THE HAGUE, The Netherlands, March 12 /PRNewswire-FirstCall/ --
Fourth quarter results in line with pre-announcement of February
17, 2009 - AEGON maintains strong capital position: - Excess
capital over AA capital adequacy requirements of EUR 2.9 billion; -
IGDa) capital surplus of EUR 5.6 billion, equivalent to a solvency
ratio of 183%; - NAIC RBCb) ratio of 350% for the US life insurance
operations; - Core capitalc) of EUR 16.2 billion excluding
revaluation reserve at the end of 2008 (EUR 9.1 billion including
revaluation reserve); - Decline in revaluation reserve of EUR 1.7
billion in Q4, driven by widening in credit spreads - Underlying
loss before tax of EUR 181 million, due mainly to reserve
strengthening and accelerated amortization of deferred acquisition
costs in the US, and lower fees in general - Net loss in Q4 of EUR
1.2 billion, including an extraordinary tax charge of EUR 300
million - New life sales in Q4 2008 of EUR 598 million; total gross
deposits of EUR 11.9 billion; net deposits of EUR 1.7 billion -
Value of new business in Q4 of EUR 233 million, with an internal
rate of return of 16.5% Statement Alex Wynaendts, CEO "The severe
disruption in world financial markets significantly impacted
AEGON's earnings during the fourth quarter of 2008. This
challenging environment which has persisted in the early part of
2009 confirms that our strategic priorities of releasing capital
and reducing costs, as well as putting in place contingencies to
withstand further market deterioration are the right ones. In the
fourth quarter, we released EUR 1 billion of capital and expect to
release a further EUR 1.5 billion in 2009. Our businesses in the
United States, the Netherlands and the United Kingdom are also on
track to deliver on our target of EUR 150 million in cost
reductions in 2009. We are pleased by the continued confidence of
our customers as evidenced by resilient sales and a strong increase
in deposits. We believe that the solid fundamentals of our
business, combined with AEGON's financial position and the actions
we are taking justify their continued confidence." KEY PERFORMANCE
INDICATORS amounts in EUR millions (except per Notes Q4 2008 Q4
2007 % At share data) constant currency % Underlying earnings
before tax 1 (181) 667 N.M. N.M. Net income 2 (1,182) 648 N.M. N.M.
New life sales 3 598 800 (25) (19) Total deposits 4 11,933 9,594 24
17 Value of new business (VNB) 233 226 3 4 Return on equity 5
(8.7%) 12.5% N.M. amounts in EUR millions (except per FY 2008 FY
2007 % At share data) constant currency % Underlying earnings
before tax 1,573 2,639 (40) (37) Net income (1,082) 2,551 N.M. N.M.
New life sales 2,631 3,274 (20) (11) Total deposits 40,751 44,528
(8) (3) Value of new business (VNB) 837 927 (10) (2) Return on
equity 6.6% 12.5% (47) a) The calculation of the IGD (Insurance
Group Directive) capital surplus and ratio have been changed from
the disclosure in the previous quarter to better reflect regulatory
solvency requirements of local regulators and are based on Solvency
I capital requirements on IFRS for entities within the EU, and
local regulatory solvency measurements for non-EU entities.
Specifically, required capital for the life insurance companies in
the US is calculated as two times the upper end of the Company
Action Level range (200%) as applied by the National Association of
Insurance Commissioners in the US b) National Association of
Insurance Commissioners Risk Based Capital c) Core capital is the
sum of shareholders' equity and the EUR 3 billion in convertible
core capital securities from Vereniging AEGON, funded by the Dutch
State In June 2008, AEGON set out three strategic priorities: 1. To
reallocate capital toward businesses with higher growth and return
prospects; 2. To improve growth and returns from existing
businesses; 3. Manage AEGON as an international company.
Subsequently, at the Analyst & Investor Day on November 24,
AEGON identified and announced three priorities to counter the
challenges of the current global financial crisis and position the
company for growth: - Focus on capital preservation and accelerate
the capital release program, with a EUR 600-800 million target for
Q4 2008; - EUR 150 million cost reduction program for 2009; -
Develop contingency plans for continued deterioration in financial
markets. As announced last June, AEGON is conducting an ongoing
review of its portfolio of businesses to ensure that they meet the
criteria outlined in the strategy. On February 17, 2009, AEGON
announced that due to the market dislocation it will downsize its
institutional business (AEGON Institutional Market Division, IMD)
in the Americas, which will result in lower credit risk in the long
run and a release of capital in the near term. AEGON and the global
financial crisis In the fourth quarter of 2008, the financial
crisis accelerated and a severe global economic downturn began to
unfold. Liquidity in financial markets was severely affected.
Equity markets were down by more than 20%, while equity market
volatility rose to a historical high. Meanwhile, as government bond
yields reached historic lows, credit spreads more than doubled
across many market segments in Q4. The downturn in financial
markets has significantly impacted AEGON's results. Moreover, the
continued deterioration in the US housing market increased risks in
mortgage backed securities, leading to impairments. Also, corporate
bonds, in particular high yield, experienced higher defaults. In
order to provide a fuller view of the possible impacts of the
financial crisis on AEGON, management disclosed updated earnings
and capital sensitivities to a possible further downturn of
financial markets. In particular, this additional information
pertained to equity market exposure, impairments and interest rate
movements. Given market developments and the ongoing uncertainty
regarding the financial and economic environment, AEGON felt it was
prudent to reinforce its capital buffer to a level substantially in
excess of its AA capital adequacy requirements. On October 28,
AEGON announced that it had secured EUR 3 billion of additional
core capital from Vereniging AEGON funded by the Dutch State.
Capital preservation As the financial crisis unfolded, acceleration
of capital preservation actions has been a priority. The actions
taken and plans to be executed are evidence of the financial
flexibility within AEGON to manage through these extraordinary
times. They include: - Releasing EUR 1.7 billion of capital in the
second half year of 2008, including EUR 1 billion in the fourth
quarter, by actively reducing risks - including investment risks,
optimizing asset and liability management, reinsurance transactions
and securitization; - Releasing an additional EUR 1.5 billion of
capital in 2009 by lowering investment risk, and transferring risk
through reinsurance. - Reducing spread-based balances within
AEGON's institutional business in the United States by EUR 14
billion, freeing up EUR 0.6 billion of capital in the next two
years (EUR 0.3 billion in 2009, which is included in total expected
capital releases for 2009 of EUR 1.5 billion). The capital
preservation actions in Q4 2008 of EUR 1 billion are expected to
have a negative effect on earnings of EUR 60 million on an annual
basis. As these actions are largely derisking measures, they can be
reversed at any time. As a result of actions taken, the capital
position of the company remains strong with excess capital of EUR
2.9 billion over AA capital adequacy requirements at year-end, a
significant buffer against further market deterioration. Cost
measures AEGON announced cost reduction measures totaling EUR 150
million in 2009. Actions to achieve this include: - Americas: no
wage increases in 2009, staff reductions, deferred hiring,
reorganization of the agency distribution, downsizing IMD; - The
Netherlands: reduction of contract services, process reengineering,
general cost savings; - United Kingdom: restructuring of IT and
marketing and customer services, cost containment, savings in
distribution. Capital management and capital position AEGON
capitalizes its businesses at the higher of: - Regulatory
requirements; - AA capital adequacy requirements; - Any
self-imposed additional economic requirements under AEGON's
economic framework. AEGON has EUR 2.9 billion excess capital over
AA capital adequacy requirements and has an IGD capital surplus of
EUR 5.6 billion, equivalent to an IGD solvency ratio of 183% (2007:
190%). Regulatory requirements are set by local regulators, while
the IGD ratio is a European regulatory solvency calculation. The
methodology to calculate the IGD ratio has changed from the
disclosure over the third quarter results to better reflect
regulatory solvency requirements of the respective local
regulators. The previously disclosed IGD ratio included the
calculation of the ratio for the businesses outside of the EU based
on EU Solvency I capital requirements. The IGD ratio now takes into
account Solvency I capital requirements on IFRS for entities within
the EU, and local regulatory solvency measurements for non-EU
entities. Specifically, required capital for the life insurance
companies in the United States 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 United
States. AEGON does not manage its capital base to the IGD ratio.
AEGON USA had a NAIC RBC ratio of 350%, compared with 336% at the
end of 2007. Core capital at year-end came in at EUR 9.1 billion,
consisting of EUR 6.1 billion of shareholders' equity and EUR 3
billion of convertible core capital securities provided by
Vereniging AEGON, funded by the Dutch State. Core capital includes
a negative revaluation account on available-for-sale assets of EUR
7.2 billion. Excluding the revaluation account, core capital
amounted to EUR 16.2 billion, 78% of the total capital base, above
the minimum target of 70%. AEGON's negative revaluation account
increased during the fourth quarter by EUR 1.7 billion, the result
of unprecedented credit spread widening, more than offsetting the
effect of declines in government bond yields. AEGON has not
reclassified assets held as available-for-sale (AFS) to loans or
held-to-maturity assets. Also, AEGON transferred a very limited
amount of assets valued based on market prices to mark-to-model
valuations, driven by current market developments. The
mark-to-model is now 1.1% (EUR 1.1 billion) of the total valuation
of debt instruments held at fair value (2007: 0.4%). For more
details we refer to the explanatory notes on page 36. The lower
valuation of the AFS bond portfolio will only affect earnings
before tax if AEGON: - Is forced to sell those investments at a
loss; or - Impairs certain investments because the company does not
expect to receive (part of) interest and/or principal. AEGON's
long-term business model, and its liquidity and asset and liability
management, ensure that it is unlikely that AEGON will be forced to
sell assets at distressed prices, as reflected in the revaluation
account, to generate cash. Therefore, AEGON's negative revaluation
reserve is not a good indication of future losses. AEGON expects
impairments will be at elevated levels in 2009, due to the economic
situation. FINANCIAL OVERVIEW EUR millions Notes Q4 2008 Q4 2007 %
At constant currency % Underlying earnings before tax by line of
business Life and protection 121 357 (66) (71) Individual savings
and retirement products (433) 90 N.M. N.M. Pensions and asset
management 179 137 31 28 Institutional products 100 96 4 (6) Life
reinsurance (114) 18 N.M. N.M. Distribution (19) (21) 10 14 General
insurance (3) 13 N.M. N.M. Interest charges and other (17) (34) 50
54 Share in net results of associates 5 11 (55) (73) Underlying
earnings before tax (181) 667 N.M. (140) Over/(under) performance
of fair value items (770) (145) N.M. Operating earnings before tax
(951) 522 N.M. N.M. Operating earnings before tax by line of
business Life and protection 104 346 (70) (75) Individual savings
and retirement products (902) 79 N.M. N.M. Pensions and asset
management 224 13 N.M. N.M. Institutional products (54) 93 N.M.
N.M. Life reinsurance (319) 22 N.M. N.M. Distribution (19) (21) 10
14 General insurance (3) 13 N.M. N.M. Interest charges and other 13
(34) N.M. N.M. Share in net results of associates 5 11 (55) (73)
Operating earnings before tax (951) 522 N.M. N.M. Gains/(losses) on
investments 136 281 (52) (52) Impairment charges (501) (17) N.M.
N.M. Other income/(charges) 38 (24) N.M. N.M. Income before tax
(1,278) 762 N.M. N.M. Income tax 96 (114) N.M. N.M. Net income
(1,182) 648 N.M. N.M. Net underlying earnings (69) 516 N.M. N.M.
Net operating earnings (623) 399 N.M. N.M. Underlying earnings
geographically Americas (234) 503 N.M. N.M. The Netherlands 75 109
(31) (31) United Kingdom 13 67 (81) (104) Other countries (17) 22
N.M. N.M. Holding and other (18) (34) 47 54 Underlying earnings
before tax (181) 667 N.M. N.M. Operating earnings geographically
Americas (1,167) 506 N.M. N.M. The Netherlands 227 (39) N.M. N.M.
United Kingdom (6) 67 N.M. N.M. Other countries (17) 22 N.M. N.M.
Holding and other 12 (34) N.M. N.M. Operating earnings before tax
(951) 522 N.M. N.M. Commissions and expenses 1,863 1,438 30 28 of
which operating expenses 928 867 7 6 EUR millions FY 2008 FY 2007 %
At constant currency % Underlying earnings before tax by line of
business Life and protection 911 1,295 (30) (25) Individual savings
and retirement products (146) 496 N.M. N.M. Pensions and asset
management 508 498 2 6 Institutional products 405 332 22 31 Life
reinsurance (63) 114 N.M. N.M. Distribution 1 6 (83) (83) General
insurance 45 47 (4) (2) Interest charges and other (112) (185) 39
36 Share in net results of associates 24 36 (33) (33) Underlying
earnings before tax 1,573 2,639 (40) (37) Over/(under) performance
of fair value items (1,619) (272) N.M. Operating earnings before
tax (46) 2,367 N.M. N.M. Operating earnings before tax by line of
business Life and protection 795 1,284 (38) (34) Individual savings
and retirement products (922) 524 N.M. N.M. Pensions and asset
management 251 181 39 47 Institutional products 8 339 (98) (98)
Life reinsurance (361) 135 N.M. N.M. Distribution 1 6 (83) (83)
General insurance 45 47 (4) (2) Interest charges and other 113
(185) N.M. N.M. Share in net results of associates 24 36 (33) (33)
Operating earnings before tax (46) 2,367 N.M. N.M. Gains/(losses)
on investments 35 746 (95) (97) Impairment charges (1,038) (76)
N.M. N.M. Other income/(charges) (12) 40 N.M. N.M. Income before
tax (1,061) 3,077 N.M. N.M. Income tax (21) (526) 96 97 Net income
(1,082) 2,551 N.M. N.M. Net underlying earnings 1,234 2,033 (39)
(36) Net operating earnings 69 1,805 (96) (96) Underlying earnings
geographically Americas 1,073 1,993 (46) (42) The Netherlands 378
418 (10) (10) United Kingdom 141 271 (48) (47) Other countries 93
142 (35) (34) Holding and other (112) (185) 39 37 Underlying
earnings before tax 1,573 2,639 (40) (37) Operating earnings
geographically Americas (587) 2,102 N.M. N.M. The Netherlands 213
37 N.M. N.M. United Kingdom 122 271 (55) (47) Other countries 93
142 (35) (34) Holding and other 113 (185) N.M. N.M. Operating
earnings before tax (46) 2,367 N.M. N.M. Commissions and expenses
6,109 5,939 3 9 of which operating expenses 3,272 3,237 1 7
Overview AEGON reported a net loss for Q4 of EUR 1.2 billion.
Results are in line with preliminary results announced on February
17, 2009 and were significantly impacted by financial markets.
Underlying earnings were down mainly due to declining financial
markets, resulting in reserve strengthening and accelerated
amortization of deferred policy acquisition costs (DPAC) in the
variable annuities line of business in the Americas and reduced
fees on asset balances in general. Net income was also down due to
increased impairment charges and the impact of financial markets on
so-called fair value items, which include certain investment
classes in the Netherlands and the Americas, as well as a number of
products containing financial guarantees. Lower equity and credit
markets, as well as increased implied volatilities and lower
interest rates severely impacted the fair value of guarantees in
these products. In addition, alternative investment classes, like
hedge funds and private equity, significantly underperformed
long-term expected returns. Impairments came primarily from housing
related structured assets, corporate high-yield bonds and equity
investments. The impairments on corporate credit were driven by a
number of small impairments. Net income also includes an
extraordinary tax charge of EUR 300 million, related to
intercompany reinsurance treaties between Ireland and the United
States, offsetting the tax benefit from the reported operational
losses. These reinsurance treaties are accounted for at fair value
in both tax jurisdictions, while gains in the United States are
taxed at 35% and losses in Ireland are tax deductible at 12.5%.
Underlying earnings before tax In Q4 the underlying loss for the
company amounted to EUR 181 million. Underlying earnings in the
Americas came in at a negative USD 412 million. The impact on
earnings from lower equity markets of USD 839 million mainly
affected: a) The variable annuity business (USD 587 million) due to
minimum guarantee reserves strengthening and accelerated
amortization of DPAC and lower fees; b) The life reinsurance
business as result of reserve strengthening of variable annuity
blocks of business (USD 150 million); and c) The life business (USD
65 million). Underlying earnings in the Americas in Q4 also
included USD 230 million of one-off charges, the most significant
being an increase in the long-term assumption for equity market
volatility (USD 145 million). Earnings also include a charge of USD
40 million related to intangible assets from the acquisition of
Merrill Lynch's life insurance businesses, and a USD 45 million
asset write-off in life reinsurance. In Q4 2007, underlying
earnings in the Americas included a positive USD 52 million from
updated mortality assumptions in the life business. In the
Netherlands, underlying earnings were down 31% to EUR 75 million.
The positive impact of an exceptional dividend received and better
technical results in the pension business in the Netherlands was
more than offset by decreases in investment income as well as
charges in other lines of business. These charges include adverse
technical results in the non-life business, system and project
related one-off expenses and restructuring charges. Underlying
earnings in the United Kingdom, meanwhile, were GBP 13 million, a
decline of GBP 34 million due primarily to the impact of lower
equity and credit markets on fee charges in the pension business.
Other lines of business in the United Kingdom performed well. The
decline in underlying earnings from Other countries to a loss of
EUR 17 million was the result mainly of accelerated amortization of
deferred acquisition costs in Taiwan (EUR 43 million), as
underlying earnings in Central & Eastern Europe increased 87%
to EUR 28 million and in Spain 11% to EUR 10 million. Net income
Net income includes results on so-called fair value items, which
include certain investment classes in the Netherlands and the
Americas, as well as a number of products containing financial
guarantees. The total underperformance of these fair value items
amounted to EUR 770 million. The valuation of the fair value of
liability guarantees reflects decreased interest rates, declining
equity markets and sharply increased equity volatilities, as well
as discount rates including a credit spread, a reflection of
extremely dislocated and very illiquid markets. Underperformance of
fair value items In Q4 2008, underperformance of alternative
investment classes, such as hedge funds, private equity and credit
derivatives, in the Americas and the Netherlands amounted to EUR
500 million. Fair value items include the under/overperformance on
assets held at fair value through profit and loss and backing
liabilities of a specific portfolio of group pension contracts in
the Netherlands. In Q4 these assets underperformed long term
expected returns by EUR 149 million. In order to maintain
consistency in definitions, starting in Q4 2008, the net impact of
the fair value movements of guarantees and the related hedges in
the Netherlands has been included in fair value items. Previously,
differences in fair value between guarantees and related hedges,
referenced as hedge ineffectiveness, were reported in gains/losses
on investments. Results for prior years have been adjusted (see
Financial supplement Q4 2008). Lower bond and equity markets, as
well as higher volatilities and lower interest rates negatively
impacted the performance of certain products with guarantees
reported at fair value. Those negative impacts were partly offset
by a credit spread in the discount rates, a reflection of extremely
dislocated and very illiquid markets. Products with guarantees at
fair value contributed a total negative EUR 139 million to
earnings. This includes mainly: - Net fair value losses on GMWB
guarantees and related hedges in the Americas and the United
Kingdom (EUR 280 million), segregated funds in Canada (EUR 201
million) and total return annuities (EUR 82 million); - Partially
offset by EUR 425 million positive impact from hedge
ineffectiveness in the Netherlands. Effectiveness of hedging was
affected by extreme volatility in Q4, while higher implied
volatilities impacted the valuation of guarantees. Gains on
investments Gains on investments of EUR 136 million include
primarily gains on derivatives considered as economic hedges at
holding level and the Netherlands as well as realized gains on the
sale of bonds, offset by lower real estate values in the
Netherlands. Impairment charges Impairments of EUR 501 million
included EUR 360 million on bonds/mortgages, primarily structured
assets (subprime bonds EUR 100 million) and a number of corporate
bonds in the Americas (EUR 158 million), as well as equity
impairments (EUR 141 million). The impairments in corporate credit
were driven by a number of small impairments. Equity investments
are impaired when market values are 20% below cost price or when
they are in an unrealized loss position for more than six months.
Tax The tax benefit from the underlying loss, impairments and
mark-to-market losses on the fair value items is more than offset
by significant additional taxes related to cross border
intercompany reinsurance transactions (EUR 300 million). These
reinsurance treaties are accounted for at fair value in both tax
jurisdictions, while gains in the United States are taxed at 35%
and losses in Ireland are tax deductible at 12.5%. The driver of
the tax losses in Ireland is credit spread widening. These tax
losses are largely expected to reverse as the book matures and when
credit spreads narrow. Commissions and expenses Commissions and
expenses increased by 30% to EUR 1,863 million, primarily due to
acceleration of DPAC amortization. Operating expenses increased by
7% to EUR 928 million, including several one-off items such as
restructuring charges, redundancy charges and provisions. Sales
Total new life sales for the company were in line with Q3 2008, and
decreased by 19% (at constant currency) to EUR 598 million compared
to Q4 2007. With the exception of the UK and Spain, all countries
recorded lower sales in Q4 compared to Q4 2007. New life sales in
the Americas were down 43% in local currency, particularly due to
lower bank-owned and corporate owned life insurance (BOLI/COLI)
sales (down 83%). Economic conditions also affected the high net
worth market as well as variable universal life sales in the middle
market. In Q4 2008 new life sales in the Netherlands decreased by
44% in local currency, primarily due to a 57% decline in pension
sales, as Q4 2007 included several large contracts, while retail
life sales held up reasonably well. New life sales in the United
Kingdom increased by 5%, mainly driven by growth in the corporate
pension market and individual annuities, offset by lower individual
pension sales. New life sales in Q4 declined 34% to EUR 58 million
in Other countries. In Central & Eastern Europe, sales of
recurring premium life insurance rose 13%. Single premium sales in
Poland were sharply lower because of a decline in equity markets,
driving down total new life sales in Central & Eastern Europe
by 27%. In Spain, sales of life insurance rose to EUR 23 million,
due primarily to extraordinary activity, following changes in
pension legislation. Sales through CAM, AEGON's largest bank
partner in Spain, tripled to EUR 77 million (on a 100% basis), as a
result of a successful strategy to increase the insurance
penetration ratio among their existing client base. In Asia, new
life sales decreased to EUR 13 million as increased sales in China
were more than offset by a decline in Taiwan. SALES EUR millions
Notes Q4 2008 Q4 2007 % At constant currency % New life sales Life
single premiums 2,327 3,447 (32) (23) Life recurring premiums
annualized 366 456 (20) (16) Total recurring plus 1/10 single 598
800 (25) (19) New premium production accident and health insurance
161 178 (10) (18) New premium production general insurance 17 21
(19) (14) Gross deposits (on and off balance) by line of business
Fixed annuities 1,676 433 N.M. N.M. Variable annuities 590 640 (8)
(18) Saving deposits 590 704 (16) (16) Retail mutual funds 501 598
(16) (33) Pensions and asset management 2,613 3,338 (22) (28)
Institutional guaranteed products 5,963 3,881 54 46 Life
reinsurance 0 0 0 0 Total gross deposits 11,933 9,594 24 17 Net
deposits (on and off balance) by line of business Fixed annuities
593 (759) N.M. N.M. Variable annuities (114) (157) 27 27 Saving
deposits (535) 94 N.M. N.M. Retail mutual funds (182) 266 N.M. N.M.
Pensions and asset management 257 1,081 (76) (86) Institutional
guaranteed products 1,679 (325) N.M. N.M. Life reinsurance (19)
(82) 77 79 Total net deposits 1,679 118 N.M. N.M. EUR millions FY
2008 FY 2007 % At constant currency % New life sales Life single
premiums 10,532 14,414 (27) (17) Life recurring premiums annualized
1,578 1,833 (14) (5) Total recurring plus 1/10 single 2,631 3,274
(20) (11) New premium production accident and health insurance 614
680 (10) (4) New premium production general insurance 68 58 17 17
Gross deposits (on and off balance) by line of business Fixed
annuities 4,057 1,145 N.M. N.M. Variable annuities 2,636 2,743 (4)
3 Saving deposits 2,473 2,648 (7) (7) Retail mutual funds 2,698
2,248 20 26 Pensions and asset management 10,505 12,284 (14) (9)
Institutional guaranteed products 18,380 23,458 (22) (16) Life
reinsurance 2 2 0 50 Total gross deposits 40,751 44,528 (8) (3) Net
deposits (on and off balance) by line of business Fixed annuities
71 (4,388) N.M. N.M. Variable annuities (441) (596) 26 20 Saving
deposits (699) 231 N.M. N.M. Retail mutual funds 590 797 (26) (22)
Pensions and asset management 1,769 2,527 (30) (28) Institutional
guaranteed products 2,185 3,981 (45) (41) Life reinsurance (61)
(82) 26 21 Total net deposits 3,414 2,470 38 47 REVENUE GENERATING
INVESTMENTS At Dec. At Sep. 31 30 2008 2008 % Revenue generating
(total) 6 331,844 350,756 (5) Investments general account 130,481
131,738 (1) Investments for account of policyholders 105,400
121,346 (13) Off balance sheet investments third parties 95,963
97,672 (2) Deposits Total gross on and off balance deposits for the
company increased by 24% to EUR 11.9 billion in Q4. The increase is
mainly a result of the continued growth in fixed annuity deposits
and strong demand for synthetic guaranteed investment contracts
(GICs) in the Americas during Q4 2008. In the pension business in
the Americas, sales of retirement plans held up well. Variable
annuity sales as well as asset management and mutual fund sales
declined due to the volatility in the equity markets in Q4 2008.
Sales of on balance guaranteed investment contracts in Q4 2008
increased by 46% in local currency. AEGON sees limited
opportunities to grow spread-based business profitably in the
foreseeable future and announced on February 17, 2009, its decision
to downsize the portfolio of institutional spread-based products.
Gross deposits in Central & Eastern Europe increased 18%.
Higher pension deposits in all country units, reflecting growth of
the business as well as the incorporation of new acquisitions, were
partly offset by lower production of mutual funds and third party
asset management products in Hungary due to the decline of equity
markets. Deposits in Asia increased by EUR 148 million due to the
newly acquired asset management business in China. Net deposits for
the company amounted to EUR 1.7 billion as a result of strong fixed
annuity and synthetic guaranteed investment contracts deposits,
partly offset by net outflows of savings deposits in the
Netherlands. In Central & Eastern Europe, the pension business
continued to report strong net inflows. FINANCIAL OVERVIEW, Q4
GEOGRAPHICALLY United Americas Kingdom USD GBP Underlying earnings
before tax by line of business 227 18 Life and protection (623) 0
Individual savings and retirement products 23 (23) Pensions and
asset management 131 0 Institutional products (170) 0 Life
reinsurance 0 3 Distribution 0 0 General insurance Interest charges
and other 0 0 Share in net results of associates (412) (2)
Underlying earnings before tax (1,330) (15) Over/(under)
performance of fair value items (1,742) (17) Operating earnings
before tax Operating earnings before tax by line of business 113 18
Life and protection (1,295) 0 Individual savings and retirement
products (11) (23) Pensions and asset management (84) 0
Institutional products (465) 0 Life reinsurance 0 3 Distribution 0
0 General insurance Interest charges and other 0 0 Share in net
results of associates (1,742) (2) Operating earnings before tax
(10) (16) Gains/(losses) on investments (499) 2 Impairment charges
(1) 28 Other income/(charges) (2,252) 12 Income before tax 393 (20)
Income tax (1,859) (8) Net income (279) 17 Net underlying earnings
(1,136) 2 Net operating earnings amounts in million EUR (unless
otherwise stated) Holding, other The United Other activities &
Total Americas Netherlands Kingdom countries eliminations EUR
Underlying earnings before tax by line of business Life and
protection 176 (37) 22 (40) 0 121 Individual savings and retirement
products (416) (20) 0 3 0 (433) Pensions and asset management 20
169 (12) 2 0 179 Institutional products 100 0 0 0 0 100 Life
reinsurance (114) 0 0 0 0 (114) Distribution 0 (22) 3 0 0 (19)
General insurance 0 (15) 0 12 0 (3) Interest charges and other (17)
(17) Share in net results of associates 0 0 0 6 (1) 5 Underlying
earnings before tax (234) 75 13 (17) (18) (181) Over/(under)
performance of fair value items (933) 152 (19) 0 30 (770) Operating
earnings before tax (1,167) 227 (6) (17) 12 (951) Operating
earnings before tax by line of business Life and protection 96 26
22 (40) 0 104 Individual savings and retirement products (885) (20)
0 3 0 (902) Pensions and asset management (5) 258 (31) 2 0 224
Institutional products (54) 0 0 0 0 (54) Life reinsurance (319) 0 0
0 0 (319) Distribution 0 (22) 3 0 0 (19) General insurance 0 (15) 0
12 0 (3) Interest charges and other 13 13 Share in net results of
associates 0 0 0 6 (1) 5 Operating earnings before tax (1,167) 227
(6) (17) 12 (951) Gains/(losses) on investments (10) 84 (20) (10)
92 136 Impairment charges (355) (68) 5 (49) (34) (501) Other
income/(charges) (1) 0 36 1 2 38 Income before tax (1,533) 243 15
(75) 72 (1,278) Income tax 261 (119) (26) 9 (29) 96 Net income
(1,272) 124 (11) (66) 43 (1,182) Net underlying earnings (155) 80
19 (10) (3) (69) Net operating earnings (759) 129 0 (10) 17 (623) -
Underlying loss of USD 412 million, including USD 839 million
impact from steep decline in equity markets and USD 145 million
impact from higher volatility assumptions - Continued momentum in
fixed annuity deposits, driving 11% increase in total value of new
business; strong retirement plan sales; ttotal net deposits USD 3.0
billion - Impact of USD 1.3 billion on earnings from fair value
items, due to lower interest rates, lower equity markets, increased
equity market volatility and underperformance of alternative assets
- Impairments of USD 499 million; USD 184 million on structured
assets; USD 232 million on corporate credit Overview Financial
markets accelerated their negative trend in the fourth quarter and
the economy showed signs of considerable contraction. Equity
markets showed a steep decline, volatilities spiked, credit risk
increased and credit spreads widened to an extent not seen before,
while at the same time, government bond yields came down to
historic lows. Results in Q4 2008 in the Americas were
significantly impacted by the financial markets turmoil. Underlying
earnings were down primarily due to the impact of a more than 20%
decline in equity markets on reserve strengthening, accelerated
amortization of deferred acquisition costs and lower fees. Also,
long-term assumptions for equity market volatility were increased,
resulting in a negative impact of USD 145 million primarily in the
variable annuity line of business. In Q4 2007, underlying results
in the life business included a favorable USD 52 million
contribution to earnings from the update of mortality assumptions.
Fair value items showed a considerable underperformance of USD 1.3
billion, driven by alternative investment returns, the impact from
an increase in implied volatility and lower interest rates on fair
valuation of guarantees, hedge ineffectiveness and wider credit
spreads. Results in the Americas also included USD 499 million of
impairments, including USD 184 million of structured asset
impairments, primarily securities backed by subprime mortgages.
Impairments of corporate bonds were concentrated in the high yield
portfolio and were driven by a number of small impairments. Sales
of individual savings and retirement products rose sharply, driven
by continued demand for fixed annuities. New life sales were down
in all lines of business, however, particularly in BOLI/COLI
(bank-owned/corporate-owned life insurance). Value of new business
was up 11%, primarily due to higher fixed annuity sales. Underlying
earnings before tax AEGON reported an underlying loss before tax in
the Americas for Q4 2008 of USD 412 million: - Earnings from Life
& Protection declined 39% compared to Q4 2007 to USD 227
million. The decline in equity markets led to a charge of USD 65
million. In Q4 2007 underlying earnings included a favorable USD 52
million from updated mortality assumptions; - Individual Savings
& Retirement earnings were a loss of USD 623 million, due to
the equity markets impact on minimum guarantee reserve
strengthening and accelerated DPAC amortization (in total USD 587
million). Long-term assumptions for equity market volatility were
increased, a one-off negative impact of USD 135 million. Earnings
also include a charge of USD 40 million related to intangible
assets from the acquisition of Merrill Lynch's life insurance
businesses; - Pensions & Asset Management earnings decreased to
USD 23 million, a result of lower fees from declined asset
balances; - Earnings from the Institutional business were down 4%
to USD 131 million on lower BOLI/COLI earnings. A decrease in
short-term rates continued to produce strong positive spreads on
institutional guaranteed products; - In the Life Reinsurance
business the underlying loss amounted to USD 170 million, including
a USD 150 million due to the equity markets impact on minimum
guarantee reserve strengthening, and an USD 45 million asset
write-off. Net income AEGON reported a net loss for Q4 of USD 1,859
million in the Americas, including three significant items:
underperformance of fair value items (USD 1.3 billion), impairment
charges (USD 499 million) and a tax charge (USD 429 million). The
underperformance of fair value items comprised a number of
different elements: - Total fair value investments underperformed
by USD 531 million as a result of alternative assets
underperforming expected long-term returns and underperformance of
credit derivatives and adjustments on other credit-related
instruments; - Lower interest rates, declining equity markets,
increased equity market volatility and widening credit spreads
contributed to a USD 798 million lower mark-to-market valuation for
GMWB guarantees, total return annuities and Canadian segregated
funds. The valuation of the fair value of liability guarantees
includes sharply increased equity volatilities, as well as discount
rates including a credit spread, a reflection of extremely
dislocated and very illiquid markets. Total impairment charges in
the Americas during Q4 totaled USD 499 million. These impairments
include USD 184 million of impairments on mortgage backed
securities, of which the majority is backed by subprime hybrid
adjustable rate mortgages. Net impairments on corporate bonds were
USD 232 million. Other impairments include equity and commercial
mortgage loan impairments. The tax benefit from the underlying
loss, impairments and mark-to-market losses on the fair value items
was more than offset by significant additional taxes related to
cross border intercompany reinsurance transactions (USD 429
million). These reinsurance treaties are accounted for at fair
value in both tax jurisdictions, while gains in the United States
are taxed at 35% and losses in Ireland are tax deductible at 12.5%.
The driver of the tax losses in Ireland is credit spread widening.
These tax losses are largely expected to reverse as the book
matures and when credit spreads narrow. Commissions and expenses
Total commissions and expenses increased 46% in Q4, primarily due
to accelerated DPAC amortization following lower equity markets. Q4
operating expenses were level with operating expenses last year.
Sales and deposits Total new life sales in the Americas were down
43% in the quarter, driven primarily by a decline in the BOLI/COLI
business. Activity in the BOLI/COLI market has declined
significantly as a result of the current financial crisis. Life
reinsurance and life sales were down as well compared to last year,
but were in line with Q3 2008 sales. However, the economic downturn
continues to impact sales of both high net worth and equity-indexed
universal life products in the middle market. Total gross deposits
were up 21% compared to last year on continued growth in fixed
annuity sales (USD 2.3 billion) and strong demand for synthetic
guaranteed investment contracts. In the pension and asset
management business, sales of retirement plans came in strong,
while total pension deposits were down in particular due to lack of
terminal funding sales. Managed assets clearly declined because of
financial market turmoil, which also affected mutual fund sales as
well as variable annuity deposits. Compared with Q4 2007 variable
annuity deposits were down 17%. Sales of accident and health
products were in line with sales in Q3 2008. Value of new business
The value of new business (VNB) in the Americas amounted to USD 167
million, and the internal rate of return (IRR) was 12.4%, both
driven primarily by strong fixed annuity production. The VNB and
IRR were negatively affected by hedge costs in the variable annuity
business. Please refer to page 28 for more detailed information on
VNB. Revenue generating investments AEGON's total revenue
generating investments at the end of December 2008 totaled USD 286
billion, down 6% from three months earlier, on lower financial
markets. AMERICAS - EARNINGS USD millions Notes Q4 2008 Q4 2007 %
FY 2008 FY 2007 % Underlying earnings before tax by line of
business Life 159 287 (45) 769 847 (9) Accident and health 68 86
(21) 363 428 (15) Life and protection 227 373 (39) 1,132 1,275 (11)
Fixed annuities 86 91 (5) 368 366 1 Variable annuities (709) 52
N.M. (587) 288 N.M. Retail mutual funds 0 6 N.M. 8 21 (62)
Individual savings and retirement products (623) 149 N.M. (211) 675
N.M. Pensions and asset management 23 36 (36) 150 166 (10)
Institutional guaranteed products 127 107 19 544 374 45 BOLI/COLI 4
30 (87) 50 81 (38) Institutional products 131 137 (4) 594 455 31
Life reinsurance (170) 27 N.M. (93) 156 N.M. Share in net results
of associates 0 1 N.M. 1 0 N.M. Underlying earnings before tax
(412) 723 N.M. 1,573 2,727 (42) Over/(under) performance of fair
value items (1,330) 7 N.M. (2,434) 149 N.M. Operating earnings
before tax (1,742) 730 N.M. (861) 2,876 N.M. Operating earnings
before tax by line of business Life 70 291 (76) 593 883 (33)
Accident and health 43 91 (53) 321 443 (28) Life and protection 113
382 (70) 914 1,326 (31) Fixed annuities (110) 112 N.M. (68) 486
N.M. Variable annuities (1,185) 17 N.M. (1,289) 205 N.M. Retail
mutual funds 0 6 N.M. 8 22 (64) Individual savings and retirement
products (1,295) 135 N.M. (1,349) 713 N.M. Pensions and asset
management (11) 46 N.M. 91 188 (52) Institutional guaranteed
products (76) 99 N.M. (15) 379 N.M. BOLI/COLI (8) 34 N.M. 26 85
(69) Institutional products (84) 133 N.M. 11 464 (98) Life
reinsurance (465) 33 N.M. (529) 185 N.M. Share in net results of
associates 0 1 N.M. 1 0 N.M. Operating earnings before tax (1,742)
730 N.M. (861) 2,876 N.M. Gains/(losses) on investments (10) 172
N.M. (103) 376 N.M. Impairment charges (499) (21) N.M. (1,138) (65)
N.M. Other income/(charges) (1) 0 N.M. 6 0 N.M. Income before tax
(2,252) 881 N.M. (2,096) 3,187 N.M. Income tax 393 (284) N.M. 74
(1,003) N.M. Net income (1,859) 597 N.M. (2,022) 2,184 N.M. Net
underlying earnings (279) 555 N.M. 1,143 2,003 (43) Net operating
earnings (1,136) 558 N.M. (491) 2,098 N.M. Commissions and expenses
1,451 993 46 4,961 4,569 9 of which operating expenses 527 525 0
2,167 2,124 2 For the amounts in euro see the Financial Supplement.
AMERICAS - SALES USD millions Notes Q4 2008 Q4 2007 % FY 2008 FY
2007 % New life sales Life single premiums 262 1,095 (76) 931 2,509
(63) Life recurring premiums annualized 179 252 (29) 852 1,025 (17)
Total recurring plus 1/10 single 205 362 (43) 945 1,276 (26) Life
138 204 (32) 669 742 (10) BOLI/COLI 15 90 (83) 36 207 (83) Life
reinsurance 52 68 (24) 240 327 (27) Total recurring plus 1/10
single 205 362 (43) 945 1,276 (26) New premium production accident
and health insurance 205 249 (18) 870 898 (3) Gross deposits (on
and off balance) by line of business Fixed annuities 2,328 610 N.M.
5,947 1,567 N.M. Variable annuities 747 900 (17) 3,680 3,723 (1)
Retail mutual funds 396 796 (50) 2,813 2,865 (2) Pensions and asset
management 2,771 3,790 (27) 12,987 13,675 (5) Institutional
guaranteed products 8,075 5,772 40 26,945 32,097 (16) Life
reinsurance 1 0 N.M. 4 3 33 Total gross deposits 14,318 11,868 21
52,376 53,930 (3) Net deposits (on and off balance) by line of
business Fixed annuities 896 (1,124) N.M. 103 (6,004) N.M. Variable
annuities (150) (249) 40 (811) (844) 4 Retail mutual funds (219)
350 N.M. 778 964 (19) Pensions and asset management 24 1,292 (98)
2,660 4,107 (35) Institutional guaranteed products 2,433 (343) N.M.
3,203 5,447 (41) Life reinsurance (25) (112) 78 (89) (112) 21 Total
net deposits 2,959 (186) N.M. 5,844 3,558 64 REVENUE GENERATING
INVESTMENTS At Dec. At Sep. 31 30 2008 2008 % Revenue generating
investments (total) 6 286,167 304,706 (6) Investments general
account 120,790 127,130 (5) Investments for account of
policyholders 58,943 68,420 (14) Off balance sheet investments
third parties 106,434 109,156 (2) For the amounts in euro see the
Financial Supplement. - Underlying earnings declined 31% to EUR 75
million - Life sales down 44%, due to a standstill in group pension
market; retail sales held up well Overview The Netherlands reported
a net income in Q4 of EUR 124 million. Underlying earnings were
down 31% to EUR 75 million compared to Q4 2007. The positive impact
of an exceptional dividend received and better technical results in
the pension business was more than offset by decreases in
investment income as well as (one-off) charges in other lines of
business. These charges include system and project related
expenses, restructuring charges and adverse technical results. Fair
value items overperformed long-term expectations by EUR 152
million. Fair value items include: a) Under/overperformance of
assets held at fair value through profit and loss, backing
liabilities of a specific portfolio of group pension contracts held
in the general account; b) Differences in fair value between
guarantees and related hedges, referenced as hedge ineffectiveness,
previously reported in gains/losses on investments; c) Private
equity investments. Impairments were EUR 68 million, while
investment gains amounted to EUR 84 million. Underlying earnings
before tax - Life reported a loss of EUR 34 million on lower
investment income and higher costs, including EUR 27 million of
system and project related expenses as well as slightly lower
technical results; - In Accident and Health the underlying loss
came in at EUR 3 million, due to higher claims, lower investment
income and higher expenses; - Earnings in the Savings business came
in at a loss of EUR 20 million. Competition in the savings market
is fierce, putting pressure on margins and volumes. Q4 2007
earnings included EUR 15 million of non-recurring accelerated
amortization of deferred costs; - Earnings from Pensions &
Asset Management amounted to EUR 169 million, the result of an
exceptional EUR 75 million dividend and better technical results of
EUR 37 million; - Earnings from Distribution include an exceptional
restructuring charge of EUR 21 million. Also, the slowdown in the
real estate market led to lower overall revenues. Earnings in Q4
2007 included a one-off charge of EUR 12 million related to the
harmonization of claw back provisions of the Unirobe Meeus Groep; -
General insurance earnings were down, mainly due to higher claims,
lower investment income and expenses to improve and grow the
business. Net income Fair value items include the
under/overperformance on assets held at fair value through profit
and loss, backing liabilities of a specific portfolio of group
pension contracts held in the general account. In Q4 these assets
underperformed long-term expected returns by EUR 149 million.
Private equity investments, included in fair value items,
significantly underperformed long term excepted return by EUR 124
million. Also, in order to maintain consistency in definitions,
starting in Q4 2008, the net impact of the fair value movements of
guarantees and the related hedges has been included in fair value
items. Previously, differences in fair value between guarantees and
related hedges, referenced as hedge ineffectiveness, were reported
in gains/losses on investments. Earnings include a EUR 425 million
positive impact from hedge ineffectiveness. The valuation of the
fair value of liability guarantees includes sharply increased
interest rate and equity volatilities, as well as discount rates
including a credit spread, a reflection of extremely dislocated and
very illiquid markets. Impairments of EUR 68 million were primarily
related to equities and high yield bonds. Investment gains amounted
to EUR 84 million and include gains on derivatives considered as
economic hedges and realized gains on the sale of bonds, offset by
lower real estate values. Commissions and expenses Commissions and
expenses increased by 5%, due primarily to higher operating
expenses. Operating expenses increased as a result of a one-time
restructuring charge of EUR 21 million as well as a one-off EUR 27
million of system and project related expenses, while Q4 2007
included a total EUR 27 million of one-time charges in the Savings
and Distribution businesses. Sales and deposits Group pension sales
declined significantly during the quarter - the result of market
volatility and clients' increased reluctance to take decisions. At
the same time, the Dutch group pension market has become
increasingly competitive. Renewal rates did, however, continue to
improve. Sales figures for Q4 2007 also included several large
contracts. Sales of both single and regular premium individual life
products held up reasonably well with a decline of 13%. Lower
expiring deferred annuities resulted in lower sales of immediate
annuities. Regular premium production declined as there is less
appetite in the market for universal life products. During the
year, life production increased 3%, while the Dutch life market
contracted by an estimated 1% in 2008. Sales in accident &
health were stable, mainly due to a saturated market. Alternative
disability products have been successfully introduced, and partly
offset the decline in WIA (the disability product introduced in
2006) sales during the quarter. Sales of general insurance products
were in line with Q3 2008. Gross deposits were down by 10% compared
with Q4 2007, due to fierce competition. Net deposits showed a
decline as well, as clients withdrew balances in excess of the
State guaranteed level of EUR 100,000 per account as concerns about
the stability of banks, in general, increased. Value of new
business The value of new business (VNB) increased to EUR 13
million and the internal rate of return improved to 10.8%,
primarily as a result of a change in business mix. Please refer to
page 28 for more detailed information on VNB. Revenue generating
investments At the end of December 2008, revenue generating
investments totaled EUR 63 billion; flat compared to September 2008
levels. THE NETHERLANDS - EARNINGS EUR millions Notes Q4 Q4 % FY FY
% 2008 2007 2008 2007 Underlying earnings before tax by line of
business Life (34) 53 N.M. 43 189 (77) Accident and health (3) 8
N.M. 23 39 (41) Life and protection (37) 61 N.M. 66 228 (71) Saving
products (20) (14) (43) (14) 0 N.M. Individual savings and
retirement products (20) (14) (43) (14) 0 N.M. Pensions and asset
management 169 62 173 308 163 89 Distribution (22) (7) N.M. 3 16
(81) General insurance (15) 5 N.M. 8 8 0 Share in net results of
associates 0 2 N.M. 7 3 133 Underlying earnings before tax 75 109
(31) 378 418 (10) Over/(under) performance of fair value items 152
(148) N.M. (165) (381) 57 Operating earnings before tax 227 (39)
N.M. 213 37 N.M. Operating earnings before tax by line of business
Life 29 36 (19) 75 141 (47) Accident and health (3) 8 N.M. 23 39
(41) Life and protection 26 44 (41) 98 180 (46) Saving products
(20) (14) (43) (14) 0 N.M. Individual savings and retirement
products (20) (14) (43) (14) 0 N.M. Pensions and asset management
258 (69) N.M. 111 (170) N.M. Distribution (22) (7) N.M. 3 16 (81)
General insurance (15) 5 N.M. 8 8 0 Share in net results of
associates 0 2 N.M. 7 3 133 Operating earnings before tax 227 (39)
N.M. 213 37 N.M. Gains/(losses) on investments 84 132 (36) 20 465
(96) Impairment charges (68) 0 N.M. (138) (24) N.M. Other
income/(charges) 0 0 0 0 30 N.M. Income before tax 243 93 161 95
508 (81) Income tax (119) 2 N.M. (1) 98 N.M. Net income 124 95 31
94 606 (84) Net underlying earnings 80 96 (17) 326 339 (4) Net
operating earnings 129 (23) N.M. 139 41 N.M. Commissions and
expenses 376 357 5 1,269 1,188 7 of which operating expenses 297
267 11 934 843 11 THE NETHERLANDS - SALES EUR millions Notes Q4 Q4
% FY FY % 2008 2007 2008 2007 New life sales Life single premiums
225 287 (22) 1,324 1,354 (2) Life recurring premiums annualized 18
44 (59) 86 124 (31) Total recurring plus 1/10 single 41 73 (44) 219
260 (16) Life 20 23 (13) 97 94 3 Pensions 21 49 (57) 122 166 (27)
Total recurring plus 1/10 single 41 73 (44) 219 260 (16) New
premium production accident and health insurance 4 4 0 15 18 (17)
New premium production general insurance 7 6 17 28 26 8 Gross
deposits (on and off balance) by line of business Saving deposits
590 704 (16) 2,473 2,648 (7) Pensions and asset management 83 41
102 228 390 (42) Total gross deposits 673 745 (10) 2,701 3,038 (11)
Net deposits (on and off balance) by line of business Saving
deposits (535) 95 N.M. (699) 232 N.M. Pensions and asset management
14 (119) N.M. (38) (1,256) 97 Total net deposits (521) (24) N.M.
(737) (1,024) 28 REVENUE GENERATING INVESTMENTS At At Dec. Sep. 31
30 2008 2008 % Revenue generating investments (total) 6 63,079
63,310 (0) Investments general account 32,163 31,455 2 Investments
for account of policyholders 19,133 19,566 (2) Off balance sheet
investments third parties 11,783 12,289 (4) - Underlying earnings
before tax declined to GBP 13 million, mainly on lower fund related
charges in the pension business - Continued strong new life sales,
up 5% - Higher margins lead to further increase in value of new
business DATASOURCE: AEGON N.V. CONTACT: Group Corporate
Communications & Investor Relations: Media, +31-(0)70-344-8956,
, or Investors: +31-(0)70-344-8305 or 1-877-548-9668 - toll free
USA only, Web site: http://www.aegon.com/
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