Aegon Ltd. · EURONEXT:AGN
Aegon — Q1 2012 Earnings Presentation
43 slides from Aegon's earnings presentation, May 10, 2012
Slide 1: First quarter 2012 results and Embedded Value 2011
First quarter 2012 results and Embedded Value 2011 Jan Nooitgedagt CFO Media p presentation resentation The Hague – May 10, 2012
Slide 2: Sales and earnings increase; strong capital position maintained
Sales and earnings increase; strong capital position maintained Execution of strategy – positioning for future growth Earnings increase on business growth, cost reductions and favorable markets Sales up 25% year-on-year, demonstrating strength of franchise Strong capital position and operati
Slide 3: Execution of strategy – positioning for future growth
Execution of strategy – positioning for future growth Restructuring Product development / re-pricing ► Restructuring process in the UK finalized – ► US variable annuities and universal life operating expenses significantly reduced secondary guarantees re-priced ► Dutch restructuring process on track
Slide 4: Focus on delivering on targets
Focus on delivering on targets Achieve return on equity of Grow underlying earnings Double fee-based earnings to Increase annual normalized before tax by operational free cash flow to 10-12% 7-10% 30-35% €1.3-1.6 by y 2015 on average g per p annum billion between 2010 and 2015 of underlying earnings
Slide 5: Earnings up on business growth, cost reductions and favorable markets
Earnings up on business growth, cost reductions and favorable markets Higher fee-based earnings Americas offset by unfavorable mortality, lower fixed annuity earnings, higher employee benefit expenses and Corporate Center charges Adverse claim experience p on disability ypproducts in the Netherl
Slide 6: High net income due to positive fair value items and low impairments
High net income due to positive fair value items and low impairments Fair value items were positively impacted by higher valuation of a fund containing mineral rights in the US and results on the guarantee portfolio in the Netherlands Impairments declined to lowest level in four years Other ch
Slide 7: Operating expenses reduced by 7%
Operating expenses reduced by 7% Cost savings in established markets reflect the successful restructuring program in the UK, cost reductions in the Netherlands and the Americas Continued investments in new p propositions p such as new online banking gpproposition p in the Netherlands and new pen
Slide 8: Restructuring Dutch organization on track
Restructuring Dutch organization on track Targeted cost savings of EUR 100 million Cost savings enacted to offset margin pressure (EUR million) ► Majority of cost savings to be achieved in 2012 100 Cost savings of EUR 49 million enacted Operating expenses declined 1% to EUR 187 million 75 EUR
Slide 9: Sales up 25%; demonstrating strength of franchise
Sales up 25%; demonstrating strength of franchise Gross deposits up 50% to EUR 11 billion Sales* ► Higher US pension deposits driven by increased takeover deposits (EUR billion) ► AEGON Asset Management deposits doubled; good performance in both retail and institutional segments 1.8 New life sal
Slide 10: US pensions – differentiating from the competition
US pensions – differentiating from the competition Differentiating from the competition by service ES&P underlying ► High technology standard, enabling high service levels earnings (USD million) • 93 "Best in Class" ratings in Chatham‘s Client Satisfaction Survey 2011** • Ranked as top 401(k) prov
Slide 11: Dutch mortgage business of growing importance
Dutch mortgage business of growing importance Dutch mortgage production provides additional margin for general account ► EUR 3.3 billion of new Dutch mortgages originated in 2011 ► Q1 2012 production of new mortgages of EUR 649 million Mortgages have good fit within asset liability management as
Slide 12: New Markets an important contributor to the group
New Markets an important contributor to the group Underlying earnings Earnings up 29% on strong results from asset management and Asia before tax (EUR million) Focus on cost control - operating expenses reduced by 4% Focused product strategy 88 ► Non-life household product gradually rolled out
Slide 13: Continued strong capital position
Continued strong capital position Strong IGD ratio of 201% ► Earnings contributed strongly to increase in solvency ► Required surplus included the effect of US regulatory capital requirements related to the impact of low interest rates in Q3 2011 NAIC RBC ratio of ~445%; NL IGD ratio of ~210%; U
Slide 14: Strong operational free cash flow
Strong operational free cash flow Normalized operational free cash flow of EUR 405 million Investments in new business return to normal level Earnings on in in-force force strong as a result of higher markets and tax benefits Release of required surplus reflects additional capital requiremen
Slide 15: Capital base ratio of 74.2%, on target to exceed 75% by end 2012
Capital base ratio of 74.2%, on target to exceed 75% by end 2012 Improvement of capital position driven by retained earnings and dividend from operating units Common shareholders’ equity per share, excluding preference capital, of EUR 10.18 Proposed final dividend of EUR 0 0.10 10 per common s
Slide 16: Total embedded value up 10% to EUR 20.7 billion
Total embedded value up 10% to EUR 20.7 billion Total embedded value increased mainly due to positive performance of in-force business as a result of cost savings, better than expected mortality and strengthening of currencies Embedded value life insurance reduced byy 7% due to the divestitures
Slide 17: Embedded value life insurance affected by capital movements
Embedded value life insurance affected by capital movements Positive performance of in-force portfolio as a result of cost savings and better than expected mortality ► Changes g in operating p g assumptions p mainly y update y driven by p of mortality y assumptions p in the Americas and lower oper
Slide 18: Conclusion
Conclusion Execution of strategy – positioning for future growth Earnings increase on business growth, cost reductions and favorable markets Sales up 25%, demonstrating strength of franchise Strong capital position and operational free cash flows E b dd d value Embedded l per common share
Slide 19: Q&A
Q&A 19
Slide 20: Appendix
Appendix 20
Slide 21: Market consistent value of new business – focus on pricing discipline
Market consistent value of new business – focus on pricing discipline New business production measured on a market consistent basis, reflecting an overall transition to market consistent valuation Increase in MCVNB driven by focus on pricing discipline and fee-based fee based products ► MCVNB in
Slide 22: US variable annuities – focus on innovation and distribution
US variable annuities – focus on innovation and distribution Competitors leave the market or restrict distribution VA underlying earnings (USD million) Strategy of product innovation with focused growth in traditional and non-traditional non traditional channels adds to scale ► Continued high de
Slide 23: US Life & Protection sales increase 20%
US Life & Protection sales increase 20% Life sales increase 12% Life and accident & health sales (USD million) ► Mainly driven by Indexed Universal Life and middle market focus • Strong recruiting in World Finance Group distribution channel 299 297 • New products introduced through the brokerage c
Slide 24: Main economic assumptions
Main economic assumptions Assumed reinvestment yield 10-year US Treasury assumption lowered to (10-year US Treasury + credit spread) 4.75% from 5.25% in Q3 2011 7.0% ► Grading from current yield to 4.75% in five years Bond fund returns lowered to 4% from 6% for 5 years and 6% 6.0% thereafter 5.0
Slide 25: Sensitivity of targets to interest rates and equity markets
Sensitivity of targets to interest rates and equity markets G Grow underlying d l i earnings i before b f tax t byb 7% to t 10% <3% 7-10% ~2.75% Sensitivities* Assumed in Movement Impact on organic ~4.25% targets growth of 1,808 business Interest rates 4.75% 50 bps -0.75% / +0.75% Equity market 9% 2
Slide 26: New life sales of EUR 445 million
New life sales of EUR 445 million Sales up in the Americas as indexed universal life and whole life sales increased The Netherlands down due to lower individual life sales and seasonal Q4 production for pensions and a larg ge p pension contract in Q Q1 2011 Lower sales in the UK following re-p
Slide 27: Continued strong gross deposits reflect shift to fee business
Continued strong gross deposits reflect shift to fee business Strong retirement deposits, driven by an increase in takeover deposits Strong asset management inflows as a result of good performance in retail and institutional segments g Variable annuity deposits increased 3%, despite re-pricing
Slide 28: Market consistent value of new business
Market consistent value of new business MCVNB (million EUR) 2011 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Americas 169 66 67 41 (5) 47 The Netherlands 64 1 17 9 37 27 United Kingdom 79 19 21 16 24 27 New Markets 110 35 33 27 15 24 Total 422 121 138 93 71 125 MCVNB is the value of a new contract at dayy one t
Slide 29: Market consistent value of new business of EUR 125 million
Market consistent value of new business of EUR 125 million Americas; strong MCVNB of pensions partly offset by higher variable annuity hedging cost. Variable annuities were repriced in December 2011, to reflect low interest rates Strong g MCVNB in the Netherlands as a result of a hig gher contri
Slide 30: Higher earnings driven by the UK and New Markets
Higher earnings driven by the UK and New Markets Americas’ earnings decreased due to adverse mortality experience in Life & Protection and lower fixed annuities earnings as the product is de-emphasized In the Netherlands earning gs were neg gatively yim pacted byy adverse disability yclaims UK
Slide 31: Americas
Americas Underlying earnings before tax down on unfavorable mortality experience of USD 16 million and lower fixed annuity earnings, partly offset by higher fee-based earnings Opperating gex penses declined 1% as cost levels of run-off activities were reduced New life sales up 10% driven by st
Slide 32: The Netherlands
The Netherlands Underlying earnings remain level as higher Life & Savings earnings were offset by lower earnings in Non-Life as a result of adverse disability experience Op perating gex penses declined to EUR 187 million,,mainl y driven by yrealized cost savin gs partly offset by business growth
Slide 33: United Kingdom
United Kingdom Underlying earnings before tax increased to GBP 25 million driven by a strong improvement in pension earnings as last year included exceptional charges and expenses Total op perating gex penses declined 37% to GBP 62 million,,followin g the successful implementation of the cost re
Slide 34: New Markets
New Markets Underlying earnings increased to EUR 88 million driven by strong earnings in Asia and asset management Op perating gex penses decreased mainly y as a result of timing g differences in asset management expenses New life sales declined as a result of lower universal life sales in Hon
Slide 35: Integration of Asian operations reflected in reporting as of Q1 2012
Integration of Asian operations reflected in reporting as of Q1 2012 CHINA (50%) PAN ASIA (previously run from US) AEGON - CNOOC Life & Affinity Marketing Traditional Life Health Unit linked Group - products New Markets INDIA ((26%)) - AEGON - Religare Asia AEGON Direct & Transamerica Traditional Li
Slide 36: Capital allocated to the run-off businesses
Capital allocated to the run-off businesses Current capital allocated to run-off businesses of EUR 2.4 billion ► Return on capital of run-off businesses of 4.9% in Q1 2012 Capital intensive run-off run off businesses negatively impact return on equity ► Capital allocated to run-off businesses is
Slide 37: General account investments roll-forward
General account investments roll-forward General account investment roll-forward EUR billion Americas The Netherlands United Kingdom New Markets Opening balance December 31, 2011 89.6 39.0 10.0 4.8 Net in- and outflow (1.9) 0.3 0.0 0.1 Unrealized / realized results 0.2 0.3 (0.0) 0.1 Foreign exchange
Slide 38: Investments general account
Investments general account AEGON UNAUDITED March 31, 2012 INVESTMENTS GENERAL ACCOUNT The United New Holdings g amounts in EUR millions, millions except for the impairment data Americas Netherlands Kingdom Markets and other TOTAL Cash / Treasuries / Agencies 15,105 9,624 2,608 1,587 587 29,511 Inve
Slide 39: Limited exposure in general account to peripheral European countries
Limited exposure in general account to peripheral European countries Total exposure to peripheral European sovereigns 0.7% of general account Corporate debt mainly related to defensive sectors, for example utilities General account assets Peripheral European countries (at fair value March 31, 20
Slide 40: Impairments by asset class
Impairments by asset class AEGON general account investments Q1 2012 impairments / (recoveries) by country unit - IFRS basis (pre-DAC, pre-tax) EUR millions Americas NL UK New Markets Total ABS – Housing - - - - - ABS – Non-housing (0) - - - (0) CMBS - - - - - RMBS 29 - - - 29 Subtotal structured as
Slide 41: Reconciliation of effective tax rate Q1 2012
Reconciliation of effective tax rate Q1 2012 Reconciliation of effective tax rate Q1 2012 EUR million Americas The Netherlands United Kingdom New Markets/ Holdings Total Income before tax 332 149 33 52 566 Nominal tax rate 35.0% (116) 25.0% (37) 24.5% (8) 25.0%* (11) (172) Actual income tax (53) (8)
Slide 42: For questions please contact Group Corporate Communications
For questions please contact Group Corporate Communications +31 70 344 8956 gcc ir@aegon com [email protected] P.O. Box 85 2501 CB The Hague The Netherlands WWW.AEGON.COM
Slide 43: Disclaimer
Disclaimer Cautionary note regarding non-GAAP measures This document includes certain non-GAAP financial measures: underlying earnings before tax and market consistent value of new business. The reconciliation of underlying earnings before tax to the most comparable IFRS measure is provided in Note