Aegon reports first quarter 2021 results

THE HAGUE, Netherlands–(BUSINESS WIRE)–Regulatory News:

Strong progress on expense savings program and plans to improve risk profile

  • Net result of EUR 386 million in the first quarter of 2021 reflects increased operating result and benign credit environment
  • Operating result increases by 20% to EUR 431 million, mainly driven by expense savings and higher equity markets, partly offset by adverse claims experience in the United States mostly due to COVID-19
  • Cash Capital at Holding amounts to EUR 1.2 billion, in the upper half of Aegon’s target range; capital ratios of all three main units are around or above their respective operating levels
  • Free cash flow of EUR 75 million in the first quarter of 2021 compared with EUR 61 million in the first quarter of 2020
  • Significantly reduced interest rate risk in the United States. On track to expand dynamic hedge to the US legacy variable annuity block in the second half of 2021

Statement of Lard Friese, CEO

“We have made early progress toward delivering on our strategic priorities, and I am encouraged to see this reflected in our first quarter results. Despite the pandemic, our employees remain committed to support our customers and business partners. I continue to be deeply impressed by the energy that they bring to transform Aegon into a more focused, high-performance company.

The first quarter of 2021 saw an increase in the operating result driven by improvements in the United States, the Netherlands and Asset Management. So far, we have reduced the addressable expense base across the Group by EUR 136 million and are on track to deliver half of our 2023 target of EUR 400 million expense savings by the end of 2021. Our balance sheet remains strong, with the capital ratios of all three main units and the Holding around or above their operating levels.

We have made solid progress on our plans to transform Aegon. During the first quarter, we further increased our strategic focus by divesting the Transamerica Ventures fund and closing the sale of Stonebridge.

In our Strategic Assets, we continue to invest in new products, product distribution and customer service. In the first quarter, we gained momentum from improved sales performance in each of our core markets. A prime example is in the US Individual Solutions business, where we grew the number of licensed agents in our main distribution channel by 18%, and saw increases in our market share there as a consequence of new product introductions.

We have also taken concrete actions to improve our risk profile, already executing on more than half of our plan to reduce interest rate risk in the United States. Furthermore, we took advantage of higher interest rates to implement a new interest rate hedge as an important step towards expanding the dynamic hedge to our legacy variable annuity block in the United States.

We have made steady progress managing our Financial Assets during the first quarter. In our US business, we reduced the sensitivity of our Variable Annuities business to interest rates, and so far have achieved one third of the targeted Long Term Care rate increases.

While ongoing global uncertainty remains, we’ve also begun to see the successful rollout of vaccination programs in most of the markets in which we operate, giving renewed hope to many, as we continue on the path out of the pandemic. Our hearts especially go out to our colleagues, customers, business partners and the broader communities in India and Brazil that are struggling with the devastating challenges of COVID-19. Looking to the future, I am confident in the strength of our business, our strategy, and the unwavering commitment of our employees to continue delivering on our plans.”

Note: All comparisons in this release are against 1Q 2020, unless stated otherwise. See page 7 of this press release for a full financial overview.

Strategic highlights

Aegon N.V.

 

unaudited

Strategic highlights – Focus. Execute. Deliver.

Key performance indicators

Q1

Q1

Q4

2021

2020

%

2020

%

 

Addressable expenses ¹

2,852

3,066

(7)

2,911

(2)

Change compared to FY 2019

(203)

10

n.m.

(144)

(41)

 

Strategic Assets

 

Americas Individual Solutions – Life, US

New business strain (USD million)

73

75

(2)

87

(16)

New life sales (USD million)

83

66

27

83

MCVNB (USD million)

68

37

83

60

13

Americas Workplace Solutions – Retirement Plans

Middle-Market

Net deposits (USD million)

194

(63)

n.m.

(428)

n.m.

Written sales (USD million)

1,124

887

27

1,181

(5)

The Netherlands

 

Mortgage origination (EUR million)

3,031

2,540

19

2,835

7

Workplace Solutions net deposits (EUR million)

173

152

14

310

(44)

Net growth Knab customers (‘000s of customers)

10.7

5.2

n.m.

8.2

30

United Kingdom

Platform expenses / AuA

22 bps

25 bps

23 bps

Annualized revenues gained/(lost) on net deposits (GBP

million)

(2)

(2)

24

(4)

60

Workplace net deposits (GBP million)

295

410

(28)

(486)

n.m.

Retail net deposits (GBP million)

(42)

(262)

84

(310)

87

 

Growth Markets (Spain & Portugal, China, Brazil)

 

New life sales (EUR million)

65

70

(8)

45

42

MCVNB (Life) (EUR million)

32

26

21

32

(2)

New premium production (P&C and A&H) (EUR million)

29

20

46

28

3

 

Asset Management – Global Platforms

 

Operating margin (%)

12.6%

8.7%

45

16.2%

(22)

Net deposits (EUR million)

(592)

3,303

n.m.

4,763

n.m.

of which third party (EUR million)

138

(1,671)

n.m.

997

(86)

Annualized revenues gained/(lost) on net deposits (EUR

million)

n.m.

2

n.m.

 

Financial Assets

 

Americas – Variable Annuities

Capital generation (USD million)

76

(1,649)

n.m.

567

(87)

Dynamic hedge effectiveness ratio (%)

98%

100%

(2)

98%

Americas – Long-Term Care

Capital generation (USD million)

79

24

n.m.

36

n.m.

Actual to expected claim ratio (%) (IFRS)

43%

85%

(50)

70%

(39)

NPV of rate increases approved since end-2020 (USD

million)

112

n/a

n/a

The Netherlands – NL Life

Operating capital generation (EUR million)

27

46

(41)

13

n.m.

Remittances to Aegon NL (EUR million)

25

121

(79)

25

Solvency II ratio (%)

149%

231%

(36)

159%

(7)

1. Trailing four quarters in constant currency, EUR million.

 

 

Aegon’s strategy

Aegon is taking significant steps to transform the company in order to improve its performance and create value for its customers and shareholders. To ensure delivery against these objectives, a rigorous and granular operating plan has been developed across the Group. Aegon focuses on three core markets (the United States, the Netherlands, and the United Kingdom), three growth markets (Spain & Portugal, China, and Brazil) and one global asset manager. Aegon’s businesses within its core markets have been separated into Financial Assets and Strategic Assets. The aim is to release capital from Financial Assets and from businesses outside its core and growth markets, and re-allocate capital to growth opportunities in the Strategic Assets, growth markets and Asset Management. Throughout this transformation, the company aims to maintain a solid capital position in the business units and at the Holding. Through proactive risk management actions, Aegon is improving its risk profile and reducing the volatility of its capital ratios.

Operational improvement plan

Aegon has an ambitious plan comprised of more than 1,100 detailed initiatives designed to improve the operating performance of its business by reducing costs, expanding margins and growing profitably. In the trailing four quarters, expense savings initiatives have led to a reduction in addressable expenses by EUR 136 million compared with the addressable expenses in the base year 2019. A total of 418 initiatives have been executed between the launch of the operational improvement plan and the end of the first quarter 2021, of which 342 are related to expense savings. Based on the progress to date, Aegon remains on track to deliver half of the 2023 target of EUR 400 million reduction in addressable expenses by the end of 2021. Aegon is also starting to see the benefits from the growth initiatives, which are aimed at improving customer service, enhancing user experience and developing new products. The company will continue at pace in its execution of the expense and growth initiatives.

Strategic Assets

Strategic Assets are businesses with a greater potential for an attractive return on capital, and where Aegon is well positioned for growth. In these businesses, Aegon will invest in profitable growth by expanding its customer base and increasing its margins.

In the US Individual Solutions business, Transamerica’s aim is to achieve a top-5 position in Term Life, Whole Life Final Expense, and Indexed Universal Life through profitable sales growth. New life sales in the first quarter of 2021 amounted to USD 83 million, which represents an increase of 27% compared with the same period last year. This was mainly driven by an increase in new sales of Indexed Universal Life. Transamerica is benefiting from an 18% increase in licensed agents at World Financial Group (WFG) and a higher market share in this affiliate distribution channel from the addition of a funeral planning benefit to Indexed Universal Life products for qualifying life insurance policyholders. Transamerica developed this new benefit to provide grieving beneficiaries valuable resources in helping the insured person’s family plan end-of-life services. The market consistent value of new business for Life increased by 83% compared with the same period last year to USD 68 million in the first quarter of 2021. This was in part driven by a more favorable product mix resulting from the addition of the funeral planning benefit.

In the US Workplace Solutions business, Transamerica aims to compete as a top-5 player in new sales in the Middle‑Market segment of Retirement Plans. Momentum is building here with written sales of USD 1.1 billion in the first quarter of 2021, representing an increase of 27% compared with the same period last year. This increase was supported by contract wins in the Pooled Plan Arrangements, which is a strategic growth driver. Middle-Market net deposits in the first quarter amounted to USD 194 million, an improvement compared with USD 63 million net outflows in the same period last year. This improvement reflects increased customer deposits generated through existing advisors following targeted campaigns.

Aegon is the largest third-party mortgage originator in the Netherlands, benefiting from its scale, high service levels to intermediaries and customers, and diversified funding. In the first quarter of 2021, the company originated EUR 3.0 billion of residential mortgages, while further increasing its customer relational NPS scores. This volume was in part driven by the strong housing market and the increased demand for mortgage refinancing in light of the current interest rate environment. Two thirds thereof consisted of fee-based mortgages originated for third-party investors. On March 31, 2021, Aegon successfully priced a EUR 657 million residential mortgage-backed securitization to further diversify its mortgage funding. The transaction was oversubscribed three times by investors.

Net deposits for the Workplace Solutions defined contribution products (PPI) in the Netherlands increased by 14% to EUR 173 million in the first quarter of 2021. Aegon’s defined contribution offering is low-cost thanks to the scale of its administration subsidiary, TKP. Aegon expects its online bank Knab to continue its development into a digital gateway for individual retirement solutions. In the first quarter of 2021, the online bank grew its customer base by 11,000 and over 90% of all its customers are using the bank’s mobile app.

In the first quarter of 2021, Aegon’s business in the United Kingdom achieved record gross deposits across the business excluding the Institutional channel, with significant contributions from both the Workplace and Retail channels in the platform. Net deposits in Workplace remained positive at GBP 295 million. There have been a number of notable Workplace proposition enhancements in recent months, and downloads of Aegon’s Workplace app surpassed 20,000 following its recent launch. Net outflows in Retail amounted to GBP 42 million, which is a significant improvement compared with the first quarter of 2020. This resulted from platform proposition enhancements and strong investor sentiment. Aegon aims to mitigate the top-line impact from the gradual run-off of its traditional product portfolio – which is the driver behind annualized revenues lost for the first quarter – by profitably growing its platform business, and by reducing expenses. Expense initiatives and the favorable impact from market movements on assets have led to an improvement in efficiency with platform expenses over assets under administration decreasing by 3 basis points compared with the first quarter of last year to 22 basis points.

Financial Assets

Financial Assets are blocks of business which have closed or will be closed for new sales, and which are capital intensive with relatively low returns on capital employed. Aegon has established dedicated teams to manage these businesses, who are responsible for maximizing their value through disciplined risk management and capital management actions.

In December 2020, Aegon announced that Transamerica would stop selling variable annuities with significant interest rate sensitive living and death benefit riders, fixed index annuities, and stand-alone individual Long-Term Care. At the end of March 2021, Transamerica had closed the impacted annuity products to new sales and stopped accepting applications for individual standalone Long-Term Care policies. Transamerica will continue to serve the retirement needs of individuals with products like accumulation variable annuities with limited interest rate sensitivity. To this end the company recently launched the Transamerica Principal OptimizerSM rider. This is a product that offers customers protection of their principal investment combined with the potential of investment growth.

In the first quarter of 2021, Transamerica continued its successful track record of dynamically hedging the in-force block of variable annuity business with guaranteed minimum withdrawal benefits (GMWB) for equity and interest rate risk, with a hedge effectiveness of 98%. The company expects to expand the dynamic hedge program to its legacy variable annuities block with income and death benefit riders in the second half of 2021.

The primary management action regarding Transamerica’s Long-Term Care block is a rate increase program with a value of USD 300 million. In the first quarter of 2021, the company obtained regulatory approvals for rate increases worth USD 112 million. Furthermore, claims experience developed favorably for the Long-Term Care business as a result of increased claims terminations due to the impact of the COVID-19 pandemic, leading to an actual to expected claims experience of 43% for the first quarter of 2021. As soon as the impacts of the COVID-19 pandemic subside, Aegon expects the number of new Long-Term Care claims to revert to normal levels.

The newly established team that is dedicated to managing the Dutch Life business is actively managing risks and the capital positions to enhance the consistency of remittances to the Group. The business implemented a quarterly remittance policy in the fourth quarter of 2020, and again remitted EUR 25 million in the first quarter of 2021. The Solvency II ratio of the Dutch Life business stood at 149% at the end of the first quarter, which is around the operating level of 150%.

Growth Markets and Asset Management

In its Growth Markets, Aegon will continue to invest in profitable growth. In the first quarter of 2021 the market consistent value of new business (MCVNB) from life products increased by 21% to EUR 32 million. This was mainly driven by a more favorable business mix in China. New premium production for property & casualty and accident & health insurance increased by EUR 9 million to EUR 29 million as a result of new products launched in Spain & Portugal.

Aegon Asset Management aims to significantly increase the operating margin of its Global Platforms by improving efficiency and driving growth. Third-party net deposits on the Global Platforms were EUR 0.1 billion in the first quarter of 2021, driven by strong net deposits on the Fixed income platform, and continues to build on Aegon’s track record of positive third-party net deposits. The operating margin of its Global Platforms increased by 4 percentage points compared with the first quarter of 2020. To reduce expenses and enhance the quality of customer service, Aegon Asset Management migrated the administration of its fiduciary business from a dedicated platform to existing systems used in other parts of its business.

Smaller, niche or sub-scale businesses

In small markets or markets where Aegon has sub-scale or niche positions, capital will be managed tightly with a bias to exit.

In January 2021, together with its joint venture partner, Aegon decided to cease funding of GoBear, a digital financial supermarket in Southeast Asia. Subsequently, GoBear’s brand and e-lending business have been sold to different strategic buyers so as to achieve a controlled and swift exit from the business. These transactions will not have a material impact on the company’s capital position and results.

On March 1, 2021, Aegon announced the completion of the sale of Stonebridge, a UK-based provider of accident insurance products, to Global Premium Holdings group, part of Embignell group. Proceeds of GBP 35 million were received in the second half of 2020 and GBP 23 million in the first quarter of 2021. The total proceeds are equal to one times Stonebridge’s Solvency II Own Funds at year-end 2019.

On March 31, 2021, Transamerica announced that it had reached an agreement to sell its portfolio of fintech and insurtech companies to Swiss-based private equity firm Montana Capital Partners. Following the transaction, Transamerica will continue to work with the portfolio companies. The transaction closed on April 27, 2021 and will have a positive impact on Cash Capital at the Holding in the second quarter of 2021.

Aegon has taken note of an announcement issued by Vienna Insurance Group AG Wiener Versicherung Gruppe (VIG) on April 7, 2021. The announcement issued by VIG reads as follows: “Acquisition of the Aegon entities prevented by Hungary for the moment. VIENNA INSURANCE GROUP AG Wiener Versicherung Gruppe received a decree yesterday afternoon in which the Hungarian Ministry of the Interior announced that the intended acquisition by a foreign investor of the Aegon companies in Hungary is denied. As part of the approval process, Vienna Insurance Group has been in constructive talks with the responsible Hungarian Minister of Finance since January 2021. The decree is in contradiction with the course of the talks to date. Vienna Insurance Group expects that this issue will be resolved positively in the near future.” Aegon will continue to work with VIG to close the transaction.

Strengthening the balance sheet

Aegon aims to continue strengthening its balance sheet, and is taking proactive management actions to improve its risk profile and reduce the volatility of its capital ratios.

At the Capital Markets Day on December 10, 2020, Aegon announced its plans to reduce its economic interest rate exposure in the United States by one third to one half to lessen its dependency on financial markets and improve its risk profile. At the end of the first quarter of 2021, Aegon had already executed more than half of this plan through management actions, primarily by lengthening the duration of its asset portfolio. Furthermore, Aegon has taken advantage of higher interest rates in the United States by implementing a macro interest rate hedge in the second half of March 2021 at the prevailing interest rates. This hedge covers part of Aegon’s remaining economic interest rate exposure, representing approximately one third of the interest rate exposure associated with the legacy variable annuity block with income and death benefit riders. This measure will mitigate the potential capital impact from the expansion of Aegon’s dynamic hedge to the legacy variable annuity block, were interest rates to decline from those levels. Aegon is making good progress on the expansion of the dynamic hedge. At its second quarter 2021 results, Aegon will provide an update on the plans for implementation of the expansion of the dynamic hedge.

Financial highlights

Financial overview

unaudited

Q1

Q1

Q4

EUR millions

Notes

2021

2020

%

2020

%

 

Americas

163

129

27

259

(37)

The Netherlands

184

154

19

168

10

United Kingdom

39

44

(11)

32

24

International

28

49

(42)

39

(28)

Asset Management

75

38

99

53

41

Holding and other activities

(59)

(56)

(5)

(71)

18

Operating result

1

431

358

20

479

(10)

Fair value items

3

1,377

(100)

(524)

n.m.

Realized gains / (losses) on investments

31

14

n.m.

76

(59)

Net impairments

16

(59)

n.m.

(23)

n.m.

Non-operating items

50

1,333

(96)

(471)

n.m.

Other income / (charges)

1

(162)

n.m.

368

(100)

Result before tax

482

1,529

(68)

376

28

Income tax

(96)

(258)

63

(105)

9

Net result

386

1,270

(70)

271

43

 

Net result attributable to:

Owners of Aegon N.V.

383

1,270

(70)

262

47

Non-controlling interests

3

n.m.

9

(68)

 

Operating result after tax

357

310

17

409

(13)

 

Return on equity

4

8.8%

6.9%

28

10.3%

(14)

 

Operating expenses

8

954

991

(4)

924

3

of which addressable expenses

691

790

(12)

711

(3)

 

Americas

11,013

12,402

(11)

7,772

42

The Netherlands

4,488

3,728

20

6,168

(27)

United Kingdom

4,061

2,994

36

174

n.m.

International

11

87

(87)

82

(86)

Asset Management

39,778

32,706

22

30,402

31

Total gross deposits

9

59,351

51,917

14

44,597

33

 

Americas

(3,609)

(1,514)

n.m.

(5,406)

33

The Netherlands

204

119

71

911

(78)

United Kingdom

686

(217)

n.m.

(4,149)

n.m.

International

6

38

(83)

38

(83)

Asset Management

3,119

613

n.m.

3,157

(1)

Total net deposits / (outflows)

9

407

(960)

n.m.

(5,449)

n.m.

 

Americas

98

88

11

97

1

The Netherlands

21

26

(21)

22

(4)

United Kingdom

8

12

(35)

7

10

International

54

81

(33)

52

4

New life sales (recurring plus 1/10 single)

2,9

181

208

(13)

178

2

 

New premium production accident & health insurance

55

74

(25)

31

80

New premium production property & casualty insurance

25

36

(30)

32

(21)

 

Market consistent value of new business

3

166

100

67

101

64

Note: In 2021, the result of Central & Eastern Europe has been reclassified from operating result to Other income following the announced divestment of the business.

Aegon N.V.

unaudited

Leverage

Quarterly

 

Q1

Q1

Q4

2021

2020

2020

Gross financial leverage (EUR millions)

6,080

6,708

5,969

Gross financial leverage ratio (%)

26.7%

26.6%

27.9%

 

Aegon N.V.

unaudited

Cash Capital at Holding

Quarterly

EUR millions

Q1

Q1

Q4

2021

2020

2020

Beginning of period

1,149

1,192

1,555

 

Americas

17

16

29

The Netherlands

25

100

75

United Kingdom

49

International

24

29

Asset Management

14

Holding and other activities

20

Gross remittances

115

116

167

 

Funding and operating expenses

(41)

(56)

(105)

Free cash flow

75

61

61

 

Divestitures

21

153

Capital injections

(50)

(21)

(3)

Capital flows from / (to) shareholders

(59)

Net change in gross financial leverage

(411)

Other

(4)

(7)

7

 

End of period

1,191

1,379

1,149

 

Aegon N.V.

unaudited

Capital ratios

March 31,

March 31,

Dec. 31,

Notes

2021

2020

2020

US RBC Ratio

428%

376%

432%

NL Life Solvency II ratio

149%

231%

159%

Scottish Equitable plc (UK) Solvency II ratio

158%

151%

156%

Aegon Bank Core Tier-1 ratio

 

Eligible Own Funds

18,810

18,414

18,582

Consolidated Group SCR

9,676

8,858

9,473

Aegon N.V. Solvency II ratio

10, 11

194%

208%

196%

 

Eligible Own Funds to meet MCR

7,869

8,871

7,888

Minimum Capital Requirement (MCR)

2,274

2,138

2,326

Aegon N.V. MCR ratio

346%

415%

339%

 

Capital generation

unaudited

 
 

 

Q1

Q1

Q4

 

EUR millions

Notes

2021

2020

%

2020

%

 

 

 

 

Earnings on in-force*

 

218

210

4

367

(41)

Release of required

 

239

259

(8)

227

5

New business strain

 

(234)

(230)

(2)

(212)

10

Operating capital generation*

 

223

238

(6)

381

(41)

One time items*

 

107

232

(54)

(115)

n.m.

Market impacts

 

(358)

343

n.m.

25

n.m.

Capital generation*

 

(28)

813

n.m.

291

n.m.

*Please note capital generation (earnings on in-force, operating capital generation, one-time items and capital generation)

for 2020 has been restated to smooth the impact of the annual lowering of ultimate forward rate and Holding funding cost.

Contacts

Media relations

Dick Schiethart

+31 (0) 70 344 8821

gcc@aegon.com

Investor relations

Jan Willem Weidema

+31 (0) 70 344 8028

ir@aegon.com

Conference call including Q&A (9:00 a.m. CET)

Audio webcast on aegon.com

United States: +1 720 543 0214

United Kingdom: +44 330 336 9434

The Netherlands: +31 20 703 8259

Passcode: 1015124

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