Aegon Ltd. · EURONEXT:AGN
Aegon — Q2 2012 Earnings Presentation
41 slides from Aegon's earnings presentation, Aug 9, 2012
Slide 1: Second quarter 2012 results
Second quarter 2012 results Alex Wynaendts CEO Media presentation The Hague – August 9, 2012
Slide 2: Strong earnings, capital and sales growth
Strong earnings, capital and sales growth Continued execution of strategy leading to strong results Earnings up 10% on business growth, cost reductions and favorable currencies Sales increase 27%, highlighting strength of franchise Strong capital position and cash flows Interim dividend of
Slide 3: 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 2015 on average per annum billion between 2010 and 2015 of underlying earnings by 2
Slide 4: Earnings up on business growth, cost reductions and favorable currencies
Earnings up on business growth, cost reductions and favorable currencies Growth of US pension earnings and favorable currencies offset by lower fixed annuity earnings, higher employee benefit expenses and allocation of Corporate Center charges Adverse claim experience in non-life insurance in th
Slide 5: Net income includes one-off charge
Net income includes one-off charge Fair value gains are positively impacted by results on the Dutch guarantee portfolio partly offset by US macro equity hedge Impairments remain at low level and are mostly related to US RMBS Other charges are primarily related to the acceleration of product im
Slide 6: Operating expenses reduced by 5% while investing in new propositions
Operating expenses reduced by 5% while investing in new propositions Cost savings in established markets reflect cost reductions in the Americas and successful restructuring programs in the UK and the Netherlands Enacted cost savings in Dutch business of EUR 62 million (Q2 EUR 13 million). Well
Slide 7: US reinvestment yield benefits from higher credit spreads
US reinvestment yield benefits from higher credit spreads Higher credit spreads offset impact from lower risk-free interest rates Current reinvestment yield supports margins and assumptions New money invested in mix of high quality corporates, sovereigns and structured assets US general accoun
Slide 8: Market consistent value of new business – focus on pricing discipline
Market consistent value of new business – focus on pricing discipline Increases in MCVNB in NL and US pensions offset by lower margins on UL survivorship product, VA and Asia due to low interest rates and lower production in CEE and Spain Significant management actions to improve profitability o
Slide 9: Sales up 27%, highlighting strength of franchise
Sales up 27%, highlighting strength of franchise Gross deposits up 45% to EUR 9.8 billion Sales* (EUR billion) ► Higher US pension deposits driven by increased takeover deposits ► AEGON Asset Management deposits more than doubled; good performance in institutional segments in the US and NL 1.8 1.6
Slide 10: Impairments remain at low level
Impairments remain at low level Impairments are mainly linked to US residential mortgage-backed securities Impairments include recoveries of EUR 16 million ~70% of general account is based in non-euro countries Impairments Majority of general account held (EUR million and basis points) outside
Slide 11: Limited exposure in general account to peripheral European countries
Limited exposure in general account to peripheral European countries Total exposure to peripheral European sovereigns only 0.6% of general account Corporate debt mainly related to defensive sectors, for example utilities Exit of Cívica and CAM will reduce peripheral exposure by EUR ~700 millio
Slide 12: Continued strong capital position
Continued strong capital position Strong IGD ratio of 216%, IGD surplus capital of EUR 8.3 billion NAIC RBC ratio of ~460%; NL IGD ratio of ~265%; UK Pillar 1 ratio of ~135% ► More favorable yield (Ultimate Forward Rate) to discount liabilities had positive effect on Dutch IGD of ~35% ► US RBC r
Slide 13: Execution of strategy leading to strong results
Execution of strategy leading to strong results IGD ratio 216%, earnings up 10% Protecting capital and earnings Interim dividend of EUR 0.10 Focus on margins Management action to improve MCVNB Enhanced efficiency Operating expenses down 5% Developing products customers need New products launched Use
Slide 14: Q&A
Q&A 14
Slide 15: Appendix
Appendix 15
Slide 16: US pensions – margin enhanced, withdrawal rate low
US pensions – margin enhanced, withdrawal rate low Margin improvements driven by: Economies of scale Non-traditional product growth Operational enhancements Strong net deposits flow Leveraging technology Strong client retention; withdrawal rate of 10.9% Intelligent expense management P
Slide 17: US variable annuities – focus on margins
US variable annuities – focus on margins Continued focus on writing profitable new business VA underlying earnings ► Higher benefit costs due to falling interest rates (USD million) ► Changes to fund options, fees and benefit options supports margins ► Attract clients with low risk appetite throug
Slide 18: US Life & Protection – strong franchise
US Life & Protection – strong franchise Life sales increase 16% - diverse distribution Life and accident & health sales ► Leveraged product portfolio by offering whole life and (USD million) Indexed Universal Life in multiple distribution channels 297 296 ► Strong recruiting in World Financial Gro
Slide 19: Attractive mortgage business in the Netherlands
Attractive mortgage business in the Netherlands Strong market position - attractive proposition and high service levels Relatively low interest- ► Market share 7.4%, new mortgage production EUR 0.7 billion Q2 2012 only exposure ► ~60% of new mortgage production has related life or banking sales (J
Slide 20: Operational free cash flows in line with expectations
Operational free cash flows in line with expectations Operational free cash flow of EUR 296 million excluding market impact and one-time items Earnings on the inforce positively impacted by EUR~600 million related to UFR in the Netherlands partly offset by Dutch unit linked product improvements
Slide 21: Capital base ratio of 74.6%, on target to exceed 75% by end 2012
Capital base ratio of 74.6%, on target to exceed 75% by end 2012 Improvement of capital base ratio driven by higher shareholders’ equity and dividends from operating units Holding reflects expenses, interest and dividend payments on common and preferred shares Common shareholders’ equity per s
Slide 22: Main economic assumptions
Main economic assumptions Assumed reinvestment yield (10-year US Treasury + credit spread) 10-year US Treasury assumption of 4.75% by 2016 7.0% ► Grading to 4.75% in five years 6.0% Credit spreads are assumed to grade over two years to 110 bps 5.0% Bond funds are assumed to return 4% for 5 yea
Slide 23: Sensitivity of targets to interest rates and equity markets
Sensitivity of targets to interest rates and equity markets Grow underlying earnings before tax by 7% to 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% 200 bps -1.00% / +1.
Slide 24: New life sales
New life sales of EUR 445 million Sales up in the Americas driven by higher indexed universal life sales and whole life Lower pension sales due to low interest rate environment and lower life sales in the Netherlands Lower sales in the UK reflecting an expected reduction in pension sales, part
Slide 25: Continued strong gross deposits reflect shift to fee business
Continued strong gross deposits reflect shift to fee business Strong pension deposits, driven by an increase in takeover deposits in the retirement plan space and strong stable value deposits Asset management inflows as a result of strong institutional sales in the US and the Netherlands Varia
Slide 26: Market consistent value of new business
Market consistent value of new business of EUR 117 million Americas; strong pensions MCVNB partly offset by lower life margins and higher variable annuities benefit costs Higher MCVNB in the Netherlands as a result of higher contributions from mortgages Lower new business volume and margin dec
Slide 27: Higher earnings driven by favorable currency movements and the UK
Higher earnings driven by favorable currency movements and the UK Americas’ earnings decreased mainly due to lower fixed annuities earnings as a result of lower balances as the product is de-emphasized In the Netherlands better pension earnings were offset by adverse claims in Non-Life UK earn
Slide 28: Americas
Americas Underlying earnings before tax down as higher pension earnings were more than offset by lower fixed annuity earnings as the product is de-emphasized Operating expenses declined 3% as a result of cost savings, partly offset by higher employee benefit cost and Corporate Center charges N
Slide 29: The Netherlands
The Netherlands Underlying earnings remain level as higher pension earnings were offset by lower earnings in Non-Life as a result of adverse claim experience Operating expenses declined 6% to EUR 189 million, mainly driven by realized cost savings partly offset by business growth and investments
Slide 30: Acceleration of product improvements Dutch unit linked policies
Acceleration of product improvements Dutch unit linked policies Acceleration of 2009 agreement with consumer interest groups Resolve disputes and ultimately restore trust Immediate Immediate settlement of compensation by direct additions to policy values instead compensation settlement of at p
Slide 31: United Kingdom
United Kingdom Underlying earnings before tax increased to GBP 20 million driven by higher pension earnings as a result of cost savings and non-recurrence of extraordinary charges Total operating expenses declined 37% to GBP 69 million, following the successful implementation of the cost reducti
Slide 32: New Markets
New Markets Underlying earnings decreased as higher earnings from asset management and Asia were more than offset by lower pension earnings in CEE, the exclusion of CAM in Spain and an exceptional charge in Variable Annuities Europe Operating expenses increased mainly as a result of investments
Slide 33: Capital allocated to run-off businesses
Capital allocated to run-off businesses Current capital allocated to run-off businesses of EUR 2.3 billion ► Return on capital of run-off businesses of 3.2% in Q2 2012 Capital intensive run-off businesses negatively impact return on equity ► Capital allocated to run-off businesses is included in
Slide 34: 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 March 31, 2012 85.7 39.6 10.0 5.0 Net in- and outflow (0.7) 0.6 (0.0) 0.0 Unrealized / realized results 1.3 (0.0) 0.2 (0.0) Foreign exchang
Slide 35: Investments general account
Investments general account AEGON UNAUDITED June 30, 2012 INVESTMENTS GENERAL ACCOUNT The United New Holdings amounts in EUR millions, except for the impairment data Americas Netherlands Kingdom Markets and other TOTAL Cash / Treasuries / Agencies 17,456 10,005 2,846 1,583 802 32,692 Investment grad
Slide 36: Impairments remain at low level
Impairments remain at low level Impairments are mainly linked to US residential mortgage-backed securities Impairments included recoveries of EUR 16 million Impairments (EUR million) 416 501 385 394 286 212 150 77 92 133 62 100 132 94 41 42 146 91 64 101 93 355 330 69 11 34 325 284 7 47 30 193 1
Slide 37: Impairments by asset class
Impairments by asset class AEGON general account investments Q2 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 (1) - - - (1) CMBS - - - - - RMBS 29 - - 0 29 Subtotal structured as
Slide 38: Credit losses in the US remain at low level
Credit losses in the US remain at low level Q2 2012 US credit impairments amount to 6 bps US credit losses in bps of fixed income assets 120 91 82 average of 33 bps 64 48 52 44 44 since 1990 37 33 27 25 9 8 17 17 11 1 2 4 2 -2 -6 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 200
Slide 39: Reconciliation of effective tax rate Q2 2012
Reconciliation of effective tax rate Q2 2012 Reconciliation of effective tax rate Q2 2012 EUR million Americas The Netherlands United Kingdom New Markets/ Holdings Total Income before tax 280 (51) 71 38 338 Nominal tax rate 35.0% (98) 25.0% 13 24.5% (17) 25.0%* (8) (110) Actual income tax (65) 23 (2
Slide 40: For questions please contact Group Corporate Communications
For questions please contact Group Corporate Communications +31 70 344 8956 [email protected] P.O. Box 85 2501 CB The Hague The Netherlands WWW.AEGON.COM
Slide 41: 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