Aegon Ltd. · EURONEXT:AGN
Aegon — Q4 2011 Earnings Presentation
42 slides from Aegon's earnings presentation, Feb 17, 2012
Slide 1: Fourth quarter 2011 results
Fourth quarter 2011 results Alex Wynaendts CEO Media Conference Call The Hague – February 17, 2012
Slide 2: Continued strong capital position and resilient franchise
Continued strong capital position and resilient franchise 2011, a year of transformation; positioning for the future Underlying earnings affected by UK exceptional charges and expenses Restructuring in the UK finalized; in the Netherlands on track Sales demonstrate strength of franchise Ca
Slide 3: Positioning for the future
Positioning for the future 2011, a year of transformation Capturing opportunities ► F ll repaymentt D Full Dutch t h governmentt ► UK retirement ti t platform l tf llaunched; h d workplace k l ► Restructuring process in the UK finalized savings platform to be launched in H2 2012 ► Restructuring on t
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: Underlying earnings reflect a year of transition
Underlying earnings reflect a year of transition US variable annuities higher as a result of higher balances and one-time benefit of EUR 23 million related to assumption update for revenue sharing with third-party fund managers Life & Protection impacted p by y a charge g of EUR 22 million relat
Slide 6: Underlying earnings up sequentially in all markets except for the UK
Underlying earnings up sequentially in all markets except for the UK Compared to Q3, Americas' results increased driven by strong US variable annuities and pension earnings partly offset by higher provisioning for Long Term Care Results in the Netherlands up p on higher g p pension results due t
Slide 7: Net income mainly affected by one-time charges
Net income mainly affected by one-time charges Fair F i value l ititems show h th the negative ti resultlt off th the macro h hedge d iin th the A Americas i offset ff t bby positive iti fair value movements in the Netherlands Impairments were mainly linked to US RMBS and mortgages in Hungary. C
Slide 8: Cost savings offset by restructuring charges
Cost savings offset by restructuring charges Achieved cost savings in Americas, Netherlands and UK in line with plans and strategic focus Investments in new propositions such as new distribution initiatives in the Netherlands and new pension platform in the UK 2011 contains one-time net benefi
Slide 9: UK restructuring plan delivered
UK restructuring plan delivered 25% cost reduction enacted in 2011 Final phase of customer redress program, Operating expenses (GBP million) Q4 earnings Q g impacted p by: y ► Charges of GBP 52 million ► Program expenses of GBP 19 million -25% Focus on At Retirement and Workplace savings: ► At
Slide 10: Restructuring Dutch organization while investing in new initiatives
Restructuring Dutch organization while investing in new initiatives Cost reduction of EUR 100 million from 2010 level Majority of savings to be achieved in 2012 Operating expenses (EUR million) ► Restructuring on track ► 2011 cost saves of EUR 35 million -100 ► Reduction of 200 positions per yea
Slide 11: AEGON leading in Dutch pension market
AEGON leading in Dutch pension market AEGON expands pension de-risking capabilities and completes innovative longevity transactions in the Netherlands ► AEGON partially offsets the risk of future longevity increases related to EUR 12 billion of reserves • The first transaction in Continental Europ
Slide 12: Sales demonstrate strength of franchise
Sales demonstrate strength of franchise New life sales declined as higher production in US and NL was more than offset by lower volumes in the UK following re-pricing of products Gross dep posits were supp pported byy continued strong g US variable annuityy dep posits offset byy lower US stable
Slide 13: Strong trend in US pensions
Strong trend in US pensions Continued strong pension results evidence of successful strategy: ► Extensive distribution network ► All pension markets covered ► Award winning gcustomer service ► Leader in products and service innovation 2011 gross deposits of USD 16.5 billion; CAGR 2009 – 2011 of
Slide 14: US variable annuity strategy delivers results
US variable annuity strategy delivers results 2011 variable annuity earnings and deposits benefitting from the right strategy Compared with last year variable annuity deposits increased 39% in 2011 ► Innovation: first to US market with tiered pricing by equity level first to US market with volat
Slide 15: 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 December 31,
Slide 16: Strong capital position
Strong capital position Strong IGD ratio of 195%; IGD surplus capital of EUR 6.5 billion NAIC RBC ratio of ~450%; IGD ratio NL of ~195% ► Not taken advantage of possibility to use quarterly average ECB AAA curve in the Netherlands Capital preservations driven by fixed annuity coinsurance trans
Slide 17: Conclusion
Conclusion 2011, a year of transformation; positioning for the future Underlying earnings affected by UK exceptional charges and expenses Restructuring in the UK finalized; in the Netherlands on track Strong franchise evidenced by resilient sales Capital position remains strong Proposed
Slide 18: EGON | a t ies
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Slide 19: Appendix
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Slide 20: Assumed reinvestment yield reflecting current environment
Assumed reinvestment yield reflecting current environment Effects of low interest rates mitigated by: ► Interest rate hedging ► Continued shift to fee-based products ► Asset & liability matching ► Product design, re-pricing re pricing ► Cost reductions and efficiencies Assumed reinvestment yield C
Slide 21: Further improvement of capital quality
Further improvement of capital quality Capital base ratio (CBR) of 73.5%, on target to surpass 75% by end 2012 Improvement of capital quality mainly driven by dividend from operating units Common shareholders’ shareholders equity per share, share excluding preference capital capital, of EUR 10
Slide 22: Integration of Asian operations reflected in reporting as of Q1 2012
Integration of Asian operations reflected in reporting as of Q1 2012 Earnings of Asian businesses, which were previously part of Americas – Life & Protection will be transferred to New Markets - Asia ► Reflection of formation of regional g office in Hong g Kong g which coordinates the company’s bu
Slide 23: Normalized operational free cash flow in line with targets
Normalized operational free cash flow in line with targets Operational free cash flow of EUR 233 million in Q4 2011 Investments in new business increased as a result of higher Dutch pension sales and US variable annuityy deposits p Higher release of required surplus as a result of higher equit
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 ► Grading from current yield to 4.75% in five years 7.0% Five year average rate lowered by 90 bps 6.0% ► Old assumption 4.3% ► New assu
Slide 25: New life sales of EUR 498 million
New life sales of EUR 498 million Resilient sales in the Americas The Netherlands up to EUR 117 million, strong pension sales partly offset by lower life sales Lower annuity sales following repricing and planned decrease of individual pensions in the UK New Markets: higher sales in Spain fol
Slide 26: Continued strong gross deposits reflect shift to fee business
Continued strong gross deposits reflect shift to fee business Strong inflows of third-party asset management as a result of new mandates Successful launch of the Retirement Income Max rider at the end of Q1 and new distribution p partnerships p supported pp strong g US variable annuity y deposit
Slide 27: Value of new business of EUR 53 million
Value of new business of EUR 53 million US down on higher variable annuity hedging cost. Variable annuities were repriced in December 2011, to reflect these higher costs Lower VNB in the Netherlands due to lower mortg gage-related g life insurance sales and lower annuity margins partly offset by
Slide 28: Year on year earnings impacted by charges in the UK
Year on year earnings impacted by charges in the UK Americas’ earnings decreased due to lower results from Life & Protection and de-emphasized fixed annuities partly offset by improved variable annuities and pension results In the Netherlands earninggs were imp pacted byyex penses for product im
Slide 29: Americas
Americas Compared to Q4 2010, underlying earnings before tax amounted to USD 443 million – growth in fee-based businesses was more than offset by lower earnings from Life & Protection Op peratinggex penses decreased mainly y as a result of lower restructuring gcost Resilient new life sales G
Slide 30: The Netherlands
The Netherlands Underlying U d l i earnings i d decreasedd tto EUR 75 million illi as a resultlt off hi higher h expenses related l t d tto product improvement program and investments in distribution capabilities Operating expenses decreased 7% to EUR 191 million. Cost savings partly offset by o
Slide 31: United Kingdom
United Kingdom Underlying earnings before tax amounted to a loss of GBP 22 million mainly the result of exceptional charges and expenses related to the customer redress program Total operating expenses in Q4 2011 of GBP 98 million include: ► Restructuring charge GBP 42 million ► Customer redress
Slide 32: New Markets
New Markets Underlying earnings decreased to EUR 53 million as a result of lower earnings in CEE mainly the result of currency movements and lower earnings for VA Europe Op perating gex penses decreased mainly yas a result of cost savin gs in CEE and asset management New life sales driven by t
Slide 33: Release of capital from run-off businesses
Release of capital from run-off businesses Release of capital following the divestment of life reinsurance activities and lower institutional spread-based balances as USD 600 million Medium Term Note was ceded. Current cap pital allocated to run-off businesses of EUR 2.4 billion ► Return on capi
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 September 30, 2011 91.4 38.3 9.5 3.4 Net in- and outflow (3.8) 0.7 (0.2) 0.0 Unrealized / realized results 0.5 (0.0) 0.3 (0.1) Foreign exch
Slide 35: Investments general account
Investments general account AEGON UNAUDITED December 31, 2011 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 17,937 9,958 2,671 1,462 744 32,772 I
Slide 36: Impairments
Impairments Impairments are linked to US residential mortgage-backed securities and residential mortgages in Hungary largely as a result of new legislation Impairments included recoveries of EUR 4 million Impairments (EUR million) 416 501 385 394 286 212 150 77 92 133 62 100 132 94 146 91 64 101
Slide 37: Impairments by asset class
Impairments by asset class AEGON general account investments Q4 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 1 - - - 1 RMBS 46 - - - 46 Subtotal structured as
Slide 38: Credit losses in the US trending down
Credit losses in the US trending down 2011 US credit impairments amount to 33 bps, in line with long term expectations 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 1 2 4 2 -2 -6 1990 1991 1992 1993 1994 1995 1996 1997 19
Slide 39: Commercial mortgage loans
Commercial mortgage loans Commercial mortgage loan portfolio* declined to USD 10.5 billion Sound debt service coverage ratio of 1.7 Average LTV of 65% Own origination CML net impairments Weighted average loan-to-value by property type *** (USD million)** (Percentage %) 80 70 60 50 40 27 25 3
Slide 40: Reconciliation of effective tax rate Q4 2011
Reconciliation of effective tax rate Q4 2011 Reconciliation of effective tax rate Q4 2011 EUR million Americas The Netherlands United Kingdom New Markets/ Holdings Total Income before tax 96 208 (72) (144) 88 Nominal tax rate 35.00% ((33)) 25.00% ((52)) 26.50% 19 25.00%* 41 ((25)) Actual income tax
Slide 41: For questions please contact Media Relations
For questions please contact Media Relations +31 70 344 8956 gcc ir@aegon com gcc-ir@aegon.com P.O. Box 85 2501 CB The Hague The Netherlands WWW.AEGON.COM
Slide 42: Disclaimer
Disclaimer Cautionary note regarding non-GAAP measures This document 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 informa