new business (VNB) are calculated by consolidating on a proportionate basis the revenues and expenses of certain of our associated companies in Spain, India, Brazil and Mexico. We believe that our non-IFRS measures provide meaningful information about the underlying operating results of our business including insight into the financial measures that our senior management uses in managing our business. Among other things our senior management is compensated based in part on AEGON's results against targets using the non-IFRS measures presented here. While other insurers in our peer group present substantially similar non-IFRS measures, the non-IFRS measures presented in this document may nevertheless differ from the non-IFRS measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards and readers are cautioned to consider carefully the different ways in which we and our peers present similar information before comparing them. AEGON believes the non-IFRS measures shown herein, when read together with our reported IFRS financial statements, provide meaningful supplemental information for the investing public to evaluate AEGON's business after eliminating the impact of current IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (i.e. companies can use different local GAAPs) and that can make the comparability from period to period difficult. For a definition of underlying earnings and the reconciliation from underlying earnings before tax to income before tax we refer to Note 3 "Segment information" of our Condensed consolidated interim financial statements.2) Net income refers to net income attributable to equity holders of AEGON N.V. and minority interest.3) Sales is defined as new recurring premiums plus 1/10 of single
premiums plus 1/10 of gross deposits plus new premium
production accident and health plus new premium production
general insurance.4) The present value of future distributable earnings on the block
of business sold in the reporting period. Value of new business
is calculated using beginning of year economic assumptions and
assumptions outside of management control, and beginning of
quarter operating assumptions.5) Return on equity is calculated by dividing the net underlying
earnings after cost of leverage by the average shareholders'
equity excluding the preferred shares and the revaluation
reserve.
6) 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.7) Included in other income/(charges) are charges made to
policyholders with respect to income tax in the United Kingdom. 8) 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.9) APE = recurring premium + 1/10 single premium.10) PVNBP: Present Value New Business Premium.11) Reconciliation of operating expenses, used for segment reporting, to our IFRS based operating expenses. Q4 2011 FY 2011 Employee expenses 502 2,069 Administrative expenses 355 1,315 Operating expenses for IFRS reporting 857 3,384 Operating expenses related to associates 15 58 Operating expenses in earnings release 872 3,442
12) New life sales, gross deposits and net deposits data include
results of our associated companies in Spain, India, Brazil and
Mexico which are consolidated on a proportionate basis. 13) Operational free cash flow reflect the sum of the return on
free surplus, earnings on in-force business, release of required surplus on in-force business reduced by new business first year strain and required surplus on new business. Refer to our Embedded Value 2010 report for further details.
a) The calculation of the IGD (Insurance Group Directive) capital
surplus and ratio are based on Solvency I capital requirements on IFRS for entities within the EU (Pillar 1 for AEGON UK), and local regulatory solvency measurements for non-EU entities. Specifically, required capital for the life insurance companies in the US is calculated as two times the upper end of the Company Action Level range (200%) as applied by the National Association of Insurance Commissioners in the US. The calculation of the IGD ratio excludes the available and required capital of the UK With-Profit funds. In the UK solvency surplus calculation the local regulator only allows the available capital number of the With-Profit funds included in overall local available capital to be equal to the amount of With-Profit funds' required capital.b) The results in this release are unaudited.c) The comparative 2010 earnings and sales information has been revised to reflect the transfer of the Life Reinsurance and BOLI/COLI businesses to the Run-off businesses line to make the information consistent with the current period figures.
Currencies
Income statement items: average rate 1 EUR = USD 1.3909 (2010: USD 1.3210). Income statement items: average rate 1 EUR = GBP 0.8667 (2010: GBP 0.8544). Balance sheet items: closing rate 1 EUR = USD 1.2982 (2010: USD 1.3362). Balance sheet items: closing rate 1 EUR = GBP 0.8353 (2010: GBP 0.8608). ADDITIONAL INFORMATION
The Hague, February 17, 2012Media conference call7:45 a.m. CET: Audio webcast on www.aegon.com
Analyst & investor conference call
9:00 a.m. CET: Audio webcast on www.aegon.com
Call-in numbersUnited States: +1 480 629 9673United Kingdom: +44 207 153 2027The Netherlands: +31 45 631 6902
Replay
Two hours after the conference call, a replay will be available on www.aegon.com and on the following phone numbers:
United Kingdom: +44 207 154 2833, access code: 4502160# United States: +1 303 590 3030, access code: 4502160#
Supplements
AEGON's Q4 2011 Financial Supplement and Condensed Consolidated Interim Financial Statements are available on www.aegon.com.
About AEGON As an international life insurance, pension and asset management company based in The Hague, AEGON has businesses in over twenty markets in the Americas, Europe and Asia. AEGON companies employ over 25,000 people
and have some 40 million customers across the globe.
Key figures - EUR Full year 2011 Full year
2010
Underlying earnings before tax 1.5 billion 1.8 billionNew life sales 1.8 billion 2.1 billionGross deposits 32 billion 33 billionRevenue-generating investments (end of period) 424 billion 413 billionContact informationMedia relations:Greg Tucker+31(0)70 344 8956gcc-ir@aegon.comInvestor relations:Willem van den Berg+31 (0)70 344 8305877 548 9668 - toll free USA onlyir@aegon.comwww.aegon.comDISCLAIMERSCautionary note regarding non-GAAP measuresThis document includes certain non-GAAP financial measures: underlyingearnings before tax and value of new business. The reconciliation ofunderlying earnings before tax to the most comparable IFRS measure is providedin Note 3 "Segment information" of our Condensed consolidated interimfinancial statements. Value of new business is not based on IFRS, which areused to report AEGON's primary financial statements and should not be viewedas a substitute for IFRS financial measures. We may define and calculate valueof new business differently than other companies. Please see AEGON's EmbeddedValue Report dated May 12, 2011 for an explanation of how we define andcalculate value of new business. AEGON believes that these non-GAAP measures,together with the IFRS information, provide a meaningful measure for theinvestment community to evaluate AEGON's business relative to the businessesof our peers.
Local currencies and constant currency exchange rates This document 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 document that are not historical facts areforward-looking statements as defined in the US Private Securities LitigationReform Act of 1995. The following are words that identify such forward-lookingstatements: 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 as they relate to ourcompany. These statements are not guarantees of future performance and involverisks, uncertainties and assumptions that are difficult to predict. Weundertake no obligation to publicly update or revise any forward-lookingstatements. Readers are cautioned not to place undue reliance on theseforward-looking statements, which merely reflect company expectations at thetime of writing. Actual results may differ materially from expectationsconveyed in forward-looking statements due to changes caused by various risksand uncertainties. Such risks and uncertainties include but are not limited tothe 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 effects of declining creditworthiness of certain private sector
securities and the resulting decline in the value of sovereign exposure that
we hold;- changes in the performance of our investment portfolio and decline in
ratings of our counterparties; - consequences of a potential (partial) break-up of the euro; - 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; - reinsurers to whom we have ceded significant underwriting risks may fail to
meet their obligations;- 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; - changes in the availability of, and costs associated with, liquidity sources
such as bank and capital markets funding, as well as conditions in the credit
markets in general such as changes in borrower and counterparty
creditworthiness;
- increasing levels of competition in the United States, the Netherlands, the
United Kingdom and emerging markets;- changes in laws and regulations, particularly those affecting our
operations, ability to hire and retain key personnel, 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; - as our operations support complex transactions and are highly dependent on
the proper functioning of information technology, a computer system failure or
security breach may disrupt our business, damage our reputation and adversely
affect our results of operations, financial condition and cash flows; - customer responsiveness to both new products and distribution channels; - competitive, legal, regulatory, or tax changes that affect profitability,
the distribution cost of or demand for our products; - changes in accounting regulations and policies may affect our reported
results and shareholder's equity;- 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;
- catastrophic events, either manmade or by nature, could result in material
losses and significantly interrupt our business; and - our failure to achieve anticipated levels of earnings or operational
efficiencies as well as other cost saving initiatives.
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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