Aegon Ltd. · EURONEXT:AGN
Aegon — Q3 2012 Earnings Presentation
38 slides from Aegon's earnings presentation, Nov 8, 2012
Slide 1: Third quarter 2012 results
Third quarter 2012 results The Hague - November 8, 2012 Alex Wynaendts CEO aegon.com
Slide 2: Strong earnings growth and increased value of new business
Strong earnings growth and increased value of new business Underlying earnings up 31% on growth, lower expenses and favorable currencies Limited impact from assumption changes on earnings ► Long term reinvestment yield assumptions unchanged Stable sales – higher accident & health sales offset
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 31% on growth, cost reductions and favorable currencies
Earnings up 31% on growth, cost reductions and favorable currencies Growth of the business mainly comes from US pensions, VA and indexed universal life as well as Aegon Asset Management Market impact reflects the positive effect of higher bond and equity markets Currency movements had a positi
Slide 5: Net income benefits from realized investment gains and low impairments
Net income benefits from realized investment gains and low impairments Fair value loss mainly driven by losses on equity hedge programs in the US and the UK and negative results on the Dutch guarantee portfolio Gains on investment are the result of normal trading in the portfolio Impairments r
Slide 6: Operating expenses reduced by 7% while investing in new propositions
Operating expenses reduced by 7% 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 80 million (Q2 EUR 62 million) Well o
Slide 7: Solid total sales of EUR 1.6 billion
Solid total sales of EUR 1.6 billion New life sales stable at EUR 405 million Sales* (EUR million) ► Higher US sales were offset by lower sales in the Netherlands and in Spain due to the exclusion of CAM and lower production at other Spanish partners 1,620 1,604 1,550 Accident & health insurance
Slide 8: Market consistent value of new business – focus on pricing discipline
Market consistent value of new business – focus on pricing discipline Increase in MCVNB mainly driven by NL and US Life & MCVNB Protection, Individual Savings & Retirement (EUR million) Recent management actions to improve profitability ► Discontinued sales of UL secondary guarantee joint surviv
Slide 9: Continued low impairments and high recoveries
Continued low impairments and high recoveries Gross impairments mainly linked to: ► US residential mortgage-backed securities (EUR 43 million) ► Shares in real estate development company (EUR 6 million) ► Dutch mortgages (EUR 7 million) - arrears in line with long term average of 3-4 basis points
Slide 10: Further improved capital position
Further improved capital position Strong IGD ratio of 222% (IGD surplus capital of EUR 8.6 billion) NAIC RBC ratio of ~480%; NL IGD ratio of ~255%; UK Pillar 1 ratio of ~130% ► RBC benefited from strong net income and capital preservations of USD 575 million, offset by dividends to the holding
Slide 11: Capital base ratio of 75%, in line with target
Capital base ratio of 75%, in line with target Capital base ratio increases to 75%, in line with target of at least 75% by year-end 2012 Improvement of capital base ratio driven by higher shareholders’ equity and dividends from operating units Holding and other reflects expenses, interest and
Slide 12: Strong earnings and value of new business growth
Strong earnings and value of new business growth Underlying earnings up 31% on growth, lower expenses and favorable currencies Limited impact from assumption changes on earnings Stable sales – higher accident & health sales offset by lower deposits Increased value of new business following r
Slide 13: Q&A
Q&A 13
Slide 14: Appendix
Appendix 14
Slide 15: Impact of assumption updates
Impact of assumption updates Annual review of all assumptions relative to current experience and management expectations performed in third quarter Line of business Updated assumptions Earnings impact in USD million Life & Protection Mortality, morbidity, longevity 5 Variable annuities Policyholde
Slide 16: Reinvestment yield assumption unchanged
Reinvestment yield assumption unchanged Long term US reinvestment yield assumption unchanged ► 10-year US Treasury assumption grading from current levels in 5 years to 4.75% in 2017 ► Credit spreads are assumed to grade from current levels in two years to 110 bps Gradual impact on underlying ear
Slide 17: Higher US life and A&H sales: leveraging diversified distribution model
Higher US life and A&H sales: leveraging diversified distribution model Life sales increase 9% compared with Q3 2011 Life and accident & health sales ► Strong indexed universal life sales as distribution expanded into the (USD million) brokerage channel 387 377 ► Discontinued sales of UL secondary
Slide 18: US deposit business – strong sales and higher margins
US deposit business – strong sales and higher margins Improved margins supported by continued strong net deposits and favorable markets Pension margin up in Q3 following a decline in Variable annuities margin* up in Q3 expense rates ► Higher fees as products are repriced ► Higher balances ► Hi
Slide 19: Aegon Asset Management – increased third party deposits
Aegon Asset Management – increased third party deposits Higher AuM driven by markets, increased insourcing of Assets under management Aegon assets and strong third party inflows (EUR billion) ► Offset by general account outflows driven by de- 217 244 248 emphasized and run-off businesses 50 53 31
Slide 20: Operational free cash flows impacted by market movements
Operational free cash flows impacted by market movements Operational free cash flows of EUR 448 million excluding market impact ► Positive release of required surplus, mainly related to US variable annuities model refinement Earnings on in-force negatively impacted by markets Market impact mai
Slide 21: Main economic assumptions
Main economic assumptions Main US economic assumptions 10-year US Treasury assumption of 4.75% by 2017 ► Grading to 4.75% in five years Credit spreads are assumed to grade over two years to 110 bps Bond funds are assumed to return 4% for 5 years and 6% thereafter Money market rates are assum
Slide 22: 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 ~800 millio
Slide 23: New life sales of EUR 405 million
New life sales of EUR 405 million Sales up in the Americas driven by higher indexed universal life sales and expanded distribution Higher pension sales were offset by lower life sales in the Netherlands Lower sales in the UK reflecting an expected reduction in pension sales, partly offset by s
Slide 24: Gross deposits increases in asset management and variable annuities
Gross deposits increases in asset management and variable annuities Lower pension deposits, as a result of lower stable value deposits and lower takeover deposits in the retirement plan space Asset management inflows as a result of strong institutional sales in the US and the Netherlands, and re
Slide 25: Market consistent value of new business of EUR 173 million
Market consistent value of new business of EUR 173 million MCVNB increased in the Americas as result of VA repricing and pulling of UL secondary guarantee product, as well as increased production of VA, IUL and term products Higher MCVNB in the Netherlands as a result of lower funding costs MC
Slide 26: Higher earnings driven by favorable currency movements and the UK
Higher earnings driven by favorable currency movements and the UK Americas’ earnings remained level as higher earnings from pensions and variable annuities were offset by lower earnings from life & protection In the Netherlands better funding margins were only partly offset by adverse claims in
Slide 27: Americas
Americas Underlying earnings before tax remained level as higher earnings from pensions and variable annuities offset lower earnings from life & protection. The net impact of assumption updates amounted to a charge of USD 40 million Operating expenses declined 13% as a result of cost savings and
Slide 28: The Netherlands
The Netherlands Underlying earnings increased driven by higher earnings from Life & Savings driven by lower funding cost, partly offset by lower earnings in Pensions and Non-Life Operating expenses declined 24% to EUR 184 million, driven by realized cost savings partly offset by business growth
Slide 29: 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 30% to GBP 73 million, following the successful implementation of the cost reducti
Slide 30: New Markets
New Markets Underlying earnings increased as higher earnings from asset management and Asia were partly offset by lower earnings in Spain following the exclusion of CAM Operating expenses increased mainly as a result of investments to support future growth in Asia and VA Europe, and the inclusio
Slide 31: 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 2.9% in Q3 2012, or 3.1% year to date Capital intensive run-off businesses negatively impact return on equity ► Capital allocated to run-off bus
Slide 32: 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 July 1, 2012 90.5 40.2 10.5 5.1 Net in- and outflow (1.2) 0.2 0.1 (0.1) Unrealized / realized results 1.7 0.5 0.4 0.1 Foreign exchange (1.0
Slide 33: Investments general account
Investments general account Aegon UNAUDITED September 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 17,575 10,153 3,040 1,562 828 33,158 Investment
Slide 34: Impairments by asset class
Impairments by asset class Aegon general account investments Q3 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 0 - - - (0) CMBS 3 - - - 3 RMBS 21 - - 0 21 Subtotal structured asse
Slide 35: Credit losses in the US trending down
Credit losses in the US trending down Q3 2012 US credit impairments amount to 2 bps US credit losses in bps of fixed income assets 120 91 82 average of 32 bps 64 48 52 44 44 since 1990 37 33 27 25 9 8 17 17 13 1 2 4 2 -2 -6 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Slide 36: Reconciliation of effective tax rate Q3 2012
Reconciliation of effective tax rate Q3 2012 Reconciliation of effective tax rate Q3 2012 EUR million Americas The Netherlands United Kingdom New Markets/ Holdings Total Income before tax 362 69 38 (15) 454 Nominal tax rate 35.0% (127) 25.0% (17) 24.5% (9) NM (9) (144) Actual income tax (70) (7) (1)
Slide 37: For questions please contact Group Corporate Communications
For questions please contact Group Corporate Communications +31 70 344 8956 gcc@aegon.com P.O. Box 85 2501 CB The Hague The Netherlands
Slide 38: 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