Aegon Ltd. · EURONEXT:AGN
Aegon — Nomura Financial Services Conference 2010
52 slides from Aegon's conference presentation, September 2010
Slide 1: Execution of strategy
Execution of strategy Jan Nooitgedagt CFO Nomura Financial Services Conference London, September 2010
Slide 2: AEGON's ambition
AEGON’s ambition “To be a leader in all of our chosen markets by 2015” � Reallocate capital � Increase returns � Optimize ONE AEGON … resulting in sustainable profitable growth 2
Slide 3: AEGON's continued execution of its strategy
AEGON’s continued execution of its strategy � Freed up EUR 5.4 billion of capital since June 2008 Reallocate capital � Explore strategic options Life reinsurance unit, including sale � Continue to shift focus from spread to fee-based products � Run-off institutional spread-based business by USD 17.7
Slide 4: Execution of strategy demonstrated by strong results
Execution of strategy demonstrated by strong results Underlying earnings before tax New life sales (EUR million) (EUR million) 590 522 557 478 488 538 415 390 484 492 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Revenue-generating investments Gross deposits* (EUR billion) (EUR billion
Slide 5: Reallocate capital
Strategic priorities Reallocate capital Reallocate capital Local knowledge. Global power. 5
Slide 6: Portfolio review – exploring strategic options for life reinsurance
Portfolio review – exploring strategic options for life reinsurance � Limited long-term strategic fit of AEGON’s life reinsurance unit, Transamerica Reinsurance, with core business of life insurance, pensions and asset management � Exploring strategic options, including identifying a suitable buyer
Slide 7: Franchise value of Transamerica Reinsurance
Franchise value of Transamerica Reinsurance � Leading position among life reinsurers: #3 in US and #7 globally � Strong in US traditional life reinsurance – 20% new business market share – Top 3 facultative reinsurer � #1 in product consulting & development in US � Recognized internationally for qua
Slide 8: Reallocate capital to higher growth and return businesses
Reallocate capital to higher growth and return businesses Rebalance capital across geographies � Shift focus in US to fee-based from spread-based products 10% 9% – Grow pension business 53% – Run-off institutional spread-based 2009 business EUR 21.7 billion* – De-emphasize fixed annuities 28% � Reba
Slide 9: Increase returns
Strategic priorities Reallocate capital Increase returns Local knowledge. Global power. 9
Slide 10: Leverage leading market positions in the UK
Leverage leading market positions in the UK � Focus on growth market segments where AEGON has a leading position – At Retirement – Growing market with GBP 16 billion of funds maturing annually – Workplace savings – Attractive market with GBP 800 billion of assets – Positive impact from Pension Refor
Slide 11: Adapting operating model to changing environment
Adapting operating model to changing environment Changing environment requires change in industry cost structure Deliver operational excellence � Continue to be cost efficient operator – Enhance web capabilities – Reduce number of administration platforms – Decrease costs per policy � Effective and
Slide 12: Capital
Strategic priorities Reallocate capital Capital Local knowledge. Global power. 12
Slide 13: Shareholders' equity continues to improve
Shareholders’ equity continues to improve � Shareholders' equity rose 18% due to strengthening of the dollar, improvement in revaluation reserves and net income � Shareholders’ equity per common share of EUR 8.83, up from EUR 7.28 in the previous quarter � Positive revaluation reserves of EUR 0.6 bi
Slide 14: Continued strong capital position
Continued strong capital position � Excess capital above S&P AA capital adequacy requirements of EUR 3 billion � IGD capital surplus of EUR 7 billion; solvency ratio of ~200% � Core capital* at 74% of total capital base – above threshold of 70%; managing to 75% by end 2012 Shareholders’ equity** (EU
Slide 15: Improving capital position and cash flows allow for up-streaming of cash
Improving capital position and cash flows allow for up-streaming of cash � Improving capital position and cash flows in 2010: – Additional EUR 0.5 billion of capital to be released in H2 2010 – At least EUR 1 billion to be up-streamed from operating units in 2010 � Ability to up-stream capital is la
Slide 16: AEGON concluded approval process with European Commission
AEGON concluded approval process with European Commission � EC approved capital support August 17, 2010 � EC recognizes steps AEGON has taken to execute its strategy � Early repayment schedule agreed at more favorable terms – EUR 0.5 billion – repaid at 10.3% premium August 2010 – EUR 1.5 billion –
Slide 17: Optimize ONE AEGON
Strategic priorities Reallocate capital Optimize ONE AEGON Local knowledge. Global power. 17
Slide 18: Optimize ONE AEGON
Optimize ONE AEGON � One balance sheet – capture diversification benefits � Leverage and standardize best practices – Product innovation, distribution knowledge and brand management – Underwriting and risk management – IT infrastructure � Consistent performance management Delivering more than the su
Slide 19: AEGON risk lines of defense
AEGON risk lines of defense 3rd Line Assurance Review and Audit 2nd Line Oversight Risk Management Components of Business 1st Line Line Business Business Marketing Pricing Investments Legal … Risks Process facilitates conscious risk-return decisions and minimizes chances of surprises AEGON Investor
Slide 20: Local risk management in a global framework
Local risk management in a global framework Group CRO Resources Americas CRO Europe CRO Asia CRO Operating unit CROs Methodology � It is important that risk management in the operating Applications & units is also part of the local management team data � Risk management is integrated across the Grou
Slide 21: Conclusion
Conclusion � Reallocate capital – Explore strategic options for life reinsurance business – Invest in attractive market segments – Improve risk profile � Increase returns – Restructure UK business – Focus Focus on enhancing enhancing return return on equity equity and and cash cash flows flows � Opt
Slide 22: Q&A
Q&A LIFE INSURANCE PENSIONS INVESTMENTS WEGON
Slide 23: Repayment to Dutch State
Repayment to Dutch Appendix 1 State
Slide 24: EUR 500 million has been repaid from operating companies excess capital
EUR 500 million has been repaid from operating companies excess capital � EUR 500 million has been repaid end of August 2010 – Premium of 10.3% (EUR 52 million) – Accrued interest of 8.5% (EUR 11 million) � Repayment of EUR 500 million from excess capital up-streamed from operating companies during
Slide 25: Agreement to full repayment by end of June 2011
Agreement to full repayment by end of June 2011 � Agreed repayment of remaining EUR 1.5 billion at: – Premium of 50% – No accrued interest � Early repayment contingent upon: – Ability to up-stream cash from operating companies – Ability to utilize excess capital – Progress of disposals – Market cond
Slide 26: AEGON will temporarily be subject to limited behavioral constraints
AEGON will temporarily be subject to limited behavioral constraints � Behavioral constraints in the Dutch market: – Not to pursue top 3 price leadership in residential mortgages and internet savings – S&P no longer to publish AA- insurance financial strength rating on AEGON Levensverzekering N.V – A
Slide 27: Second quarter 2010 results
Second quarter Appendix 2 2010 results
Slide 28: Continued focus on execution of strategy in Q2
Continued focus on execution of strategy in Q2 Reallocate capital � Run-off institutional spread-based business in the US on track � Increased fee business, reduced spread business in the US � Capital preservations of EUR 250 million in Q2 2010 � Exploring strategic options for Transamerica Re, incl
Slide 29: Strong sales and deposits
Strong sales and deposits � New life sales increased 22% YoY driven by almost all units, especially by increased sales in the US and the UK � Gross deposits* up on strong US pensions and asset management � Fixed annuities continued to be managed lower � VNB declined due to earlier repricing of immed
Slide 30: Underlying earnings increase 26%
Underlying earnings increase 26% � Americas earnings rose 47% due to higher fee and investment income as well as lower expenses; Q2 09 included several exceptional charges � Strong earnings in the Netherlands; Q2 09 included a provision release � Results in the UK rose due to increased annuity book
Slide 31: Operating expenses declined by 2% at constant currencies
Operating expenses declined by 2% at constant currencies � Total operating expenses increased 3% due to dollar and pound sterling strengthening against the euro; however at constant currencies declined by 2% � Operating expenses: – Americas decreased on a comparable basis as result of cost savings –
Slide 32: Net income driven by strong underlying earnings
Net income driven by strong underlying earnings � Investment gains as a result of bond sales � Impairments at lowest level in two years, approaching long-term assumptions � Other charges impacted by one-time provision for settlement in the US � Run-off businesses better than expected due to better p
Slide 33: Impairments at lowest level in two years
Impairments at lowest level in two years � US impairments continued their downward trend, approaching AEGON’s long-term assumption of 30-35 bps � Q2 2010 impairments are primarily related to US housing related securities � Impairments expected to remain at somewhat elevated levels Impairments (EUR m
Slide 34: Excess capital lower due to higher S&P capital requirements
Excess capital lower due to higher S&P capital requirements � Excess capital of EUR 3.0 billion above S&P’s AA capital adequacy requirements – EUR 1.9 billion in operating units (Q1: EUR 2.4 billion) – EUR 1.1 billion at the holding company (Q1: EUR 1.3 billion) Excess capital development Q2 2010 (E
Slide 35: Limited exposure to peripheral European sovereigns reduced
Limited exposure to peripheral European sovereigns reduced EUR million * March 31, 2010 June 30, 2010 Portugal 59 47 Greece 108 70 Ireland 125 89 Italy 109 106 Spain 1,793 1,231 * At fair value 35
Slide 36: Increased new life sales demonstrate continued strong franchise
Increased new life sales demonstrate continued strong franchise � New life sales increased by 22% to EUR 590 million compared with Q2 2009 – Americas’ new life sales improved 13% mainly due to retail life sales – The Netherlands recorded higher pension and life sales – UK production increased 25% as
Slide 37: Continued strong deposits
Continued strong deposits � Gross deposits of EUR 7.6 billion, an increase compared with Q2 2009 of 16% – Strong asset management, US pensions and US mutual funds deposits – Fixed annuities were managed lower � All country units recorded net deposits*, in total EUR 1.0 billion Gross deposits Q2 2010
Slide 38: Value of new business
Value of new business � Value of new business of EUR 148 million – Lower value of new business mainly due to the decrease of immediate annuity sales in the UK following earlier repricing and lower sales in Spain – Fixed annuity sales in the US are managed lower – New Markets represents 22% of the to
Slide 39: Additional Q2 2010 slides
Additional Q2 2010 Appendix 3 slides
Slide 40: Americas
Americas � Underlying earnings increased 47% to USD 560 million, mainly due to improved financial markets; Q2 09 included several one-off charges � New life sales increased 13% mainly due to retail life � Net deposits* of USD 1.0 billion as pension, VA and retail mutual fund inflows were partly offs
Slide 41: The Netherlands
The Netherlands � Strong underlying earnings of EUR 97 million – Q2 2009 contained a one time release of EUR 20 million � New life sales up 28% mainly due to increased pension sales � Net deposits declined to EUR 55 million due to lower pension deposits � Operating expenses declined 5% following con
Slide 42: United Kingdom
United Kingdom � Underlying earnings increased to GBP 18 million � New life sales increased 25% as higher pension and retirement sales more than offset lower immediate annuities sales following earlier repricing � Net deposits were lower due to lower variable annuities sales � Operating expenses dec
Slide 43: New Markets
New Markets � Underlying earnings decreased as a result of storms and floods in Hungary and further investments in Asia and Turkey � New life sales slightly declined as sales growth in both Central & Eastern Europe and Asia was offset by lower sales in Spain � Net deposits rose due to improved asset
Slide 44: Run-off businesses better than expected
Run-off businesses better than expected � Earnings better than expected due to better portfolio yields � Institutional spread balances are running off as foreseen Run-off balances (USD billion) 45 40 35 Decline of USD 16.3bn 30 25 20 15 10 5 0 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Institutional
Slide 45: Total general account portfolio composition
Total general account portfolio composition June 30, 2010 Amounts in EUR billions The United New Holdings and Americas Netherlands Kingdom Markets Other TOTAL Cash / Treasuries / Agencies 15,574 10,074 1,365 1,120 719 28,852 Investment grade corporates 44,273 5,022 6,122 807 - 56,224 High yield (and
Slide 46: General account investments roll-forward
General account investments roll-forward EUR billion Americas The Netherlands United Kingdom New Markets Opening balance March 31, 2010 92.9 36.3 8.4 2.9 Net in- and outflow (0.4) (1.2) 0.3 0.0 Unrealized / rea Unrealized realized lized resu results lts 1 .5 1.5 0 .0 0.0 0.1 0 .1 (0.0) (0.0) Foreign
Slide 47: Net impairments by asset class
Net impairments by asset class AEGON general account investments (in EUR millions) Q2 2010 impairments / recoveries by country unit - IFRS basis (pre-DAC, pre-tax) Americas NL UK New Markets Total ABS – Housing 19 - - 19 ABS – Non-housing - - - - CMBS 8 - - 8 RMBS 57 - - 57 Subtotal structur
Slide 48: Commercial mortgage loans
Commercial mortgage loans � USD 13.6 billion commercial mortgage loan portfolio* � Sound debt service coverage ratio of 1.8 � Average LTV of 65% � Own origination CML net impairments - IFRS (USD million) million)** ** Weighted average loan-to-value by property type (%) 80 70 60 50 40 30 32 23 16 20
Slide 49: Annualized credit losses in the US decrease considerably
Annualized credit losses in the US decrease considerably � In Q2 2010 US credit losses in bps of fixed income assets amounted to 10 bps a further decrease compared with 19 bps in Q1 2010 � Annualized 1H 2010 credit impairments amount to 58 bps US credit losses in bps of fixed income assets 120 91 82
Slide 50: Life reinsurance
Life reinsurance � Strong underlying earnings of USD 33 million � New life sales stable � 89% of premium income US domestic � 20% new business market share in US traditional life reinsurance � Leading position among life reinsurers: #3 in US and #7 globally Underlying earnings before tax New life sa
Slide 51: Disclaimer
Disclaimer Cautionary note regarding non-GAAP measures This press release includes certain non-GAAP financial measures: underlying earnings before tax and value of new business. The reconciliation of underlying earnings before tax to the most comparable IFRS measure is provided in Note 3 "Segment in
Slide 52: For questions please contact Investor Relations
For questions please contact Investor Relations T: +31 70 344 8305 E: [email protected] www.aegon.com P.O. Box 85 2501 CB The Hague The Netherlands