EX-99.1 2 dex991.htm EXHIBIT 99.1 EXHIBIT 99.1

Exhibit 99.1

 

LOGO

AEGON improves underlying earnings and capital position in Q2 2009

 

•  

Capital position strengthened

 

  •  

EUR 1.6 billion in capital freed up in first half 2009, above full year target

 

  •  

Excess capitala) of EUR 3.5 billion by end June

 

  •  

Revaluation reserves improve by EUR 3.4 billion, or 40%, a result of narrowing credit spreads

 

  •  

IGDb) solvency ratio increases to approximately 202%

 

  •  

No interim dividend payment for 2009 – dividend policy remains unchanged

 

•  

Improved earnings

 

  •  

Underlying earnings before tax of EUR 404 million, substantial improvement compared with the last two quarters

 

  •  

Underlying earnings include lower investment income as result of de-risking measures

 

  •  

Fair value items of EUR (31) million include EUR 202 million net gain from higher equity markets, offset by a loss on interest rate hedges

 

  •  

Net loss of EUR 161 million, including one-time EUR 385 million loss from sale of Taiwanese life activities

 

  •  

Impairments of EUR 393 million, approximately half from US housing market related assets

 

  •  

Cost savings well on track to achieve EUR 150 million target

 

•  

Continued profitable sales, despite difficult environment

 

  •  

New life sales of EUR 469 million, helped by an increase in US retail sales

 

  •  

Net depositsc) of EUR 857 million, due to strong sales of annuities and pensions, and improved persistency

 

  •  

Value of new business of EUR 181 million, with overall increase in rates of return

Statement Alex Wynaendts, CEO

“Ensuring that AEGON maintains a strong capital position continues to be front and center in our actions. In the first half of the year, we have exceeded our full-year capital release target. We are also pleased with the further improvement, quarter over quarter, to our underlying earnings, despite the impact of our de-risking measures on investment income. Our strong capital position has allowed us to begin reversing in part the impact of these measures by investing cash in higher yielding quality assets. We have not declared an interim dividend, however our dividend policy remains unchanged. Our decision to pay a full-year dividend will continue to depend on cash flows and AEGON’s capital position at the end of the year.

“We are well on track to achieve our cost savings target for 2009. At the same time, we are working to identify additional cost saving measures with the determination not to undermine the high level of service our customers have come to expect. We are especially pleased by the continued confidence of our customers, as demonstrated by solid retail sales in the United States and net deposits for the quarter.

“We remain convinced that our strategic objectives to strengthen AEGON’s capital position, reduce costs and implement actions to safeguard customer trust are the right ones in the current environment and for the long term. AEGON has weathered the turmoil of the past year and is committed to being in a strong position to maximize the opportunities ahead.”

 

KEY PERFORMANCE INDICATORS   

 

amounts in EUR millions

    Notes    Q2 2009     Q1 2009     %     Q2 2008     %     Ytd 2009     Ytd 2008     %  

Underlying earnings before tax

    1    404      (22 )    N.M.      596      (32 )    382      1,254      (70 ) 

Net income

    2    (161 )    (173 )    7      276      N.M.      (334 )    429      N.M.   

New life sales

    3    469      543      (14 )    729      (36 )    1,012      1,415      (28 ) 

Gross deposits excluding Institutional Guaranteed Products

    4    5,647      6,393      (12 )    5,650      (0 )    12,040      11,037      9   

Value of new business (VNB)

       181      201      (10 )    212      (15 )    382      398      (4 ) 

Return on equity

    5    10.3 %    (3.3 )%    N.M.      11.2 %    (8 )    3.5 %    12.2 %    (71 ) 

 

a) Excess capital over S&P AA capital adequacy requirements

 

b) The calculation of the IGD (Insurance Group Directive) capital surplus and ratio are based on Solvency I capital requirements on IFRS for entities within the EU (Pillar I for AEGON UK), and local regulatory solvency measurements for non-EU entities. Specifically, required capital for the life insurance companies in the US is calculated as two times the upper end of the Company Action Level range (200%) as applied by the National Association of Insurance Commissioners in the US. The methodology to calculate the ratio for the Netherlands has been adjusted to include the excess value above the technical provisions, calculated according to the local regulatory liability adequacy test, as of Q2 2009. The comparable IGD ratio as per end of Q1 2009 would have been 193%.

 

c) Excluding institutional guaranteed products

 

 

20090813

 

Strategic highlights and short-term priorities

 

 

 

Last year, AEGON set out three long-term strategic priorities:

 

1. To reallocate capital toward businesses with higher growth and return prospects;

 

2. To improve growth and returns from existing businesses;

 

3. To manage AEGON as an international company.

Subsequently, AEGON identified and announced three priorities to counter the challenges of the current global financial crisis and position the company for future growth:

 

•  

Focus on capital preservation and accelerate the capital release program;

 

•  

EUR 150 million in cost saving measures for 2009;

 

•  

Develop contingency plans for possible deterioration in financial markets.

AEGON further aims to reduce its earnings sensitivity to financial markets to realize more stable earnings.

Portfolio review

AEGON is continuing to review its portfolio of businesses to ensure they meet the criteria outlined in the company’s strategy. Recent developments:

 

•  

Sale of life business in Taiwan, decreasing AEGON’s long-term interest rate exposure and substantially lowering required economic capital;

 

•  

Withdrawal from Group Risk market in the UK – to release EUR 55 million in capital over next three years.

Consistent with its strategy to allocate capital to businesses and geographies that offer attractive growth and higher return prospects, AEGON completed its acquisition of a 50% stake in Mongeral, Brazil’s sixth largest independent life insurer, and the acquisition of Banca Transilvania’s 50% share in BT AEGON, a Romanian pension business the two companies set up in 2008.

Cost measures

 

•  

Cost saving measures well on track to achieve the full-year EUR150 million target;

 

•  

Operating expenses down 5% in the first half of 2009, excluding impact from restructuring charges, increased employee benefit plan expenses and currency effects.

Capital preservation

 

•  

A total of EUR 1.6 billion in capital released from AEGON’s businesses in H1, above target of EUR 1.5 billion for full year;

 

•  

AEGON started to invest cash in higher yielding quality assets, which will in part reverse earnings impact from de-risking measures;

 

•  

AEGON aims to maintain an amount of excess capital substantially above AA capital adequacy requirements.

Capital management

Excess capital

 

•  

Excess capital at the end of June totaled EUR 3.5 billion over AA capital adequacy requirements, up EUR 0.8 billion from the end of Q1 2009;

 

•  

The positive impact from improved capital markets, the company’s capital release program and statutory earnings were partly offset by impairments and rating migration in the Americas. At the end of Q2 2009, AEGON had an IGD solvency ratio of approximately 200%;

 

•  

Because of uncertain economic conditions, AEGON still expects an elevated level of asset impairments in its investment portfolio in 2009 compared with its long-term assumptions. Impairments negatively impacted the company’s capital position in Q2 2009, reducing excess capital by approximately EUR 0.3 billion. In addition, rating migration in the Americas’ asset portfolio was limited to a EUR 0.1 billion increase in capital requirements.

IFRS core capital

 

•  

At the end of June 2009, core capital, excluding the revaluation account, totaled EUR 15.8 billion, 75% of the total capital base, well above AEGON’s minimum target of 70%7,8). Core capital, including the revaluation reserves, was EUR 10.6 billion, consisting of EUR 7.6 billion in shareholders’ equity and a further EUR 3 billion in convertible core capital securities. AEGON’s revaluation account improved by 40% during Q2 2009, or EUR 3.4 billion, to a negative EUR 5.1 billion. The improved revaluation account was the main driver behind an increase in shareholders’ equity. The revaluation account improved primarily due to the impact of narrowing of credit spreads on bond values.

 

 

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Dividend

 

•  

AEGON has not declared an interim dividend to common shareholders for 2009. The company’s dividend policy, however, remains unchanged, i.e. the payment of a dividend depends on the capital position and cash flows of the company. A decision on a final dividend will be announced with the Q4 2009 results.

Risk management

Equity market sensitivities

 

•  

During Q2 2009, AEGON implemented a macro hedge program for equity exposure related to its retail variable annuity portfolio to reduce the sensitivity of AEGON’s capital position to equity market movements. This program, a combination of out-of-the-money put options and linear hedge instruments, is in place for twelve months, but can be extended for a longer period. The hedge instruments will be carried at fair value through profit or loss and will be reported under fair value items.

 

 

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Financial Highlights

 

 

 

FINANCIAL OVERVIEW  

 

EUR millions

    Q2 2009     Q1 2009     %     Q2 2008     %     Ytd 2009     Ytd 2008     %  

Underlying earnings before tax by line of business

                 

Life and protection

    266      239      11      252      6      505      504      —     

Individual savings and retirement products

    62      (313 )    N.M.      115      (46 )    (251 )    231      N.M.   

Pensions and asset management

    83      42      98      129      (36 )    125      250      (50 ) 

Institutional products

    29      89      (67 )    99      (71 )    118      207      (43 ) 

Life reinsurance

    13      (23 )    N.M.      0      N.M.      (10 )    43      N.M.   

Distribution

    1      6      (83 )    8      (88 )    7      17      (59 ) 

General insurance

    12      (1 )    N.M.      20      (40 )    11      37      (70 ) 

Interest charges and other

    (72 )    (63 )    (14 )    (38 )    (89 )    (135 )    (55 )    (145 ) 

Share in net results of associates

    10      2      N.M.      11      (9 )    12      20      (40 ) 
                                    

Underlying earnings before tax

    404      (22 )    N.M.      596      (32 )    382      1,254      (70 ) 
                                    

Over/(under) performance of fair value items

    (31 )    (197 )    84      48      (165 )    (228 )    (393 )    42   
                                    

Operating earnings before tax

    373      (219 )    N.M.      644      (42 )    154      861      (82 ) 
                                    

Operating earnings before tax by line of business

                 

Life and protection

    270      179      51      264      2      449      477      (6 ) 

Individual savings and retirement products

    88      (306 )    N.M.      139      (37 )    (218 )    81      N.M.   

Pensions and asset management

    35      (135 )    N.M.      97      (64 )    (100 )    78      N.M.   

Institutional products

    131      13      N.M.      155      (15 )    144      100      44   

Life reinsurance

    61      59      3      3      N.M.      120      34      N.M.   

Distribution

    1      6      (83 )    8      (88 )    7      17      (59 ) 

General insurance

    12      (1 )    N.M.      20      (40 )    11      37      (70 ) 

Interest charges and other

    (235 )    (36 )    N.M.      (53 )    N.M.      (271 )    17      N.M.   

Share in net results of associates

    10      2      N.M.      11      (9 )    12      20      (40 ) 
                                    

Operating earnings before tax

    373      (219 )    N.M.      644      (42 )    154      861      (82 ) 

Gains/(losses) on investments

    35      173      (80 )    (212 )    N.M.      208      (126 )    N.M.   

Impairment charges

    (393 )    (386 )    (2 )    (98 )    N.M.      (779 )    (130 )    N.M.   

Other income/(charges)

    (353 )    (23 )    N.M.      9      N.M.      (376 )    (45 )    N.M.   
                                    

Income before tax

    (338 )    (455 )    26      343      N.M.      (793 )    560      N.M.   

Income tax

    177      282      (37 )    (67 )    N.M.      459      (131 )    N.M.   
                                    

Net income

    (161 )    (173 )    7      276      N.M.      (334 )    429      N.M.   
                                    

Net underlying earnings

    357      (14 )    N.M.      437      (18 )    343      940      (64 ) 

Net operating earnings

    331      (163 )    N.M.      479      (31 )    168      654      (74 ) 
                                    

Underlying earnings geographically

                 

Americas

    280      (68 )    N.M.      441      (37 )    212      919      (77 ) 

The Netherlands

    129      72      79      116      11      201      229      (12 ) 

United Kingdom

    20      7      186      48      (58 )    27      93      (71 ) 

Other countries

    47      30      57      29      62      77      68      13   

Holding and other

    (72 )    (63 )    (14 )    (38 )    (89 )    (135 )    (55 )    (145 ) 
                                    

Underlying earnings before tax

    404      (22 )    N.M.      596      (32 )    382      1,254      (70 ) 
                                    

Operating earnings geographically

                 

Americas

    461      (100 )    N.M.      541      (15 )    361      645      (44 ) 

The Netherlands

    76      (118 )    N.M.      79      (4 )    (42 )    38      N.M.   

United Kingdom

    22      4      N.M.      48      (54 )    26      93      (72 ) 

Other countries

    49      31      58      29      69      80      68      18   

Holding and other

    (235 )    (36 )    N.M.      (53 )    N.M.      (271 )    17      N.M.   
                                    

Operating earnings before tax

    373      (219 )    N.M.      644      (42 )    154      861      (82 ) 
                                    

Commissions and expenses

    1,504      1,618      (7 )    1,515      (1 )    3,122      2,931      7   

of which operating expenses

    814      842      (3 )    772      5      1,656      1,555      6   
                                    

 

 

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Overview

AEGON reported a net loss of EUR 161 million for Q2 2009, including a one-time EUR 385 million loss from the sale of the company’s Taiwanese life insurance business. Excluding this one-time loss, net income was EUR 224 million, a strong improvement compared with previous quarters.

Underlying earnings before tax amounted to EUR 404 million, a substantial increase from the first quarter of 2009.

Fair value items contributed a negative EUR 31 million to earnings in Q2 2009, again a strong improvement compared with recent quarters.

Net income during the second quarter of 2009 was negatively impacted by impairment charges of EUR 393 million, associated in part with investments in structured residential mortgage assets in the Americas. Impairments of EUR 330 million in the Americas would have amounted EUR 255 million under US GAAP.

Net income in the second quarter of 2009 also included a tax gain of EUR 228 million related to cross border intercompany reinsurance transactions between Ireland and the United States. This gain was a partial reversal of previous tax charges from these internal transactions during 2008.

Underlying earnings before tax

In Q2 2009, underlying earnings before tax for the company totaled EUR 404 million, a substantial improvement compared with recent quarters. Underlying earnings were impacted by a few exceptional items totaling EUR 36 million. Excluding these exceptional items, underlying earnings would have been EUR 440 million. Underlying earnings were also impacted by de-risking measures in the first half of 2009, which affected earnings by EUR 45 million. The main exceptional items were:

 

  •  

US employee benefit plan accounting mismatch of EUR (15) million;

 

  •  

Restructuring charges of EUR (18) million;

 

  •  

Accelerated amortization of DPAC related to universal life in Canada of EUR (23) million;

 

  •  

Reserve adjustments of EUR 20 million.

Underlying earnings in the Americas improved significantly compared with Q1 2009 when lower equity markets led to a strengthening in minimum guarantee reserves and accelerated amortization of deferred policy acquisition costs (DPAC).

Compared with Q2 2008 however, earnings from the Americas decreased to USD 371 million, a result of lower investment spreads, reduced fees from lower asset balances, increased employee benefit plan expenses (USD 60 million), accelerated amortization of DPAC in the Life and Protection line (USD 30 million), and one-time restructuring costs (USD 14 million) related to cost saving initiatives. In Q2 2008, earnings from the Americas had included a one-off reserve strengthening of USD 49 million in the life reinsurance business.

In the Netherlands, underlying earnings totaled EUR 129 million, including a one-time EUR 20 million release of provisions.

Underlying earnings in the United Kingdom, meanwhile, totaled GBP 17 million, lower than Q2 2008, due primarily to the impact of lower equity and corporate bond markets on fund related charges in the pension business.

Underlying earnings from Other countries, which exclude earnings from the Taiwanese life business this quarter, amounted to EUR 47 million, up from EUR 29 million in Q2 2008. Earnings for the second quarter 2008 had included a EUR 6 million underlying loss in Taiwan. The increase in earnings in Other Countries was the result of a strong earnings performance from AEGON’s operations in Central & Eastern Europe and the company’s bancassurance joint ventures in Spain.

Net income

Net income for the second quarter of 2009 included a total underperformance of fair value items of EUR 31 million. Fair value items primarily include certain (alternative) investment classes, as well as a number of products containing financial guarantees.

In the Americas, fair value items showed an overperformance of USD 240 million, a result primarily of increased market values for credit derivatives, as well as a positive contribution from both total return annuities and the impact of lower implied equity market volatilities on the fair value of GMWB guarantees. The results of AEGON’s macro equity hedge program are reported under fair value items and amounted to a gain of USD 26 million in the second quarter 2009. Alternative assets in the Americas, such as real estate partnerships and private equity, however, showed an underperformance.

 

 

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In Q2 2009, fair value items included a EUR 54 million charge related to fair value movements of guarantees and related hedges in the Netherlands. During the second quarter of 2009, a EUR 186 million gain from higher equity markets, as well as the benefit from lower equity market volatility, were more than offset by losses from the company’s program for managing guarantee related interest exposures.

Three bonds issued by AEGON N.V. and their hedge instruments are held at fair value through profit or loss. In previous quarters, the widening of AEGON’s credit spread had a positive contribution to earnings. In Q2 2009 however, AEGON’s credit spread narrowed substantially, leading to a loss of EUR 163 million.

Gains on investments

Gains on investments during the second quarter of 2009 amounted to EUR 35 million, including gains on economic hedges. These gains were partly offset by losses from the revaluation of direct residential real estate investments in the Netherlands.

Impairment charges

Impairments during the second quarter of 2009 totaled EUR 393 million. This included EUR 123 million relating to subprime mortgage asset backed securities and a further EUR 85 million to residential mortgage backed securities, both in the Americas. The remainder was mainly related to corporate credits in the Americas, the United Kingdom and the Netherlands. Impairments of EUR 330 million in the Americas would have amounted to EUR 255 million under US GAAP.

Tax

Net income in the second quarter of 2009 included a tax gain of EUR 228 million related to cross border intercompany reinsurance transactions between Ireland and the United States. These reinsurance transactions are accounted for at fair value in both tax jurisdictions. While losses in the United States were taxed at 35%, gains in Ireland were taxed at 12.5%. The gain was a partial reversal of previous tax charges on these internal transactions in 2008.

The loss from the sale of AEGON’s Taiwanese life activities did not lead to tax relief on earnings for the second quarter of 2009.

Commissions and expenses

Compared with Q1 2009, commissions and expenses decreased by 7% to EUR 1.5 billion. Operating expenses were down 3% to EUR 814 million as a result of cost saving initiatives, partly offset by restructuring charges and higher employee benefit plan expenses. Excluding the impact from restructuring charges, increased employee benefit plan expenses and currencies, operating expenses were down 5% in the first half of 2009 compared with the same period last year.

Compared with Q2 2008, commissions and expenses were down 5% on a constant currency basis. On the same basis, operating expenses were up 1% as an increase in employee benefit plan expenses and restructuring charges offset further cost savings. Operating expenses also increased as a result of acquisitions in Central & Eastern Europe in 2008 and the inclusion of new joint ventures in Spain.

 

 

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SALES

 

EUR millions

    Q2 2009     Q1 2009     %     Q2 2008     %     Ytd 2009     Ytd 2008     %  

New life sales

                 

Life single premiums

    1,504      2,025      (26 )    2,880      (48 )    3,529      5,637      (37 ) 

Life recurring premiums annualized

    318      341      (7 )    441      (28 )    659      851      (23 ) 
                                    

Total recurring plus  1/10 single

    469      543      (14 )    729      (36 )    1,012      1,415      (28 ) 

New premium production accident and health insurance

    146      164      (11 )    141      4      310      307      1   

New premium production general insurance

    11      12      (8 )    16      (31 )    23      32      (28 ) 
                                    

Gross deposits (on and off balance) by line of business

                 

Fixed annuities

    928      1,628      (43 )    875      6      2,556      1,181      116   

Variable annuities

    949      714      33      717      32      1,663      1,402      19   

Saving deposits

    779      580      34      688      13      1,359      1,336      2   

Retail mutual funds

    671      642      5      908      (26 )    1,313      1,472      (11 ) 

Pensions and asset management

    2,319      2,829      (18 )    2,461      (6 )    5,148      5,644      (9 ) 

Institutional guaranteed products

    1,115      1,848      (40 )    3,481      (68 )    2,963      6,730      (56 ) 

Life reinsurance

    1      —        N.M.      1      —        1      2      (50 ) 
                                    

Total gross deposits

    6,762      8,241      (18 )    9,131      (26 )    15,003      17,767      (16 ) 

Total gross deposits excl. institutional guaranteed products

    5,647      6,393      (12 )    5,650      —        12,040      11,037      9   
                                    

Net deposits (on and off balance) by line of business

                 

Fixed annuities

    145      688      (79 )    (24 )    N.M.      833      (819 )    N.M.   

Variable annuities

    412      78      N.M.      (102 )    N.M.      490      (254 )    N.M.   

Saving deposits

    43      (67 )    N.M.      114      (62 )    (24 )    42      N.M.   

Retail mutual funds

    23      (98 )    N.M.      416      (94 )    (75 )    587      N.M.   

Pensions and asset management

    246      506      (51 )    180      37      752      1,350      (44 ) 

Institutional guaranteed products

    (1,432 )    (2,354 )    39      401      N.M.      (3,786 )    (794 )    N.M.   

Life reinsurance

    (12 )    (16 )    25      (14 )    14      (28 )    (29 )    3   
                                    

Total net deposits

    (575 )    (1,263 )    54      971      N.M.      (1,838 )    83      N.M.   

Total net deposits excl. institutional guaranteed products

    857      1,091      (21 )    570      50      1,948      877      122   
                                    
REVENUE GENERATING INVESTMENTS                 
     June 30,
2009		     Mar. 31,
2009		     %                                

Revenue generating investments (total)

    341,815      334,280      2             
                        

Investments general account

    131,533      133,130      (1 )           

Investments for account of policyholders

    112,107      103,312      9             

Off balance sheet investments third parties

    98,175      97,838      —               
                        

 

 

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Sales

Total new life sales in Q2 2009, excluding Taiwan, were down 13% compared with Q1 2009.

Total new life sales in the Americas were in line with Q1 2009. Retail life sales increased 7% from Q1 2009 reflecting expanded distribution, particularly in the term life insurance market, offset by lower sales of both BOLI/COLI and life reinsurance.

In the Netherlands, pension sales slowed significantly during the second quarter of 2009 and proved volatile after the standstill in the group pension market during the third and fourth quarters of last year. The first quarter of 2009 had seen strong group pension sales.

New life sales in the United Kingdom in the second quarter of the year were down 16% compared with Q1 2009, due primarily to a decline in sales of annuities.

In Other countries new life sales, excluding Taiwan, increased by 9% compared with Q1 2009. New life sales in Spain rose to EUR 24 million, a reflection of higher sales at AEGON’s bancassurance joint ventures. Sales through Caja de Ahorros del Mediterráneo (CAM), AEGON’s largest bank partner in Spain, remained strong at EUR 57 million (on a 100% basis) in Q2 2009. It should be noted that CAM is an associate of AEGON and its results are therefore not consolidated.

In Central & Eastern Europe, new life sales totaled EUR 18 million, up 13% compared with Q1 2009, due to higher recurring premium sales.

With the exception of Spain, all country units showed a decline in sales compared with Q2 2008. In Other countries, sales were down year-on-year primarily as a result of the sale of AEGON’s Taiwanese life business and lower unit-linked sales in Central & Eastern Europe. Sales were also affected by a decline in certain parts of the retail market in the Americas, as well as lower life reinsurance sales and the impact of the financial crisis on sales of BOLI/COLI contracts. In the United Kingdom, sales declined year-on-year across most lines of business. Q2 2008 had been a record sales quarter in the United Kingdom. Sales in the Netherlands were also down year-on-year, primarily because of a slowdown in the Dutch group pension market and lower demand for unit-linked products, as well as lower annuity sales due to conservative pricing.

Deposits

Total gross deposits of EUR 5.6 billion in Q2 2009, both on and off balance, excluding institutional guaranteed products, were down 12% compared with Q1 2009. The decline was due mainly to lower fixed annuity deposits in the Americas – the result of a reduction in AEGON’s crediting rates since the end of Q1 2009. Pension deposits in the Americas remained strong, but were down compared with the previous quarter, a reflection of seasonal factors. Sales of variable annuities were up by 33% compared with Q1 2009 due to improved markets.

Gross deposits in Other countries amounted to EUR 653 million, down from the previous quarter as a result of a decline in sales from AEGON’s asset management joint venture in China. Gross deposits in Central & Eastern Europe were up 7% compared with Q1 2009. Despite an adverse economic environment, pension deposits remained strong, reflecting the overall growth of the business. In Q2 2009, deposits in Other countries also included sales of European variable annuities, amounting to EUR 162 million.

Net deposits, excluding institutional guaranteed products, totaled EUR 0.9 billion, an increase compared with Q2 2008, but a decrease compared with Q1 2009. Compared with the first quarter of 2009, net inflows in fixed annuities and the pension and asset management business in the Americas declined. The variable annuities and mutual fund businesses both saw strong sales and lower outflows, leading to net inflows during Q2 2009. Net deposits in Other countries declined compared with Q1 2009, primarily as a result of outflows from AEGON’s Chinese asset management joint venture.

Value of new business

Value of new business (VNB) amounted to EUR 181 million in the Q2 2009. Declines in VNB compared with Q1 2009 in the Americas, the United Kingdom and Central & Eastern Europe were partly offset by increases in the Netherlands and Spain. AEGON’s internal rate of return amounted to 21.9%, higher than Q1 2009, a result of improved returns in most country units, and a change in the geographical mix of new business.

 

 

Local knowledge. Global power. | Page 8 of 33

 

Appendix I • Americas • The Netherlands • United Kingdom • Other countries

 

 

 

FINANCIAL OVERVIEW, Q2 2009 GEOGRAPHICALLY

  

  
                amounts in million EUR (unless otherwise stated)  

Americas
USD

    United
Kingdom
GBP		          Americas     The
Netherlands		     United
Kingdom		     Other
countries		     Holding,
other
activities &
eliminations		     Total
EUR		  
     Underlying earnings before tax by line of business             
217    11      Life and protection    159      75      14      18      —        266   
79    —        Individual savings and retirement products    66      (10 )    —        6      —        62   
17    8      Pensions and asset management    13      57      8      5      —        83   
41    —        Institutional products    29      —        —        —        —        29   
17    —        Life reinsurance    13      —        —        —        —        13   
—      (2 )    Distribution    —        3      (2 )    —        —        1   
—      —        General insurance    —        4      —        8      —        12   
     Interest charges and other            (72 )    (72 ) 
—      —        Share in net results of associates    —        —        —        10      —        10   
                                               
371    17      Underlying earnings before tax    280      129      20      47      (72 )    404   
                                               
240    2      Over/(under) performance of fair value items    181      (53 )    2      2      (163 )    (31 ) 
                                               
611    19      Operating earnings before tax    461      76      22      49      (235 )    373   
                                               
     Operating earnings before tax by line of business             
228    11      Life and protection    167      71      14      18      —        270   
110    —        Individual savings and retirement products    90      (10 )    —        8      —        88   
15    10      Pensions and asset management    12      8      10      5      —        35   
174    —        Institutional products    131      —        —        —        —        131   
84    —        Life reinsurance    61      —        —        —        —        61   
—      (2 )    Distribution    —        3      (2 )    —        —        1   
—      —        General insurance    —        4      —        8      —        12   
     Interest charges and other            (235 )    (235 ) 
—      —        Share in net results of associates    —        —        —        10      —        10   
                                               
611    19      Operating earnings before tax    461      76      22      49      (235 )    373   
(4)    25      Gains/(losses) on investments    (3 )    (42 )    28      2      50      35   
(449)    (31 )    Impairment charges    (330 )    (28 )    (35 )    —        —        (393 ) 
—      30      Other income/(charges)    (1 )    —        33      (385 )    —        (353 ) 
                                               
158    43      Income before tax    127      6      48      (334 )    (185 )    (338 ) 
214    (25 )    Income tax    155      (2 )    (28 )    (9 )    61      177   
                                               
372    18      Net income    282      4      20      (343 )    (124 )    (161 ) 
                                               
343    21      Net underlying earnings    259      93      24      38      (57 )    357   
505    22      Net operating earnings    380      54      25      40      (168 )    331   
                                               

 

 

Local knowledge. Global power. | Page 9 of 33

 

Americas

 

 

 

•  

Underlying earnings before tax of USD 371 million, a substantial improvement on recent quarters

 

•  

Net income of USD 372 million includes USD 240 million contribution from fair value items driven by tightening credit spreads and lower equity market volatilities

 

•  

Impairments of USD 449 million, primarily on mortgage-backed assets and corporate bonds

 

•  

Retail life sales up compared to Q1 2009; net deposits of USD 1.0 billion (excluding institutional guaranteed products)

Overview

Underlying earnings before tax from the Americas in Q2 2009 were up significantly compared to Q1 2009 as financial markets improved during the quarter. Compared with last year however, underlying earnings before tax from the Americas decreased to USD 371 million, mainly due to lower investment spreads, reduced fees from lower asset balances, increased employee benefit plan expenses (USD 60 million), accelerated amortization of DPAC in the Life and Protection line (USD 30 million), and one-time restructuring costs (USD 14 million) related to cost savings initiatives. In Q2 2008, underlying earnings before tax from the Americas had included a one-off reserve strengthening of USD 49 million in the life reinsurance business.

Net impairments amounted to USD 449 million, of which USD 284 million was related to structured residential mortgage asset impairments. Impairments would have amounted to USD 340 million under US GAAP.

Net income also included a tax gain related to cross border intercompany reinsurance transactions between Ireland and the United States (USD 305 million).

Retail life sales increased 7% over Q1 2009 reflecting expanded distribution, particularly in the term life insurance market.

Underlying earnings before tax

AEGON reported underlying earnings before tax in the Americas for Q2 2009 of USD 371 million, a strong improvement compared to an underlying loss of USD 88 million in Q1 2009. However, underlying earnings before tax declined compared to Q2 2008:

 

•  

Underlying earnings before tax from Life & Protection amounted to USD 217 million and included several one-off items; USD 30 million DPAC charge in the Canadian life business, USD 18 million in reserve strengthening in the US life business and USD 8 million of restructuring charges, partially offset by USD 21 million of reserve releases in accident and health. Underlying earnings before tax also include USD 33 million in increased employee benefit plan expenses and the impact of lower investment spreads and reduced fee income;

 

•  

Individual Savings & Retirement earnings totaled USD 79 million. The decline in underlying earnings before tax compared to Q2 2008 was the result primarily of lower fee income in the variable annuity and mutual fund business, as well as a narrowing of spreads. Underlying earnings before tax in Q2 2009 included USD 10 million from increased employee benefit plan expenses;

 

•  

Pensions & Asset Management underlying earnings before tax decreased to USD 17 million from USD 50 million in Q2 2008, a result mainly of lower fees from reduced asset balances and increased employee benefit plan expenses (USD 10 million);

 

•  

Underlying earnings before tax from the Institutional business amounted to USD 41 million, down from USD 155 million in Q2 2008. Underlying earnings before tax last year had benefited from a widening in spreads due to a decline in short-term rates. In Q2 2009, underlying earnings before tax were severely impacted by narrowing in spreads as a result of a higher asset allocation to cash following the decision to scale down AEGON’s institutional spread business;

 

•  

In the Life Reinsurance business underlying earnings before tax amounted to USD 17 million. Underlying earnings before tax in Q2 2008 included a USD 49 million reserve strengthening charge. Underlying earnings before tax in Q2 2009 were affected by adverse mortality experience (USD 10 million), as well as lower investment spreads.

 

 

Local knowledge. Global power. | Page 10 of 33

 

 

 

 

Net income

AEGON reported net income in the Americas for Q2 2009 of USD 372 million.

Fair value items showed an overperformance of USD 240 million, a result primarily of increased market values for credit derivatives, as well as a positive contribution from total return annuities and the positive impact of lower implied equity market volatilities on the fair value of GMWB guarantees and GMWB related hedges. The gain from AEGON’s macro equity hedge program amounted to USD 26 million in the second quarter of 2009. Alternative assets, like real estate partnerships, as well as private equity, underperformed.

Net income in the Americas included USD 449 million in net impairments, of which the majority (USD 284 million) was related to structured asset impairments, including securities backed by subprime mortgages (USD 169 million). Impairments would have amounted to USD 340 million under US GAAP.

Net income included a tax gain related to cross border intercompany reinsurance transactions (USD 305 million) between Ireland and the United States. These reinsurance transactions were accounted for at fair value in both tax jurisdictions, while losses in the United States were taxed at 35% and gains in Ireland were taxed at 12.5%. The gain was a partial reversal of previous tax charges on these internal transactions in 2008.

Commissions and expenses

Total commissions and expenses were down 5% in Q2 2009 compared to the same period last year. Q2 2009 operating expenses were up 4% due to an increase in employee benefit plan expenses of USD 60 million as well as restructuring expenses of USD 14 million.

Sales and deposits

Total new life sales in the Americas were in line with Q1 2009. Retail life sales increased 7% over Q1 2009 reflecting expanded distribution, particularly in the term life insurance market, offset by lower sales of both BOLI/COLI and life reinsurance.

Sales of accident and health products were down 10% compared with Q2 2008, the result partly of a decision to discontinue the auto credit business.

Total gross deposits, excluding institutional guaranteed products, were down 14% compared to Q1 2009. Net deposits, excluding institutional guaranteed products, totaled USD 1.0 billion in Q2 2009.

Following the reduction in AEGON’s crediting rates since the end of Q1 2009, fixed annuities sales were down, in line with expectations. Sales of variable annuities rose by 37% due to improved market conditions. Retail mutual fund sales recovered from the low levels seen during the previous quarters, a result of higher equity markets.

Sales of retirement plans in the pension business continued to be strong, particularly taking into account the impact of lower financial markets. Institutional guaranteed products sales were low, following AEGON’s decision early 2009 to scale down its institutional spread based business.

Value of new business

Value of new business in the Americas amounted to USD 90 million, down from Q1 2009. The internal rate of return (IRR) was 11.1%, an improvement compared to Q1 2009. The decline in VNB is primarily the result of lower fixed annuity sales, offset by higher volumes and a more profitable product mix in the retail life business.

Please refer to page 30 for more detailed information on VNB.

Revenue-generating investments

AEGON’s total revenue-generating investments in the Americas at the end of June 2009 totaled USD 295 billion, up 6% from three months earlier.

 

 

Local knowledge. Global power. | Page 11 of 33

 

 

 

 

AMERICAS - EARNINGS                 

USD millions

    Q2 2009     Q1 2009     %     Q2 2008     %     Ytd 2009     Ytd 2008     %  

Underlying earnings before tax by line of business

                 

Life

    118      153      (23 )    214      (45 )    271      373      (27 ) 

Accident and health

    99      68      46      94      5      167      209      (20 ) 
                        

Life and protection

    217      221      (2 )    308      (30 )    438      582      (25 ) 

Fixed annuities

    60      86      (30 )    105      (43 )    146      200      (27 ) 

Variable annuities

    29      (480 )    N.M.      68      (57 )    (451 )    138      N.M.   

Retail mutual funds

    (10 )    (9 )    (11 )    3      N.M.      (19 )    7      N.M.   
                        

Individual savings and retirement products

    79      (403 )    N.M.      176      (55 )    (324 )    345      N.M.   

Pensions and asset management

    17      10      70      50      (66 )    27      95      (72 ) 

Institutional guaranteed products

    30      105      (71 )    141      (79 )    135      282      (52 ) 

BOLI/COLI

    11      12      (8 )    14      (21 )    23      35      (34 ) 
                        

Institutional products

    41      117      (65 )    155      (74 )    158      317      (50 ) 

Life reinsurance

    17      (30 )    N.M.      1      N.M.      (13 )    66      N.M.   

Share in net results of associates

    —        3      N.M.      1      N.M.      (3 )    2      N.M.   
                        

Underlying earnings before tax

    371      (88 )    N.M.      691      (46 )    283      1,407      (80 ) 
                        

Over/(under) performance of fair value items

    240      (42 )    N.M.      141      70      198      (419 )    N.M.   
                        

Operating earnings before tax

    611      (130 )    N.M.      832      (27 )    481      988      (51 ) 
                        

Operating earnings before tax by line of business

                 

Life

    132      120      10      232      (43 )    252      367      (31 ) 

Accident and health

    96      56      71      98      (2 )    152      207      (27 ) 
                        

Life and protection

    228      176      30      330      (31 )    404      574      (30 ) 

Fixed annuities

    81      41      98      133      (39 )    122      141      (13 ) 

Variable annuities

    39      (426 )    N.M.      69      (43 )    (387 )    (34 )    N.M.   

Retail mutual funds

    (10 )    (9 )    (11 )    3      N.M.      (19 )    7      N.M.   
                        

Individual savings and retirement products

    110      (394 )    N.M.      205      (46 )    (284 )    114      N.M.   

Pensions and asset management

    15      (3 )    N.M.      54      (72 )    12      92      (87 ) 

Institutional guaranteed products

    166      8      N.M.      218      (24 )    174      119      46   

BOLI/COLI

    8      10      (20 )    17      (53 )    18      34      (47 ) 
                        

Institutional products

    174      18      N.M.      235      (26 )    192      153      25   

Life reinsurance

    84      76      11      7      N.M.      160      53      N.M.   

Share in net results of associates

    —        (3 )    N.M.      1      N.M.      (3 )    2      N.M.   
                        

Operating earnings before tax

    611      (130 )    N.M.      832      (27 )    481      988      (51 ) 

Gains/(losses) on investments

    (4 )    36      N.M.      (73 )    95      32      (144 )    N.M.   

Impairment charges

    (449 )    (370 )    (21 )    (126 )    N.M.      (819 )    (147 )    N.M.   

Other income/(charges)

    —        1      N.M.      —        N.M.      1      —        N.M.   
                        

Income before tax

    158      (463 )    N.M.      633      (75 )    (305 )    697      N.M.   

Income tax

    214      290      (26 )    (179 )    N.M.      504      (282 )    N.M.   
                        

Net income

    372      (173 )    N.M.      454      (18 )    199      415      (52 ) 
                        

Net underlying earnings

    343      (57 )    N.M.      502      (32 )    286      1,024      (72 ) 

Net operating earnings

    505      (90 )    N.M.      616      (18 )    415      727      (43 ) 
                        

Commissions and expenses

    1,262      1,311      (4 )    1,328      (5 )    2,573      2,497      3   

of which operating expenses

    577      562      3      555      4      1,139      1,102      3   
                        

For the amounts in euro see the Financial Supplement.

 

 

Local knowledge. Global power. | Page 12 of 33

 

 

 

 

AMERICAS - SALES

 

USD millions

    Q2 2009     Q1 2009     %     Q2 2008     %     Ytd 2009     Ytd 2008     %  

New life sales

                 

Life single premiums

    138      91      52      218      (37 )    229      459      (50 ) 

Life recurring premiums annualized

    170      173      (2 )    240      (29 )    343      478      (28 ) 
                        

Total recurring plus  1/10 single

    184      182      1      262      (30 )    366      524      (30 ) 

Life

    137      128      7      184      (26 )    265      371      (29 ) 

BOLI/COLI

    —        2      N.M.      6      N.M.      2      20      (90 ) 

Life reinsurance

    47      52      (10 )    72      (35 )    99      133      (26 ) 
                        

Total recurring plus  1/10 single

    184      182      1      262      (30 )    366      524      (30 ) 

New premium production accident and health insurance

    193      203      (5 )    215      (10 )    396      452      (12 ) 
                        

Gross deposits (on and off balance) by line of business

                 

Fixed annuities

    1,292      2,120      (39 )    1,349      (4 )    3,412      1,808      89   

Variable annuities

    1,071      780      37      1,047      2      1,851      2,021      (8 ) 

Retail mutual funds

    513      307      67      886      (42 )    820      1,659      (51 ) 

Pensions and asset management

    2,623      3,169      (17 )    3,130      (16 )    5,792      7,382      (22 ) 

Institutional guaranteed products

    1,548      2,407      (36 )    5,433      (72 )    3,955      10,303      (62 ) 

Life reinsurance

    1      —        N.M.      1      —        1      3      (67 ) 
                        

Total gross deposits

    7,048      8,783      (20 )    11,846      (41 )    15,831      23,176      (32 ) 

Total gross deposits excl. institutional
guaranteed products

    5,500      6,376      (14 )    6,413      (14 )    11,876      12,873      (8 ) 
                        

Net deposits (on and off balance) by line of business

                 

Fixed annuities

    216      896      (76 )    (62 )    N.M.      1,112      (1,254 )    N.M.   

Variable annuities

    353      (40 )    N.M.      (228 )    N.M.      313      (507 )    N.M.   

Retail mutual funds

    104      (256 )    N.M.      474      (78 )    (152 )    721      N.M.   

Pensions and asset management

    331      1,053      (69 )    489      (32 )    1,384      2,133      (35 ) 

Institutional guaranteed products

    (1,989 )    (3,065 )    35      576      N.M.      (5,054 )    (1,216 )    N.M.   

Life reinsurance

    (18 )    (20 )    10      (21 )    14      (38 )    (44 )    14   
                        

Total net deposits

    (1,003 )    (1,432 )    30      1,228      N.M.      (2,435 )    (167 )    N.M.   

Total net deposits excl. institutional
guaranteed products

    986      1,633      (40 )    652      51      2,619      1,049      150   
                        

 

REVENUE GENERATING INVESTMENTS

 

  

     June 30,
2009		     Mar. 31,
2009		     %                                

Revenue generating investments (total)

    295,325      279,399      6             
                

Investments general account

    123,131      117,934      4             

Investments for account of policyholders

    62,000      55,791      11             

Off balance sheet investments third parties

    110,194      105,674      4             
                

For the amounts in euro see the Financial Supplement.

 

 

Local knowledge. Global power. | Page 13 of 33

 

The Netherlands

 

 

 

•  

Net income of EUR 4 million

 

•  

Underlying earnings before tax increase to EUR 129 million

 

•  

Life sales of EUR 32 million; decline from Q1 due to volatility in group pension market

 

•  

Value of new business rises to EUR 36 million, a result of high margins on mortgage sales

Overview

AEGON reported underlying earnings before tax of EUR 129 million in the Netherlands in Q2 2009. Underlying earnings before tax in Q2 2009 included a one-time EUR 20 million release of provisions.

Fair value items underperformed long-term expectations. Impairments, primarily on bonds, totaled EUR 28 million, while investment losses, largely due to the revaluation of investments in residential real estate in the Netherlands, amounted to EUR 42 million.

Underlying earnings before tax

 

•  

Underlying earnings before tax from Life & Protection amounted to EUR 75 million, up from Q2 2008 primarily because of a EUR 20 million one-time release of provisions and higher investment income in the Life business;

 

•  

The Savings business reported an underlying loss before tax of EUR 10 million, due to continued pressure on margins and volumes from fierce competition in the savings market;

 

•  

Underlying earnings before tax from Pensions & Asset Management amounted to EUR 57 million, slightly down from earnings in Q2 2008, which had included a one-time release of accruals. Technical results improved compared to Q2 2008, but lower asset balances resulted in lower fee income;

 

•  

Underlying earnings before tax from Distribution amounted to EUR 3 million, down from Q2 2008 because of a slowdown in the real estate market;

 

•  

General insurance underlying earnings before tax totaled EUR 4 million, lower than Q2 2008 due to higher claims.

Net income

Fair value items in Q2 2009 included a EUR 54 million charge from the net impact of movements in the fair value of guarantees and related hedges. The significant benefits of higher equity markets and lower equity market volatility were more than offset by losses from the company’s program for managing guarantee-related interest exposures.

Impairments of EUR 28 million were related primarily to corporate credit investments. Net losses on investments in Q2 2009 amounted to EUR 42 million, mainly the result of a revaluation of direct residential real estate investments (EUR 29 million). AEGON has a direct real estate portfolio of EUR 2.1 billion, mainly invested in residential housing in the Netherlands.

Commissions and expenses

Commissions and expenses were down 8%, while operating expenses decreased by 7%, both compared to Q2 2008. Operating expenses were down as a result of cost initiatives taken during the quarter, e.g. a reduction in staff and in project-related expenses.

Sales and deposits

Pension sales slowed significantly during the quarter and proved volatile after the standstill in the Dutch group pension market during the third and fourth quarters of last year. The first quarter of 2009 had seen strong group pension sales. Sales of single premium individual life products were down compared to Q1 2009, following increased pricing competition in the immediate annuity market.

Net mortgage production in the second quarter of 2009 amounted to EUR 537 million. AEGON sells mainly mortgages with a national mortgage guarantee (NHG).

Gross deposits were up 42% compared with Q1 2009. Net deposits in the savings business showed an improvement from the previous quarter, because of seasonal factors.

 

 

Local knowledge. Global power. | Page 14 of 33

 

 

 

 

Value of new business

The value of new business increased to EUR 36 million, while the internal rate of return improved to 29%. The IRR benefited from both high margins and low capital requirements on the mortgage production.

Please refer to page 30 for more detailed information on VNB.

Revenue-generating investments

By the end of June 2009, AEGON’s revenue-generating investments in the Netherlands increased 4% to EUR 65.8 billion.

 

 

Local knowledge. Global power. | Page 15 of 33

 

 

 

 

THE NETHERLANDS - EARNINGS

 

EUR millions

    Q2 2009     Q1 2009     %     Q2 2008     %     Ytd 2009     Ytd 2008     %  

Underlying earnings before tax by line of business

                 

Life

    68      44      55      29      134      112      61      84   

Accident and health

    7      11      (36 )    4      75      18      12      50   
                        

Life and protection

    75      55      36      33      127      130      73      78   

Saving products

    (10 )    (9 )    (11 )    —        N.M.      (19 )    1      N.M.   
                        

Individual savings and retirement products

    (10 )    (9 )    (11 )    —        N.M.      (19 )    1      N.M.   

Pensions and asset management

    57      26      119      60      (5 )    83      111      (25 ) 

Distribution

    3      9      (67 )    8      (63 )    12      19      (37 ) 

General insurance

    4      (9 )    N.M.      9      (56 )    (5 )    19      N.M.   

Share in net results of associates

    —        —        N.M.      6      N.M.      —        6      N.M.   
                        

Underlying earnings before tax

    129      72      79      116      11      201      229      (12 ) 
                        

Over/(under) performance of fair value items

    (53 )    (190 )    72      (37 )    (43 )    (243 )    (191 )    (27 ) 
                        

Operating earnings before tax

    76      (118 )    N.M.      79      (4 )    (42 )    38      N.M.   
                        

Operating earnings before tax by line of business

                 

Life

    64      18      N.M.      27      137      82      40      105   

Accident and health

    7      11      (36 )    4      75      18      12      50   
                        

Life and protection

    71      29      145      31      129      100      52      92   

Saving products

    (10 )    (9 )    (11 )    —        N.M.      (19 )    1      N.M.   
                        

Individual savings and retirement products

    (10 )    (9 )    (11 )    —        N.M.      (19 )    1      N.M.   

Pensions and asset management

    8      (138 )    N.M.      25      (68 )    (130 )    (59 )    (120 ) 

Distribution

    3      9      (67 )    8      (63 )    12      19      (37 ) 

General insurance

    4      (9 )    N.M.      9      (56 )    (5 )    19      N.M.   

Share in net results of associates

    —        —        N.M.      6      N.M.      —        6      N.M.   
                        

Operating earnings before tax

    76      (118 )    N.M.      79      (4 )    (42 )    38      N.M.   

Gains/(losses) on investments

    (42 )    110      N.M.      (115 )    63      68      (39 )    N.M.   

Impairment charges

    (28 )    (78 )    64      (4 )    N.M.      (106 )    (21 )    N.M.   
                        

Income before tax

    6      (86 )    N.M.      (40 )    N.M.      (80 )    (22 )    N.M.   

Income tax

    (2 )    45      N.M.      45      N.M.      43      46      (7 ) 
                        

Net income

    4      (41 )    N.M.      5      (20 )    (37 )    24      N.M.   
                        

Net underlying earnings

    93      55      69      92      1      148      184      (20 ) 

Net operating earnings

    54      (87 )    N.M.      64      (16 )    (33 )    42      N.M.   
                        

Commissions and expenses

    274      307      (11 )    299      (8 )    581      609      (5 ) 

of which operating expenses

    192      217      (12 )    207      (7 )    409      426      (4 ) 
                        

 

 

Local knowledge. Global power. | Page 16 of 33

 

 

 

 

THE NETHERLANDS - SALES

 

EUR millions

    Q2 2009     Q1 2009     %     Q2 2008    %     Ytd 2009     Ytd 2008    %  

New life sales

                   

Life single premiums

    145      391      (63 )    443    (67 )    536      888    (40 ) 

Life recurring premiums annualized

    17      23      (26 )    24    (29 )    40      50    (20 ) 
                      

Total recurring plus  1/10 single

    32      62      (48 )    68    (53 )    94      139    (32 ) 

Life

    19      23      (17 )    23    (17 )    42      54    (22 ) 

Pensions

    13      39      (67 )    45    (71 )    52      85    (39 ) 
                      

Total recurring plus  1/10 single

    32      62      (48 )    68    (53 )    94      139    (32 ) 

New premium production accident and health insurance

    3      7      (57 )    3    —        10      9    11   

New premium production general insurance

    6      7      (14 )    7    (14 )    13      15    (13 ) 
                      

Gross deposits (on and off balance) by line of business

                   

Saving deposits

    779      580      34      688    13      1,359      1,336    2   

Pensions and asset management

    62      11      N.M.      80    (23 )    73      127    (43 ) 
                      

Total gross deposits

    841      591      42      768    10      1,432      1,463    (2 ) 
                      

Net deposits (on and off balance) by line of business

                   

Saving deposits

    43      (67 )    N.M.      114    (62 )    (24 )    42    N.M.   

Pensions and asset management

    (73 )    (113 )    35      68    N.M.      (186 )    104    N.M.   
                      

Total net deposits

    (30 )    (180 )    83      182    N.M.      (210 )    146    N.M.   
                      
REVENUE GENERATING INVESTMENTS                   
     June 30,
2009		     Mar. 31,
2009		     %                              

Revenue generating investments (total)

    65,772      63,427      4               
                          

Investments general account

    33,907      32,875      3               

Investments for account of policyholders

    20,065      19,357      4               

Off balance sheet investments third parties

    11,800      11,195      5               
                    

 

 

Local knowledge. Global power. | Page 17 of 33

 

United Kingdom

 

 

 

•  

Net income of GBP 18 million and underlying earnings before tax of GBP 17 million, down primarily due to lower fund related charges in the pension business

 

•  

New life sales decline 16% compared to Q1 2009, driven by annuities

 

•  

VNB down compared to Q1 2009 following change in product mix

Overview

Lower bond and equity markets compared to Q2 2008 led to a decline in net income and underlying earnings before tax from the United Kingdom. Sales were down across most products compared to both Q1 2009 and Q2 2008. Q2 2008 had been a record quarter in terms of total sales. Value of new business was down as well, due to declines in volumes.

Please note that results from variable annuities are included in the Other countries section of the results release from Q1 2009.

Underlying earnings before tax

Underlying earnings before tax declined to GBP 17 million compared to Q2 2008, due primarily to the impact of lower equity and corporate bond markets on fund related charges in AEGON’s unit-linked pension business in the United Kingdom.

 

•  

Underlying earnings before tax from Life & Protection totaled GBP 11 million in the second quarter of 2009, in line with last year. Growth in the annuity and protection business and favorable mortality results were offset by one-time charges related to the withdrawal from the group employee benefit business and lower investment income;

 

•  

Underlying earnings before tax from Pensions & Asset Management amounted to GBP 8 million, a decline of GBP 19 million, due to a decrease in fund related charges as a result of lower equity and bond markets. Compared to Q1 2009 however, underlying earnings before tax were higher, due to an improvement in financial markets during the second quarter;

 

•  

Distribution activities in Q2 2009 experienced an underlying loss before tax of GBP 2 million, largely because of continued difficult market conditions for mortgage and investment products.

Net income

Net income amounted to GBP 18 million, a decline compared to Q2 2008 due to lower underlying earnings and higher impairments. Net investment gains totaled GBP 25 million, including a GBP 12 million accounting gain on a derivative instrument for which hedge accounting could no longer be applied.

Commissions and expenses

Total commissions and expenses in the second quarter of 2009 were up 2% compared to Q2 2008. Commissions were lower because of a change in AEGON’s business mix in the United Kingdom. Operating expenses increased by 4% to GBP 106 million, due mainly to restructuring expenses. Q2 2008 had included a provision release related to incentive payments in the asset management business.

Sales and deposits

New life sales amounted to GBP 223 million in Q2 2009. Compared to the first quarter of 2009, sales were down mainly as a result of lower annuity sales. Sales were also down due to lower group pension sales.

Compared to Q2 2008, sales were down across most products. Group pension sales in Q2 2008 included one large case. Sales from investment bonds suffered from tax changes and worsening market conditions. New life sales in Q2 2008 had also included European variable annuities, which are now reported as deposits in Other countries from Q1 2009.

Value of new business

Value of new business in Q2 2009 decreased by 24% to GBP 39 million compared to Q1 2009, driven mainly by a decline in annuity volumes. The internal rate of return on new business in Q2 2009 in the United Kingdom decreased to 13.8%, down from 15.0% in Q1 2009.

Please refer to page 30 for more detailed information on VNB.

Revenue-generating investments

At the end of June 2009, revenue generating investments totaled GBP 47.1 billion in the United Kingdom, up from GBP 44.2 billion in Q1 2009. The increase primarily reflects an overall improvement in financial markets during the second quarter.

 

 

Local knowledge. Global power. | Page 18 of 33

 

 

 

 

UNITED KINGDOM - EARNINGS                    

GBP millions

    Notes    Q2 2009     Q1 2009     %     Q2 2008     %     Ytd 2009     Ytd 2008     %  

Underlying earnings before tax by line of business

                    

Life

       11      7      57      11      —        18      19      (5 ) 
                        

Life and protection

       11      7      57      11      —        18      19      (5 ) 

Pensions and asset management

       8      3      167      27      (70 )    11      55      (80 ) 

Distribution

       (2 )    (3 )    33      —        N.M.      (5 )    (2 )    (150 ) 
                        

Underlying earnings before tax

       17      7      143      38      (55 )    24      72      (67 ) 

Over/(under) performance of fair value items

       2      (3 )    N.M.      —        N.M.      (1 )    —        N.M.   
                        

Operating earnings before tax

       19      4      N.M.      38      (50 )    23      72      (68 ) 
                        

Operating earnings before tax by line of business

                    

Life

       11      7      57      11      —        18      19      (5 ) 
                        

Life and protection

       11      7      57      11      —        18      19      (5 ) 

Pensions and asset management

       10      —        N.M.      27      (63 )    10      55      (82 ) 

Distribution

       (2 )    (3 )    33      —        N.M.      (5 )    (2 )    (150 ) 
                        

Operating earnings before tax

       19      4      N.M.      38      (50 )    23      72      (68 ) 

Gains/(losses) on investments

       25      9      178      —        N.M.      34      2      N.M.   

Impairment charges

       (31 )    (13 )    (138 )    (9 )    N.M.      (44 )    (9 )    N.M.   

Other income/(charges)

    9    30      (22 )    N.M.      6      N.M.      8      (35 )    N.M.   
                        

Income before tax

       43      (22 )    N.M.      35      23      21      30      (30 ) 

Income tax attributable to policyholder return

       (30 )    22      N.M.      (6 )    N.M.      (8 )    35      N.M.   
                        

Income before income tax on shareholders return

       13      —        N.M.      29      (55 )    13      65      (80 ) 

Income tax on shareholders return

       5      5      —        (3 )    N.M.      10      (8 )    N.M.   
                        

Net income

       18      5      N.M.      26      (31 )    23      57      (60 ) 
                        

Net underlying earnings

       21      10      110      31      (32 )    31      61      (49 ) 

Net operating earnings

       22      8      175      31      (29 )    30      61      (51 ) 
                        

Commissions and expenses

       175      159      10      172      2      334      329      2   

of which operating expenses

       106      100      6      102      4      206      200      3   

For the amounts in euro see the Financial Supplement.

 

 

Local knowledge. Global power. | Page 19 of 33

 

 

 

 

UNITED KINGDOM - SALES

 

GBP millions

    Notes    Q2 2009    Q1 2009     %     Q2 2008     %     Ytd 2009     Ytd 2008     %  

New life sales

    10                  

Life single premiums

       1,017    1,317      (23 )    1,728      (41 )    2,334      3,226      (28 ) 

Life recurring premiums annualized

       122    133      (8 )    166      (27 )    255      307      (17 ) 
                        

Total recurring plus  1/10 single

       223    265      (16 )    339      (34 )    488      630      (23 ) 

Life

       41    71      (42 )    59      (31 )    112      114      (2 ) 

Pensions

       182    194      (6 )    280      (35 )    376      516      (27 ) 
                        

Total recurring plus  1/10 single

       223    265      (16 )    339      (34 )    488      630      (23 ) 
                        

Gross deposits (on and off balance) by line of business

                     

Pensions and asset management

       134    181      (26 )    192      (30 )    315      304      4   
                        

Total gross deposits

       134    181      (26 )    192      (30 )    315      304      4   
                        

Net deposits (on and off balance) by line of business

                     

Pensions and asset management

       26    (257 )    N.M.      (207 )    N.M.      (231 )    (248 )    7   
                        

Total net deposits

       26    (257 )    N.M.      (207 )    N.M.      (231 )    (248 )    7   
                        

REVENUE GENERATING INVESTMENTS

                     
          June 30,
2009		    Mar. 31,
2009		     %                                

Revenue generating investments (total)

       47,136    44,208      7             
                     

Investments general account

       5,858    5,157      14             

Investments for account of policyholders

       39,313    37,188      6             

Off balance sheet investments third parties

       1,965    1,863      5             
                     

For the amounts in euro see the Financial Supplement.

 

 

Local knowledge. Global power. | Page 20 of 33

 

Other countries

 

 

 

•  

Net loss of EUR 343 million, including one-time book loss of EUR 385 million on sale of Taiwanese life activities

 

•  

Underlying earnings before tax increase to EUR 47 million

 

•  

New life sales increase 9%* to EUR 47 million compared to Q1 2009

 

•  

Continued strong deposits driven by variable annuity sales in Europe and pensions business in Central & Eastern Europe

 

•  

Value of new business increases 10%* to EUR 34 million, a result of strong performance in Spain

Overview

Net income and underlying earnings before tax from Other countries increased compared to Q2 2008, mainly as a result of improved life earnings in Central & Eastern Europe (CEE) and a higher contribution from La Mondiale Participations in France.

Other countries new life sales increased* compared to Q1 2009, mainly as a result of higher recurring premium sales in both Spain and CEE. Gross deposits declined* slightly compared to Q1 2009 to EUR 653 million as deposits in China were lower due to an increasingly competitive environment.

Underlying earnings before tax

Underlying earnings before tax from Other countries increased compared to Q2 2008 to EUR 47 million in Q2 2009.

 

•  

Underlying earnings before tax from Life & Protection increased to EUR 18 million mainly as a result of higher surrender charges, a reduction in expenses in CEE, further business growth at AEGON’s joint ventures in Spain and the sale of its life activities in Taiwan;

 

•  

The inclusion of variable annuities in Europe and continued growth at the asset management joint venture in China led to underlying earnings before tax of EUR 6 million from Individual Savings and Retirement products in Q2 2009;

 

•  

Pensions & Asset Management underlying earnings before tax increased to EUR 5 million as a result of the introduction earlier this year of DPAC in the pension business in Hungary and Poland;

 

•  

Underlying earnings before tax from General Insurance decreased to EUR 8 million as a result of higher claim ratios. Despite this increase, however, these ratios remained well within pricing assumptions;

 

•  

The share of underlying earnings before tax from associate companies increased as a result of higher contribution from La Mondiale Participations in France.

Net income

Other countries recorded a net loss of EUR 343 million in the second quarter of 2009 as a result of a book loss of EUR 385 million from the sale of the company’s Taiwanese life insurance activities. Excluding this one-time loss, net income amounted to EUR 42 million.

Commissions and expenses

Commissions and expenses decreased 4%* as higher operating expenses were more than offset by lower commissions and higher deferred expenses. Commissions decreased slightly* as a result of lower sales, while expanding operations led to an increase in expenses.

Sales and deposits

Market turmoil continued to affect sales compared to last year. New life sales totaled EUR 47 million in Q2 2009, an increase compared to Q1 2009*.

 

•  

In CEE both single and recurring premium production increased compared to Q1 2009, resulting in total new life sales of EUR 18 million for the quarter;

 

•  

In Asia, new life sales rose* to EUR 6 million. In China, new life sales increased as a result of strong recurring premium product sales, especially in the broker and bank channels;

 

•  

New life sales in Spain were up 9% to EUR 24 million, primarily as a result of increased recurring premium production at AEGON’s joint ventures with savings banks compared to Q1 2009. New life sales from the partnership with CAM, which is not consolidated in AEGON’s accounts, amounted to EUR 57 million (on a 100% basis);

 

 

Local knowledge. Global power. | Page 21 of 33

 

 

 

 

•  

Sales in the highly competitive non-life insurance market in Hungary remained stable compared with Q1 2009 at EUR 5 million.

Total gross deposits from Other countries decreased 7%* from Q1 2009 to EUR 653 million in Q2 2009 compared with Q1 2009.

 

•  

Variable annuity deposits in Europe increased to EUR 162 million as sales in the United Kingdom were significantly higher as a result of lessening competition and the continued attractiveness of guaranteed products to customers;

 

•  

Retail mutual fund deposits declined to EUR 292 million, mainly as a result of increased competition;

 

•  

Pensions and Asset Management deposits increased to EUR 199 million, due to continued growth in the pension business in CEE.

Net deposits continued to be positive and totaled EUR 155 million in Q2 2009.

Value of new business

Value of new business from Other countries in Q2 2009 totaled EUR 34 million, an increase of 10%* compared to Q1 2009. In Spain, VNB increased to EUR 27 million, primarily as a result of higher sales and an improved business mix. In CEE, the decrease in VNB to EUR 11 million reflected adverse regulatory changes in the pension business and lower sales levels of unit-linked products due to the current uncertain economic environment.

With the sale of AEGON’s insurance operations in Taiwan, VNB in Asia has become negligible as higher production in China was more than offset by lower margins. Sales in India are not included in the current figures. Variable annuities in Europe contributed negatively to VNB, however, products are being re-priced.

At 40%, the internal rate of return from Other countries remains at a high level.

Please refer to page 30 for more detailed VNB information.

Revenue-generating investments

In Q2 2009, revenue-generating investments increased 14%* to EUR 10.8 billion, compared to Q1 2009.

 

* Excluding Taiwan

 

 

Local knowledge. Global power. | Page 22 of 33

 

 

 

 

OTHER COUNTRIES - EARNINGS  

 

EUR millions

    Q2 2009     Q1 2009     %     Q2 2008     %     Ytd 2009     Ytd 2008     %  

Underlying earnings before tax by line of business

                 

Life

    17      7      143      6      183      24      23      4   

Accident and health

    1      1      —        1      —        2      3      (33 ) 
                        

Life and protection

    18      8      125      7      157      26      26      —     

Variable annuities

    2      —        N.M.      (2 )    N.M.      2      (1 )    N.M.   

Saving products

    —        1      N.M.      1      N.M.      1      1      —     

Retail mutual funds

    4      4      —        4      —        8      5      60   
                        

Individual savings and retirement products

    6      5      20      3      100      11      5      120   

Pensions and asset management

    5      5      —        3      67      10      6      67   

General insurance

    8      8      —        11      (27 )    16      18      (11 ) 

Share in net results of associates

    10      4      150      5      100      14      13      8   
                        

Underlying earnings before tax

    47      30      57      29      62      77      68      13   

Over/(under) performance of fair value items

    2      1      100      —        N.M.      3      —        N.M.   
                        

Operating earnings before tax

    49      31      58      29      69      80      68      18   
                        

Operating earnings before tax by line of business

                 

Life

    17      7      143      6      183      24      23      4   

Accident and health

    1      1      —        1      —        2      3      (33 ) 
                        

Life and protection

    18      8      125      7      157      26      26      —     

Variable annuities

    4      1      N.M.      (2 )    N.M.      5      (1 )    N.M.   

Saving products

    —        1      N.M.      1      N.M.      1      1      —     

Retail mutual funds

    4      4      —        4      —        8      5      60   
                        

Individual savings and retirement products

    8      6      33      3      167      14      5      180   

Pensions and asset management

    5      5      —        3      67      10      6      67   

General insurance

    8      8      —        11      (27 )    16      18      (11 ) 

Share in net results of associates

    10      4      150      5      100      14      13      8   
                        

Operating earnings before tax

    49      31      58      29      69      80      68      18   

Gains/(losses) on investments

    2      4      (50 )    5      (60 )    6      5      20   

Impairment charges

    —        (5 )    N.M.      —        N.M.      (5 )    (1 )    N.M.   

Other income/(charges)

    (385 )    —        N.M.      —        N.M.      (385 )    —        N.M.   
                        

Income before tax

    (334 )    30      N.M.      34      N.M.      (304 )    72      N.M.   

Income tax

    (9 )    (21 )    57      (14 )    36      (30 )    (24 )    (25 ) 
                        

Net income

    (343 )    9      N.M.      20      N.M.      (334 )    48      N.M.   
                        

Net underlying earnings

    38      9      N.M.      17      124      47      44      7   

Net operating earnings

    40      10      N.M.      17      135      50      44      14   
                        

Commissions and expenses

    73      98      (26 )    116      (37 )    171      207      (17 ) 

of which operating expenses

    42      52      (19 )    49      (14 )    94      92      2   
                        

 

 

Local knowledge. Global power. | Page 23 of 33

 

 

 

 

OTHER COUNTRIES - SALES

 

EUR millions

    Notes    Q2 2009     Q1 2009    %     Q2 2008    %     Ytd 2009    Ytd 2008    %  

New life sales

    10                     

Life single premiums

       94      112    (16 )    121    (22 )    206    293    (30 ) 

Life recurring premiums annualized

       37      39    (5 )    55    (33 )    76    94    (19 ) 
                     

Total recurring plus 1/10 single

       47      50    (6 )    67    (30 )    97    123    (21 ) 

Life

       47      50    (6 )    66    (29 )    97    122    (20 ) 

Saving products

       —        —      N.M.      1    (100 )    —      1    N.M.   
                     

Total recurring plus 1/10 single

       47      50    (6 )    67    (30 )    97    123    (21 ) 

New premium production accident and health insurance

       1      2    (50 )    1    —        3    3    —     

New premium production general insurance

       5      5    —        9    (44 )    10    17    (41 ) 
                     

Gross deposits (on and off balance)

                        

Variable annuities

       162      115    41      47    N.M.      277    82    N.M.   

Retail mutual funds

       292      406    (28 )    340    (14 )    698    388    80   

Pensions and asset management

       199      185    8      153    30      384    304    26   
                     

Total gross deposits

       653      706    (8 )    540    21      1,359    774    76   
                     

Net deposits (on and off balance)

                        

Variable annuities

       147      109    35      43    N.M.      256    77    N.M.   

Retail mutual funds

       (59 )    98    N.M.      110    N.M.      39    116    (66 ) 

Pensions and asset management

       67      93    (28 )    81    (17 )    160    173    (8 ) 
                     

Total net deposits

       155      300    (48 )    234    (34 )    455    366    24   
                     
REVENUE GENERATING INVESTMENTS                        
          June 30,
2009		     Mar. 31,
2009		    %                             

Revenue generating investments (total)

       10,760

13,350

    (19 )              
                             

Investments general account

       2,608      6,030    (57 )              

Investments for account of policyholders

       2,046      2,085    (2 )              

Off balance sheet investments third parties

       6,106      5,235    17                

 

 

Local knowledge. Global power. | Page 24 of 33

 

Operational highlights first six months 2009

 

 

 

FINANCIAL OVERVIEW, H1 2009 YEAR-TO-DATE GEOGRAPHICALLY   

 

                amounts in million EUR (unless otherwise stated)  
Americas
USD		    United
Kingdom
GBP		          Americas     The
Netherlands		     United
Kingdom		     Other
countries		     Holding,
other
activities &
eliminations		     Total
EUR		  
    

Underlying earnings before tax by line of business

             
438    18     

Life and protection

    328      130      21      26      —        505   
(324)    —       

Individual savings and retirement products

    (243 )    (19 )    —        11      —        (251 ) 
27    11     

Pensions and asset management

    21      83      11      10      —        125   
158    —       

Institutional products

    118      —        —        —        —        118   
(13)    —       

Life reinsurance

    (10 )    —        —        —        —        (10 ) 
—      (5 )   

Distribution

    —        12      (5 )    —        —        7   
—      —       

General insurance

    —        (5 )    —        16      —        11   
—      —       

Interest charges and other

    —        —        —        —        (135 )    (135 ) 
(3)    —       

Share in net results of associates

    (2 )    —        —        14      —        12   
            
283    24     

Underlying earnings before tax

    212      201      27      77      (135 )    382   
198    (1 )   

Over/(under) performance of fair value items

    149      (243 )    (1 )    3      (136 )    (228 ) 
            
481    23     

Operating earnings before tax

    361      (42 )    26      80      (271 )    154   
            
    

Operating earnings before tax by line of business

             
404    18     

Life and protection

    302      100      21      26      —        449   
(284)    —       

Individual savings and retirement products

    (213 )    (19 )    —        14      —        (218 ) 
12    10     

Pensions and asset management

    10      (130 )    10      10      —        (100 ) 
192    —       

Institutional products

    144      —        —        —        —        144   
160    —       

Life reinsurance

    120      —        —        —        —        120   
—      (5 )   

Distribution

    —        12      (5 )    —        —        7   
—      —       

General insurance

    —        (5 )    —        16      —        11   
—      —       

Interest charges and other

    —        —        —        —        (271 )    (271 ) 
(3)    —       

Share in net results of associates

    (2 )    —        —        14      —        12   
            
481    23     

Operating earnings before tax

    361      (42 )    26      80      (271 )    154   
32    34     

Gains/(losses) on investments

    25      68      38      6      71      208   
(819)    (44 )   

Impairment charges

    (614 )    (106 )    (49 )    (5 )    (5 )    (779 ) 
1    8     

Other income/(charges)

    —        —        9      (385 )    —        (376 ) 
            
(305)    21     

Income before tax

    (228 )    (80 )    24      (304 )    (205 )    (793 ) 
504    2     

Income tax

    377      43      2      (30 )    67      459   
            
199    23     

Net income

    149      (37 )    26      (334 )    (138 )    (334 ) 
            
286    31     

Net underlying earnings

    215      148      35      47      (102 )    343   
415    30     

Net operating earnings

    311      (33 )    34      50      (194 )    168   
            

Net income

AEGON reported a net loss for H1 2009 of EUR 334 million compared with net income of EUR 429 million for the same period the previous year. The net loss includes underlying earnings before tax of EUR 382 million, impairments totaling EUR 779 million, a EUR 228 million underperformance of fair value items (including a loss of EUR 136 million due to a narrowing of AEGON’s own credit spread), a EUR 385 million one-time loss related to the sale of the company’s Taiwanese life insurance activities and a tax benefit of EUR 459 million. Excluding the one-time loss related to the sale of AEGON’s Taiwan life insurance activities, total net income for H1 2009 amounted to EUR 51 million.

Underlying earnings before tax

AEGON’s underlying earnings in H1 2009 totaled EUR 382 million, a decline from H1 2008 – due mainly to lower financial markets and a narrowing in investment spreads. A decline in equity markets during Q1 2009 led to accelerated amortization of deferred policy acquisition costs in AEGON’s variable annuity business in the Americas.

Although equity markets did recover in the second quarter of 2009, the amortization of DPAC was not reversed due to the reversion to the mean methodology. Fee income was down in H1 2009 due to lower assets balances, in particular in the Americas and in the pension business in the United Kingdom. Earnings were also adversely affected by measures designed to preserve capital and reduce risk in the company’s asset portfolio. In the Americas, asset allocation to cash and treasury and agency bonds was increased significantly, following an announcement that the company would downsize its institutional spread business, which led to lower investment spreads during the first six months of 2009.

 

 

Local knowledge. Global power. | Page 25 of 33

 

 

 

 

Fair value items

Net income for H1 2009 included an underperformance on fair value items of EUR 228 million.

In the first half of 2009, certain alternative investment classes in the Americas, particularly real estate and private equity, underperformed expected long-term returns by EUR 205 million. During the period, the fair value of credit derivatives rose EUR 119 million, due to a significant decline in credit spreads.

Fair value items also include the under/over-performance of assets held through profit or loss and backing liabilities of a specific portfolio of group pension contracts in the Netherlands. In H1 2009, these assets underperformed expected long-term returns by EUR 54 million. Until the second quarter of 2009, the assets backing this portfolio of liabilities were accounted for as ‘fair value through profit or loss’. These assets were replaced at the beginning of Q2 2009 by a portfolio of assets accounted for as ‘available for sale’. As a result, this item will not recur in future quarters as a fair value item.

For consistency, the net impact of fair value movements in guarantees and related hedges in the Netherlands is now included under fair value items. Prior to the fourth quarter of 2008, this item was reported under gains/losses on investments. Results for previous years have been adjusted to reflect this change (please refer to AEGON’s Financial Supplement).

In the first half of 2009, net fair value gains of EUR 216 million on guarantees and related hedges in the Americas were offset by the negative impact of EUR 189 million from fair value movements in guarantees and related hedges in the Netherlands.

The fair value of certain products with guarantees includes a credit spread in the discount rates, a reflection of dislocated, volatile and illiquid markets.

Three bonds issued by AEGON N.V. and their related hedge instruments are held at fair value through profit or loss and included in fair value items. AEGON’s credit spread narrowed substantially during the first half of 2009, leading to a loss on these bonds of EUR 136 million.

Net gains/losses on investments

In the first half of 2009, gains on investments totaled EUR 208 million, primarily the result of net gains on the sale of bonds and shares in the Netherlands and positive results from economic hedges in the Americas, the United Kingdom and at holding level.

Impairment charges

Impairment charges during the first half of 2009 amounted to EUR 779 million, including EUR 256 million related to subprime mortgage asset backed securities and a further EUR 157 million to residential mortgage backed securities, both in the Americas. The remaining impairments were primarily from corporate credit investments in the Americas, the United Kingdom and the Netherlands.

Tax

Net income in the first half of 2009 included a tax benefit of EUR 459 million, stemming from impairments, mark-to-market losses on fair value items and tax exempt items in the Netherlands and the Americas. AEGON also booked a tax gain of EUR 252 million related to cross border intercompany reinsurance transactions between Ireland and the United States. The loss from the sale of AEGON’s Taiwanese life activities did not lead to tax relief on earnings for the second quarter of 2009.

Commission and expenses

Commissions and expenses for the first half of 2009 were up 2% at constant currency. While commissions were lower, amortization charges were up, due to accelerated amortization of DPAC in the Americas’ variable annuity business. Operating expenses were up 3% at constant currency in H1 2009 as an increase in employee benefit and restructuring expenses in several businesses offset cost savings. Excluding the impact from these items, operating expenses were down 5% in H1 2009.

 

 

Local knowledge. Global power. | Page 26 of 33

 

 

 

 

Sales

New life sales

AEGON’s new life sales declined 28% in the first half of 2009 compared with the same period last year. Sales were down in most countries with the exception of Spain. The financial crisis and the change in economic conditions impacted unit-linked sales across several countries, as well as BOLI/COLI sales in the Americas. Life reinsurance sales were also down. Sales in the United Kingdom declined from record levels seen during the first half of last year. In the Netherlands, sales of group pensions proved volatile in H1 2009 following a standstill in the market in H2 2008.

Deposits

Total gross deposits excluding institutional guaranteed products rose 9% in the first half of 2009, compared with the same period the previous year, mainly as a result of higher fixed annuity sales. Variable annuity sales were also up, while sales of retirement plans in the pension business were strong, particularly when taking into account the impact of lower financial markets on existing investments. Pension deposits in Central & Eastern Europe remained strong, reflecting growth in the business as well as the inclusion of recent acquisitions.

Capital

At the end of June 2009, core capital, excluding AEGON’s revaluation reserves, was EUR 15.8 billion, down from EUR 16.2 billion at the end of 2008. Core capital, including the revaluation account, consisted of EUR 7.6 billion in shareholders’ equity and a further EUR 3 billion in convertible core capital securities. Shareholders’ equity had amounted to EUR 6.1 billion at the end of 2008.

Excess capital, above AA capital adequacy requirements, amounted to EUR 3.5 billion, an increase from EUR 2.9 billion at the end of 2008. During the first six months of 2009, the positive impact from statutory earnings and measures to preserve capital and reduce financial risk was partly offset by impairments and rating migration.

In its Annual Report 2008, AEGON extensively described certain risk categories and risk factors which could have a material adverse effect on its financial position and results. The company believes that the risks identified for the second half of 2009 are in line with the risks AEGON N.V. presented in its Annual Report 2008.

Equity market sensitivities

During Q2 2009, AEGON implemented a macro hedge program for equity exposure related to its retail variable annuity portfolio to reduce the sensitivity of AEGON’s capital position to equity market movements. This program, a combination of out-of-the-money put options and linear hedge instruments, is in place for twelve months, but can be extended for a longer period. The hedge instruments will be carried at fair value through profit or loss and will be reported in fair value items.

Outlook

As a result of actions taken, AEGON’s capital position remains strong with excess capital at the end of the second quarter of 2009 of EUR 3.5 billion over AA capital adequacy requirements, a strong improvement over the EUR 2.7 billion at the end of Q1 2009.

AEGON’s strong excess capital position allows the company to re-deploy capital in the business and reverse the earnings impact from de-risking initiatives, while continuing to focus on capital efficiency and reallocation of capital to markets with higher growth and return prospects. AEGON expects to continue to maintain an amount of excess capital substantially above AA capital adequacy requirements—an important safeguard against a possible deterioration in world financial markets.

Last year, AEGON announced cost savings measures totaling EUR 150 million in 2009. These cost measures are well on track to achieve the full year target.

Because of uncertain economic conditions, AEGON still expects an elevated level of asset impairments in its investment portfolio in 2009 compared to its long-term assumptions.

 

 

Local knowledge. Global power. | Page 27 of 33

 

Appendix II - Tables

 

 

 

NET UNDERLYING EARNINGS GEOGRAPHICALLY

   

 

EUR millions

    Notes    Q2 2009     Q1 2009     %     Q2 2008     %     Ytd 2009     Ytd 2008     %  
   1                 

Americas

       259      (44 )    N.M.      321      (19 )    215      669      (68 ) 

The Netherlands

    6    93      55      69      92      1      148      184      (20 ) 

United Kingdom

       24      11      118      39      (38 )    35      79      (56 ) 

Other countries

       38      9      N.M      17      124      47      44      7   

Holding and other

       (57 )    (45 )    (27 )    (32 )    (78 )    (102 )    (36 )    (183 ) 
                           

Net underlying earnings

       357      (14 )    N.M.      437      (18 )    343      940      (64 ) 
                           

OVER/UNDER PERFORMANCE OF FAIR VALUE ITEMS

  

EUR millions

                                                      

Operating earnings before tax

       373      (219 )    N.M.      644      (42 )    154      861      (82 ) 

(Over)/under performance of fair value items - Americas

       (181 )    32      N.M.      (100 )    (81 )    (149 )    274      N.M.   

(Over)/under performance of fair value items - The Netherlands

    6    53      190      (72 )    37      43      243      191      27   

(Over)/under performance of fair value items - United Kingdom

       (2 )    3      N.M.      —        N.M      1      —        N.M.   

(Over)/under performance of fair value items - Other countries

       (2 )    (1 )    (100 )    —        N.M.      (3 )    —        N.M.   

(Over)/under performance of fair value items - Holding and other

       163      (27 )    N.M.      15      N.M.      136      (72 )    N.M.   
                           

Underlying earnings before tax

       404      (22 )    N.M.      596      (32 )    382      1,254      (70 ) 
                           

Net underlying earnings

       357      (14 )    N.M.      437      (18 )    343      940      (64 ) 
                           

AMERICAS - OVER/UNDER PERFORMANCE OF FAIR VALUE ITEMS

  

USD millions

                                                      

Over/(under) performance of fair value items by line of business

                    

Life and protection

       11      (45 )    N.M.      22      (50 )    (34 )    (8 )    N.M.   

Individual savings and retirement products

       31      9      N.M.      29      7      40      (231 )    N.M.   

Pensions and asset management

       (2 )    (13 )    85      4      N.M.      (15 )    (3 )    N.M.   

Institutional products

       133      (99 )    N.M.      80      66      34      (164 )    N.M.   

Life reinsurance

       67      106      (37 )    6      N.M.      173      (13 )    N.M.   
                           

Total over/(under) performance of fair value items

       240      (42 )    N.M.      141      70      198      (419 )    N.M.   
                           

Total over/(under) performance of fair value items in EUR

       181      (32 )    N.M.      100      81      149      (274 )    N.M.   
                           

THE NETHERLANDS - OVER/UNDER PERFORMANCE OF FAIR VALUE ITEMS

  

EUR millions

    6                                                 

Over/(under) performance of fair value items by line of business

                    

Life and protection

       (4 )    (26 )    85      (2 )    (100 )    (30 )    (21 )    (43 ) 

Pensions and asset management

       (49 )    (164 )    70      (35 )    (40 )    (213 )    (170 )    (25 ) 
                           

Total over/(under) performance of fair value items

       (53 )    (190 )    72      (37 )    (43 )    (243 )    (191 )    (27 ) 
                           

UNITED KINGDOM - OVER/UNDER PERFORMANCE OF FAIR VALUE ITEMS

  

GBP millions

                                                      

Over/(under) performance of fair value items by line of business

                    

Pensions and asset management

       2      (3 )    N.M.      —        N.M.      (1 )    —        N.M   
                           

Total over/(under) performance of fair value items

       2      (3 )    N.M.      —        N.M.      (1 )    —        N.M.   
                           

OTHER COUNTRIES - OVER/UNDER PERFORMANCE OF FAIR VALUE ITEMS

  

EUR millions

                                                      

Over/(under) performance of fair value items by line of business

                    

Variable annuities

       2      1      100      —        N.M.      3      —        N.M.   
                           

Total over/(under) performance of fair value items

       2      1      100      —        N.M.      3      —        N.M.   
                           

 

 

Local knowledge. Global power. | Page 28 of 33

 

 

 

 

SALES

   

 

EUR millions

    Q2 2009     Q1 2009     %     Q2 2008     %     Ytd 2009     Ytd 2008     %  

New life sales

    469      543      (14 )    729      (36 )    1,012      1,415      (28 ) 

Gross deposits (on and off balance)

    6,762      8,241      (18 )    9,131      (26 )    15,003      17,767      (16 ) 

New life sales

                 

Life single premiums

    1,504      2,025      (26 )    2,880      (48 )    3,529      5,637      (37 ) 

Life recurring premiums annualized

    318      341      (7 )    441      (28 )    659      851      (23 ) 
                        

Total recurring plus  1/10 single

    469      543      (14 )    729      (36 )    1,012      1,415      (28 ) 

Life

    213      249      (14 )    280      (24 )    462      564      (18 ) 

Saving products

    —        —        N.M.      1      N.M.      —        1      N.M.   

Pensions

    221      253      (13 )    398      (44 )    474      750      (37 ) 

BOLI/COLI

    1      1      —        4      (75 )    2      13      (85 ) 

Life reinsurance

    34      40      (15 )    46      (26 )    74      87      (15 ) 
                        

Total recurring plus  1/10 single

    469      543      (14 )    729      (36 )    1,012      1,415      (28 ) 

New premium production accident and health insurance

    146      164      (11 )    141      4      310      307      1   

New premium production general insurance

    11      12      (8 )    16      (31 )    23      32      (28 ) 
                        

Gross deposits (on and off balance)

                 

Fixed annuities

    928      1,628      (43 )    875      6      2,556      1,181      116   

Variable annuities

    949      714      33      717      32      1,663      1,402      19   

Saving products

    779      580      34      688      13      1,359      1,336      2   

Retail mutual funds

    671      642      5      908      (26 )    1,313      1,472      (11 ) 

Pensions and asset management

    2,319      2,829      (18 )    2,461      (6 )    5,148      5,644      (9 ) 

Institutional guaranteed products

    1,115      1,848      (40 )    3,481      (68 )    2,963      6,730      (56 ) 

Life reinsurance

    1      —        N.M.      1      —        1      2      (50 ) 
                        

Total gross deposits

    6,762      8,241      (18 )    9,131      (26 )    15,003      17,767      (16 ) 

Total gross deposits excl. institutional guaranteed products

    5,647      6,393      (12 )    5,650      —        12,040      11,037      9   
                        

Net deposits (on and off balance) by line of business

                 

Fixed annuities

    145      688      (79 )    (24 )    N.M.      833      (819 )    N.M.   

Variable annuities

    412      78      N.M.      (102 )    N.M.      490      (254 )    N.M.   

Saving deposits

    43      (67 )    N.M.      114      (62 )    (24 )    42      N.M.   

Retail mutual funds

    23      (98 )    N.M.      416      (94 )    (75 )    587      N.M.   

Pensions and asset management

    246      506      (51 )    180      37      752      1,350      (44 ) 

Institutional guaranteed products

    (1,432 )    (2,354 )    39      401      N.M.      (3,786 )    (794 )    N.M.   

Life reinsurance

    (12 )    (16 )    25      (14 )    14      (28 )    (29 )    3   
                        

Total net deposits

    (575 )    (1,263 )    54      971      N.M.      (1,838 )    83      N.M.   

Total net deposits excl. institutional guaranteed products

    857      1,091      (21 )    570      50      1,948      877      122   
                        
EMPLOYEE NUMBERS                 
      At
June 30,
2009		     At
Dec. 31,
2008		                                      

Number of employees

    29,463      31,425               

 

 

Local knowledge. Global power. | Page 29 of 33

 

 

 

 

VALUE OF NEW BUSINESS AND IRR   

 

EUR millions, after tax

    VNB
EUR
Q2 2009		    VNB
EUR
Q1 2009		    %     VNB
EUR
Q2 2008		    %     VNB
EUR
Ytd 2009		    VNB
EUR
Ytd 2008		    %  

Americas

    66    79    (16 )    100    (34 )    145    179    (19 ) 

The Netherlands

    36    31    16      11    N.M.      67    22    N.M.   

United Kingdom

    45    57    (21 )    64    (30 )    102    117    (13 ) 

Other Countries

    34    33    3      38    (11 )    68    80    (15 ) 
                     

Total

    181    201    (10 )    212    (15 )    382    398    (4 ) 
                     

Eur millions, after tax

    IRR %
Q2 2009		    IRR%
Q1 2009		          IRR%
Q2 2008		                       

Americas

    11.1    10.3      12.4           

The Netherlands

    29.5    14.1      10.4           

United Kingdom

    13.8    15.0      13.4           

Other Countries

    39.5    37.0      42.8           
                      

Total

    21.9    17.8      18.0           
                      

MODELED NEW BUSINESS, APE AND DEPOSITS

 

     Premium business
APE		     Premium business
APE		  

EUR millions

    Notes    Q2 2009    Q1 2009    %     Q2 2008    %     Ytd 2009    Ytd 2008    %  
   11                      

Americas

       245    266    (8 )    268    (9 )    511    562    (9 ) 

The Netherlands

       44    78    (44 )    97    (55 )    122    171    (29 ) 

United Kingdom

       261    312    (16 )    424    (38 )    573    802    (29 ) 

Other Countries

       104    114    (9 )    106    (2 )    218    208    5   
                        

Total

       654    769    (15 )    895    (27 )    1,423    1,743    (18 ) 
                        
           Deposit business
Deposits		     Deposit business
Deposits		  

EUR millions

         Q2 2009    Q1 2009    %     Q2 2008    %     Ytd 2009    Ytd 2008    %  

Americas

       5,112    5,252    (3 )    6,627    (23 )    10,364    12,624    (18 ) 

Other Countries

       186    136    37      23    N.M.      322    52    N.M.   
                        

Total

       5,298    5,389    (2 )    6,649    (20 )    10,687    12,676    (16 ) 
                        

VNB/PVNBP SUMMARY

 

     Premium business     Premium business  
          VNB     PVNBP    VNB/PVNBP     VNB/APE     VNB     PVNBP    VNB/PVNBP     VNB/APE  

EUR millions

    Notes    Q2 2009    %     %     Ytd 2009    %     %  
   12                   

Americas

       33      1,106    3.0      13.5      65      2,337    2.8      12.6   

The Netherlands

       36      353    10.3      82.4      67      1,000    6.7      55.1   

United Kingdom

       45      1,619    2.8      17.3      102      3,643    2.8      17.8   

Other Countries

       36      821    4.4      34.6      71      1,752    4.0      32.4   
                     

Total

       151      3,900    3.9      23.0      305      8,732    3.5      21.4   
                     
          Deposit business     Deposit business  
          VNB     PVNBP    VNB/PVNBP     VNB/
Deposits		     VNB     PVNBP    VNB/PVNBP     VNB/
Deposits		  

EUR millions

    Notes    Q2 2009    %     %     Ytd 2009    %     %  
   12                   

Americas

       33      6,502    0.5      0.6      80      12,887    0.6      0.8   

Other Countries

       (2 )    347    (0.7 )    (1.2 )    (3 )    667    (0.4 )    (0.8 ) 
                     

Total

       30      6,849    0.4      0.6      78      13,554    0.6      0.7   
                     

 

 

Local knowledge. Global power. | Page 30 of 33

 

 

 

 

 

Notes:

1)

Certain assets held by AEGON Americas, AEGON The Netherlands and AEGON UK 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 asset 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 annuities and guarantees on variable annuities 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 fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees of AEGON the Netherlands and Variable Annuities Europe (included in Other countries) are 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 change in AEGON’s credit spread resulted in a loss of EUR 163 million in Q2 2009 on the fair value movement on these bonds.

 

2)

Net income refers to net income attributable to equity holders of AEGON N.V.

3)

New life sales is defined as new recurring premiums +  1/10 of single premiums.

4)

Deposits on and off balance sheet.

5)

Return on equity is calculated by dividing the net underlying earnings after cost of leverage by the average shareholders’ equity excluding the preferred shares and the revaluation reserve.

6)

In order to maintain consistency in definitions, starting in the fourth quarter 2008, the net impact of the fair value movements of guarantees and the related hedges in the Netherlands has been excluded from underlying earnings. Previously, differences in fair value between guarantees and related hedges, referenced as hedge ineffectiveness, were reported in gain/losses on investments. Results from previous years have been adjusted.

7)

Capital securities that are denominated in foreign currencies are, for purposes of calculating the capital base ratio, revalued to the period-end exchange rate.

8)

All ratios exclude AEGON’s revaluation reserve.

9)

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.

10)

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.

11)

APE = recurring premium +  1/10 single premium.

12)

PVNBP: Present Value New Business Premium.

Currencies

Income statement items: average rate 1 EUR = USD 1.3349 (2008: USD 1.5309).

Income statement items: average rate 1 EUR = GBP 0.8920 (2008: GBP 0.7763).

Balance sheet items: closing rate 1 EUR = USD 1.4134 (2008: USD 1.5764; year-end 2008: USD 1.3917).

Balance sheet items: closing rate 1 EUR = GBP 0.8521 (2008: GBP 0.7923; year-end 2008: GBP 0.9525).

 

 

Local knowledge. Global power. | Page 31 of 33

 

About AEGON

 

 

As an international life insurance, pension and investment company based in The Hague, AEGON has businesses in over twenty markets in the Americas, Europe and Asia. AEGON companies employ approximately 29,500 people and have over 40 million customers across the globe.

 

Key figures

  

Second quarter 2009

  

Full year 2008

Underlying earnings before tax   EUR 404 million   EUR 1.57 billion
New life sales   EUR 469 million   EUR 2.63 billion
Gross deposits   EUR 6.8 billion   EUR 40.75 billion

Revenue generating investments

(End of period)

  EUR 342 billion   EUR 332 billion

 

 

Group Corporate Communications & Investor Relations

 

Media relations    Media conference call
Phone: + 31 (0)70 – 344 8956    8:00 am CET
E-mail: gcc-ir@aegon.com    Audio webcast on www.aeegon.com
Investor relations    Analyst & investor call
Phone: + 31 (0)70 – 344 8305    3:00 pm CET
or 877 548 9668 – toll free USA only    Audio webcast on www.aegon.com
E-mail: ir@aegon.com    Call-in numbers (listen only):
   USA: +1 480 629 9822
   UK: + 44 208 515 2316
   NL: +31 20 796 5332

Website: www.aegon.com

Supplements:

AEGON’s Q2 2009 Financial Supplement and Condensed Consolidated Interim Financial Statements are available on www.aegon.com.

Video interview Alex Wynaendts: available on www.aegon.com at 7.45 a.m.

 

 

Local knowledge. Global power. | Page 32 of 33

 

Disclaimers

 

 

Cautionary note regarding non-GAAP measures

This press release includes certain non-GAAP financial measures: net operating earnings, operating earnings before tax, underlying earnings before tax, net underlying earnings and value of new business. The reconciliation of underlying earnings before tax and operating earnings before tax to the most comparable IFRS measures is provided on page 9. A reconciliation of (net) underlying earnings to operating earnings before tax is provided on page 28.

Value of new business is not based on IFRS, which are used to report AEGON’s quarterly statements and should not be viewed as a substitute for IFRS financial measures. Reference is made to the assumptions included in AEGON’s Embedded Value 2008 Report dated May 14, 2009 and filed on a Form 6-K on August 13, 2009.

AEGON believes that these non-GAAP measures, together with the IFRS information, provide a meaningful measure for the investment community to evaluate AEGON’s business relative to the businesses of our peers.

Local currencies and constant currency exchange rates

This press release contains certain information about our results and financial condition in USD for the Americas and GBP for the United Kingdom, because those businesses operate and are managed primarily in those currencies. Certain comparative information presented on a constant currency basis eliminates the effects of changes in currency exchange rates. None of this information is a substitute for or superior to financial information about us presented in EUR, which is the currency of our primary financial statements.

Forward-looking statements

The statements contained in this press release that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995. The following are words that identify such forward-looking statements: believe, estimate, target, intend, on track, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, should, would, is confident, will, and similar expressions as they relate to our company. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. We undertake no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which merely reflect company expectations at the time of writing. Actual results may differ materially from expectations conveyed in forward-looking statements due to changes caused by various risks and uncertainties. Such risks and 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 our fixed income investment portfolios; and

 

  •  

The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securities we hold;

 

•  

The frequency and severity of insured loss events;

 

•  

Changes affecting mortality, morbidity and other factors that may impact the profitability of our insurance products;

 

•  

Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels;

 

•  

Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates;

 

•  

Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets;

 

•  

Changes in laws and regulations, particularly those affecting our operations, the products we sell, and the attractiveness of certain products to our consumers;

 

•  

Regulatory changes relating to the insurance industry in the jurisdictions in which we operate;

 

•  

Acts of God, acts of terrorism, acts of war and pandemics;

 

•  

Changes in the policies of central banks and/or governments;

 

•  

Litigation or regulatory action that could require us to pay significant damages or change the way we do business;

 

•  

Customer responsiveness to both new products and distribution channels;

 

•  

Competitive, legal, regulatory, or tax changes that affect the distribution cost of or demand for our products;

 

•  

Our failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving initiatives; and

 

•  

The impact our adoption of the International Financial Reporting Standards may have on our reported financial results and financial condition.

Further details of potential risks and uncertainties affecting the company are described in the company’s filings with Euronext Amsterdam and the US Securities and Exchange Commission, including the Annual Report on Form 20-F. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, the company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 

 

Local knowledge. Global power. | Page 33 of 33