Aegon Ltd. · EURONEXT:AGN
Aegon — BoA-ML Financials Conference 2011
45 slides from Aegon's conference presentation, October 2011
Slide 1: AEGON's improved risk-return profile
AEGON’s improved risk-return profile Alexander Wynaendts CEO BoA-ML Financials conference London, October 2011
Slide 2: AEGON today
AEGON today AEGON transformed considerably since the crisis Financial markets risk reduced, as a result of proactive management Solid capital position Continued execution of strategy in volatile market environment Ambition to improve growth and return profile 2
Slide 3: AEGON has transformed considerably since the crisis
AEGON has transformed considerably since the crisis Before the crisis... Businesses managed on earnings Long-term vision growth Transformed company with an Growing spread businesses key improved risk-return profile, earnings driver Since the crisis... broader geographic balance Increasing op
Slide 4: Strategy based on realities of new environment
Strategy based on realities of new environment Changes in Consequences AEGON strategy Strategic objectives the environment for the sector Volatile financial Efficient use of capital markets Higher capital ► Reduce financial markets exposure requirements ► Expand in capital-light products Inc
Slide 5: Addressing the issues
Addressing the issues Solid capital Low Effect equity position interest rates market down manageable turn mitigated Business Limited Deferred managed on exposure to acquisition costs economic European recoverable framework peripherals 5
Slide 6: Capital position strengthened…
Capital position strengthened… Increased required surplus (S&P) Improved quality of capital (IFRS) (EUR billion) 23% 25% + 44% 27% Perpetual capital securities and net 14% senior debt Core capital securities Shareholders’ equity 73% 75% 62% 8.8 12.7 2008 2010 2008 Q2 2011 2012 target Higher
Slide 7: …and better protected as a result of management actions
…and better protected as a result of management actions Reduced VA GMIB back-book fully delta hedged equity market risks Equity market risk embedded in Dutch guarantees fully hedged Reduced direct equity holdings and hedge funds Product re-design in US variable annuities Reduced Interest r
Slide 8: Sensitivity to equity markets and interest rates
Sensitivity to equity markets and interest rates (disclosed on August 11, 2011) MSCI World index declined 11% during Q3 2011 10-year US Treasury declined 124 bps during Q3 2011 June 30 June 30 20% decrease 100bps decrease equity markets interest rates Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Slide 9: Managing for economic value
Managing for economic value Company managed on economic framework basis ► Market consistent value of new business (MCVNB) part of management remuneration ► Shift from spread to fee business leads to convergence between VNB and MCVNB ► Increase in MCVNB driven by focus on fee-based products and pri
Slide 10: Deferred acquisition costs recoverable, also in current market environment
Deferred acquisition costs recoverable, also in current market environment DAC per country unit (June 30, 2011) 4% US DAC per line of business Life & Protection Americas 29% 16% 2% Variable Annuities The Netherlands EUR 10.6 3% billion EUR 7.0 Fixed Annuities United Kingdom 10% 61% billi
Slide 11: Limited exposure to peripheral European countries
Limited exposure to peripheral European countries Total exposure related to peripheral European countries 3.5% of general account Exposure to peripheral European sovereigns remains limited Corporate debt mainly related to defensive sectors, for example utilities General account assets Peripher
Slide 12: Ambitious financial targets
Ambitious financial targets Achieve return on equity of Grow underlying earnings before tax by 10-12% 7-10% by 2015 on average per annum between 2010 and 2015 Double fee-based earnings to Increase annual operational free cash flow to 30-35% €1.3-1.6 billion of underlying earnings by 2015 by 2015 12
Slide 13: Growth opportunities in our chosen markets
Growth opportunities in our chosen markets Americas The Netherlands United Kingdom New Markets Pensions SME pensions At retirement and Acceleration of growth workplace savings in CEE Variable annuities Offer customer-focused markets Continued investments and transparent banking Mutua
Slide 14: Reducing costs in Dutch insurance and banking businesses
Reducing costs in Dutch insurance and banking businesses Cost reduction of EUR 100 million Further reduction through: from 2010 level ► Reduction of 300 FTE, especially support Majority of savings to be achieved in 2012 functions Restructuring charge of EUR 60 million ► Reduce external staff
Slide 15: On track to deliver GBP 80 million cost savings in the UK by year-end 2011
On track to deliver GBP 80 million cost savings in the UK by year-end 2011 Complete the majority of customer redress program Life and Pension operating expenses and restructuring program by end 2011 (GBP million) ► Exceptional expenses and charges likely to continue until end 2011 100 75 Full be
Slide 16: On track to achieve important milestones between now and 2015
On track to achieve important milestones between now and 2015 Complete UK Achieve capital Complete run-off Repayment customer redress base ratio of institutional Dutch State program >75% spread business 2012 2011 2015 € Divestment Reduce UK Intention to start Reduce Dutch Deliver on Transamerica exp
Slide 17: Q&A
Q&A 17
Slide 18: Appendix Q2 2011 results
Appendix Q2 2011 results 18
Slide 19: 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 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 2015 by 2015
Slide 20: Underlying earnings mainly impacted by adverse currency movements
Underlying earnings mainly impacted by adverse currency movements Adverse impact from lower dollar compared to Q2 2010 of EUR 44 million (Q1 2011: EUR 18 million) Lower fixed annuity earnings due to lower spreads and lower asset balances as the product is de-emphasized – in line with strategy
Slide 21: Earnings impacted by fixed annuities and exceptional charges in NL and UK
Earnings impacted by fixed annuities and exceptional charges in NL and UK Americas’ underlying earnings down due to fixed annuities. Lower Life & Protection earnings were offset by higher variable annuity earnings In the Netherlands higher life results were more than offset by higher provisionin
Slide 22: Higher fee-based earnings offset by lower spreads in US
Higher fee-based earnings offset by lower spreads in US Earnings from Life & Protection declined as a result of unfavorable persistency and lower spreads due to lower interest rates Lower asset balances and lower spreads of fixed annuities caused earnings decrease Variable annuity earnings inc
Slide 23: Net income benefits from gains on investments
Net income benefits from gains on investments Fair value items impacted by continued volatile markets Investment gains mainly a result of strategic reallocation of equities into fixed income in the Netherlands Impairments were linked to US residential mortgage-backed securities and exchange of
Slide 24: Half-year operating expenses at constant currencies remained level
Half-year operating expenses at constant currencies remained level Excluding restructuring charges At constant currencies, excluding restructuring and employee benefit plan costs, expenses remained level ► Reported operating expenses 2% higher due to restructuring in the UK and the Netherlands and
Slide 25: Sales impacted by re-pricing in the US and UK
Sales impacted by re-pricing in the US and UK At constant currencies, total sales declined 7% Reported total sales* down 15%, affected by weakening of the USD and lower new life sales New life sales declined as higher production in CEE was more than offset by lower volumes in the US and the UK
Slide 26: New life sales of EUR 431 million
New life sales of EUR 431 million Americas’ sales were down as a result of lower universal life production following repricing The Netherlands leveled at EUR 40 million, traditionally Q1 is the strongest quarter Lower annuity sales following repricing was partially offset by an increase in gro
Slide 27: Continued strong gross deposits reflect shift to fee business
Continued strong gross deposits reflect shift to fee business Strong retirement and stable value deposits in the US Organic growth in traditional channels and the successful launch of the Retirement Income Max rider at the end of Q1 drove strong US variable annuity deposits Lower savings depos
Slide 28: Value of new business of EUR 103 million impacted by currencies
Value of new business of EUR 103 million impacted by currencies Lower volume in life insurance products offset by higher volume of variable annuities in the US Higher mortgages related funding costs and updated mortality assumptions in the Netherlands Lower new business volume in the UK follow
Slide 29: Americas
Americas Underlying earnings before tax amount to USD 469 million, growth in fee-based businesses was more than offset by lower earnings from product spreads Operating expenses increased 4% as a result of higher employee benefit plan expenses and business growth New life sales declined as a re
Slide 30: The Netherlands
The Netherlands Underlying earnings before tax decreased to EUR 74 million as higher life earnings were offset by higher provisioning for longevity and a decline in non-life results Operating expenses increased to EUR 201 million as a result of investments in new distribution capabilities and re
Slide 31: United Kingdom
United Kingdom Underlying earnings before tax decreased to GBP 9 million ► Life earnings improved mainly due to cost savings ► Pensions recorded a loss as the benefits of further business growth and improved market conditions were more than offset by charges related to customer redress and excepti
Slide 32: New Markets
New Markets Underlying earnings before tax increased to EUR 59 million as a result of improved claim experience in CEE and higher performance fees for AEGON asset management Operating expenses increased mainly as a result of growth of the business New life sales growth in CEE driven by strong
Slide 33: Successful shift in focus to life insurance in Central & Eastern Europe
Successful shift in focus to life insurance in Central & Eastern Europe Underlying earnings before tax increased to EUR 29 million as 2010 included higher claims related to storms and floods in Hungary New life sales increased by 25% driven by higher production in Hungary and Turkey Strong sal
Slide 34: Expanding distribution network in Spain
Expanding distribution network in Spain Life, health and pension Merging entities Merging entities partnership with Unnim Caja Navarra Caja Cantabria finalized Caja Burgos Health insurance Caja Canarias Cajastur partnership agreement Caja Sol Caja with Banca Cívica Extremadura ~1500 branches ~70
Slide 35: 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, 2011 87.4 37.4 8.9 2.9 Net in- and outflow (2.5) (0.7) 0.1 (0.1) Unrealized / realized results 0.7 0.1 0.0 0.0 Foreign exchange (
Slide 36: Impairments
Impairments Impairments linked to US residential mortgage-backed securities and exchange offers on specific holdings of European banks in the United Kingdom Impairments included recoveries of EUR 15 million Impairments (EUR million) 416 501 385 394 286 212 150 77 92 133 62 100 146 91 64 101 93 3
Slide 37: Investments general account
Investments general account AEGON UNAUDITED INVESTMENTS GENERAL ACCOUNT June 30, 2011 The United New Holdings amounts in EUR millions, except for the impairment data Americas Netherlands Kingdom Markets and other TOTAL Cash / Treasuries / Agencies 15,898 8,292 2,098 1,134 452 27,874 Investment grade
Slide 38: Impairments by asset class
Impairments by asset class AEGON general account investments Q2 2011 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 0 - - - 0 RMBS 56 - - - 56 Subtotal structured as
Slide 39: Credit losses in the US trending down
Credit losses in the US trending down Q2 2011 US credit impairments amount to 8 bps ► Annualized level of 29 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 27 25 29 9 8 17 17 1 2 4 2 -2 -6 1990 1991 1992 1993 1994 1995 1996 1997 1998 199
Slide 40: Commercial mortgage loans
Commercial mortgage loans USD 11.3 billion commercial mortgage loan portfolio* Sound debt service coverage ratio of 1.7 Average LTV of 65% Own origination CML net impairments - IFRS Weighted average loan-to-value by property type *** (USD million)** (%) 80 70 60 50 40 27 23 30 16 20 6 0 10 0
Slide 41: Reconciliation of effective tax rate Q2 2011
Reconciliation of effective tax rate Q2 2011 Reconciliation of effective tax rate Q2 2011 EUR million Americas The Netherlands United Kingdom New Markets/ Holdings Total Income before tax 278 204 (18) 12 476 Nominal tax rate 35.00% (97) 25.00% (51) 26.50% 5 25.00% 3 (140) Actual income tax (41) (35)
Slide 42: Upcoming events
Upcoming events November December Q3 2011 results AEGON Analyst & Investor Conference, New York November 10, 2011 December 6-7, 2011 RBS Conference, New York December 8, 2011 42
Slide 43: Economic assumptions embedded in our targets
Economic assumptions embedded in our targets 2015 assumptions NL US UK GDP growth 1.7% 2.8% 2.5% Inflation 2.0% 2.0% 2.0% 10-year interest rate 4.5% 5.3% 5.6% 3-month interest rate 2.5% 3.5% 4.5% Annual gross equity market return 9% 9% 9% EUR/USD rate of 1.35 EUR/GBP rate of 0.82 43
Slide 44: For questions please contact Investor Relations
For questions please contact Investor Relations +31 70 344 8305 ir@aegon.com P.O. Box 85 2501 CB The Hague The Netherlands WWW.AEGON.COM
Slide 45: Disclaimer
Disclaimer Cautionary note regarding non-GAAP measures This presentation 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 inf