- Underlying Loss Before Tax of EUR 22 Million Due Primarily to
Lower Equity Markets THE HAGUE, The Netherlands, May 14
/PRNewswire-FirstCall/ -- Statement Alex Wynaendts, CEO "Despite
the persistent challenges of the financial crisis, AEGON
significantly improved earnings compared to the second half of
2008. Although we posted a net loss in the first quarter, we are
encouraged by the improvement in earnings and the indications that
the fundamentals of our business remain sound. "We continue to
focus on freeing up capital from our businesses, reducing costs,
and taking measures to counter the effects of the current
environment. Consequently, we released an additional EUR 900
million of capital during the first quarter, and made solid
progress toward our target of reducing costs by EUR 150 million
this year. The sale of our life insurance business in Taiwan and
the decision to downsize our institutional markets division in the
United States are but two examples of our determination to execute
on our strategy. "The relatively stable new life sales and deposits
quarter-over-quarter reflect the strength of AEGON's franchise and
the continued confidence of our customers." KEY PERFORMANCE
INDICATORS amounts in EUR millions Notes Q1 2009 Q4 2008 Q1 2008
Underlying earnings before tax 1 (22) (181) 658 Net income 2 (173)
(1,182) 153 New life sales 3 543 598 686 Total deposits 4 8,241
11,933 8,636 Value of new business (VNB) 201 233 186 Return on
equity 5 (3.3%) (8.7%) 13.2% a) The calculation of the IGD
(Insurance Group Directive) capital surplus and ratio is based on
Solvency I capital requirements on IFRS for entities within the EU
(Pillar I 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. b) Core
capital is the sum of shareholders' equity and the EUR 3 billion in
convertible core capital securities from Vereniging AEGON, funded
by the Dutch State Last year, AEGON set out three long-term
strategic priorities: 1. To reallocate capital toward businesses
with higher growth and return prospects; 2. To improve growth and
returns from existing businesses; 3. To manage AEGON as an
international company. Subsequently AEGON identified and announced
three priorities to counter the challenges of the current global
financial crisis and position the company for growth: - Focus on
capital preservation and accelerate the capital release program; -
EUR 150 million cost savings measures for 2009; - Develop
contingency plans for deterioration in financial markets. As
announced last June, AEGON is conducting an ongoing review of its
portfolio of businesses to ensure that they meet the criteria
outlined in the strategy. On February 17, 2009, AEGON announced it
will downsize its institutional spread based business in the
Americas, which will result in lower credit risk in the long run
and a release of capital in the near term. On April 22, 2009, AEGON
announced the sale of its life insurance activities in Taiwan.
Capital preservation In the current economic environment,
acceleration of capital preservation actions has been a priority.
The actions taken and plans to be executed are evidence of the
financial flexibility within AEGON to manage through these
extraordinary times. They include: - Releasing EUR 1.7 billion of
capital in the second half of 2008; - Commitment to release an
additional EUR 1.5 billion of capital in 2009, including EUR 0.3
billion from AEGON's institutional business. EUR 0.9 billion has
been realized in Q1 2009. As a result of actions taken, the capital
position of the company remains strong with excess capital of EUR
2.7 billion over AA capital adequacy requirements at March 31,
2009. Cost measures AEGON announced cost savings measures totaling
EUR 150 million in 2009. Actions to achieve this include: -
Americas: no wage increases in 2009, staff reductions, deferred
hiring, reorganization of agency distribution; - The Netherlands:
reduction of contract services, process re-engineering, general
cost savings; - United Kingdom: restructuring of IT, marketing and
customer services, cost containment and savings in distribution.
AEGON's cost measures are on track with approximately one third of
the total expense savings of 2009 realized across the company in
the first quarter of 2009. Capital management Excess capital During
Q1 2009 financial markets remained challenging. Equity markets
showed a negative return, the S&P 500 lost 12% in the quarter,
and real estate prices also continued to decline. Except for some
structured asset classes, spreads in many credit market segments,
though volatile during the quarter and still at historically high
and stressed levels, were tighter or stable when compared to 2008
year-end levels. Volatilities in equity and bond markets were down
from the peaks recorded late 2008, while interest rates gradually
increased from historic lows. The negative impact from capital
markets on AEGON's excess capital in Q1 2009 was estimated at EUR
0.6 billion, primarily from lower equity markets leading to
additional minimum guarantee reserve strengthening. The world
economic outlook for 2009 remains uncertain and most countries are
facing a severe recession. Though policymakers continue to respond
aggressively to the economic crisis, specifically in the United
States where most of AEGON's credit risk is concentrated, AEGON
expects an elevated level of asset impairments in its investment
portfolio in 2009. Impairments negatively impacted AEGON's capital
position in Q1 2009, reducing excess capital by approximately EUR
0.2 billion. In addition, rating agencies have been responding to
the economic environment, revising their credit risk assessments.
In Q1 2009, for example, parts of AEGON's mortgage-related asset
portfolio, in particular securities backed by near-prime mortgages
referred to as Alt-A and negative amortization/Option ARM floaters,
were downgraded to below investment grade ratings. The rating
migration of AEGON's US portfolio led to higher capital
requirements, reducing AEGON's excess capital by an estimated EUR
0.6 billion for Q1 2009. AEGON considers the rating migration
experienced in Q1 2009 as extraordinarily high and expects it not
to be repeated to the same extent in coming quarters. AEGON has
preserved capital over the last few quarters and continues to focus
on freeing up capital from its businesses. Part of the EUR 0.9
billion capital preservation in Q1 2009 is related to the decision
to reduce investment risk and increase the asset allocation of
AEGON's investment portfolio to cash, Treasury, government and
agency bonds. At the end of Q1 2009, 25% of AEGON's total general
account assets was invested in these asset classes, up from 23% at
the end of 2008. The general account of AEGON in the Americas had
an asset allocation of 20% to cash, treasuries and agencies (16% at
year-end 2008). This investment strategy, executed in the last few
quarters, has been successful in a period of widening credit
spreads across fixed income markets, and has helped managing the
maturity mismatch as a result of institutional spread liabilities
getting shorter as puts have been exercised. At the same time, some
structured assets classes have experienced extension of duration.
As a result of this investment strategy, AEGON has not been a
forced seller of assets at depressed prices. This strategy has
preserved value, even though currently the return on short-dated
and government investments is lower. Going forward, AEGON will
continue to manage its credit portfolio actively. However, with
current market conditions and the maturity of assets and
liabilities of institutional spread business closer aligned now,
AEGON will start to put part of the new money inflows into highly
rated credit investments. At the end of Q1 2009, AEGON had EUR 2.7
billion excess capital over AA capital adequacy requirements, down
from EUR 2.9 billion at the end of 2008. The positive impacts from
capital preservation actions and statutory earnings were mitigated
by rating migration, impairments and lower equity markets on
required and available capital. At the end of Q1 2009, AEGON had an
IGD solvency ratio of approximately 170% (Q4 2008: 183%). IFRS core
capital At the end of March 2009, core capital excluding the
revaluation account was EUR 16.4 billion, 77% of the total capital
base, well above the minimum target of 70%. Core capital including
revaluation reserve was EUR 7.9 billion, consisting of EUR 4.9
billion of shareholders' equity and EUR 3 billion of convertible
core capital securities provided by Vereniging AEGON, funded by the
Dutch State. AEGON's revaluation account decreased during Q1 2009
by EUR 1.4 billion to a negative EUR 8.5 billion. The lower
revaluation account was the main driver of the decline in
shareholders' equity. The revaluation account was down primarily
due to the impact of higher risk free long-term interest rates on
bond values. FINANCIAL OVERVIEW At constant currency EUR millions
Notes Q1 2009 Q1 2008 % % Underlying earnings before tax by line of
business Life and protection 239 252 (5) (11) Individual savings
and retirement products (313) 116 N.M. N.M. Pensions and asset
management 42 121 (65) (64) Institutional products 89 108 (18) (28)
Life reinsurance (23) 43 N.M. N.M. Distribution 6 9 (33) (44)
General insurance (1) 17 N.M. N.M. Interest charges and other (63)
(17) N.M. N.M. Share in net results of associates 2 9 (78) (78)
Underlying earnings before tax (22) 658 N.M. N.M. Over/(under)
performance of fair value items (197) (441) 55 Operating earnings
before tax (219) 217 N.M. N.M. Operating earnings before tax by
line of business Life and protection 179 213 (16) (22) Individual
savings and retirement products (306) (58) N.M. N.M. Pensions and
asset management (135) (19) N.M. N.M. Institutional products 13
(55) N.M. N.M. Life reinsurance 59 31 90 65 Distribution 6 9 (33)
(44) General insurance (1) 17 N.M. N.M. Interest charges and other
(36) 70 N.M. N.M. Share in net results of associates 2 9 (78) (78)
Operating earnings before tax (219) 217 N.M. N.M. Gains/(losses) on
investments 173 86 101 100 Impairment charges (386) (32) N.M. N.M.
Other income/(charges) (23) (54) 57 46 Income before tax (455) 217
N.M. N.M. Income tax 282 (64) N.M. N.M. Net income (173) 153 N.M.
N.M. Net underlying earnings (14) 503 N.M. N.M. Net operating
earnings (163) 175 N.M. N.M. Underlying earnings geographically
Americas (68) 478 N.M. N.M. The Netherlands 72 113 (36) (36) United
Kingdom 7 45 (84) (88) Other countries 30 39 (23) (10) Holding and
other (63) (17) N.M. N.M. Underlying earnings before tax (22) 658
N.M. N.M. Operating earnings geographically Americas (100) 104 N.M.
N.M. The Netherlands (118) (41) (188) (188) United Kingdom 4 45
(91) (88) Other countries 31 39 (21) (10) Holding and other (36) 70
N.M. N.M. Operating earnings before tax (219) 217 N.M. N.M.
Commissions and expenses 1,618 1,416 14 8 of which operating
expenses 842 783 8 4 Overview AEGON reported a net loss for Q1 2009
of EUR 173 million, a reversal of the downward trend in net income
in the second half of 2008. The loss in Q1 2009 was the result
primarily of the impact of lower equity markets, underperformance
of fair value items and impairment charges. Underlying earnings
before tax of minus EUR 22 million were down mainly due to lower
financial markets compared to the same quarter last year, but
improved substantially compared to Q4 2008. Fair value items, which
primarily include certain investment classes in the Netherlands and
the Americas, as well as a number of products containing financial
guarantees, contributed a negative EUR 197 million to earnings in
Q1 2009, a strong improvement compared to recent quarters. Net
income was also negatively impacted by impairment charges (EUR 386
million). Gains on investments totaled EUR 173 million, largely due
to gains on shares and bonds in the Netherlands. The underlying
loss in Q1 2009, as well as impairments and mark-to-market losses
on the fair value items, resulted in a tax benefit of EUR 282
million. Underlying earnings before tax In Q1 2009 the underlying
loss for the company amounted to EUR 22 million. Excluding the
impact from capital markets the earnings were approximately EUR 450
million. The underlying loss in the Americas was USD 88 million.
Lower equity markets led to minimum guarantee reserves
strengthening and accelerated amortization of deferred policy
acquisition costs (DPAC), primarily affecting earnings in the
variable annuity and life reinsurance business. The total impact on
earnings from lower equity markets amounted to approximately USD
600 million, which also includes lower fee income due to reduced
asset balances. Underlying earnings in the Americas in Q1 2009 were
also affected by the decisions to lower the allocation to hedge
funds and increase the asset allocation to cash, treasury and
agency bonds, in order to preserve capital. In the Netherlands,
underlying earnings were down 36% to EUR 72 million, a result of
lower technical results in the life and pension business and
adverse claims experience in general insurance. Also, investment
income declined across most businesses. Underlying earnings in the
United Kingdom, meanwhile, totaled GBP 7 million, lower than last
year, due primarily to the impact of lower equity and corporate
bond markets on fund related charges in the pension business.
Underlying earnings from Other countries amounted to EUR 30
million, lower than last year, as a result of higher losses in
Taiwan and currency depreciation in Central & Eastern Europe.
Net income Net income included a total underperformance result on
fair value items of EUR 197 million. Fair value items primarily
include certain (alternative) investment classes in the Netherlands
and the Americas, as well as a number of products containing
financial guarantees. In Q1 2009, underperformance of alternative
investment classes in the Americas, in particular real estate as
well as private equity and credit derivatives amounted to EUR 163
million. Fair value items also include the under/overperformance on
assets held at fair value through profit or loss and backing
liabilities of a specific portfolio of group pension contracts in
the Netherlands. In Q1 2009 these assets underperformed long-term
expected returns by EUR 54 million. The assets backing this
portfolio of liabilities were accounted for as fair value through
profit or loss and have been replaced with assets accounted for as
available for sale as per Q2 2009. As a result this item will not
recur as fair value item going forward. In order to maintain
consistency in definitions, starting in Q4 2008, the net impact of
the fair value movements of guarantees and the related hedges in
the Netherlands has been included in fair value items. Previously,
differences in fair value between guarantees and related hedges,
referred to as hedge ineffectiveness, were reported in gains/losses
on investments. Results for prior years have been adjusted (see
Financial Supplement). Net fair value gains of EUR 132 million on
GMWB guarantees and related hedges in the Americas were offset by
the negative impact of EUR 135 million from hedge ineffectiveness
in the Netherlands. The fair valuation of certain products with
guarantees includes a credit spread in the discount rates, a
reflection of dislocated, volatile and illiquid markets. Gains on
investments Gains on investments of EUR 173 million include
primarily gains on sales of bonds in the Netherlands and in the
United Kingdom, the sales of shares in the Netherlands and positive
results from economic hedges at holding level. Impairment charges
Impairments of EUR 386 million included EUR 133 million on subprime
mortgage asset backed securities and EUR 72 million on residential
mortgage backed securities, both in the Americas. The remainder of
impairments in the Americas was mainly related to corporate bonds.
Impairments in the Netherlands were taken on equity and bonds. Tax
The underlying loss in Q1 2009, as well as impairments and
mark-to-market losses on the fair value items, resulted in a tax
benefit of EUR 282 million. The high effective tax rate is mainly a
result of tax credits and other permanent differences. Commissions
and expenses Compared to Q4 2008 commissions and expenses decreased
by 13% to EUR 1.6 billion. Operating expenses were down 9% to EUR
842 million as a result of cost savings, partly offset by
restructuring charges and higher employee pension costs. Compared
to Q1 2008 commissions and expenses increased by 14% (8% at
constant currency), primarily due to acceleration of DPAC
amortization. Operating expenses increased by 8% (4% at constant
currency) compared to Q1 2008. An increase in employee benefit
pension expenses and restructuring expenses in several businesses
offset expense savings from cost savings programs. Operating
expenses also increased as a result of acquisitions in Central
& Eastern Europe in 2008. Sales Total new life sales in Q1 2009
were down 9% compared to Q4 2008, and decreased by 15% (at constant
currency) to EUR 543 million compared to Q1 2008. With the
exception of Spain, all countries recorded lower sales compared to
Q1 2008. New life sales in the Americas were down 11% compared to
Q4 2008 and 31% compared to Q1 2008 in local currency, due to lower
universal life sales in the high net worth and variable life sales
in the middle market as well as lower sales of bank-owned and
corporate-owned life insurance (BOLI/COLI) contracts. Life
reinsurance sales were down as well compared to last year, but were
in line with previous quarters. In the Netherlands new life sales
were up 51% compared to Q4 2008, primarily due to a strong increase
in group pension sales, which included several large contracts.
Sales were down 13% compared to Q1 2008, a result primarily of
lower individual life sales. Q1 2009 group pension sales were in
line with last year. New life sales in the United Kingdom in the
first quarter of the year were down 9% compared to both Q1 2008 and
Q4 2008. Sales were down across most lines of business offsetting
growth in annuities. In Q1 2008 new life sales in the UK included
European variable annuities, which are now reported in Other
countries. Including the sales of variable annuities in the UK in
Q1 2009, the new life sales declined with 6% compared to Q1 2008.
In Other countries new life sales in Q1 2009 were down 14% compared
to Q4 2008 and down 11% compared to Q1 2008. New life sales in
Spain rose to EUR 22 million, a reflection mainly of the
incorporation of two new joint ventures, as well as higher sales at
existing joint ventures. SALES At constant currency EUR millions
Notes Q1 2009 Q1 2008 % % New life sales Life single premiums 2,025
2,757 (27) (16) Life recurring premiums annualized 341 410 (17)
(13) Total recurring plus 1/10 single 543 686 (21) (15) New premium
production accident and health insurance 164 166 (1) (13) New
premium production general insurance 12 16 (25) (19) Gross deposits
(on and off balance) by line of business Fixed annuities 1,628 306
N.M. N.M. Variable annuities 714 685 4 (6) Saving deposits 580 648
(10) (10) Retail mutual funds 642 564 14 (4) Pensions and asset
management 2,829 3,183 (11) (19) Institutional guaranteed products
1,848 3,249 (43) (51) Life reinsurance 0 1 N.M. N.M. Total gross
deposits 8,241 8,636 (5) (15) Total gross deposits excl.
institutional guaranteed products 6,393 5,387 19 7 Net deposits (on
and off balance) by line of business Fixed annuities 688 (795) N.M.
N.M. Variable annuities 78 (152) N.M. N.M. Saving deposits (67)
(72) 7 7 Retail mutual funds (98) 171 N.M. N.M. Pensions and asset
management 506 1,170 (57) (70) Institutional guaranteed products
(2,354) (1,195) (97) (71) Life reinsurance (16) (15) (7) 7 Total
net deposits (1,263) (888) (42) (34) Total net deposits excl.
institutional guaranteed products 1,091 307 N.M. 178 REVENUE
GENERATING INVESTMENTS At Mar. At Dec. 31 31 2009 2008 % Revenue
generating investments (total) 334,280 331,844 1 Investments
general account 133,130 130,481 2 Investments for account of
policyholders 103,312 105,400 (2) Off balance sheet investments
third parties 97,838 95,963 2 Sales through Caja de Ahorros del
Mediterraneo (CAM), AEGON's largest bank partner in Spain, which is
an associate and therefore not consolidated, more than tripled to
EUR 66 million (on a 100% basis) in Q1 2009, mainly due to higher
sales of recurring premium risk products and sales of pension
products following changes in pension legislation. In Central &
Eastern Europe, new life sales totaled EUR 16 million, down 24%
(18% at constant currency) compared to Q1 2008. Single premium
sales in Poland were lower due to a decline in equity markets. In
Asia, new life sales decreased to EUR 12 million as increased sales
in China were more than offset by a decline in Taiwan. Deposits
Total gross deposits excluding institutional guaranteed products
were up 19% to EUR 6.4 billion. Total gross on and off balance
deposits for the company decreased by 5% (down 15% in constant
currency) to EUR 8.2 billion in Q1 2009. The main driver for the
decline was the significantly lower sales of both institutional
spread and institutional fee business in the Americas. AEGON
recently announced its decision to downsize its institutional
spread based business. Fixed annuities sales in the Americas
continued to be strong. AEGON continues to expect these sales to
decrease during the remainder of the year. Variable annuity sales
in the Americas were in line with sales in the last few quarters.
Sales of retirement plans in the pension business were strong,
particularly when taking into account the impact of lower financial
markets on the balances taken over. Managed assets and retail
mutual fund sales were down as a result of the turmoil in financial
markets. Gross deposits in Other countries tripled to EUR 706
million. Gross deposits in Central & Eastern Europe were up 11%
in constant currency. Despite the adverse economic environment,
pension deposits continue to be strong, reflecting growth of the
business as well as the incorporation of acquisitions. Deposits in
Asia totaled EUR 405 million, a result of the inclusion of the
asset management joint venture in China. In Q1 2009 deposits in
Other countries also included sales of European variable annuities
for the first time which amounted to EUR 111 million. A variable
annuity product was introduced in France through AEGON's partner La
Mondiale. Net deposits amounted to approximately EUR 1.1 billion,
excluding institutional guaranteed products. Net deposits for the
company amounted to a negative EUR 1.3 billion as a result of
outflows in the institutional business in the Americas, following
the decision to downsize that business. This effect offset net
inflows in fixed annuities and the pension business in the Americas
and CEE, as well as net inflows in AEGON's asset management joint
venture in China. Value of new business The value of new business
(VNB) for the company was up 8% compared to Q1 2008. VNB was up due
to increases in Spain and the Netherlands. The internal rate of
return is 17.8%, slightly lower than last year. FINANCIAL OVERVIEW,
Q1 2009 GEOGRAPHICALLY Amounts in EUR (unless stated otherwise)
United Americas Kingdom The USD GBP Americas Netherlands Underlying
earnings before tax by line of business 221 7 Life and protection
169 55 Individual savings and retirement (403) 0 products (309) (9)
Pensions and asset 10 3 Management 8 26 117 0 Institutional
products 89 0 (30) 0 Life reinsurance (23) 0 0 (3) Distribution 0 9
0 0 General insurance 0 (9) Interest charges and other Share in net
results of (3) 0 associates (2) 0 Underlying earnings (88) 7 before
tax (68) 72 Over/(under) performance (42) (3) of fair value items
(32) (190) Operating earnings (130) 4 before tax (100) (118)
Operating earnings before tax by line of business 176 7 Life and
protection 135 29 Individual savings and retirement (394) 0
products (303) (9) Pensions and asset (3) 0 management (2) (138) 18
0 Institutional products 13 0 76 0 Life reinsurance 59 0 0 (3)
Distribution 0 9 0 0 General insurance 0 (9) Interest charges and
other Share in net results (3) 0 of associates (2) 0 Operating
earnings (130) 4 before tax (100) (118) Gains/(losses) on 36 9
investments 28 110 (370) (13) Impairment charges (284) (78) Other
income/ 1 (22) (charges) 1 0 (463) (22) Income before tax (355)
(86) 290 27 Income tax 222 45 (173) 5 Net income (133) (41) Net
underlying (57) 10 earnings (44) 55 Net operating (90) 8 earnings
(69) (87) - Table Continued - Holding, other United Other
activities & Total Kingdom countries eliminations EUR
Underlying earnings before tax by line of business Life and
protection 7 8 0 239 Individual savings and retirement products 0 5
0 (313) Pensions and asset management 3 5 0 42 Institutional
products 0 0 0 89 Life reinsurance 0 0 0 (23) Distribution (3) 0 0
6 General insurance 0 8 0 (1) Interest charges and other (63) (63)
Share in net results of associates 0 4 0 2 Underlying earnings
before tax 7 30 (63) (22) Over/(under) performance of fair value
items (3) 1 27 (197) Operating earnings before tax 4 31 (36) (219)
Operating earnings before tax by line of business Life and
protection 7 8 0 179 Individual savings and retirement products 0 6
0 (306) Pensions and asset management 0 5 0 (135) Institutional
products 0 0 0 13 Life reinsurance 0 0 0 59 Distribution (3) 0 0 6
General insurance 0 8 0 (1) Interest charges and other (36) (36)
Share in net results of associates 0 4 0 2 Operating earnings
before tax 4 31 (36) (219) Gains/(losses) on investments 10 4 21
173 Impairment charges (14) (5) (5) (386) Other income/(charges)
(24) 0 0 (23) Income before tax (24) 30 (20) (455) Income tax 30
(21) 6 282 Net income 6 9 (14) (173) Net underlying earnings 11 9
(45) (14) Net operating earnings 9 10 (26) (163) - Underlying loss
of USD 88 million; USD 600 million impact from decline in equity
markets - Negative contribution of fair value items of USD 42
million on lower real estate values offset by positive impact from
fair value GMWB guarantees and related hedges - Impairments of USD
370 million - Strong sales of fixed annuities and retirement plan
sales; net deposits USD 1.6 billion (excl. institutional guaranteed
products) Overview The decline in equity markets in Q1 2009 had a
significant impact (approx. USD 600 million), on underlying
earnings in the Americas and led to lower fee income in many of the
businesses, and reserve strengthening and accelerated amortization
of deferred policy acquisition costs in the variable annuities
business. In addition, earnings were affected by the decision to
reduce exposure to hedge fund investments while increasing the
asset allocation to cash, treasury and agency bonds. Results in the
Americas also included USD 370 million of post DPAC impairments.
The impairments pre DPAC were USD 427 million, of which the
majority (USD 267 million) was related to structured asset
impairments. Sales of fixed annuities continued to be strong during
the quarter. AEGON continues to expect these sales to decrease
during the remainder of the year. Sales of variable annuities were
consistent with sales in the last few quarters. New life sales were
down in all lines of business. Sales of retirement plans in the
pension business were strong, particularly when taking into account
the impact of lower financial markets on the balances taken over.
Value of new business was down 13%, reflecting reduced
institutional sales, and lower VNB of life and protection, but
higher VNB from fixed annuities and pensions. Underlying earnings
before tax AEGON reported an underlying loss before tax in the
Americas for Q1 2009 of USD 88 million: - Earnings from Life &
Protection declined 19% compared to Q1 2008 to USD 221 million, and
include an USD 25 million persistency related charge following the
decline in equity markets this quarter. Earnings also include USD
26 million of increased employee pension expenses. In Q1 2008
underlying earnings included exceptional unfavorable mortality
charges of USD 34 million; - Individual Savings & Retirement
earnings came in at a loss of USD 403 million, due to the equity
market impact on fee income, minimum guarantee reserve
strengthening and accelerated DPAC amortization (in total USD 460
million). In addition, changes in lapse assumptions affected
earnings by USD 75 million; - Pensions & Asset Management
earnings decreased to USD 10 million, a result primarily of lower
fees from reduced asset balances; - Earnings from the Institutional
business were down 28% to USD 117 million. A decrease in short-term
rates continued to produce more positive spreads on institutional
guaranteed products, offset, however, by spread compression from
the higher asset allocation to cash and restructuring costs
following the decision to downsize the institutional business; - In
the Life Reinsurance business the underlying loss amounted to USD
30 million, including a USD 40 million impact from lower equity
markets and unfavorable mortality (USD 26 million). Net income
AEGON reported a net loss for Q1 of USD 173 million in the
Americas. Fair value items showed an underperformance of USD 42
million, a result primarily of underperformance of alternative
assets like real estate partnerships, as well as private equity,
and lower market values of credit derivatives. These were offset by
the positive impact of higher interest rates on the fair value of
GMWB guarantees and positive result on GMWB related hedges. Results
in the Americas also included USD 370 million of post DPAC
impairments. The impairments pre DPAC were USD 427 million, of
which the majority (USD 267 million) was related to structured
asset impairments, including securities backed by subprime
mortgages (USD 173 million). The high effective tax rate is mainly
a result of the tax benefits for permanent differences and tax
credits which increase the effective tax rate in the current
overall pre-tax loss situation. In addition, pre-tax earnings from
Ireland being taxed at their lower rate also resulted in an
increase in the effective tax rate in the current overall pre-tax
loss situation. Commissions and expenses Total commissions and
expenses increased 12% in Q1, primarily due to acceleration of DPAC
amortization. Q1 operating expenses were up 3%. An increase in
employee pension plan costs (USD 43 million) as well as
restructuring expenses, primarily related to the downsizing of
institutional business (USD 22 million), offset the positive
contributions of cost initiatives. Sales and deposits Total new
life sales in the Americas were down 31% in the quarter, driven
primarily by a decline in universal life sales in the high net
worth market and variable life sales in the middle market. Retail
life sales were in line with Q4 2008. The BOLI/COLI market has
declined significantly as a result of the financial crisis and its
impact on banks. Life reinsurance sales were down as well compared
to last year, but were in line with previous quarters. Total gross
deposits, excluding institutional guaranteed products, were in line
with Q1 2008 and increased by 2% compared to Q4 2008. Net deposits
excluding institutional guaranteed products were up significantly
to USD 1.6 billion. Fixed annuities sales came in strong again
after several quarters of growth. AEGON continues to expect these
sales to decrease during the remainder of the year. Variable
annuity sales were in line with sales in the last few quarters,
while retail mutual fund sales suffered from lower financial
markets as expected. Sales of retirement plans in the pension
business were strong, particularly when taking into account the
impact of lower financial markets on the balances taken over.
Managed assets clearly declined also because of financial market
turmoil. Sales of institutional guaranteed products are low, after
the decision to downsize the institutional spread based business.
Sales of accident and health products were in line with sales over
the last few quarters. Value of new business The value of new
business (VNB) in the Americas amounted to USD 103 million, and the
internal rate of return (IRR) was 10.3%. Declines in VNB and IRR
were noticeable in the retail life business due to lower production
and lower investment return assumptions. VNB in the institutional
business was down due to the discontinuance of new sales. The VNB
and IRR in the variable annuity business were negatively affected
by hedge costs. VNB was up significantly for fixed annuities on
higher production while VNB for the pension and reinsurance
businesses were in line with the prior year. Please refer to page
29 for more detailed information on VNB. Revenue generating
investments AEGON's total revenue generating investments at the end
of March 2009 totaled USD 279 billion, down 2% from three months
earlier. AMERICAS - EARNINGS Q1 Q1 USD millions Notes 2009 2008 %
Underlying earnings before tax by line of business Life 153 159 (4)
Accident and health 68 115 (41) Life and protection 221 274 (19)
Fixed annuities 86 95 (9) Variable annuities (480) 70 N.M. Retail
mutual funds (9) 4 N.M. Individual savings and retirement products
(403) 169 N.M. Pensions and asset management 10 45 (78)
Institutional guaranteed products 105 141 (26) BOLI/COLI 12 21 (43)
Institutional products 117 162 (28) Life reinsurance (30) 65 N.M.
Share in net results of associates (3) 1 N.M. Underlying earnings
before tax (88) 716 N.M. Over/(under) performance of fair value
items (42) (560) 93 Operating earnings before tax (130) 156 N.M.
Operating earnings before tax by line of business Life 120 135 (11)
Accident and health 56 109 (49) Life and protection 176 244 (28)
Fixed annuities 41 8 N.M. Variable annuities (426) (103) N.M.
Retail mutual funds (9) 4 N.M. Individual savings and retirement
products (394) (91) N.M. Pensions and asset management (3) 38 N.M.
Institutional guaranteed products 8 (99) N.M. BOLI/COLI 10 17 (41)
Institutional products 18 (82) N.M. Life reinsurance 76 46 65 Share
in net results of associates (3) 1 N.M. Operating earnings before
tax (130) 156 N.M. Gains/(losses) on investments 36 (71) N.M.
Impairment charges (370) (21) N.M. Other income/(charges) 1 0 N.M.
Income before tax (463) 64 N.M. Income tax 290 (103) N.M. Net
income (173) (39) N.M. Net underlying earnings (57) 522 N.M. Net
operating earnings (90) 111 N.M. Commissions and expenses 1,311
1,169 12 of which operating expenses 562 547 3 For the amounts in
euro see the Financial Supplement. AMERICAS - SALES Q1 Q1 USD
millions Notes 2009 2008 % New life sales Life single premiums 91
241 (62) Life recurring premiums annualized 173 238 (27) Total
recurring plus 1/10 single 182 262 (31) Life 128 187 (32) BOLI/COLI
2 14 (86) Life reinsurance 52 61 (15) Total recurring plus 1/10
single 182 262 (31) New premium production accident and health
insurance 203 237 (14) Gross deposits (on and off balance) by line
of business Fixed annuities 2,120 459 N.M. Variable annuities 780
974 (20) Retail mutual funds 307 773 (60) Pensions and asset
management 3,169 4,252 (25) Institutional guaranteed products 2,407
4,870 (51) Life reinsurance 0 2 N.M. Total gross deposits 8,783
11,330 (22) Total gross deposits excl. institutional guaranteed
products 6,376 6,460 (1) Net deposits (on and off balance) by line
of business Fixed annuities 896 (1,192) N.M. Variable annuities
(40) (279) 86 Retail mutual funds (256) 247 N.M. Pensions and asset
management 1,053 1,644 (36) Institutional guaranteed products
(3,065) (1,792) (71) Life reinsurance (20) (23) 13 Total net
deposits (1,432) (1,395) (3) Total net deposits excl. institutional
guaranteed products 1,633 397 N.M. REVENUE GENERATING INVESTMENTS
At Mar. At Mar. 31 31 2009 2008 % Revenue generating investments
(total) 279,399 286,167 (2) Investments general account 117,934
120,790 (2) Investments for account of policyholders 55,791 58,943
(5) Off balance sheet investments third parties 105,674 106,434 (1)
For the amounts in euro see the Financial Supplement. - Underlying
earnings declined 36% to EUR 72 million - Life sales down 13%, due
to decline in retail market; group pension sales were strong -
Value of new business of EUR 31 million; internal rate of return of
14.1% Overview The Netherlands reported a net loss in Q1 2009 of
EUR 41 million. Underlying earnings were down 36%, a result of
lower technical results in the life and pension business and
adverse claims experience in general insurance. Also, investment
income declined across most businesses. Fair value items
underperformed long-term expectations, a result mainly from
differences in fair value between guarantees and related hedges,
referenced as hedge ineffectiveness. Impairments, primarily on
equity investments, totaled EUR 78 million, while investment gains
from the sale of bonds and shares amounted to EUR 110 million.
Underlying earnings before tax - The Life business reported
earnings of EUR 44 million, up from last year on higher investment
income offset by lower technical results. - In Accident and Health
underlying earnings were EUR 11 million, an increase of EUR 3
million, mainly a result of a technical provision release. - The
Savings business reported a loss of EUR 9 million, due to pressure
on margins and volumes from fierce competition in the savings
market. - Earnings from Pensions & Asset Management amounted to
EUR 26 million down from Q1 2008, primarily the result of lower
investment income. - Earnings from Distribution amounted to EUR 9
million, below last year's result due to the slowdown in the real
estate market. - General insurance earnings were down significantly
to a loss of EUR 9 million, due mainly to higher claims experience.
Net income Fair value items include the under/overperformance on
assets held at fair value through profit and loss, backing
liabilities of a specific portfolio of group pension contracts held
in the general account. In Q1 2009 these assets underperformed
long-term expected returns by EUR 54 million. The assets backing
this portfolio of liabilities were accounted for as fair value
through profit or loss and have been replaced with assets accounted
for as available for sale as per Q2 2009. As a result this item
will not recur as fair value item going forward. Also, in order to
maintain consistency in definitions, starting in Q4 2008, the net
impact of the fair value movements of guarantees and the related
hedges has been included in fair value items. Previously,
differences in fair value between guarantees and related hedges,
referenced as hedge ineffectiveness, were reported in gains/losses
on investments. Earnings in Q1 2009 include a EUR 135 million
negative impact from hedge ineffectiveness. Impairments of EUR 78
million were primarily related to equity investments and corporate
credit investments. Investment gains amounted to EUR 110 million
and include gains on bonds and shares sold during the quarter. The
positive contribution from tax is due to tax deductable impairments
and losses on fair value items, as well as tax exempt income. The
high effective tax rate is mainly a result of the tax exempt items
which increase the effective tax rate in the current overall
pre-tax loss situation. Commissions and expenses Commissions and
expenses were down 1% and operating expenses decreased also by 1%.
Higher expenses for employee benefits were offset by lower project
related expenses. Sales and deposits Pension sales were in line
with last year due to several large contracts sold during the
quarter. Renewal rates in the pension business continued to
improve. Sales of both single and regular premium individual life
products were down compared to last year, following increased
pricing competition in the immediate annuity market, as well as
lower demand for regular premium products. Sales in accident &
health were up as a result of higher sales of alternative
disability products to WIA product. Sales of general insurance
products were down on last year due to the competitive market.
Gross deposits were down by 15% compared with Q1 2008, due to
fierce competition. Net deposits in the savings business improved
significantly compared to Q4 2008. Value of new business The value
of new business (VNB) increased to EUR 31 million and the internal
rate of return improved to 14.1%, primarily as a result of a margin
improvement in the mortgage business. Please refer to page 29 for
more detailed information on VNB. Revenue generating investments At
the end of March 2009, revenue generating investments totaled EUR
63.4 billion; in line with December 2008 levels. THE NETHERLANDS -
EARNINGS Q1 Q1 EUR millions Notes 2009 2008 % Underlying earnings
before tax by line of business Life 44 32 38 Accident and health 11
8 38 Life and protection 55 40 38 Saving products (9) 1 N.M.
Individual savings and retirement products (9) 1 N.M. Pensions and
asset management 26 51 (49) Distribution 9 11 (18) General
insurance (9) 10 N.M. Underlying earnings before tax 72 113 (36)
Over/(under) performance of fair value items (190) (154) (23)
Operating earnings before tax (118) (41) (188) Operating earnings
before tax by line of business Life 18 13 38 Accident and health 11
8 38 Life and protection 29 21 38 Saving products (9) 1 N.M.
Individual savings and retirement products (9) 1 N.M. Pensions and
asset management (138) (84) (64) Distribution 9 11 (18) General
insurance (9) 10 N.M. Operating earnings before tax (118) (41)
(188) Gains/(losses) on investments 110 76 45 Impairment charges
(78) (17) N.M. Income before tax (86) 18 N.M. Income tax 45 1 N.M.
Net income (41) 19 N.M. Net underlying earnings 55 92 (40) Net
operating earnings (87) (22) N.M. Commissions and expenses 307 310
(1) of which operating expenses 217 219 (1) THE NETHERLANDS - SALES
Q1 Q1 EUR millions Notes 2009 2008 % New life sales Life single
premiums 391 445 (12) Life recurring premiums annualized 23 26 (12)
Total recurring plus 1/10 single 62 71 (13) Life 23 31 (26)
Pensions 39 40 (3) Total recurring plus 1/10 single 62 71 (13) New
premium production accident and health insurance 7 6 17 New premium
production general insurance 7 8 (13) Gross deposits (on and off
balance) by line of business Saving deposits 580 648 (10) Pensions
and asset management 11 47 (77) Total gross deposits 591 695 (15)
Net deposits (on and off balance) by line of business Saving
deposits (67) (72) 7 Pensions and asset management (113) 36 N.M.
Total net deposits (180) (36) N.M. REVENUE GENERATING INVESTMENTS
At Mar. At Mar. 31 31 2009 2008 % Revenue generating investments
(total) 63,427 63,079 1 Investments general account 32,875 32,163 2
Investments for account of policyholders 19,357 19,133 1 Off
balance sheet investments third parties 11,195 11,783 (5) -
Underlying earnings before tax declined to GBP 7 million on lower
fund related charges in the pension business - New life sales down
9% on lower bond and pension sales, offsetting sales increases in
annuities - Margins and volume in the annuity business drive value
of new business increase Overview Lower bond and equity markets
compared to Q1 last year led to a decline in underlying earnings.
Increases in sales of annuities and group pensions were more than
offset by sales declines in offshore bonds and individual pensions.
Value of new business continued its recent strong growth, a result
primarily of a shift in business mix to higher margin products.
Results from Variable Annuities are included in the Other countries
section of the results release from Q1 2009. Underlying earnings
before tax Underlying earnings before tax declined to GBP 7
million, due primarily to the impact of lower equity and corporate
bond markets on fund related charges in AEGON's unit linked pension
business. - Earnings from Life & Protection came in at GBP 7
million, slightly below results in the comparable quarter last
year. The continued positive impact on earnings from business
growth was more than offset by mortality experience and costs
related to the expense management program. - Earnings from Pensions
& Asset Management amounted to GBP 3 million, down GBP 25
million, due to impact from lower equity and bond markets on fund
related charges; - Distribution activities in the first quarter
experienced a loss of GBP 3 million, primarily a result of more
difficult market conditions for mortgage and investment products.
Net income Net income was GBP 5 million, a decline due to lower
underlying earnings, impairments (GBP 13 million) and
underperformance of fair value items. Investment gains of GBP 9
million, and a tax credit due to the change in the sources of
earnings contributed positively to earnings. Commissions and
expenses Total commissions and expenses in the quarter were up 1%,
while commissions were down due to a change in business mix.
Operating expenses increased by 2% to GBP 100 million, due mainly
to a release of employee benefit provisions in Q1 2008 and
restructuring costs in Q1 2009. Sales and deposits New life sales
were down 9% and came in at GBP 265 million in Q1 2009. New life
sales in Q1 2008 included European variable annuities, which are
reported as deposits in Other countries from Q1 2009. Excluding
sales of variable annuities in Q1 2008, new life sales were down
8%. Including the sales of variable annuities in the UK in Q1 2009,
the new life sales declined with 6% compared to Q1 2008. Sales were
down across most lines of business offsetting continued strong
growth in annuities. - Life annualized premium production increased
29% to GBP 71 million, a result of continued strong sales of
annuities; - Sales of pensions declined 18% to GBP 194 million as
sales of both group pension and individual pension were down this
quarter. In addition, sales of unit-linked bonds declined,
primarily driven by lower offshore bond sales (see Financial
Supplement for more detail). Total deposits amounted to GBP 181
million, an increase compared to last year, on both higher sales of
retail mutual funds and third party managed assets. Value of new
business The value of new business (VNB) increased 30% to GBP 52
million (excluding European variable annuities) compared to Q1
2008, driven by the shift in sales to high-margin areas, such as
annuities. As a result the internal rate of return on new business
in Q1 in the United Kingdom rose to 15.0% (excluding European
variable annuities), up from 13.0% in Q1 2008. Please refer to page
29 for more detailed information on VNB. Revenue generating
investments At the end of March 2009, revenue generating
investments totaled GBP 44.2 billion, a decline of 6% from GBP 47.1
billion at the end of 2009. The decrease reflects primarily lower
financial markets. UNITED KINGDOM - EARNINGS Q1 Q1 GBP millions
Notes 2009 2008 % Underlying earnings before tax by line of
business Life 7 8 (13) Life and protection 7 8 (13) Pensions and
asset management 3 28 (89) Distribution (3) (2) (50) Underlying
earnings before tax 7 34 (79) Over/(under) performance of fair
value items (3) 0 N.M. Operating earnings before tax 4 34 (88)
Operating earnings before tax by line of business Life 7 8 (13)
Life and protection 7 8 (13) Pensions and asset management 0 28
N.M. Distribution (3) (2) (50) Operating earnings before tax 4 34
(88) Gains/(losses) on investments 9 2 N.M. Impairment charges (13)
0 N.M. Other income/(charges) 9 (22) (41) 46 Income before tax (22)
(5) N.M. Income tax attributable to policyholder return 22 41 (46)
Income before income tax on shareholders return 0 36 N.M. Income
tax on shareholders return 5 (5) N.M. Net income 5 31 (84) Net
underlying earnings 10 30 (67) Net operating earnings 8 30 (73)
Commissions and expenses 159 157 1 of which operating expenses 100
98 2 For the amounts in euro see the Financial Supplement. UNITED
KINGDOM - SALES Q1 Q1 GBP millions Notes 2009 2008 % New life sales
10 Life single premiums 1,317 1,498 (12) Life recurring premiums
annualized 133 141 (6) Total recurring plus 1/10 single 265 291 (9)
Life 71 55 29 Pensions 194 236 (18) Total recurring plus 1/10
single 265 291 (9) Gross deposits (on and off balance) by line of
business Pensions and asset management 181 112 62 Total gross
deposits 181 112 62 Net deposits (on and off balance) by line of
business Pensions and asset management (257) (41) N.M. Total net
deposits (257) (41) N.M. REVENUE GENERATING INVESTMENTS At Mar. At
Mar. 31 31 2009 2008 % Revenue generating investments (total)
44,208 47,122 (6) Investments general account 5,157 4,964 4
Investments for account of policyholders 37,188 39,869 (7) Off
balance sheet investments third parties 1,863 2,289 (19) For the
amounts in euro see the Financial Supplement. - Underlying earnings
before tax declined by 10% at constant currency - Life sales of EUR
50 million resilient with 11% decline at constant currency -
Continued strong retail mutual fund sales in China lead to record
deposits of EUR 706 million - VNB of EUR 33 million, down from last
year on lower sales Overview Underlying earnings from Other
countries amounted to EUR 30 million, EUR 9 million lower than last
year, a result of higher losses in Taiwan, a lower contribution
from France and lower earnings in Central & Eastern Europe
(CEE) due to significantly depreciated currencies in CEE. In Q1
2008 earnings from CEE included a one-off reserve release in
Hungary of EUR 4 million. Life sales were down 11% at constant
currency, as declining equity markets impacted single premium
unit-linked sales in Poland and in Asia. The strong growth in
deposits is a reflection of the inclusion of the Chinese asset
management joint venture. The pension business in CEE continues to
perform well in terms of sales and net deposits. Results from
European Variable Annuities are included in the Other countries
section of the results release from Q1 2009. Underlying earnings
before tax Underlying earnings before tax from Other countries
declined to EUR 30 million in Q1 2009. - Earnings from Life &
Protection declined mainly as a result of losses in Asia. In CEE
income on unit-linked business was down due to lower asset
balances. In Q1 2008 life earnings from CEE included a one-off
reserve release in Hungary of EUR 4 million; - The asset management
joint venture in China performed well. As a result, earnings from
Individual savings and retirement products increased to EUR 5
million; - Pensions & Asset management earnings increased to
EUR 5 million as a result of the inclusion of a Polish pension fund
and the introduction of DPAC in the pension businesses in Hungary
and Poland; - Earnings from General insurance were EUR 8 million,
in line with last year; - Earnings from associate companies
declined due additional start-up costs at AEGON's joint ventures in
India and a lower contribution from La Mondiale, AEGON's French
partner. Net income Net income declined by two thirds to EUR 9
million as a result of lower underlying earnings. Gains on
investment were offset by impairment charges. An increased
impairment of deferred tax assets in Taiwan resulted in a high
effective tax rate for Other countries. Commissions and expenses
Commissions and expenses rose 8% in Q1 2009 to EUR 98 million, as a
result of higher operating expenses. Operating expenses were up due
to the inclusion of new operations in Turkey and Asia, the
inclusion of acquired pension funds in Hungary and Poland and two
new joint ventures in Spain. Sales and deposits New life sales in
Q1 2009 declined 11% to EUR 50 million. - In Central & Eastern
Europe, sales of recurring premium life insurance declined 5% as
strong performances in the Czech Republic and Slovakia were offset
by declines in Hungary and Poland. Single premium sales were
sharply lower, particularly in Poland, because of continued market
turmoil. Total new life sales in CEE amounted to EUR 16 million,
down 24% or 18% at constant currency; - In Spain, sales of life
insurance rose 22% to EUR 22 million, due primarily to the
inclusion of two new joint ventures with regional savings banks and
higher sales of existing joint ventures; - AEGON's largest bank
partner in Spain, which is an associate and therefore not
consolidated, more than tripled sales to EUR 66 million (on a 100%
basis), as a result of an increased focus on risk products and
higher pension (PPA) sales; - In Asia, new life sales decreased to
EUR 12 million as increased sales in China and India were more than
offset by a decline in Taiwan. Gross deposits tripled to EUR 706
million. Net deposits more than doubled to EUR 300 million. The
strong growth in deposits is a reflection of inclusion of the
Chinese asset management joint venture. The pension business in CEE
continues to perform well in terms of sales and net deposits.
Deposits in Q1 2009 include sales of European variable annuities of
EUR 111 million. General insurance Non-life sales in Hungary
declined to EUR 5 million as a result of continued focus on writing
profitable business in an increasingly competitive environment.
Value of new business The value of new business (VNB) from Other
countries was EUR 33 million, a decrease of EUR 9 million compared
to Q1 2008, primarily as a result of lower sales. In both Asia and
CEE, the decrease in VNB was a reflection of lower sales. In Q1
2008 VNB included EUR 7 million related the introduction and launch
of a mandatory pension fund in Romania. In Spain, VNB increased
mainly as a result of higher sales in CAM. The internal rate of
return in Asia was 9.6% as a result of changes in economic
assumptions. The reduction of the internal rate of return to 34.4%
in CEE is mainly a reflection of lower margins due to higher
expense assumptions. In Spain, AEGON's bank distribution
partnerships continued to deliver high rates of return. Please
refer to page 29 for more detailed VNB information. Revenue
generating investments In 1Q 2009, revenue generating investments
declined 2% from year-end 2008 levels to EUR 13.4 billion, mainly
as a result of lower equity markets. DATASOURCE: AEGON N.V.
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