Aegon Ltd. · EURONEXT:AGN
Aegon — Q3 2011 Earnings Presentation
38 slides from Aegon's earnings presentation, Nov 10, 2011
Slide 1: Third quarter 2011 results
Third quarter 2011 results Jan Nooitgedagt CFO Media p presentation resentation The Hague, November 10, 2011
Slide 2: Withstanding market turmoil with continued capital strength and resilient franchise
Withstanding market turmoil with continued capital strength and resilient franchise Capital position remains strong Lower underlying y g earnings g due to market impact, currencies and longevity g y Interest rate assumptions updated, reflecting current environment Restr ct ring o Restructuri
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 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 by 2015 by
Slide 4: Underlying earnings impacted by adverse markets and assumptions update
Underlying earnings impacted by adverse markets and assumptions update Market impact on underlying earnings in line with sensitivities given in Q2 2011 Assumption changes include the positive impact of updated mortality in US Life & Protection offset by charges related to policyholder behaviour
Slide 5: Year on year earnings impacted by adverse markets and charges in NL and UK
Year on year earnings impacted by adverse markets and charges in NL and UK Compared to Q3 2010, Americas’ earnings decreased due to lower fixed annuities spreads and balances as the product is de-emphasized, partly offset by higher fee-based earnings In the Netherlands earning gs were imppacted
Slide 6: Net income affected by fair value items
Net income affected by fair value items Fair value items impacted by interest rate assumption changes (EUR168m), in addition to lower interest rate and equity markets, increased volatility and spread widening (EUR120m) Impairments were mainly linked to US residential mortgage-backed securities,
Slide 7: Update of assumptions
Update of assumptions In the US, annual review of all assumptions relative to current experience and management expectations typically performed in third quarter: ► Assumption changes g related to market movements reflected in fair value items ► Other assumption changes reflected in underlying ear
Slide 8: Update of interest rate assumptions to reflect current environment
Update of interest rate assumptions to reflect current environment Assumed 10-year US Treasury rate 10-year US Treasury assumption lowered to (Percentage) 4.75% from 5.25% 6.0% ► Grading g from current yyield to 4.75% in five yyears Five year average rate lowered by 90 bps 5.0% ► Old assumption
Slide 9: Cost reduction programs in established markets delivering results
Cost reduction programs in established markets delivering results Cost savings in Americas and UK in line with strategic focus Development of new propositions to be better positioned to respond to changing conditions and opportunities in the market in the UK and the Netherlands Restructuring c
Slide 10: UK on track to deliver GBP 80 million cost savings by year-end 2011
UK on track to deliver GBP 80 million cost savings by year-end 2011 Targeted savings almost achieved Enacted costs savings UK Life and Pension (GBP million) Operating expenses Q3 of GBP 104 million include: 100 ► Restructuring charge of GBP 13 million GBP 71 million ► Development of new proposit
Slide 11: Reducing costs in Dutch insurance and banking businesses
Reducing costs in Dutch insurance and banking businesses Cost reduction of EUR 100 million from 2010 level Operating expenses (EUR million) Majority of savings to be achieved in 2012 Restructuring charge of EUR 60 million in Q3 2011 250 Initiatives enacted: ► Closing AEGON Bank’s office in N
Slide 12: Total sales up 2% driven by strong pension deposits
Total sales up 2% driven by strong pension deposits Sales up driven by record deposits from pensions and variable annuities in the US and asset management inflows, partially offset by lower pension deposits in the CEE New life sales declined as higher production in Spain and CEE was more than of
Slide 13: Growth in US fee-based business offset by lower equity markets
Growth in US fee-based business offset by lower equity markets Employer Solutions & Pensions balances continue to increase ► Innovation and customer service is the cornerstone of the pension growth strategy reflected by continued strong pension deposits due to higher takeover assets combined with
Slide 14: Measures to protect balance sheet proved successful
Measures to protect balance sheet proved successful Capital position shielded from effects of lower interest rates and equity markets ► In Q3 2011 guarantees at fair value increased to EUR 5.6 billion from EUR 2.1 billion in Q2 2011 ► Hedging programs performed well offsetting higher reserve requi
Slide 15: Limited exposure in general account to peripheral European countries
Limited exposure in general account to peripheral European countries T t l exposure to Total t peripheral i h l European E sovereigns i 0 0.8% 8% off generall accountt Exposure to Spain increased following the proportional inclusion of Caixa Sabadell Vida assets Corporate debt mainly related t
Slide 16: Continued strong excess capital position
Continued strong excess capital position Total excess capital of EUR 3.4 billion ► Excess capital of EUR 2.2 billion in operating units, increase mainly driven by fair value movements in the guarantees in the Netherlands ► it l off EUR 1.2 H ldi excess capital Holding 1 2 billion, billi above b t
Slide 17: Conclusion
Conclusion Capital position remains strong Lower underlying y g earnings g due to market impact, currencies and longevity g y Interest rate assumptions updated, reflecting current environment Restr ct ring o Restructuring off the b business siness on track track, targeting llower o er ccost
Slide 18: Q&A
Q&A 18
Slide 19: Appendix
Appendix 19
Slide 20: Operational free cash flows affected by interest rates and equity markets
Operational free cash flows affected by interest rates and equity markets Impact lower interest rates and equity markets ► Earnings on the in-force impacted by EUR 0.1 billion ► Higher required capital of EUR 1.1 billion in the US Investments in new business increased as a result of higher pensi
Slide 21: Shareholders' equity up on currencies and effects of lower interest rates
Shareholders’ equity up on currencies and effects of lower interest rates Revaluation reserves increase to EUR 2.6 billion as a result of lower interest rates partly offset by spread widening Capital p base ratio of 73.6%,, on target g to achieve at least 75% of total capital p by y end 2012 R
Slide 22: New life sales of EUR 405 million
New life sales of EUR 405 million Americas’ sales were down due to discontinuance of universal life single premium products The Netherlands level at EUR 32 million, stronger pension sales were offset by lower life sales Lower annuity sales following repricing and lower pensions sales as a resu
Slide 23: 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 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 drove strong US variable annuity
Slide 24: Value of new business of EUR 58 million
Value of new business of EUR 58 million US: higher pension deposits offset by higher hedging cost taken into account for VA. The variable annuities will be repriced to reflect these higher costs Lower mortgage-related g g sales and higher g mortgages-related g g funding g costs in the Netherland
Slide 25: Americas
Americas Underlying earnings before tax amounted to USD 437 million – growth in fee-based businesses was more than offset by lower earnings from de-emphasized fixed annuities Op perating gex penses adjjusted for exp penses related to the divestment of the life reinsurance activities and employee
Slide 26: The Netherlands
The Netherlands Underlying earnings decreased to EUR 68 million as a result of higher provisioning for longevity and lower investment income in life Op peratinggex penses increased to EUR 242 million due to restructuring gchar ge of EUR 60 million and investments in new distribution capabilities
Slide 27: United Kingdom
United Kingdom Underlying earnings before tax decreased to GBP 8 million ► Life earnings lower as lower investment income was only partly offset by cost savings ► Pensions recorded a loss as a result of charges related to customer redress, exceptional expenses and lower fee income due to lower equ
Slide 28: New Markets
New Markets Underlying earnings decreased to EUR 43 million as a result of lower earnings in CEE following the transfer of pension assets to the Hungarian State and lower earnings for VA Europe only partly offset by higher performance fees in asset management Operating expenses slightly decrease
Slide 29: 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 Current cap pital allocated to run-off businesses of EUR 2.1 billion ► Return on capital of run-off businesses of 1.6% YTD Capital
Slide 30: 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 June 30, 2011 84.0 36.8 8.8 2.8 Net in- and outflow (0.9) 1.1 (0.0) 0.6 Unrealized / realized results 1.9 0.4 0.3 ( ) (0.0) Foreign exchang
Slide 31: Investments general account
Investments general account AEGON UNAUDITED September 30, 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 18,372 9,399 2,476 1,449 405 32,101
Slide 32: Impairments
Impairments Impairments are linked to US residential mortgage-backed securities, financial holdings of Portuguese and Greek banks in the UK and mortgages in Hungary largely a ge y a bu ab e to attributable o the eeeffect ec oof new e legislation eg s a o Impairments included recoveries of EUR 9
Slide 33: Impairments by asset class
Impairments by asset class AEGON general account investments Q3 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 64 - - - 64 Subtotal structured as
Slide 34: Credit losses in the US trending down
Credit losses in the US trending down Q3 2011 US credit impairments amount to 11 bps ► Annualized level of 33 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 1 2 4 2 2 -2 -6 1990 1991 1992 1993 1994 1995 1996 1997 1998
Slide 35: Commercial mortgage loans
Commercial mortgage loans USD 10.9 billion commercial mortgage loan portfolio* Sound debt service coverage ratio of 1.7 A Average LTV off 65% Own origination CML net impairments Weighted average loan-to-value by property type *** (USD million)** (%) 80 70 60 50 40 27 23 30 20 6 0 9 10 0 Q3 1
Slide 36: Reconciliation of effective tax rate Q3 2011
Reconciliation of effective tax rate Q3 2011 Reconciliation of effective tax rate Q3 2011 EUR million Americas The Netherlands United Kingdom New Markets/ Holdings Total Income before tax (2) 86 (13) (87) (16) Nominal tax rate 35.00% 1 25.00% ((22)) 26.50% 3 25.00% 23 5 Actual income tax 72 (23) 13
Slide 37: For questions please contact Group Corporate Communications
For questions please contact Group Corporate Communications +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 38: Disclaimer
Disclaimer Cautionary note regarding non-GAAP measures This document includes certain non-GAAP financial measures: underlying y g earnings g before tax and value of new business. The reconciliation of underlying y g earnings g before tax to the most comparable p IFRS measure is p provided in Note 3