Aegon Strengthens Dutch Capital Position and Reports Strong 2Q 2017 Results
Significant strengthening of Dutch capital position
- Solvency II ratio of
Aegon NL increases from 144% onJune 30, 2017 to ~175% on a pro forma basis as a result ofEUR 1 billion capital injection from the group, the sale of UMG and risk profile enhancements - Dividends from business units and proceeds from divestments provide financial flexibility to inject capital into Dutch business.
Aegon intends to issueEUR 500 million 1-year senior notes in 3Q 2017 to prefund expected cash inflows - Loss absorbing capacity of deferred taxes factor in
NL set at 75% atJune 30, 2017 - Based on its solid capital position and growing capital generation
Aegon NL is expected to resume dividend payments, starting with a 2017 dividend ofEUR 100 million in 1H 2018
Group solvency ratio increases by 28%-points to 185%
- Agreement with regulator on amendment of conversion methodology for US business under Solvency II; leads to a 15%-points uplift of group solvency ratio, increased comparability with peers and improvement in quality of capital
- Group solvency ratio of 185% as of
June 30, 2017 - including benefit from amended conversion methodology - well within new target range of 150-200% - On a comparable basis, solvency ratio up by 13%-points, mainly the result of divestments and capital generation
- Capital generation of
EUR 0.6 billion , includingEUR 0.3 billion market impacts and one-time items - Holding excess capital increases by
EUR 0.3 billion toEUR 1.7 billion , supported by regular dividends from US and CEE, and special dividend fromAsia - Interim dividend of
EUR 0.13 per share. Reconfirming target to returnEUR 2.1 billion of capital over 2016-2018
Net income of
- Underlying earnings up strongly by 23% to
EUR 535 million driven by improved claims experience and higher fee income from favorable equity markets. As a result, return on equity increases by 160 basis points to 8.4% - Fair value items of
EUR (191) million mainly due to adverse credit spread movements - Gain of
EUR 149 million related to divestment US run-off businesses supports net income; reinsurance transaction resulted in a book loss, whereas overall result includes subsequent release of deferred gains on related derivatives
Strong sales and improved margins
- Strong institutional platform sales in the
UK lead to gross deposits ofEUR 35 billion ; net deposits of EUR 2.3 billion driven by asset management andUK platform flows - New life sales decline by 8% to
EUR 224 million due to lower sales in US and exit fromUK annuities - Accident & health and general insurance sales remain stable at
EUR 230 million - Market consistent value of new business increases by 35% to
EUR 134 million benefiting from higher interest rates
Statement of
"
"Today, we are also announcing a range of measures that significantly increase our solvency ratio, including a capital injection of
Key performance indicators 2Q 2Q 1Q YTD YTD EUR millions[12] Notes 2017 2016 % 2017 % 2017 2016 % Underlying earnings before tax 1 535 435 23 488 10 1,022 897 14 Net income / (loss) 529 (385) n.m. 378 40 907 (242) n.m. Sales 2 3,937 2,765 42 3,942 - 7,880 6,324 25 Market consistent value of new business 3 134 100 35 172 (22) 306 232 32 Return on equity 4 8.4% 6.8% 23 7.2% 15 7.8% 7.1% 11
Note: All comparisons in this release are against the second quarter of 2016, unless stated otherwise.
Details on strengthening of capital position
Significant increase of Dutch capital ratio
The Solvency II ratio of
Strong cash flows to the holding provide
After extensive discussions with the
The Solvency II ratio of
Amendment of US conversion methodology
Updated solvency target ranges
Including the benefit from the amended conversion methodology, the group solvency ratio amounts to 185% as of
Strategic highlights
Aegon divests businesses to increase its financial flexibilityKames Capital named Property Manager of the Year- Role created to drive new
Transamerica workplace service model Aegon launches enhanced 'Mijn Aegon' app to simplify self-service inthe Netherlands
Optimized portfolio
In
The divestment of these run-off businesses resulted in a post-tax book gain of
On
On
Furthermore, on
Operational excellence
Customer loyalty
Addressing customers' desire for simplicity, flexibility and cost efficiency in their retirement planning,
In
Empowered employees
Financial overview EUR millions Notes 2Q 2017 2Q 2016 % 1Q 2017 % Underlying earnings before tax Americas 341 270 26 313 9 Europe 195 160 21 169 15 Asia 11 1 n.m. 12 (11) Asset Management 32 37 (14) 37 (14) Holding and other (43) (33) (31) (44) - Underlying earnings before tax 535 435 23 488 10 Fair value items (191) (358) 47 (53) n.m. Realized gains / (losses) on investments 111 229 (52) 76 46 Net impairments 2 (23) n.m. (11) n.m. Other income / (charges) 291 (656) n.m. 6 n.m. Run-off businesses 10 18 (45) 31 (68) Income before tax 757 (355) n.m. 536 41 Income tax (228) (30) n.m. (159) (44) Net income / (loss) 529 (385) n.m. 378 40 Net underlying earnings 390 312 25 350 11 Commissions and expenses 1,648 1,589 4 1,666 (1) of which operating expenses 9 1,001 926 8 983 2 Gross deposits (on and off balance) 10 Americas 9,288 9,265 - 12,835 (28) Europe 12,007 3,088 n.m. 10,054 19 Asia 48 94 (49) 73 (34) Asset Management 13,492 10,506 28 11,006 23 Total gross deposits 34,835 22,953 52 33,969 3 Net deposits (on and off balance) 10 Americas (2,052) (56) n.m. (406) n.m. Europe 1,901 159 n.m. 774 146 Asia 31 80 (62) 55 (43) Asset Management 2,491 1,046 138 (6,260) n.m. Total net deposits excluding run-off businesses 2,372 1,229 93 (5,837) n.m. Run-off businesses (75) (103) 28 (166) 55 Total net deposits / (outflows) 2,297 1,125 104 (6,003) n.m. New life sales Life single premiums 379 489 (22) 495 (23) Life recurring premiums annualized 186 195 (5) 196 (5) Total recurring plus 1/10 single 224 244 (8) 246 (9) New life sales 10 Americas 125 138 (10) 127 (2) Europe 65 75 (13) 67 (3) Asia 34 31 9 52 (35) Total recurring plus 1/10 single 224 244 (8) 246 (9) New premium production accident and health insurance 200 199 1 273 (27) New premium production general insurance 30 27 12 27 13
Table continues...
Financial overview EUR millions YTD 2017 YTD 2016 % Underlying earnings before tax Americas 653 554 18 Europe 364 330 10 Asia 23 1 n.m. Asset Management 69 82 (16) Holding and other (87) (69) (25) Underlying earnings before tax 1,022 897 14 Fair value items (244) (716) 66 Realized gains / (losses) on investments 187 283 (34) Net impairments (9) (59) 85 Other income / (charges) 297 (662) n.m. Run-off businesses 41 47 (12) Income before tax 1,294 (210) n.m. Income tax (387) (32) n.m. Net income / (loss) 907 (242) n.m. Net underlying earnings 739 663 11 Commissions and expenses 3,314 3,333 (1) of which operating expenses 1,984 1,886 5 Gross deposits (on and off balance) Americas 22,123 22,737 (3) Europe 22,061 6,529 n.m. Asia 121 167 (27) Asset Management 24,498 23,598 4 Total gross deposits 68,804 53,031 30 Net deposits (on and off balance) Americas (2,458) 4,769 n.m. Europe 2,675 890 n.m. Asia 85 139 (39) Asset Management (3,769) 3,286 n.m. Total net deposits excluding run-off businesses (3,466) 9,084 n.m. Run-off businesses (240) (343) 30 Total net deposits / (outflows) (3,706) 8,740 n.m. New life sales Life single premiums 875 1,099 (20) Life recurring premiums annualized 382 400 (4) Total recurring plus 1/10 single 469 510 (8) New life sales Americas 251 282 (11) Europe 132 160 (17) Asia 86 68 26 Total recurring plus 1/10 single 469 510 (8) New premium production accident and health insurance 473 460 3 New premium production general insurance 57 51 11
Revenue-generating investments Jun. 30, Mar. 31, Dec. 31, 2017 2017 % 2016 % Revenue-generating investments (total) 816,915 847,234 (4) 743,200 10 Investments general account 140,544 155,847 (10) 156,813 (10) Investments for account of policyholders 198,278 206,294 (4) 203,610 (3) Off balance sheet investments third parties 478,093 485,094 (1) 382,776 25
Operational highlights
Underlying earnings before tax
Underlying earnings from the
Underlying earnings from
Underlying earnings from Aegon Asset Management declined by 14% to
The result from the holding declined by
Net income
Net income amounted to
Fair value items
The loss from fair value items amounted to
Realized gains on investments
Realized gains totaled
Impairment charges
Net recoveries amounted to
Other income
Other income of
Run-off businesses
The results from run-off businesses halved to
Income tax
Income tax amounted to
Return on equity
Return on equity increased by 160 basis points compared with the same quarter last year to 8.4%, as a result of improved underlying earnings.
Operating expenses
Operating expenses increased by 8% compared with the second quarter of 2016 to
Sales
New life sales declined by 8% to
Market consistent value of new business
The market consistent value of new business (MCVNB) increased by 35% to
Revenue-generating investments
Revenue-generating investments were down by 4% during the quarter to
Capital management
Shareholders' equity amounted to
Holding excess capital increased by
Capital generation
Capital generation of the operating units amounted to EUR 0.6 billion for the quarter. Market impacts and one-time items amounted to
Solvency II ratio
On a comparable basis, the group solvency ratio increased by 13%-points this quarter mainly as a result of the divestment of the majority of the US run-off businesses (+5%), the completion of the Rothesay Part VII transfer related to the divestment of the
The estimated local solvency ratios of
- 464% RBC ratio in
the United States - 144% Solvency II ratio in
the Netherlands - 169% Solvency II ratio in the
United Kingdom
Interim dividend
Financial overview, 2Q 2017 geographically Holding, other Asset activities & EUR millions Americas Europe Asia Management eliminations Total Underlying earnings before tax by line of business Life 105 104 15 - - 224 Individual savings and retirement products 142 - (3) - - 139 Pensions 93 63 - - - 156 Non-life - 23 - - - 23 Asset Management - - - 32 - 32 Other - 4 (1) - (43) (40) Underlying earnings before tax 341 195 11 32 (43) 535 Fair value items (33) (165) (1) - 8 (191) Realized gains / (losses) on investments 19 89 2 0 - 111 Net impairments 5 (3) 0 - - 2 Other income / (charges) 228 64 - (1) 0 291 Run-off businesses 10 - - - - 10 Income before tax 570 180 12 32 (36) 757 Income tax (171) (45) (13) (10) 9 (228) Net income / (loss) 399 135 (1) 22 (26) 529 Net underlying earnings 250 152 (2) 22 (32) 390
Employee numbers Jun. 30, Mar. 31, Dec. 31, 2017 2017 2016 Employees 29,657 29,544 29,380 of whichAegon's share of employees in joint ventures and associates 6,146 5,898 5,944
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DISCLAIMERS
Cautionary note regarding non-IFRS measures
This document includes the following non-IFRS-EU financial measures: underlying earnings before tax, income tax, income before tax, market consistent value of new business and return on equity. These non-IFRS-EU measures are calculated by consolidating on a proportionate basis
Local currencies and constant currency exchange rates
This document contains certain information about
Forward-looking statements
The statements contained in this document that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995. The following are words that identify such forward-looking statements: aim, believe, estimate, target, intend, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, goal, should, would, is confident, will, and similar expressions as they relate to
- Changes in general economic conditions, particularly in
the United States ,the Netherlands and theUnited Kingdom ; - Changes in the performance of financial markets, including emerging markets, such as with regard to:
- The frequency and severity of defaults by issuers inAegon's fixed income investment portfolios;
- The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securitiesAegon holds; and
- The effects of declining creditworthiness of certain private sector securities and the resulting decline in the value of government exposure thatAegon holds; - Changes in the performance of
Aegon's investment portfolio and decline in ratings ofAegon's counterparties; - Consequences of a potential (partial) break-up of the euro;
- Consequences of the anticipated exit of the
United Kingdom from theEuropean Union ; - The frequency and severity of insured loss events;
- Changes affecting longevity, mortality, morbidity, persistence and other factors that may impact the profitability of
Aegon's insurance products; - Reinsurers to whom
Aegon has ceded significant underwriting risks may fail to meet their obligations; - Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels;
- Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates;
- Changes in the availability of, and costs associated with, liquidity sources such as bank and capital markets funding, as well as conditions in the credit markets in general such as changes in borrower and counterparty creditworthiness;
- Increasing levels of competition in
the United States ,the Netherlands , theUnited Kingdom and emerging markets; - Changes in laws and regulations, particularly those affecting
Aegon's operations' ability to hire and retain key personnel, taxation ofAegon companies, the productsAegon sells, and the attractiveness of certain products to its consumers; - Regulatory changes relating to the pensions, investment, and insurance industries in the jurisdictions in which
Aegon operates; - Standard setting initiatives of supranational standard setting bodies such as the Financial Stability Board and the
International Association of Insurance Supervisors or changes to such standards that may have an impact on regional (such as EU), national or US federal or state level financial regulation or the application thereof toAegon , including the designation ofAegon by the Financial Stability Board as a Global Systemically Important Insurer (G-SII); - Changes in customer behavior and public opinion in general related to, among other things, the type of products
Aegon sells, including legal, regulatory or commercial necessity to meet changing customer expectations; - Acts of God, acts of terrorism, acts of war and pandemics;
- Changes in the policies of central banks and/or governments;
- Lowering of one or more of
Aegon's debt ratings issued by recognized rating organizations and the adverse impact such action may have onAegon's ability to raise capital and on its liquidity and financial condition; - Lowering of one or more of insurer financial strength ratings of
Aegon's insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability and liquidity of its insurance subsidiaries; - The effect of the
European Union's Solvency II requirements and other regulations in other jurisdictions affecting the capitalAegon is required to maintain; - Litigation or regulatory action that could require
Aegon to pay significant damages or change the wayAegon does business; - As
Aegon's operations support complex transactions and are highly dependent on the proper functioning of information technology, a computer system failure or security breach may disruptAegon's business, damage its reputation and adversely affect its results of operations, financial condition and cash flows; - Customer responsiveness to both new products and distribution channels;
- Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for
Aegon's products; - Changes in accounting regulations and policies or a change by
Aegon in applying such regulations and policies, voluntarily or otherwise, which may affectAegon's reported results and shareholders' equity; Aegon's projected results are highly sensitive to complex mathematical models of financial markets, mortality, longevity, and other dynamic systems subject to shocks and unpredictable volatility. Should assumptions to these models later prove incorrect, or should errors in those models escape the controls in place to detect them, future performance will vary from projected results;- The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including
Aegon's ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions; - Catastrophic events, either manmade or by nature, could result in material losses and significantly interrupt
Aegon's business; Aegon's failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving and excess capital and leverage ratio management initiatives; and- This press release contains information that qualifies, or may qualify, as inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.
Further details of potential risks and uncertainties affecting
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