Last checked at 12 Aug 2010 07:00
AEGON posts strong results for second quarter 2010
Increase in underlying earnings and net income
Underlying earnings before tax increase to EUR 522 million, supported by improved financial markets
Impairments decline to EUR 77 million, their lowest level in two years
Net income improves significantly to EUR 413 million
Return on equity of 9.7%
Increase in sales and deposits
New life sales of EUR 590 million, driven by increased sales in the United States and United Kingdom
Gross deposits total EUR 7.6 billion, driven mainly by strong pension deposits in the Americas
Value of new business declines to EUR 148 million, mainly due to decrease ofsales in US fixed annuities and UK immediate annuities as a result of earlierrepricing
Continued strong capital position
Excess capital above S&P's AA capital adequacy requirements declines to EUR 3.0 billion, as higher capital requirements from S&P offset earnings contribution
IGDa) capital surplus of EUR 7 billion, equivalent to solvency ratio of approximately 200%
Shareholders' equity increases to EUR 8.83 per common share
No interim dividend on common shares
Statement of Alex Wynaendts, CEO
"The significant increase in sales, underlying earnings and net income duringthe second quarter of this year demonstrate the continued strength of AEGON'sbusiness. Consistent with our focus on serving the growing need for long-termretirement security, pension sales were particularly strong in the Americas andthe United Kingdom. Impairments in our investment portfolio continued theirdownward trend, reaching their lowest level in two years and approaching ourlong-term assumptions. As a result of changes to S&P's capital requirements forour businesses, AEGON's excess capital declined, however, it continues toprovide what we consider a solid buffer. We are implementing a number of keymeasures, as announced in June, to sharpen our focus on our core activities andimprove returns, particularly within our business in the United Kingdom. At thesame time, we are continuing to pursue our options for AEGON's life reinsurancebusiness, which include finding a suitable buyer for Transamerica Reinsurance.Furthermore, we expect soon to receive a final decision from the EuropeanCommission on the plan we submitted to demonstrate AEGON's long-term viabilityas part of the State support AEGON received at the height of the financialcrisis in 2008. We will communicate that decision at the earliest opportunity.Going forward, we will maintain our focus on better leveraging our broadresources, pursuing further operational improvements and putting AEGON's provenexpertise to work for our customers in all our markets." KEY PERFORMANCE INDICATORS amounts in EUR millions b) Notes Q2 Q1 % Q2 % YTD YTD % 2010 2010 2009 2010 2009 Underlying earnings before tax 1 522 488 7 415 26 1,010 317 - Net income 2 413 372 11 (161) - 785 (334) - New life sales 3 590 538 10 484 22 1,128 1,051 7 Gross deposits excluding run-off businesses 4 7,584 7,775 (2) 6,523 16 15,359 14,055 9 Value of new business (VNB) 148 146 1 181 (18) 294 382 (23) Return on equity 5 9.7% 10.1% (4) 9.4% 3 9.6% 2.1% - For notes see page 23.
Supplements: AEGON's Q2 2010 Financial Supplement and Condensed Consolidated Interim Financial Statements are available on www.aegon.com
STRATEGIC HIGHLIGHTS
Sharpened focus on core activities of life insurance, pensions and asset management
Restructuring UK business; targeting cost reductions of 25% by end 2011 to improve returns
Exploring strategic options for life reinsurance business, including identifying a suitable buyer
Appointment of global head of human resource
AEGON's AMBITION
To be a leader in all our chosen markets by 2015
AEGON'S STRATEGIC PRIORITIESReallocate capitalIncrease returnsOptimize ONE AEGON
…resulting in sustainable, profitable growth.
At the Analyst & Investor Conference last June, CEO Alex Wynaendts announcednew measures to focus more on key long-term growth opportunities in AEGON'score activities and further improve returns from the company's existingbusinesses. Over the next five years, AEGON aims to become a leader in all ofits chosen markets by being the most recommended life and pensions company bycustomers, the preferred partner for distributors and an employer of choiceamong current and prospective employees.
Reallocate capital
One of AEGON's key strategic objectives is to focus on its core businesses oflife insurance, pensions and asset management, and achieve a greatergeographical balance by reallocating capital to the growth markets of Central &Eastern Europe, Asia and Latin America. AEGON continues to assess itsbusinesses to ensure they meet requirements in terms of earnings growth, cashflow generation, return on capital and customer life cycle needs. As part ofthis review, AEGON announced in June that it would explore strategic optionsfor Transamerica Reinsurance, the company's life reinsurance business,including finding a suitable buyer.As part of efforts to further improve its risk profile, AEGON will also beincreasing equity hedging of its back book of variable annuities in the UnitedStates and continue to shift its focus to fee-based business from spread-basedproducts. Increase returnsIn the United Kingdom, AEGON is taking significant steps to improve the returnon capital by targeting cost reductions of 25% in the company's life andpension operations and refocusing resources on theAt Retirement and Workplace Savings markets where there is strong potential forgrowth and AEGON has leading positions. In addition, AEGON has withdrawn fromthe UK bulk annuities market and is exploring strategic options for parts ofits existing back books. Taken together, these measures are aimed at improvingreturn on capital from AEGON's UK business to 8%-10% and cumulative cash flowsof GBP 600 million to 650 million by 2014. AEGON aims to increase returns by delivering operational excellence in all ofits businesses. This will be achieved by further reducing costs while investingin core capabilities and improving service levels to ensure continued customerloyalty. In addition, AEGON is developing new products that are simpler, moretransparent and offer customers better value. To deliver on this strategy,AEGON will further invest in its global workforce. As part of this approach,the company has launched a global talent management program aimed atencouraging and developing talent among employees. Last month, AEGON announcedthe appointment of a new global head of human resources, Carla Mahieu, who willwork with business units to better leverage the top talent available throughoutthe organization. In addition, AEGON is rolling out an engagement plan foremployees around the world and has taken steps to bring target compensation forsenior management further in line with the company's overall strategicobjectives.Optimize ONE AEGONOver the past two years, measures have been taken to manage AEGON more as oneinternational company. AEGON is committed to making better use of its globalresources in managing its businesses, to standardize best practices and tointroduce a single balance sheet approach to capital management.
To meet these objectives, AEGON will implement and monitor new performance measurement standards across the company.
FINANCIAL OVERVIEW EUR millions Q2 2010 Q1 2010 %
Q2 % YTD 2010 YTD 2009 % 2009
Underlying earnings before tax
Americas 437 379 15 289 51 816 143 - The Netherlands 97 104 (7) 129 (25) 201 201 - United Kingdom 22 28 (21) 20 10 50 28 79 New markets 40 46 (13) 49 (18) 86 80 8 Holding and other (74) (69) (7) (72) (3) (143) (135) (6)
Underlying earnings before tax 522 488 7
415 26 1,010 317 - Fair value items 3 (16) - (17) - (13) (184) 93
Realized gains / (losses) on investments 148 126 17
21 - 274 165 66 Impairment charges (77) (150) 49 (394) 80 (227) (779) 71
Other income / (charges) (60) 23 -
(352) 83 (37) (376) 90 Run-off businesses (49) (60) 18 (9) - (109) 68 - Income before tax 487 411 18 (336) - 898 (789) - Income tax (74) (39) (90) 175 - (113) 455 - Net income 413 372 11 (161) - 785 (334) -
Net income / (loss) attributable to:
Equity holders of AEGON N.V. 413 371 11 (161) - 784 (334) - Minority interest - 1 - - - 1 - - Net underlying earnings 390 381 2 331 18 771 267 189 Commissions and expenses 1,375 1,586 (13)
1,515 (9) 2,961 3,150 (6)
of which operating expenses 841 812 4 820 3 1,653 1,667 (1) New life sales Life single premiums 1,923 1,930 - 1,397 38 3,853 3,371 14
Life recurring premiums annualized 398 345 15
345 15 743 715 4
Total recurring plus 1/10 single 590 538 10
484 22 1,128 1,051 7 New life sales Americas 167 145 15 136 23 312 278 12 The Netherlands 41 62 (34) 32 28 103 94 10 United Kingdom 308 265 16 239 29 573 518 11 New markets 74 66 12 77 (4) 140 161 (13)
Total recurring plus 1/10 single 590 538 10
484 22 1,128 1,051 7
New premium production accident and health insurance 148 148 -
146 1 296 310 (5)
New premium production general insurance 15 14 7
11 36 29 23 26
Gross deposits (on and off balance)
Americas 5,154 5,403 (5) 4,710 9 10,557 10,646 (1) The Netherlands 624 743 (16) 720 (13) 1,367 1,182 16 United Kingdom 19 36 (47)
61 (69) 55 113 (51) New markets 1,787 1,593 12 1,032 73 3,380 2,114 60 Total gross deposits excluding run-off businesses 7,584 7,775 (2) 6,523 16 15,359 14,055 9 Run-off businesses - - - 209 - - 883 - Total gross deposits 7,584 7,775 (2) 6,732 13 15,359 14,938 3
Net deposits (on and off balance)
Americas 746 524 42 827 (10) 1,270 2,831 (55)
The Netherlands 55 67 (18)
170 (68) 122 225 (46)
United Kingdom 10 29 (66)
52 (81) 39 101 (61) New markets 187 121 55 (171) - 308 (485) -
Total net deposits excluding run-off businesses 998 741 35
878 14 1,739 2,672 (35)
Run-off businesses (1,837) (2,199) 16
(1,372) (34) (4,036) (4,326) 7
Total net deposits (839) (1,458) 42
(494) (70) (2,297) (1,654) (39) REVENUE GENERATING INVESTMENTS June 30, Mar. 31, 2010 2010 %
Revenue generating investments (total) 408,589 387,912 5
Investments general account 151,394 142,254 6
Investments for account of policyholders 139,717 135,385 3
Off balance sheet investments third parties 117,478 110,273 7
OPERATIONAL HIGHLIGHTS
Underlying earnings before tax
AEGON's underlying earnings before tax increased to EUR 522 million in the second quarter, a significant improvement compared with the same period last year. This increase in earnings was due mainly to improved financial markets, strengthening of the US dollar against the euro and growth of the business, while last year's earnings had also included several exceptional items.In the Americas, underlying earnings totaled EUR 437 million, a 51% increase compared with last year, primarily the result of higher investment income, a recovery in equity markets and lower expenses.
Underlying earnings in the Netherlands came in strong at EUR 97 million. However, earnings declined as the second quarter last year had included a one-time release in provisions of EUR 20 million. Results for the second quarter of 2010 were also affected by lower investment income and the sale of AEGON's Dutch funeral insurance business.
In the United Kingdom, underlying earnings increased slightly to EUR 22 millionas higher profits from annuities were partly offset by higher project-relatedexpenses.Underlying earnings from New Markets declined to EUR 40 million. The inclusionof AEGON Asset Management was more than offset by lower results from Central &Eastern Europe and further investments in the company's operations in Asia.
Expenses for the holding company increased slightly in the second quarter of 2010 to EUR 74 million, primarily a result of higher funding costs.
Fair value items
In the second quarter, fair value items showed an overall performance of EUR 3 million.
Overperformance in the Netherlands was the result mainly of gains in the fairvalue of guarantees and related hedges, partly offset by lower residential realestate values. In the Americas, underperformance was due primarily to a declinein results from credit
derivatives and variable annuity guaranteed minimum withdrawal benefits products, which offset gains from the company's macro equity hedge.
AEGON has decided to set its short term equity market return assumption indetermining estimated gross profits on variable life and variable annuityproducts in the Americas at 9% for the second quarter, reflecting the continuedvolatility experienced in equity markets and the use of macro equity hedges.This decision resulted in an additional charge of EUR 144 million, which hasbeen included in fair value items, partly offsetting gains from the company'smacro equity hedge.In addition, a widening of AEGON's own credit spread was more than offset byfair value movements of derivatives, which resulted in a loss for the holdingcompany.Gains on investmentsIn the second quarter, realized gains on investments increased to EUR 148million. In both the United States and the Netherlands, gains were relatedprimarily to the sale of bonds as part of asset and liability management, whilethe gain of EUR 97 million in the holding was realized on investments relatedto excess capital.Impairment chargesNet impairments continued their downward trend, amounting to EUR 77 million,reaching their lowest level in two years and approaching AEGON's long-termassumptions. Impairments during the second quarter were primarily related to UShousing related securities.Other chargesOther charges amounted to EUR 60 million. These included a one-time provisionof EUR 105 million for settlement of a dispute related to a Bank-Owned Life Insurance(BOLI)policy in the United States. Subsequent to the disruption in the credit market,which affected the investment value of the policy's underlying assets, a suitwas filed alleging that the policy terms were not sufficiently fulfilled byAEGON.
This provision was partly offset by a book gain of EUR 33 million from the sale of AEGON's funeral insurance business in the Netherlands.
Run-off businesses
AEGON's run-off businesses in the Americas recorded a loss in the second quarter of EUR 49 million. This loss was lower than expected because of better portfolio yields.
Income tax
Tax charges in the second quarter amounted to EUR 74 million and included a
EUR 26 million tax benefit related to cross-border intercompany reinsurance
transactions between the United States and Ireland.
Operating expenses
Operating expenses increased 3% to EUR 841 million due to a strengthening ofthe US dollar and pound sterling against the euro. However, operating expensesdeclined 2% at constant currencies as result of a number of initiatives to
reduce expenses.New life salesNew life sales increased 22% compared with the second quarter of 2009 to EUR590 million as almost all units experienced double-digit growth. The maindrivers behind the increase were pension sales in the United Kingdom and retaillife sales in the Americas.Deposits
Gross deposits, excluding run-off businesses, rose 16% to EUR 7.6 billion. Primary drivers of the increase were third-party asset management, US pensions and retail mutual fund inflows, offsetting lower fixed annuity deposits, which were managed lower. Net deposits totaled EUR 1 billion, excluding AEGON's run-off businesses, as all units reported positive net deposits.
Value of new business
AEGON's value of new business declined to EUR 148 million in the second quarter due to a decrease in the United Kingdom, following earlier repricing of immediate annuities and lower fixed annuity sales in the United States. In Spain, lower sales of risk products also led to a lower value of new business.
In the second quarter, 22% of AEGON's total value of new business came from NewMarkets. The internal rate of return on new business remained strong at 18% inthe second quarter.
Revenue-generating investments
Revenue-generating investments increased 5% compared with the end of the firstquarter to EUR 409 billion, primarily as a result of a strengthening in boththe US dollar and the pound sterling against the euro.
Capital management
At the end of the second quarter, AEGON's core capital position, excludingrevaluation reserves, amounted to EUR 18.6 billion, equivalent to 74% of thecompany's total capital base and above its target threshold of 70%. AEGON's aimis to increase the proportion of core capital over time to 75%6. AEGON's revaluation reserves at June 30, 2010, turned positive for the firsttime in almost three years and amounted to EUR 588 million. This significantimprovement is mainly the result of an increase in the value of fixed incomesecurities.
Shareholders' equity rose to EUR 17.2 billion as a result of the improved revaluation reserves, strengthening of the US dollar and the pound sterling against the euro, and the addition of second quarter net income.
Excess capital above S&P's AA capital adequacy requirements declined to EUR 3.0billion, of which EUR 1.9 billion was held in operating units andEUR 1.1 billion at the holding company. Positive contributions from earningsand capital preservation measures were more than offset by increased capitalrequirements for asset related risks. Standard & Poor's revised their riskfactors, significantly increasing applied charges related primarily tobond portfolios. As a result, capital requirements in the Americas rose during the second quarter by USD 0.9 billion.
At June 30, 2010, AEGON's Insurance Group Directive (IGD) capital surplus totaled EUR 7 billion, equivalent to a solvency ratio of approximately 200%.
Over the past few months, AEGON has been engaged in the process of obtainingthe European Commission's final consent to the terms relating to AEGON'sparticipation in the capital support program of the Dutch State. AEGON expectsthe European Commission to announce its final decision in thenear future. DividendAEGON's dividend policy remains unchanged and is based on its capital positionand cash flows. AEGON aims to maintain a sizeable cash buffer in order tofulfill its priority of repaying the Dutch State as soon as it is responsibleand feasible to do so. AEGON will therefore not declare an interim dividend
tocommon shareholders in 2010. Risk managementIn the second quarter, AEGON reduced its already limited exposure to peripheralEuropean sovereign bonds, which amounted to a market value of EUR 1.5 billionat June 30, 2010. As part of this reduction, AEGON sold approximately EUR 450million in Spanish government bonds during the quarter.
Financial strength ratings
During the second quarter, the financial strength ratings of AEGON's US operating companies were upgraded by A.M. Best to A+ with a Stable outlook, reflecting A.M. Best's assessment of the companies' financial strength and support of the parent. In July, Fitch Ratings lowered AEGON's operating companies' insurer financial strength ratings to AA- and raised the outlook to Stable.
APPENDIX I Americas - The Netherlands - United Kingdom - New Markets
FINANCIAL OVERVIEW, Q2 2010 GEOGRAPHICALLY
Holding, other The United New activities & EUR millions Americas Netherlands
Kingdom Markets eliminations Total
Underlying earnings before tax by line of business
Life 197 42 17 20 - 276
Individual savings and retirement products 139 -
- (5) - 134 Pensions 75 29 7 4 - 115 Life reinsurance 26 - - - - 26 Non-life - 19 - 1 - 20 Distribution - 6 (2) - - 4 Asset Management - - - 12 - 12 Other - - - - (74) (74)
Share in underlying earnings before tax of associates - 1 - 8 - 9 Underlying earnings before tax 437 97
22 40 (74) 522 Fair value items (33) 68 (14) (4) (14) 3
Realized gains / (losses) on investments 17 23
3 8 97 148 Impairment charges (61) (6) (1) (9) - (77)
Other income / (charges) (105) 33
23 (11) - (60) Run-off businesses (49) - - - - (49) Income before tax 206 215 33 24 9 487 Income tax (7) (45) (6) (9) (7) (74) Net income 199 170 27 15 2 413
Net underlying earnings 323 57
36 30 (56) 390 EMPLOYEE NUMBERS June 30, Mar. 31, 2010 2010 Employees excluding agents 25,127 25,204 Agents 3,011 3,044 Total number of employees excluding Associates 28,138
28,248
AEGON's share of employees (including agents) in Associates 3,320 2,854 Total 31,458 31,102 AMERICAS USD millions Q2 2010 Q1 2010
% Q2 2009 % YTD 2010 YTD 2009 %
Underlying earnings before tax by line of business
Life and protection 241 194 24 224 8 435 422 3 Fixed annuities 125 121 3 68 84 246 140 76 Variable annuities 50 69 (28) 34 47 119 (455) - Retail mutual funds - - - (6) - - (10) - Individual savings and retirement products 175 190
(8) 96 82 365 (325) -
Employer solutions & pensions 95 86 10 59 61 181 106 71 Life reinsurance 33 42 (21) 17 94 75 (13) - Canada 15 11 36 (15) - 26 6 - Latin America 1 1 - - - 2 (4) -
Underlying earnings before tax 560 524 7 381 47 1,084 192 - Fair value items (39) (120)
68 233 - (159) 232 -
Realized gains / (losses) on investments 21 33 (36) 3 - 54 (1) - Impairment charges (73) (191) 62 (449) 84 (264) (819) 68 Other income / (charges) (140) - - - - (140) 1 - Run- off businesses (62) (83) 25 (10) - (145) 90 - Income before tax 267 163 64 158 69 430 (305) - Income tax (12) 54 - 214 - 42 504 (92) Net income 255 217 18 372 (31) 472 199 137
Net income / (loss) attributable to: Equity holders of AEGON N.V. 255 217 18 372 (31) 472 199 137 Net underlying earnings 412 408 1 307 34 820 186 - Commissions and expenses 961 1,355
(29) 1,271 (24) 2,316 2,596 (11)
of which operating expenses 484 501 (3) 580 (17) 985 1,145 (14) New life sales Life single premiums 279 194 44 138 102 473 229 107
Life recurring premiums annualized 184 183
1 173 6 367 349 5
Total recurring plus 1/10 single 212 202
5 187 13 414 372 11 Life & protection 134 121 11 117 15 255 224 14 Employer solutions & pensions 4 9 (56) 8 (50) 13 18 (28) Life reinsurance 46 47 (2) 47 (2) 93 99 (6) Canada 16 15 7 13 23 31 25 24 Latin America 12 10 20 2 - 22 6 -
Total recurring plus 1/10 single 212 202
5 187 13 414 372 11 New premium production accident and health insurance 180 184 (2) 193 (7) 364 396 (8)
Gross deposits (on and off balance) by line of business
Life & protection 3 3 2 50 6 5 Fixed annuities 124 185 (33) 1,288 (90) 309 3,402 (91) Variable annuities 1,028 809
27 1,018 1 1,837 1,726 6
Retail mutual funds 957 976 (2) 513 87 1,933 819 136
Individual savings & retirement products 2,109 1,970
2,819 (25) 4,079 5,947
Employer solutions & pensions 4,311 5,217 (17) 3,600 20 9,528 8,114 17 Life reinsurance 1 1 - 1 - 2 1 100 Canada 118 286 (59) 59 100 404 144 181
Total gross deposits excluding run-off businesses 6,542 7,477 (13) 6,481 1 14,019 14,211 (1)
Run- off businesses - - 302 - - 1,179 Total gross deposits 6,542 7,477 (13) 6,783 (4) 14,019 15,390 (9)
Net deposits (on and off balance) by line of business Life & protection (12) (15) (13) 8 (27) (34) Fixed annuities (653) (543) (20) 389 - (1,196) 1,464 - Variable annuities 217 (23) - 397 (45) 194 395 (51) Retail mutual funds 357 418 (15) 107 - 775 (144) -
Individual savings & retirement products (79) (148)
893 - (227) 1,715
Employer solutions & pensions 1,264 1,386 (9) 375 - 2,650 2,253 18 Life reinsurance (15) (15) - (18) 17 (30) (38) 21 Canada (197) (482) 59 (69) (186) (679) (118) - Total net deposits excluding run-off businesses 961 726
32 1,168 (18) 1,687 3,778 (55)
Run-off businesses (2,317) (3,043)
(1,927) (20) (5,360) (5,774)
Total net deposits (1,356) (2,317) 41 (759) (79) (3,673) (1,996) (84) REVENUE GENERATING INVESTMENTS June 30, Mar. 31, 2010 2010 %
Revenue generating investments (total) 301,630 305,832 (1)
Investments general account 126,348 125,186 1
Investments for account of policyholders 69,401 73,214 (5)
Off balance sheet investments third parties 105,881 107,432 (1)
AMERICAS
* Underlying earnings before tax increase to USD 560 million
* Impairments decline to USD 73 million
* New life sales up to USD 212 million and strong gross deposits of USD 6.5 billion
Underlying earnings before tax
Earnings from Life & Protection in the Americas increased to USD 241 million,mainly the result of benefits from cost saving initiatives and the absence ofrestructuring charges which affected results last year.Individual Savings & Retirement earnings increased to USD 175 million. Fixedannuity earnings rose as yields on the portfolio increased, while results fromvariable annuities also improved due to an increase in overall asset balances.
Earnings from Employer Solutions & Pensions increased to USD 95 million on improved margins and growth of account balances.
Life reinsurance earnings increased to USD 33 million, a result of more favorable mortality experience compared with the second quarter last year.
Earnings from AEGON's operations in Canada amounted to USD 15 million, a strong improvement from a loss for the second quarter last year, which included a one-time charge related to deferred policy acquisition costs of USD 30 million.
Net incomeNet income from AEGON's operations in the Americas declined to USD 255 millionas improvements in underlying earnings and impairments were more than offset bythe underperformance of fair value items, increased tax charges and a one-offcharge related to a settlement. The underperformance in fair value items totaled USD 39 million, mainly due to negative results from credit derivatives and variable annuity guaranteed minimum withdrawal benefits products, which were partly offset by gains from the company's macro equity hedge.AEGON has decided to set its short term equity market return assumption indetermining estimated gross profits on variable life and variable annuityproducts at 9% for the second quarter, reflecting the continued volatilityexperienced in equity markets and the use of macro equity hedges. This decisionresulted in an additional charge of USD 187 million, which has been included infair value items, partly offsetting gains from the company's macro equityhedge.
During the second quarter, realized gains on investments amounted to USD 21 million and were related to corporate investment grade bonds sold in order to extend the duration of some of AEGON's investment portfolios.
Net impairments decreased to USD 73 million in the second quarter, reaching their lowest level in two years and approaching AEGON's long-term assumptions. Impairments during the quarter were related primarily to US housing related securities.
Other charges included a one-time provision ofUSD 140 million for settlement of a dispute relatedto a Bank-Owned Life Insurance (BOLI) policy in the United States. Subsequentto the disruption in the credit market, which affected the investment value ofthe policy's underlying assets, a suit was filed alleging that the policy termswere not sufficiently fulfilled by AEGON.
AEGON's run-off businesses in the Americas recorded a loss in the second quarter of USD 62 million. This better than expected result was due to higher portfolio yields.
Net income from AEGON's operations in the Americas included a tax expense inthe second quarter of USD 12 million primarily due to a decline in tax benefitsrelated to cross-border intercompany reinsurance treaties.
Operating expenses
Operating expenses declined 17% to USD 484 million as a result of lower restructuring charges and employee benefit plan costs and the transfer of activities to AEGON Asset Management. Excluding restructuring charges and employee benefit plan costs, operating expenses declined slightly as continued cost saving initiatives were absorbed by the first-time inclusion of our partnership in Brazil.
Sales and depositsNew life sales increased 13% compared with the second quarter 2009 to USD 212million. This was mainly a result of growth in AEGON's retail life insurancebusinesses across the Americas. New premium production for accident and healthproducts declined to USD 180 million, mainly due to the closure last year ofAEGON's automotive credit business in the United States.Gross deposits, excluding run-off businesses, increased 1% to USD 6.5 billionas higher pension and retail mutual fund deposits were offset by fixed annuitydeposits, which were managed lower. Net deposits, excluding run-off businesses,totaled approximately USD 1 billion as pension, variable annuity and retailmutual fund inflows offset outflows from fixed annuities in the United Statesand from segregated funds in Canada.
Value of new business
Value of new business declined to USD 80 million due primarily to lower fixedannuity sales. The lower contribution from fixed annuities more than offsethigher margins of variable annuities and pensions in the United States and animprovement in Canada. The internal rate of return for the quarter rose to 13%.
Revenue-generating investments
Compared with the first quarter, revenue-generating investments decreased toUSD 302 billion, as new money inflows and the effect of higher bond marketswere more than offset by the impact of a decline in equity markets and outflowsfrom AEGON's run-off businesses. THE NETHERLANDS EUR millions Q2 2010 Q1 2010
% Q2 2009 % YTD 2010 YTD 2009 %
Underlying earnings before tax by line of business
Life and Savings 42 39 8 58 (28) 81 93 (13) Pensions 29 47 (38) 57 (49) 76 83 (8) Non life 19 7 171 11 73 26 13 100 Distribution 6 11 (45) 3 100 17 12 42
Share in underlying earnings before tax of associates 1 - - - - 1 - -
Underlying earnings before tax 97 104 (7) 129 (25) 201 201 - Fair value items 68 91 (25) (80) - 159 (298) - Realized gains / (losses) on investments 23 96 (76) (15) - 119 123 (3) Impairment charges (6) (1) - (28) 79 (7) (106) 93 Other income / (charges) 33 - - - - 33 - - Income before tax 215 290 (26) 6 - 505 (80) - Income tax (45) (67) 33 (2) - (112) 43 - Net income 170 223 (24) 4 - 393 (37) -
Net income / (loss) attributable to:
Equity holders of AEGON N.V. 170 223 (24) 4 - 393 (37) - Net underlying earnings 57 77 (26) 93 (39) 134 148 (9) - Commissions and expenses 263 264 - 274 (4) 527 581 (9) of which operating expenses 182 182 - 192 (5) 364 409 (11) New life sales Life single premiums 241 397 (39) 145 66 638 536 19 Life recurring premiums annualized 18 22
(18) 17 6 40 40 -
Total recurring plus 1/10 single 41 62 (34) 32 28 103 94 10 Life and Savings 21 27 (22) 19 11 48 42 14 Pensions 20 35 (43) 13 54 55 52 6 Total recurring plus 1/10 single 41 62 (34) 32 28 103 94 10
New premium production accident and health insurance 4 11 (64) 3 33 15 10 50
New premium production general insurance 6 8 (25) 6 - 14 13 8
Gross deposits (on and off balance) by line of business
Life and Savings 534 683 (22) 587 (9) 1,217 1,037 17 Pensions 90 60 50 133 (32) 150 145 3 Total gross deposits 624 743 (16) 720 (13) 1,367 1,182 16
Net deposits (on and off balance) by line of business
Life and Savings 50 82 (39) 43 16 132 (24) - Pensions 5 (15) - 127 (96) (10) 249 - Total net deposits 55 67 (18) 170 (68) 122 225 (46) REVENUE GENERATING INVESTMENTS June 30, Mar. 31, 2010 2010 %
Revenue generating investments (total) 69,091 70,867(3)
Investments general account 35,203 36,294 (3)
Investments for account of policyholders 23,605 23,665 -
Off balance sheet investments third parties 10,283 10,908 (6)
THE NETHERLANDS
Underlying earnings before tax amount to EUR 97 million
Net income rises to EUR 170 million, including book gain on sale of funeral insurance business
New life sales increase to EUR 41 million mainly as a result of increased pension sales
Underlying earnings before tax
Earnings from Life & Savings decreased toEUR 42 million as the comparable quarter last year had included a one-timerelease of provisions of EUR 20 million. The loss of earnings due to the saleof AEGON's Dutch funeral insurance business was more than compensated byimproved margins on savings account balances.Pension earnings decreased to EUR 29 million mainly due to lower interestresults and higher claims.Non-life earnings improved to EUR 19 million mainly as a result of favorableclaim experience for both motor and fire insurance.
Earnings from Distribution increased to EUR 6 million, primarily the result of the sale last year of the company's loss-making real estate brokerage activities.
Net incomeNet income from AEGON's operations in the Netherlands increased to EUR 170million. Fair value items improved to EUR 68 million, the result of positivefair value movements of guarantees and related hedges offset partly by adecline in residential real estate values. Gains on investments amounted to EUR23 million and were mainly the result of gains on the sale of sovereign bonds.Impairment charges improved to just EUR 6 million, while Other income reflecteda book gain of EUR 33 million on the sale of the funeral insurance business
earlier this year.Operating expensesOperating expenses declined 5% to EUR 182 million in the second quarter. Thiswas the result of cost saving initiatives implemented last year, as well asthe transfer of asset management activities inthe Netherlands to AEGON Asset Management.On a comparable basis operating expensesremained stable. Sales and deposits
New life sales increased 28% compared with the second quarter last year to EUR41 million. Individual life sales were higher, due to an increase in demand formortgage-related products and a rise in sales of immediate annuities. Overallpension sales also increased mainly as a result of a number of larger grouppension contracts secured during the quarter.
Value of new business
Lower spreads in both AEGON's mortgage and annuity businesses resulted in a decrease in the value of new business in the second quarter of 2010 to EUR 30 million. The internal rate of return amounted to 17% during the quarter, exceeding the company's minimum hurdle rate.
Revenue-generating investments
Revenue-generating investments decreased toEUR 69 billion, down 3% compared with the end of the previous quarter. Thisdecrease was primarily the result of a transfer of assets related to the saleof the funeral insurance business and lower equity markets during the quarter. UNITED KINGDOM GBP millions Notes Q2 2010 Q1 2010 % Q2 2009 % YTD 2010 YTD 2009 %
Underlying earnings before tax by line of business
Life 15 18 (17) 11 36 33 18 83 Pensions 5 9 (44) 7 (29) 14 12 17 Distribution (2) (2) - (2) - (4) (5) 20
Underlying earnings before tax 18
25 (28) 16 13 43 25 72 Fair value items (11) 2 - 13 - (9) 14 -
Realized gains / (losses) on investments 3
2 50 13 (77) 5 19 (74) Impairment charges (1) (7) 86 (30) 97 (8) (43) 81
Other income / (charges) 7 19
21 (10) 30 (37) 40 8 - Income before tax 28 43 (35) 42 (33) 71 23 - Income tax attributable to policyholder return (19)
(21) 10 (29) 34 (40) (7) -
Income before income tax on shareholders return 9
22 (59) 13 (31) 31 16 94
Income tax on shareholders return 15 (2) - 4 - 13 9 44 Net income 24 20 20 17 41 44 25 76
Net income / (loss) attributable to: Equity holders of AEGON N.V. 24
20 20 17 41 44 25 76 Net underlying earnings 31 22 41 21 48 53 32 66 - Commissions and expenses 181 170 6 169 7 351 322 9
of which operating expenses 95
95 - 101 (6) 190 197 (4) New life sales 8 Life single premiums 1,050 1,139 (8) 879 19 2,189 2,078 5 Life recurring premiums annualized 158
121 31 122 30 279 255 9
Total recurring plus 1/10 single 263 235 12 210 25 498 463 8 Life 23 26 (12) 41 (44) 49 112 (56) Pensions 240 209 15 169 42 449 351 28 Total recurring plus 1/10 single 263 235 12 210 25 498 463 8
Gross deposits (on and off balance) by line of business
Variable annuities 16 32 (50) 54 (70) 48 101 (52) Total gross deposits 16 32 (50) 54 (70) 48 101 (52)
Net deposits (on and off balance) by line of business
Variable annuities 9 25 (64) 45 (80) 34 90 (62) Total net deposits 9 25 (64) 45 (80) 34 90 (62) REVENUE GENERATING INVESTMENTS June 30, Mar. 31, 2010 2010 %
Revenue generating investments (total) 51,738 53,572 (3)
Investments general account 7,856 7,498 5
Investments for account of policyholders 43,882 46,074 (5)
For the amounts in euro see the Financial Supplement.
UNITED KINGDOM
Underlying earnings before tax increase to GBP 18 million
Net income rises to GBP 24 million
New life sales up to GBP 263 million - the result of strong pension sales
Restructuring UK business; targeting cost reductions of 25% by end 2011 to improve returns
Underlying earnings before tax
Earnings from Life & Protection increased to GBP 15 million due to an increase in the size of the annuity book and the expenses related to the closure of the employee benefit business in the comparable quarter last year.
Pension earnings decreased to GBP 5 million as the positive effects of furtherbusiness growth and improved equity and credit markets were more than offset byhigher expenses associated with investments in developing new propositions.
AEGON's distribution businesses in the United Kingdom benefitted from improved business performance and market conditions, which limited losses during the quarter to GBP 2 million.
Net incomeNet income for the second quarter of 2010 increased to GBP 24 million, mainlybecause of a sharp decline in impairments. Impairments declined significantlyand totaled just GBP 1 million for the quarter. AEGON recorded a loss duringthe quarter on fair value items in the United Kingdom as a result of a declinein equity markets and an accounting loss on a derivative instrument for whichhedge accounting could not be applied. Gains on investments decreased andcomprised essentially gains from the sale of bonds during the quarter, while alarger tax benefit was recorded than in the comparable quarter last year.
Operating expenses
Operating expenses decreased 6% to GBP 95 million as a result of costcontainment and the transfer of asset management activities at the beginning ofthe year to AEGON Asset Management, partly offset by investments in developingthe UK personal pensions market proposition and increased project-relatedcosts. In June, AEGON announced to re-focus itsUK life and pensions business on two core markets - At Retirement and WorkplaceSavings - and to reduce operating costs 25% by 2011. Plans to deliver thisexpense reduction program are currently under development and further detailwill be announced later this year.
Sales and deposits
New life sales increased 25% to GBP 263 million as higher sales of pension andretirement products more than offset a decrease in sales of immediate annuitiesfollowing earlier repricing and the closure of AEGON's employee benefitbusiness in the United Kingdom in the second quarter last year. Also, thecomparable quarter last year included existing AEGON group personal pensionbusiness that was transferred internally to new group pension contracts. AEGONhas decided not to include these rewrites as part of new business reporting asthis gives a clearer indication of new premium secured.
Value of new business
Value of new business in the United Kingdom declined to GBP 20 million due to a decrease in immediate annuity sales as a result of earlier repricing. The internal rate of return on new business during the quarter was 12%.
Revenue-generating investments
Revenue-generating investments decreased toGBP 52 billion compared with the end of the previous quarter as the positiveeffects of inflows were more than offset by a decline in equity markets duringthe quarter. NEW MARKETS EUR millions Q2 2010 Q1 2010 %
Q2 2009 % YTD 2010 YTD 2009 %
Underlying earnings before tax
Central Eastern Europe 19 27 (30) 29 (34) 46 55 (16) Asia (11) (6) (83) 2 - (17) (6) (183) Spain & France 19 20 (5) 18 6 39 32 22
Variable Annuities Europe 1 (2) -
- - (1) (1) - AEGON Asset Management 12 7 71 - - 19 - -
Underlying earnings before tax 40 46 (13)
49 (18) 86 80 8 Fair value items (4) 3 - 4 - (1) 7 -
Realized gains / (losses) on investments 8 3 167 1 - 11 3 - Impairment charges (9) (2) - (1) - (11) (5) (120) Other income / (charges) (11) - - (385) 97 (11) (385) 97 Income before tax 24 50 (52) (332) - 74 (300) - Income tax (9) (13) 31 (11) 18 (22) (35) 37 Net income 15 37 (59) (343) - 52 (335) -
Net income / (loss) attributable to: Equity holders of AEGON N.V. 15 36 (58) (343) - 51 (335) - Minority Interest - 1 - - - 1 - - Net underlying earnings 30 32 (6) 38 (21) 62 45 38 - Commissions and expenses 169 175 (3)
85 99 344 196 76
of which operating expenses 127 133 (5)
51 149 260 110 136 New life sales Life single premiums 234 108 117 142 65 342 334 2
Life recurring premiums annualized 51 55 (7)
63 (19) 106 128 (17)
Total recurring plus 1/10 single 74 66 12
77 (4) 140 161 (13) Life 66 53 25 48 38 119 98 21 Associates 8 13 (38) 29 (72) 21 63 (67)
Total recurring plus 1/10 single 74 66 12
77 (4) 140 161 (13) Central Eastern Europe 24 19 26 18 33 43 33 30 Asia 9 10 (10) 6 50 19 20 (5) Spain & France 41 37 11 53 (23) 78 108 (28)
Total recurring plus 1/10 single 74 66 12
77 (4) 140 161 (13)
New premium production accident and health insurance 4 4 -
1 - 8 3 167
New premium production general insurance 9 6 50
5 80 15 10 50
Gross deposits (on and off balance)
Central Eastern Europe 249 226 10 189 32 475 368 29 Asia 10 25 (60) - - 35 4 - Spain & France 12 44 (73) 11 9 56 19 195 Variable Annuities Europe 175 188 (7) 180 (3) 363 326 11 AEGON Asset Management 1,341 1,110 21 652 106 2,451 1,397 75 Total gross deposits 1,787 1,593 12 1,032 73 3,380 2,114 60
Net deposits (on and off balance)
Central Eastern Europe 149 69 116 112 33 218 206 6 Asia 9 25 (64) 1 - 34 2 - Spain & France 4 25 (84) (3) - 29 (12) - Variable Annuities Europe 47 79 (41) 52 (10) 126 95 33 AEGON Asset Management (22) (77) 71 (333) 93 (99) (776) 87 Total net deposits 187 121 55 (171) - 308 (485) - REVENUE GENERATING INVESTMENTS June Mar. 30, 31, 2010 2010 %
Revenue generating investments (total) 29,692 28,233 5
Investments general account 2,900 2,941 (1)
Investments for account of policyholders 5,882 5,629 4
Off balance sheet investments third parties 20,910 19,663 6
NEW MARKETS
Underlying earnings before tax amount to EUR 40 million
Net income up to EUR 15 million
New life sales decline to EUR 74 million, primarily a result of lower sales in Spain
Underlying earnings before tax
Earnings from Central & Eastern Europe declined to EUR 19 million mainly as aresult of claims related to storms and floods earlier this year in Hungary andfurther investments in AEGON's business in Turkey.
Operations in Asia made a loss of EUR 11 million as a result of continued investments in the company's joint ventures in China, India and Japan.
Earnings from Spain and France increased to EUR 19 million compared with second quarter 2009, mainly due to higher contributions from AEGON's bancassurance partnerships in Spain.
Earnings from asset management amounted to EUR 12 million.
Net income
Net income from New Markets increased in the second quarter to EUR 15 million.The same period last year had included a significant book loss relating to thesale of AEGON's life insurance operations in Taiwan. Fair value items recordeda loss as a result of hedging losses in AEGON's European variable annuities business, while impairment charges of EUR 9 million reflect a combination of write-downson investments in Spain and on mortgages sold in Hungary.
Operating expenses
Operating expenses amounted to EUR 127 million in the second quarter, anincrease from last year due to the inclusion of AEGON Asset Management in NewMarkets. Operating expenses were, however, 5% lower than in the first quarterof this year as a resultof strict cost control. Sales and deposits
New life sales for New Markets declined to EUR 74 million in the second quarter. Sales growth in both Central & Eastern Europe and Asia was more than offset by lower sales of recurring premium products in Spain.
In Spain, total new life sales declined 23% to EUR 41 million as a result of lower production from CAM, one of AEGON's local savings bank partners, while AEGON's own insurance operation and the four other partners all recorded sales growth compared with the second quarter 2009.
New life sales in Central & Eastern Europe increased to EUR 24 million as a result of strong single premium sales in Poland, continued growth in Hungary and a successful shift in Turkey from pension to life insurance sales.
In Asia, new life sales rose to EUR 9 million as both China and India reported increased sales.
New premium production of general insurance increased to EUR 9 million, mainlydriven by continued strong household and motor insurance sales in Hungary. FromJuly 1, 2010, AEGON has been offering household insurance to customers in theCzech Republic and Slovakia as well, leveraging on the experience and expertiseof the Hungarian non-life business. Gross deposits from New Markets increased to EUR 1.8 billion primarily as a
result of a doubling in asset management deposits.
Value of new business
New Markets' value of new business amounted to EUR 32 million. Higher contributions from AEGON's European variable annuities business and the operations in Asia and Central & Eastern Europe were more than offset by a decline in the value of new business in Spain, driven predominantly by lower production. The internal rate of return remained high at 35%.
Revenue-generating investments
Revenue-generating investments increased 5% compared with the previous quarter to EUR 30 billion mainly as a result of increased third-party investments.
Market developments
In Spain, the financial sector is undergoing significant consolidation andrestructuring. Consequently, a number of the country's savings banks are in theprocess of either merging or entering into so-called integration agreements(SIPs). This process is likely to affect AEGON's bancassurance partnerships inSpain, particularly as in certain cases newly-formed savings banks now haveseveral insurance partners and are likely to select just one to do businesswith in the future. AEGON is not in a position to speculate about the outcome ofthis process, but intends to maintain its current share of the Spanishinsurance market. In Hungary, an additional tax has been introduced for financial institutions domiciled in the country. This tax applies to the years 2010, 2011 and 2012. Based on initial estimates, AEGON believes this will lead to additional charges of EUR 20 million in 2010, of which EUR 10 million has been accounted for in the second quarter in Other charges. FINANCIAL OVERVIEW, 2010 YEAR-TO-DATE GEOGRAPHICALLY
Holding, other The United New activities & EUR millions Americas Netherlands
Kingdom Markets eliminations Total
Underlying earnings before tax by line of business
Life 345 81 38 41 - 505
Individual savings and retirement products 277 -
- (11) - 266 Pensions 137 76 16 8 - 237 Life reinsurance 56 - - - - 56 Non-life - 26 - 9 - 35 Distribution - 17 (4) - - 13 Asset Management - - - 19 - 19 Other - - - - (143) (143) Associates 1 1 - 20 - 22
Underlying earnings before tax 816 201
50 86 (143) 1,010 Fair value items (119) 159 (11) (1) (41) (13)
Realized gains / (losses) on investments 41 119
6 11 97 274 Impairment charges (200) (7) (9) (11) - (227)
Other income / (charges) (105) 33
46 (11) - (37) Run-off businesses (109) - - - - (109) Income before tax 324 505 82 74 (87) 898 Income tax 32 (112) (32) (22) 21 (113) Net income 356 393 50 52 (66) 785 Net underlying earnings 618 134 61 62 (104) 771
OPERATIONAL HIGHLIGHTS FIRST SIX MONTHS 2010
Net income
AEGON reported a net income of EUR 785 million for the first six months of2010, a significant improvement from the loss of EUR 334 million reported forthe comparable period last year. This improved result is mainly attributable tohigher underlying earnings, a recovery in fair value items performance, lowerimpairments and the absence of a few exceptional items offset by higher taxcharges.
Underlying earnings before tax
AEGON's underlying earnings before tax increased to EUR 1,010 million in thefirst half of 2010, a significant improvement compared with the same periodlast year. This increase in earnings was due mainly to improved financialmarkets. In the Americas, earnings increased mainly as a result of higherinvestment income, a recovery in equity markets and lower expenses. Underlyingearnings remained stable in the Netherlands, while earnings in the UnitedKingdom clearly benefitted from improved equity and bond markets. Earnings fromNew Markets increased mainly due to the first time inclusion of earnings fromAEGON Asset Management. Fair value items
During the first six months of 2010, fair value items totaled to a loss of EUR13 million. In the Netherlands, fair value items turned positive mainly due tomuch improved results from fair value guarantees and related hedges. In theAmericas, the first half year of 2009 had included large gains from fair valueguarantees and related hedges, while the first half of 2010 recorded a loss forthis fair value item, this was only partly offset by improved results foralternative investments. AEGON's credit spread narrowed substantially duringthe first half of 2009, an effect which did not occur during the first half of2010. As a result, fair value results for the holding company improvedconsiderably.
Realized gains on investments
AEGON realized EUR 274 million of gains from its investment portfolios during the first half of 2010. Gains were primarily related to the sale of bonds driven by asset and liability management.
Impairment charges
Net impairments have improved considerably to EUR 227 million for the first half of 2010. The improvement was mainly driven by both lower corporate bond and housing
related asset impairments. Other charges
Other charges amounted to EUR 37 million in the first half of 2010 and comprised mainly of a one-time provision of EUR 105 million for settlement of a dispute related to a Bank-Owned Life Insurance (BOLI) policy in the United States and a book gain on the sale of the Dutch funeral insurance business.
The comparable period last year had included the book loss related to the sale of AEGON's life insurance operations in Taiwan.
Run-off businesses
This line has been introduced starting this year and contains the results ofbusiness units where management has decided to exit the market and to run-offthe existing block of business. Currently, this line includes the run-off ofthe institutional spread-based business and structured settlements blocks ofbusiness in the United States. The total loss in the first half year of 2010amounted to EUR 109 million. Income taxDuring the first half of 2010, tax charges amounted to EUR 113 million comparedwith tax benefits of EUR 455 million in the comparable period last year. These benefits were mainly related to impairments, marked-to-market losses on fair value items and tax exempt items. AEGON also booked a tax gain ofEUR 252 million in the first half of 2009 related to cross border intercompanyreinsurance transactions between Ireland and the United States.
Operating expenses
To improve returns from its businesses, AEGON introduced a number of initiatives to reduce operating expenses. As a result, operating expenses declined 1% compared with the first half of 2009 to EUR 1,653 million in the first half of 2010.
New life salesNew life sales increased 7% during the first six months of 2010 to EUR 1,128million driven by improved results in most units. In the Americas, increaseswere mainly due to retail new life sales, in particular term life sales. In theNetherlands, both individual life and group pension sales increased, while inthe United Kingdom pensions were the main driver of sales growth.
Deposits
Gross deposits, excluding run-off businesses, amounted to EUR 15.4 billion inthe first half of 2010, an increase of 9% compared with the first half of 2009.The increase was mainly driven by higher pensions and variable annuity depositsoffset by lower fixed annuity deposits, which were managed lower.
Value of new business
AEGON's value of new business declined to EUR 294 million in the first half of2010 mainly due to a decrease in both the United Kingdom and the United States.In the United Kingdom the main reason for the decline is lower immediateannuity sales following repricing. The reduction in the value of new businessin the United States was primarily the result of lower fixed annuity sales. InSpain, lower sales of risk products also led to a lower value of new business.
Revenue-generating investments
Revenue-generating investments increased to EUR 409 billion at the end of the second quarter of 2010. The recovery in equity markets, the positive effects of risk free interest rates and lower spreads as well as the strengthening of the US dollar and the pound sterling all contributed to the increase compared with December 31, 2009. Capital management
At the end of the second quarter, AEGON's core capital position, excludingrevaluation reserves, amounted to EUR 18.6 billion, equivalent to 74% of thecompany's total capital base and above its target threshold of 70%. AEGON's aimis to increase the proportion of core capital over time to 75%6. AEGON's revaluation reserves at June 30, 2010, turned positive for the firsttime in almost three years and amounted to EUR 588 million. This significantimprovement is mainly the result of an increase in the value of fixed incomesecurities.
Shareholders' equity rose to EUR 17.2 billion mainly as a result of the improved revaluation reserves, strengthening of the US dollar and the pound sterling against the euro and the addition of first half years' net income.
Excess capital above S&P's AA capital adequacy requirements amounted to EUR 3.0billion, down from EUR 3.7 billion at the end of 2009. Positive contributionsfrom earnings and capital preservation measures were more than offset byincreased capital requirements for asset related risks. Standard & Poor'srevised their risk factors significantly increasing applied charges primarilyrelated to bond portfolios. As a result, capital requirements in the Americasrose during the first half of 2010 by USD 1.4 billion.
At June 30, 2010, AEGON's Insurance Group Directive (IGD) capital surplus totaled EUR 7 billion, equivalent to a solvency ratio of approximately 200%.
Risk management
Standard & Poor's has upgraded its assessment of AEGON's enterprise risk management (ERM) framework to 'strong', reflecting significant advances the company has made in developing its risk management framework and the fact that this framework is now fully embedded in its business.
The financial strength ratings of AEGON's US operating companies were upgradedby A.M. Best to A+ with a Stable outlook, reflecting A.M. Best's assessment of the financial strength and support of the parent. In July, Fitch Ratings has lowered AEGON's operating companies' insurer financial strength ratings to AA- and raised the outlook to Stable. During the first half of 2010, AEGON reduced its already limited exposure toperipheral European sovereign bonds, which amounted to a market value of EUR1.5 billion at June 30, 2010. As part of this reduction, AEGON soldapproximately EUR 470 million in Spanish government bonds. APPENDIX II VALUE OF NEW BUSINESS AND IRR VNB VNB VNB VNB VNB EUR millions, after tax Q2 2010 Q1 2010 % Q2 2009 % YTD 2010 YTD 2009 % Americas 62 52 19 66 (6) 114 145 (21) The Netherlands 30 49 (39) 36 (17) 80 67 19 United Kingdom 24 14 71 45 (47) 37 103 (64) New Markets 32 31 3 34 (6) 63 68 (7) Total 148 146 1 181 (18) 294 382 (23) IRR % IRR% IRR% EUR millions, after tax Q2 2010 Q1 2010 Q2 2009 Americas 12.9 12.6 11.1 The Netherlands 17.0 19.2 29.5 United Kingdom 11.9 10.7 13.8 New Markets 35.3 34.2 39.5 Total 18.4 19.3 21.9
MODELED NEW BUSINESS, APE AND DEPOSITS
Premium business Premium business APE APE EUR millions Notes Q2 2010 Q1 2010 % Q2 2009 % YTD 2010 YTD 2009 % 9 Americas 266 245 9 245 9 511 511 - The Netherlands 58 93 (38) 44 32 150 122 23 United Kingdom 303 265 14 179 69 569 403 41 New Markets 97 80 21 186 (48) 177 388 (54) Total 724 683 6 654 11 1,408 1,423 (1) Deposit business Deposit business Deposits Deposits EUR millions Q2 2010 Q1 2010 % Q2 2009 % YTD 2010 YTD 2009 % Americas 4,325 3,926 10 5,112 (15) 8,250 10,364 (20) United Kingdom 17 34 (50) - - 51 - - New Markets 303 307 (1) 186 63 610 322 89 Total 4,645 4,267 9 5,298 (12) 8,911 10,687 (17) VNB/PVNBP SUMMARY Premium business Premium business VNB PVNBP VNB / VNB / VNB PVNBP VNB / VNB / PVNBP APE PVNBP APE EUR millions Notes Q2 2010 % % YTD 2010 % % 10 Americas 36 1,198 3.0 13.6 64 2,240 2.8 12.5 The Netherlands 30 383 7.9 52.5 80 1,092 7.3 52.9 United Kingdom 24 2,197 1.1 7.8 37 3,921 1.0 6.6 New Markets 26 801 3.3 27.1 49 1,390 3.5 27.5 Total 116 4,579 2.5 16.1 229 8,643 2.7 16.3 Deposit business Deposit business VNB PVNBP VNB / VNB / VNB PVNBP VNB / VNB / PVNBP Deposits PVNBP Deposits
EUR millions Notes Q2 2010 % % YTD 2010 %
% 10 Americas 26 6,189 0.4 0.6 50 11,742 0.4 0.6 United Kingdom (0) 17 (0.3) (0.3) (0) 51 (0.6) (0.6) New Markets 6 445 1.2 1.8 15 948 1.5 2.4 Total 31 6,650 0.5 0.7 64 12,741 0.5 0.7 Notes:
1) For a definition of underlying earnings and the reconciliation from underlying earnings 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) 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) 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.
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. Currencies Income statement items: average rate 1 EUR = USD 1.3279 (2009: USD 1.3349). Income statement items: average rate 1 EUR = GBP 0.8696 (2009: GBP 0.8920). Balance sheet items: closing rate 1 EUR = USD 1.2271 (2009: USD 1.4134;
year-end 2009: USD 1.4406).
Balance sheet items: closing rate 1 EUR = GBP 0.8175 (2009: GBP 0.8521; year-end 2009: GBP 0.8881).
ADDITIONAL INFORMATION
The Hague, August 12, 2010
Media conference call08:00 CET
Audio webcast on www.aegon.com
Analyst & investor conference call
09:00 CET
Audio webcast on www.aegon.com
Call-in numbers (listen only):
USA: +1 480 629 9822UK: + 44 208 515 2302NL: +31 20 796 5332 Replay
A replay of the conference call will be available 2 hours after the conference call on
www.aegon.com and on the following phone numbers:
UK +44 207 154 2833 Access Code: 4329936#
US +1 303 590 3030 Access Code: 4329936#
Supplements
AEGON's Q2 2010 Financial Supplement and Condensed Consolidated Interim Financial Statements are available on www.aegon.com.
AEGON's Form 6-K for the six months ended June 30, 2010 will be available on www.aegon.com on FridayAugust 13, 2010 as of 15.30 CET (opening NYSE).About AEGON
As an international life insurance, pension and investment company based in
The Hague, AEGON has businesses in over twenty markets in the Americas,
Europe and Asia. AEGON companies employ approximately 28,000 people
and have more than 40 million customers across the globe.
Key figures - EUR Second quarter Full year 2010 2009 Underlying earnings 522 million 1.2 billionbefore tax New life sales 590 million 2.1 billion Gross deposits (excl. 7.6 billion 28 billionrun-off) Revenue generating 409 billion 363 billioninvestments (end of period)
Cautionary note regarding non-GAAP measures
This press release includes certain non-GAAP financial measures: underlyingearnings before tax and value of new business. The reconciliation of underlyingearnings before tax to the most comparable IFRS measure is provided in Note 3"Segment information" of our Condensed consolidated interim financialstatements. Value of new business is not based on IFRS, which are used toreport AEGON's quarterly statements and should not viewed as a substitute forIFRS financial measures. AEGON believes that these non-GAAP measures, togetherwith the IFRS information, provide a meaningful measure for the investmentcommunity to evaluate 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 financialcondition in USD for the Americas and GBP for the United Kingdom, because thosebusinesses operate and are managed primarily in those currencies. Certaincomparative information presented on a constant currency basis eliminates theeffects of changes in currency exchange rates. None of this information is asubstitute for or superior to financial information about us presented in EUR,which is the currency of our primary financial statements.
Forward-looking statements
The 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 our company. These statements are not guarantees of futureperformance and involve risks, uncertainties and assumptions that are difficultto predict. We undertake no obligation to publicly update or revise anyforward-looking statements. Readers are cautioned not to place undue relianceon these forward-looking statements, which merely reflect company expectationsat the time 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 frequency and severity of insured loss events;
* Changes affecting mortality, morbidity 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 United States, the Netherlands, the
United Kingdom and emerging 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;
* Effects of deliberations of the European Commission regarding the aid we
received from the Dutch State in December 2008; * 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; and
* The impact our adoption of the International Financial Reporting Standards
may have on our reported financial results and financial condition.
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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