THE HAGUE, The Netherlands, May 13, 2015 /PRNewswire/ --
- Earnings impacted by adverse claims experience
- Underlying earnings decrease to EUR 469 million as fee business growth and the stronger US dollar were more than offset by adverse claims experience in the US, higher surrenders in CEE and low interest rates
- Hedging programs drive fair value loss of EUR 159 million
- Net income amounts to EUR 316 million
- Return on equity of 6.6% and 7.2% excluding capital allocated to run-off businesses
- Record net inflows, favorable markets and currency effects boost asset base to EUR 638 billion
- Record gross deposits of EUR 18.7 billion and net deposits of EUR 7.3 billion, driven by asset management, US retirement plans and NL retail savings
- Life sales increase 20% to EUR 551 million, supported by higher universal life sales in US and Asia
- Accident & health and general insurance sales 18% higher to EUR 329 million
- Profitable sales with MCVNB of EUR 140 million despite lower interest rates
- Solid capital position supported by strong cash flows
- Solvency ratio increases to 216%; holding excess capital rises to EUR 1.4 billion
- Gross leverage ratio improves to 27.8%, providing additional capital flexibility
- Operational free cash flows excluding market impacts and one-time items of EUR 339 million
Statement of Alex Wynaendts, CEO
"Aegon reported disappointing underlying earnings this quarter, primarily due to adverse claims experience in the US. While the seasonal effect on claims was expected, both the number of claims and amounts were higher than anticipated. Net income was nevertheless solid, amounting to over EUR 300 million.
"I am pleased that we maintained the strong momentum in growing our business profitably, despite the persistent low interest rate environment. Moreover, the record sales that we achieved across the company highlight the trust we enjoy from a growing number of customers who are choosing Aegon to help them secure their financial futures.
"During the last quarter, we made substantial progress in executing our strategy and capitalizing on new distribution agreements. Looking ahead, we have every confidence that the actions we are taking across our businesses will further strengthen our growth prospects for the future."
Key performance indicators
amounts in EUR millions b) Notes Q1 2015 Q4 2014 % Q1 2014 %
Underlying earnings before tax 1 469 562 (17) 498 (6)
Net income 316 399 (21) 392 (19)
Sales 2 2,750 2,117 30 2,086 32
Market consistent value of new business 3 140 196 (29) 223 (37)
Return on equity 4 6.6% 9.7% (32) 8.4% (21)
STRATEGIC HIGHLIGHTS
- Aegon's online bank Knab wins prestigious international Celent Award
- Venture fund providing insight into new industry-changing technologies
- Aegon UK's platform reaches 100,000 customers
Aegon's ambition
Aegon's aim to be a leader in all of its chosen markets is supported by four strategic objectives embedded in all Aegon businesses: Optimize portfolio, Deliver operational excellence, Enhance customer loyalty, and Empower employees. These provide the strategic framework for the company's ambition to become the most-recommended life insurance and pension provider by customers and business partners, as well as the most-preferred employer in the sector.
Optimize portfolio
Aegon has agreed with its joint venture partners in India to increase its stake from 26% to 49%. The move follows a recent revision to India's insurance laws that enables foreign companies to own up to 49% of insurance joint ventures. The transaction is subject to regulatory approvals. Aegon and its joint venture partners have operated a life insurance business in India since 2008, and have a leading position in the Indian online life insurance market.
In the Netherlands, Aegon has completed a thorough business review and will restructure its non-life business to focus exclusively on the retail and SME segments of the market, which includes property & casualty and disability insurance. Aegon will exit the proxy channel entirely and is considering strategic options for its commercial lines business. These actions are expected to result in improved non-life returns in the future.
Deliver operational excellence
Aegon is one of the first among its peers that launched a dedicated venture fund investing in start-ups developing new technologies for the financial sector. The fund size is EUR 100 million and working with these companies gives Aegon greater insights into new developments and helps Aegon play an active role in today's rapidly changing environment.
Knab, Aegon's innovative online bank in the Netherlands, was the first Dutch bank to win the prestigious international Celent Model Bank award. The Celent Model Bank Award is given in recognition of a company's effective use of technology to meet customer needs. Knab's popularity continues to grow, with an increase in the number of customers of over 40% during the quarter.
Enhance customer loyalty
Aegon enhanced its Alternative Lump Sum Offering (ALSO) program for customers in the United States who purchased certain variable annuity products with Guaranteed Minimum Income Benefits (GMIB). This program offers these customers a voluntary settlement option increasing their account value if they surrender. In the first quarter of 2015, customers received USD 0.2 billion of combined account value and ALSO benefit upon surrender.
In the Netherlands, Aegon has made significant improvements to its popular mobile application, which now allows customers to view their non-life insurance coverage, report claims and find nearby repair centers. In addition, Aegon has started a trial to allow its customers to include live video services from their mobile device when submitting damage claims. This is expected to reduce processing times, meaning an improved customer experience by helping to get customers the money they need quicker than ever.
In the United Kingdom, Aegon has upgraded over 20,000 customers to its platform in the first quarter of 2015, with more to follow. This is an important step in the development of the platform, as customers experience better service, lower fees and are able to take advantage of a number of retirement readiness tools offered exclusively on the platform. In early April, the total number of customers on Aegon's platform surpassed the 100,000 mark.
Aegon Asia has launched a new customer relationship platform to support its fast-growing life insurance business in Hong Kong and Singapore. The new technology provides a simpler, more scalable platform which is helping Aegon get closer to its customers and provides the necessary tools to deliver an improved customer experience.
Financial overview
EUR millions Notes Q1 2015 Q4 2014 % Q1 2014 %
Underlying earnings before tax
Americas 290 367 (21) 302 (4)
The Netherlands 131 172 (24) 129 2
United Kingdom 38 29 34 27 42
New Markets 51 33 54 61 (16)
Holding and other (42) (39) (9) (21) (100)
Underlying earnings before tax 469 562 (17) 498 (6)
Fair value items (159) (132) (20) (116) (37)
Realized gains / (losses) on investments 119 304 (61) 110 8
Net impairments (11) (28) 62 (8) (39)
Other income / (charges) (1) (191) 100 (6) 86
Run-off businesses 8 (3) - 14 (43)
Income before tax 425 511 (17) 492 (14)
Income tax (109) (112) 3 (100) (9)
Net income 316 399 (21) 392 (19)
Net income / (loss) attributable to:
Equity holders of Aegon N.V. 316 399 (21) 392 (19)
Net underlying earnings 344 429 (20) 370 (7)
Commissions and expenses 1,713 1,596 7 1,427 20
of which operating expenses 9 902 897 1 779 16
New life sales
Life single premiums 1,421 1,481 (4) 1,062 34
Life recurring premiums annualized 409 374 9 353 16
Total recurring plus 1/10 single 551 523 5 459 20
New life sales
Americas 10 141 169 (17) 116 22
The Netherlands 38 82 (54) 32 17
United Kingdom 268 194 38 249 8
New markets 10 105 76 37 62 68
Total recurring plus 1/10 single 551 523 5 459 20
New premium production accident and health insurance 307 205 50 261 18
New premium production general insurance 22 21 6 17 27
Gross deposits (on and off balance)
Americas 10 11,550 7,764 49 8,507 36
The Netherlands 1,563 989 58 486 -
United Kingdom 80 67 18 53 50
New markets 10 5,499 4,864 13 4,428 24
Total gross deposits 18,692 13,684 37 13,475 39
Net deposits (on and off balance)
Americas 10 4,404 (314) - 1,978 123
The Netherlands 796 484 64 38 -
United Kingdom 42 34 26 28 53
New markets 10 2,276 591 - (2,927) -
Total net deposits excluding run-off businesses 7,518 794 - (883) -
Run-off businesses (213) (170) (26) (619) 66
Total net deposits / (outflows) 7,305 625 - (1,502) -
Revenue-generating investments
Mar. Dec. Mar.
31, 31, 31,
2015 2014 % 2014 %
Revenue-generating investments (total) 637,599 558,328 14 481,624 32
Investments general account 172,504 153,653 12 138,567 24
Investments for account of policyholders 215,291 191,467 12 167,903 28
Off balance sheet investments third parties 249,804 213,208 17 175,154 43
OPERATIONAL HIGHLIGHTS
Underlying earnings before tax
Aegon's underlying earnings before tax in the first quarter of 2015 amounted to EUR 469 million. The main drivers for the 6% decline compared with the first quarter of 2014 were adverse claims experience, negative persistency and the negative impact related to lower than anticipated reinvestment yields in the United States and Asia (EUR 110 million), higher surrenders in Central and Eastern Europe (EUR 13 million) and the reduction in recurring earnings resulting from the assumption changes and model updates implemented in the third quarter of 2014 (EUR 25 million). These more than offset higher earnings resulting from growth in variable annuity, pension and asset management balances (EUR 39 million) and favorable currency movements (EUR 73 million).
Underlying earnings from the Americas were down to EUR 290 million. The positive impact on earnings as a result of growth in variable annuity and pension balances and the stronger US dollar were more than offset by the adverse experience described above.
In the Netherlands, underlying earnings increased to EUR 131 million. This was mainly driven by higher investment income and lower funding costs, which were partly offset by higher non-life claims.
Underlying earnings from Aegon's operations in the United Kingdom were up 42% to EUR 38 million in the first quarter of 2015, which was the result of lower expenses and positive market movements.
Underlying earnings from New Markets declined to EUR 51 million. Growth at Aegon Asset Management, which was driven by an increase in third-party business, was more than offset by higher surrenders in Poland following product changes implemented in the fourth quarter of 2014 and divestments in France and Spain.
Total holding costs increased to EUR 42 million. This was primarily the result of higher net interest costs of EUR 7 million following a debt issuance to refinance a perpetual bond in the second quarter of 2014, the cost of which was previously directly accounted for through shareholders' equity. In addition, higher Solvency II related expenses and the non-recurrence of a gain from interest on taxes of
EUR 8 million recorded in the first quarter of 2014 also had a negative impact.
Net income
Net income amounted to EUR 316 million due to lower underlying earnings and a higher loss from fair value items.
Fair value items
The loss from fair value items amounted to EUR 159 million. This loss was mainly driven by hedging programs in the United States and interest rate swaps on perpetuals at the holding, which were impacted by a drop in the Dutch government rate and increased interest rate volatility. This was partly offset by gains related to interest rate volatility in the Netherlands.
Realized gains on investments
Realized gains on investments increased to EUR 119 million and were primarily related to hedge rebalancing in a low rate environment.
Impairment charges
Impairments remained low as a result of the favorable credit environment and amounted to
EUR 11 million.
Other charges
Other charges totaled EUR 1 million. Charges in the Netherlands, which were primarily related to a restructuring provision for the non-life business of EUR 11 million, were mostly offset by charges for policyholder taxes in the United Kingdom.
Run-off businesses
The result from run-off businesses amounted to EUR 8 million.
Income tax
Income tax amounted to EUR 109 million in the first quarter. The effective tax rate on underlying earnings was 27%.
Return on equity
Return on equity was 6.6% in the first quarter of 2015, due to lower underlying earnings. Return on equity for Aegon's businesses, excluding the run-off businesses, amounted to 7.2% over the same period.
Operating expenses
In the first quarter, operating expenses increased 16% to EUR 902 million, driven by a stronger US dollar, higher investments in technology-related initiatives, higher Solvency II costs and an increase in defined benefit expenses. At constant currencies, the increase was 4%.
Sales
In the first quarter of 2015, Aegon's total sales were up 32% to EUR 2.8 billion, the result of a stronger US dollar and Aegon's focus on growing profitable sales in variable annuities, pensions and indexed universal life products. Gross deposits increased 39%, driven by higher pension and variable annuity deposits in the United States, higher deposits in Aegon Asset Management and the strong growth of savings deposits at Knab in the Netherlands. Net deposits, excluding run-off businesses, improved to EUR 7.5 billion, due to higher inflows in all product categories. New life sales were up 20% to
EUR 551 million, mainly due to increased sales of universal life products in the United States and Asia, and favorable currency movements. New premium production for accident & health insurance increased 18% to EUR 307 million, as a lower contribution from portfolio acquisitions was more than offset by higher supplemental health sales and a stronger US dollar.
Market consistent value of new business
The market consistent value of new business amounted to EUR 140 million. The positive effect of sales growth and product adjustments in the United States was more than offset by the negative impact of lower interest rates.
Revenue-generating investments
Revenue-generating investments increased 14% during the first quarter of 2015 to EUR 638 billion, driven by favorable market impacts, currency movements and net inflows.
Capital management
Shareholders' equity increased EUR 3.1 billion compared with the end of the fourth quarter of 2014 to EUR 27.4 billion on March 31, 2015. This increase was mainly due to lower interest rates, which resulted in higher revaluation reserves, and favorable currency movements. The revaluation reserves were up by EUR 1.6 billion to EUR 9.9 billion. Aegon's shareholders' equity, excluding revaluation reserves and defined benefit plan remeasurements, increased to EUR 19.7 billion - or EUR 9.33 per common share - at the end of the first quarter. This increase was driven by net income generated during the quarter and favorable currency movements.
The gross leverage ratio improved to 27.8% in the first quarter, well within the target range of
26-30%. The further progress was driven by higher shareholders' equity net of revaluation reserves and defined benefit plan remeasurements, as well as favorable currency movements. Excess capital in the holding increased to EUR 1.4 billion. The EUR 350 million proceeds of the divestment of La Mondiale Participation were partly offset by the effect of currency hedges, interest payments and operating expenses.
Aegon's Insurance Group Directive (IGD) solvency ratio increased to 216% in the first quarter, mainly driven by earnings generated in the quarter. The capital in excess of the S&P AA threshold in the United States rose to USD 1.5 billion, due to tax benefits and earnings generated in the first quarter of 2015. In the Netherlands, the IGD ratio, excluding Aegon Bank, increased to ~235%, driven by a favorable impact of market movements. The Pillar I ratio in the United Kingdom, including the with-profit fund, declined slightly to ~135%, as the negative impact of downgrades in the investment portfolio more than offset earnings generated during the quarter.
Cash flows
Operational free cash flows were EUR 853 million in the first quarter of 2015. Excluding one-time items of EUR 273 million and market impacts of EUR 241 million, operational free cash flows amounted to EUR 339 million. The one-time items were primarily related to tax benefits in the Americas. The market impacts during the first quarter were mainly related to credit spread and interest rate movements in the Netherlands.
Financial overview, Q1 2015 geographically
Holding,
other
The United New activities &
EUR millions Americas Netherlands Kingdom Markets eliminations Total
Underlying earnings before
tax by line of business
Life 33 81 20 (7) - 127
Individual savings
and retirement products 173 - - (3) - 170
Pensions 83 55 18 3 - 159
Non-life - (9) - 14 - 5
Asset Management - - - 45 - 45
Other - 4 - - (42) (38)
Share in underlying earnings
before tax of associates 1 - - (1) - 1
Underlying earnings before tax 290 131 38 51 (42) 469
Fair value items (90) 151 (22) (4) (193) (159)
Realized gains /
(losses) on investments (29) 140 2 5 - 119
Net impairments (4) (5) - (2) - (11)
Other income / (charges) - (22) 21 - - (1)
Run-off businesses 8 - - - - 8
Income before tax 175 396 39 50 (235) 425
Income tax (30) (92) (21) (22) 57 (109)
Net income 145 304 18 28 (178) 316
Net underlying earnings 209 101 34 29 (29) 344
Employee numbers
Mar. 31, Mar. 31,
2015 2014
Employees 27,824 28,602
of which agents 5,020 5,713
of which Aegon's share of
employees in joint ventures
and associates 1,628 1,614
Please use this link for the full version of the press release.
ADDITIONAL INFORMATION
The Hague - May 13, 2015
Presentation
The conference call presentation is available on aegon.com as of 7.30 a.m. CET.
Supplements
Aegon's Q1 2015 Financial Supplement and Condensed Consolidated Interim Financial Statements
are available on aegon.com.
Conference call including Q&A
9:00 a.m. CET
Audio webcast on aegon.com
Dial-in numbers
United States: +1 646 254 3362
United Kingdom: +44 203 427 1919
The Netherlands: +31 20 716 8256
Two hours after the conference call, a replay will be available on aegon.com.
DISCLAIMERS
Cautionary note regarding non-IFRS measures
This document includes the following non-IFRS financial measures: underlying earnings before tax, income tax, income before tax and market consistent value of new business. These non-IFRS measures are calculated by consolidating on a proportionate basis Aegon's joint ventures and associated companies. The reconciliation of these measures, except for market consistent value of new business, to the most comparable IFRS measure is provided in note 3 'Segment information' of Aegon's Condensed Consolidated Interim Financial Statements. Market consistent value of new business is not based on IFRS, which are used to report Aegon's primary financial statements and should not be viewed as a substitute for IFRS financial measures. Aegon may define and calculate market consistent value of new business differently than other companies. Aegon believes that these non-IFRS measures, together with the IFRS information, provide meaningful information about the underlying operating results of Aegon's business including insight into the financial measures that senior management uses in managing the business. In addition, return on equity is a ratio using a non-GAAP measure and is calculated by dividing the net underlying earnings after cost of leverage by the average shareholders' equity excluding the preferred shares, the revaluation reserve and the reserves related to defined benefit plans.
Local currencies and constant currency exchange rates
This document contains certain information about Aegon's results, financial condition and revenue generating investments presented in USD for the Americas and GBP for the United Kingdom, because those businesses operate and are managed primarily in those currencies. Certain comparative information presented on a constant currency basis eliminates the effects of changes in currency exchange rates. None of this information is a substitute for or superior to financial information about Aegon presented in EUR, which is the currency of Aegon's primary financial statements.
Forward-looking statements
The statements contained in this document that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995. The following are words that identify such forward-looking statements: aim, believe, estimate, target, intend, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, goal, should, would, is confident, will, and similar expressions as they relate to Aegon. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Aegon undertakes no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which merely reflect company expectations at the time of writing. Actual results may differ materially from expectations conveyed in forward-looking statements due to changes caused by various risks and uncertainties. Such risks and uncertainties include but are not limited to the following:
- Changes in general economic conditions, particularly in the United States, the Netherlands and the United Kingdom;
- Changes in the performance of financial markets, including emerging markets, such as with regard to:
- The frequency and severity of defaults by issuers in Aegon's fixed income investment portfolios;
- The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securities Aegon holds; and
- The effects of declining creditworthiness of certain private sector securities and the resulting decline in the value of sovereign exposure that Aegon holds;
- Changes in the performance of Aegon's investment portfolio and decline in ratings of Aegon's counterparties;
- Consequences of a potential (partial) break-up of the euro;
- The frequency and severity of insured loss events;
- Changes affecting longevity, mortality, morbidity, persistence and other factors that may impact the profitability of Aegon's insurance products;
- Reinsurers to whom Aegon has ceded significant underwriting risks may fail to meet their obligations;
- Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels;
- Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates;
- Changes in the availability of, and costs associated with, liquidity sources such as bank and capital markets funding, as well as conditions in the credit markets in general such as changes in borrower and counterparty creditworthiness;
- Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets;
- Changes in laws and regulations, particularly those affecting Aegon's operations, ability to hire and retain key personnel, the products Aegon sells, and the attractiveness of certain products to its consumers;
- Regulatory changes relating to the insurance industry in the jurisdictions in which Aegon operates;
- Changes in customer behavior and public opinion in general related to, among other things, the type of products also Aegon sells, including legal, regulatory or commercial necessity to meet changing customer expectations;
- Acts of God, acts of terrorism, acts of war and pandemics;
- Changes in the policies of central banks and/or governments;
- Lowering of one or more of Aegon's debt ratings issued by recognized rating organizations and the adverse impact such action may have on Aegon's ability to raise capital and on its liquidity and financial condition;
- Lowering of one or more of insurer financial strength ratings of Aegon's insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability and liquidity of its insurance subsidiaries;
- The effect of the European Union's Solvency II requirements and other regulations in other jurisdictions affecting the capital Aegon is required to maintain;
- Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business;
- As Aegon's operations support complex transactions and are highly dependent on the proper functioning of information technology, a computer system failure or security breach may disrupt Aegon's business, damage its reputation and adversely affect its results of operations, financial condition and cash flows;
- Customer responsiveness to both new products and distribution channels;
- Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for Aegon's products;
- Changes in accounting regulations and policies or a change by Aegon in applying such regulations and policies, voluntarily or otherwise, may affect Aegon's reported results and shareholders' equity;
- The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including Aegon's ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions;
- Catastrophic events, either manmade or by nature, could result in material losses and significantly interrupt Aegon's business; and
- Aegon's failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving and excess capital and leverage ratio management initiatives.
Further details of potential risks and uncertainties affecting Aegon are described in its filings with the Netherlands Authority for the Financial Markets and the US Securities and Exchange Commission, including the Annual Report. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, Aegon expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Aegon's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Aegon's roots go back 170 years - to the first half of the nineteenth century. Since then, Aegon has grown into an international company, with businesses in more than 20 countries in the Americas, Europe and Asia. Today, Aegon is one of the world's leading financial services organizations, providing life insurance, pensions and asset management. Aegon's purpose is to help people take responsibility for their financial future. More information: aegon.com.
Media relations
Marcel van Beusekom
+31(0)70-344-8572
gcc@aegon.com
Investor relations
Willem van den Berg
+31(0)70-344-8305
ir@aegon.com
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