Active Energy (LSE:AEG)
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From Jul 2019 to Jul 2024
- Strong Business Performance Results in a 9% Rise in Underlying Earnings
Before Tax
- Operating Earnings and Net Income Affected by Recent Turmoil in World
Financial Markets
- AEGON Reports no Significant Impairments, Reflecting High Quality of
Investment Portfolio
- AEGON Confident it Will Meet 2010 Value of New Business Target Despite
Decline in First Quarter
Chairman's Statement
AEGON's Chairman of the Executive Board and CEO Alexander Wynaendts stated:
"AEGON's businesses continued to demonstrate strong underlying performance, despite the turbulent environment. Retail sales progressed well during the quarter, in particular in the US and the Netherlands. The downturn in financial markets and a weak US dollar resulted in AEGON reporting considerably lower operating earnings and net income for the first quarter. Since the end of the quarter we have seen a reversal of the widening of credit spreads, which would have reduced significantly the negative impact of fair value assets on AEGON's operating earnings and net income. The quality of our investment portfolio is again demonstrated by the fact that AEGON experienced no material impairments in the first quarter. In addition, our capital position and cash flows remain strong. We also remain confident in our progress toward our 2010 VNB target. Finally, in line with our international growth strategy, we successfully continued our international expansion in Central and Eastern Europe and Turkey."
PERFORMANCE INDICATORS
amounts in EUR millions Notes 1Q 2008 1Q 2007 % At
(except per share data) constant
currency
%
1
Underlying earnings before tax 2 658 602 9 22
Net operating earnings 267 484 (45) (38)
Net income 3 153 707 (78) (75)
Net income per share 0.07 0.42 (83) (79)
New life sales 4 686 826 (17) (8)
Total deposits 5 8,636 12,976 (33) (25)
Value of new business (VNB) 186 232 (20) (12)
Return on equity - underlying 6 13% 11% 18
earnings
For notes see Explanatory Notes.
AEGON has a focused strategy, aimed at creating long-term value for all its stakeholders. The Group's objectives are to expand its international presence, further strengthen its distribution networks and invest in its growing pension businesses. AEGON took a number of specific steps to meet these objectives:
- AEGON strengthened its position in the developing pension and asset
management markets in Central and Eastern Europe (CEE) by signing an
agreement to acquire the UNIQA Asset Management Company and the
Heller-Saldo 2000 Pension Fund Management Company in Hungary, with a
total number of pension fund members of 140,000. Following the
acquisition, AEGON Hungary's pension revenue generating investments
will amount to EUR 1.9 billion.
- As part of its ongoing efforts to expand in rapidly developing markets,
AEGON also announced the acquisition of Turkish life and pension
company Ankara Emeklilik. Turkey, with its population of 74 million
people, has a low life insurance penetration and the private pensions
market has significant growth potential. In addition, Ankara Emeklilik
has a well-established presence in the Turkish life insurance and
private pensions market, with more than 54,000 pension fund members
and EUR 35 million in revenue generating investments. Ankara Emeklilik
sells through a variety of different channels and has an agreement
with Sekerbank to distribute products and services through a nationwide
network of 236 branches.
- In April, AEGON and Industrial Securities, one of China's leading
securities firms, announced the establishment of a new asset management
joint venture following final approval from the country's regulatory
authorities. The joint venture will be named AEGON Industrial Fund
Management Company. Under the agreement, AEGON will acquire a 49%
interest in Industrial Fund Management Company (IFMC), a subsidiary of
Industrial Securities. IFMC is a Chinese mutual fund manager with
approximately EUR 3 billion in revenue generating investments.
Industrial Securities will retain the remaining 51% of IFMC.
AEGON's value of new business (VNB) decreased to EUR 186 million. The decline was due primarily to the impact of a weaker US dollar and British pound and a lower contribution from the Group's life reinsurance and institutional businesses in the Americas. There was a decline in VNB from both Taiwan and the Netherlands, because of a recent change in business mix and the effect of markets on unit-linked sales in Taiwan, while in Spain new business volumes were also lower. AEGON's operations in CEE again reported strong growth in VNB, helped by the launch of a new mandatory pension fund in Romania at the start of 2008.
Internal rates of return, meanwhile, improved, rising to 18.4% as the Group continued to focus on writing profitable new business.
FINANCIAL OVERVIEW
EUR millions Notes 1Q 2008 1Q 2007 % At
constant
currency
%
1
Underlying earnings before tax by
line of business
Life and protection 252 260 (3) 7
Individual savings and retirement 116 125 (7) 5
products
Pensions and asset management 121 132 (8) (1)
Institutional products 108 87 24 41
Reinsurance 43 36 19 34
Distribution 9 10 (10) (13)
General insurance 17 3 N.M. N.M.
Interest charges and other (17) (58) (71) (61)
Share in net results of associates 9 7 29 36
Underlying earnings before tax 658 602 9 22
Over / (under) performance of fair (316) 39 N.M. N.M.
value items
Operating earnings before tax 342 641 (47) (40)
Operating earnings before tax by line
of business
Life and protection 232 262 (11) (2)
Individual savings and retirement (58) 136 N.M. N.M.
products
Pensions and asset management 87 146 (40) (34)
Institutional products (55) 100 N.M. N.M.
Reinsurance 31 36 (14) (3)
Distribution 9 10 (10) (13)
General insurance 17 2 N.M. N.M.
Interest charges and other 70 (58) N.M. N.M.
Share in net results of associates 9 7 29 36
Operating earnings before tax 342 641 (47) (40)
Gains/(losses) on investments (39) 283 N.M. N.M.
Impairment charges (32) 7 N.M. N.M.
Other income/(charges) (54) 15 N.M. N.M.
Income before tax 217 946 (77) (73)
Income tax (64) (239) (73) (68)
Net income 153 707 (78) (75)
Net underlying earnings 503 455 11 23
Net operating earnings 267 484 (45) (38)
Underlying earnings geographically
Americas 478 478 0 14
The Netherlands 113 87 30 30
United Kingdom 45 66 (32) (23)
Other countries 39 29 34 37
Holding and other (17) (58) (71) (61)
Underlying earnings before tax 658 602 9 22
Operating earnings geographically
Americas 104 505 (79) (76)
The Netherlands 84 99 (15) (15)
United Kingdom 45 66 (32) (23)
Other countries 39 29 34 37
Holding and other 70 (58) N.M. N.M.
Operating earnings before tax 342 641 (47) (40)
Commissions and expenses 1,416 1,515 (7) 2
of which operating expenses 783 795 (2) 7
Overview
AEGON's businesses delivered a strong underlying performance in the first quarter of 2008 despite the impact of recent turmoil in world financial markets and weaker currencies in both the United States and the United Kingdom. Underlying earnings, which exclude the effect of market fluctuations on fair value items, were up 9% (or 22% on a constant currency basis). This increase was primarily the result of business growth as well as more favorable investment spreads in the Americas, strong life insurance earnings in CEE, and higher investment income in the Netherlands.
Extremely volatile financial markets, characterized by an unparalleled spike in credit spreads, declining risk free interest rates and lower equity markets had a significant impact on the Group's operating earnings. Operating earnings include the fair value movements of certain investment classes in the Netherlands and the Americas, as well as a number of products containing financial guarantees. These items considerably underperformed their long-term expected returns. As a result, AEGON's operating earnings before tax declined to EUR 342 million.
Net income was down to EUR 153 million, a result of lower operating earnings and a decline in realized investment gains. Despite unfavorable market conditions, net impairments totaled just EUR 32 million (3 bps of general account investments) during the quarter. AEGON's subprime portfolio experienced no impairments this quarter.
Underlying earnings before tax
Underlying earnings before tax increased by 9% (or 22% in constant currencies). Underlying earnings from the Americas, the Netherlands and Other countries all showed strong growth compared with the same period in 2007. In the Americas, earnings benefited from higher spreads and continued underlying growth. In the Netherlands, earnings were positively impacted by higher investment income and the inclusion of a Dutch life insurance company acquired in 2007. The United Kingdom reported a decrease in its underlying earnings, due primarily to the impact of lower financial markets on fund-related fees. Earnings from Other countries were mainly driven by growth of the life insurance business in CEE.
Operating earnings before tax
Operating earnings before tax decreased to EUR 342 million. The weakening of the US dollar and the British pound impacted operating earnings. Operating earnings in the Americas and The Netherlands showed a decline as a result of the impact of financial markets on the performance of fair value items.
The first quarter saw an unprecedented widening in credit spreads. This had a negative impact on the market value of AEGON's EUR 4.2 billion synthetic CDO (collateralized debt obligation) program and other credit-related financial instruments. Lower interest rates, meanwhile, affected the fair value of guarantees in AEGON's segregated fund business in Canada, as well as the Group's total return annuities and its GMWB (guaranteed minimum withdrawal benefits) variable annuity riders. AEGON's hedge funds portfolio experienced an underperformance, after outperforming expected long-term returns for ten consecutive quarters. As a result of widening credit spreads, AEGON's operating earnings included a EUR 87 million gain from bonds issued by the Group. These bonds are held in the Group's accounts at fair value and are hedged using swaps. Movements in the fair value of these swaps usually offset any gains or losses from the bonds themselves.
Net income
Net income was down to EUR 153 million, primarily the result of lower operating earnings and lower realized investment gains in the Americas and the Netherlands. A negative tax impact from intercompany reinsurance transactions largely explains the increase in the effective tax rate.
Commissions and expenses
Commissions and expenses declined 7% in the first quarter. Operating expenses were 2% lower, due to the recent strengthening of the euro. In constant currency, operating expenses increased 7%, due to further investments in the business.
SALES
EUR millions Notes 1Q 2008 1Q 2007 % At
constant
currency
%
New life sales
Life single premiums 2,757 3,875 (29) (22)
Life recurring premiums annualized 410 438 (6) 4
Total recurring plus 1/10 single 686 826 (17) (8)
New premium production accident 166 176 (6) 7
and health insurance
New premium production general 16 12 33 30
insurance
Gross deposits (on and off
balance) by line of business
Fixed annuities 306 193 59 81
Variable annuities 685 683 0 13
Saving deposits 648 569 14 14
Retail mutual funds 564 584 (3) 10
Pensions and asset management 3,183 3,161 1 14
Institutional guaranteed products 3,249 7,786 (58) (52)
Reinsurance 1 0 N.M. N.M.
Total gross deposits 8,636 12,976 (33) (25)
Net deposits (on and off balance)
by line of business
Fixed annuities (795) (1,316) 40 31
Variable annuities (152) (175) 13 6
Saving deposits (72) (65) (11) (11)
Retail mutual funds 171 192 (11) 1
Pensions and asset management 1,170 (264) N.M. N.M.
Institutional guaranteed products (1,195) 1,946 N.M. N.M.
Reinsurance (15) 0 N.M. N.M.
Total net deposits (888) 318 N.M. N.M.
REVENUE GENERATING INVESTMENTS
At Mar. 31 At Dec.
31
2008 2007
Revenue generating investments 7 339,833 370,470 (8) (3)
(total)
Investments general account 125,359 132,861 (6)
Investments for account of 126,273 142,384 (11)
policyholders
Off balance sheet investments 88,201 95,225 (7)
third parties
Sales
Overall new life sales were down to EUR 686 million, due mainly to lower sales of both life reinsurance and bank- and corporate-owned life insurance in the Americas. Retail life sales in the Americas were up 9% and immediate annuity sales in the Netherlands also showed strong growth. New life sales in Asia decreased significantly as a result of the ongoing shift from traditional to unit-linked products and variable annuity deposits, as well as the negative effect from markets on unit-linked sales in Taiwan. Unit-linked sales in CEE were impacted by equity market volatility. In the United Kingdom, declines in sales of individual pensions were offset by increases in group business and higher sales of individual protection and annuity products.
Deposits
In the Americas, Pensions & asset management experienced continued strong growth in deposits. Fixed annuities sales benefited from a steepening of the yield curve. Variable annuity deposits increased primarily as a result of continued strong sales through banks, broker/dealers, fee planners and the inclusion of Merrill Lynch's life insurance companies. Retail mutual funds continued to experience positive net inflows despite negative market sentiment. The decline in net deposits is mainly a result of the decline in institutional guaranteed products as no deals were possible at acceptable spreads. CEE again showed a solid increase in total gross deposits, as did Asia where a new variable annuity product was launched in Taiwan.
AEGON's investment portfolio
During the first quarter this year, there was a further deterioration in international credit markets. AEGON's credit risks are concentrated primarily in the United States. The Group has structured its US investment portfolio defensively to weather a stressed credit environment. As a result, net impairments on investments totaled just EUR 32 million for the Group in the first quarter, evidence of the continued high quality of the Group's investment portfolio.
Lower financial markets have, however, led to revaluation of credit related assets. Unlike impairments, these revaluations have no impact on the Group's earnings. Under IFRS, for the 'available for sale' investment portfolio, any changes in the fair value are reflected in the revaluation reserve as part of the Group's shareholders' equity. Since the beginning of this year, AEGON's revaluation reserve has declined by EUR 1.5 billion as a consequence of significantly wider credit spreads and lower equity markets, partly offset by lower interest rates.
Revaluations reflect movements in financial markets. Assets are only impaired if AEGON intends to sell at a loss or otherwise does not expect to receive full principal and interest on a particular investment. AEGON is a long-term investor and generally intends to retain large parts of the portfolio until maturity. Moreover, as a result of the Group's effective asset and liability management, AEGON has ample liquidity in its investment portfolio.
AEGON continues to have limited exposure to the US subprime market. However, the credit risk is concentrated primarily in a certain segment, floating rate subprime assets, with over 85% rated AAA and AA. The value of these securities has been affected by the recent deterioration in the US financial markets. At the end of March, these investments, totaling EUR 1,098 million, showed an unrealized net loss of EUR 334 million. While there is clearly a risk of future impairments in this area, AEGON believes this exposure is of manageable size.
Revenue generating investments
Revenue generating investments totaled EUR 340 billion at the end of March 2008, down 8% from year-end 2007 and down 3% on a constant currency basis. The decline on a constant currency basis was due primarily to lower financial markets during the first quarter.
Capital management
At the end of March, shareholders' equity totalled EUR 12.6 billion, a decrease of EUR 2.6 billion compared with the end of December 2007. AEGON's revaluation reserve declined by EUR 1.5 billion. Foreign currency translation effects had an impact of EUR 1.1 billion, primarily due to a decline in the value of the US dollar and UK pound since year-end 2007 (of 7% and 9% respectively). The positive impact of net income (EUR 153 million) was partly offset by paid coupons on perpetuals (EUR 46 million) and the cost of repurchasing AEGON shares to hedge the Group's 2008 employee stock option program (EUR 73 million).
AEGON applies leverage tolerances to its capital base, which reflects the capital employed in its core activities. This capital base consists of three elements: shareholders' equity, capital securities and subordinated and senior debt. AEGON aims to ensure that shareholders' equity accounts for at least 70% of its overall capital base, capital securities8 25% and subordinated and senior debt a maximum of 5%. AEGON manages its economic exposure to currency revaluations in its capital base. AEGON has raised the majority of its perpetual securities denominated in US dollars. These securities are part of Group equity and as a result are carried in the balance sheet at the original EUR/USD exchange rate. At the end of March 2008, shareholders' equity represented 72% of AEGON's total capital base. Group equity, which includes other equity instruments (such as perpetual capital securities) and minority interests, represented 93% of total capital (8, 9).
In January, AEGON launched a 30-year USD 1.5 billion AXXX innovative capital management transaction. This financing transaction provides the company with flexible solutions that will help manage the Group's reserves and capital in a cost efficient manner.
The initial size of this transaction is USD 300 million. AEGON will continue to explore further opportunities for securitizations and other innovative capital market transactions as part of an ongoing commitment to manage capital and reserve requirements efficiently and effectively.
AMERICAS - EARNINGS
USD millions Notes 1Q 2008 1Q 2007 %
1
Underlying earnings before tax by line of
business
Life 159 153 4
Accident and health 115 116 (1)
Life and protection 274 269 2
Fixed annuities 95 86 10
Variable annuities 70 66 6
Retail mutual funds 4 4 0
Individual savings and retirement 169 156 8
products
Pensions and asset management 45 41 10
Institutional guaranteed products 141 94 50
BOLI/COLI 21 21 0
Institutional products 162 115 41
Reinsurance 65 47 38
Share in net results of associates 1 (1) N.M.
Underlying earnings before tax 716 627 14
Over / (under) performance of fair value (560) 35 N.M.
items
Operating earnings before tax 156 662 (76)
Operating earnings before tax by line of
business
Life 135 155 (13)
Accident and health 109 117 (7)
Life and protection 244 272 (10)
Fixed annuities 8 98 (92)
Variable annuities (103) 69 N.M.
Retail mutual funds 4 4 0
Individual savings and retirement (91) 171 N.M.
products
Pensions and asset management 38 42 (10)
Institutional guaranteed products (99) 110 N.M.
BOLI/COLI 17 21 (19)
Institutional products (82) 131 N.M.
Reinsurance 46 47 (2)
Share in net results of associates 1 (1) N.M.
Operating earnings before tax 156 662 (76)
Gains/(losses) on investments (71) 174 N.M.
Impairment charges (21) 16 N.M.
Income before tax 64 852 (92)
Income tax (103) (227) (55)
Net income (39) 625 N.M.
Net underlying earnings 522 476 10
Net operating earnings 111 500 (78)
Commissions and expenses 1,169 1,192 (2)
of which operating expenses 547 532 3
AMERICAS - SALES
USD millions Notes 1Q 2008 1Q 2007 %
New life sales
Life single premiums 241 650 (63)
Life recurring premiums annualized 238 248 (4)
Total recurring plus 1/10 single 262 313 (16)
Life 187 172 9
BOLI/COLI 14 60 (77)
Reinsurance 61 81 (25)
Total recurring plus 1/10 single 262 313 (16)
New premium production accident and 237 219 8
health insurance
Gross deposits (on and off balance) by
line of business
Fixed annuities 459 253 81
Variable annuities 974 892 9
Retail mutual funds 773 741 4
Pensions and asset management 4,252 3,470 23
Institutional guaranteed products 4,870 10,198 (52)
Reinsurance 2 0 N.M.
Total gross deposits 11,330 15,554 (27)
Net deposits (on and off balance) by line
of business
Fixed annuities (1,192) (1,723) 31
Variable annuities (279) (232) (20)
Retail mutual funds 247 245 1
Pensions and asset management 1,644 821 100
Institutional guaranteed products (1,792) 2,549 N.M.
Reinsurance (23) 0 N.M.
Total net deposits (1,395) 1,660 N.M.
REVENUE GENERATING INVESTMENTS
At Mar. 31 At Dec. 31
2008 2007
Revenue generating investments (total) 7 317,075 325,999 (3)
Investments general account 132,172 134,678 (2)
Investments for account of policyholders 76,192 81,663 (7)
Off balance sheet investments third 108,711 109,658 (1)
parties
- Strong underlying earnings growth of 14% reflects organic growth, the
acquisition of Merrill Lynch's life insurance companies and higher
investment spreads
- Double digit sales growth in both Individual savings & retirement and
pensions, and retail life sales up 9%
- Operating earnings significantly affected by market valuations on fair
value items
- No significant impairments reflecting high quality of investment
portfolio
"AEGON Americas reported solid underlying earnings growth of 14% during the first quarter. For the most part, the basics of our diversified business portfolio continued to perform well in a difficult economic environment," said Pat Baird, CEO of AEGON Americas. "We believe our investment portfolio and investment oriented products to be well positioned to weather the difficult credit environment. Our operating earnings and net income were negatively affected by widening credit spreads and market valuations being determined primarily by distressed sellers of certain asset classes."
Overview
AEGON Americas' underlying performance remained strong and all business lines reported organic growth, with the exception of fixed annuities. Higher investment spreads in the institutional business contributed positively to earnings, as did the inclusion of Merrill Lynch's life insurance companies. However, Americas faced significant headwinds during the first quarter with unprecedented credit spread widening and growing concerns of an economic slowdown in the United States. These led to mark-to-market valuations impacting the operating earnings.
Retail life sales showed continued growth, with a double-digit increase in deposits in both Individual savings & retirement and pensions. The current financial crisis did however affect production in AEGON Americas' institutional business.
The investment portfolio continues to weather the current turmoil in terms of impairment charges. Although the subprime portfolio experienced negative revaluations this quarter due to credit spread widening there were no impairments on this portfolio.
Underlying earnings before tax
- Underlying earnings from Life & protection remained relatively flat.
Strong organic growth was offset by unfavorable mortality experience.
- Earnings from Individual savings & retirement increased by 8% thanks to
a favorable mortality experience on a closed structured settlement
block, as well as additional income from the Merrill Lynch acquisition.
- Continued organic growth resulted in a 10% increase in underlying
earnings from Pensions & asset management activities.
- Underlying earnings from the Institutional line of business were up
41%. The decrease in short term interest rates during the quarter
produced strong positive spreads on institutional guaranteed products,
while BOLI/COLI earnings remained flat.
- Life reinsurance earnings increased 38% on solid growth and positive
mortality.
Operating earnings before tax
Operating earnings before tax declined to USD 156 million, primarily due to the dislocation of financial markets. Increased financial market volatility had a significant negative mark-to-market impact on items carried at fair value.
These fair value items include hedge funds, derivatives, total return annuities and guarantees on variable annuities like GMWB and Canadian segregated funds. Each of these underperformed during the quarter, including hedge funds, which underperformed after ten straight quarters of outperformance. The total underperformance (against long-term expected returns) of fair value items during the quarter was USD 560 million versus an overperformance in the first quarter 2007 of USD 35 million.
- Operating earnings from Life & protection business were negatively
impacted by USD 30 million, due primarily to the underperformance of
hedge fund investments.
- Individual savings & retirement business showed an overall
underperformance in fair value items of USD 260 million. A drop in the
risk free rate in Canada resulted in an underperformance of AEGON
Canada's segregated funds. Low interest rates in the United States,
meanwhile, led to declines in the value of AEGON USA's total return
and GMWB products.
- Earnings from Pensions & asset management activities declined as a
result of an underperformance in fair value items totaling USD 7
million.
- The continued widening of credit spreads caused significant negative
mark-to-market on credit derivatives. A large part of the
underperformance is related to the synthetic CDO program managed by
the Institutional business. While these assets cause substantial
short-term operating earnings volatility, AEGON does not expect any
cash losses on this program and believes these market adjustments will
reverse over time as the transactions under the program mature. Total
underperformance of earnings in the Institutional business was
USD 244 million.
- Earnings from life reinsurance were in line with last years' earnings.
Although underlying earnings contributed positive growth of
USD 18 million, this was offset by the underperformance of fair value
assets and the total return product run off.
Net income
AEGON Americas reported a net loss for the first quarter of USD 39 million, a reflection of lower operating earnings and the impact of impairment charges and realized investment losses.
Net income was also impacted by an extraordinary tax expense totaling USD 90 million related to an internal reinsurance agreement between US and Irish companies within the AEGON Group. These agreements contain an embedded derivative, valued on a mark-to-market basis. While there is no direct impact on AEGON's overall pre-tax earnings (since any gain or loss on the embedded derivative is eliminated in consolidation), the tax rate differential between the United States and Ireland does cause fluctuations in tax expenses.
Commissions and expenses
Commissions and expenses decreased 2%. Operating expenses increased 3% driven by increases in employee benefit and acquisition expenses.
Sales and deposits
Retail life production increased 9% primarily as a result of a growth in both sales of high net worth products and in direct marketing activities. This was partly offset by declines in both BOLI/COLI production, as compared to a strong first quarter in 2007, and life reinsurance where clients seek higher retention levels. In total, new life sales in the Americas declined to USD 262 million.
In deposits, double-digit growth in both pensions and Individual savings & retirement line of business were offset by a large decrease in institutional deposits. The result was a decline in total gross deposits of 27%.
Fixed annuity deposits were up 81%, with especially strong sales through the bank channel due in part to a more favorable interest rate environment and rate specials with key accounts. Variable annuity deposits, up 9%, were spurred by the introduction of the new Retirement Income Choice benefit rider. Despite volatile equity markets, sales through the bank, broker /dealer and fee planner channels rose by 17% and 63% respectively. This increase was offset by declines in Canada, and in the direct marketing and agency channels.
Pension deposits continued to show significant growth, up 27%, with particularly strong results from the larger case market.
New spread-based institutional sales declined by 66% in the first quarter on strict pricing discipline through a volatile spread environment.
Value of new business
VNB of USD 118 million was down 20%. Life and Protection VNB increased 66% on higher sales, better returns and lower expenses. However, lower sales volumes in the Institutional and Life reinsurance business led to an overall decline in total VNB. Pensions enjoyed strong sales growth, but reported flat VNB as a result of lower terminal funding sales linked to new retirement plans. The internal rate of return on new business was virtually unchanged at 12.6%.
Please refer to page 27 of this release for further details on AEGON's VNB.
Revenue generating investments
Total revenue generating investments decreased by 3% in the first quarter to USD 317 billion.
THE NETHERLANDS - EARNINGS
EUR millions Notes 1Q 2008 1Q 2007 %
1
Underlying earnings before tax by line of
business
Life 32 28 14
Accident and health 8 10 (20)
Life and protection 40 38 5
Saving products 1 5 (80)
Retail mutual funds 0 0 N.M.
Individual savings and retirement 1 5 (80)
products
Pensions and asset management 51 42 21
Distribution 11 8 38
General insurance 10 (6) N.M.
Underlying earnings before tax 113 87 30
Over / (under) performance of fair value (29) 12 N.M.
items
Operating earnings before tax 84 99 (15)
Operating earnings before tax by line of
business
Life 32 28 14
Accident and health 8 10 (20)
Life and protection 40 38 5
Saving products 1 5 (80)
Retail mutual funds 0 0 N.M.
Individual savings and retirement 1 5 (80)
products
Pensions and asset management 22 54 (59)
Distribution 11 8 38
General insurance 10 (6) N.M.
Operating earnings before tax 84 99 (15)
Gains/(losses) on investments (49) 138 N.M.
Impairment charges (17) (5) N.M.
Income before tax 18 232 (92)
Income tax 1 (41) N.M.
Net income 19 191 (90)
Net underlying earnings 92 62 48
Net operating earnings 70 74 (5)
Commissions and expenses 310 294 5
of which operating expenses 219 200 10
THE NETHERLANDS - SALES
EUR millions Notes 1Q 2008 1Q 2007 %
New life sales
Life single premiums 445 379 17
Life recurring premiums annualized 26 24 8
Total recurring plus 1/10 single 71 62 15
Life 31 24 29
Pensions 40 38 5
Total recurring plus 1/10 single 71 62 15
New premium production accident and 6 7 (14)
health insurance
New premium production general insurance 8 7 14
Gross deposits (on and off balance) by
line of business
Saving deposits 648 569 14
Pensions and asset management 47 110 (57)
Total gross deposits 695 679 2
Net deposits (on and off balance) by line
of business
Saving deposits (72) (65) (11)
Pensions and asset management 36 (1,077) N.M.
Total net deposits (36) (1,142) 97
REVENUE GENERATING INVESTMENTS
At At
Mar. 31 Dec. 31
2008 2007
Revenue generating investments (total) 7 64,965 65,643 (1)
Investments general account 31,460 30,813 2
Investments for account of policyholders 20,649 21,354 (3)
Off balance sheet investments third 12,856 13,476 (5)
parties
- Underlying earnings before tax up 30% on higher investment income and
the consolidation of a life insurance company
- Operating earnings significantly affected by market valuations on fair
value items
- New life sales up 15% on strong growth in individual annuities
"From an operational point of view, the Netherlands showed good progress during the first quarter," said Jos Streppel, AEGON's Chief Financial Officer. "Underlying earnings were up and, in most lines of business, sales increased. But financial markets were volatile and inevitably impacted our operating earnings."
Overview
AEGON The Netherlands reported an increase in underlying earnings before tax of 30% in the first quarter, a result of higher investment income, better claim experience from the general insurance activities and the inclusion of a life insurance company acquired in June 2007. For most lines of business, sales increased, while immediate annuities showed the strongest gains. Operating earnings before tax, however, were lower, primarily driven by a lower valuation of private equity investments.
Underlying earnings before tax
- Earnings for the life business were up 14%, primarily on higher
investment income. Despite positive technical results, earnings from
Accident & health insurance at EUR 8 million were lower than last year
because of an increase in expenses.
- The individual savings business, meanwhile, reported lower earnings,
due to higher guarantee costs.
- Underlying earnings for Pensions & asset management increased by 21%.
Higher investment income and the inclusion of a Dutch life insurance
company, contributed positively to earnings, partly offset by lower
technical results.
- Lower expenses and an increase in commission income led to higher
earnings from Distribution.
- General insurance reported a significant improvement in its performance
as earnings for the first quarter last year were negatively affected by
claims from severe winter storms.
Operating earnings before tax
Operating earnings before tax decreased by 15%, as a result of a decline in the value of the company's private equity investments. Changes to the fair value of private equity investments are reflected in the operating earnings of the Pensions & asset management business.
Net income
Net income was significantly down. This decline was the result of a number of different factors including lower operating earnings, a decrease in investment gains on equities, negative movements in the fair value of guarantees (net of hedging), and the impact of impairments on equities. Investment gains were lower following the decision to sell a significant part of the equity portfolio in 2007. The increase in the fair value of guarantees during the first quarter reflected lower equity markets and an increase in the volatility of financial markets. The effective tax rate was low, mainly due to the presence of tax-exempt gains and earnings.
Commissions and expenses
Commissions and expenses rose 5%, largely because of higher operating expenses, which is mainly the result of an increase in employee benefit charges and higher project spending.
Sales and deposits
Total new life sales in the Netherlands grew by 15%, thanks primarily to very strong sales of immediate annuities. Pension sales were also up, a reflection of increased sales in the institutional market and higher sales through the broker channel. Sales of managed assets decreased, however, largely because of intense competition in this segment of the market. Accident and health production was also lower, mainly because of a decline in sales of the 'WIA' disability product. General insurance production was up, the result of the inclusion of several large contracts.
Gross deposits of saving products showed an increase in the first quarter, a reflection of recent marketing campaigns and more attractive interest rates. Inflows in the 'Levensloop' product remained relatively stable, while overall 'Levensloop' assets continued to grow. Total net deposits improved significantly.
Value of new business
As a result of changes to its business mix, the VNB declined. The company's internal rate of return, meanwhile, reached 10.7%, close to AEGON's hurdle rate of 11%.
Please refer to page 27 for more detailed information on VNB.
Revenue generating investments
At the end of March 2008, revenue generating investments totaled EUR 65 billion, down fractionally from end-2007 levels. The decrease is a reflection of lower equity markets during the first quarter.
UNITED KINGDOM - EARNINGS
GBP millions Notes 1Q 2008 1Q 2007 %
Operating earnings before tax by line of
business
Life 8 5 60
Accident and health 0 0 N.M.
Life and protection 8 5 60
Pensions and asset management 28 38 (26)
Distribution (2) 1 N.M.
Operating earnings before tax 34 44 (23)
Gains/(losses) on investments 2 1 100
Other income/(charges) 10 (41) 10 N.M.
Income before tax (5) 55 N.M.
Income tax attributable to policyholder 41 (7) N.M.
return
Income before income tax on shareholders 36 48 (25)
return
Income tax on shareholders return (5) (10) (50)
Net income 31 38 (18)
Net underlying earnings 30 37 (19)
Net operating earnings 30 37 (19)
Commissions and expenses 157 144 9
of which operating expenses 98 90 9
UNITED KINGDOM - SALES
GBP millions Notes 1Q 2008 1Q 2007 %
New life sales 11
Life single premiums 1,498 1,827 (18)
Life recurring premiums annualized 141 114 24
Total recurring plus 1/10 single 291 297 (2)
Life 55 48 15
Pensions 236 249 (5)
Total recurring plus 1/10 single 291 297 (2)
Gross deposits (on and off balance) by
line of business
Pensions and asset management 112 185 (39)
Total gross deposits 112 185 (39)
Net deposits (on and off balance) by line
of business
Pensions and asset management (41) 56 N.M.
Total net deposits (41) 56 N.M.
REVENUE GENERATING INVESTMENTS
At At
Mar. 31 Dec. 31
2008 2007
Revenue generating investments (total) 7 50,551 53,115 (5)
Investments general account 4,233 4,157 2
Investments for account of policyholders 43,611 46,095 (5)
Off balance sheet investments third 2,707 2,863 (5)
parties
- Operating earnings decline on lower financial markets
- Growth in group pension and individual annuities were offset by lower
sales of personal pensions and investment bonds
- Value of new business up 3% in local currency; margins continued to improve
"Our strategy is bearing fruit," said Otto Thoresen, CEO of AEGON UK. "We saw steady growth in our annuity, individual protection and corporate pension businesses during the quarter. In addition, we're making strong progress with our bank distribution partnerships and our efforts to extend the range of products and services we offer. Financial market volatility, however, had an impact on both our earnings and on general market sentiment."
Overview
Operating earnings before tax declined 23%, due primarily to the impact of lower bond and equity markets on fund-related charges in the pension business. Strong growth in sales of group pensions and individual annuities were offset by declines in personal pensions and investment bonds. The value of new business rose by 3% in local currency, despite lower sales volumes.
Underlying earnings before tax
In the UK underlying earnings equal operating earnings.
Operating earnings before tax
- Earnings from Life & protection operations grew 60% as result of
continued growth in the company's annuity and individual protection
businesses, following a successful strategy to expand into higher
margin products.
- Earnings from Pensions & asset management business were 26% lower as a
decline in asset values during the quarter led to a fall in income from
fund-related charges.
- Lower sales and the cost of new investments resulted in a decrease in
earnings from AEGON UK's distribution activities. Tax changes on
investment products, worsening investor sentiment and concerns over
the UK housing market all contributed to the overall decline in sales.
Net income
Net income decreased by 18% due to lower operating earnings. A higher proportion of earnings was generated by the Life & protection business, which is taxed at a lower rate. The company's effective tax rate fell to 13.5%, following the UK government's recent decision to reduce corporation tax.
Commissions and expenses
Total commissions and expenses rose 9%. Operating expenses were higher as a result of recent business growth and an increase in performance-related costs in the company's asset management business. Higher amortization charges as a result of maturing of the portfolio also led to an increase in expenses.
Sales and deposits
Overall, new life sales were down 2%. Sales of group pensions and annuities showed strong growth, but were offset by a decline in individual pensions and investment bonds.
Sales of individual pensions were lower compared with the record levels seen last year. These record levels were the result of exceptional activity following 'Pension A-Day' in May 2006. Meanwhile, recent tax changes and increased financial market volatility led to lower sales of investment bonds, retail mutual funds and managed assets. Currently, AEGON UK has a relatively small share of the on-shore investment bond market. However, this is expected to grow in the coming months, following the launch of a new investment bond product earlier this year. This product offers customers a wide choice of funds, flexible charging and commission structures and the certainty of capital guarantees.
In Q2 2008 AEGON will launch a pension contract called Income for Life. This is a variable annuity style contract, developed for the at-retirement pension market.
Value of new business
VNB increased 3% in local currency as a result of further improvement in margins, despite a decline in sales volumes. Much of the improvement in margins was concentrated in the annuity and individual protection businesses. In the first quarter, the internal rate of return on new business rose to 13.0%.
Please refer to page 27 for more detailed information on VNB.
Revenue generating investments
At the end of March 2008, AEGON UK had a total of GBP 51 billion in revenue generating investments, a decline compared with end-2007 levels due to lower equity and bond markets.
OTHER COUNTRIES - EARNINGS
EUR millions Notes 1Q 2008 1Q 2007 %
Operating earnings before tax by line of
business
Life 17 8 113
Accident and health 2 1 100
Life and protection 19 9 111
Variable annuities 1 0 N.M.
Retail mutual funds 1 0 N.M.
Individual savings and retirement 2 0 N.M.
products
Pensions and asset management 3 4 (25)
General insurance 7 8 (13)
Share in net results of associates 8 8 0
Operating earnings before tax 39 29 34
Gains/(losses) on investments 0 2 N.M.
Impairment charges (1) 0 N.M.
Income before tax 38 31 23
Income tax (10) (14) (29)
Net income 28 17 65
Net underlying earnings 27 16 69
Net operating earnings 27 16 69
Commissions and expenses 91 79 15
of which operating expenses 43 39 10
OTHER COUNTRIES - SALES
EUR millions Notes 1Q 2008 1Q 2007 %
New life sales 11
Life single premiums 172 272 (37)
Life recurring premiums annualized 39 55 (29)
Total recurring plus 1/10 single 56 82 (32)
Life 56 82 (32)
Total recurring plus 1/10 single 56 82 (32)
New premium production accident and 2 2 0
health insurance
New premium production general insurance 8 5 60
Gross deposits (on and off balance)
Variable annuities 35 2 N.M.
Retail mutual funds 48 18 167
Pensions and asset management 151 126 20
Total gross deposits 234 146 60
Net deposits (on and off balance)
Variable annuities 34 1 N.M.
Retail mutual funds 6 6 0
Pensions and asset management 92 102 (10)
Total net deposits 132 109 21
REVENUE GENERATING INVESTMENTS
At At
Mar. 31 Dec. 31
2008 2007
Revenue generating investments (total) 7 10,724 10,885 (1)
Investments general account 4,878 4,801 2
Investments for account of policyholders 2,655 2,729 (3)
Off balance sheet investments third 3,191 3,355 (5)
parties
- Operating earnings up 34% on strong performance from the life business
- Pension deposits in CEE show further significant growth
- Lower equity markets result in overall decline in life sales
Overview
Other countries reported a 34% increase in operating earnings before tax, primarily the result of strong life earnings. Deposits rose as AEGON's pension business in CEE continued to show significant growth as well as strong growth of variable annuity deposits in Taiwan. However, declining equity markets during the quarter resulted in a 32% decline in new life sales. Other countries generated almost a quarter of AEGON's value of new business in the first quarter, a reflection of their continued importance to the Group.
Underlying earnings before tax
In Other countries underlying earnings equal operating earnings.
Operating earnings before tax
- Operating earnings from Life & protection more than doubled to EUR 19
million as a result of strong growth from the in-force book in Poland
and a release of EUR 4 million from reserves in Hungary.
- Operating earnings from Individual savings & retirement products
increased to EUR 2 million due to higher fee income from retail mutual
funds in Hungary and higher variable annuity sales in Taiwan.
- Pensions & asset management posted a slight decrease in operating
earnings during the quarter as higher contributions from Hungary and
Poland were offset by the cost of investments in new pension funds in
the Czech Republic, Romania and Slovakia.
- Operating earnings from General insurance also declined, due primarily
to higher claims in Hungary following severe storms in the country last
March.
- Operating earnings from associate companies were unchanged.
Net income
Other countries reported a 65% increase in net income. The increase was the result of higher operating earnings and lower taxes, partly offset by a decline in gains on investments.
Commissions and expenses
Commissions and expenses increased by 15%. The majority of this increase was due to the cost of investments in new ventures in CEE and the inclusion of a number of newly acquired companies. In addition, a shift to regular premium products in the region led to an increase in commissions.
Sales and deposits
In CEE, new life sales declined to EUR 22 million. Regular premium sales increased 9% as a result of the successful development of broker and agency networks in Slovakia and the Czech Republic. However, this was more than offset by the decline in single premium sales in Poland because of weaker equity markets.
In Asia, new life sales in Taiwan decreased to EUR 13 million as a result of lower equity markets and the ongoing shift from traditional to unit-linked products and variable annuity deposits, which amounted to EUR 35 million. In the coming months, new variable annuity products will be introduced. Unit-linked products accounted for 70% of new life sales for Taiwan in the first quarter. In China, single premium sales increased to EUR 18 million as a result of strong single premium unit-linked sales in the bank channel. Sales increases in China stem primarily from recent efforts to expand AEGON's distribution network in the country and the introduction of new products. Further progress in this regard has been made with the opening earlier this month of a new branch office in the southern Chinese province of Guangdong.
In Spain, new life sales increased to EUR 18 million as a result of higher recurring premium sales. The partnership with CAM, which is not consolidated in AEGON's accounts, saw a decrease of 37% in new life sales. CAM is currently in the process of implementing a new sales strategy to grow sales again going forward.
Individual savings & retirement net deposits increased strongly to EUR 40 million primarily as a result of higher variable annuity deposits in Taiwan.
Sales of mortgages in Hungary continued to grow with a total of EUR 35 million provided to homebuyers.
Pension & asset management net deposits decreased 10% to EUR 92 million. Continued strong pension deposits in CEE were partly offset by lower deposits in the asset management business.
General insurance new premium production rose to EUR 8 million as a result of a successful sales campaign for motor insurance in Hungary.
Value of new business
VNB from Other countries decreased 11%, primarily as a result of lower sales volumes. Other countries accounted for 23% of AEGON's total VNB. In Asia, the decrease in VNB was due largely to a change in product mix and lower production in Taiwan. In CEE, VNB was up 64%, buoyed by the launch of a new mandatory pension fund in Romania, which added EUR 7 million in value of new business. Excluding the new pension fund in Romania, overall VNB from CEE increased 14%. In Spain, VNB decreased mainly due to lower sales from CAM. Asia accounted for 12% of VNB from Other countries, CEE for 55% and France and Spain for the remaining 33%. By 2010, AEGON strives for Other countries' contribution to VNB to reach between 30% and 35%.
The internal rate of return (IRR) in Asia rose in the first quarter as a result of a shortening in the expected average duration of unit-linked policies. The reduction in IRR in CEE is a reflection of lower rates of return on the Romanian pension business and its significant contribution to overall VNB from the region. In Spain, AEGON's bank distribution partnerships continued to deliver high rates of return.
Please refer to page 27 for more detailed VNB information.
Revenue generating investments
Revenue generating investments decreased 1% in the first quarter as a result of lower financial markets.
NET UNDERLYING EARNINGS GEOGRAPHICALLY
EUR millions Notes 1Q 1Q %
2008 2007
1
Americas 348 364 (4)
The Netherlands 92 62 48
United Kingdom 40 55 (27)
Other countries 27 16 69
Holding and other activities (4) (42) 90
Net underlying earnings 503 455 11
OVER / UNDER PERFORMANCE OF FAIR VALUE
ITEMS
EUR millions
Operating earnings before tax 342 641 (47)
(Over) / under performance of fair value 374 (27) N.M.
items - Americas
(Over) / under performance of fair value 29 (12) N.M.
items - The Netherlands
(Over) / under performance of fair value (87) 0 N.M.
items - Holding and other activities
Underlying earnings before tax 658 602 9
Net underlying earnings 503 455 11
AMERICAS - OVER / UNDER PERFORMANCE OF
FAIR VALUE ITEMS
USD millions
Over / (under) performance of fair value
items by line of business
Life and protection (30) 3 N.M.
Individual savings and retirement (260) 15 N.M.
products
Pensions and asset management (7) 2 N.M.
Institutional products (244) 15 N.M.
Reinsurance (19) 0 N.M.
Total over / (under) performance of fair (560) 35 N.M.
value items
Total over / (under) performance of fair (374) 27 N.M.
value items in EUR
NETHERLANDS - OVER / UNDER PERFORMANCE OF FAIR VALUE
ITEMS
EUR millions
Over / (under) performance of fair value
items by line of business
Pensions and asset management (29) 12 N.M.
Total over / (under) performance of fair (29) 12 N.M.
value items
EXPLANATION
Certain assets held by AEGON Americas and AEGON The Netherlands are
carried at fair value, and managed on a total return basis, with no
offsetting changes in the valuation of related liabilities. These
include assets such as hedge funds, private equities, real estate
limited partnerships, convertible bonds and structured products.
Underlying earnings exclude any over- or underperformance compared to
management's long-term expected return on these assets. Based on
current holdings and asset class returns, the long-term expected
return on an annual basis is 8-10%, depending on the asset class,
including cash income and market value changes. The expected earnings
from these assets classes are net of DPAC where applicable.
In addition, certain products offered by AEGON Americas contain
guarantees and are reported on a fair value basis, including the
segregated funds offered by AEGON Canada and the total return annuity
products of AEGON USA. The earnings on these products are impacted by
movements in equity markets and risk free interest rates. Short-term
developments in the financial markets may therefore cause volatility
in earnings. Included in underlying earnings is a long-term expected
return on these products and any over- or underperformance compared to
management's expected return is excluded from underlying earnings.
The Holding includes certain issued bonds that are held at fair value
through profit or loss. The interest rate risk on these bonds is
hedged using swaps. The widening of AEGON's credit spread resulted in
a gain of EUR 87 mln on the fair value movement on these bonds.
SALES
EUR millions 1Q 2008 1Q 2007 %
New life sales 686 826 (17)
Gross deposits (on and off balance) 8,636 12,976 (33)
New life sales
Life single premiums 2,757 3,875 (29)
Life recurring premiums annualized 410 438 (6)
Total recurring plus 1/10 single 686 826 (17)
Life 284 308 (8)
Pensions 352 410 (14)
BOLI/COLI 9 46 (80)
Reinsurance 41 62 (34)
Total recurring plus 1/10 single 686 826 (17)
New premium production accident and health 166 176 (6)
insurance
New premium production general insurance 16 12 33
Gross deposits (on and off balance)
Fixed annuities 306 193 59
Variable annuities 685 683 0
Saving products 648 569 14
Retail mutual funds 564 584 (3)
Pensions and asset management 3,183 3,161 1
Institutional guaranteed products 3,249 7,786 (58)
Reinsurance 1 0 N.M.
Total gross deposits 8,636 12,976 (33)
Net deposits (on and off balance) by line of
business
Fixed annuities (795) (1,316) 40
Variable annuities (152) (175) 13
Saving deposits (72) (65) (11)
Retail mutual funds 171 192 (11)
Pensions and asset management 1,170 (264) N.M.
Institutional guaranteed products (1,195) 1,946 N.M.
Reinsurance (15) 0 N.M.
Total net deposits (888) 318 N.M.
EMPLOYEE NUMBERS At At
Mar. 31 Dec. 31
2008 2007
Number of employees 30,734 30,414
VALUE OF NEW BUSINESS AND
IRR
VNB VNB IRR IRR
EUR EUR % %
EUR millions, after tax Notes 1Q 2008 1Q 2007 % 1Q 2008 1Q 2007
Americas 79 113 (30) 12.6 12.8
The Netherlands 12 15 (20) 10.7 13.4
United Kingdom 53 58 (9) 13.0 12.5
Asia 5 12 (58) 17.0 13.2
Central and Eastern Europe 23 14 64 39.0 47.7
Other European Countries 14 21 (33) 43.2 47.2
Total 186 232 (20) 18.4 17.9
MODELED NEW BUSINESS, APE AND
DEPOSITS
Premium Deposit
business business
APE Deposits
EUR millions Notes
12
Americas 295 335 5,997 10,807
The Netherlands 73 67 0 0
United Kingdom 378 446 0 0
Asia 17 35 7 0
Central and Eastern Europe 25 27 17 3
Other European Countries 59 64 6 4
Total 847 975 6,026 10,814
VNB/PVNBP
SUMMARY
Premium Deposit
business business
VNB PVNBP VNB/ VNB/ VNB PVNBP VNB/ VNB/
PVNBP APE PVNBP Deposits
EUR millions Notes 1Q 2008 % % 1Q 2008 % %
13
Americas 49 1,438 3.4 16.5 30 6,828 0.4 0.5
The Netherlands 12 625 1.9 16.2 0 0 - -
United Kingdom 53 2,573 2.0 13.9 0 0 - -
Asia 5 99 4.6 26.6 1 51 1.3 10.0
Central and 12 166 7.1 48.2 12 400 2.9 68.6
Eastern Europe
Other European 14 542 2.6 23.5 0 6 3.1 3.1
Countries
Total 144 5,444 2.6 16.9 42 7,284 0.6 0.7
Explanatory Notes:
1) 2007 Q1 information has been adjusted to reflect the retrospective
application of the change in accounting principles relating to
guarantees in the Netherlands and, where applicable, the change in
definition of operating earnings to include AEGON's share in the net
results of associates and a new line of business format. These
changes were implemented in Q2 2007.
2) Certain assets held by AEGON Americas and AEGON The Netherlands are
carried at fair value, and managed on a total return basis, with no
offsetting changes in the valuation of related liabilities. These
include assets such as hedge funds, private equities, real estate
limited partnerships and convertible bonds. Underlying earnings
exclude any over- or underperformance compared to management's
long-term expected return on these assets.
In addition, certain products offered by AEGON Americas contain
guarantees and are reported on a fair value basis, including the
segregated funds offered by AEGON Canada and the total return annuity
products of AEGON USA. The earnings on these products are impacted by
movements in equity markets and risk free interest rates. Short-term
developments in the financial markets may therefore cause volatility
in earnings. Included in underlying earnings is a long-term expected
return on these products and any over- or underperformance compared
to management's expected return is excluded from underlying earnings.
The Holding includes certain issued bonds that are held at fair value
through profit or loss. The interest rate risk on these bonds is
hedged using swaps. The widening of AEGON's credit spread resulted in
a gain of EUR 87 million on the fair value movement on these bonds.
Underlying earnings exclude this amount.
3) Net income refers to net income attributable to equity holders of
AEGON N.V.
4) New life sales is defined as new recurring premiums + 1/10 of single
premiums.
5) Deposits on and off balance sheet.
6) 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.
7) As of 2008, Real estate for own use (both general account and for
account of policyholders) has been reclassified from revenue
generating investments to other assets.
8) Capital securities that are denominated in foreign currencies are,
for purposes of calculating the capital base ratio, revalued to the
period-end exchange rate.
9) All ratios exclude AEGON's revaluation reserve.
10) Included in other non-operating income/(charges) are charges made to
policyholders with respect to income tax.
There is an equal and opposite tax charge which is reported in the
line Income tax attributable to policyholder return.
11) 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.
12) APE = recurring premium + 1/10 single premium.
13) PVNBP: Present Value New Business Premium.
CONDENSED CONSOLIDATED BALANCE SHEETS
At At
Mar. 31 Dec. 31
2008 2007
EUR millions %
Investments general 125,359 132,861 (6)
account
Investments for account 126,273 142,384 (11)
of policyholders
Investments in 470 472 (0)
associates
Deferred expenses 11,082 11,488 (4)
and rebates
Other assets and 18,948 18,484 3
receivables
Cash and cash 10,383 8,431 23
equivalents
Total 292,515 314,120 (7)
assets
Shareholders' 12,597 15,151 (17)
equity
Other equity 4,801 4,795 0
instruments
Minority 15 16 (6)
interest
Group 17,413 19,962 (13)
equity
Insurance contracts 84,394 88,496 (5)
general account
Insurance contracts for 70,543 78,394 (10)
account of
policyholders
Investment contracts 33,636 36,089 (7)
general account
Investment contracts for account of 55,875 63,756 (12)
policyholders
Other 30,654 27,423 12
liabilities
Total equity and 292,515 314,120 (7)
liabilities
CAPITAL BASE
Group equity 17,413 19,962 (13)
Trust pass-through 137 143 (4)
securities
Subordinated 34 34 0
borrowings
Senior debt related to 1,313 1,255 5
insurance activities
Total capital base 18,897 21,394 (12)
CONDENSED CONSOLIDATED INCOME STATEMENT
EUR millions Notes 1Q 2008 1Q 2007 %
1
Premium income 6,315 7,352 (14)
Investment income 2,422 2,562 (5)
Fee and commission income 434 459 (5)
Other revenues 1 2 (50)
Total revenues 9,172 10,375 (12)
Income from reinsurance ceded 335 438 (24)
Results from financial transactions (8,900) 1,479 N.M.
Total income 607 12,292 (95)
Benefits and expenses 270 11,258 (98)
Impairment charges 34 (2) N.M.
Interest charges and related fees 95 97 (2)
Total charges 399 11,353 (96)
Share in net results of associates 9 7 29
Income before tax 217 946 (77)
Income tax (64) (239) (73)
Net income attributable to equity 153 707 (78)
holders of AEGON N.V.
Net income per common share
Basic earnings per share 0.07 0.42 (83)
Dilluted earnings per share 0.07 0.42 (83)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
At At
Mar. 31 Dec. 31
2008 2007
EUR millions
Shareholders' equity at January 1 15,151 18,605
Net income 153 2,551
Movements in foreign currency translations (1,066) (1,445)
reserve
Movements in revaluation reserves (1,510) (2,164)
Total recognized net income for the period (2,423) (1,058)
Dividends paid on ordinary shares 0 (583)
Preferred dividend 0 (85)
Repurchased and sold own shares (73) (1,438)
Coupons on perpetuals (net of tax) (46) (175)
Other changes (12) (115)
Shareholders' equity at end of period 12,597 15,151
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
EUR millions Notes 1Q 2008 1Q 2007 %
1
Cash flow from operating activities 1,615 2,711 (40)
Cash flow from investing activities
Purchase and disposal of intangible assets (1) (1) 0
Purchase and disposal of equipment (11) (8) (38)
Purchase, disposal and dividends of (6) (256) 98
subsidiaries and associates
(18) (265) 93
Cash flow from financing activities
Issuance and purchase of share capital (73) (114) 36
Issuance, repayment and coupuons of perpetuals (62) (55) (13)
Issuance, repayment and finance interest on 810 108 N.M.
borrowings
675 (61) N.M.
Net increase/ (decrease) in cash and cash 2,272 2,385 (5)
equivalents
AMOUNTS PER COMMON SHARE
Notes 1Q 2008 1Q 2007 %
1
Net income in EUR 2 0.07 0.42 (83)
Net income fully diluted in EUR 2 0.07 0.42 (83)
Net income in USD 0.10 0.55 (82)
Net income fully diluted in USD 0.10 0.55 (82)
Net operating earnings in EUR 2 0.15 0.28 (46)
Net operating earnings fully diluted in 2 0.15 0.28 (46)
EUR
Net operating earnings in USD 0.22 0.37 (41)
Net operating earnings fully diluted in 0.22 0.37 (41)
USD
At At
Mar. 31 Dec. 31
2008 2007
Shareholders' equity in EUR 3 7.03 8.69
Shareholders' equity in USD 3 11.12 12.79
NET INCOME PER COMMON SHARE CALCULATION
EUR millions (except per share data) Notes 1Q 2008 1Q 2007 %
1
Net income 153 707 (78)
Coupons on perpetuals (46) (41) (12)
Net income attributable to ordinary 107 666 (84)
shareholders
Weighted average number of ordinary 1,499 1,581 (5)
shares outstanding
Net income per share 0.07 0.42 (83)
Quarterly net income per share
first quarter 0.07 0.42 (83)
second quarter 0.34
third quarter 0.31
fourth quarter 0.40
SEGMENT REPORTING
EUR millions Notes 1Q 2008 1Q 2007 %
1
Operating earnings before tax geographically
Americas 104 505 (79)
The Netherlands 84 99 (15)
United Kingdom 45 66 (32)
Other countries 39 29 34
Holding and other activities 64 (56) N.M.
Eliminations 6 (2) N.M.
Total operating earnings before tax 342 641 (47)
Revenues geographically
Americas 3,341 4,005 (17)
The Netherlands 2,368 2,218 7
United Kingdom 2,914 3,504 (17)
Other countries 533 631 (16)
Holding and other activities 60 222 (73)
Eliminations (44) (205) 79
Total revenues 9,172 10,375 (12)
Revenues
Life insurance gross premiums 5,573 6,566 (15)
Accident and health insurance 569 615 (7)
General insurance 173 171 1
Total gross premiums 6,315 7,352 (14)
Investment income 2,422 2,562 (5)
Fee and commission income 434 459 (5)
Other revenues 1 2 (50)
Total revenues 9,172 10,375 (12)
INVESTMENTS GEOGRAPHICALLY
amounts
in
million
EUR
(unless
otherwise
stated)
United
Americas Kingdom The United
USD GBP At March 31, 2008 Americas Netherlands Kingdom
Investments
2,095 46 Shares 1,325 1,921 58
96,170 4,182 Bonds 60,821 18,287 5,255
19,626 5 Loans 12,412 9,094 6
13,554 0 Other financial 8,572 97 0
assets
727 0 Investments in 460 2,061 0
real estate
132,172 4,233 Investments 83,590 31,460 5,319
general account
0 21,354 Shares 0 8,764 26,833
0 12,765 Bonds 0 10,904 16,041
76,192 2,753 Separate accounts 48,186 0 3,459
and investment
funds
0 5,080 Other financial 0 981 6,383
assets
0 1,659 Investments in 0 0 2,085
real estate
76,192 43,611 Investments for 48,186 20,649 54,801
account of
policyholders
208,364 47,844 Investments on 131,776 52,109 60,120
balance sheet
108,711 2,707 Off balance sheet 68,752 12,856 3,402
investments third
parties
317,075 50,551 Total revenue 200,528 64,965 63,522
generating
investments *)
Investments
102,707 4,159 Available-for-sale 64,955 19,020 5,226
19,626 5 Loans 12,412 9,094 6
0 0 Held-to-maturity 0 0 0
85,304 42,021 Financial assets 53,949 21,934 52,803
at fair value
through profit or
loss
727 1,659 Investments in 460 2,061 2,085
real estate
208,364 47,844 Total investments 131,776 52,109 60,120
on balance sheet
INVESTMENTS GEOGRAPHICALLY (cont.)
amounts
in
million
EUR
(unless
otherwise
stated)
Holdings,
other
Other activities & Total
At March 31, 2008 countries eliminations EUR
Investments
Shares 194 91 3,589
Bonds 3,977 21 88,361
Loans 611 0 22,123
Other financial 96 0 8,765
assets
Investments in 0 0 2,521
real estate
Investments 4,878 112 125,359
general account
Shares 201 (18) 35,780
Bonds 287 0 27,232
Separate accounts 2,043 0 53,688
and investment
funds
Other financial 124 0 7,488
assets
Investments in 0 0 2,085
real estate
Investments for 2,655 (18) 126,273
account of
policyholders
Investments on 7,533 94 251,632
balance sheet
Off balance sheet 3,191 0 88,201
investments third
parties
Total revenue 10,724 94 339,833
generating
investments *)
Investments
Available-for-sale 2,253 116 91,570
Loans 611 0 22,123
Held-to-maturity 1,966 0 1,966
Financial assets 2,703 (22) 131,367
at fair value
through profit or
loss
Investments in 0 0 4,606
real estate
Total investments 7,533 94 251,632
on balance sheet
INVESTMENTS GEOGRAPHICALLY
amounts
in
million
EUR
(unless
otherwise
stated)
United
Americas Kingdom The United
USD GBP At December 31, Americas Netherlands Kingdom
2007
Investments
2,386 48 Shares 1,621 1,997 66
98,834 4,104 Bonds 67,138 18,225 5,595
19,813 5 Loans 13,459 8,517 7
12,890 0 Other financial 8,756 66 0
assets
755 0 Investments in 513 2,008 0
real estate
134,678 4,157 Investments 91,487 30,813 5,668
general account
0 23,291 Shares 0 9,736 31,757
0 13,360 Bonds 0 10,628 18,216
81,663 2,820 Separate accounts 55,474 0 3,845
and investment
funds
0 4,785 Other financial 0 990 6,525
assets
0 1,839 Investments in 0 0 2,508
real estate
81,663 46,095 Investments for 55,474 21,354 62,851
account of
policyholders
216,341 50,252 Investments on 146,961 52,167 68,519
balance sheet
109,658 2,863 Off balance sheet 74,491 13,476 3,903
investments third
parties
325,999 53,115 Total revenue 221,452 65,643 72,422
generating
investments *)
Investments
104,391 4,080 Available-for-sale 70,913 19,163 5,563
19,813 5 Loans 13,459 8,517 7
0 0 Held-to-maturity 0 0 0
91,382 44,328 Financial assets 62,076 22,479 60,441
at fair value
through profit or
loss
755 1,839 Investments in 513 2,008 2,508
real estate
216,341 50,252 Total investments 146,961 52,167 68,519
on balance sheet
INVESTMENTS GEOGRAPHICALLY (cont.)
amounts
in
million
EUR
(unless
otherwise
stated)
Holdings,
other
Other activities & Total
At December 31, countries eliminations EUR
2007
Investments
Shares 181 70 3,935
Bonds 3,951 22 94,931
Loans 571 0 22,554
Other financial 98 0 8,920
assets
Investments in 0 0 2,521
real estate
Investments 4,801 92 132,861
general account
Shares 212 (24) 41,681
Bonds 248 0 29,092
Separate accounts 2,165 0 61,484
and investment
funds
Other financial 104 0 7,619
assets
Investments in 0 0 2,508
real estate
Investments for 2,729 (24) 142,384
account of
policyholders
Investments on 7,530 68 275,245
balance sheet
Off balance sheet 3,355 0 95,225
investments third
parties
Total revenue 10,885 68 370,470
generating
investments *)
Investments
Available-for-sale 2,310 98 98,047
Loans 571 0 22,554
Held-to-maturity 1,876 0 1,876
Financial assets 2,773 (30) 147,739
at fair value
through profit or
loss
Investments in 0 0 5,029
real estate
Total investments 7,530 68 275,245
on balance sheet
*) As of 2008, Real estate for own use (both general account and for
account of policyholders) has been reclassified from revenue generating
investments to other assets. The comparative 2007 information has been adjusted accordingly.
ASSETS AND CAPITAL
GEOGRAPHICALLY
amounts
in
million
EUR
(unless
otherwise
stated)
United
Americas Kingdom The United Other Total
USD GBP Americas Netherlands Kingdom countries EUR
At March
31, 2008
236,902 53,622 Assets 149,824 62,851 67,381 9,151 289,207
business
units
Other 3,308
assets
Total 292,515
assets on
balance
sheet
17,260 1,984 Capital 10,916 3,056 2,493 1,373 17,838
in units
Total 18,897
capital
base
Other net (1,059)
liabilities
Total 17,838
At December
31, 2007
243,946 55,495 Assets 165,713 62,009 75,668 9,205 312,595
business
units
Other 1,525
assets
Total 314,120
assets on
balance
sheet
19,056 2,166 Capital 12,945 3,079 2,954 1,413 20,391
in units
Total 21,394
capital
base
Other net (1,003)
liabilities
Total 20,391
RECONCILIATION NON-GAAP MEASURES TO INCOME
BEFORE TAX
EUR millions Notes 1Q 2008 1Q 2007 %
1
Net operating earnings 267 484 (45)
Income tax on operating earnings 75 157 (52)
Operating earnings before tax 342 641 (47)
Net gains and losses on investments (39) 283 N.M.
Impairment charges (32) 7 N.M.
Policyholder tax (54) 15 N.M.
Income before tax 217 946 (77)
Currencies
Income statement items: average rate 1 EUR = USD 1.4989 (2007: USD
1.3097).
Income statement items: average rate 1 EUR = GBP 0.7569 (2007: GBP
0.6699).
Balance sheet items: closing rate 1 EUR = USD 1.5812 (2007: USD1.3318;
year-end 2007: USD 1.4721).
Balance sheet items: closing rate 1 EUR = GBP 0.7958 (2007: GBP 0.6798;
year-end 2007: GBP 0.7334).
Notes:
1) As adjusted for the retrospective application of the accounting
change and, where applicable, for the change in definition of
operating earnings to include our share in the net results of
associates. These changes were implemented in Q2 2007.
2) After deduction of preferred dividend and coupons on perpetuals.
3) Shareholders' equity per share is calculated after deduction of the
preferred share capital of EUR 2.1 billion (at Dec. 31, 2007:
EUR 2.1 billion) and considering the number of treasury shares. The
number of common shares used in the calculation of
shareholders' equity per share is 1,492 million (at Dec. 31, 2007:
1,500 million).
The interim condensed consolidated financial statements included in Appendix III have been prepared in accordance with IAS 34 'Interim financial reporting. It does not include all of the information required for full financial statements and should therefore be read together with the 2007 consolidated financial statements of AEGON N.V. as included in AEGON's Annual Report over 2007.
As of January 1, 2008, AEGON reclassified, on the phase of its balance sheet, the real estate for own use from Investments general account and Investments for account of policyholders to Other assets and receivables. In addition AEGON reclassified cash flows from real estate held for own use as cash flows from operating activities to investing activities, to the extent that they relate to real estate that is occupied by AEGON's own employees. The comparative 2007 information has been adjusted accordingly. This change reduced Investments general account by EUR 330 million and Investments for account of policyholder by EUR 141 million with an offsetting increase in Other assets and receivables of EUR 471 million.
All other accounting policies and methods of computation applied in the interim financial statements are the same as those applied in the 2007 consolidated financial statements, which were prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union. For AEGON this is equal to IFRS as published by the International Accounting Standards Board.
The published figures in these interim financial statements are unaudited.
Condensed consolidated income statement
The result from financial transactions in Q1 2008 amount to a loss of EUR 8,900 million compared to a gain of EUR 1,479 million in Q1 2007. This decrease primarily reflects losses on investments for account of policyholders. These losses are offset by a decrease in the benefits and expenses line which decreases from an amount of EUR 11,258 million in Q1 2007 to EUR 270 million in Q1 2008.
Capital and funding
The capital management section, provided on pages 6 & 7, includes information on issuances, repurchases and repayments of debt and equity securities effectuated in this interim reporting period.
Business combinations
On February 21, 2008, AEGON Hungary signed an agreement to purchase 100% of the registered capital of UNIQA Asset Management Company and Heller-Saldo 2000 Pension Fund Management Company, both Hungarian entities, from UNIQA Insurance Company.
The shares will be transferred to AEGON by June 30, 2008, subject to the approval of the regulatory authorities. Following the acquisition, assets under management will increase by approximately EUR 300 million.
On February 26, 2008, AEGON has entered into an agreement to acquire 100% of Ankara Emeklilik Anonim Sirketi (Ankara Emeklilik), a Turkish life insurance and pension provider, from Polis Bakim ve Yardim Sandigi. The transaction is subject to regulatory approval in Turkey, and is expected to close in the first half of 2008. Ankara Emeklilik has a presence in the Turkish life insurance and private pension market, with over 54,000 pension fund members and approximately EUR 35 million in assets under management. Ankara Emeklilik sells its products and services through a variety of different channels and has an agreement in place to distribute through a nationwide network of 236 branches belonging to Sekerbank.
Commitments and contingencies
There have been no material changes in contingent assets and liabilities reported in the 2007 consolidated financial statements of AEGON.
Events after the balance sheet date
On April 21, 2008, AEGON and China's Industrial Securities have completed the establishment of their asset management joint venture following the recent final approval by the regulatory authorities. Under the agreement, AEGON has acquired a 49% interest in Industrial Fund Management Company (IFMC), a Chinese mutual fund manager with approximately EUR 3 billion assets under management as of March 31, 2008. Industrial Securities, one of China's leading securities companies, will retain the remaining 51% of IFMC.
The initial agreement was announced on May 28, 2007. The joint venture will be renamed AEGON Industrial Fund Management Company. Both shareholders will be equally represented in the Board of Directors. The current management team, led by CEO Yang Dong, will continue to lead AEGON Industrial FMC with the objective of becoming one of the top players in the Chinese fund management market. Over the past two years, assets under management have increased from EUR 600 million to EUR 3 billion.
AEGON is one of the world's largest life insurance and pension groups, and a strong provider of investment products. AEGON empowers local business units to identify and provide products and services that meet the evolving needs of customers, using distribution channels best suited to local markets. AEGON takes pride in balancing a local approach with the power of an expanding global operation.
With headquarters in The Hague, the Netherlands, AEGON companies employ approximately 30,000 people worldwide. AEGON's businesses serve millions of customers in over twenty markets throughout the Americas, Europe, and Asia.
Respect, quality, transparency and trust constitute AEGON's core values as the company continually strives to meet the expectations of customers, shareholders, employees and business partners. AEGON is driven to deliver new thinking with the ambition to be the best in the industry.
Group Corporate Communications & Investor Relations
Media relations
Phone: +31(0)70-344-8344
E-mail:
Media conference call
8:15 am CET
Audio webcast on http://www.aegon.com/
Investor relations
Phone: +31(0)70-344-8305 or +1-877-548-9668 - toll free USA only
E-mail:
Financial supplement
AEGON's 2008 Financial supplement is
available on http://www.aegon.com/
Analyst & investor call
3:00 pm CET
Audio webcast on http://www.aegon.com/
Call-in numbers:
USA +1-480-629-1990
UK +44(0)208-515-2301
NL +31-20-796-5332
Website http://www.aegon.com/
DATASOURCE: AEGON N.V.
CONTACT: Group Corporate Communications & Investor Relations. Media
relations, Phone: +31(0)70-344-8344, E-mail: . Media
conference call 8:15 am CET, Audio webcast on http://www.aegon.com/. Investor
relations, Phone: +31(0)70-344-8305 or +1-877-548-9668 - toll free USA only,
E-mail: . Financial supplement: AEGON's 2008 Financial supplement
is available on http://www.aegon.com/. Analyst & investor call: 3:00 pm CET,
Audio webcast on http://www.aegon.com/. Call-in numbers: USA
+1-480-629-1990, UK +44(0)208-515-2301, NL +31-20-796-5332