Last checked at 11 Aug 2011 07:00
AEGON announces Q2 2011 net income of EUR 404 million
- Growth offset by unfavorable currency movements and anticipated exceptional charges
* Underlying earnings before tax of EUR 401 million; growth offset by unfavorable currency movements (EUR 44 million), higher provisioning for longevity in the Netherlands (EUR 23 million) and UK customer redress charges (EUR 14 million)
* Net income amounts to EUR 404 million, supported by realized gains on investments
* Return on equity of 8.0% in the first half year of 2011
- Continued strong sales in fee-based businesses in line with strategic focus
* Total sales1 decline to EUR 1.3 billion, due mainly to unfavorable currency movements
* New life sales total EUR 431 million; declines in the Americas and the UK following repricing of products
* Gross deposits amount to EUR 6.7 billion, supported by strong variable annuity and pension deposits
- Strong capital position and healthy cash flows
* Excess capital of EUR 1 billion at the holding after full repurchase of core capital securities from Dutch State
* IGD solvency ratio of ~200% reflection of strong capitalization
* Capital base ratio of 73%; full repurchase of core capital securities partly offset by retained earnings
* Operational free cash flow of EUR 283 million
Statement of Alex Wynaendts, CEO
"During the second quarter, we made solid progress in delivering on AEGON'skey strategic priorities, not least of which was the completion of repaymentto the Dutch State. The particularly strong sales of variable annuities andpension and retirement products in the United States are a result of thesuccessful repositioning of our business toward more fee-generating income.Our pursuit of growth opportunities in AEGON's new markets led to strong newlife sales in Central & Eastern Europe, as well as expanded distribution inSpain, where we recently strengthened our life insurance and pensionpartnership with Unnim, a leading savings bank in the northeastern region ofthe country.
"The weakening of the US dollar had a notable impact on AEGON's reported results. Net income was strong for the quarter, however, underlying earnings were negatively affected by anticipated exceptional items in the United Kingdom and the Netherlands.
"Clearly, the current economic environment poses considerable challenges.However, over the past years we have implemented measures to strengthen andprotect AEGON's balance sheet by reducing our exposure to equity and creditmarkets, as well as interest rate risks. At the same time, we arerestructuring our businesses in our key markets. These actions, along with ourvery limited exposure to peripheral European countries, support our confidencein AEGON's growth prospects going forward."KEY PERFORMANCE INDICATORS amounts in EUR millions b) Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 % Underlying earnings before tax 1 401 414 (3) 483 (17) 815 929 (12) Net income 2 404 327 24 413 (2) 731 785 (7) Sales 3 1,261 1,411 (11) 1,475 (15) 2,672 2,917 (8) Value of new business (VNB) 4 103 118 (13) 138 (25) 221 276 (20) Return on equity 5 8.1% 7.8% 4 8.5% (5) 8.0% 8.4% (5)1 To reflect all of AEGON's sales in one sales indicator, AEGONintroduced a composite sales number consisting of new life sales, new premiumproduction of both accident & health insurance and general insurance and 1/10of gross deposits.For notes see page 22.STRATEGIC HIGHLIGHTS
- AEGON further detailed strategy and reiterated targets at Analyst & Investor Conference
- Repayment to Dutch State completed
- Divestment of Transamerica Reinsurance concluded
- Appointment of Jaime Kirkpatrick as CEO of AEGON Spain
Sustainable earnings growth with an improved risk-return profile
AEGON's transformational process to deliver sustainable earnings growth withan improved risk-return profile is on track with the completion of fullrepayment to the Dutch State in June. The company reiterated its targets1 atits recent Analyst & Investor Conference in London:
- Grow underlying earnings before tax on average by 7%-10% per annum;
- Achieve a return on equity of 10%-12% by 2015;
- Increase fee businesses to 30%-35% of underlying earnings before tax by 2015; and
- Increase 2010 normalized operating free cash flow by 30% by 2015.
AEGON also announced its intention to achieve structural cost reductions inits established markets. In the Netherlands, a 20% reduction in operatingexpenses as compared to the 2009 base is targeted by the end of 2012. In theUnited Kingdom, AEGON is on track to reduce costs by 25% by the end of 2011.In the United States, AEGON aims to grow its life and protection businessfaster than the industry, while keeping operating expenses flat throughout theperiod until 2015.
1 Main economic assumptions embedded in targets: annual gross equity market return of 9%, 10-year US interest rate of 5.25% in 2015 and EUR/USD rate of 1.35.
AEGON's ambition
AEGON's ambition to be a leader in all of its chosen markets by 2015 is supported by four strategic objectives: Optimize Portfolio, Enhance Customer Loyalty, Deliver Operational Excellence and Empower Employees.
These key objectives have been embedded in all AEGON businesses and provide the strategic framework for the company's ambition to become the most-recommended life insurance and pension provider by customers and distributors, as well as the most-preferred employer in the sector.
Optimize portfolio
In Spain, AEGON has finalized an agreement to expand its life and healthinsurance and pension partnership with Unnim. The agreement includes theacquisition of a 50% stake in the life insurance business of Caixa Sabadell,expanding into the network of Caixa Manlleu and strengthening of AEGON'sexisting partnership with Caixa Terrassa. These three savings banks joinedtogether earlier this year to form Unnim. The agreement gives AEGON theexclusive right to distribute its life insurance and pension products throughUnnim's network of 623 branches. Unnim is a leading savings bank in thenortheastern part of Spain, with a significant presence and more than onemillion customers.
Also, AEGON has closed an agreement to jointly develop health insurance business with Caja Navarra, part of Banca CÂvica.
AEGON continues to closely monitor the process of consolidation and restructuring in the financial sector in Spain.
AEGON has appointed Jaime Kirkpatrick to the role of CEO of AEGON Spain effectiveJuly 1, 2011. Mr. Kirkpatrick has played a key role in expanding AEGON's presence across the Spanish market in his previous capacity of director of bancassurance for AEGON Spain.On August 9, 2011, AEGON completed the divestment of its life reinsuranceactivities, Transamerica Reinsurance, to Scor. The total after-taxconsideration amounted to USD 1.4 billion, consisting of cash proceeds of USD0.9 billion from Scor and a further USD 0.5 billion of capital released. AEGONestimates that this transaction will have a positive impact on its IGDsolvency ratio of approximately 13% in the third quarter of 2011.
Enhance customer loyalty
In its aim to develop a stronger and more consistent brand portfolio globally, with shared purposes and core values, AEGON has sharpened its brand proposition in the United States. The company will bring together its North American retail businesses under one name, Transamerica. A new advertising campaign will be launched in September.
AEGON has also decided to rebrand its asset management activities in the United Kingdom as Kames Capital to enhance its distinctive investment propositions while supporting accelerated growth of the business.
Deliver operational excellence
In the Netherlands, AEGON has decided to combine its pension service centre with its corporate & institutional clients sales unit into one pension business with the aim of increasing efficiency, providing better service and strengthening AEGON's leading position in the Dutch pension market. The new unit will serve three customer groups - small and medium sized enterprises, institutional clients and pension plan participants.
AEGON has established a target to reduce the CO2 emissions of its offices by10% by 2012. The goal is part of AEGON's continuing efforts to manage allassets - including those that affect the environment - in a responsible way.In the long run, the changes that are implemented to meet the target willreduce costs as well as CO2 emissions. Setting a goal in this respect willalso help the company meet the growing expectations of its stakeholders.FINANCIAL OVERVIEW c) EUR millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 % Underlying earnings before taxAmericas 325 347 (6) 398 (18) 672 735 (9)The Netherlands 74 81 (9) 97 (24) 155 201 (23)United Kingdom 10 12 (17) 22 (55) 22 50 (56)New markets 59 57 4 40 48 116 86 35Holding and other (67) (83) 19 (74) 9 (150) (143) (5)Underlying earnings before tax 401 414 (3) 483 (17) 815 929 (12) Fair value items (23) (85) 73 3 - (108) (13) -Realized gains / (losses) on 204 91 124 148 38 295 274 8investmentsImpairment charges (100) (62) (61) (77) (30) (162) (227) 29Other income / (charges) (16) (3) - (60) 73 (19) (37) 49Run-off businesses 10 22 (55) (10) - 32 (28) -Income before tax 476 377 26 487 (2) 853 898 (5)Income tax (72) (50) (44) (74) 3 (122) (113) (8)Net income 404 327 24 413 (2) 731 785 (7) Net income / (loss) attributableto:Equity holders of AEGON N.V. 403 327 23 413 (2) 730 784 (7)Non-controlling interests 1 - - - - 1 1 - Net underlying earnings 339 333 2 350 (3) 672 695 (3) Commissions and expenses 1,500 1,513 (1) 1,375 9 3,013 2,961 2of which operating expenses 11 847 837 1 841 1 1,684 1,653 2 New life salesLife single premiums 1,189 1,726 (31) 1,922 (38) 2,915 3,841 (24)Life recurring premiums annualized 312 328 (5) 362 (14) 640 673 (5)Total recurring plus 1/10 single 431 501 (14) 554 (22) 932 1,057 (12) New life salesAmericas 12 104 113 (8) 131 (21) 217 241 (10)The Netherlands 40 65 (38) 41 (2) 105 103 2United Kingdom 217 247 (12) 308 (30) 464 573 (19)New markets 12 70 76 (8) 74 (5) 146 140 4Total recurring plus 1/10 single 431 501 (14) 554
(22) 932 1,057 (12)
New premium production accident and 145 159 (9) 148 (2) 304 296 3health insuranceNew premium production general 14 13 8 15 (7) 27 29 (7)insurance Gross deposits (on and off balance)Americas 12 5,014 5,629 (11) 5,154 (3) 10,643 10,556 1The Netherlands 442 462 (4) 624 (29) 904 1,367 (34)United Kingdom 17 19 (11) 19 (11) 36 55 (35)New markets 12 1,242 1,267 (2) 1,787 (30) 2,509 3,380 (26)Total gross deposits 6,715 7,377 (9) 7,584 (11) 14,092 15,358 (8) Net deposits (on and off balance)Americas 12 426 (233) - 758 (44) 193 1,293 (85)The Netherlands (113) (115) 2 55 - (228) 122 -United Kingdom 14 2 - 10 40 16 39 (59)New markets 12 (2,487) (1,719) (45) 187 - (4,206) 308 -Total net deposits excluding (2,160) (2,065) (5) 1,010 - (4,225) 1,762 -run-off businessesRun-off businesses (527) (880) 40 (1,849) 71 (1,407) (4,059) 65Total net deposits (2,687) (2,945) 9 (839) - (5,632) (2,297) (145)
REVENUE-GENERATING INVESTMENTS
June 30, Mar. 31, 2011 2011 %Revenue-generating investments 391,276 399,882 (2)
(total)
Investments general account 132,837 136,991 (3)Investments for account of 142,672 144,296 (1)
policyholders
Off balance sheet investments third 115,767 118,595 (2) parties
OPERATIONAL HIGHLIGHTS
Underlying earnings before tax
AEGON's underlying earnings before tax amounted to EUR 401 million in the second quarter. The decline, compared with the same quarter last year, was mainly due to unfavorable currency exchange rate movements, higher provisioning for longevity in the Netherlands and charges related to the customer redress program in the United Kingdom.
Underlying earnings from the Americas decreased to EUR 325 million. Thedecline was the result of a weakening of the US dollar against the euro and alower contribution from fixed annuities as balances are being managed lower.Lower earnings from Life & Protection were offset by higher fee-basedearnings, consistent with AEGON's strategy.In the Netherlands, underlying earnings decreased to EUR 74 million as aresult of higher provisioning for longevity of EUR 23 million and investmentsin developing new distribution capabilities. AEGON expects to provision onaverage EUR 20 million per quarter in 2011 in addition to previous levels ofprovisioning.
In the United Kingdom, underlying earnings declined to EUR 10 million. The decrease was mainly due to charges of EUR 14 million related to an ongoing program to correct historical issues within customer policy records. Expenses related to the execution of this program amounted to EUR 7 million. In addition, investments in developing new propositions amounted to EUR 8 million.
Underlying earnings from New Markets increased to EUR 59 million driven mainly by strong earnings in Central & Eastern Europe and AEGON Asset Management.
Costs for the holding amounted to EUR 67 million as lower interest income andincreased expenses related to the preparation for implementation of SolvencyII were more than offset by a one-time benefit of EUR 14 million in the secondquarter of 2011.Net income
Net income decreased slightly to EUR 404 million. Higher net income for the Americas and New Markets was offset by lower net income for the Netherlands and the United Kingdom.
Fair value items
In the second quarter, fair value items recorded a loss of EUR 23 million.Negative results in the Americas, mainly related to lower interest rates andequity market volatility, were partly offset by positive fair value movementsof derivatives related to debt issued by the holding.
Realized gains on investments
Realized gains on investments amounted to EUR 204 million for the quarter andwere the result of a strategic reallocation of equities into fixed income inthe Netherlands in addition to normal trading in the investment portfolio.
Impairment charges
Impairment charges amounted to EUR 100 million and were linked to residential mortgage-backed securities in the United States and the result of exchange offers on specific holdings of European banks in the United Kingdom.
Other charges
Other charges amounted to EUR 16 million and are mostly related to restructuring charges in the United Kingdom (EUR 15 million), the Netherlands (EUR 10 million) and New Markets (EUR 3 million).
Run-off businesses
The results of run-off businesses increased to EUR 10 million, mainly as a result of a lower amortization yield paid on internally transferred assets related to the institutional spread-based business.
Income tax
Tax charges for the quarter amounted to EUR 72 million. These charges includedEUR 4 million in tax benefits related to cross-border intercompany reinsurancetransactions and a favorable tax settlement of EUR 15 million in the UnitedStates.
Return on equity
In the first half of 2011, AEGON's return on equity declined to 8.0%, mainlythe result of higher average shareholders' equity excluding revaluationreserves.The increase in average shareholders' equity was mainly the result of an equity issue of EUR 0.9 billion in February 2011.
Operating expenses
As a result of movements in currency exchange rates, operating expenses remained level at EUR 847 million. Excluding restructuring charges and employee benefit plans and at constant currencies, operating expenses remained level as well.
SalesAEGON's total sales decreased 15% to EUR 1.3 billion due mainly to unfavorablecurrency movements. At constant currencies, total sales declined 7%. New lifesales were mainly impacted by lower production in the United Kingdom and theAmericas following repricing of products, only partly offset by growth inCentral & Eastern Europe.
Gross deposits amounted to EUR 6.7 billion, or a decline of 2% at constant currencies. Strong variable annuity and stable value deposits in the United States were more than offset by the effects of a weaker US dollar, lower asset management inflows and less savings account deposits in the Netherlands.
Value of new business
Compared with the second quarter 2010, the value of new business declined considerably to EUR 103 million. This was the result of higher mortgage-related funding costs and updated mortality assumptions in the Netherlands, lower new business volumes in the United Kingdom and Spain, discontinuance of new mandatory pension sales in Hungary and unfavorable currency exchange rates.
Revenue-generating investments
Revenue-generating investments declined 2% compared with the end of the firstquarter of 2011 to EUR 391 billion, the result of a weakening of the US dollaragainst the euro and the transfer of over EUR 2 billion of pension assets tothe Hungarian State during the second quarter 2011.
Capital management
At the end of the second quarter, AEGON's core capital, excluding revaluationreserves, amounted to EUR 15.9 billion, equivalent to 73%6 of the company'stotal capital base. The decline from the previous quarter was mainly due tothe repurchase of all remaining convertible core capital securities from theDutch State for an amount of EUR 750 million plus a premium of EUR 375million. AEGON is on target to achieve the proportion of core capital to be atleast 75% of total capital by the end of 2012.
Shareholders' equity remained level compared with first quarter-end 2011 at EUR 16.8 billion as net income in the second quarter was offset by the premium paid on the repurchase of the final tranche of convertible core capital securities from the Dutch State.
The revaluation reserves at June 30, 2011, increased to EUR 1 billion, mainlythe result of a decrease in risk-free interest rates which had a positiveeffect on the value of fixed income securities. This positive effect wasoffset by a decline in the foreign currency translation reserve, primarily theresult of a weakening of the US dollar against the euro.AEGON aims to maintain at least 1.5 times holding expenses as a buffer at theholding, currently equivalent to approximately EUR 900 million. During thesecond quarter, excess capital in the holding decreased to EUR 1 billion. TheEUR 1.125 billion payment to the Dutch State, holding costs, interest paymentsand the preferred dividend were partly offset by EUR 1.4 billion in dividendsreceived from the company's operating units.At June 30, 2011, AEGON's Insurance Group Directive (IGD) ratio amounted to~200%, a slight decline from the level of ~210% at the end of the firstquarter. Solvency ratios in the Netherlands and the United Kingdom wererelatively flat, while the solvency ratio in the United States declined. Themain driver of this decline was up-streaming of dividends to repurchase allremaining convertible core capital securities provided by the Dutch State foran amount of EUR 1.125 billion. The proceeds related to the divestment ofTransamerica Reinsurance will be accounted for in the third quarter.
Cash flows
AEGON's subsidiaries generated EUR 564 million in operational cash flowsduring the second quarter of 2011. Operational free cash flows, which reflectexcess capital generation, were relatively stable as the impact of realizedgains in the Netherlands was offset by increased capital requirements in theUnited States related to low interest rates. After deduction of EUR 281million for investments in new business, operational free cash flow totaledEUR 283 million for the quarter. This brings the total for the first half yearof 2011 to EUR 547 million of operational free cash flows.
APPENDIX I -- Americas --The Netherlands --United Kingdom --New Markets
FINANCIAL OVERVIEW, Q2 2011 GEOGRAPHICALLY c)
Holding, other The United New activities &EUR millions Americas Netherlands Kingdom Markets eliminations Total Underlying earnings before tax by line ofbusinessLife 147 55 20 19 - 241Individual savings and retirement 119 - -
(4) - 115productsPensions 58 16 (8) 4 - 70Non-life - - - 11 - 11Distribution - (1) (2) - - (3)Asset Management - - - 18 - 18Other - - - - (67) (67)
Share in underlying earnings before tax of 1 4 - 11 - 16
associates
Underlying earnings before tax 325 74 10
59 (67) 401 Fair value items (52) 2 - (3) 30 (23)Realized gains / (losses) on 51 142 11 - - 204investmentsImpairment charges (53) (3) (40) (4) - (100)Other income / (charges) (3) (11) 1 (3) - (16)Run-off businesses 10 - - - - 10Income before tax 278 204 (18) 49 (37) 476Income tax (41) (35) - (10) 14 (72)Net income 237 169 (18) 39 (23) 404 Net underlying earnings 256 67 15 47 (46) 339 EMPLOYEE NUMBERS June 30, Mar. 31, 2011 2011 Employees excluding agents 23,639 23,990Agents 2,892 2,990Total number of employees excluding 26,531 26,980
Associates
AEGON's share of employees (including 3,561 3,932agents) in AssociatesTotal 30,092 30,912AMERICAS
- Underlying earnings before tax decline to USD 469 million; a result of lower fixed annuity earnings
- Net income increases to USD 342 million
- New life sales decline to USD 151 million as a result of lower universal life sales due to repricing
- Gross deposits increase to USD 7.2 billion driven by strong variable annuity and stable value deposits
Underlying earnings before tax
Underlying earnings from the Americas decreased to USD 469 million for the second quarter 2011.
- Earnings from Life & Protection in the Americas amounted to USD 194 million.The decrease, as compared to the same quarter last year, was mainly due tounfavorable persistency and lower spreads, while the comparable quarter lastyear included reserve releases.- Individual Savings & Retirement earnings amounted to USD 170 million. Fixedannuity earnings decreased to USD 77 million as a result of lower spreads anddeclining asset balances as the product is de-emphasized. Variable annuityearnings increased as a result of continued strong net inflows and higherasset balances to USD 87 million. Earnings from retail mutual funds alsoincreased as a result of higher account balances and amounted to USD 6million.
- Earnings from Employer Solutions & Pensions increased to USD 83 million mainly as a result of continued growth of the business.
- Earnings from Canada amounted to USD 19 million and included a one-time benefit of USD 7 million. The joint ventures in Latin America contributed USD 3 million.
Net income
Net income from AEGON's businesses in the Americas increased to USD 342 million in the second quarter. Lower underlying earnings and lower earnings from fair value items were more than offset by higher realized gains on investments and a positive contribution from run-off businesses. In addition, the second quarter 2010 included a one-time charge of USD 140 million for settlement of a dispute related to a BOLI policy in the United States.
The loss of USD 72 million for fair value items in the Americas was mainly related to lower interest rates and equity market volatility.
Gains on investments of USD 71 million were realized as a result of normal trading activity. Net impairments amounted to USD 76 million and were largely linked to residential mortgage-backed securities.
The results of run-off businesses increased to USD 15 million. This was mainly a result of a lower amortization yield paid on internally transferred assets related to the institutional spread-based business.
Net income contained a tax expense of USD 60 million in the second quarter, including a favorable tax settlement of USD 20 million and USD 6 million in tax benefits related to cross-border intercompany reinsurance transactions.
Return on capital
In the first half of 2011, the return on average capital, excluding revaluation reserves, invested in AEGON's businesses in the Americas declined to 7.1%, mainly the result of lower net underlying earnings. Excluding the capital allocated to the run-off businesses, the return on capital in the Americas would amount to 9.3%. Return on capital of AEGON's businesses excludes the benefit of leverage at the holding.
Operating expenses
Operating expenses increased 4% to USD 502 million, mainly as a result of higher employee benefit plan expenses. Operating expenses increased 2% excluding restructuring charges and employee benefit plan expenses.
Sales
New life sales declined to USD 151 million, mainlythe effect of the discontinuance of single premium universal life sales in thebank channel during the second half of 2010, as well as repricing of certainuniversal life products this year to reflect the current interest rateenvironment. New premium production for accident & health insurance increasedto USD 201 million.Gross deposits increased to USD 7.2 billion as a result of higher fee-baseddeposits. In addition to organic growth in traditional distribution channels,the introduction during the first quarter of a new variable annuity rider,Retirement Income Max, drove an 8-year record level of variable annuitydeposits of USD 1.4 billion in the second quarter. Stable value and retirementplan deposits also continued to be strong during the quarter.Net deposits for the ongoing businesses totaled USD 0.6 billion as continued net inflows for the pension and variable annuity businesses were only partly offset by fixed annuity outflows. AEGON is de-emphasizing sales of fixed annuities as part of a strategic repositioning and incurred net outflows for this business as a result.
Value of new business
Value of new business increased to USD 73 million, mainly as a result of improved margins on variable annuities. The internal rate of return on new business was 15%.
Revenue-generating investments
Revenue-generating investments were stable at USD 325 billion as compared tothe first quarter of 2011. The decline in general account assets as a resultof a fixed annuity coinsurance transaction of USD 1.5 billion and lowerrun-off balances was compensated for by higher variable annuity and pension
account balances.AMERICAS c) USD millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 % Underlying earnings before tax by lineof businessLife and protection 194 195 (1) 241 (20) 389 435 (11)Fixed annuities 77 90 (14) 125 (38) 167 246 (32)Variable annuities 87 93 (6) 50 74 180 119 51Retail mutual funds 6 6 - - - 12 - -Individual savings and retirement 170 189 (10) 175 (3) 359 365 (2)productsEmployer solutions & pensions 83 81 2 79
5 164 148 11Canada 19 11 73 15 27 30 26 15Latin America 3 (2) - 1 200 1 2 (50)Underlying earnings before tax 469 474 (1) 511 (8) 943 976 (3) Fair value items (72) (17) - (39) (85) (89) (159) 44Realized gains / (losses) on 71 35 103 21 - 106 54 96investmentsImpairment charges (76) (80) 5 (73) (4) (156) (264) 41Other income / (charges) (5) - - (140) 96 (5) (140) 96Run- off businesses 15 30 (50) (13) - 45 (37) -Income before tax 402 442 (9) 267 51 844 430 96Income tax (60) (83) 28 (12) - (143) 42 -Net income 342 359 (5) 255 34 701 472 49 Net income / (loss) attributableto:Equity holders of AEGON N.V. 342 359 (5) 255 34 701 472 49Non-controlling interests - - - - - - - - Net underlying earnings 368 346 6 361 2 714 719 (1) Commissions and expenses 1,210 1,209 - 961 26 2,419 2,316 4of which operating expenses 502 492 2 484 4 994 985 1 New life sales 12Life single premiums 78 147 (47) 278 (72) 225 457 (51)
Life recurring premiums annualized 143 139 3 138 4 282 274 3Total recurring plus 1/10 single 151 154 (2) 166 (9) 305 320 (5) Life & protection 114 121 (6) 134 (15) 235 255 (8)Employer solutions & pensions 7 6 17 4 75 13 12 8Canada 18 17 6 16 13 35 31 13Latin America 12 10 20 12 - 22 22 -Total recurring plus 1/10 single 151 154 (2) 166
(9) 305 320 (5)
New premium production accident and 201 199 1 180 12 400 364 10health insurance Gross deposits (on and off balance) 12by line of businessLife & protection 3 3 - 3 - 6 6 -Fixed annuities 71 83 (14) 124 (43) 154 309 (50)Variable annuities 1,401 1,179 19 1,028 36 2,580 1,837 40Retail mutual funds 765 775 (1) 957 (20) 1,540 1,933 (20)
Individual savings & retirement 2,237 2,037 10 2,109
6 4,274 4,079 5productsEmployer solutions & pensions 4,913 5,554 (12) 4,311 14 10,467 9,528 10Canada 83 97 (14) 118 (30) 180 404 (55)Total gross deposits 7,236 7,691 (6) 6,541 11 14,927 14,017 6 Net deposits (on and off balance) 12by line of businessLife & protection (10) (14) 29 (12) 17 (24) (27) 11Fixed annuities (810) (801) (1) (653) (24) (1,611) (1,196) (35)Variable annuities 471 220 114 217 117 691 194 -Retail mutual funds (5) (50) 90 357 - (55) 775 -
Individual savings & retirement (344) (631) 45 (79) - (975) (227) -productsEmployer solutions & pensions 1,048 485 116 1,264 (17) 1,533 2,650 (42)Canada (105) (158) 34 (197) 47 (263) (679) 61Total net deposits excluding 589 (318) - 976 (40) 271 1,717 (84)run-off businessesRun-off businesses (772) (1,202) 36 (2,332) 67 (1,974) (5,390) 63Total net deposits (183) (1,520) 88 (1,356) 87 (1,703) (3,673) 54
REVENUE-GENERATING INVESTMENTS
June 30, Mar. 31, 2011 2011 %Revenue-generating investments 324,919 324,849 -
(total)
Investments general account 121,723 124,185 (2)Investments for account of 83,383 82,459 1
policyholders
Off balance sheet investments third 119,813 118,205 1 parties
THE NETHERLANDS
- Underlying earnings before tax decrease to EUR 74 million due to higher provisioning for longevity
- Net income amounts to EUR 169 million
- New life sales were level at EUR 40 million
Underlying earnings before tax
Underlying earnings from AEGON's operations in the Netherlands decreased to EUR 74 million as higher results in Life & Savings were more than offset by higher provisioning for longevity in Pensions and a decline in non-life results.
- Earnings from AEGON's Life & Savings operations in the Netherlands were strong and amounted to EUR 55 million as a result of favorable mortality and a higher contribution from mortgages compared to the second quarter of 2010.
- Earnings from the Pension business declined to EUR 16 million primarily due to higher provisioning for longevity of EUR 23 million. AEGON expects to provision approximately EUR 20 million on average per quarter in 2011, in addition to 2010 levels of provisioning.
- Earnings from Non-life were nil, a decrease from the comparable quarter of 2010 as a result of higher claims and investments made in the business to increase efficiency.
- The Distribution businesses recorded a loss of EUR 1 million, while associates contributed EUR 4 million.
Net income
Net income from AEGON's businesses in the Netherlands remained level andamounted to EUR 169 million. Fair value items amounted to EUR 2 million, asthe negative movement in market value of real estate was offset by other fairvalue items. Gains on investments totaled EUR 142 million for the quarter andwere primarily a result of a strategic reallocation of equities into fixedincome. Other charges of EUR 11 million included EUR 10 million of chargesrelated to the restructuring of AEGON's bank and distribution businesses. Thereorganization is expected to save EUR 20 million per annum in costs whencompleted.
Return on capital
In the first half of 2011, the return on capital excluding revaluation reserves, invested in AEGON's businesses in the Netherlands, remained level compared to the same period last year at 7.3%. Return on capital of AEGON's businesses excludes the benefit of leverage at the holding.
Operating expenses
Operating expenses increased to EUR 201 million in the second quarter of 2011,mainly as a result of restructuring charges and investments in the furtherdevelopment of new distribution capabilities. Excluding restructuring charges,operating expenses would have been level with the second quarter of 2010.
Sales
New life sales remained level at EUR 40 million during the second quarter of2011. Individual life sales increased 19% to EUR 25 million driven bymortgage-related product sales. Through successful mortgage production AEGONincreased its market share in the individual life insurance market to above11%. New mortgage production for the quarter amounted to EUR 1.1 billion,equivalent to an estimated market share of approximately 9%. Pension saleswere lower than in the comparable quarter last year as the market is waitingfor a final outcome of the national pension debate and pricing became morecompetitive in this market. AEGON was one of the first parties to adjust itspricing policy to reflect updated mortality tables.
Premium production for accident & health and non-life products amounted to EUR 11 million and increased slightly compared with the second quarter of 2010.
Gross deposits decreased to EUR 442 million as AEGON offered less competitive interest rates on savings accounts. Following the transfer of activities, third-party pension deposits are included in AEGON Asset Management's gross deposits from the second quarter of 2011.
Value of new business
The value of new business declined to EUR 20 million, mainly as a result of higher mortgage-related funding costs and updated mortality assumptions. The internal rate of return on new business amounted to 17%.
Revenue-generating investments
Revenue-generating investments decreased 18%to EUR 60 billion compared with the previous quarter. This was mainly drivenby the transfer of EUR 12 billion of assets related to third-party pensionasset management operations from AEGONThe Netherlands to AEGON Asset Management.THE NETHERLANDS EUR millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 % Underlying earnings before tax by lineof businessLife and Savings 55 43 28 42
31 98 81 21Pensions 16 22 (27) 29 (45) 38 76 (50)Non life - 5 - 19 - 5 26 (81)Distribution (1) 11 - 6 - 10 17 (41)
Share in underlying earnings before 4 - - 1 - 4 1 -tax of associatesUnderlying earnings before tax 74 81 (9) 97 (24) 155 201 (23) Fair value items 2 (60) - 68 (97) (58) 159 -Realized gains / (losses) on 142 35 - 23 - 177 119 49investmentsImpairment charges (3) (2) (50) (6) 50 (5) (7) 29Other income / (charges) (11) (8) (38) 33 - (19) 33 -Income before tax 204 46 - 215 (5) 250 505 (50)Income tax (35) (7) - (45) 22 (42) (112) 63Net income 169 39 - 170 (1) 208 393 (47) Net income / (loss) attributableto:Equity holders of AEGON N.V. 169 39 - 170 (1) 208 393 (47) Net underlying earnings 67 66 2 57 18 133 134 (1) Commissions and expenses 278 272 2 263 6 550 527 4of which operating expenses 201 189 6 182 10 390 364 7 New life salesLife single premiums 217 457 (53) 241 (10) 674 638 6
Life recurring premiums annualized 18 19 (5) 18 - 37 40 (8)Total recurring plus 1/10 single 40 65 (38) 41 (2) 105 103 2 Life and Savings 25 26 (4) 21 19 51 48 6Pensions 15 39 (62) 20 (25) 54 55 (2)Total recurring plus 1/10 single 40 65 (38) 41
(2) 105 103 2
New premium production accident and 4 10 (60) 4 - 14 15 (7)health insuranceNew premium production general 7 8 (13) 6 17 15 14 7insurance Gross deposits (on and off balance)by line of businessLife and Savings 442 382 16 534 (17) 824 1,217 (32)Pensions - 80 - 90 - 80 150 (47)Total gross deposits 442 462 (4) 624 (29) 904 1,367 (34) Net deposits (on and off balance)by line of businessLife and Savings (113) (142) 20 50 - (255) 132 -Pensions - 27 - 5 - 27 (10) -Total net deposits (113) (115) 2 55 - (228) 122 -
REVENUE-GENERATING INVESTMENTS
June 30, Mar. 31, 2011 2011 %Revenue-generating investments 60,005 73,393 (18)
(total)
Investments general account 36,810 37,448 (2)Investments for account of 23,195 23,627 (2)
policyholders
Off balance sheet investments third - 12,318 -
parties
UNITED KINGDOM
- Underlying earnings before tax of GBP 9 million due to anticipated exceptional charges and expenses
- Net income amounts to GBP (15) million
- New life sales decrease to GBP 191 million as a result of lower pension sales
Underlying earnings before tax
In the United Kingdom, underlying earnings before tax amounted to GBP 9 million as a result of charges relating to the customer redress program (GBP 12 million) and expenses related to the execution of this program (GBP 6 million), the development of new product propositions (GBP 7 million) and expenses related to regulatory changes. These exceptional expenses are expected to continue throughout the remainder of 2011.
- Earnings from Life increased to GBP 17 million, mainly as a result of cost reductions.
- Pensions recorded a loss of GBP 7 million as the benefits from furtherbusiness growth and improved market conditions were more than offset bycharges of GBP 12 million relating to the customer redress program, expensesrelated to the execution of this program of GBP 6 million and investments ofGBP 7 million in the development of new propositions.
- Distribution recorded a loss of GBP 1 million, level with the results in the same quarter last year.
In May 2009, AEGON began the implementation of a program to identify andcorrect historical issues within its customer policy records. The immediatepriority of the program has been to deal with issues that resulted infinancial detriment and to return affected customers to the financial positionthey would have been in had the issue not occurred. The program of determiningthe full scope of customer redress is expected to continue throughout theremainder of the year and could lead to additional charges. AEGON is on trackto resolve all issues and expects to have repaid the majority of the customerdetriment by the end of 2011.Net income
Net income declined to GBP (15) million, as lower underlying earnings and higher impairments were only partly offset by better results on fair value items and higher gains on investments.
Gains on investments amounted to GBP 10 million as a result of a continuing shift from corporate bonds into gilts. Impairments in the second quarter increased to GBP 35 million as a result of exchange offers on specific holdings of European banks. Net income also contained a charge of GBP 13 million related to the restructuring of AEGON's operations in the United Kingdom.
Return on capital
In the first half of 2011, the return on average capital invested in the United Kingdom, excluding the revaluation reserves, declined to 3.8%. The decrease was the result of higher average capital invested in the unit in combination with lower net underlying earnings. Return on capital of AEGON's businesses excludes the benefit of leverage at the holding.
Operating expenses
Operating expenses increased to GBP 109 million, mainly driven by chargesrelating to the restructuring program of GBP 13 million, as well asinvestments in the new proposition development of GBP 7 million. Operatingexpenses in the second quarter of 2011 also include expenses of GBP 6 millionrelating to the execution of the customer redress program. The restructuringaims to reduce operating expenses by 25%, or GBP 80-85 million, by the end of2011. It is expected that further restructuring charges will arise in comingquarters. To date, AEGON has enacted cost savings of GBP 58 million.
Sales
New life sales decreased to GBP 191 million during the quarter as a result of a planned decrease in sales of individual pensions, new group schemes and annuities following repricing, partially offset by an increase in group pension new entrants.
Value of new business
Value of new business in the United Kingdom declined to GBP 10 million, mainly driven by lower sales. The internal rate of return on new business for the second quarter was 11%.
Revenue-generating investments
Revenue-generating investments remained level at GBP 58 billion compared withthe first quarter 2011.UNITED KINGDOM GBP millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 % Underlying earnings before tax by lineof businessLife 17 21 (19) 15 13 38 33 15Pensions (7) (9) 22 5 - (16) 14 -Distribution (1) (2) 50 (2) 50 (3) (4) 25Underlying earnings before tax 9 10 (10) 18 (50) 19 43 (56) Fair value items - (1) - (11) - (1) (9) 89Realized gains / (losses) on 10 25 (60) 3 - 35 5 -investmentsImpairment charges (35) - - (1) - (35) (8) -Other income / (charges) 7 1 (5) - 19 (95) (4) 40 -Income before tax (15) 29 - 28 - 14 71 (80)Income tax attributable to (15) (1) - (19) 21 (16) (40) 60policyholder returnIncome before income tax on (30) 28 - 9 - (2) 31 -shareholders return
Income tax on shareholders return 15 18 (17) 15 - 33 13 154Net income (15) 46 - 24
- 31 44 (30)
Net income / (loss) attributableto:Equity holders of AEGON N.V. (15) 46 - 24 - 31 44 (30) Net underlying earnings 14 33 (58) 31 (55) 47 53 (11) Commissions and expenses 193 172 12 181 7 365 351 4of which operating expenses 109 98 11 95 15 207 190 9 New life sales 8Life single premiums 711 841 (15) 1,050 (32) 1,552 2,189 (29)Life recurring premiums annualized 120 127 (6) 158 (24) 247 279 (11)Total recurring plus 1/10 single 191 211 (9) 263 (27) 402 498 (19) Life 15 16 (6) 23 (35) 31 49 (37)Pensions 176 195 (10) 240 (27) 371 449 (17)Total recurring plus 1/10 single 191 211 (9) 263
(27) 402 498 (19)
Gross deposits (on and off balance)by line of businessVariable annuities 14 17 (18) 16 (13) 31 48 (35)Total gross deposits 14 17 (18) 16 (13) 31 48 (35) Net deposits (on and off balance)by line of businessVariable annuities 12 2 - 9 33 14 34 (59)Total net deposits 12 2 - 9 33 14 34 (59)
REVENUE-GENERATING INVESTMENTS
June 30, Mar. 31, 2011 2011 %Revenue-generating investments 58,319 57,717 1
(total)
Investments general account 7,952 7,855 1Investments for account of 50,367 49,862 1
policyholders
NEW MARKETS
- Underlying earnings before tax increase 48% to EUR 59 million mainly driven by higher results in CEE
- Net income increases to EUR 39 million
- New life sales decline to EUR 70 million driven by lower single premium sales in Poland and Spain
Underlying earnings before tax
In New Markets, AEGON reported underlying earnings before tax of EUR 59 million as a result of higher underlying earnings before tax from Central & Eastern Europe and AEGON Asset Management.
- Earnings from Central & Eastern Europe increased to EUR 29 million, largely driven by higher earnings in Hungary, as an improvement in the claim experience more than offset the negative impact from pension legislation changes. The comparable quarter in 2010 included higher claims related to storms and floods in Hungary.
- Results from AEGON's operations in Asia improved to EUR (8) million. Highercontributions from the in-force business were only partly offset by continuedinvestments in the company's joint ventures in China, India and Japan. Theresults for the Asia regional office have been included in the Asia resultssince the first quarter of 2011, following the implementation of the newoperational structure for the Asian operations.
- Earnings from Spain & France increased to EUR 20 million as a result of business growth in Spain following the successful strategic focus on the bancassurance channel.
- Earnings from Variable Annuities Europe amounted to nil as a result of a true up of deferred policy acquisition costs.
- AEGON Asset Management reported increased earnings of EUR 18 million driven by higher performance fees and lower expenses.
In June, over EUR 2 billion of pension assets were transferred to theHungarian State. As part of the new pension legislation in Hungary, assetmanagement and administration fees have been reduced. In Poland, thegovernment reduced contributions to private pension funds. AEGON expects themeasures in Hungary and Poland to have a negative impact on underlyingearnings of approximately EUR 20 million in 2011, much of which is expected tooccur during the second half of the year.
Net income
Net income from New Markets increased to EUR 39 million during the quarter, primarily as a result of higher underlying earnings. In addition, lower realized gains were offset by lower other charges. Impairment charges declined to EUR 4 million and were mainly related to mortgages in the CEE.
Return on capital
In the first half of 2011, the return on capital invested in New Markets,excluding revaluation reserves, increased to 8.2%, mainly the result of highernet underlying earnings. AEGON's businesses reported under New Markets are indifferent stages of development and therefore generate different returns. Themajority of the capital is allocated to Central & Eastern Europe and Spain &France, which posted returns of 15.6% and 6.0% respectively. Return on capitalof AEGON's businesses excludes the benefit of leverage at the holding.
Operating expenses
Operating expenses increased to EUR 132 million in the second quarter, mainlyas a result of higher operating expenses in Spain, Asia and Variable AnnuitiesEurope as a result of growth of the business.
Sales
New life sales declined 5% to EUR 70 million.
- In Central & Eastern Europe, new life sales increased by 25% to EUR 30 million driven by Hungary and Turkey. A decline in single premium production in Poland was offset by an increase in life recurring premium production, mainly as a result of increased focus on life insurance in Hungary and Poland.
- In Asia, new life sales declined to EUR 7 million as growth in India was offset by lower new life sales in China, primarily as a result of new regulation.
- New life sales in Spain & France declined 20% to EUR 33 million, largely as a result of lower production at one of the distribution partners in Spain.
New premium production from AEGON's general insurance and accident & health businesses decreased to EUR 8 million, driven by lower motor insurance production due to increased competition.
Gross deposits in New Markets declined to EUR 1.2 billion, primarily driven by lower asset management deposits.
Value of new business
Value of new business in New Markets decreased to EUR 20 million as a resultof combined negative effects of adverse pension legislation in Hungary, lowerproduction at one of the distribution partners in Spain and margin pressurefor Variable Annuities Europe.
Revenue-generating investments
Revenue-generating investments increased 31% compared with the first quarterof 2011 to EUR 42 billion, driven by the transfer of EUR 12 billion of assetsrelated to third-party pension asset management operations from AEGON TheNetherlands to AEGON Asset Management, which were only partly offset by net
outflows in Hungary.NEW MARKETS EUR millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 % Underlying earnings before taxCentral Eastern Europe 29 26 12 19 53 55 46 20Asia (8) (11) 27 (11) 27 (19) (17) (12)Spain & France 20 23 (13) 19 5 43 39 10Variable Annuities Europe - 5 - 1 - 5 (1) -AEGON Asset Management 18 14 29 12 50 32 19 68
Underlying earnings before tax 59 57 4 40
48 116 86 35 Fair value items (3) - - (4) 25 (3) (1) (200)Realized gains / (losses) on - 2 - 8 - 2 11 (82)investmentsImpairment charges (4) (2) (100) (9) 56 (6) (11) 45Other income / (charges) (3) 11 - (11) 73 8 (11) -Income before tax 49 68 (28) 24 104 117 74 58Income tax (10) (26) 62 (9) (11) (36) (22) (64)Net income 39 42 (7) 15 160 81 52 56 Net income / (loss) attributableto:Equity holders of AEGON N.V. 38 42 (10) 15 153 80 51 57Non-controlling interests 1 - - - - 1 1 - Net underlying earnings 47 38 24 30 57 85 62 37 Commissions and expenses 175 180 (3) 169 4 355 344 3of which operating expenses 132 141 (6) 127 4 273 260 5 New life sales 12Life single premiums 117 174 (33) 234 (50) 291 342 (15)
Life recurring premiums annualized 58 59 (2) 51 14 117 106 10Total recurring plus 1/10 single 70 76 (8) 74
(5) 146 140 4 Life 64 62 3 66 (3) 126 119 6Associates 6 14 (57) 8 (25) 20 21 (5)
Total recurring plus 1/10 single 70 76 (8) 74
(5) 146 140 4 Central Eastern Europe 30 27 11 24 25 57 43 33Asia 7 11 (36) 9 (22) 18 19 (5)Spain & France 33 38 (13) 41 (20) 71 78 (9)
Total recurring plus 1/10 single 70 76 (8) 74
(5) 146 140 4
New premium production accident and 1 3 (67) 4 (75) 4 8 (50)health insuranceNew premium production general 7 5 40 9 (22) 12 15 (20)insurance Gross deposits (on and off balance) 12Central Eastern Europe 167 182 (8) 249 (33) 349 475 (27)Asia 7 11 (36) 10 (30) 18 35 (49)Spain & France 11 8 38 12 (8) 19 56 (66)Variable Annuities Europe 159 131 21 175 (9) 290 363 (20)AEGON Asset Management 898 935 (4) 1,341 (33) 1,833 2,451 (25)Total gross deposits 1,242 1,267 (2) 1,787 (30) 2,509 3,380 (26) Net deposits (on and off balance) 12Central Eastern Europe (1,972) 108 - 149 - (1,864) 218 -Asia 4 11 (64) 9 (56) 15 34 (56)Spain & France (43) (11) - 4 - (54) 29 -Variable Annuities Europe 63 26 142 47 34 89 126 (29)AEGON Asset Management (539) (1,853) 71 (22) - (2,392) (99) -Total net deposits (2,487) (1,719) (45) 187 - (4,206) 308 -
REVENUE-GENERATING INVESTMENTS
June 30, Mar. 31, 2011 2011 %Revenue-generating investments 42,154 32,211 31
(total)
Investments general account 2,819 2,926 (4)Investments for account of 6,203 6,210 -
policyholders
Off balance sheet investments third 33,132 23,075 44 parties
FINANCIAL OVERVIEW, 2011 YEAR-TO-DATE GEOGRAPHICALLY c)
Holding, other The United New activities &EUR millions Americas Netherlands
Kingdom Markets eliminations Total
Underlying earnings before tax by line of businessLife 297 98 44 38 - 477Individual savings and retirement products 258 -
- (4) - 254Pensions 117 38 (18) 7 - 144Non-life - 5 - 22 - 27Distribution - 10 (4) - - 6Asset Management - - - 32 - 32Other - - - - (150) (150)Associates - 4 - 21 - 25
Underlying earnings before tax 672 155
22 116 (150) 815
Fair value items (64) (58) (1) (3) 18 (108)Realized gains / (losses) on investments 76 177 40 2 - 295Impairment charges (111) (5) (40) (6) - (162)Other income / (charges) (3) (19)
(5) 8 - (19)Run-off businesses 32 - - - - 32Income before tax 602 250 16 117 (132) 853Income tax (102) (42) 20 (36) 38 (122)Net income 500 208 36 81 (94) 731
Net underlying earnings 509 133 54 85 (109) 672
OPERATIONAL HIGHLIGHTS FIRST SIX MONTHS 2011
Underlying earnings before tax
AEGON's underlying earnings before tax amounted to EUR 815 million for thefirst six months of 2011. The decline compared with the same period last yearwas mainly due to unfavorable currency exchange rates, higher provisioning forlongevity in the Netherlands and charges related to the customer redressprogram in the United Kingdom.Underlying earnings from the Americas decreased to EUR 672 million. Thedecline was the result of a weakening of the US dollar against the euro and alower contribution from fixed annuities as balances are being managed lower.Lower earnings from Life & Protection were offset by higher fee-basedearnings, consistent with AEGON's strategy.
In the Netherlands, underlying earnings decreased to EUR 155 million as a result of higher provisioning for longevity of EUR 47 million and investments in developing new distribution capabilities. AEGON expects to provision on average EUR 20 million per quarter in 2011, in addition to 2010 levels of provisioning.
In the United Kingdom, underlying earnings declined to EUR 22 million. The decrease was mainly due to charges of EUR 39 million related to an ongoing program to correct historical issues within customer policy records.
Underlying earnings from New Markets increased to EUR 116 million driven mainly by growth in Central & Eastern Europe and AEGON Asset Management.
Higher funding costs and increased expenses related to the preparation for implementation of Solvency II increased costs for the holding company to EUR 150 million in the first six months of 2011.
Net income
Net income decreased to EUR 731 million. Higher net income for the Americas and New Markets was offset by lower net income for the Netherlands and the United Kingdom.
Fair value items
In the first six months of 2011, fair value items recorded a loss of EUR 108million. An improvement in the Americas related to strong results from realestate and private equity was more than offset by an exceptional loss onstrategic allocation funds in the Netherlands. In addition, results related tothe interest rate hedging program in the Netherlands contributed less than inthe comparable period.
Realized gains on investments
Realized gains on investments increased to EUR 295 million for the first halfof the year and were the result of normal trading in the investment portfolioand a reallocation of equities into fixed income in the Netherlands.
Impairment charges
Impairment charges improved considerably to EUR 162 million and were linked to residential mortgage-backed securities in the United States and the result of exchange offers on specific European bank holdings in the United Kingdom.
Other charges
Other charges amounted to EUR 19 million and are mostly related to the annualHungarian bank tax of EUR 20 million and restructuring charges in the UnitedKingdom (EUR 23 million), the Netherlands (EUR 18 million) and New Markets(EUR 9 million). These charges are partly offset by a EUR 37 million benefitrelated to the settlement of legal claims.
Run-off businesses
As of the first quarter of 2011, AEGON's run-off line of business in theAmericas comprises the institutional spread-based business, structuredsettlement pay-out annuities, BOLI/COLI and life reinsurance. The results ofthe combined run-off businesses for the first six months of 2011 increased toEUR 32 million, mainly as a result of a lower amortization yield paid oninternally transferred assets related to the institutional spread-basedbusiness, favorable mortality results in the pay-out annuities block ofbusiness and strong BOLI/COLI earnings.
Income tax
Tax charges for the first six months of 2011 amounted to EUR 122 million. These charges included EUR 21 million in tax benefits related to cross-border intercompany reinsurance transactions and one-time tax credits the United States and the United Kingdom totaling EUR 38 million.
Return on equity
In the first half of 2011, AEGON's return on equity declined to 8.0%, mainly the result of higher average shareholders' equity excluding revaluation reserves.
The increase in average shareholders' equity was mainly the result of an equity issue of EUR 0.9 billion in February 2011.
Operating expenses
Operating expenses increased 2% to EUR 1,684 million. Cost savings in AEGON's established markets were more than offset by restructuring charges in these businesses. At constant currencies and excluding restructuring charges and employee benefit plans, operating expenses remained level.
Sales
AEGON's total sales decreased 8% to EUR 2.7 billion. New life sales declinedmainly as a result of lower production in the United Kingdom and the Americasfollowing repricing of products, only partly offset by growth in Central &Eastern Europe and the Netherlands. Growth of gross deposits in the Americaswas offset mainly as a result of a weakening of the US dollar, lower assetmanagement inflows and less savings account deposits in the Netherlands.
Value of new business
Compared with the first six months of 2010, the value of new business declined20% to EUR 221 million. This was the result of higher mortgage-related fundingcosts and updated mortality assumptions in the Netherlands, lower new businessvolumes in the United Kingdom and Spain, discontinuance of new mandatorypension sales in Hungary and unfavorable currency exchange rates.
Revenue-generating investments
Revenue-generating investments declined compared with the end of 2010 to EUR 391 billion, the result primarily of weakening of the US dollar against the euro and over EUR 2 billion of pension assets that have been transferred to the Hungarian State during the second quarter 2011.
Capital management
At June 30, 2011, AEGON's core capital position, excluding revaluationreserves, amounted to EUR 15.9 billion, equivalent to 73% of the company'stotal capital base. The decline from the year-end 2010 was mainly due to therepurchase of EUR 1,500 million of convertible core capital securities fromthe Dutch State, related premium of EUR 750 million and unfavorable currencymovements, partly offset by net income of EUR 0.7 billion and an equity issueof EUR 0.9 billion in February 2011. AEGON aims the proportion of core capitalto be at least 75% of total capital by the end of 2012.Shareholders' equity declined compared with year-end 2010 at EUR 16.8 billionas net income and the proceeds of the equity issue were offset by the premiumpaid on the repurchase of the final tranche of convertible core capitalsecurities from the Dutch State in addition to unfavorable currency movements.
The revaluation reserves at June 30, 2011 remained level compared with year-end 2010 at EUR 1 billion.
AEGON aims to maintain at least 1.5 times holding expenses as a buffer at theholding, equivalent to approximately EUR 900 million. During the first sixmonths of 2011, excess capital in the holding decreased to EUR 1 billion as aresult of a EUR 2.25 billion payment to the Dutch State only partly offset bydividends received from the company's operating units and an equity issue ofEUR 0.9 billion.
At June 30, 2011, AEGON's Insurance Group Directive (IGD) ratio amounted to approximately 200%.
Cash flows
AEGON's subsidiaries generated EUR 1,103 million in operational cash flowsduring the first half of 2011. After deduction of EUR 556 million forinvestments in new business, operational free cash flow totaled EUR 547million for the period.APPENDIX IIVALUE OFNEW BUSINESSAND IRR VNB VNB VNB VNB VNBEUR millions, after tax Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 % Americas 51 63 (19) 52 (2) 114 96 19The Netherlands 20 23 (13) 30 (33) 44 80 (45)United Kingdom 11 9 22 24 (54) 20 37 (46)New Markets 20 23 (13) 32 (38) 43 63 (32)Total 103 118 (13) 138 (25) 221 276 (20) IRR % IRR% IRR%EUR millions, after tax Q2 2011 Q1 2011 Q2 2010 Americas 14.8 16.0 12.9The Netherlands 17.3 13.9 17.0United Kingdom 10.6 10.0 11.9New Markets 36.5 35.1 35.3Total 19.5 18.8 18.4 MODELED NEW BUSINESS,APE AND DEPOSITS Premium Premium business business APE APEEUR millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 % 9Americas 231 248 (7) 238 (3) 479 454 6The Netherlands 45 75 (40) 58 (22) 120 150 (20)United Kingdom 227 237 (4) 303 (25) 464 569 (18)New Markets 88 95 (7) 97 (9) 183 177 3Total 592 655 (10) 696 (15) 1,247 1,351 (8) Deposit Deposit business business Deposits DepositsEUR millions Notes Q2 2011 Q1 2011 % Q2 2010 % YTD 2011 YTD 2010 % 9Americas 4,223 4,636 (9) 4,325 (2) 8,859 8,250 7United Kingdom 17 19 (11) 17 - 36 51 (29)New Markets 258 216 19 303 (15) 474 610 (22)Total 4,498 4,871 (8) 4,645 (3) 9,369 8,911 5 VNB/PVNBPSUMMARY Premium Premium business business VNB PVNBP VNB / VNB / VNB PVNBP VNB / VNB / PVNBP APE PVNBP APEEUR millions Notes Q2 2011 % % YTD 2011 % % 10Americas 18 742 2.5 7.9 48 1,568 3.1 10.1The Netherlands 20 370 5.5 45.2 44 1,007 4.3 36.5United Kingdom 11 1,329 0.8 4.9 20 2,818 0.7 4.3New Markets 21 641 3.3 23.6 42 1,335 3.2 23.2Total 71 3,082 2.3 11.9 155 6,728 2.3 12.4 Deposit Deposit business business VNB PVNBP VNB / VNB / VNB PVNBP VNB / VNB / PVNBP Deposits PVNBP DepositsEUR millions Notes Q2 2011 % % YTD 2011 % % 10Americas 32 5,240 0.6 0.8 65 11,717 0.6 0.7United Kingdom 0 17 0.6 0.6 0 36 0.5 0.5New Markets (0) 312 (0.1) (0.2) 1 629 0.1 0.1Total 32 5,569 0.6 0.7 66 12,381 0.5 0.7Notes:
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 s 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. Q2 2011 YTD 2011 Employee expenses 517 1,054 Administrative expenses 313 597
Operating expenses for IFRS reporting 830 1,651
Operating expenses related to 17 33
associates
Operating expenses in earnings release 847 1,684
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 1.4025 (2010: USD 1.3279). Income statement items: average rate 1 EUR = GBP 0.8670 (2010: GBP 0.8696). Balance sheet items: closing rate 1 EUR = USD 1.4499 (2010: USD 1.2271; year-end 2010: USD 1.3362). Balance sheet items: closing rate 1 EUR = GBP 0.9031 (2010: GBP 0.8175; year-end 2010: GBP 0.8608).
ADDITIONAL INFORMATION
The Hague, August 11, 2011
Press conference call8:00 am CET: Audio webcast on www.aegon.com
Analyst & investor presentation / conference call
9:00 am CET: Audio webcast on www.aegon.com
Call-in numbersUnited States: +1 480 629 9673
United Kingdom: +44 207 153 2027
The 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: 4458655#
United Sates: +1 303 590 3030, access code: 4458655#
Supplements
AEGON's Q2 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 managementcompany based in The Hague, AEGON has businesses in over twenty markets in the Americas, Europe and Asia. AEGON companies employ approximately 26,500 people and have some 40 million customers across the globe.Key figures - EUR Second quarter 2011 2011 Full year Underlying earningsbefore tax 401 million 1.8 billion New life sales 431 million 2.1 billion Gross deposits 6.7 billion 33 billion Revenue-generatinginvestments (end ofperiod) 391 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.comDISCLAIMERS
Cautionary note regarding non-GAAP measures
This press release includes certain non-GAAP financial measures: underlying earnings
before tax, net underlying earnings, commission and expenses, operating expenses and
value of new business (VNB). The reconciliation of underlying earnings before tax to
the most comparable IFRS measure is provided in Note 3 "Segment information" of our
Condensed consolidated interim financial statements. VNB is not based on IFRS, which
are used to report AEGON's primary financial statements, and should not be viewed as
a substitute for IFRS financial measures. We may define and calculate VNB
differently than other companies. Please see AEGON's Embedded Value Report dated May
12, 2011 for an explanation of how we define and calculate VNB. AEGON believes that
these non-GAAP measures, together with the IFRS information, provide meaningful
supplemental information that our management uses to run our business as well as
useful information for the investment community to evaluate AEGON's business
relative to the businesses of our
Local currencies and constant currency exchange rates
This press release contains certain information about our results and financial
condition in USD for the Americas and GBP for the United Kingdom, because those
businesses operate and are managed primarily in those currencies. Certain
comparative information presented on a constant currency basis eliminates the
effects of changes in currency exchange rates. None of this information is a
substitute for or superior to financial information about us presented in EUR, which
is the currency of our primary financial statements.
Forward-looking statements
The statements contained in this press release that are not historical facts are
forward-looking statements as defined in the US Private Securities Litigation Reform
Act of 1995. The following are words that identify such forward-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 as they relate to our company. These statements are
not guarantees of future performance and involve risks, uncertainties and
assumptions that are difficult to predict. We undertake no obligation to publicly
update or revise any forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which merely reflect company
expectations at the time of writing. Actual results may differ materially from
expectations conveyed in forward-looking statements due to changes caused by various
risks and uncertainties. Such risks and unce
o Changes in general economic conditions, particularly in the United States, the
Netherlands and the United Kingdom; o 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; o The frequency and severity of insured loss events; o Changes affecting mortality, morbidity and other factors that may impact the
profitability of our insurance products; o Changes affecting interest rate levels and continuing low or rapidly changing
interest rate levels; o Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP
exchange rates; o Increasing levels of competition in the United States, the Netherlands, the United
Kingdom and emerging markets; o Changes in laws and regulations, particularly those affecting our operations, the
products we sell, and the attractiveness of certain products to our consumers; o Regulatory changes relating to the insurance industry in the jurisdictions in which
we operate; o Acts of God, acts of terrorism, acts of war and pandemics; o Changes in the policies of central banks and/or governments; o 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; o Lowering of one or more of insurer financial strength ratings of our insurance
subsidiaries and the adverse impact such action may have on premium writings, policy
retention, profitablity of its insurance subsidiaries and liquidity; o The effect of the European Union's Solvency II requirements and other regulations in
other jurisdictions affecting the capital we are required to maintain; o Litigation or regulatory action that could require us to pay significant damages or
change the way we do business; o Customer responsiveness to both new products and distribution channels; o Competitive, legal, regulatory, or tax changes that affect the distribution cost of
or demand for our products; o The impact of acquisitions and divestitures, restructerings, product withdrawels and
other unusual tems, including our ability to integrate acquisitions and to obtain
the anticipated results and synergies from acquisitions; o Our failure to achieve anticipated levels of earnings or operational efficiencies as
well as other cost saving initiatives; and o 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 are
described in the company's filings with Euronext Amsterdam and the US Securities 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 expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the company's expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based.
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